-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TB66z/eYQzT02EbfSaRBAp+0aAk9MUQJIOQLxsogTRI9CCJLQ/iD5NGD8sIQr5a2 DuMoLTeXE8v7jPQYuo1qRQ== /in/edgar/work/20000901/0000940180-00-001053/0000940180-00-001053.txt : 20000922 0000940180-00-001053.hdr.sgml : 20000922 ACCESSION NUMBER: 0000940180-00-001053 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 20000901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOSTENS INC CENTRAL INDEX KEY: 0000054050 STANDARD INDUSTRIAL CLASSIFICATION: [3911 ] IRS NUMBER: 410343440 STATE OF INCORPORATION: MN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-45006 FILM NUMBER: 715211 BUSINESS ADDRESS: STREET 1: 5501 NORMAN CTR DR CITY: MINNEAPOLIS STATE: MN ZIP: 55437 BUSINESS PHONE: 6128303300 MAIL ADDRESS: STREET 1: 5501 NORMAN CENTER DRIVE CITY: MINNEAPOLIS STATE: MN ZIP: 55437 S-4 1 0001.txt FORM S-4 As filed with the Securities and Exchange Commission on , 2000 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- JOSTENS, INC. (Exact name of Registrant as specified in its charter) ----------------
Minnesota 3911 41-0343440 (State or other jurisdiction of (Primary Standard Industrial (I R S Employer incorporation or organization) Classification Code Number) Identification Number)
5501 Norman Center Drive Minneapolis, Minnesota 55437 (952) 830-3300 (Address, including zip code, and telephone number, including area code, of Registrant's and co-registrants' principal executive offices) ---------------- William J. George Vice President, General Counsel and Corporate Secretary Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 (952) 830-3300 (Name, address, including zip code, and telephone number, including area code, of agent for service) With a copy to: E. Michael Greaney, Esq. Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
Proposed Proposed Maximum Amount Maximum Aggregate Amount of Title of Class of to be Offering Price Offering Registration Securities to be Registered Registered per Note(1) Price(1) Fee - ---------------------------------------------------------------------------------------- 12 3/4% senior subordinated notes due 2010........................ $225,000,000 91.3% $205,454,456 $54,240 - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) promulgated under the Securities Act of 1933, as amended. ---------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant and the co-registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED , 2000. PROSPECTUS [LOGO OF JOSTENS, INC.] Exchange Offer for All Outstanding 12 3/4% Senior Subordinated Notes due 2010 for New 12 3/4% Senior Subordinated Notes due 2010 -------------- This exchange offer will expire at 5:00 p.m., New York City Time, on [30 days after commencement of exchange offer], 2000, unless extended. Terms of the exchange offer: . We will exchange all outstanding notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. . You may withdraw tendered outstanding notes at any time prior to the expiration of the exchange offer. . The exchange of outstanding notes will not be a taxable exchange for United States federal income tax purposes. . The terms of the notes to be issued are substantially identical to the terms of the outstanding notes, except that transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding notes do not apply. . Each broker-dealer that receives notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the notes. The letter of transmittal states that by acknowledging this and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for outstanding notes where the outstanding notes were acquired by the broker-dealer as a result of market-making activities or other trading activities. See "Plan of Distribution." . We will not receive any proceeds from the exchange offer. . There is no existing market for the notes to be issued, and we do not intend to apply for their listing on any securities exchange. See the "Description of Notes" section beginning on page 84 for more information about the notes to be issued in this exchange offer. This investment involves risks. See the section entitled "Risk Factors" beginning on page 14 for a discussion of the risks that you should consider prior to tendering your outstanding notes for exchange. Neither the Securities and Exchange Commission nor any state securities and exchange commission has approved or disapproved of these securities or passed upon the adequacy or the accuracy of this prospectus. Any representation to the contrary is a criminal offense. Prospectus dated , 2000. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act with respect to the notes offered in this prospectus. This prospectus, which forms part of the registration statement, does not contain all of the information that is included in the registration statement. You will find additional information about our company and the notes in the registration statement. Any statements made in this prospectus concerning the provisions of legal documents are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement for a more complete understanding of the document or matter. We will file periodic reports, registration statements and other information with the SEC. You may read and copy the registration statement and any of the other documents we file with the SEC at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices located at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC- 0330 for more information on the public reference rooms. In addition, reports and other filings are available to the public on the SEC's web site at http://www.sec.gov. You should rely only on the information provided in this prospectus or any supplement. Jostens has not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus. i DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Other than statements of historical facts, all statements contained in this prospectus, including, without limitation, statements regarding our future financial position, business strategy, budgets, litigation, projected costs and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or other similar words or the negative thereof. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Any change in the following factors may impact the achievement of results: . our ability to satisfy our debt obligations; . our ability to achieve the intended benefits of our corporate restructuring announced in the fourth quarter of 1999; . our relationship with our independent and employee sales representatives; . litigation cases if decided against us, may adversely affect our financial results; . environmental regulations that could impose substantial costs upon us and may adversely affect our financial results; . the fluctuating prices of raw materials, primarily gold; . the seasonality of our School Products segment sales and operating income; . our dependence on a key supplier for our synthetic and semiprecious stones; and . fashion and demographic trends. These and other important factors are discussed under "Risk Factors" and elsewhere in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements. MARKET SHARE, RANKING AND OTHER DATA The market share, ranking and other data contained in this prospectus are based either on management's own estimates, independent industry publications, reports by market research firms or other published independent sources and, in each case, are believed by management to be reasonable estimates. However, market share data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. In addition, consumption patterns and consumer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be reliable. When we use the term "high school" in this prospectus we are referring to all schools that include the 12th grade, including K-12. When we use the term "senior high school" we are generally referring to a subset of high schools that begin with the 8th, 9th or 10th grade. ii PROSPECTUS SUMMARY In this prospectus, "Jostens," "we," "our," and "us" refer to Jostens, Inc. and its subsidiaries. Unless stated otherwise, all pro forma information relating to Jostens in this prospectus gives effect to the recapitalization as if it had occurred on January 3, 1999 and as further described in the "Unaudited Pro Forma Condensed Consolidated Financial Statements" section. Our fiscal year ends on the Saturday closest to December 31. Unless otherwise specified, references to 1997, 1998 and 1999 relate to the fiscal years ending on January 3, 1998, January 2, 1999 and January 1, 2000, respectively. The following summary contains basic information about Jostens and this prospectus. It likely does not contain all the information that is important to you. For a more complete understanding of this prospectus, you are encouraged to read this entire document. Jostens, Inc. Jostens is the nation's leading provider of school-related affinity products and services including yearbooks, class rings and graduation products. We also have the leading market share for school photography services in Canada. In addition, we are a leading provider of corporate employee service recognition programs and achievement awards and products for athletic champions. Our 103- year history of manufacturing and providing quality products and superior service has enabled us to develop long-standing and extensive relationships with schools throughout the country. We estimate that U.S. sales of high school and college yearbooks, class rings and graduation products are approximately $1.5 billion annually. We believe that in recent years we have had a domestic market share in each of senior high school yearbooks, class rings and graduation products of approximately 45%. In the aggregate, for these product lines we believe that we have nearly twice the market share of our largest competitor. In 1999, we generated net sales of $782.4 million. Our two major business segments are School Products and Recognition. The School Products segment serves the high school, college and elementary school markets and accounted for 86.3% of our net sales in 1999. High schools accounted for approximately 85% of the segment's net sales in 1999. The School Products segment is comprised of four principal lines of products and services: Yearbooks, Class Rings, Graduation Products and Photography. The Recognition segment accounted for 12.4% of our net sales in 1999. This segment provides products and services that assist companies in recognizing and rewarding employee service and achievement of performance objectives. The Recognition segment also produces awards for professional sports team accomplishments and affinity products for special interest associations. School Products Segment The market for school-related affinity products has historically been characterized by stable revenues and cash flows. We provide customized products, as well as dedicated technical support and customer service through our approximately 5,900 School Products employees and 13 manufacturing facilities. We have approximately 570 independent sales representatives who sell and distribute yearbooks, class rings and graduation products primarily to high schools in the United States. In addition, we have approximately 50 employee representatives who service colleges in the United States and focus primarily on selling and distributing class rings and graduation products. Our sales representatives establish and maintain extensive customer relationships with school officials and faculty and in the vast majority of cases we are designated by the schools as the sole supplier of particular school-related affinity products. 1 Yearbooks. We are the leading manufacturer of yearbooks sold to schools in the United States, serving approximately 45% of senior high schools in 1999. Our independent sales representatives coordinate with technical support employees based in our five printing facilities to assist students and faculty advisors with the planning, editing and layout of yearbooks. We also manage the production, printing and distribution of student-created yearbooks. With a new class of students each year and periodic faculty advisor turnover, our representative is often a school's main point of continuity for the yearbook production process on a year-to-year basis. In 1997, we launched Jostens Direct Solutions ("JDS"), a program whereby selected high schools have authorized us to implement a direct payment program with parents of students. This program represents an improvement over the traditional method of payment and collections, where schools had to serve as an intermediary by collecting, holding and disbursing funds. JDS reduces administrative burdens for high schools by streamlining the yearbook order process and improves our collections and cash flow. We believe that JDS has also provided parents of students with a greater awareness of our broad yearbook product offerings, including customization options. We are investing in enhanced digital technology to meet student demand for increased color pages and to offer additional personalization and customization features. Yearbooks accounted for $262.8 million, or 38.9%, of the School Products segment net sales in 1999. Class Rings. Jostens is the leading provider of class rings, serving approximately 46% of U.S. senior high schools in 1999. We manufacture and sell class rings primarily to high school students through our network of independent sales representatives. The authorized in-school access of the sales representatives allows them to stimulate demand through school-endorsed marketing campaigns, parents' nights and delivery-related events such as ring dances. Our extensive investment in proprietary ring dies and tooling, as well as our manufacturing expertise, enables us to offer highly customized class rings. Class Rings contributed $203.5 million, or 30.1%, of our School Products segment net sales in 1999. Graduation Products. Jostens is the leading provider of graduation products, serving approximately 53% of U.S. senior high schools in 1999. We produce caps and gowns, diplomas and announcements, and sell these products as well as graduation-related accessories through the same sales representatives who sell our class rings. We have a proven track record of providing on-time delivery of our wide array of graduation products, a critical component of our customers' satisfaction. Graduation Products contributed $163.2 million, or 24.2%, of our School Products segment net sales in 1999. Photography. Our sales of school photography services are divided between Canada and the United States. We believe that in Canada we are the leading provider, serving approximately 40% of students in 1999. Through our network of sales representatives we provide class and individual school pictures for high school, middle and elementary school students. We are currently testing digital photography for both school services and special events. Photography contributed $46.0 million, or 6.8%, of our School Products segment net sales in 1999. Recognition Segment Jostens is a leading provider of corporate recognition products and services with an estimated market share of seven percent of the U.S. market on a revenue basis in 1999. Our approximately 60 independent sales representatives, together with our employees, design and administer programs to assist customers in recognizing and rewarding employee service and performance. We also market rings to championship sports organizations of the NBA, NFL and Major League Baseball. The Recognition segment contributed $97.0 million, or 12.4%, of our net sales in 1999. 2 Competitive Strengths We attribute our leading position in the national school-related affinity products and services market and our significant opportunities for continued growth to the following competitive strengths: Market Leader in School Businesses. Jostens is the U.S. market leader in yearbooks, class rings and graduation products with net sales that are nearly twice that of our nearest competitor. We estimate that we have been the market leader in yearbooks, class rings and graduation products for over 25 years. We currently serve approximately 14,500 of the approximately 25,500 high schools in the United States, including approximately 11,600 of the approximately 16,700 senior high schools in the United States. We have an annual account retention rate of approximately 92%. We believe that our high retention rate is primarily due to our broad product offering, strong reputation for service, quality and on-time delivery, as well as our sales representatives' strong relationships with the schools they serve. Extensive Network of Experienced Sales Representatives. Jostens has the industry's largest network of sales representatives for yearbooks, class rings and graduation products. Our sales representatives have an average tenure of 13 years. Schools typically provide exclusive, authorized access to sell yearbooks, class rings and graduation products. The process of marketing our school products and serving our customers is highly interactive and our independent sales representatives and employees work closely with school administrators and advisors and students. In addition, the strong relationships that our highly experienced sales representatives have developed with schools, combined with Jostens' technical support, brand name and manufacturing capabilities have created the industry's leading distribution network. Highly Customized Products. Our yearbooks, class rings and graduation products are highly personalized and require specialized manufacturing capabilities. Our continuing investment in these capabilities has enabled us to consistently provide high quality products to our customers in a timely fashion. Each of our major products has unique production characteristics: Yearbooks. The production of a yearbook requires extensive interaction among the school yearbook advisor, the student committee, our sales representative, our customer service department and our printing plant employees. Utilizing specialized publishing software, our sales representatives guide students through page layout and book organization and set interim deadlines to ensure production is completed on time. Our customer service and technical support team provides additional continuity in the yearly process, as there is a new student yearbook committee each year and periodic turnover among faculty advisors. As a yearbook is one of a student's most important high school keepsakes, the production and on- time delivery of a high quality product is essential. Class Rings. The production of a class ring involves a high degree of skilled and experienced labor. Each school works with our artists and die makers to design and create unique class rings. We maintain an inventory of approximately 1.5 million unique, proprietary ring dies that would be expensive and time consuming to replicate. Rings are further customized by adding a student's name, activities or other personalization. Our skilled labor force operating in four manufacturing facilities produces approximately 1.1 million rings per year. Graduation Products. We provide highly customized and personalized announcements, caps and gowns and diplomas to over one million students annually. Our sales representatives work with a school's graduation committee each year to design an announcement, which can contain a number of custom features, including the school's official crest. We maintain an inventory of over 70,000 school crest dies, and have hand-rendered etchings of over 22,000 school buildings and mascots, for use on both announcements and diplomas. In addition to these products, which are typically customized to the school-level, we offer over 30 accessory products to students, many of which may be further customized with school colors or crests and personalized with a student's name or initials. 3 Strong and Experienced Management Team. Jostens is led by an experienced team of senior officers and managers with a record of achieving growth, maintaining long-term relationships with our customers, improving the appeal of existing products and services and successfully bringing to market new products and services. Our five most senior executives collectively have over 40 years of experience at Jostens. Business Strategy Our objective is to continue to be recognized as the nation's leading provider of school-related affinity products and services. To achieve this objective, we are focusing on the following strategies: Expand Jostens Direct Solutions Program. In 1997, Jostens launched JDS, a program whereby selected high schools have authorized us to contact parents directly. Typically, yearbooks are sold by student committees supervised by a faculty advisor. Through JDS we send yearbook request forms directly to students and their parents at their homes. This allows us to provide easy-to- use direct payment methods, eliminating the burdens of processing paperwork and handling funds for school officials. In addition, we believe parents find it more convenient to buy yearbook accessories and customization features when marketed directly to the home. JDS has improved our working capital due to a more efficient order and payment process. Currently, we offer JDS to approximately 25% of our yearbook customers, and we expect to continue to introduce JDS to additional schools. Enhance Core Products Offerings. We are investing in existing technologies that we believe will enable us to increase product customization and personalization and operate more efficiently. We are developing a series of initiatives in our School Products segment that will allow us to offer enhanced features in our existing product offerings on a cost effective basis. For example, we currently intend to utilize advances in digital technology both to increase color capacity in yearbooks and to offer more highly customized graduation announcements. Complement In-School Access with Internet Capabilities. We believe the Internet provides a strong complement to our traditional sales processes by allowing us to leverage our existing distribution network, strong brand name and long-standing customer relationships through an additional sales channel. The Internet also presents opportunities for us to improve our order taking and processing efficiency and to increase product awareness. Additionally, our management is creating a portfolio of investments in Internet-based companies which we believe complements our access into, and our existing relationships with, schools. Our Internet investments are comprised of: Project Achieve, an Internet-based information management system that integrates and tracks a variety of student and school information; and Planet Alumni, an on-line community for high school alumni and students. Continue Operational Improvements. Jostens has fostered a corporate culture that continually works to reduce costs. Since 1996, we have closed or consolidated six manufacturing facilities and have improved our manufacturing efficiencies at currently operating facilities. We believe there are significant additional cost savings that can be attained in the near term. For example, we have implemented several initiatives designed to simplify our class ring and graduation products ordering and fulfillment processes and our yearbook production process. We believe these initiatives will further increase our efficiencies and reduce our operating costs. 4 The Recapitalization On December 27, 1999, Jostens entered into a merger agreement with Saturn Acquisition Corporation, a newly formed corporation controlled by Investcorp S.A., a global investment group, and its co-investors. Under this agreement, Saturn Acquisition Corporation merged with and into Jostens. The merger was part of a recapitalization of Jostens. Upon completion of the merger, Investcorp and its co-investors, including DB Capital Investors, an affiliate of Deutsche Bank Securities Inc. and Jostens senior management acquired approximately 94% of Jostens' common stock. The remaining 6% of our post-merger common stock was retained by our pre-merger public shareholders. When we use the term "Investcorp and its co-investors" in this prospectus, we are referring to: (1) affiliates of Investcorp, as well as international investors with whom Investcorp maintains an administrative relationship and who may at or following completion of the merger have obtained indirect equity interests in Jostens by investing in offshore entities organized by Investcorp for that purpose; (2) DB Capital Investors; and (3) First Union Leveraged Capital. The merger and related financings required total cash of approximately $981.1 million. The proceeds from these financings funded: . the payment of approximately $823.6 million to holders of common stock; . payment of $10.0 million in consideration for cancellation of all of our then-outstanding employee stock options; . the retirement of all of our then-outstanding debt, totaling $67.6 million; and . payments of approximately $79.9 million of fees and expenses. We financed the recapitalization through: . a common equity investment of $208.7 million by Investcorp and its co- investors; . a preferred equity investment of $60.0 million by DB Capital Investors; . $495.0 million in term loans under a new senior bank credit facility; . the sale of units of which the outstanding notes were a part; and . cash on hand. In addition, certain members of Jostens senior management and our pre- existing public shareholders retained approximately $18.4 million of our common equity, based on the price paid by Investcorp and its co-investors. Investcorp Investcorp is a global investment group with offices in New York, London and Bahrain. It is principally engaged in three businesses: corporate investment, real estate investment and asset management. Since its formation in 1982, the firm has arranged more than 50 corporate investments in a variety of industries with an aggregate value exceeding $17 billion. In the United States, Investcorp and its clients currently own twelve corporate investments, including Independent Wireless One, Synthetic Industries, Stratus Computer, Werner Holdings, NationsRent and The William Carter Company. In Europe, Investcorp and its clients currently own five corporate investments, including Avecia (formerly Zeneca Specialties), Leica Geosystems, Polestar, Welcome Break and Helly Hansen. 5 The Exchange Offer Notes to be The terms of the notes offered in the exchange offer Exchanged............. are substantially identical to those of the outstanding notes, except that certain transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding notes do not apply to the new registered notes and interest on the new registered notes will accrue from the last date on which interest was paid on the outstanding notes or, if no such interest has been paid, from May 10, 2000. Outstanding Notes..... On May 10, 2000, we issued $225,000,000 aggregate principal amount of 12 3/4% senior subordinated notes due 2010 in a transaction exempt from the registration requirements of the Securities Act. The Exchange Offer.... We are offering to issue registered notes in exchange for a like principal amount and like denomination of our outstanding notes. We are offering to issue these registered notes to satisfy our obligations under a registration rights agreement that we entered into with the initial purchasers of the outstanding notes. You may tender your outstanding notes for exchange by following the procedures described under the caption "The Exchange Offer". Tenders; Expiration Date; Withdrawal..... The exchange offer will expire at 5:00 p.m., New York City time, on [30 days after commencement of exchange offer], 2000, unless we extend it. If you decide to exchange your outstanding notes for new notes, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the new notes. You may withdraw any notes that you tender for exchange at any time prior to [30 days after commencement of exchange offer], 2000. If we decide for any reason not to accept any notes you have tendered for exchange, those notes will be returned to you without cost promptly after the expiration or termination of the exchange offer. See "The Exchange Offer--Terms of the Exchange Offer" for a more complete description of the tender provisions and "The Exchange Offer--Withdrawal Rights" for a description of the withdrawal provisions. Conditions to the Exchange Offer....... The exchange offer is subject to customary conditions, some of which we may waive. See "The Exchange Offer-- Conditions to the Exchange Offer" for a summary of these conditions. U.S. Federal Income Tax Consequences..... Your exchange of outstanding notes for notes to be issued in the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. Use of Proceeds....... We will not receive any cash proceeds from the exchange offer. Exchange Agent........ The Bank of New York 6 Consequences of Failure to Exchange............. Outstanding notes that are not tendered or that are tendered but not accepted will continue to be subject to the restrictions on transfer that are described in the legend on those notes. In general, you may offer or sell your outstanding notes only if they are registered under, or offered or sold under an exemption from, the Securities Act and applicable state securities laws. We, however, will have no further obligation to register the outstanding notes. If you do not participate in the exchange offer, the liquidity of your notes could be adversely affected. Resales of the Registered Notes..... Based on interpretations of the staff of the SEC, we believe that you may offer for resale, resell or otherwise transfer the notes that we issue in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if you: . acquire the notes issued in the exchange offer in the ordinary course of your business; . are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the distribution of the notes issued to you in the exchange offer; and . are not an "affiliate" of Jostens as defined in Rule 405 of the Securities Act. If any of these conditions are not satisfied and you transfer any notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for or indemnify you against any liability you may incur. Any broker-dealer that acquires notes in the exchange offer for its own account in exchange for outstanding notes which it acquired through market-making or other trading activities, must acknowledge that it will deliver a prospectus when it resells or transfers any notes issued in the exchange offer. See "Plan of Distribution" for a description of the prospectus delivery obligations of broker-dealers in the exchange offer. 7 Summary of Key Terms of the Notes Issuer................ Jostens, Inc. Separability.......... Each of the outstanding notes was issued as part of a unit consisting of $1,000 principal amount of notes and one warrant to purchase 1.889155 shares of our Class E common stock. The outstanding notes and the warrants will become separately transferable upon the consummation of the exchange offer and upon the occurrence of certain events described under the heading "Description of the Warrants." Notes................. $225,000,000 principal amount of 12 3/4% Senior Subordinated Notes due 2010. Maturity.............. May 1, 2010. Interest Rate......... 12 3/4% per year (calculated using a 360-day year). Interest Payment May 1 and November 1, beginning on November 1, 2000. Dates................. Ranking............... The notes are unsecured senior subordinated obligations of Jostens and rank junior to our existing and future senior debt, including obligations under our new credit facility. Guarantees............ At the time the outstanding notes were issued, our sole domestic subsidiary guaranteed the notes. However, this subsidiary merged with and into Jostens, Inc. effective July 29, 2000. If we create or acquire new domestic subsidiaries, they may, under specified circumstances, guarantee the notes. Any such guarantees will be subordinated to existing and future senior debt of our subsidiaries that guarantee the notes. Optional Redemption... Except as described below, we cannot redeem the notes until May 1, 2005. Thereafter we may redeem some or all of the notes at the redemption prices listed in the "Description of the Notes" section under the heading "Optional Redemption." Optional Redemption After Public Equity Offerings............. At any time (which may be more than once) before May 1, 2003, we may elect to redeem up to 35% of the outstanding notes with funds that we raise in one or more specified equity offerings, as long as: . we pay 112.75% of the face amount of the notes plus accrued and unpaid interest; . we redeem the notes within 90 days of completing the equity offering; and . at least 65% of the aggregate principal amount of the notes issued remains outstanding after each redemption. Change of Control Redemption............ If a change of control, as defined in the indenture governing the notes, occurs, we may redeem all of the notes at any time on or prior to May 1, 2005, at the redemption price provided in the "Description of the Notes" section under the heading "Optional Redemption." 8 We might not be able to pay you the required price for notes you present to us at the time of a change of control because: . we might not have enough funds at that time; or . the terms of our senior debt may prevent us from paying. Change of Control If a change of control, as defined in the indenture, Offer................. occurs, we must give holders of the notes the opportunity to sell us their notes at 101% of their face amount, plus accrued and unpaid interest, unless all notes have been called for redemption. Asset Sale Proceeds... Under the indenture, if we or our subsidiaries engage in asset sales, we generally must either invest the net cash proceeds from such sales in our business within a period of time, prepay senior debt or make an offer to purchase a principal amount of the notes equal to the excess net cash proceeds. The purchase price of the notes will be 100% of their principal amount, plus accrued and unpaid interest. Basic Covenants of The indenture includes covenants limiting our (and most Indenture............. or all of our subsidiaries') ability to: . incur additional debt; . pay dividends or distributions on our capital stock or repurchase our capital stock; . issue preferred stock of subsidiaries; . make certain investments; . create liens on our assets to secure debt or trade payables; . enter into transactions with affiliates; . enter into certain agreements restricting our subsidiaries' ability to pay dividends; . merge or consolidate with another company; and . transfer and sell assets. These covenants are subject to a number of important limitations and exceptions. 9 Summary Consolidated Unaudited Pro Forma Financial Data The unaudited summary pro forma financial data set forth below have been derived from, and should be read in conjunction with, the "Unaudited Pro Forma Condensed Consolidated Financial Statements" and the notes thereto appearing elsewhere in this prospectus. The summary pro forma statement of operations data and other financial data give effect to the recapitalization as if it had occurred on January 3, 1999 and exclude nonrecurring items directly attributable to the recapitalization. The summary unaudited pro forma financial data are not necessarily indicative of the consolidated operating results that would have occurred if the recapitalization had been consummated on the date indicated, nor are they necessarily indicative of our future consolidated operating results. The pro forma adjustments were applied to the historical consolidated financial statements to reflect and account for the merger as a recapitalization. Accordingly, the historical basis of our assets and liabilities have not been impacted by the merger.
Pro Forma ----------------- Six months ended Year ended July January 1, 1, 2000 2000 ---------- ------ (dollars in millions) Statement of Operations Data: Net sales............... $782.4 $476.4 Cost of products sold... 349.7 201.8 ------ ------ Gross profit............ 432.7 274.6 Selling and administrative expenses............... 332.3 181.3 Special charge.......... 20.2 -- ------ ------ Operating income........ 80.2 93.3 Net interest expense.... 87.6 42.5 ------ ------ Income before income taxes.................. (7.4) 50.8 Income taxes............ (1.4) 19.4 ------ ------ Net loss................ (6.0) 31.4 Dividends and accretion on redeemable preferred stock (1).............. 9.6 5.2 ------ ------ Net loss attributable to common shareholders.... $(15.6) $ 26.2 ====== ====== Other Financial Data: Cash flow from operations............. $125.2 $ 13.1 EBITDA (2).............. 105.5 106.5 Adjusted EBITDA (3)..... 145.5 108.8 Depreciation and amortization........... 25.3 13.2 Capital expenditures.... 27.8 7.2 Gross margin............ 55.3% 57.6% EBITDA margin........... 13.5% 22.4% Adjusted EBITDA margin.. 18.6% 22.8% Cash interest expense (4).................... $ 81.5 $ 39.4 Ratio of Adjusted EBITDA to cash interest expense................ 1.8x 2.8x
(footnotes on next page) 10 (1) Dividends on the redeemable preferred stock issued in connection with the financing of the merger are calculated based on an annual rate of 14.0%, compounded quarterly, and include accretion of the $14.0 million preferred stock discount and amortization of the $3.0 million redeemable preferred stock offering costs. (2) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measure of performance under generally accepted accounting principles ("GAAP") and it should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income and cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Moreover, EBITDA is not a standardized measure and may be calculated in a number of ways. Accordingly, the EBITDA information provided might not be comparable to other similarly titled measures provided by other companies. EBITDA is included herein because management understands that EBITDA is customarily used as a criterion in evaluating companies. (3) Adjusted EBITDA represents EBITDA adjusted as follows:
Six months Year ended ended January 1, July 1, 2000 2000 ---------- ---------- (in millions) EBITDA............................................... $105.5 $106.5 Adjustments to EBITDA: Special charges...................................... 20.2 -- Amortization of prepaid management fees.............. 1.5 0.8 Cost savings related to employee terminations........ 7.1 1.5 Elimination of certain unprofitable businesses....... 4.0 -- Excess rebates related to the JDS program............ 2.8 -- Costs associated with closing the Mexico manufacturing facility.............................. 2.7 -- Excess labor costs associated with Recognition segment............................................. 1.7 -- ------ ------ Adjusted EBITDA...................................... $145.5 $108.8 ====== ======
Adjusted EBITDA is presented because it gives the holders of the notes the ability to better understand our compliance with certain of the covenants under the notes and the term loans. Those covenants are based on defined terms that incorporate adjustments based, in part, on the reconciling items listed above. As such, we believe that the Adjusted EBITDA measure provides relevant and useful information to investors. However, Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flows data prepared in accordance with GAAP or as a measure of a company's profitability or liquidity. For more information on the adjustments to EBITDA, see "Unaudited Pro Forma Condensed Consolidated Financial Statements." (4) Represents interest expense plus capitalized interest less amortization of deferred financing costs and the discount on the senior subordinated notes. 11 Summary Consolidated Historical Financial Data The table below sets forth summary consolidated historical financial data and other data relating to Jostens. The summary consolidated historical financial data as of January 2, 1999 and January 1, 2000 and for each of the three fiscal years in the period ended January 1, 2000 have been derived from, and should be read in conjunction with, our audited consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. The unaudited summary consolidated historical financial data as of and for the six months ended July 3, 1999 and July 1, 2000 were derived from, and should be read in conjunction with, our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus which, in our opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The summary consolidated historical balance sheet data as of January 3, 1998 have been derived from our audited historical financial statements not included herein.
Six months ended Year ended (unaudited) -------------------------------- ---------------- January 3, January 2, January 1, July 3, July 1, 1998 1999 2000 1999 2000 ---------- ---------- ---------- ------- ------- (dollars in millions) Statement of Operations Data: Net sales................. $742.5 $770.9 $782.4 $ 469.5 $ 476.4 Cost of products sold..... 351.3 351.8 349.7 209.2 201.8 ------ ------ ------ ------- ------- Gross profit.............. 391.2 419.1 432.7 260.3 274.6 Selling and administrative expenses................. 291.5 316.9 330.8 178.6 180.8 Special charge............ -- -- 20.2 -- -- Transaction costs......... -- -- -- -- 45.7 ------ ------ ------ ------- ------- Operating income.......... 99.7 102.2 81.7 81.7 48.1 Net interest expense...... 6.3 6.7 7.0 2.5 14.8 Write-off of JLC notes receivable, net (1)...... -- 12.0 -- -- -- ------ ------ ------ ------- ------- Income before income taxes.................... 93.4 83.5 74.7 79.2 33.3 Income taxes (1).......... 36.2 41.7 31.5 32.1 26.3 ------ ------ ------ ------- ------- Net income (2)............ 57.2 41.8 43.2 47.1 7.0 Dividends and accretion on redeemable preferred stock (3)................ -- -- -- -- 1.2 ------ ------ ------ ------- ------- Net income attributable to common shareholders...... $ 57.2 $ 41.8 $ 43.2 $ 47.1 $ 5.8 ====== ====== ====== ======= ======= Balance Sheet Data (at period end): Current assets............ $252.5 $240.5 $286.3 $ 246.6 $ 261.8 Working capital (4)....... 50.2 44.1 8.3 41.7 1.8 Total assets.............. 390.7 366.2 407.7 377.4 420.5 Total debt (including short-term borrowings and current maturities).............. 53.6 97.5 121.2 97.3 700.3 Net debt (5).............. 47.5 94.9 82.7 88.9 664.4 Redeemable preferred stock.................... -- -- -- -- 44.2 Shareholders' equity (deficit)................ 127.1 58.6 36.5 68.0 (556.4) Other Financial Data: Cash flow from operations............... $116.7 $101.6 $125.2 $ 67.3 $ 13.1 EBITDA (6)................ 121.8 113.4 107.0 94.5 61.3 Depreciation and amortization............. 22.1 23.2 25.3 12.8 13.2 Capital expenditures...... 24.4 36.9 27.8 13.3 7.2 Gross margin.............. 52.7% 54.4% 55.3% 55.4% 57.6% EBITDA margin............. 16.4% 14.7% 13.7% 20.1% 12.9% Cash interest expense (7)...................... $ 6.9 $ 7.7 $ 7.7 $ 3.0 $ 14.3
(footnotes on next page) 12 - -------- (1) Net income for 1998 reflects a charge for the write-off of the Jostens Learning Corporation ("JLC") notes receivable of $12.0 million and related deferred tax assets of $3.7 million. (2) Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2 million after tax) and $6.8 million ($4.0 million after tax), respectively, resulting from a reduction in LIFO gold inventories. (3) Dividends on the redeemable preferred stock issued in connection with the financing of the merger are calculated based on an annual rate of 14.0%, compounded quarterly, and include accretion of the $14.0 million preferred stock discount and amortization of the $3.0 million redeemable preferred stock offering costs. (4) Represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding short-term borrowings and current maturities of long-term debt). (5) Net debt represents total debt less cash and cash equivalents. (6) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measure of performance under GAAP and it should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income and cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Moreover, EBITDA is not a standardized measure and may be calculated in a number of ways. Accordingly, the EBITDA information provided might not be comparable to other similarly titled measures provided by other companies. EBITDA is included herein because management understands that EBITDA is customarily used as a criterion in evaluating companies. (7) Represents interest expense plus capitalized interest less amortization of deferred financing and the discount on the senior subordinated notes. 13 RISK FACTORS This prospectus includes "forward looking statements" within the meaning of the federal securities laws and, in particular, the statements about our plans, strategies, and prospects under the headings "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this prospectus are set forth below and elsewhere in this prospectus. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the following cautionary statements. Risks Related to the Exchange Offer You may have difficulty selling the outstanding notes that you do not exchange. If you do not exchange your outstanding notes for the notes offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your notes. Those transfer restrictions are described in the indenture governing the notes and in the legend contained on the outstanding notes, and arose because we originally issued the outstanding notes under exemptions from, and in transactions not subject to, the registration requirements of the Securities Act. In general, you may offer or sell your outstanding notes only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. This exchange offer will be your only opportunity to obtain registered notes in exchange for your outstanding unregistered notes. The outstanding notes are not currently registered and we do not intend to register the outstanding notes under the Securities Act. If a large number of outstanding notes are exchanged for notes issued in the exchange offer, it may be more difficult for you to sell your unexchanged notes. See "The Exchange Offer--Consequences of Failure to Exchange Outstanding Notes" for a discussion of the possible consequences of failing to exchange your notes. Risks Related to the Securities, Our Other Indebtedness and the Recapitalization Our substantial debt could adversely affect our financial health and prevent us from making payments on the notes. We have a significant amount of debt. On July 1, 2000, we had approximately $700.3 million of debt. See "The Recapitalization" and the "Unaudited Pro Forma Condensed Consolidated Financial Statements" sections for more information on the recapitalization and its pro forma effects on our financial condition and results of operations. Our substantial debt could have important consequences to you. For example, it could: . make it more difficult for us to satisfy our obligations with respect to the notes; . increase our vulnerability to general adverse economic and industry conditions; . limit our ability to obtain additional financing for future working capital, capital expenditures, acquisitions and other general corporate requirements; . increase our vulnerability to interest rate fluctuations because the interest on the debt under the new credit facility will be at variable rates; . require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes; 14 . limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and . place us at a competitive disadvantage compared to our competitors that have less debt. In addition, we may be able to incur substantial additional debt in the future. The terms of the indenture permit us to incur a substantial amount of additional debt and our new credit facility will permit additional borrowings. In particular, as of July 1, 2000, we had approximately $150.0 million of additional borrowing capacity under the revolving credit facility which is generally drawn during the second half of the year. If new debt is added to our current debt levels, these related risks could increase. Our ability to make scheduled payments or to refinance our obligations with respect to our debt will depend on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and to certain financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay scheduled expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient for payment of our debt in the future. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot assure you as to the terms of any such transaction or how soon any such transaction could be completed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Our new credit facility and the indenture governing the notes contain various covenants which limit the discretion of our management in operating our business and could prevent us from engaging in some beneficial activities. Our new credit facility and the indenture governing the notes contain various restrictive covenants that limit our management's discretion in operating our business. In particular, these agreements limit our ability to, among other things: . incur additional indebtedness; . make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock); . make investments or acquisitions; . grant liens on assets; . sell our assets; . engage in transactions with affiliates; . issue capital stock of subsidiaries; and . merge, consolidate or transfer substantially all of our assets. In addition, our need to remain in compliance with our covenants may restrict our flexibility in managing and making changes in our business. If we fail to comply with the restrictions of our new credit facility or the indenture governing the notes or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds. 15 Your right to receive payments on the notes is subordinated to our senior debt. Payment on the notes will be subordinated in right of payment to all of our senior debt, including our new credit facility. On July 1, 2000, the notes would have been subordinated to approximately $495.0 million of senior debt and approximately $150.0 million would have been available for borrowing as additional senior debt under the new credit facility. By reason of the subordination provisions of the indenture, in the event of our insolvency, liquidation, reorganization, dissolution or other winding-up, holders of notes will not receive any payment on the notes until all senior debt, including the new credit facility, is paid in full. In addition, no payment will be able to be made in respect of the notes during the continuance of payment defaults on our senior debt, and payments on the notes may be prohibited for up to 179 consecutive days in the event of certain non-payment defaults on our senior debt. The notes are unsecured, and are effectively subordinated to all secured obligations to the extent of the value of the assets securing such obligations. Any future guarantees of the notes by our subsidiaries will be similarly subordinated to senior debt of these subsidiaries. Our foreign subsidiaries will not, and certain other subsidiaries may not, guarantee the notes. The notes will be structurally subordinated to all existing and future debt and other liabilities, including trade payables, of these subsidiaries. The right of the holders of notes to participate in any distribution of the assets of such subsidiaries upon their liquidation, reorganization or insolvency will be subject to the prior claims of all of these subsidiaries' creditors. The notes and any future guarantees may not be enforceable because of fraudulent conveyance laws. The incurrence of indebtedness as part of the recapitalization, and the payment to our shareholders of $25.25 in cash per share of common stock, may be subject to review under relevant federal and state fraudulent conveyance statutes in the case of either a bankruptcy, reorganization or rehabilitation case or similar proceeding, or a lawsuit by or on behalf of any of Jostens, Inc.'s or any future guarantor's creditors that are not paid on time. Although laws differ among various jurisdictions, in general, under these fraudulent conveyance statutes, a court could invalidate some or all of the debt related to our recapitalization, including the notes and any future guarantees, as a fraudulent conveyance, or could subordinate the notes or any future guarantee to the debt owed to our or any future guarantor's existing or future creditors, if the court found that, at the time of the recapitalization, either: (1) Jostens, Inc. incurred the debt and paid the cash consideration in the recapitalization or a guarantee was incurred with the intent of hindering, delaying or defrauding current or future creditors; or (2) Jostens, Inc. received less than reasonably equivalent value or fair consideration in the recapitalization or any future guarantor did not receive reasonably equivalent value or fair consideration for its guarantee and Jostens, Inc. or any future guarantor, as the case may be, were found to be one or more of the following: . insolvent or rendered insolvent by reason of the recapitalization, including the incurrence of the related debt; . a company engaged in a business or transaction for which its assets constituted unreasonably small capital; or . a company intending to incur, or believing that it would incur, obligations beyond its ability to pay as these obligations matured. 16 A legal challenge of a future guarantee on fraudulent conveyance grounds may focus on the benefits (or lack of benefits) realized by that guarantor as a result of the issuance by us of the notes. If a future guarantee is avoided as a fraudulent conveyance or found to be unenforceable for any other reason, you will not have a claim against that guarantor and will be a creditor only of Jostens, Inc. and any guarantor whose guarantee was not set aside or found to be unenforceable. You will be required to include original issue discount in your gross income for federal income tax purposes. The notes will be considered to be issued with original issue discount for federal income tax purposes. Consequently, a holder of a note must include original issue discount in income prior to the actual receipt of cash in respect of such income. See "Certain United States Federal Tax Consequences." In the event of bankruptcy, your claim with respect to the notes may be limited. If a bankruptcy case is commenced by or against us under the United States Bankruptcy Code after the issuance of the notes, the claim of a holder of any of the notes with respect to the principal amount may be limited to an amount equal to the sum of: . the initial offering price allocable to the notes, and . that portion of the original issue discount which is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any original issue discount that was not amortized as of any such bankruptcy filing would constitute "unmatured interest." Affiliates of Investcorp, which control Jostens, may take actions that conflict with your interests. Approximately 68% of the voting power of our common stock is held by affiliates of Investcorp. Accordingly, affiliates of Investcorp control the power to elect our directors, to appoint new management and to approve many actions requiring the approval of our shareholders, such as adopting most amendments to our articles of incorporation and approving mergers or sales of all or substantially all of our assets. The directors have the authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other such decisions about our capital stock. In addition, the interests of the Investcorp affiliates could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Investcorp affiliates, as equity holders of Jostens, might conflict with your interests as a note holder. Affiliates of Investcorp may also have an interest in pursing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you, as holders of the notes. We may not be able to purchase your notes upon a change of control. Upon the occurrence of specified "change of control" events, we will be required to offer to purchase each holder's notes at a price of 101% of their principal amount plus accrued and unpaid interest, unless all notes have been previously called for redemption. We may not have sufficient financial resources to purchase 17 all of the notes that holders tender to us upon a change of control offer. The occurrence of a change of control could also constitute an event of default under our new credit facility and/or any of our future credit agreements. Our bank lenders may also have the right to prohibit any such purchase or redemption, in which event we would be in default on the notes. See "Description of the Notes--Repurchase at the Option of Holders--Change of Control." You may not be able to sell your securities easily. Before this exchange offer there was no established trading market for the outstanding notes and we cannot assure you that an active or liquid trading market will develop for the exchange notes. The initial purchasers of the outstanding notes have advised us that they currently intend to make a market in the exchange notes; however, the initial purchasers are not obligated to do so and any initial purchaser may discontinue its market-making activities at any time without notice. The exchange notes are expected to be eligible for trading in The Portal Market. However, we do not intend to apply for a listing of the exchange notes on any securities exchange or automated inter-dealer quotation system. The liquidity of any market for the notes will depend upon the number of holders, our own financial performance, the market for similar securities, the interest of securities dealers in making a market and other factors. If Deutsche Bank Securities Inc., one of the initial purchasers, is deemed to be an affiliate of Jostens, it may be required to deliver a "market-making prospectus" in connection with its market-making activities in respect of the exchange notes registered under the Securities Act. In such a case, the ability of Deutsche Bank Securities Inc. to maintain a market in such securities will be dependent, in part, on our ability to maintain a current market-making prospectus and we are not obligated to maintain such a prospectus for more than two years after the day the related shelf registration statement is declared effective. For details on DB Capital Investors' investment in Jostens, see "Security Ownership of Certain Beneficial Owners and Management" and "Description of Capital Stock." Market trading prices for the securities may be volatile. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes offered hereby. The market for the notes, if any, may be subject to similar disruptions. Any such disruptions may adversely affect the value of your notes. Similarly, disruptions in the market for the warrants or warrant shares, if any, may adversely affect their value. Risks Related to Our Business We may not be able to achieve some or all of the initiatives in our business plan and any business strategies implemented may not improve our operating results. Our business plan envisions several long-term growth initiatives, including developing new products and services. We cannot assure you that we will be able to successfully develop such products or that we will achieve the benefits of such business plan. If we are unable to do so, our long-term growth and profitability may be adversely affected. In addition, the business strategy that we intend to pursue following the recapitalization is based on our operations and strategic planning process. After the recapitalization, we may decide to alter or discontinue certain parts of this strategy or may adopt alternative or additional strategies. We cannot assure you that the strategies implemented will be successful or will improve our operating results. Further, other conditions may occur, including increased competition, which may offset any improved operating results that are attributable to such business strategy. 18 Changes in our relationship with our independent sales representatives may adversely effect our future operating results. Our success is highly dependent upon the efforts and abilities of our network of independent sales representatives. Many of our relationships with customers and schools are cultivated and maintained by our sales representatives. If we were to experience a significant loss of our independent sales representatives, it would have a material adverse effect upon our operating results. We may not be able to achieve the intended benefits of our recently announced business refocusing. In December 1999, we completed a strategic review of our business and announced a plan to refocus our organization. This business refocusing involves organizational changes, including job reassignments and reductions. We cannot assure you that the refocusing will be implemented successfully or on a timely basis or that it will not result in unanticipated costs. Problems resulting from the refocusing could have an adverse effect on our financial position or results of operations. We depend on a key supplier for a principal component of our class rings and certain of our recognition products. We purchase substantially all of our synthetic and semiprecious stones from a single supplier located in Germany. This supplier provides stones to almost all of the class ring manufacturers in the United States. If access to this supplier were to be lost or curtailed to any significant extent, our business would suffer unless we secured alternative supply arrangements in a timely fashion. We may not be able to do so on terms that would prevent a material adverse impact on our operating results. The seasonality of our School Products segment's sales may adversely affect our financial results and our ability to service our debt. Our School Products segment experiences strong seasonal business swings which correspond to the North American school year, with approximately 60-65% of full-year segment sales and 70-75% of operating income occurring in the first half of the year. This seasonality requires us to carefully manage our cash flows over the course of the year. If our sales were to fall substantially below what we would normally expect during this period, our annual financial results would be adversely impacted and our ability to service our debt, including our ability to make interest payments on the notes, may also be adversely affected. Our business is subject to fluctuating raw material prices. Our products require a number of raw materials to manufacture. The principal raw materials that we purchase are gold, paper products, and precious, semiprecious and synthetic stones. The cost of these raw materials is affected by numerous factors, including availability of supply. Any material increase in the price of these raw materials could adversely impact our cost of sales. When these fluctuations result in significantly higher raw material costs, our operating results are adversely affected to the extent we are unable to pass on these increased costs to our customers. Therefore, significant fluctuations in gold, paper products or precious, semiprecious and synthetic stone prices and other materials could have a material adverse effect on our operating results. See "Business--Raw Materials and Suppliers." We are currently involved in litigation which, if decided against us, may adversely affect our financial results and our ability to service our debt. In January 1997, Taylor Publishing Company, a competing yearbook provider, brought suit against us in a Texas federal court, alleging that we had violated antitrust laws with respect to the yearbook publishing market by interfering with Taylor's sales representatives and improperly seeking trade secrets. In May 1998, Taylor won a $25.3 million verdict against us in a jury trial. In January 1999, the trial judge overturned this verdict 19 against us and dismissed all claims against us in the case. Taylor has appealed the decision and is seeking to have the jury verdict reinstated. On July 10, 2000, the Fifth Circuit affirmed the trial court's entry of judgment as a matter of law on Jostens' behalf. On July 24, 2000, Taylor filed a petition with the Fifth Circuit to rehear the case in front of the panel that heard the appeal. This petition was denied. Taylor has until October 23, 2000 to petition the U.S. Supreme Court to review the case. If the jury verdict is reinstated, the payment of damages would be material to our results of operations and could adversely affect our ability to make payments on the notes. Following the public announcement of the merger that is part of our recapitalization, three purported class action lawsuits were filed in Minnesota district court for the County of Hennepin against Jostens and its directors alleging breaches of fiduciary duty by Jostens directors in connection with the merger. Among other things, the complaints allege that Jostens' directors failed to take all necessary steps to ensure that shareholders receive maximum value for their shares. On May 9, 2000, we agreed in principle to settle the three purported class actions. The settlement is subject to court approval. See "Business--Legal Proceedings." We are subject to environmental regulations that could impose substantial costs upon us and may adversely effect our financial results and our ability to service our debt. Our operations are subject to a wide variety of federal, state and local laws and regulations governing emissions to air, discharge to waters, the generation, handling, storage, transportation, treatment and disposal of hazardous substances and other materials, and employee health and safety matters. Also, as an owner and operator of real property or a generator of hazardous substances, we may be subject to environmental cleanup liability, regardless of fault, pursuant to the Comprehensive Environmental Response Compensation and Liability Act or analogous state laws. In addition to the potentially large expenses associated with cleanup liabilities, these laws and regulations provide for substantial fines and criminal sanctions for violations. We believe that it is probable that a loss has been incurred at one of our sites and, based on findings included in remediation reports and discussions with legal counsel, we estimate the total cost of this remediation to be between $2.8 million to $3.8 million. We have made payments of approximately $2.3 million during fiscal 2000 related to the costs of this remediation. As of July 31, 2000, we had a remaining accrual of $1.2 million. However, we cannot assure you that our estimates of the potential liability associated with this site will not be exceeded or that our reserve will be sufficient to cover the actual costs of remediation. If the liabilities associated with this site are materially greater than we have estimated them to be, it could have a material adverse effect on our results of operations and could adversely affect our ability to make payments on the notes. As of July 31, 2000, we had identified two additional sites requiring further investigation. We cannot assure you that we will not incur costs for any cleanup or other remedial activities in respect of these or other sites that would have a material adverse effect on our results of operations and could adversely affect our ability to make payments on the notes. 20 THE EXCHANGE OFFER Purpose of the Exchange Offer When we sold the outstanding notes in May 2000, we entered into a registration rights agreement with the initial purchasers of those notes. Under the registration rights agreement, we agreed to use our reasonable best efforts to file the registration statement of which this prospectus forms a part regarding the exchange of the outstanding notes for notes which are registered under the Securities Act and cause this registration statement to be declared effective by the SEC by November 6, 2000. We also agreed to conduct this exchange offer for at least 30 days after the date notice of the exchange offer is mailed to the holders of the outstanding notes and to use our reasonable best efforts to keep this registration statement effective until the exchange offer is completed. The registration rights agreement provides that we will be required to pay liquidated damages to the holders of the outstanding notes whose notes are subject to transfer restrictions if: . the registration statement is not declared effective by November 6, 2000; or . the exchange offer has not been consummated by December 5, 2000. A copy of the registration rights agreement is filed as an exhibit to this registration statement. Terms of the Exchange Offer This prospectus and the accompanying letter of transmittal together constitute the exchange offer. Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange outstanding notes which are properly tendered on or before the expiration date and are not withdrawn as permitted below. The expiration date for this exchange offer is 5:00 p.m., New York City time, on [30 days after commencement of exchange offer], 2000, or such later date and time to which we, in our sole discretion, extend the exchange offer. The form and terms of the notes being issued in the exchange offer are the same as the form and terms of the outstanding notes, except that: . the notes being issued in the exchange offer will have been registered under the Securities Act; . interest on the new registered notes will accrue from the last date on which interest was paid on the outstanding notes or, if no such interest has been paid, from May 10, 2000; . the notes issued in the exchange offer will not bear the restrictive legends restricting their transfer under the Securities Act; and . the notes being issued in the exchange offer will not contain the registration rights and liquidated damages provisions contained in the outstanding notes. Notes tendered in the exchange offer must be in denominations of the principal amount of $100,000 and any integral multiples of $1,000 in excess thereof. We expressly reserve the right, in our sole discretion: . to extend the expiration date; . to delay accepting any outstanding notes; . if any of the conditions set forth below under "-- Conditions to the Exchange Offer" have not been satisfied, to terminate the exchange offer and not accept any notes for exchange; and . to amend the exchange offer in any manner. We will give oral or written notice of any extension, delay, non-acceptance, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. 21 During an extension, all outstanding notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any outstanding notes not accepted for exchange for any reason will be returned without cost to the holder that tendered them as promptly as practicable after the expiration or termination of the exchange offer. How to Tender Outstanding Notes for Exchange When the holder of outstanding notes tenders and we accept notes for exchange, a binding agreement between us and the tendering holder is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of outstanding notes who wishes to tender notes for exchange must, on or prior to the expiration date: (1) transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to The Bank of New York, the exchange agent, at the address set forth below under the heading "-- The Exchange Agent"; or (2) if notes are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agent's message to the exchange agent at the address set forth below under the heading "-- The Exchange Agent." In addition, either: (1) the exchange agent must receive the certificates for the outstanding notes and the letter of transmittal; (2) the exchange agent must receive, prior to the expiration date, a timely confirmation of the book-entry transfer of the notes being tendered into the exchange agent's account at the Depository Trust Company, or DTC, along with the letter of transmittal or an agent's message; or (3) the holder must comply with the guaranteed delivery procedures described below. The term "agent's message" means a message, transmitted to DTC and received by the exchange agent and forming a part of a book-entry transfer (a "book-entry confirmation"), which states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder. The method of delivery of the outstanding notes, the letters of transmittal and all other required documents is at the election and risk of the holders. If such delivery is by mail, we recommend registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or notes should be sent directly to us. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the notes surrendered for exchange are tendered: (1) by a holder of outstanding notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or (2) for the account of an eligible institution. An "eligible institution" is a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution. If notes are registered in the name of a person other than the signer of the letter of transmittal, the notes surrendered for exchange must be endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder's signature guaranteed by an eligible institution. 22 We will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance of notes tendered for exchange in our sole discretion. Our determination will be final and binding. We reserve the absolute right to: (1) reject any and all tenders of any note improperly tendered; (2) refuse to accept any note if, in our judgment or the judgment of our counsel, acceptance of the note may be deemed unlawful; and (3) waive any defects or irregularities or conditions of the exchange offer as to any particular note either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender notes in the exchange offer. Our interpretation of the terms and conditions of the exchange offer as to any particular notes either before or after the expiration date, including the letter of transmittal and the instructions to it, will be final and binding on all parties. Holders must cure any defects and irregularities in connection with tenders of notes for exchange within such reasonable period of time as we will determine, unless we waive such defects or irregularities. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity with respect to any tender of notes for exchange, nor will any of us incur any liability for failure to give such notification. If a person or persons other than the registered holder or holders of the outstanding notes tendered for exchange signs the letter of transmittal, the tendered notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the outstanding notes. If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any notes or any power of attorney, such persons should so indicate when signing, and you must submit proper evidence satisfactory to us of such person's authority to so act unless we waive this requirement. By tendering, each holder will represent to us that, among other things, the person acquiring notes in the exchange offer is obtaining them in the ordinary course of its business, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the notes issued in the exchange offer. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of our company, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such notes to be acquired in the exchange offer, such holder or any such other person: (1) may not rely on the applicable interpretations of the staff of the SEC; and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives notes under this exchange offer for its own account in exchange for outstanding notes, where the outstanding notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such notes issued in the exchange offer. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the Exchange Offer Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all outstanding notes properly tendered and will issue notes registered under the 23 Securities Act. For purposes of the exchange offer, we will be deemed to have accepted properly tendered outstanding notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter. See "-- Conditions to the Exchange Offer" for a discussion of the conditions that must be satisfied before we accept any notes for exchange. For each outstanding note accepted for exchange, the holder will receive a note registered under the Securities Act having a principal amount equal to, and in the denomination of, that of the surrendered outstanding note. Accordingly, registered holders of notes issued in the exchange offer on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid on the outstanding notes, from May 10, 2000. Outstanding notes that we accept for exchange will cease to accrue interest from and after the date of consummation of the exchange offer. Under the registration rights agreement, we may be required to make additional payments in the form of liquidated damages to the holders of the outstanding notes under circumstances relating to the timing of the exchange offer. In all cases, we will issue notes in the exchange offer for outstanding notes that are accepted for exchange only after the exchange agent timely receives: (1) certificates for such outstanding notes or a timely book-entry confirmation of such outstanding notes into the exchange agent's account at DTC; (2) a properly completed and duly executed letter of transmittal or an agent's message; and (3) all other required documents. If for any reason set forth in the terms and conditions of the exchange offer we do not accept any tendered outstanding notes, or if a holder submits outstanding notes for a greater principal amount than the holder desires to exchange, we will return such unaccepted or non-exchanged notes without cost to the tendering holder. In the case of notes tendered by book-entry transfer into the exchange agent's account at DTC, such non-exchanged notes will be credited to an account maintained with DTC. We will return the notes or have them credited to DTC as promptly as practicable after the expiration or termination of the exchange offer. Book Entry Transfers The exchange agent will make a request to establish an account at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC's system must make book-entry delivery of outstanding notes denominated in dollars by causing DTC to transfer the outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Such participant should transmit its acceptance to DTC on or prior to the expiration date or comply with the guaranteed delivery procedures described below. DTC will verify such acceptance, execute a book-entry transfer of the tendered outstanding notes into the exchange agent's account at DTC and then send to the exchange agent confirmation of such book-entry transfer. The confirmation of such book- entry transfer will include an agent's message confirming that DTC has received an express acknowledgment from such participant that such participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such participant. Delivery of notes issued in the exchange offer may be effected through book-entry transfer at DTC as applicable. However, the letter of transmittal or facsimile thereof or an agent's message, with any required signature guarantees and any other required documents, must: (1) be transmitted to and received by the exchange agent at the address set forth below under "--Exchange Agent" on or prior to the expiration date; or (2) comply with the guaranteed delivery procedures described below. 24 Guaranteed Delivery Procedures If a holder of outstanding notes desires to tender such notes and the holder's notes are not immediately available, or time will not permit such holder's notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: (1) the holder tenders the notes through an eligible institution; (2) prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form we have provided, by telegram, facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the notes being tendered and the amount of the notes being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within five New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and (3) the exchange agent receives the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal, within five New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. Withdrawal Rights You may withdraw tenders of your outstanding notes at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written notice of withdrawal to the exchange agent at one of the addresses set forth below under "-- Exchange Agent." Any such notice of withdrawal must: (1) specify the name of the person having tendered the outstanding notes to be withdrawn; (2) identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; and (3) where certificates for outstanding notes are transmitted, specify the name in which outstanding notes are registered, if different from that of the withdrawing holder. If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility (including time of receipt) of such notices and our determination will be final and binding on all parties. Any tendered notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder. In the case of notes tendered by book-entry transfer into the exchange agent's account at DTC, the notes withdrawn will be credited to an account maintained with DTC for the outstanding notes. The notes will be returned or credited to this account as soon as practicable after 25 withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn notes may be re-tendered by following one of the procedures described under "-- How to Tender Notes for Exchange" above at anytime on or prior to 5:00 p.m., New York City time, on the expiration date. Conditions to the Exchange Offer Under the registration rights agreement that we entered into with the initial purchasers of the outstanding notes, the exchange offer is not subject to any conditions, other than that: (1) the exchange offer does not violate applicable law or any applicable interpretation of the staff or the SEC; (2) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer, and no material adverse development shall have occurred in any existing action or proceeding with respect to Jostens; (3) all governmental approvals shall have been obtained, which approvals we deem necessary for the consummation of the exchange offer; (4) each holder of registrable notes shall not have delivered notice to Jostens that it is a restricted holder, as that term is defined in the registration rights agreement; and (5) the conditions precedent to Jostens' obligations under the registration rights agreement shall have been fulfilled. 26 The Exchange Agent The Bank of New York has been appointed as our exchange agent for the exchange offer. All executed letters of transmittal should be directed to our exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: By hand delivery: The Bank of New York 101 Barclay Street New York, NY 10286 Ground level Corporate Trust Services Window Attention: Reorganization Unit --7E By Overnight Courier or Registered/Certified Mail: The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Reorganization Unit --7E By facsimile transmission: (for eligible institutions only) (212) 815-6339 Confirm by Telephone: (212) 815-3738 Delivery of the letter of transmittal to an address other than as set forth above or transmission of such letter of transmittal via facsimile other than as set forth above does not constitute a valid delivery of such letter of transmittal. Fees and Expenses We will not make any payment to brokers, dealers, or others soliciting acceptance of the exchange offer except for reimbursement of mailing expenses. We will pay the cash expenses to be incurred in connection with the exchange offer, including accounting, legal, printing, and related fees and expenses. Transfer Taxes Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the notes tendered, or if a transfer tax is imposed for any reason other than the exchange of outstanding notes in connection with the exchange offer, then the holder must pay any of these transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, these taxes is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder. 27 Consequences of Failure to Exchange Outstanding Notes Holders who desire to tender their outstanding notes in exchange for notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor we are under any duty to give notification of defects or irregularities with respect to the tenders of notes for exchange. Outstanding notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the indenture regarding the transfer and exchange of the outstanding notes and the existing restrictions on transfer set forth in the legend on the outstanding notes and in the offering circular dated May 5, 2000, relating to the outstanding notes. Except in limited circumstances with respect to specific types of holders of outstanding notes, we will have no further obligation to provide for the registration under the Securities Act of such outstanding notes. In general, outstanding notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register the outstanding notes under the Securities Act or under any state securities laws. Upon completion of the exchange offer, holders of the outstanding notes will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Holders of the notes issued in the exchange offer and any outstanding notes which remain outstanding after consummation of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture. Consequences of Exchanging Outstanding Notes Based on interpretations of the staff of the SEC, as set forth in no-action letters to third parties, we believe that the notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by holders of those notes, other than by any holder which is our "affiliate" within the meaning of Rule 405 under the Securities Act. The notes may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act, if: (1) the notes issued in the exchange offer are acquired in the ordinary course of the holder's business; and (2) the holder, other than broker-dealers, has no arrangement or understanding with any person to participate in the distribution of the notes issued in the exchange offer. However, the SEC has not considered the exchange offer in the context of a no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to the exchange offer as in such other circumstances. Each holder, must furnish a written representation that: (1) it is not an affiliate of ours; (2) it is not engaged in, and does not intend to engage in, a distribution of the notes issued in the exchange offer and has no arrangement or understanding to participate in a distribution of notes issued in the exchange offer; (3) it is acquiring the notes issued in the exchange offer in the ordinary course of its business; and (4) it is not acting on behalf of a person who could not make representations (1)-(3). Each broker-dealer that receives notes issued in the exchange offer for its own account in exchange for outstanding notes must acknowledge that such outstanding notes were acquired by such broker-dealer as a result of market- making or other trading activities and that it will deliver a prospectus in connection with any 28 resale of such notes issued in the exchange offer. See "Plan of Distribution" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. In addition, to comply with state securities laws of certain jurisdictions, the notes issued in the exchange offer may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with by the holders selling the notes. We have agreed in the registration rights agreement that, prior to any public offering of transfer restricted notes, we will register or qualify the transfer restricted securities for offer or sale under the securities laws of any jurisdiction requested by a holder. Unless a holder requests, we currently do not intend to register or qualify the sale of the notes issued in the exchange offer in any state where an exemption from registration or qualification is required and not available. Transfer restricted notes means each note until the date on which it: (1) has been exchanged for a freely transferable note in the exchange offer; (2) has been effectively registered under the Securities Act and disposed of in accordance with a shelf registration statement that we file in accordance with the registration rights agreement; or (3) is distributed to the public under Rule 144 of the Securities Act or is saleable under Rule 144(k) under the Securities Act. 29 USE OF PROCEEDS We will not receive any proceeds from the exchange offer. CAPITALIZATION The following table sets forth our actual capitalization as of July 1, 2000. This table should be read in conjunction with "Prospectus Summary--Summary Consolidated Unaudited Pro Forma Financial Data," "Prospectus Summary--Summary Consolidated Historical Financial Data," "Unaudited Pro Forma Condensed Consolidated Financial Statements," "Selected Consolidated Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
As of July 1, 2000 ------------- (in millions) Cash and cash equivalents....................................... $ 35.9 ====== Short-term borrowings, including current maturities of long-term debt........................................................... $5.5 ====== Long-term debt: Term loans.................................................... $489.5 Notes to be exchanged......................................... 205.3 ------ Total long-term debt........................................ 694.8 ------ Redeemable preferred stock...................................... 44.2 Shareholders' deficit (1)....................................... (556.4) ------ Total capitalization...................................... $182.6 ======
(1) The shareholders' deficit at July 1, 2000 is primarily the result of the recapitalization and the recording of related expenses, net of income tax benefits. In connection with the recapitalization, Investcorp and its co- investors made a cash equity investment of approximately $208.7 million, representing 92% of the outstanding common stock and voting power of Jostens. 30 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements have been derived by the application of pro forma adjustments to our historical consolidated financial statements appearing elsewhere in this prospectus. The unaudited pro forma condensed consolidated statements of operations for the periods presented give effect to the recapitalization as if it had occurred on January 3, 1999 and exclude non-recurring items directly attributable to the recapitalization. The pro forma adjustments are described in the accompanying notes. The unaudited pro forma condensed consolidated financial statements should not be considered indicative of actual results that would have been achieved had the recapitalization been consummated on the date indicated, nor are they necessarily indicative of future operating results. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and notes thereto appearing elsewhere in this prospectus. The pro forma adjustments were applied to the historical consolidated financial statements to reflect and account for the merger as a recapitalization. Accordingly, the historical basis of our assets and liabilities have not been impacted by the merger. 31 Unaudited Pro Forma Condensed Consolidated Statement Of Operations
For the Year Ended January 1, 2000 ----------------------------------------- Pro Forma Historical Adjustments Pro Forma (e)(f) ---------- ----------- ---------------- (in millions, except share and per share data) Net sales........................... $ 782.4 $ $ 782.4 Cost of products sold............... 349.7 349.7 ---------- ------ --------- Gross profit........................ 432.7 432.7 Selling and administrative expenses........................... 330.8 1.5 (a) 332.3 Special charge...................... 20.2 20.2 ---------- ------ --------- Operating income.................... 81.7 (1.5) 80.2 Net interest expense................ 7.0 80.6 (b) 87.6 ---------- ------ --------- Income before income taxes.......... 74.7 (82.1) (7.4) Income taxes........................ 31.5 (32.9)(c) (1.4) ---------- ------ --------- Net income (loss)................... 43.2 (49.2) (6.0) Dividends and accretion on redeemable preferred stock......... 9.6 (d) 9.6 ---------- ------ --------- Net income (loss) attributable to common shareholders................ $ 43.2 $(58.8) $ (15.6) ========== ====== ========= Ratio of earnings to combined fixed charges and preferred stock dividends.......................... 8.9x (g) Net income (loss) attributable to common shareholders per share: Basic............................. $ 1.27 $ (1.73) Diluted........................... $ 1.27 $ (1.73) Weighted average number of common shares used in per share computations: Basic............................. 34,004,000 8,993,297 Diluted........................... 34,093,000 8,993,297
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations. 32 Unaudited Pro Forma Condensed Consolidated Statement Of Operations
For the Six Months Ended July 1, 2000 ------------------------------------------ Pro Forma Historical Adjustments Pro Forma (f) ----------- ----------- ------------- (in millions, except share and per share data) Net sales.......................... $ 476.4 $ $ 476.4 Cost of products sold.............. 201.8 201.8 ----------- ----- ---------- Gross profit....................... 274.6 274.6 Selling and administrative expenses.......................... 180.8 0.5 (a) 181.3 Transaction costs.................. 45.7 (45.7)(e) -- ----------- ----- ---------- Operating income................... 48.1 45.2 93.3 Net interest expense............... 14.8 27.7 (b) 42.5 ----------- ----- ---------- Income before income taxes......... 33.3 17.5 50.8 Income taxes....................... 26.3 (6.9)(c)(e) 19.4 ----------- ----- ---------- Net income (loss).................. 7.0 24.4 31.4 Dividends and accretion on redeemable preferred stock........ 1.2 4.0 (d) 5.2 ----------- ----- ---------- Net income (loss) attributable to common shareholders............... $ 5.8 $20.4 $ 26.2 =========== ===== ========== Ratio of earnings to combined fixed charges and preferred stock dividends......................... 2.7x 1.9x Net income (loss) attributable to common shareholders per share: Basic............................ $ 0.23 $ 2.91 Diluted.......................... $ 0.23 $ 2.91 Weighted average number of common shares used in per share computations: Basic............................ 25,043,000 8,993,297 Diluted.......................... 25,316,000 8,993,297
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations. 33 Notes To Unaudited Pro Forma Condensed Consolidated Statements Of Operations (a) Reflects the amortization of prepaid management advisory and consulting services fees that were paid to Investcorp International Inc. as described under "Certain Relationships and Related Transactions". The fees are being amortized over the five-year term of the management and consulting agreement. (b) Reflects the following:
Six months Year ended ended January 1, July 1, 2000 2000 ---------- ---------- Elimination of historical net interest expense including historical amortization of debt issuance costs on retired debt............................................ $(7.0) $(14.8) Interest on borrowings under the $150.0 million revolving credit facility at an interest rate of LIBOR plus 3.00% (1)(2).................................................. 2.6 -- Interest on borrowings under the $150.0 million Tranche A term loan at an interest rate of LIBOR plus 3.00% (2)... 14.7 7.3 Interest on borrowings under the $345.0 million Tranche B term loan at an interest rate of LIBOR plus 3.50% (2)... 35.5 17.8 Interest on $225.0 million of senior subordinated notes at an interest rate of 12.75%........................... 28.7 14.3 Amortization of $19.8 million discount on notes over the ten-year term of the senior subordinated notes.......... 1.0 0.5 Amortization of debt issuance costs of $36.5 million associated with the financings over the respective terms of the related indebtedness............................. 5.1 2.6 ----- ------ $80.6 $ 27.7 ===== ====== (1) Due to the seasonal nature of our business the borrowings under the revolving credit facility will fluctuate throughout the year. Based on an analysis of our historical working capital, for the year ended January 1, 2000 interest expense is calculated assuming a $20.0 million outstanding seasonal balance plus a 0.50% fee on the unused portion. For the six months ended July 1, 2000, the interest expense on the revolver is assumed to be zero as we do not typically draw on the revolver during the first six months of the year. (2) A 0.125% change in the interest rates on the amount of outstanding indebtedness under the senior credit facility would change the six month and annual pro forma interest expense by $0.3 and $0.6 million, respectively. (c) Reflects the tax effect of the foregoing adjustments (excluding adjustment (e)) at our effective tax rate of 40%. The taxes associated with the transaction costs adjustment are reflected as $4.4 million. (d) Reflects the following: Six months Year ended ended January 1, July 1, 2000 2000 ---------- ---------- Elimination of historical dividends on the redeemable preferred stock, accretion of the preferred stock discount and amortization of the redeemable preferred stock offering costs.................................... $ -- $ (1.2) Dividends on the redeemable preferred stock calculated based on an annual rate of 14.00%, compounded quarterly, and a liquidation value of $60.0 million................ 8.9 4.9 Accretion of preferred stock discount of $14.0 million over the eleven-year term of the redeemable preferred stock................................................... 0.4 0.2 Amortization of $3.0 million redeemable preferred stock offering costs over the eleven-year term of the redeemable preferred stock.............................. 0.3 0.1 ----- ------ $ 9.6 $ 4.0 ===== ======
34 (e) The unaudited pro forma condensed consolidated statement of operations for the year ended January 1, 2000 excludes the following non-recurring items that were directly attributable to the merger. All of the following items were recorded as period costs at the time of the merger. The pro forma adjustment for the six months ended July 1, 2000 reflects the elimination of these non-recurring items that were directly attributable to the merger. (1) $34.7 million of fees and expenses incurred by us in connection with the merger. (2) $10.0 million compensation charge resulting from the cancellation of outstanding stock options in exchange for cash payments in connection with the merger, and related income tax benefit of $4.0 million. (3) $1.0 million compensation charge resulting from the accelerated vesting of restricted stock in connection with the merger, and related income tax benefit of $0.4 million. (f) The pro forma financial results exclude the effects of the following items:
Six months Year ended ended January 1, July 1, 2000 2000 ---------- ---------- Cost savings related to employee terminations (1)..... $7.1 $1.5 Elimination of certain unprofitable businesses (2).... 4.0 -- Excess rebates related to the JDS program (3)......... 2.8 -- Costs associated with closing the Mexico manufacturing facility (4)........................................... 2.7 -- Excess labor costs associated with Recognition segment (5).................................................... 1.7 --
(1) As part of the business refocusing that we announced in December 1999, we are eliminating approximately 100 full-time positions from all levels of employment, primarily in corporate staff and executive functions. For the year ended January 1, 2000 and the six months ended July 1, 2000 the cost savings reflect the salary and benefit costs associated with the employees identified for termination, excluding those employees associated with the exiting of our non-core business lines. (2) As part of the business refocusing that we announced in December 1999, we exited some of our non-core business lines, primarily our direct marketing sales channel to college alumni. The 1999 net cash losses associated with these business lines was approximately $4.0 million. (3) Due to a change in vendors, we incurred certain operational difficulties in the administration of our JDS program in 1999. In order to maintain favorable customer relationships with our affected customer base, we processed approximately $2.8 million in incremental rebates in 1999. (4) In connection with the closing of the Mexico manufacturing facility during the first quarter of 1999, we incurred certain non-recurring charges. These charges included, among other things, costs to transfer equipment back to the United States, severance payments, retention bonuses and the write-off of certain assets. Additionally, certain employees in the Denton and Mexico manufacturing facilities and their related costs were eliminated when the Mexico facility closed. (5) During 1999, we installed a new computer system for the Recognition business. We encountered significant problems when the new system was implemented in March. These system issues necessitated the hiring of significant temporary labor that was required to properly process orders, manufacture goods, and coordinate shipments. By the fourth quarter of 1999, the system inefficiencies were corrected, and the majority of this temporary labor cost has been eliminated. These items have been excluded from the pro forma operating results as they do not qualify as pro forma adjustments under Regulation S-X promulgated under the Securities Act and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1996. (g) For purposes of this calculation "earnings" consist of income before income taxes and fixed charges and "combined fixed charges and preferred stock dividends" consist of interest, amortization of debt issuance costs, the component of rent expense believed by management to be representative of the interest factor thereon and the amount of pre-tax earnings required to cover accretion on preferred stock dividends and accretion of the preferred stock discount. On a pro forma basis for the year ended January 1, 2000, earnings would have been inadequate to cover combined fixed charges and the preferred stock dividend. The coverage deficiency for such period would have been $23.4 million. 35 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA The table below sets forth selected consolidated historical financial data relating to Jostens. The selected consolidated historical financial data as of January 2, 1999 and January 1, 2000 and for each of the three fiscal years in the period ended January 1, 2000 have been derived from, and should be read in conjunction with our audited consolidated financial statements and the notes thereto, appearing elsewhere in this prospectus. The selected consolidated financial data as of and for the six months ended July 3, 1999 and July 1, 2000 have been derived from, and should be read in conjunction with our unaudited condensed consolidated financial statements, appearing elsewhere in this prospectus which, in our opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The selected consolidated historical financial data for the six month period ended December 28, 1996 and for the years ended June 30, 1996 and 1995 and consolidated historical balance sheet data as of January 3, 1998 have been derived from our audited historical consolidated financial statements not included herein. Effective December 29, 1996, we changed our fiscal year end from June 30 to the Saturday closest to December 31.
Six months Six months ended Year ended ended Year ended (unaudited) ----------------- ------------ ---------------------------------------------- ---------------- December 28, June 30, June 30, December 28, 1996 January 3, January 2, January 1, July 3, July 1, 1995 1996 1996 (5) (unaudited) 1998 1999 2000 1999 2000 -------- -------- ------------ ------------- ---------- ---------- ---------- ------- ------- (dollars in millions) Statement of Operations Data: Net sales.............. $665.1 $695.1 $277.1 $708.7 $742.5 $770.9 $782.4 $469.5 $476.4 Cost of products sold.. 313.7 332.2 141.5 353.9 351.3 351.8 349.7 209.2 201.8 ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross profit........... 351.4 362.9 135.6 354.8 391.2 419.1 432.7 260.3 274.6 Selling and administrative expenses.............. 256.8 268.1 131.5 282.9 291.5 316.9 330.8 178.6 180.8 Special charge......... -- -- -- -- -- -- 20.2 -- -- Transaction costs...... -- 45.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating income....... 94.6 94.8 4.1 71.9 99.7 102.2 81.7 81.7 48.1 Net interest expense... 0.7 7.3 4.1 9.0 6.3 6.7 7.0 2.5 14.8 Write-off of JLC notes receivable, net (1)... -- -- -- -- -- 12.0 -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from continuing operations before income taxes.......... 93.9 87.5 -- 62.9 93.4 83.5 74.7 79.2 33.3 Income taxes (1)....... 38.0 35.9 0.8 26.6 36.2 41.7 31.5 32.1 26.3 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income (loss) from continuing operations............ 55.9 51.6 (0.8) 36.3 57.2 41.8 43.2 47.1 7.0 Loss from discontinued operations, net of tax (2)........ (4.9) -- -- -- -- -- -- -- -- Cumulative effect of changes in accounting principle, net of tax (3)............... (0.6) -- -- -- -- -- -- -- -- Dividends and accretion on redeemable preferred stock....... -- -- -- -- -- -- -- -- 1.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income (loss) attributable to common shareholders (4)...... $ 50.4 $ 51.6 $ (0.8) $ 36.3 $ 57.2 $ 41.8 $ 43.2 $ 47.1 $ 5.8 ====== ====== ====== ====== ====== ====== ====== ====== ====== Balance Sheet Data (at period end): Current assets......... $402.4 $251.3 $257.5 $257.5 $252.5 $240.5 $286.3 $246.6 $261.8 Working capital (6).... 33.2 73.2 100.0 100.0 50.2 44.1 8.3 41.7 1.8 Total assets........... 548.0 384.0 383.8 383.8 390.7 366.2 407.7 377.4 420.5 Total debt (including short-term borrowings and current maturities)........... 54.3 81.5 94.8 94.8 53.6 97.5 121.2 97.3 700.3 Shareholders' equity (deficit)............. 270.6 121.8 112.6 112.6 127.1 58.6 36.5 68.0 (556.4) Other Financial Data: EBITDA (7)............. $117.4 $111.4 $ 14.0 $ 89.6 $121.8 $113.4 $107.0 $ 94.5 $ 61.3 Depreciation and amortization.......... 28.3 16.6 9.9 17.7 22.1 23.2 25.3 12.8 13.2 Capital expenditures... 28.7 15.4 9.9 16.9 24.4 36.9 27.8 13.3 7.2 Gross margin........... 52.8% 52.2% 48.9% 50.1% 52.7% 54.4% 55.3% 55.4% 57.6% EBITDA margin.......... 17.7% 16.0% 5.1% 12.6% 16.4% 14.7% 13.7% 20.1% 12.9% Cash interest expense (8)................... $ 5.4 $ 9.3 $ 4.3 $ 9.3 $ 6.9 $ 7.7 $ 7.7 $ 3.0 $ 14.3 Ratio of earnings to combined fixed charges and preferred stock dividends (9)... 13.4x 8.6x 1.0x 6.5x 11.4x 10.2x 8.9x 22.1x 2.7x
(footnotes on next page) 36 - -------- (1) Net income for 1998 reflects a charge for the write-off of the Jostens Learning Corporation ("JLC") notes receivable of $12.0 million and related deferred tax assets of $3.7 million. (2) Discontinued operations for fiscal 1995 reflects JLC and Wicat Systems. (3) Net income for fiscal 1995 reflects the cumulative effect of adopting SFAS 112. (4) Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2 million after tax) and $6.8 million ($4.0 million after tax), respectively, resulting from a reduction in LIFO gold inventories. (5) In October 1996, we elected to change our fiscal year end from June 30 to the 52- or 53-week period ending the Saturday closest to December 31, effective December 29, 1996 (6) Represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding short-term borrowings and current maturities of long-term debt). (7) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measure of performance under GAAP and it should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income and cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Moreover, EBITDA is not a standardized measure and may be calculated in a number of ways. Accordingly, the EBITDA information provided might not be comparable to other similarly titled measures provided by other companies. EBITDA is included herein because management understands that EBITDA is customarily used as a criterion in evaluating companies. (8) Represents interest expense plus capitalized interest less amortization of deferred financing costs and discount on the senior subordinated notes. (9) For purposes of this calculation "earnings" consist of income before income taxes and fixed charges and "combined fixed charges and preferred stock dividends" consist of interest, amortization of debt issuance costs, the component of rent expense believed by management to be representative of the interest factor thereon and the amount of pre-tax earnings required to cover accretion on preferred stock dividends and accretion of the preferred stock discount. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Disclosure Regarding Forward-Looking Statements." Overview The consolidated financial statements and notes include our results of operations, financial condition and cash flows as of and for the years ended January 3, 1998 (fiscal 1997), January 2, 1999 (fiscal 1998) and January 1, 2000 (fiscal 1999) and the six months ended July 3, 1999, and July 1, 2000. This discussion summarizes significant factors that affected the consolidated operating results, financial condition and liquidity of Jostens in the first six months of the 1999 and 2000 fiscal years and in the 1997, 1998, and 1999 fiscal years. Results of Operations The following table sets forth selected information from our Consolidated Statements of Operations, expressed as a percentage of net sales.
Percentage of net Percentage Six Months sales change Ended ------------------- ---------------- --------------- 1997 to 1998 to July 3, July 1, 1997 1998 1999 1998 1999 1999 2000 ----- ----- ----- ------- ------- ------- ------- (unaudited) Net sales............... 100.0% 100.0% 100.0% 3.8 % 1.5 % 100.0% 100.0% Cost of products sold... 47.3% 45.6% 44.7% 0.1 % (0.6)% 44.6% 42.4% ----- ----- ----- ----- ----- ----- ----- Gross profit............ 52.7% 54.4% 55.3% 7.1 % 3.3 % 55.4% 57.6% Selling and administrative expenses............... 39.3% 41.1% 42.3% 8.7 % 4.4 % 38.0% 38.0% Special charge.......... 0.0% 0.0% 2.6% -- -- -- 0.0% Transaction costs....... 0.0% 0.0% 0.0% -- -- -- 9.6% ----- ----- ----- ----- ----- ----- ----- Operating income........ 13.4% 13.3% 10.4% 2.5 % (20.1)% 17.4% 10.1% Net interest expense.... 0.8% 0.9% 0.9% 6.1 % 5.1 % 0.5% 3.1% Write-off of JLC notes receivable, net........ 0.0% 1.6% 0.0% -- -- -- -- ----- ----- ----- ----- ----- ----- ----- Income before income taxes.................. 12.6% 10.8% 9.5% (10.6)% (10.6)% 16.9% 7.0% Income taxes............ 4.9% 5.4% 4.0% 15.2 % (24.5)% 6.8% 5.5% ----- ----- ----- ----- ----- ----- ----- Net income.............. 7.7% 5.4% 5.5% (26.9)% 3.2 % 10.0% 1.5% ===== ===== ===== ===== ===== ===== =====
38 Six Months ended July 1, 2000 Compared to the Six Months Ended July 3, 1999 RESULTS OF OPERATIONS The following table sets forth selected information from our unaudited Condensed Consolidated Statements of Operations.
Six months ended -------------------------- July 3 July 1 % 1999 2000 Change -------- -------- ------ Dollars in thousands Net sales.......................................... $469,519 $476,387 1.5% Cost of products sold.............................. 209,243 201,787 (3.6%) -------- -------- ----- Gross profit....................................... 260,276 274,600 5.5% Selling and administrative expenses................ 178,636 180,799 1.2% Transactions costs................................. -- 45,711 0.0% -------- -------- ----- Operating income................................... 81,640 48,090 (41.1%) Interest income.................................... (201) (488) 142.8% Interest expense................................... 2,699 15,292 466.6% -------- -------- ----- Income before income taxes......................... 79,142 33,286 (57.9%) Income taxes....................................... 32,053 26,257 (18.1%) -------- -------- ----- Net income......................................... $ 47,089 $ 7,029 (85.1%) ======== ======== =====
Net sales The change in net sales for the six month period was due to average price/mix increases of approximately 2.7 percent, and volume decreases of approximately 1.2 percent. Year-to-date net sales by segment and the changes from last year were as follows:
Six months ended ------------------------ July 3, July 1, % 1999 2000 change -------- -------- ------ In thousands School Products...................................... $408,923 $424,662 3.8% Recognition.......................................... 53,536 45,568 (14.9%) Other................................................ 7,060 6,157 (12.8%) -------- -------- ----- Consolidated......................................... $469,519 $476,387 1.5% ======== ======== =====
School Products The increase in School Products sales was primarily due to: . fewer yearbook rebates and returns resulting from improvements with JDS; . increased JDS processing fees; . an increase in commercial printing volume; . higher sales of add-on features in our Printing and Publishing product line; . sales of graduation announcements to more schools; and . expanded sales of graduation accessories. 39 These increases were offset by: . accelerated jewelry shipments in the fourth quarter of 1999 due to improved manufacturing efficiencies compared with the prior year. Recognition The decrease in Recognition sales was primarily due to a decline in the headcount of the sales force as well as lost customers as a result of problems encountered with a system implementation that took place in 1999. Other Other segment sales decreased as a result of exiting the college alumni direct marketing business in the fourth quarter of 1999. Sales for this business were $1.8 million for the six month period ended July 3, 1999. Gross Profit Gross margin for the six months ended July 1, 2000 was 57.6 percent, compared with 55.4 percent for the comparable period in 1999. The increase in gross margin was primarily due to: . favorable product mix and price increases; . manufacturing efficiencies in our School Products segment in 2000; and . a $1.5 million non-recurring charge in the first quarter of 1999 to close a facility in Mexico and realign Jewelry operations in the United States. These increases were partially offset by: . sales decreases in Recognition as a result of problems encountered with a system implementation that took place in 1999. Selling and Administrative Expenses Selling and administrative expenses for the six months ended July 1, 2000 were $180.8 million, compared with $178.6 million for the comparable period in 1999. The changes reflect the following offsetting increases and decreases: . lower amortization expense in 2000 related to our write-off of goodwill as part of the 1999 special charge; . lower costs as a result of exiting the college alumni direct marketing business in the fourth quarter of 1999; . lower legal fees in 2000 compared with 1999 primarily due to the litigation with Taylor Publishing; . reduced spending on temporary labor and lower costs in our Recognition segment in 2000 compared with 1999 due to the system implementation. 40 . higher selling expense in 2000 related to programs and initiatives intended to increase our sales; . higher bad debt expense in 2000; . higher information system expense, primarily associated with depreciation; and . higher commission expense in 2000 due to increased sales. Operating Income Year-to-date operating income (loss) by segment and the changes from last year were as follows:
Six months ended -------------------------- July 3, July 1, % 1999 2000 change -------- -------- ------ In thousands School Products.................................... $100,942 $108,657 7.6% Recognition........................................ 2,162 (76) (103.5%) Other.............................................. (21,464) (60,491) 181.8% -------- -------- ------ Consolidated....................................... $ 81,640 $ 48,090 (41.1%) ======== ======== ======
School Products The increase in School Products operating income for the six month period was primarily due to: .favorable product mix and price increases; .fewer yearbook rebates and returns resulting from improvements with JDS; .increased JDS processing fees; .an increase in commercial printing volume; .manufacturing efficiencies in 2000; .lower legal fees in 2000 compared with 1999; .higher sales of add-on features in our Printing and Publishing product line; .sales of graduation announcements to more schools; .expanded sales of graduation accessories; and . a $1.5 million charge in the first quarter of 1999 to close a facility in Mexico and realign all Jewelry operations in the United States. These increases were partially offset by: . the acceleration of jewelry sales into the fourth quarter of 1999 due to manufacturing efficiencies compared with the prior year; . higher selling and marketing expense in 2000 related to programs and initiatives intended to increase sales; 41 . higher bad debt expense in 2000; and . higher information system depreciation expense as a result of our 1999 system implementations. These increases were partially offset by: . higher commission expense in 2000 due to increased sales. Recognition The decrease in Recognition operating income was primarily due to: . a sales decrease due to a decline in the head count of the sales force and lost customers as a result of problems encountered with a system implementation that took place in 1999; and . higher information system depreciation expense as a result of our 1999 system implementation. These decreases were partially offset by: . reduced spending on temporary labor in 2000 compared with 1999 when we prepared for a system implementation that took place in 1999; and . lower costs in 2000 compared to 1999 related to problems encountered during the system implementation. Other The increase in Other operating loss was primarily due to costs of $45.7 million associated with the merger and recapitalization. This was offset by: . lower selling and administrative expenses as a result of exiting the college alumni direct marketing business in the fourth quarter of 1999; . lower spending in 2000 compared with 1999 related to our new product and channel development group; and . lower information system expense related to the year 2000 and Oracle system. Transaction Costs We incurred costs consisting of professional fees and transaction expenses associated with the merger and recapitalization. Transaction costs of $45.7 million were expensed in the second quarter of 2000. The remaining costs of $36.5 million were deferred and are being amortized over the applicable lives of the debt for up to a maximum of ten years. Net Interest Expense Net interest expense increased $12.3 million in the six month period ended July 1, 2000 over the prior year period. The increase was primarily due to additional interest expense resulting from the new senior secured credit facility and the issuance of the senior subordinated notes in connection with the transaction. Income Taxes Income taxes for the six month period ended July 1, 2000 were accrued at a rate of 41.5 percent (excluding effects of the non-deductible transaction costs) compared with 40.5 percent for the comparable period in 1999. The year-to-date effective rate for July 1, 2000 was 78.9 percent and reflects non-deductible transaction related costs of $30.0 million. 42 Fiscal Years ended January 1, 2000, January 2, 1999 and January 3, 1998 Net sales Net sales in 1997, 1998 and 1999 were $742.5 million, $770.9 million and $782.4 million, respectively. The increase from 1997 to 1998 of $28.4 million, or 3.8 percent, was driven by increases in sales volume and pricing in our three largest product lines (Yearbook, Class Rings and Graduation Products). The increase from 1998 to 1999 of $11.5 million, or 1.5 percent, was driven by price increases in our School Products segment and volume increases in class rings and yearbook pages. These increases were offset by overall volume decreases in our other product lines. Price increases in 1998 and 1999 varied by product and ranged from zero to four percent. The following is an explanation of changes in net sales by business segment. School Products segment net sales in 1997, 1998 and 1999 were $624.5 million, $653.9 million and $675.5 million, respectively. The increase of $29.4 million, or 4.7 percent, from 1997 to 1998 was due to increased pricing in all school product lines and new marketing programs which resulted in higher sales of yearbooks and add-on features in our Yearbook product line. In addition, we had a 5.2 percent increase in Class Ring units sold in 1998 primarily due to sales of specially designed rings for students graduating in 1999, 2000 and 2001. These increases were offset by a decline in commercial printing volume as more production capacity was used to produce higher margin yearbooks, and a decrease in photography sales volume as we did not renew our relationships with a number of independent wholesale dealers whose volume generated unacceptable returns. In addition, we lost about $2.9 million in Class Rings and Graduation Products sales volume due to an independent sales group that left Jostens in mid-1998. The increase from 1998 to 1999 of $21.6 million, or 3.3 percent, was primarily driven by price increases in all school product lines and a unit volume increase of 2.2 percent in Class Rings, primarily due to strong sales in the high school market. In addition, we experienced yearbook page volume increases and higher sales of add-on features in our Yearbook product line. These increases were offset by a decline in commercial printing volume (used to fill excess capacity), higher than expected yearbook rebates and returns due to problems encountered with Jostens Direct Solutions ("JDS") (a direct payment program for parents of high school students), a decrease in photography sales volume due to closing eleven unprofitable retail sites and not renewing our relationships with a number of independent wholesale dealers. In addition, the first half of 1998 included approximately $9.9 million in Class Rings, Graduation Products, and Yearbook sales volume from an independent sales group that left Jostens in mid-1998. Recognition segment net sales in 1997, 1998 and 1999 were $103.7 million, $103.9 million and $97.0 million, respectively. In 1998, Recognition sales were flat with 1997 as we realigned sales management, drove internal efficiencies and streamlined business processes in advance of the installation of a new computer system that was implemented in 1999. The decrease of 6.7 percent from 1998 to 1999 was primarily due to lower sales volume caused by issues related to the new system implemented in the first quarter of 1999 as part of our year 2000 compliance efforts. The "Other" segment is comprised primarily of corporate expenses, the results of the direct marketing sales channel to college alumni, international sales and expenses and expenses associated with new product development. Net sales in 1997, 1998 and 1999 were $14.3 million, $13.1 million and $9.9 million, respectively. The decreases of $1.2 million in 1998 compared with 1997, and $3.2 million in 1999 compared with 1998 were primarily due to lower sales volume resulting from a decline in response rates and fewer mailings in our direct marketing program to college alumni. As part of the 1999 special charge, we decided to close down the direct marketing program to college alumni due to 1999 performance and forecasted decline in sales volume. In addition, we experienced international sales volume decreases from 1997 to 1998 due to sales representatives in Puerto Rico not renewing their contracts. We replaced these sales representatives in the second-half of 1999. 43 Gross Margin Gross margin in 1997 was 52.7 percent, compared with 54.4 percent in 1998 and 55.3 percent in 1999. The 2.6 percentage point increase in gross margin from 1997 to 1999 was primarily the result of increased pricing and manufacturing efficiencies. Improvements in 1998 included: . consolidating all photography processing into one facility; . a one-time pre-tax benefit of $3.7 million in 1998 due to a reduction in the remaining LIFO gold inventories resulting from our expansion of consigned gold; and . a decrease in raw material costs for class rings compared with 1997. Improvements in 1998 were offset by: . a one-time charge of $2.5 million in 1998 to consolidate all photography processing into one facility; and . a one-time pre-tax benefit of $6.8 million in 1997 due to a reduction in a portion of the LIFO gold inventories resulting from our decision to consign gold. Improvements in 1999 included: . exiting the ring production facility in Nuevo Laredo, Mexico, which experienced higher than expected costs, and moving all ring manufacturing back to the United States; and . closing eleven unprofitable retail photo sites. Improvements in 1999 were offset by: . approximately $2.5 million of expenses incurred in 1999 to exit the Nuevo Laredo, Mexico facility; . higher costs in 1999 due to problems encountered with JDS; and . higher costs in Recognition due to issues related to the new system implemented in the first quarter of 1999 as part of our year 2000 compliance efforts. Selling and Administrative Expenses Selling and administrative expenses in 1997, 1998 and 1999 were $291.5 million, $316.9 million and $330.9 million, respectively. The 8.7 percent increase in 1998 from 1997 and 4.4 percent increase in 1999 from 1998 were primarily the result of investments in information systems to ensure year 2000 readiness and higher costs associated with market development activities. Special Charge In the fourth quarter of 1999, we completed a strategic review of product lines, manufacturing operations, infrastructure projects, and support functions based on performance trends. In addition, we decided to refocus our organization on sales growth versus infrastructure improvement. As a result of this review, we incurred a pre-tax special charge of $20.2 million ($13.3 million after tax or $0.39 per share), which was approved by our Board of Directors. 44 Information relating to the special charge follows:
Balance end of Initial accrual Used in 1999 1999 --------------- ------------ -------------- (in millions) Employee termination benefits.. $ 4.9 $ -- $4.9 Abandonment of internal use software under development.... 6.4 6.2 0.2 Write-off of impaired goodwill related to retail class ring sales channel................. 4.6 4.6 -- Write-off of goodwill related to exiting the direct marketing sales channel to college alumni................ 3.1 3.1 -- Other costs related to exiting the direct marketing sales channel to college alumni..... 1.2 0.3 0.9 ----- ----- ---- $20.2 $14.2 $6.0 ===== ===== ====
Of the $20.2 million special charge, $4.8 million relates to the School Products segment and $15.4 million relates to our "Other" segment. Included in other accrued liabilities on the consolidated balance sheets is the unused portion of the special charge of $6.0 million, which will be used or paid in 2000. Of the total special charge, $4.9 million relates to employee termination benefits for the elimination of about 100 full-time positions, primarily in corporate staff and executive functions and in exiting the direct marketing sales channel to college alumni. Headcount reductions will be completed and termination benefits paid in 2000. We reviewed and modified our strategies for our retail class ring product line and, as a result, determined that the carrying value of the related goodwill was impaired based upon anticipated inadequate projected cash flows. Accordingly, an impairment charge of $4.6 million was recorded as part of the special charge for the write-off of all of the goodwill. We also reviewed our college alumni direct marketing business and decided in the fourth quarter of 1999 to close down the business due to 1999 performance and forecasted decline in sales volume. As a result of that decision, the remaining balance of the related goodwill of $3.1 million was written off and other exiting costs of $1.2 million were recorded. We estimate the pre-tax savings of the 1999 special charge to be approximately $8.0 million in 2000 and $10.0 million in 2001 and beyond. Operating Income (Loss) Operating income in 1997 was $99.7 million compared with $102.2 million in 1998 and, excluding the special charge of $20.2 million, $101.9 million in 1999. The following is an explanation of changes in operating income by business segment. School Products operating income in 1997 was $108.8 million compared with $127.0 million in 1998 and, excluding the special charge of $4.8 million, $146.7 million in 1999. The $18.2 million, or 16.7 percent, increase in 1998 compared with 1997 primarily resulted from: . consolidating all photography processing into one facility; . decreased cycle times and lower costs in Yearbooks due to operating plants with common management teams; . a one-time pre-tax benefit of $2.3 million in 1998 due to a reduction in the remaining LIFO gold inventories resulting from our expansion of consigned gold; . a decrease in raw material costs for class rings compared with 1997; and 45 . a one-time charge of $2.6 million in 1997 to close an announcement plant. These were partially offset by: . a one-time charge of $2.5 million in 1998 to consolidate all photography processing into one facility; . higher than expected costs associated with the Nuevo Laredo, Mexico facility; and . a one-time pre-tax benefit of $5.4 million in 1997 due to a reduction in a portion of the LIFO gold inventories resulting from our decision to consign gold. The $19.7 million, or 15.5 percent, increase in 1999 compared with 1998 primarily resulted from: . increased sales; and . manufacturing efficiencies due to exiting the Nuevo Laredo, Mexico facility and moving all ring manufacturing back to the United States. These were partially offset by: . approximately $2.5 million of expenses incurred in 1999 to exit the Nuevo Laredo, Mexico facility; and . higher costs in 1999 due to problems encountered with JDS. Recognition had operating income in 1997 of $8.9 million compared with operating income of $10.4 million in 1998 and an operating loss of $0.4 million in 1999. The $1.5 million increase in 1998 compared with 1997 was primarily the result of: . $3.3 million in material cost reductions, overhead spending reductions and production efficiency improvements; and . a partial offset by $1.8 million of additional investments in sales and marketing staff to realign sales management. The $10.8 million decrease in 1999 compared with 1998 was primarily due to: . decreased sales; . higher costs caused by issues related to the new system implemented in the first quarter of 1999 as part of our year 2000 compliance efforts; and . a one-time pre-tax benefit of $1.4 million in 1998 due to a reduction in the remaining LIFO gold inventories resulting from our expansion of consigned gold. Operating loss for our "Other" segment in 1997 was $18.1 million compared with $35.3 million in 1998 and, excluding the special charge of $15.4 million, $44.5 million in 1999. The $17.2 million increase in operating loss in 1998 compared with 1997 and $9.2 million increase in operating loss in 1999 compared with 1998 resulted primarily from: . higher costs related to investments in information systems as part of our year 2000 compliance efforts; and . higher costs associated with market development activities. Net Interest Expense Net interest expense was $6.3 million in 1997 compared with $6.7 million in 1998 and $7.0 million in 1999. The year-over-year increases reflect higher borrowings partially offset by a decline in average interest rates. 46 Write-off of JLC Notes Receivable, Net In June 1995 we sold our Jostens Learning Corp. ("JLC") curriculum software subsidiary to a group led by Bain Capital, Inc. As partial consideration for the sale, we received two notes which were subsequently discounted and recorded at their estimated fair values. In addition, a transaction gain of $13.2 million was deferred in accordance with the SEC Staff Accounting Bulletin No. 81, "Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity." The notes were subsequently recorded at their estimated fair value of $12.9 million, net of deferred gain. In January 1999, we received information indicating to us that the carrying value of the notes was permanently impaired. As a result, we wrote-off $12.0 million in 1998 for the carrying value of the notes, net of miscellaneous JLC- related assets and liabilities, plus $3.7 million of net deferred tax assets associated with the initial sale of JLC. We did not record a tax benefit related to the write-off for financial reporting purposes because the tax benefit may not be realized. Income Taxes Our 1997 effective income tax rate was 38.8 percent compared with 49.9 percent in 1998 and 42.2 percent in 1999. The 11.1 percentage point increase in 1998 from 1997 and the 7.7 percentage point decrease in 1999 from 1998 were primarily due to the write-off in 1998 of $3.7 million of net deferred tax assets related to our 1995 sale of JLC, and the fact that no tax benefit was recorded for financial reporting purposes on the JLC-notes that were written off. Other items that impacted our tax rates for the three years included: the recognition of $2.0 million of accumulated net operating loss carryforwards benefits in 1997 through the reversal of a deferred tax asset valuation reserve as a result of combining our U.S. Photography legal entity with the main U.S. businesses; a benefit of $0.8 million for the reduction of a valuation reserve in 1998 to reflect the utilization of previously reserved foreign tax credits as a result of executed tax planning strategies; and the write-off of $3.1 million of nondeductible goodwill in connection with the special charge in 1999. LIQUIDITY AND CAPITAL RESOURCES Our primary cash needs are for debt obligations, capital expenditures, working capital, and general corporate purposes. Cash generated from operating activities and proceeds in connection with the transaction including a new senior secured credit facility, issuance of the senior subordinated notes, issuance of redeemable preferred stock, and issuance of common stock were our main sources of liquidity for the six month period ended July 1, 2000. These funds covered our cash payments made in connection with the transaction, including $25.25 for each share of common stock tendered, debt acquisition costs and the pay-off of borrowings under the credit facilities existing prior to the transaction. In addition, we made investments in property and equipment. Cash generated from operating activities and availability under short-term borrowing agreements have been our principal sources of liquidity in 1997, 1998 and 1999. These funds covered our share repurchase, dividend payments, and investments in property and equipment and equity investments. We believe that cash flow from our operating activities, combined with the availability of funds under our new revolving credit facility will be sufficient to support our operations and liquidity requirements for the foreseeable future. Operating Activities Operating activities generated cash of $13.1 million in the first six months of 2000, compared with $67.3 million for the same period in the prior year. The decrease of $54.2 million was primarily due to lower net 47 income related to cash payments associated with the transaction. In addition, during the six months ended July 1, 2000, cash was unfavorably impacted by the timing of customer deposits and accounts payable and favorably impacted by reduced inventories. Operating activities generated cash of $116.7 million in 1997 compared with $101.6 million in 1998 and $125.2 million in 1999. The $15.1 million decrease in 1998 over 1997 primarily reflected a change in the timing of customer deposit collections resulting from a vendor change in the JDS program. The $23.6 million increase in cash generated in 1999 compared with 1998 was primarily due to increased customer deposits, partially offset by other working capital decreases. Investing Activities Capital expenditures for the first six months of 2000 were $7.2 million, compared with $13.3 million for the same period in 1999. The decrease of $6.1 million relates primarily to higher capital expenditures in 1999 on information systems. Capital expenditures in 1997, 1998 and 1999 were $24.4 million, $36.9 million and 27.8 million, respectively. The $12.5 million increase in 1998 over 1997 and the $9.1 million decrease in 1999 over 1998 was primarily due to higher spending in 1998 to replace information systems to ensure year 2000 compliance. In 1997, we invested $9.5 million to purchase Gold Lance, our retail class ring sales channel. An impairment charge of $4.6 million was recorded as part of the 1999 special charge for the write-off of goodwill associated with this sales channel. In 1999 we invested $10.6 million to take minority equity positions in three privately-held Internet-based companies which we believe will leverage our access into, and our sales representatives' relationships with, schools. Subsequent to July 1, 2000, we sold our entire ownership position in one of these investments for $5.0 million. Financing Activities Net cash used for financing activities in the first six months of 2000 was $7.9 million, compared with $43.8 million for the same period in 1999. The decrease of the net cash used for financing activities of $35.9 million was primarily due to proceeds from the new senior secured credit facility, issuance of the senior subordinated notes, issuance of redeemable preferred stock and issuance of common stock in connection with the transaction. In addition, we had no common stock repurchases in 2000 and no dividend was paid in the second quarter of 2000. These decreases were offset by payment of $25.25 for each share of common stock tendered in the transaction and the pay-off of credit facilities existing prior to the transaction. As a result of the recapitalization, we have significantly more debt which will result in much higher interest expense and a decline in operating cash flows which could adversely affect our future financial health. The senior secured credit facility requires that we meet certain financial covenants, ratios and tests including a maximum leverage ratio and a minimum interest coverage ratio. Dividends paid in 1997 were $34.2 million compared with $32.3 million in 1998 and $30.0 million in 1999. The year-over-year decreases are the result of common stock repurchases in each of the years. Our new credit facility and indenture governing the notes restrict us from paying dividends. 48 The following table summarizes total amounts available under various borrowing agreements as of the end of 1999:
Amount Expiration date Total amount available at the of agreement of agreement end of 1999 --------------- ------------ ---------------- (in millions) Five-year bank credit agreement...................... 12/20/2000 $180.0 $62.4 Unsecured demand facilities with three banks.................... (1) 54.5 54.5 Precious metals consignment arrangement (2)................ 5/31/2000 25.0 2.9 ------ ------ $259.5 $119.8 ====== ======
- -------- (1) Facilities are subject to periodic review from time to time and at least annually. (2) See Note 5 of Notes to Consolidated Financial Statements. COMMITMENTS AND CONTINGENCIES Environmental As part of our environmental management program, we are involved in various environmental remediation activities. As sites are identified and assessed in this program, we determine potential environmental liabilities. Factors considered in assessing liability include, but are not limited to: whether we have been designated as a potentially responsible party, the number of other potentially responsible parties designated at the site, the stage of the proceedings and available environmental technology. As of the end of 1999, we had identified three sites requiring further investigation. However, we have not been designated as a potentially responsible party at any site. We have assessed the likelihood that a loss has been incurred at one of these sites as probable, and based on findings included in remediation reports and from discussions with legal counsel, estimated the potential loss to be between $2.8 million to $3.8 million. For the six months ended July 1, 2000, we made payments of $1.0 million related to the costs of the remediation. As of July 1, 2000, we had a remaining accrual of $2.5 million which is included in "other accrued liabilities" on the consolidated balance sheets. While we may have a right of contribution or reimbursement under insurance policies, amounts recoverable from other entities with respect to a particular site are not considered until recoveries are deemed probable. No assets for potential recoveries were established as of the end of 1999. Litigation In January 1999, a federal judge in Texas overturned a jury's $25.3 million verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens' post-trial motions, set aside the jury's verdict and dismissed all claims against Jostens in the case. Yearbook competitor Taylor Publishing Company, the plaintiff in the case, has appealed the decision and is seeking to have the jury verdict reinstated. On July 10, 2000, the Fifth Circuit affirmed the trial court's entry of judgment as a matter of law on Jostens' behalf. On July 24, 2000, Taylor filed a petition with the Fifth Circuit to rehear the case in front of the panel that heard the appeal. The petition was denied. If the jury verdict is reinstated, the payment of damages would be material to our results of operations and could adversely affect our ability to make payments on the notes. Taylor has until October 23, 2000 to petition the U.S. Supreme Court to review the case. No costs were accrued related to the lawsuit because we believe a loss is not "probable and estimable." Following the public announcement of the merger, three purported class actions were filed, two on December 30, 1999 and the third on January 14, 2000, in the Fourth Judicial District of the District Court for the State of Minnesota, County of Hennepin. By order of the Honorable Daniel H. Mabley dated January 21, 2000, the Actions were consolidated, and the Complaint in File No. MC 99- 18533 was thereafter designated as the 49 Consolidated Complaint. An amended Consolidated Complaint was filed on February 23, 2000 and we filed an answer on March 24, 2000 denying all material allegations. On May 9, 2000, we agreed in principle to settle the three purported class actions. The settlement is subject to court approval. Jostens is a party to other litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. We believe the effect on our consolidated results of operations and financial position, if any, for the disposition of these matters will not be material. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is required to be adopted in years beginning after June 15, 2000. The effect of adopting the Statement is not currently expected to have a material effect on our future financial position or overall trends in results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), which summarizes certain of the SEC's views regarding the application of generally accepted accounting principles to revenue recognition in financial statements. We are in the process of analyzing the requirements of SAB 101 and are required to comply with its provisions by the fourth quarter of 2000. Management believes the ultimate outcome will not have a significant effect on our consolidated results of operations, financial position or liquidity. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk We are subject to market risk associated with changes in commodity prices, interest rates and foreign currency exchange rates. To reduce any one of these risks, we may at times use financial instruments. All hedging transactions are authorized and executed under clearly defined policies and procedures, which prohibit the use of financial instruments for trading purposes. Commodity Price Risk Our results of operations could be significantly affected by changes in the price of gold. To manage the risk associated with gold price changes, on an annual basis we simultaneously set our pricing to customers and enter into gold forward or option contracts based upon the estimated ounces needed to satisfy customer requirements. We prepared a sensitivity analysis as of the end of 1999 to estimate our exposure to market risk on our open gold forward purchase contracts. The fair market value of our gold positions was calculated by valuing each position at quoted futures prices as of the end of 1999 and 1998 and July 3, 1999, and was $18.0 million, $17.8 million and $17.8 million, respectively. The market risk associated with these contracts was $1.8 million as of the end of 1999, 1998, and July 3, 1999 and is estimated as the potential loss in fair value resulting from a hypothetical 10 percent adverse change in such prices. At July 1, 2000, we had no open gold forward purchase contracts. We anticipate we will enter into new contracts in the second half of 2000. Interest Rate Risk For 1999 and 1998 our earnings were affected by changes in short-term interest rates as a result of our issuing short-term commercial paper. For 2000, our earnings are affected by changes in the LIBOR as a result of our new senior secured credit facility. The fair market value of our long-term debt approximated the carrying value. If short-term interest rates or the LIBOR averaged 10 percent more or less in 1999 and 2000, our interest expense would have changed by approximately $1.3 million for the six month period in 2000 and $0.7 million for the year in 1999 and 1998. 50 As a result of the transaction, our earnings could be highly affected by changes in the London Interbank Offered Rate ("LIBOR") due to our new senior secured credit facility which bears a variable rate predominantly linked to the LIBOR as determined in three month intervals. To reduce our exposure to these interest rate changes, we entered into an interest rate swap agreement on July 7, 2000. The interest rate provided by the swap agreement is fixed at 7.0 percent in lieu of LIBOR. The swap agreement became effective on August 15, 2000 with a notional amount of $135 million, decreasing to $70.0 million quarterly over the next three years. The notional amount is used to measure the interest to be paid or received and does not represent the amount of exposure. Foreign Currency Risk We may enter into foreign currency forward contracts to hedge purchases of inventory in foreign currency. The purpose of these hedging activities is to protect us from the risk that inventory purchases denominated in foreign currencies will be adversely affected by changes in foreign currency rates. Our principal currency exposures relate to the Canadian dollar and German mark. We consider our market risk in such activities to be immaterial. Our foreign operations are primarily in Canada, and substantially all transactions are denominated in the local currency. Therefore, the exposure to exchange risks is not considered to be material. 51 BUSINESS Overview Jostens is the nation's leading provider of school-related affinity products and services including yearbooks, class rings and graduation products. We also have the leading market share for school photography services in Canada. In addition, we are a leading provider of corporate employee service recognition programs and achievement awards and products for athletic champions. Our 103- year history of manufacturing and providing quality products and superior service has enabled us to develop long-standing and extensive relationships with schools throughout the country. We estimate that U.S. sales of high school and college yearbooks, class rings and graduation products are approximately $1.5 billion annually. We believe that in recent years we have had a domestic market share in each of senior high school yearbooks, class rings and graduation products of approximately 45%. In the aggregate, for these product lines we believe that we have nearly twice the market share of our largest competitor. In 1999, we generated net sales of $782.4 million. Our two major business segments are School Products and Recognition. The School Products segment serves the high school, college and elementary school markets and accounted for 86.3% of our net sales in 1999. High schools accounted for approximately 85% of the segment's net sales in 1999. The School Products segment is comprised of four principal lines of products and services: Yearbooks, Class Rings, Graduation Products and Photography. The Recognition segment accounted for 12.4% of our net sales in 1999. This segment provides products and services that assist companies in recognizing and rewarding employee service and achievement of performance objectives. The Recognition segment also produces awards for professional sports team accomplishments and affinity products for special interest associations. The remainder of our net sales is derived primarily from school-related affinity products sales to Latin America and Europe. This segment accounted for approximately 1.3% of our net sales in 1999. Industry School-Related Affinity Products and Services The market for school-related affinity products has historically been characterized by stable revenues and cash flows. The industry is concentrated around five competitors who offer some combination of yearbooks, class rings and/or graduation products on a national level. The market for these products and services is estimated to be approximately $1.5 billion, with the vast majority of sales generated from the high school segment of the market. The U.S. Department of Education has projected that the number of high school graduates will increase by approximately 1.3% per year from 2.75 million in 1999 to 3.09 million by 2008, based on birth rates in the 1980s and early 1990s. 52 The following table shows the historical and projected number of U.S. high school graduates from 1983 to 2008: High School Graduates
High School High School Year Graduates Year Graduates (1) ---- -------------- ---- -------------- (in thousands) (in thousands) 1983................. 2,888 1996................. 2,573 1984................. 2,767 1997................. 2,573 1985................. 2,677 1998................. 2,653 1986................. 2,643 1999................. 2,751 1987................. 2,694 2000................. 2,847 1988................. 2,773 2001................. 2,875 1989................. 2,727 2002................. 2,887 1990................. 2,586 2003................. 2,909 1991................. 2,503 2004................. 2,972 1992................. 2,482 2005................. 2,976 1993................. 2,490 2006................. 2,985 1994................. 2,479 2007................. 3,044 1995................. 2,538 2008................. 3,093
- -------- Source: U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2008, October 1997. (1) Projected We believe that we are the largest of the national competitors in each of yearbooks, class rings and graduation products. Other national competitors include Herff Jones, Inc., Commemorative Brands Inc., Taylor Publishing Company and Walsworth Publishing Company. The high school and college market for yearbooks in the United States is approximately $585 million. The market for class rings in the United States is approximately $520 million. Approximately 75% of high school class rings are sold directly in schools and approximately 25% are sold through retail chains and local jewelers. The market for graduation products in the United States is approximately $430 million. The school photography market, estimated at approximately $1.0 billion for North America, is highly fragmented, with Lifetouch Inc. being the largest provider. We believe Jostens is the largest school photography provider in Canada. Providers of school-related affinity products and services compete on the basis of quality, customer service, on-time delivery, breadth of product offering and price. Barriers to new entrants in the school affinity products and services market are high primarily due to the highly customized nature of the products, which require significant capital investment on the part of the provider, and the established position of the existing competitors. Corporate Recognition Products and Services The corporate recognition products and services industry is highly fragmented with the four largest competitors collectively representing approximately 30% of the market. The corporate recognition products and services industry includes awards and programs that recognize employee achievement. We believe Jostens is the second largest national competitor in this industry with an approximate seven percent market share on a revenue basis. Other national competitors include O.C. Tanner Recognition Company, The Robbins Company and The Tharpe Company, Inc. Competition is based on breadth of product offering, program management and price. 53 Our recognition products fit within a broad collection of market niches and our competitors include a significant number of well developed and varied competitors. Recognition products are marketed through retail outlets, independent sales representatives (who develop programs with corporate and other clients), and directly to corporations through direct mail campaigns. School Products Segment We estimate that U.S. sales of high school and college yearbooks, class rings, and graduation products are approximately $1.5 billion annually. The market for school-related affinity products has historically been characterized by stable revenues and cash flows. We provide customized products, as well as dedicated technical support and customer service through our approximately 5,900 School Products employees and 13 manufacturing facilities. We have approximately 570 independent sales representatives who sell and distribute yearbooks, class rings and graduation products primarily to high schools in the United States. In addition, we have approximately 50 employee representatives who service colleges in the United States and focus primarily on selling and distributing class rings and graduation products. Our sales representatives establish and maintain extensive customer relationships with school officials and faculty and in the vast majority of cases we are designated by the schools as the sole supplier of particular school-related affinity products. Yearbooks We are the leading manufacturer of yearbooks sold to schools in the United States, serving approximately 45% of senior high schools in 1999. Our independent sales representatives coordinate with technical support employees based in our five printing facilities to assist students and faculty advisors with the planning, editing and layout of yearbooks. We also manage the production, printing and distribution of student-created yearbooks. With a new class of students each year and periodic faculty advisor turnover, our representative is often a school's point of continuity for the yearbook production process on a year-to-year basis. In 1997, we launched Jostens Direct Solutions ("JDS"), a program whereby selected high schools have authorized us to implement a direct payment program with parents of students. This program represents an improvement over the traditional method of payment and collections, where schools had to serve as an intermediary by collecting, holding and disbursing funds. JDS reduces administrative burdens for high schools by streamlining the yearbook order process and improves our collections and cash flow. We believe that JDS has also provided parents of students with a greater awareness of our broad yearbook product offerings, including customization options. We are investing in enhanced digital technology to meet student demand for increased color pages and to offer additional personalization and customization features. In addition to yearbooks, a small portion of Yearbook net sales is derived from printing commercial brochures and promotional books and materials. Yearbooks accounted for $262.8 million, or 38.9%, of the School Products segment net sales in 1999. Class Rings Jostens is the leading provider of class rings, serving approximately 46% of U.S. senior high schools in 1999. We manufacture and sell class rings primarily to high school students through our network of independent sales representatives. The authorized in-school access of the sales representatives allows them to stimulate demand through school-endorsed marketing campaigns, parents' nights and delivery-related events such as ring dances. Our extensive investment in proprietary ring dies and tooling, as well as our manufacturing expertise, enables us to offer highly customized class rings. Class Rings contributed $203.5 million, or 30.1%, of our School Products segment net sales in 1999. Approximately 75% of high school class rings in the United States are sold in schools and approximately 25% are sold through retail channels including mass merchandisers and local jewelry stores. We focus principally on the in- school market and maintain a relatively small share of the retail market. Class rings sold through retail jewelers and mass merchandisers are generally lower priced rings than class rings sold through schools. In addition, we believe that retail sales of class rings are characterized by lower margins than sales directly to the school market. 54 Graduation Products Jostens is the leading provider of graduation products, serving approximately 53% of U.S. senior high schools in 1999. We produce caps and gowns, diplomas and announcements, and sell these products as well as graduation-related accessories through the same sales representatives who sell our class rings. We have a proven track record of providing on-time delivery of our wide array of graduation products, a critical component of our customers' satisfaction. Graduation Products contributed $163.2 million, or 24.2%, of our School Products segment net sales in 1999. Photography Our sales of school photography services are divided between Canada and the United States. We believe that in Canada we are the leading provider, serving approximately 40% of students in 1999. Through our network of sales representatives we provide class and individual school pictures for high school, middle and elementary school students. Additionally, we provide high school senior portrait photography, photography for proms and other special events, and other photo-based products such as student ID cards. We are currently testing digital photography services for both school services and special events. Photography contributed $46.0 million, or 6.8%, of our School Products segment net sales in 1999. Recognition Segment Jostens is a leading provider of corporate recognition products and services with an estimated market share of seven percent of the U.S. market on a revenue basis in 1999. We serve customers ranging from small and mid-size companies to global corporations, professional sports teams and special interest associations. Our approximately 60 independent sales representatives, together with our employees, design and administer programs to assist customers in recognizing and rewarding employee service and performance. We also market rings to championship sports organizations of the NBA, NFL and Major League Baseball. We manufacture almost half the products sold including jewelry, rings, watches and engraved certificates. In addition, we market items manufactured by other companies, such as Lenox, Waterman, Howard Miller, Oneida and Waterford. The Recognition segment contributed $97.0 million, or 12.4%, of our net sales, in 1999. Competitive Strengths We attribute our leading position in the national school-related affinity products and services market and our significant opportunities for continued growth to the following competitive strengths: Market Leader in School Businesses Jostens is the U.S. market leader in yearbooks, class rings and graduation products with net sales that are nearly twice that of our nearest competitor. We estimate that we have been the market leader in yearbooks, class rings and graduation products for the past 25 years. We currently serve approximately 14,500 of the approximately 25,500 high schools in the United States, including approximately 11,600 of the approximately 16,700 senior high schools in the United States. We have an annual account retention rate of approximately 92%. We believe that our high retention rate is primarily due to our broad product offering, strong reputation for service, quality and on-time delivery, as well as our sales representatives' strong relationships with the schools they serve. Extensive Network of Experienced Sales Representatives Jostens has the industry's largest network of sales representatives for yearbooks, class rings and graduation products. Our sales representatives have an average tenure of 13 years. Schools typically provide exclusive, authorized access to sell yearbooks, class rings and graduation products. The process of marketing our school products and serving our customers is highly interactive and our independent sales representatives and employees work closely with school administrators and advisors and students. In addition, the creation of a 55 yearbook requires a great deal of in-school work in which the representatives' experience and input is critical. Similarly, the sales process for class rings is driven by school-authorized events and mandatory student meetings at which our sales representatives display and market class rings to students. In addition, the strong relationships that our highly experienced sales representatives have developed with schools, combined with Jostens' technical support, brand name and manufacturing capabilities have created the industry's leading distribution network. Highly Customized Products Our yearbooks, class rings and graduation products are highly personalized and require specialized manufacturing capabilities. Our continuing investment in these capabilities has enabled us to consistently provide high quality products to our customers in a timely fashion. Each of our major products has unique production characteristics: Yearbooks. The production of a yearbook requires extensive interaction among the school yearbook advisor, the student committee, our sales representative, our customer service department and our printing plant employees. Utilizing specialized publishing software, our sales representatives guide students through page layout and book organization and set interim deadlines to ensure production is completed on time. Our customer service and technical support team provides additional continuity in the yearly process, as there is a new student yearbook committee each year and periodic turnover among faculty advisors. As a yearbook is one of a student's most important high school keepsakes, the production and on- time delivery of a high quality product is essential. Class Rings. The production of a class ring involves a high degree of skilled and experienced labor. Each school works with our artists and die makers to design and create unique class rings. We maintain an inventory of approximately 1.5 million unique, proprietary ring dies that would be expensive and time consuming to replicate. Rings are further customized by adding a student's name, activities or other personalization. Our skilled labor force operating in four manufacturing facilities produces approximately 1.1 million rings per year. Graduation Products. We provide highly customized and personalized announcements, caps and gowns and diplomas to over one million students annually. Our sales representatives work with a school's graduation committee each year to design an announcement, which can contain a number of custom features, including the school's official crest. We maintain an inventory of over 70,000 school crest dies, and have hand-rendered etchings of over 22,000 school buildings and mascots, for use on both announcements and diplomas. In addition to these products, which are typically customized to the school-level, we offer over 30 accessory products to students, many of which may be further customized with school colors or crests and personalized with a student's name or initials. Strong and Experienced Management Team Jostens is led by an experienced team of senior officers and managers with a record of achieving growth, maintaining long-term relationships with our customers, improving the appeal of existing products and services and successfully bringing to market new products and services. Our five most senior executives collectively have over 40 years of management experience at Jostens. Business Strategy Our objective is to continue to be recognized as the nation's leading provider of school-related affinity products and services. To achieve this objective, we are focusing on the following strategies: Expand Jostens Direct Solutions Program In 1997, Jostens launched JDS, a program whereby selected high schools have authorized us to contact parents directly. Typically, yearbooks are sold by student committees supervised by a faculty adviser. Through JDS we send yearbook request forms directly to students and their parents at their homes. This allows 56 us to provide easy-to-use direct payment methods, eliminating the burdens of processing paperwork and handling funds for school officials. In addition, we believe parents find it more convenient to buy yearbook accessories and customization features when marketed directly to the home. JDS has improved our working capital due to a more efficient order and payment process. Currently, we offer JDS to approximately 25% of our yearbook customers, and we expect to continue to introduce JDS to additional schools. Enhance Core Product Offerings We are investing in existing technologies that we believe will enable us to increase product customization and personalization and operate more efficiently. We are developing a series of initiatives in our School Products segment that will allow us to offer enhanced features in our existing product offerings on a cost effective basis. For example, we currently intend to utilize advances in digital technology both to increase color capacity in yearbooks and to offer more highly customized graduation announcements. Complement In-School Access with Internet Capabilities We believe the Internet provides a strong complement to our traditional sales processes by allowing us to leverage our existing distribution network, strong brand name and long-standing customer relationships through an additional sales channel. The Internet also presents opportunities for us to improve our order taking and processing efficiency and to increase product awareness. Additionally, our management is creating a portfolio of investments in Internet-based companies which we believe complements our access into, and our existing relationships with, schools. Our Internet investments are comprised of: Project Achieve, an Internet-based information management system that integrates and tracks a variety of student and school information; and Planet Alumni, an on-line community for high school alumni and students. Continue Operational Improvements Jostens has fostered a corporate culture that continually works to reduce costs. Since 1996, we have closed or consolidated six manufacturing facilities and have improved our manufacturing efficiencies at currently operating facilities. We believe there are significant additional cost savings that can be attained in the near term. We have implemented several initiatives designed to simplify our class ring and graduation products ordering and fulfillment processes and our yearbook production process. We believe these initiatives will further increase our efficiencies and reduce our operating costs. Marketing and Sales We believe we have the largest sales force in the school-related affinity products and services industry. Our School Products sales representatives gain access to high schools through administrators or student representatives who are involved in the selection process. Once selected, the sales representative coordinates between the school and our customer service and plant employees to ensure satisfactory quality and service. Yearbooks are sold directly to schools by our sales representatives and their associates. Class rings are sold within the school through temporary order-taking booths, bookstores, other campus stores and retail jewelry stores. Our sales representatives make calls on schools and take sales orders for graduation products through temporary order- taking booths, telemarketing programs, college bookstores and the Internet. Our photography services are sold by our sales representatives who arrange the sittings at individual schools or in their own studios. Our independent sales representatives typically operate under one to three year contracts with exclusive non-compete arrangements that prohibit sales of competing products during the term of the arrangement 57 and for a period of time, generally two years, thereafter. Independent sales representatives may employ one or more additional sales representatives in addition to part-time or full-time assistants. We compensate our independent sales representatives on a commission basis, and most independent sales representatives receive an annual draw against commissions earned. In addition, all of an independent sales representative's expenses are the responsibility of the representative, including the cost of promotional materials which we design and produce. Manufacturing Our School Products segment is supported by 13 manufacturing facilities. Of these facilities, five are involved in the production of yearbooks, four in class rings, three in graduation products and one produces photographs for our North American photography product lines. We continually invest in our manufacturing facilities to achieve process improvements and believe these investments along with our significant experience in the industry have made us one of the most efficient manufacturers of school-related affinity products. Additionally, by investing to establish these capabilities, we have been able to consistently provide high quality products to our customers in a timely fashion. Our Recognition segment is supported by one manufacturing plant which produces customized jewelry products such as rings, charms and medallions. We also purchase and customize brand-name products such as watches and electronic goods which are assembled at two additional facilities. Competition School Products The school-related affinity products and services industry consists primarily of national manufacturers and a number of small regional competitors. We are one of five national competitors in the sale of yearbooks, class rings and/or graduation products along with Herff Jones, Inc., Commemorative Brands Inc., Taylor Publishing Company and Walsworth Publishing Company. We believe that we are the largest of the national competitors in yearbooks, class rings and graduation products based on number of schools served. Herff Jones, Inc. is the only national manufacturer, other than us, that sells each of these three product lines. However, both Commemorative Brands, Inc. and Taylor Publishing Company are owned by affiliates of Castle Harlan, Inc., a New York-based merchant bank, and collectively offer all three products. We believe that due to the size of the market, the time required to develop relationships with schools, the cost of acquiring the equipment and the expertise required for the customization of products, there have been few new entrants since the 1970s. Yearbooks. Our principal competition consists of three firms: Herff Jones, Inc., Taylor Publishing Company and Walsworth Publishing Company. All compete on the basis of product offerings, price, print quality, and customer service. Technological offerings in the way of computer-based publishing are becoming significant market differentiators. Class Rings. Our competition in class rings consists primarily of two national firms, Herff Jones and Commemorative Brands, Inc. (which markets the Balfour and ArtCarved brands). Herff Jones, Inc. distributes its product in schools, in a manner similar to ours, while Commemorative Brands, Inc. distributes its product through multiple distribution channels including schools, independent and chain jewelers and mass merchandisers. Class rings sold through independent and chain jewelers and mass merchandisers are generally lower priced rings than class rings sold through schools. Customer service is particularly important in the sale of class rings because of the high degree of customization and the emphasis on timely delivery. Graduation Products. Like class rings, our primary competition in graduation products consists primarily of Herff Jones, Inc. and Commemorative Brands, Inc. In addition, numerous local and regional competitors offer products similar to ours. Participants in the graduation products market compete on the basis of on-time delivery, price and breadth of product offerings. 58 Photography. Our sales of school photography services are divided between Canada and the United States. In Canada, we compete with a variety of regional and local photographers. In the United States our primary competitors are Lifetouch Inc. and Herff Jones, Inc. as well as regional and local photographers. With respect to photography services we compete on the basis of quality, price and on-time delivery. Recognition Our Recognition business competes primarily with O.C. Tanner, The Robbins Company, and The Tharpe Company, Inc. on a national basis, as well as a large number of regional companies. Our Recognition business focuses on service and product offerings in competing with these companies. Raw Materials and Suppliers The principal raw materials that we purchase are gold, paper products and precious, semiprecious and synthetic stones. The cost of gold and precious, semiprecious and synthetic stones are affected by market volatility. Any increase in the price of gold could adversely affect our cost of sales. To manage the risk associated with gold price changes, on an annual basis we simultaneously set our pricing to customers and enter into gold forward or option contracts based upon the estimated ounces needed to satisfy customer requirements. We purchase substantially all synthetic and semiprecious stones from a single supplier, located in Germany. This supplier provides semiprecious and synthetic stones to almost all of the class ring manufacturers in the United States. We believe that the loss of this supplier could adversely affect our business during the time period in which alternate sources adapted their production capacities to meet increased demand. Backlog Because of the nature of our business, generally all orders are filled within a few months from the time of placement. However, our School Products segment obtains student yearbook contracts in one year for a significant portion of the yearbooks to be delivered in the next year. Often the prices of the yearbooks are not established at the time of the order because the content of the books may not be finalized. Subject to the foregoing qualifications, we estimate the backlog of orders related to continuing operations was approximately $305 million as of the end of 1999, compared with $292 million as of the end of 1998, primarily related to student yearbooks, class rings and graduation products. Most of our 1999 backlog was filled in 2000. Environmental Our operations are subject to a wide variety of federal, state and local laws and regulations governing emissions to air, discharge to waters, the generation, handling, storage, transportation, treatment and disposal of hazardous substances and other materials, and employee health and safety matters. As part of our environmental management program, we are involved in various environmental remediation activities. As sites are identified and assessed in this program, we determine potential environmental liability. We consider a number of factors in order to assess liability, including: whether we had been designated as a potentially responsible party, the number of other potentially responsible parties designated at the site, the stage of the proceedings and available environmental technology. As of January 1, 2000, we had identified three sites requiring further investigation. However, we have not been designated as a potentially responsible party at any site. We believe that it is probable that a loss has been incurred at one of our sites and, based on findings included in remediation reports and discussions with legal counsel, we estimate the total cost of this remediation to be between $2.8 million to $3.8 million. We have made payments of approximately $2.3 million during fiscal 2000 related to the costs of this remediation. As of July 31, 2000, we had a remaining accrual of $1.2 million. While we may have a right of contribution or reimbursement under insurance policies, we are not 59 considering amounts recoverable from other entities with respect to a particular site until recoveries are deemed probable. No assets for potential recoveries were established as of January 1, 2000. Employees On average, we employ approximately 6,200 people, of whom approximately 300 are members of two separate unions. Due to the seasonal nature of our business, our number of employees tends to vary significantly. We have never suffered an interruption of business that had a material impact on our operations as a result of a labor dispute and consider our relationship with our employees to be good. Intellectual Property We have licenses, trademarks and copyrights that in aggregate are an important part of our business. However, we do not regard our business as being materially dependent upon any single license, trademark or copyright. We have trademark registration applications pending and will pursue other registrations as appropriate to establish and preserve our intellectual property rights. Properties A summary of the physical properties that we use, arranged according to significant business segments, follows:
Business Owned or Approximate Segment Location Type of Property Leased Square Footage - ----------- ------------------- ------------------- -------- -------------- School Products Anaheim, CA Office Leased 12,000 Attleboro, MA Manufacturing Owned 52,000 Burnsville, MN Manufacturing Leased 47,000 Clarksville, TN Manufacturing Owned 105,000 Denton, TX Manufacturing Owned 56,000 Laurens, SC Manufacturing Owned 98,000 Laurens, SC Warehouse Leased 105,000 Laurens, SC Warehouse Leased 73,500 Owatonna, MN Office Owned 88,000 Owatonna, MN Manufacturing Owned 30,000 Owatonna, MN Warehouse Leased 29,000 Red Wing, MN Manufacturing Owned 132,000 Shelbyville, TN Manufacturing Owned 87,000 State College, PA Manufacturing Owned 66,000 Topeka, KS Manufacturing Owned 236,000 Visalia, CA Manufacturing Owned 96,000 Winnipeg, MAN Manufacturing Owned 69,000 Winnipeg, MAN Office Leased 28,000 Winston-Salem, NC Manufacturing Owned 132,000 Webster, NY (1) Manufacturing Owned 60,000 Recognition Memphis, TN Distribution Center Owned 67,000 Princeton, IL Manufacturing Owned 65,000 Princeton, IL Building Owned 14,750 Saddle Brook, NJ (2) Office Leased 6,000 Sherbrooke, QUE Distribution Center Leased 15,000 Other Bloomington, MN Office Owned 116,000 Bloomington, MN Office Leased 37,000
- -------- (1) Closed and currently held for sale. (2) Currently subleasing. We believe that our production facilities are suitable for their purpose and are adequate to support our businesses. The extent of utilization of individual facilities varies due to the seasonal nature of our business. 60 Legal Proceedings In January 1999, a federal judge in Texas overturned a jury's $25.3 million verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens' post-trial motions, set aside the jury's verdict and dismissed all claims against Jostens in the case. Yearbook competitor Taylor Publishing Company, the plaintiff in the case, has appealed the decision and is seeking to have the jury verdict reinstated. On July 10, 2000, the Fifth Circuit affirmed the trial court's entry of judgment as a matter of law on Jostens' behalf. On July 24, 2000, Taylor filed a petition with the Fifth Circuit to rehear the case in front of the panel that heard the appeal. The petition was denied. If the jury verdict is reinstated, the payment of damages would be material to our results of operations and could adversely affect our ability to make payments on the notes. Taylor has until October 23, 2000 to petition the U.S. Supreme Court to review the case. No costs were accrued related to the lawsuit because we believe a loss is not "probable and estimable." Following the public announcement of the merger, three purported class actions were filed, two on December 30, 1999 and the third on January 14, 2000, in the Fourth Judicial District of the District Court for the State of Minnesota, County of Hennepin. By order of the Honorable Daniel H. Mabley dated January 21, 2000, the Actions were consolidated, and the Complaint in File No. MC 99- 18533 was thereafter designated as the Consolidated Complaint. An amended Consolidated Complaint was filed on February 23, 2000 and we filed an answer on March 24, 2000 denying all material allegations. On May 9, 2000, we agreed in principle to settle the three purported class actions. The settlement is subject to court approval. Jostens is a party to other litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. We believe the effect on our consolidated results of operations and financial position, if any, for the disposition of these matters will not be material. International Operations Our foreign sales are derived primarily from our operations in Canada. Local taxation, import duties, fluctuation in currency exchange rates and restrictions on exportation of currencies are among the risks attendant to foreign operations, but we do not consider these risks to be material with respect to our business. The profit margin on foreign sales is approximately the same as our profit margin on domestic sales. 61 MANAGEMENT The following table sets forth certain information regarding our directors and executive officers.
Name Age Title - ---- --- ----- Robert C. Buhrmaster.... 53 Chairman of the Board of Directors, President and Chief Executive Officer William N. Priesmeyer... 55 Senior Vice President and Chief Financial Officer Carl H. Blowers......... 60 Senior Vice President--Manufacturing Michael L. Bailey....... 44 Senior Vice President--School Solutions Gregory S. Lea.......... 48 Vice President--Business Ventures William J. George....... 51 Vice President, General Counsel and Corporate Secretary Lee U. McGrath.......... 44 Vice President and Treasurer Charles J. Philippin.... 50 Director James O. Egan........... 51 Director Charles K. Marquis...... 57 Director Steven G. Puccinelli.... 41 Director George Visnyei.......... 51 Director David A. Tayeh.......... 33 Director Robert G. Sharp......... 35 Director
Robert C. Buhrmaster joined Jostens in December 1992 as Executive Vice President and Chief Staff Officer. He was named President and Chief Operating Officer in June 1993; was named Chief Executive Officer in March 1994; and was named Chairman in February 1998. Prior to joining Jostens, Mr. Buhrmaster worked for Corning, Inc. for 18 years, most recently as Senior Vice President. He is also a director of The Toro Company. William N. Priesmeyer joined Jostens in August 1997 in his current position. From April to August 1997, Mr. Priesmeyer was Senior Vice President and CFO of MVE Holdings. From 1994 to 1997, he was Senior Vice President and CFO with Waldorf Corp.; and from 1993 to 1994 was Vice President and CFO for DataCard Corp. Michael L. Bailey joined Jostens in 1978. He has held a variety of leadership positions including director of marketing, planning manager for manpower and sales, national product sales director, division manager for Yearbooks, printing operations manager and Vice President--Jostens School Solutions. He was appointed to his current position in February 2000. Carl H. Blowers joined Jostens in May 1996 as an independent consultant serving as Division Vice President, Manufacturing & Engineering and was hired as an employee in 1997. He was appointed to his current position in February 1998. Prior to joining Jostens, Mr. Blowers worked for Corning, Inc. for 27 years, most recently as Vice President and General Manager of Corning's Advanced Materials and Process Technologies Division. Gregory S. Lea joined Jostens in November 1993 as Vice President--Total Quality Management. From June 1995 to January 2000 he was Vice President and General Manager--Colleges and Universities. He was named to his current position in February 2000. Prior to joining Jostens, Mr. Lea spent 19 years with International Business Machines Corp. in various financial, operations and quality positions. William J. George joined Jostens in February 1999 in his current position. From 1995 to 1999, Mr. George was Vice President, General Counsel and Secretary of Simplex Time Recorder Co. From 1978 to 1995, he worked for Honeywell, Inc., most recently as Vice President and Associate General Counsel. 62 Lee U. McGrath joined Jostens in May 1995 in his current position. For the six years prior to joining Jostens, he was the assistant treasurer for H.B. Fuller Company. Charles J. Philippin became one of our directors upon consummation of the recapitalization. Mr. Philippin was an executive of Investcorp or one or more of its wholly owned subsidiaries from 1994 until this year. Prior to joining Investcorp, Mr. Philippin was a partner in the accounting firm of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP). Mr. Philippin is currently the Chief Executive Officer of Online Retail Partners. James O. Egan became one of our directors upon consummation of the recapitalization. Mr. Egan has been an executive of Investcorp or one or its wholly owned subsidiaries since January 1999. Prior to joining Investcorp, Mr. Egan was a partner in the accounting firm of KPMG from October 1997 to December 1998. Prior to that, Mr. Egan was a Senior Vice President and Chief Financial Officer of Riverwood International, a paperboard, packaging and machinery company, from May 1996 to September 1997. Prior to that, Mr. Egan was a partner in the accounting firm of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP). Mr. Egan is a director of CSK Auto Corporation, Harborside Healthcare Corporation and Werner Holding Co. (DE), Inc. Charles K. Marquis became one of our directors upon consummation of the recapitalization. Mr. Marquis has been a senior advisor to Investcorp or one or more of its wholly owned subsidiaries since January 1999. Prior to joining Investcorp, Mr. Marquis was a partner in the law firm of Gibson, Dunn & Crutcher, LLP. Mr. Marquis is a director of CSK Auto Corporation, Stratus Computer Systems International S.A., Tiffany & Co., and Werner Holding Co. (DE), Inc. Steven G. Puccinelli became one of our directors in July 2000. Mr. Puccinelli has been an executive of Investcorp or one or more of its wholly owned subsidiaries since July 2000. Prior to joining Investcorp, Mr. Puccinelli was a Managing Director at Donaldson, Lufkin & Jenrette. George Visnyei became one of our directors in August 2000. Mr. Visnyei has been an executive of Investcorp or one or more of its wholly owned subsidiaries since 1996. Prior to joining Investcorp, Mr. Visnyei was a partner with Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP). David A. Tayeh became one of our directors upon consummation of the recapitalization. Mr. Tayeh has been an executive of Investcorp or one or more of its wholly owned subsidiaries since February 1999. Prior to joining Investcorp, Mr. Tayeh was a Vice President in investment banking at Donaldson, Lufkin & Jenrette. Robert G. Sharp became one of our directors upon consummation of the recapitalization. Mr. Sharp has been an executive of DB Capital Partners, Inc., the general partner of DB Capital Investors, since October 1999. Prior to joining DB Capital Investors, Mr. Sharp was an executive at Investcorp or one or more of its wholly owned subsidiaries. 63 Executive Compensation The following table sets forth the cash and non-cash compensation for 1999, 1998 and 1997 awarded to or earned by the Chief Executive Officer, the four other most highly compensated executive officers, and one former executive officer of Jostens. Summary Compensation Table
Annual Compensation Long-term compensation ------------------ ---------------------- Restricted Securities All Other Stock Underlying Compen- Name and Principal Position Year Salary Bonus (1) Awards (2) Options (#) sation (3) - --------------------------- ---- -------- --------- ---------- ----------- ---------- Robert C. Buhrmaster.... 1999 $536,154 $273,266 $243,873 100,000 $ -- Chairman of the Board, 1998 496,154 324,000 -- 75,000 286,344 President and Chief 1997 467,307 167,227 -- 60,000 -- Executive Officer David J. Larkin......... 1999 $348,650 $153,516 $143,028 55,000 $492,000 Executive Vice 1998 304,927 138,918 10,639 100,000 225,785 President and 1997 -- -- -- -- -- Chief Operating Officer (4) Carl H. Blowers......... 1999 $296,471 $124,524 $115,909 25,000 $ -- Senior Vice President 1998 290,097 118,288 -- 70,000 100,221 Manufacturing (5) 1997 249,231 66,746 -- 21,000 -- William N. Priesmeyer... 1999 $262,490 $153,536 $120,144 50,000 $ -- Senior Vice President 1998 229,154 70,490 15,491 85,000 162,186 and 1997 72,692 23,663 -- 21,000 -- Chief Financial Officer (6) Thomas W. Jans.......... 1999 $201,891 $ 63,717 $ 60,974 20,000 $202,550 Vice President-- 1998 195,261 100,006 -- 31,500 71,586 Consumer Marketing and 1997 197,308 27,207 35,719 30,000 -- Channel Development (7) John J. Mann............ 1999 $113,465 $ 86,846 $ -- 25,000 $313,998 Vice President and 1998 209,231 72,463 -- 41,500 71,586 General Manager-- 1997 207,692 66,485 35,719 30,000 -- Scholastic (8)
- -------- (1) Bonuses for 1999, 1998 and 1997 were paid in February of the following year. Amounts in 1999 include payments under the Performance Pays bonus program as follows: Mr. Buhrmaster: not eligible; Mr. Larkin, $12,900; Mr. Blowers, $10,969; Mr. Priesmeyer, $9,712; Mr. Jans, $7,470; and Mr. Mann, not eligible. Amounts in 1998 include payments under the Performance Pays bonus program as follows: Mr. Buhrmaster: not eligible; Mr. Larkin, $11,343; Mr. Blowers, $10,792; Mr. Priesmeyer, $8,525; Mr. Jans, $7,264; and Mr. Mann, $7,783. Amounts in 1997 include payments under the Performance Pays bonus program as follows: Mr. Buhrmaster, $5,227; Mr. Blowers, $2,788; Mr. Priesmeyer, $1,163; Mr. Jans $2,207; and Mr. Mann, $2,323. The Performance Pays bonus program was introduced in 1997 for all of Jostens' non-union employees and is based on Jostens' net income performance. (2) Amounts in 1999 include awards of restricted stock under the Executive Stock Purchase Program. The total number and value of restricted stock holdings as of the end of 1999 was calculated by multiplying the average of the high and low trading prices of our common stock on the last trading day of 1999 ($24.2188) by the number of restricted shares held for the named officers as follows: Mr. Buhrmaster, 10,135 shares valued at $245,458; Mr. Larkin, 6,411 shares valued at $155,267; Mr. Blowers, 4,817 shares valued at $116,662; Mr. Priesmeyer, 5,673 shares valued at $137,393; and Mr. Jans, 4,034 shares valued at $97,699. Amounts in 1998 were for restricted stock awarded to Mr. Larkin and Mr. Priesmeyer as part of their bonus and vest three years from the date of grant. Amounts in 1997 were for restricted stock awarded to Mr. Jans and Mr. Mann upon their appointment as officers in May 1997 and upon Mr. Mann's date of hire in April 1996. 64 (3) The 1999 amounts for Mr. Larkin and Mr. Jans are accruals related to the termination of their employment as part of the restructuring plan announced in the fourth quarter of 1999. The accrual amounts were estimated based on terms set forth in the Executive Severance Pay Plan. The 1999 amount for Mr. Mann is for salary continuation and other benefits paid or to be paid by Jostens under his separation agreement. Amounts in 1998 include conversion of performance shares granted in 1997 for 1998 company performance. Performance shares were earned at 110 percent of targets. One- half of the amounts were paid in cash and the other half was paid in our common stock based on the average of the high and low trading prices of our common stock on the last trading day of 1998 ($26.0313). The 1998 amounts listed for Mr. Larkin and Mr. Priesmeyer also include the portion of their 1998 bonus they elected to have paid in our common stock, $42,525 and $61,965, respectively. (4) Mr. Larkin joined Jostens in February 1998. His employment with Jostens was terminated as part of the restructuring plan announced in the fourth quarter of 1999. (5) Mr. Blowers joined Jostens in May 1996 as an independent consultant and became an employee of Jostens in 1997. He was appointed to his current position in February 1998. (6) Mr. Priesmeyer joined Jostens in August 1997. (7) Mr. Jans' employment with Jostens was terminated as part of the restructuring plan announced in the fourth quarter of 1999. (8) Mr. Mann resigned from Jostens in August 1999 as his position was eliminated. Mr. Mann and Jostens reached a mutually acceptable separation agreement in which his compensation and certain benefits will continue through August 2000. Option Grants The following table sets forth information concerning stock options granted in 1999, including the potential realizable value of each grant assuming that the market value of our common stock appreciates from the date of grant to the expiration of the option at annualized rates of (a) 5% and (b) 10%, in each case compounded annually over the term of the option. These assumed rates of appreciation have been specified by the Securities and Exchange Commission for illustrative purposes only and are not intended to predict future prices of our common stock, which will depend upon various factors, including market conditions and our future performance and prospects. Option Grants in 1999
Individual Grants -------------------------------------------- Potential realizable value at assumed annual rates of Number of % of total stock price securities options appreciation underlying granted to Exercise for option term options employees price Expiration --------------------- Name granted (#) in 1999 ($/share) date (1)(2) 5% 10% - ---- ----------- ---------- --------- ----------- ---------- ---------- Robert C. Buhrmaster.... 100,000 13.23% $22.7813 2/4/09 $1,432,703 $3,630,753 David J. Larkin......... 55,000 7.28% 22.7813 2/4/09 787,987 1,996,914 Carl H. Blowers......... 25,000 3.31% 22.7813 2/4/09 358,176 907,688 William N. Priesmeyer... 50,000 6.61% 22.7813 2/4/09 716,352 1,815,376 Thomas W. Jans.......... 20,000 2.65% 22.7813 2/4/09 286,541 726,151 John J. Mann............ 25,500 3.31% 22.7813 2/4/09 358,176 907,688
- -------- (1) Options not yet exercisable generally become exercisable upon a change in control as defined in our Executive Change in Control Severance Pay Plan. The exercise price may be paid in cash, in shares of Jostens' common stock subject to certain conditions or pursuant to a cashless exercise procedure. The proposed merger and recapitalization will constitute a change in control as a result of which all outstanding options will vest and be cancelled in exchange for a cash payment equal to the difference between $25.25 per underlying share and the applicable exercise price. (2) Options become exercisable in equal installments on February 4 of 2000, 2001 and 2002 so long as employment with Jostens or any of its subsidiaries continues. 65 The following table sets forth information concerning the aggregate number of options held and the value of unexercised "in-the-money" options held at the end of 1999, the difference between the aggregate exercise price of all such options held and the market value of the shares covered by such options as of the end of 1999. No options by the named officers were exercised in 1999. Year End 1999 Option Values
Number of securities Value of unexercised underlying unexercised in-the-money options options at year end 1999 at year end 1999 (1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Robert C. Buhrmaster........ 466,000 170,000 $2,291,223 $181,250 David J. Larkin............. 33,333 121,667 25,000 129,063 Carl H. Blowers............. 55,333 78,667 96,813 70,938 William N. Priesmeyer....... 42,333 113,667 21,250 114,375 Thomas W. Jans.............. 61,420 46,000 48,800 44,500 John J. Mann ............... 46,333 -- 33,110 --
- -------- (1) Based on the average of the high and low trading prices of our common stock on the last trading day of 1999 ($24.2188). Additional Compensation At its meeting held on December 22, 1999, the Jostens board of directors approved additional compensation for Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea for services to be rendered after the merger in connection with our transition to new ownership, including managing the transition process from financial reporting, public relations and sales and marketing perspectives, in an amount equal to $2.5 million in the aggregate. The $2.5 million was allocated among Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea as follows:
Additional Name Compensation ---- ------------ Mr. Buhrmaster.................................................. $500,000 Mr. Priesmeyer.................................................. $800,000 Mr. Blowers..................................................... $400,000 Mr. Bailey...................................................... $500,000 Mr. Lea......................................................... $300,000
Compensation Committee Interlocks and Insider Participation Mr. Jack W. Eugster, Mr. Mannie L. Jackson and Ms. Brenda J. Lauderback served as members of the Compensation Committee during fiscal year 1999. Neither Mr. Eugster, Mr. Jackson nor Ms. Lauderback was an officer or employee of Jostens or any of its subsidiaries during 1999. Each of Mr. Eugster, Mr. Jackson and Ms. Lauderback were removed from the Board of Directors as well as the Compensation Committee at the effective time of the merger. Termination of Employment and Change in Control Arrangements Termination of Employment In August of 1999, we entered into a separation agreement with Mr. Mann. The terms of the agreement provide that Mr. Mann will receive salary and perquisites through August 2000, a management bonus of $36,846 for the first half of 1999, and an additional performance bonus of $50,000. In addition, Mr. Mann will receive an amount covering the difference of any COBRA premiums and the premiums paid for coverage by similarly situated active employees. 66 Executive Change in Control Severance Pay Plan In 1999, we implemented the Jostens' Executive Change in Control Severance Pay Plan (the "Plan"). The primary purpose of the Plan is to provide severance benefits for our Chief Executive Officer and other members of management or highly compensated employees selected to participate in the Plan by our Chief Executive Officer, whose employment is terminated during the 24-month period following a change in control (as defined in the Plan). The merger was deemed to be a "change in control" under the Plan. Plan participants are eligible to receive severance benefits if their employment is terminated either voluntarily with "good reason" (as defined in the Plan) or involuntarily for any reason other than death or for "cause" (as defined in the Plan). The amount of severance benefits received by a particular employee is based upon the employee's position in Jostens and the employee's base salary plus the higher of the current year's annual incentive target bonus or the three year average of the actual incentive bonus payments to the participant for the three prior years. The range of severance benefits is from 15 months to 36 months and would be paid in a lump sum upon termination. Plan participants are also eligible to receive an additional cash payment from us to the extent the total payments received from this Plan or any other benefit plan is treated as an "excess parachute payment" within the meaning of Section 280(G) of the Internal Revenue Code of 1986, as amended. Such payment would be in an amount necessary so that the net amount received by the terminated participant would equal the payment he would receive if the payment were not treated as an "excess parachute payment". Executive Stock Purchase Program In 1998, our Board of Directors approved an Executive Stock Purchase Program (the "Program") sponsored by Jostens. The Program offered certain executives a one-time opportunity to purchase Jostens' common stock, at current market price, through unsecured, full-recourse loans financed by The First Chicago National Bank and guaranteed by Jostens. The dollar value of shares that participants were authorized to purchase under the Program was one to three times their base salary, depending upon the executive's position within Jostens. A minimum purchase of 50 percent of the authorized value was required in order to participate. Our Board of Directors also authorized a grant of restricted shares of common stock equal to 15 percent of the number of shares that each participant purchased in the Program. The restricted stock awards under this Program vest five years from the date of grant. Dividends from the stock purchased under this Program and the restricted stock may be applied to the quarterly interest payments due on the loans. The remainder of the interest will be capitalized and due at the end of the five-year loan period. Five of the named executive officers in the Summary Compensation Table elected to participate in this Program. The principal amounts of loans to the named executive officers and guaranteed by Jostens are: Mr. Buhrmaster: $1,620,000; Mr. Larkin: $950,000; Mr. Blowers: $770,000; Mr. Priesmeyer: $798,000; and Mr. Jans: $405,000. The number of shares purchased and related restricted stock granted for each of the named executive officers are: Mr. Buhrmaster: 67,569 and 10,135; Mr. Larkin: 39,624 and 5,944; Mr. Blowers: 32,116 and 4,817; Mr. Priesmeyer: 33,284 and 4,993; and Mr. Jans: 16,892 and 2,534. As a result of the merger, the loans became due and were repaid. In addition, all unvested shares of restricted stock became immediately vested. Some of these officers repaid these loans with the proceeds of loans from Jostens described under "-- New Stock Loan Program" below. New Stock Loan Program At the effective time of the merger, we adopted a new stock loan program to make loans to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea in amounts up to 100% of their then outstanding loans, the proceeds of which were used to purchase shares of our common stock. Loans made under the stock loan program bear interest at our cost of funds under our revolving credit facility and are recourse loans. Subject to certain prepayment provisions, the loans will mature and all principal and accrued interest will be payable on May 10, 2005; provided, however, that each loan may be extended for a period of two years under certain circumstances. Each loan will become payable in full in the event the borrower's employment with us is terminated other than due to death or disability or for a reason other than cause or by the borrower for good reason. Loans are collateralized by the shares of our capital stock owned by such individual, and each 67 individual has entered into a pledge agreement and executed a secured promissory note. Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea borrowed the following amounts under the new stock loan program:
Amount Name Borrowed ---- ---------- Mr. Buhrmaster................................................. $1,010,025 Mr. Priesmeyer................................................. 368,499 Mr. Blowers.................................................... 250,000/1/ Mr. Bailey..................................................... 291,158 Mr. Lea........................................................ 105,318 ---------- Total........................................................ $2,025,000 ==========
(1)Mr. Blowers repaid this loan in July 2000, including accrued interest. Management Bonus Arrangements In connection with the merger, we established a Management Shareholder Bonus Plan providing for an annual bonus to be paid to Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea. Based upon achievements of specific EBITDA targets, Mr. Buhrmaster will be entitled to a standard bonus equal to 60% of his base salary. No bonus will be paid to Mr. Buhrmaster if Jostens fails to achieve specified performance levels. Based upon achievements of specific EBITDA targets, Messrs. Priesmeyer, Bailey, Blowers and Lea will be entitled to a standard bonus as determined by the chief executive officer and the board of directors, and approved by Investcorp. Similarly, no bonus will be paid to them if Jostens fails to achieve specified minimum performance levels. In connection with the merger, we further provided that, in the event of either a sale of Jostens or a public offering of our securities, we will grant to Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea options to purchase 1% of our common stock on a fully diluted basis, without taking into account any shares issued following the merger, other than any shares issued upon exercise of the options granted under our stock option plan, and without taking into account any shares issued upon exercise of the warrants issued to purchasers of the redeemable preferred stock. In the event of a sale of Jostens, the options would be immediately exercisable. In the event of a public offering of our securities, the options would be exercisable for a period of two years beginning one year after the date of the public offering. In either case, the options will be exercisable only if Investcorp realizes a specified rate of return in such transaction on its investment in Jostens. In either case, we would allocate such options among Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea provided that each is still employed by us at the time of such sale or offering, based upon the recommendation of our chief executive officer, subject to the approval of our board of directors. Stock Option Plan At the effective time of the merger, we adopted a new stock option plan. The number of shares of our Class A common stock available to be awarded under the new stock option plan is 676,908. The new stock option plan is administered by our board of directors or a committee designated by the board. The board may designate which of our officers and employees will be eligible to receive awards under the new stock option plan, and the amount, timing and other terms and conditions applicable to such awards. We granted options to purchase 502,846 shares to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea upon completion of the merger. We have reserved the remaining 174,062 shares for the future grant of options to officers and employees.The options granted to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea have an exercise price of $25.25 per share. Each option is subject to certain vesting provisions. To the extent not earlier vested or terminated, each option vests on the seventh anniversary of the date of grant and will expire 30 days thereafter if not exercised. In the case of Mr. Buhrmaster, 40% of his options will vest irrespective of the vesting provisions if Mr. Buhrmaster is terminated prior to May 9, 2002, except for a termination for cause or a resignation without good reason. Under the new stock option plan, an optionee has certain rights to put to an affiliate of Investcorp, and we have certain rights to call from the optionee, vested stock options upon termination of the optionee's employment prior to a public offering of Jostens common stock. 68 Long-Term Incentive Plan We intend to adopt a long-term incentive plan. Pursuant to this program, specified members of current management other than the Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea will be entitled to cash bonuses in the event we exceed specified performance-based targets. These performance targets are primarily based on achieving specified annual levels of EBITDA. Current members of management, other than Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea, may receive long-term incentive awards of up to 200% of their annual salary, dependent on achieving these EBITDA-based targets. The long-term incentive awards will be subject to vesting over time. A participant's right to be paid under this long-term incentive program is subject to forfeiture if such participant is terminated for cause or resigns without good reason. Amounts payable under the long-term incentive program would be reduced by any amount payable under our Executive Change in Control Severance Plan. Jostens Retirement Plans We maintain a non-contributory pension plan, Pension Plan D (Plan D), that provides benefits for substantially all salaried employees. Retirement income benefits are computed using a formula based upon: . a participant's highest average annual cash compensation (base salary plus annual bonus, if any), during any five consecutive calendar years; . the participant's years of credited service (to a maximum of 35 years); and . the Social Security-covered compensation table in effect at the participant's termination. We also maintain an unfunded supplemental retirement plan that gives additional service credit for years of service as a Jostens' sales representative to those salespersons who were hired as employees of Jostens prior to October 1, 1991. Under the plan, a participant will receive a supplemental payment so that the sum of his supplemental plan benefit and Plan D benefit will equal the benefit he would have received under Plan D if his service as a sales representative were credited under Plan D. In addition, benefits specified in Plan D may be limited by certain provisions of the Internal Revenue Code of 1986, as amended. The benefits up to IRS limits are paid from Plan D and benefits in excess, to the extent they would have been earned in Plan D, without regard to the IRS limits, are paid from the unfunded supplemental plan. The executive officers participate in pension plans maintained by us for certain employees. The following table shows estimated annual retirement benefits payable for life at age 65 for various levels of compensation and service under these plans. The table does not take into account transition rule provisions of the plan for employees who were participants on June 30, 1988.
Average Years of service at retirement (1) final ----------------------------------------------------------------------- compensation 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- $ 150,000 $ 27,300 $ 36,400 $ 45,500 $ 54,600 $ 63,700 200,000 38,600 51,400 64,300 77,100 90,000 300,000 61,100 81,400 101,800 122,100 142,500 400,000 83,600 111,400 139,300 167,100 195,000 500,000 106,100 141,400 176,800 212,100 247,500 600,000 128,600 171,400 214,300 257,100 300,000 700,000 151,100 201,400 251,800 302,100 352,500 800,000 173,600 231,400 289,300 347,100 405,000 900,000 196,100 261,400 326,800 392,100 457,500 1,000,000 218,600 291,400 364,300 437,100 510,000 1,050,000 229,800 306,400 383,000 459,600 536,200
- -------- (1) The following individuals named in the Summary Compensation Table have the respective number of years of service under Plan D: Mr. Buhrmaster, 7.1 years; Mr. Larkin, 1.9 years; Mr. Blowers, 3.6 years; Mr. Priesmeyer, 2.3 years; Mr. Jans, 4.4 years; and Mr. Mann, 3.4 years. 69 We also maintain a non-contributory supplemental pension plan for corporate vice presidents. Under the plan, vice presidents who retire after age 55 with at least seven full calendar years of service as a corporate vice president, are eligible for a benefit equal to one percent of final base salary for each full calendar year of service, up to a maximum of 30 percent. Only service after age 30 is recognized under the plan. The calculation of benefits is frozen at the level reached at age 60. If they continue in their current positions at their current levels of compensation and retire at age 60, the estimated total annual pension amounts from this plan for Messrs. Buhrmaster and Priesmeyer would be $75,600 and $21,280, respectively. Messrs. Larkin and Blowers waived their eligibility in this plan. Messrs. Mann and Jans were not vested in this plan at the time of their separation from Jostens in 1999. Directors Fees We do not pay any additional remuneration to our employees or to executives of Investcorp or its co-investors for serving as directors. We reimburse directors for expenses incurred in attending any meetings. 70 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Jostens is authorized to issue shares of six classes of common stock, each with a par value of $0.01 per share except for the Class A common stock which has a par value of $0.33 1/3 per share. The classes of common stock consist of Class A common stock, Class B common stock, Class C common stock, Class D common stock, Class E common stock and common stock. Class A common stock, Class D common stock and common stock are the only classes of common stock that will have a right to vote. Holders of Class B common stock, Class C common stock and Class E common stock do not have any voting rights, except that the holders of such classes of common stock have the right to vote as a class to the extent required under the laws of the State of Minnesota. Holders of Class A common stock and common stock of the Company are entitled to one vote per share, and holders of Class D common stock are entitled to 306.55 votes per share, in each case on all matters as to which shareholders may be entitled to vote pursuant to the Minnesota Business Corporation Act. Investcorp and its co-investors (other than DB Capital Investors and First Union Leveraged Capital) beneficially own all of the outstanding Class D common stock, constituting approximately 68% of our voting power. DB Capital Investors, First Union Leveraged Capital, Northwestern Mutual Life Insurance Company and our pre-merger shareholders, including certain members of management, beneficially own all of the outstanding Class A common stock, constituting the remainder of our voting power. In addition, Investcorp and its co-investors, other than DB Capital Investors and First Union Leveraged Capital, own 5,300,000 shares of Class B common stock and 811,020 shares of Class C common stock. The following tables set forth certain information regarding the expected beneficial ownership of our voting stock as of the date of this prospectus. The table sets forth, as of that date: . each person whom we know to be a beneficial owner of more than 5% of any class of our voting stock; . each person who was a director of Jostens or a named executive officer of Jostens who beneficially owns shares of our voting stock; . all of our directors and executive officers as a group; . other persons as required. None of our directors or executive officers own shares of our Class D common stock. Unless otherwise indicated, we believe each of the shareholders shown in the table below has sole voting and investment power with respect to the shares beneficially owned. Class A Common Stock
Name and address of Number of Percent of Beneficial Owner (1) Shares (2) Class (2) - -------------------- ---------- ---------- DB Capital Investors, L.P. (3)........................... 2,003,679 70.0% First Union Leveraged Capital (3)........................ 198,019 6.9% Northwestern Mutual Life Insurance Company (3)........... 463,682 16.2% Robert C. Buhrmaster (3)................................. 93,205 3.3% Michael L. Bailey (3).................................... 15,913 * Carl H. Blowers (3)...................................... 41,858 1.5% William N. Priesmeyer (3)................................ 28,034 1.0% Gregory S. Lea (3)....................................... 9,522 * All directors and executive officers as a group, including certain of the persons named above (14 persons)................. 189,418 6.6%
- -------- * less than 1%. 71 Class D Common Stock
Name and address of Number of Percent of Beneficial Owner (1) Shares (2) Class (2) - -------------------- ---------- ---------- INVESTCORP S.A. (4)(5).................................... 20,000 100.0 SIPCO Limited (5)......................................... 20,000 100.0 CIP Limited (5)........................................... 18,400 92.0 Ballet Limited (5)........................................ 1,840 9.2 Denary Limited (5)........................................ 1,840 9.2 Gleam Limited (5)......................................... 1,840 9.2 Highlands Limited (5)..................................... 1,840 9.2 Nobel Limited (5)......................................... 1,840 9.2 Outrigger Limited (5)..................................... 1,840 9.2 Quill Limited (5)......................................... 1,840 9.2 Radial Limited (5)........................................ 1,840 9.2 Shoreline Limited (5)..................................... 1,840 9.2 Zinnia Limited (5)........................................ 1,840 9.2 Investcorp Investment Equity Limited (5).................. 1,600 8.0
- -------- (1) As used in the table above, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship, or otherwise has or shares (i) the power to vote, or direct the voting of, such security or (ii) investment power which includes the power to dispose, or to direct the disposition of, such security. (2) This number includes shares of stock that are subject to securities exercisable or convertible within 60 days of the date of this prospectus. The options granted upon consummation of the merger pursuant to Jostens new stock option plan are not included in this table because they are not exercisable within 60 days of the date of this prospectus. (3) The address for DB Capital Investors, L.P. is 130 Liberty Street, 25th Floor, New York, New York 10006. The address for First Union Leveraged Capital is One First Union Center, 5th Floor, 301 South College Street, Charlotte, North Carolina 28288. The address for Northwestern Mutual Life Insurance Company is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. The address of each other person listed in the table as a holder of our Class A Common Stock is c/o Jostens, Inc., 5501 Norman Center Drive, Minneapolis, Minnesota 55437. (4) Investcorp does not directly own any of our stock. The number of shares of stock shown as owned by Investcorp includes all of the shares owned by Investcorp Investment Equity Limited (see note (6) below). Investcorp owns no stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited, or in the beneficial owners of these entities (see note (6) below). Investcorp may be deemed to share beneficial ownership of the shares of voting stock held by these entities because the entities have entered into revocable management services or similar agreements with an affiliate of Investcorp, pursuant to which each such entities has granted such affiliate the authority to direct the voting and disposition of Jostens' voting stock owned by such entity for so long as such agreement is in effect. Investcorp is a Luxembourg corporation with its address at 37 rue Notre-Dame, Luxembourg. (5) Investcorp Investment Equity Limited is a Cayman Islands corporation, and a wholly-owned subsidiary of Investcorp, with its address at P.O. Box 1111, West Wind Building, George Town, Grand Cayman, Cayman Islands. SIPCO Limited may be deemed to control Investcorp through its ownership of a majority of a company's stock that indirectly owns a majority of Investcorp's shares. SIPCO Limited's address is P.O. Box 1111, West Wind Building, George Town, Grand Cayman, Cayman Islands. CIP Limited ("CIP") owns no stock of Jostens. CIP indirectly owns less than 0.1% of the stock of each of Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited. CIP may be deemed to share beneficial ownership of the shares of Jostens' voting stock held by such entities because CIP acts as a director of such entities and the ultimate beneficial shareholders of each of those entities have granted to CIP revocable proxies in companies that own those entities' stock. None of the ultimate beneficial owners of such entities beneficially owns individually more than 5% of Jostens' voting stock. Each of CIP Limited, Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited is a Cayman Islands corporation with its address at P.O. Box 2197, West Wind Building, George Town, Grand Cayman, Cayman Islands. 72 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Immediately prior to consummation of the recapitalization, we received approximately $208.7 million of equity capital provided by Investcorp and its co-investors. In connection with obtaining the financing for the recapitalization, we paid Investcorp International, Inc., an affiliate of Investcorp, advisory fees of approximately $12.7 million. In addition, Jostens entered into an agreement with Investcorp International for management advisory and consulting services for a five-year term pursuant to which we prepaid Investcorp International $7.5 million at the closing of the merger. Pursuant to the merger agreement, for six years after the closing date of the merger, Jostens has agreed to indemnify and hold harmless our present and former officers and directors for acts or omissions occurring before the completion of the merger to the extent provided under our articles of incorporation and by-laws in effect on the date of the merger agreement. In addition, all indemnification agreements with any current or former directors, officers and employees of Jostens or any subsidiary will survive the merger and terminate as provided in such agreements. For six years after the completion of the merger, Jostens will provide officers' and directors' or fiduciary liability insurance for acts or omissions occurring before the completion of the merger covering each such person currently covered by our officers' and directors' or fiduciary liability insurance policy on terms with respect to coverage and amount no less favorable than those in effect on the date of the merger agreement, provided, that the cost of such insurance does not exceed 200% of the most recent annual premium paid by us. Pursuant to the merger agreement, Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea retained shares of our common stock as follows:
Number of Name Retained Shares ---- --------------- Mr. Buhrmaster............................................... 93,205 Mr. Priesmeyer............................................... 28,034 Mr. Blowers.................................................. 41,858 Mr. Bailey................................................... 15,913 Mr. Lea...................................................... 9,522 ------- Total...................................................... 188,532 =======
These shares were redesignated as Class A common stock as of the effective time of the merger, the same designation as the shares of common stock retained by other existing Jostens shareholders. All other shares held by Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea were exchanged in the merger for $25.25 in cash. We have entered into management shareholder agreements with each of Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea. Each agreement allows us to repurchase shares of our common stock from the executive in the event the executive ceases to be employed by us at any time prior to a public offering of our common stock. In addition, in the event of terminations of employment under specified circumstances, the executive has the right to require an affiliate of Investcorp to repurchase his shares of common stock. The management shareholder agreements grant to the executives piggyback registration rights in connection with a registration statement filed by us with respect to our common equity securities following an initial public offering of our common stock. The agreements also impose restrictions on each executive's ability to sell shares in connection with or following an initial public offering. The agreements with each of Messrs. Priesmeyer, Bailey, Blowers and Lea further provide that if Mr. Buhrmaster is terminated without cause or leaves Jostens for good reason prior to May 10, 2001, each of the other executives will be entitled to resign within 60 days of such event and receive severance benefits in an amount equal to the benefits he would have received under our benefits plans as if a change in control had occurred and the executive has resigned for good reason. At the time of the merger, we agreed to redeem all outstanding preferred share purchase rights issued pursuant to our shareholder rights plan for approximately $33,500. In addition, at the time of the merger we agreed to terminate, by mutual consent, the shareholder rights plan which was promulgated under a shareholder rights agreement dated as of July 23, 1998 between Norwest Bank Minnesota, N.A. and Jostens. 73 THE RECAPITALIZATION Overview On December 27, 1999, we entered into a merger agreement with Saturn Acquisition Corporation, an entity organized for the purpose of effecting the merger on behalf of Investcorp and its co-investors. On May 10, 2000, pursuant to the merger agreement, Saturn Acquisition Corporation was merged with and into Jostens, with Jostens as the surviving corporation. As a result of the merger: . Investcorp and its co-investors and Messrs. Buhrmester, Priesmeyer, Blowers, Bailey and Lea became the owners of approximately 94% of the post-merger common stock of Jostens. . Certain of Jostens pre-merger shareholders retained 539,690 shares of Jostens' common stock, representing approximately 6% of the post-merger common stock of Jostens, valued at approximately $13.6 million, based on the price paid by Investcorp and its co-investors. . Each other share of Jostens common stock was converted into $25.25 in cash, representing an aggregate of approximately $823.6 million in cash payments to Jostens shareholders. . Outstanding options to purchase shares of Jostens' previously-existing common stock were cancelled and holders of those outstanding Jostens stock options had their options converted into cash at $25.25 per underlying share, less the applicable option exercise price, resulting in an aggregate of approximately $10.0 million in cash payments to holders of outstanding Jostens stock options. Stock options with an exercise price equal to or in excess of $25.25 per share were cancelled in the merger for no consideration. The recapitalization of Jostens had several components all of which closed prior to or simultaneously with the merger. The recapitalization consisted of: . the merger; . the retirement of Jostens' then existing debt; . an offering of units of which the outstanding notes were a part; . the following equity contributions: . a common equity investment of $208.7 million by Investcorp and its co-investors; . a preferred equity investment of $60.0 million by DB Capital Investors; and . a new senior bank credit facility consisting of $495.0 million in term loans and a $150.0 million available revolving credit facility. The Merger Pursuant to the terms of the merger agreement, each outstanding share of our common stock, par value $0.33 1/3 per share was converted, at the election of the holder into either: . the right to receive $25.25 in cash, or . one share of our new common stock. Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea were not subject to the election described above or proration and instead 93,205, 28,034, 15,913, 41,858 and 9,522 shares of our common stock held by them, respectively, were converted into the right to retain the same number of shares of Jostens common stock (the "Management Rollover Shares"). 74 In addition, pursuant to the terms of the merger agreement, as of the effective time of the merger the shares of Saturn Acquisition's Class A Stock, Class B Stock, Class C Stock and Class D Stock and Class E Stock issued and outstanding immediately prior to the effective time of the merger, all of which were owned by Investcorp and its co-investors, were converted into an equal number of shares of Jostens Class A common stock, Jostens Class B common stock, Jostens Class C common stock, Jostens Class D common stock and Jostens Class E common stock, respectively. Pursuant to the terms of the merger agreement, the number of shares of our common stock (other than Management Rollover Shares) retained by pre-merger shareholders of Jostens was 539,690 which represented approximately 6% of the total number of shares of all classes of our common stock issued and outstanding immediately after giving effect to the merger. The number of shares of our common stock retained by pre-merger Jostens shareholders was 728,222 (including the Management Rollover Shares), which constituted approximately 8% of the outstanding common stock and approximately 8% of the voting power of Jostens immediately following the merger. The shares of Jostens common stock owned by Investcorp and its co-investors immediately following the merger constituted the remaining approximately 92% of the outstanding common stock and approximately 92% of the voting power of Jostens immediately following the merger. In addition, pursuant to the merger agreement, all unvested stock options automatically became vested at the effective time of the merger. Each stock option outstanding immediately prior to the effective time of the merger was cancelled in exchange for a cash payment equal to the excess, if any, of $25.25 over the per share exercise price of each stock option. Stock options with an exercise price equal to or in excess of $25.25 per share were cancelled in the merger for no consideration. As a result, outstanding Jostens stock options were exchanged for an aggregate cash payment of $10.0 million. Retirement of Existing Debt At the time of the merger, we retired all of our then-outstanding debt, totalling approximately $67.6 million, as part of the recapitalization. Recapitalization Financings The merger consideration and retirement of existing debt were financed through (1) an offering of units of which the outstanding notes were a part, (2) a new senior secured credit facility and (3) two private equity investments. The Units. We raised gross proceeds of $215.9 million through the offering of units of which the outstanding notes were a part. Equity Investments. Saturn Acquisition Corporation raised approximately $208.7 million in equity contributions as part of the recapitalization from funds provided by Investcorp and its co-investors at the time of closing. In addition, we issued $60.0 million of redeemable preferred stock to DB Capital Investors. See "Description of Capital Stock." Credit Facility. We entered into a $645.0 million senior secured credit facility concurrently with the offering of the notes. Upon completion of the recapitalization, we had $495.0 million of term loans outstanding under our new senior secured credit facility. We also had additional available borrowing capacity under a $150.0 million revolving credit facility, which was not drawn at closing. See "Description of the Credit Facility" for a full description of our credit facility. 75 DESCRIPTION OF CAPITAL STOCK The following is a summary of certain of the rights and privileges pertaining to Jostens capital stock. General Jostens is authorized to issue an aggregate of 29,940,000 shares of capital stock, consisting of 4,000,000 shares of preferred stock, with a par value of $0.01 per share and an aggregate of 25,940,000 shares of the six classes of common stock described below. The Jostens board of directors is authorized, without further action by Jostens shareholders, but subject to the limitations set forth in the articles of designation of such series of preferred stock, to provide for the issue of additional shares of preferred stock, in one or more additional series, and to fix for each such additional series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as will be stated and expressed in the resolution or resolutions adopted by the Jostens board of directors providing for the issue of such series and as may be permitted by the MBCA. Redeemable Preferred Stock In connection with the recapitalization, Jostens issued to DB Capital Investors a new series of redeemable, payment-in-kind preferred stock having an initial liquidation preference of $60.0 million, which redeemable preferred shares are entitled to receive dividends at a rate of 14.0% per annum compounded quarterly and payable either in cash or in additional shares of the same series of preferred stock. The redeemable preferred shares are subject to mandatory redemption by Jostens 11 years after issuance. The holders of these shares are, under specified circumstances involving a default by Jostens, entitled to additional dividends at a rate of 1% of the liquidation preference per share of redeemable preferred stock and also are entitled to designate up to two members of the Jostens board of directors. The redeemable preferred stock is generally not redeemable by Jostens until the fifth anniversary of the issue date and thereafter will be redeemable at a premium which will decline ratably to par by the eighth anniversary of the issue date. The redeemable preferred stock will also be redeemable in part with the proceeds of a public equity offering by Jostens. In the event of a change of control of Jostens, Jostens will be required to make an offer to purchase the outstanding exchangeable preferred shares at a price equal to 101% of the applicable liquidation preference including accrued but unpaid dividends. The terms of the redeemable preferred stock contain covenants placing restrictions and obligations on Jostens with respect to: . incurrence of debt; . mergers and consolidations; . SEC reports; . dividends, stock repurchases and investments; and . transactions with affiliates. The shares of redeemable preferred stock are not subject to any restrictions on transferability, other than restrictions imposed by applicable federal and state securities laws. DB Capital Investors is entitled to registration rights similar to those customarily offered for comparable securities. These rights require Jostens to file a shelf registration with respect to the redeemable preferred stock within 120 days after a demand by DB Capital Investors and to use its best efforts to have the shelf registration become effective within 180 days after a demand by DB Capital Investors. Jostens is required to maintain the effectiveness of the shelf registration statement for a period of two years or, if earlier, until such time as the 76 holders of the redeemable preferred stock have sold all shares of redeemable preferred stock held by them. Jostens will bear the reasonable expenses, exclusive of underwriting discounts and commissions, of the shelf registration statement and will enter into customary indemnification arrangements. These registration rights are transferable in connection with any transfer of any shares of redeemable preferred stock. Common Stock Purchase Warrants In connection with the issuance of the redeemable preferred stock, we also issued to DB Capital Investors detachable warrants to purchase shares of our Class E common stock representing 5% of the total number of shares of our common equity (of all classes) on a fully diluted basis to be outstanding immediately after the merger. Principal terms of the warrants include the following: . an exercise price of $0.01 per share; . a term of 11 years; . customary anti-dilution provisions; and . customary registration rights similar to those set forth above. Common Stock Our common stock consists of six classes: Class A common stock, Class B common stock, Class C common stock, Class D common stock, Class E common stock and common stock. The number of authorized and outstanding shares for each of the six classes of common stock is set forth below.
Authorized Outstanding Title Shares Shares ----- ---------- ----------- Class A common stock.................................... 4,200,000 2,862,277 Class B common stock.................................... 5,300,000 5,300,000 Class C common stock.................................... 2,500,000 811,020 Class D common stock.................................... 20,000 20,000 Class E common stock.................................... 1,900,000 -- Common stock............................................ 12,020,000 -- ---------- --------- Total................................................. 25,940,000 8,993,297 ========== =========
Voting Holders of shares of Jostens Class A common stock and common stock are entitled to one vote per share on all matters as to which shareholders may be entitled to vote pursuant to the MBCA. Holders of shares of Jostens new Class D common stock are entitled to 306.55 votes per share on all matters as to which shareholders may be entitled to vote pursuant to the MBCA. Holders of Jostens Class B common stock, Class C common stock and Class E common stock do not have any voting rights, except that holders of shares of such classes have the right to vote as a class to the extent required under the laws of the State of Minnesota. Each issued and outstanding share of Class E common stock is convertible at the option of the holder thereof into one share of Class A common stock at any time commencing 30 days after the original date of issuance of such share of Class E common stock. Any amendment, alteration or repeal of any provision of Jostens' restated articles of incorporation, whether by merger, consolidation or otherwise, that would alter or change the relative powers, preferences, or special rights of any class of capital stock so as to affect the holders of Jostens Class A common stock or Class E common stock materially and adversely, requires, in addition to any other approvals required by the MBCA and the restated articles of incorporation, approval by the holders of a majority of the then outstanding shares of the respective class of stock. 77 Liquidation; Dividends; Certain Adjustments; Merger Subject to the rights of the holders of any shares of then outstanding preferred stock, any distribution made upon Jostens' liquidation or dissolution or a winding up of Jostens' affairs, whether voluntary or involuntary, will be allocated pro rata based upon the number of shares of common stock held by each shareholder. Subject to the rights of the holders of any shares of then outstanding preferred stock, holders of Jostens common stock, regardless of class or series, will be entitled to share ratably as a single class in all dividends and other distributions of cash or any other right or property as may be declared thereon by Jostens' board of directors from time to time out of Jostens' assets or funds that are legally available for such dividends or distribution. Whenever, during the period that shares of Jostens Class A common stock are outstanding, we: . declare a dividend on shares of any class of common stock in shares of such class of common stock or in securities convertible into or exchangeable for shares of such class of common stock, . subdivide the outstanding shares of any class of common stock, . combine the outstanding shares of any class of common stock into a smaller number of shares, or . issue any shares of any class of common stock upon reclassification of such shares, a corresponding dividend, subdivision, combination or other adjustment will be made with respect to the shares of the other class or classes of common stock if and to the extent necessary to prevent the interests of the holders of Jostens Class A common stock and Class E common stock from being materially and adversely affected. In the event that Jostens merges into or consolidates with another entity, whether or not Jostens is the surviving entity, the holders of each share of Jostens Class A common stock and Class E common stock will be entitled to receive not less than the same per share consideration as the per share consideration, if any, received by the holders of Jostens Class B common stock, Class C common stock and Class D common stock in such merger or consolidation, unless, in addition to such other approvals, if any, as may be required by the MBCA and the restated articles of incorporation, a different treatment is approved by holders of a majority of the then outstanding shares of the respective class of stock. Tag-Along Rights; Mandatory Redemption If other than in connection with an initial public offering of Jostens, any holder or holders of Jostens Class D common stock (for purposes of this provision singularly or collectively, the "Proposed Transferor"), at any time or from time to time in one transaction or in a series of transactions, desire to enter into an agreement, whether oral or written, to transfer their shares of Class D common stock or any part thereof in a transaction which is a sale to any person other than a Permitted Transferee (as defined in the articles of incorporation) (the "Proposed Transferee"), such proposed transfer will be deemed a "Tag-Along Transfer" and each holder of Jostens new Class A common stock, Class B common stock, Class C common stock and Class E common stock (collectively, the "Other Shareholders") will have the right, but not the obligation, as a condition to such Tag-Along Transfer, to sell to the Proposed Transferee up to the same percentage of its shares (the "Tag-Along Pro Rata Amount") of stock as the percentage of the total number of shares of Class D common stock that the Proposed Transferor proposes to transfer in the Tag-Along Transfer (the "Proposed Purchase Amount"). All Tag-Along Transfers by Other Shareholders will be on the same terms and conditions as the proposed Tag-Along Transfer by the Proposed Transferor, provided that no Other Shareholder may be required to make any representation or warranty in connection with the Tag- Along Transfer other than as to its ownership and authority to transfer the shares of new common stock to be transferred by it, free and clear of any and all liens and encumbrances and in compliance with all applicable laws. Each Proposed Transferor and each Other 78 Shareholder whose shares are sold in a Tag-Along Transfer will be required to bear its pro rata share of the expenses of the transaction, based on the number of shares included in such Tag-Along Transfer. DB Capital Investors, its affiliates and their Permitted Assignees (as defined in the Shareholders' Agreement) will have similar "tag-along" rights with respect to sales of any equity interests in Jostens held by Investcorp and its co-investors (other than DB Capital Investors). In the event of a Tag-Along Transfer in which the Proposed Transferor proposes to transfer a number of shares of Class D common stock equal to or greater than 80% of the outstanding shares of Class D common stock, Jostens will redeem, to the extent permitted by law, from each holder of Class A common stock, Class B common stock, Class C common stock and Class E common stock, the number of shares of Class A common stock, Class B common stock, Class C common stock or Class E common stock equal to the difference between: . the number of shares that the Class A common shareholder, Class B common shareholder, Class C common shareholder or Class E common shareholder elected to include in the Tag-Along Transfer pursuant to the foregoing Tag-Along Transfer provisions and . the Tag-Along Pro Rata Amount, the number of shares such holder was entitled to include in the Tag-Along Transfer, at a redemption price (the "Tag-Along Redemption Price") per share equal to the per share price paid for the Class D common stock by the Proposed Transferee less such Other Shareholder's pro rata share of the expenses of the Tag-Along Transfer. After such redemption, Jostens will issue to the Proposed Transferee shares of Class A common stock, Class B common stock, Class C common stock and Class E common stock in amounts equal to the respective numbers of shares of such classes of new common stock so redeemed, and the Proposed Transferee will pay to Jostens for each such share a purchase price equal to the Tag-Along Redemption Price if the Proposed Transferee does not purchase all of the shares of new common stock of the Proposed Transferor, all of the shares that the Other Shareholders elect to include in such proposed Tag-Along Transfer, and all of the shares to be issued by Jostens in amounts equal to the numbers of redeemed shares, then the proposed Tag-Along Transfer to such Proposed Transferee will be prohibited and any attempt to consummate the proposed Tag- Along Transfer will be null and void and of no force and effect. Conversion Upon the occurrence at any future date of a sale of 100% of Jostens' outstanding equity securities or substantially all of Jostens' assets or a merger or similar transaction in which all of Jostens' stock is converted or exchanged or the initial public offering of Jostens' common stock, each share of Jostens Class A common stock, Class B common stock, Class C common stock, Class D common stock and Class E common stock not otherwise redeemed by Jostens pursuant to the mandatory redemption provisions described above will convert into one share of new common stock; provided that shares of Class E common stock will not be converted if such conversion is prohibited by the Hart-Scott- Rodino Antitrust Improvements Act of 1976. Registration Rights Agreement DB Capital Investors also has registration rights with respect to any shares of common stock which it owns, including the Class A common stock it acquired in the merger and the Class E common stock issuable upon the exercise of the warrants, as well as any shares of Class A common stock into which the Class E common stock may be converted. Following an initial public offering of Jostens common stock, DB Capital Investors will have two demand registration rights, which DB Capital Investors may require to be shelf registrations. Upon exercise of such registration rights, Jostens will be required to use its best efforts to file and cause to become effective a registration statement in respect of the shares requested to be registered. Jostens will not be obligated to effect more than one such registration in any 12-month period. DB Capital Investors will be entitled to unlimited "piggy-back" registration rights on all registrations of Jostens common stock by Jostens or any other shareholder, subject to customary conditions. 79 Jostens will bear the reasonable expenses, exclusive of underwriting discounts and commissions, of all demand and piggy-back registrations and will enter into customary indemnification arrangements. DB Capital Investors' registration rights with respect to common stock will be fully transferable to any transferees who acquire more than 10,000 shares of Jostens common stock from DB Capital Investors. Shareholder Agreement In connection with the merger, we entered into a Shareholder Agreement with DB Capital Investors and each of the shareholders that are affiliated with Investcorp, including Investcorp Investment Equity Limited ("IIEL"). The Shareholder Agreement has the following provisions: . If, prior to an initial public offering of Jostens, DB Capital Investors or any permitted transferee of DB Capital Investors proposes to sell its shares of common stock to any person other than a permitted transferee, Jostens and IIEL shall each have the irrevocable option to purchase such shares at the same price and on the same terms and conditions as offered by the other person. . If, prior to an initial public offering of Jostens, any of the Investcorp-affiliated shareholders propose to sell any of their equity interests and such sale is not a "Tag-Along Transfer" within the meaning of Article IV of the Articles of Incorporation, DB Capital Investors will have the right to include in such sale, at the same price and on the same terms and conditions as the Investcorp affiliates, the percentage of shares held by DB Capital Investors equal to the percentage of the equity securities held by the other selling shareholders being sold by such selling shareholders. . For the period prior to an initial public offering by Jostens and so long as DB Capital Investors beneficially owns at least one-half of the shares of Jostens common stock it owns immediately following the merger or at least $30 million in aggregate liquidation preference of redeemable preferred stock, holders of Class D common stock shall vote in favor of one nominee to Jostens' board of directors specified by DB Capital Investors. . If, prior to an initial public offering, we engage in any equity financing, DB Capital Investors shall have the option to participate as a purchaser in such financing such that DB Capital Investors would maintain its fully-diluted percentage interest in our outstanding common equity securities. 80 DESCRIPTION OF THE CREDIT FACILITY The following is a summary of important terms of our senior secured credit facility: General As part of the recapitalization, immediately following the effective time of the merger, we entered into a credit facility with our sole domestic subsidiary as a co-borrower, and with Deutsche Bank Securities Inc., Chase Securities Inc., and Goldman Sachs Credit Partners L.P. as co-lead arrangers, Bankers Trust Company as the Syndication Agent, The Chase Manhattan Bank as the Administrative Agent, and Goldman Sachs Credit Partners L.P. as the Documentation Agent, and a group of other syndicated lenders. Our credit facility provides an aggregate principal amount of $645.0 million, available as follows: (1) $150.0 million available under a six year amortizing term loan facility (the "Tranche A term loan"), (2) $345.0 million available under an eight year amortizing term loan facility (the "Tranche B term loan" and, together with the Tranche A term loan, the "Term Loans") and (3) $150.0 million available under a six year revolving credit facility (the "Revolving Facility"). The following is a summary description of the principal terms of the credit facility and is qualified in its entirety by reference to the definitive agreements. Loans under the credit facility are secured by a first priority security interest in substantially all of our and our domestic subsidiaries' assets and in all of our and our subsidiaries' capital stock (but limited to 65% in the case of foreign subsidiaries). The loans may be guaranteed by some of our future domestic subsidiaries. Use of Proceeds Proceeds of the Term Loans were used to finance a portion of the recapitalization and to pay related fees and expenses. Proceeds of loans under the Revolving Facility may be used for general corporate purposes. Interest Rates Interest accrues quarterly on the loans with reference to the base rate (the "Base Rate") plus the applicable Base Rate interest margin. We may elect that all or a portion of the loans other than the swing line loans bear interest at the eurodollar rate (the "Eurodollar Rate") plus the applicable eurodollar interest margin. The Base Rate is defined as the highest of (1) the Federal Funds Rate plus 0.50%, (2) the secondary market rate for three-month certificates of deposit of money center banks plus 1% or (3) the prime commercial lending rate of the administrative agent. The Eurodollar Rate is defined as the rate at which eurodollar deposits for one, two, three or six months or (if and when available to all of the relevant lenders) nine or twelve months are offered to the administrative agent in the interbank eurodollar market. The initial interest margin for the Tranche A term loan and the Revolving Facility is 2.0% for Base Rate loans and 3.0% for Eurodollar Rate loans. After May 10, 2001, the interest margins for the Tranche A term loan and the Revolving Facility will be subject to reduction based on financial tests. The interest margin for the Tranche B term loan is 2.5% for Base Rate loans and 3.5% for Eurodollar Rate loans. Mandatory and Optional Prepayments The Term Loans will be required to be prepaid, subject to certain conditions and exceptions, with (1) 100% of the net proceeds of incurrence of indebtedness, subject to certain exceptions, by us or our subsidiaries, (2) 50% of the net proceeds from certain equity issuances by us or any of our subsidiaries, subject to certain exceptions and redemption rights, (3) 100% of the net proceeds of certain asset dispositions and (4) commencing with the fiscal year ending December 29, 2001, 50% of our "excess cash flow," as such term is 81 defined in the credit facility. The foregoing mandatory prepayments will be applied pro rata to reduce outstanding Term Loans. The Tranche B term loan lenders shall have the opportunity to refuse any mandatory prepayments and the administrative agent will apply any such refused amounts to the prepayment of the outstanding Tranche A term loan. The credit facility provides that we may from time to time make optional prepayments of loans in whole or in part without penalty, subject to minimum prepayments and reimbursement of the lenders' breakage costs in the case of prepayment of Eurodollar Rate loans. The Tranche A term loan matures on May 31, 2006. The Tranche B term loan matures on May 31, 2008. The following table sets forth the schedule of aggregate annual payments of principal required under the Term Loans:
Total Aggregate Aggregate Aggregate Fiscal Tranche A Tranche B Term Loan Year Payments Payments Payments ------ --------- --------- --------- (in millions) 2001........................................ $ 15.00 $ 1.50 $ 16.50 2002........................................ 23.75 2.00 25.75 2003........................................ 28.75 2.00 30.75 2004........................................ 33.75 2.00 35.75 2005........................................ 38.75 2.00 40.75 2006........................................ 10.00 75.50 85.50 2007........................................ n/a 193.75 193.75 2008........................................ n/a 66.25 66.25 ------- ------- ------- $150.00 $345.00 $495.00 ======= ======= =======
Covenants The credit facility contains covenants and other requirements of us and our subsidiaries. In general, the affirmative covenants provide for, among other requirements, mandatory reporting of financial and other information to the lenders and notice to the lenders upon the occurrence of certain events. The affirmative covenants also include standard covenants requiring us to operate our business in an orderly manner. The credit facility also contains negative covenants and restrictions on actions by us and our subsidiaries including, without limitation, restrictions on indebtedness, liens, guarantee obligations, mergers, asset dispositions not in the ordinary course of business, investments, loans, advances and acquisitions, dividends and other restricted junior payments, transactions with affiliates, change in business conducted and certain prepayment and amendments of subordinated indebtedness. The credit facility requires that we meet certain financial covenants, ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio. Events of Default The credit facility specifies certain customary events of default including, without limitation, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties in any material respect, cross default to certain other indebtedness and agreements, bankruptcy and insolvency events, material judgments and liabilities, change of control and unenforceability of certain documents under the credit facility. 82 Fees and Expenses We are required to pay certain fees in connection with the credit facility, including: . letter of credit fees; . agency fees; and . commitment fees. Commitment fees are payable quarterly, initially at a rate per annum of 0.5% on the average daily unused portion of the credit facility and, after May 10, 2001 will be subject to reduction by amounts based on financial tests. 83 DESCRIPTION OF THE UNITS At the time of their issuance, each unit consisted of $1,000 principal amount of notes and one warrant to purchase 1.889155 shares of our Class E common stock, par value $0.01 per share. The notes and the warrants will become separately transferable on the Separability Date and, in any event, will become separately transferable upon the consummation of the exchange offer. See "Description of the Warrants." DESCRIPTION OF THE NOTES General The terms of the notes we are issuing in this exchange offer and the outstanding notes are identical in all material respects, except: . the notes issued in the exchange offer will have been registered under the Securities Act; . the notes issued in the exchange offer will not contain transfer restrictions and registration rights that relate to the outstanding notes; and . the notes issued in the exchange offer will not contain provisions relating to the payment of liquidated damages to be made to the holders of the outstanding notes under circumstances related to the timing of the exchange offer. Any outstanding notes that remain outstanding after the exchange offer, together with notes issued in the exchange offer, will be treated as a single class of securities under the indenture for voting purposes. When we refer to the term "Note" or "Notes", we are referring to both outstanding notes and the notes to be issued in the exchange offer. When we refer to "holders" of the notes, we are referring to those persons who are the registered holders of notes on the books of the registrar appointed under the indenture. You can find the definitions of certain terms used in this description under the subheading "--Certain Definitions." All references in this Description of the Notes to the "Issuer" are limited to Jostens, Inc. and do not include any of its Subsidiaries. The Notes were issued pursuant to an indenture, dated May 10, 2000 (the "Indenture"), by and among the Issuer, the Guarantor and The Bank of New York, as trustee (the "Trustee"). Effective July 29, 2000, the Guarantor was merged with and into the Issuer. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. The Indenture provides for the issuance of up to $125.0 million in aggregate principal amount of additional Notes having identical terms and conditions to the Notes offered hereby (the "Additional Notes"), subject to compliance with the covenants contained in the Indenture. Any Additional Notes will be part of the same issue as the Notes offered hereby and will vote on all matters with the Notes offered hereby. As of the Issue Date, all of the Issuer's Subsidiaries will be Restricted Subsidiaries. However, under certain circumstances, the Issuer will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. 84 Brief Description of the Notes and the Note Guarantees The Notes These Notes: . are general unsecured obligations of the Issuer; . are subordinated in right of payment to all existing and future Senior Debt of the Issuer; and . are senior in right of payment to any future Subordinated Debt of the Issuer. The Note Guarantees All future Subsidiaries of the Issuer, other than Foreign Subsidiaries, Receivables Subsidiaries and Unrestricted Subsidiaries, will guarantee the Notes to the extent such Subsidiaries are guarantors or otherwise obligors under any Credit Facility incurred under clause (1) in the second paragraph under "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock." The Guarantees of these Notes: . will be general unsecured obligations of each Guarantor; . will be subordinated in right of payment to all existing and future Senior Debt of each Guarantor; and . will be senior in right of payment to any future Subordinated Debt of each Guarantor. Principal, Maturity and Interest The Notes are general unsecured senior subordinated obligations of the Issuer, in an aggregate principal amount of $225.0 million and will mature on May 1, 2010. Interest on the Notes accrues at the rate of 12 3/4% per annum and will be payable, in cash, semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2000, to holders of record on the immediately preceding April 15 and October 15. Interest on the Notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. Interest is computed on the basis of a 360- day year comprised of twelve 30-day months. Methods of Receiving Payment on the Notes Principal, premium, if any, and interest on the Notes is payable at the office or agency of the Issuer maintained for such purpose within the City and State of New York (the "Paying Agent") or, at the option of the Issuer, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes; provided that all payments of principal, premium, if any, and interest, with respect to any Notes the holders of which have given wire transfer instructions to the Issuer will be required to be made by wire transfer of immediately available funds to the accounts specified by the holders thereof. Until otherwise designated by the Issuer, the Issuer's office or agency in New York is the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. Subordination The Notes are unsecured, are or will be subordinated in right of payment, as set forth in the Indenture, to all existing and future Senior Debt of the Issuer, rank or will rank pari passu in right of payment with all existing and future Pari Passu Debt of the Issuer and are or will be senior in right of payment to all existing and future Subordinated Debt of the Issuer. The Notes are also effectively subordinated to any Secured Debt of the Issuer and its subsidiaries to the extent of the value of the assets securing such Debt. 85 However, payment from the money or the proceeds of Government Notes held in any defeasance trust described under "--Legal Defeasance and Covenant Defeasance" below is not subordinated to any Senior Debt or subject to the restrictions described herein, so long as the payments into the defeasance trust were not prohibited pursuant to the subordination provisions hereinafter described at the time when so paid. Presently, there are no Guarantors; however, it is expected that, any future Note Guarantee will be unsecured, will be subordinate in right of payment, as set forth in the Indenture, to all existing and future Senior Debt of such Guarantor, will rank pari passu in right of payment with all existing and future Pari Passu Debt of such Guarantor and will be senior in right of payment to all existing and future Subordinated Debt of such Guarantor. Each Note Guarantee will be effectively subordinated to any Secured Debt of the applicable Guarantor to the extent of the value of the assets securing such Debt. At July 1, 2000: (1) the aggregate amount of outstanding Senior Debt of the Issuer and the initial Guarantor (effective July 29, 2000 the initial Guarantor was merged with and into the Issuer) was $495.0 million; (2) the Issuer and the initial Guarantor had no Pari Passu Debt outstanding and no Debt that was subordinate or junior in right of payment to the Notes or the Note Guarantee of such Guarantor; and (3) the total liabilities of the Subsidiaries of the Issuer that are not Guarantors (collectively, the "Subsidiary Non-Guarantors") (including trade payables and deferred taxes but excluding intercompany amounts) were $7.2 million. As of July 1, 2000, the Issuer and its Subsidiaries had $700.3 million of consolidated Debt and $60.0 million in Senior Preferred Stock. In addition, as of July 1, 2000, the Issuer had the ability to borrow an additional $150.0 million under the New Credit Facility which is generally drawn during the second half of the fiscal year. Although the Indenture contains limitations on the amount of additional Debt that the Issuer and the Guarantors may incur, under certain circumstances the amount of such Debt could be substantial and such Debt may be Senior Debt. The Issuer and the Guarantors may not incur or otherwise become liable for any Debt that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes. Claims of creditors of the Subsidiary Non-Guarantors, including trade creditors, generally will have priority with respect to the assets and earnings of such Subsidiary Non-Guarantors over the claims of creditors of the Issuer, including the holders of the Notes. The Notes, therefore, will be effectively subordinated to creditors (including trade creditors) of such Subsidiary Non- Guarantors. Only Debt of the Issuer or a Guarantor that is Senior Debt ranks senior to the Notes or the relevant Note Guarantee in accordance with the provisions of the Indenture. The Notes and each Note Guarantee in all respects rank pari passu with all other Pari Passu Debt of the Issuer or the relevant Guarantor, respectively. The Issuer has agreed in the Indenture, and each Guarantor will agree in a Supplemental Indenture, that they will not incur, directly or indirectly, any Debt which is subordinate or junior in ranking in any respect to Senior Debt unless such Debt is pari passu with or is expressly subordinated in right of payment to the Notes or the Note Guarantees. Unsecured Debt is not deemed to be subordinate or junior to secured indebtedness merely because it is unsecured. Upon any payment or distribution to creditors of the Issuer in a liquidation or dissolution of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property, an assignment for the benefit of creditors or any marshaling of the Issuer's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not allowed or allowable in such 86 proceeding) before the holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full, in cash or Cash Equivalents, any payment or distribution to which the holders of Notes would be entitled shall be made to the holders of Senior Debt, except that holders of Notes may receive and retain: (1) Permitted Junior Securities; and (2) payments made from the trust described under "--Legal Defeasance and Covenant Defeasance" so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Notes without violating the subordination provisions described herein. The term "payment" means, with respect to the Notes, any payment, whether in cash or other assets or property, of interest, principal (including redemption price and purchase price), premium, Liquidated Damages or any other amount on, of or in respect of the Notes, any other acquisition of Notes and any deposit into the trust described under "--Legal Defeasance and Covenant Defeasance" below. The verb "pay" has a correlative meaning. The Issuer also may not make any payment or distribution upon or in respect of the Notes (except from the trust described under "--Legal Defeasance and Covenant Defeasance") if: (1) a default in the payment of any Designated Senior Debt occurs and is continuing beyond any applicable grace period (a "payment default") or any other default on Designated Senior Debt occurs and the maturity of such Designated Senior Debt is accelerated in accordance with its terms; or (2) a default, other than a payment default, occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity (a "non-payment default") and, in the case of this clause (2) only, the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Issuer, a Representative for, or the holders of a majority of the outstanding principal amount of, any issue of Designated Senior Debt. Payments on the Notes may and shall be resumed: (1) in the case of a payment default, upon the date on which such default is cured or waived and, in the case of Designated Senior Debt that has been accelerated, such acceleration has been rescinded; and (2) in case of a non-payment default, the earliest of (x) the date on which such non-payment default is cured or waived, (y) 179 days after the date on which the applicable Payment Blockage Notice is received or (z) the date on which the Trustee receives notice from the Representative for such Designated Senior Debt rescinding the Payment Blockage Notice, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced on account of any non- payment default unless and until 360 days have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No non-payment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, holders of Notes may recover less ratably than other creditors of the Issuer including holders of Senior Debt and trade creditors. The Indenture limits, subject to certain financial tests and exceptions, the amount of additional Debt, including Senior Debt, that the Issuer and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock" and "Risk Factors--Your right to receive payment on the notes is subordinated to our senior debt." 87 If the Trustee or any holder of the Notes receives a payment in respect of the Notes (except in Permitted Junior Securities or from the trust described under the caption "--Legal Defeasance and Covenant Defeasance") when: (1) the payment is prohibited by these subordination provisions; and (2) the Trustee or the holder has actual knowledge that the payment is prohibited; the Trustee or the holder, as the case may be, will hold the payment in trust for the benefit of the holders of Senior Debt. Upon the proper written request of the holders of Senior Debt, the Trustee or the holder, as the case may be, will deliver the amounts in trust to the holders of Senior Debt or their proper Representative. The Issuer must promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. Note Guarantees The Issuer's payment obligations under the Notes will be jointly and severally guaranteed by any future Guarantors. The Note Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor on substantially the same terms as the Notes are subordinated to Senior Debt of the Issuer. Each Note Guarantee will be limited to an amount not to exceed the maximum amount that can be Guaranteed by that Subsidiary without rendering the Note Guarantee, as it relates to such Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. See "Risk Factors--The notes and any future guarantees may not be enforceable because of fraudulent conveyance laws." No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person (other than the Issuer or another Guarantor) unless: (1) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Note Guarantee of such Guarantor, the Indenture and the Registration Rights Agreement; and (2) immediately after giving effect to such transaction, no Default or Event of Default exists. Notwithstanding the foregoing clause (2): (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to any Guarantor; and (2) any Guarantor may merge with an Affiliate incorporated solely for the purpose of reincorporating such Guarantor in another jurisdiction. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor then held by the Issuer and its Restricted Subsidiaries, then such Guarantor will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, to the extent required thereby. See "-- Repurchase at the Option of Holders--Asset Sales." In addition, any Guarantor that is designated as an Unrestricted Subsidiary in accordance with the provisions of the Indenture or is released from its guarantee or is otherwise no longer an obligor under all Credit Facilities incurred under clause (1) of the second paragraph under "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock" will be released from its Note Guarantee upon effectiveness of such designation, release or cessation. 88 Optional Redemption Except as described in the following paragraphs, the Notes are not be redeemable at the Issuer's option prior to May 1, 2005. Thereafter, the Notes will be subject to redemption at any time at the option of the Issuer, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on May 1 of the years indicated below:
Year Percentage ---- ---------- 2005........................................ 106.375% 2006........................................ 104.250% 2007........................................ 102.125% 2008 and thereafter......................... 100.000%
In addition, at any time and from time to time, prior to May 1, 2003, the Issuer may redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price of 112.75% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds of an underwritten registered public offering of common stock of the Issuer; provided that at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of any such redemption; and provided, further, that such redemption shall occur within 90 days of the date of the closing of such public offering. At any time on or prior to May 1, 2005, the Notes may be redeemed as a whole but not in part at the option of the Issuer upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 120 days after the occurrence of such Change of Control) mailed by first-class mail to each holder's registered address, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued but unpaid interest and Liquidated Damages, if any, to, the redemption date, subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date. Selection and Notice If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis (among the Notes and any Additional Notes as one class), by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part; provided further, however, that if a partial redemption is made with the proceeds of a public offering of common stock, selection of the Notes or portions thereof for redemption shall be made by the Trustee on a pro rata basis only or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Notes or portions of them called for redemption. 89 Mandatory Redemption Except as set forth below under "--Repurchase at the Option of Holders," the Issuer is not required to make mandatory redemption or sinking fund payments with respect to the Notes. Repurchase at the Option of Holders Change of Control Upon the occurrence of a Change of Control, unless all Notes have been called for redemption pursuant to the provisions described above under the caption "--Optional Redemption," each holder of Notes will have the right to require the Issuer to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase. Within 30 days following any Change of Control, unless notice of redemption of all Notes has then been given pursuant to the provisions described under the caption "--Optional Redemption" above, the Issuer will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions of this covenant, the Issuer will comply with such securities laws and regulations and will not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. On the Change of Control Payment Date, the Issuer will: (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Issuer. The Paying Agent will promptly mail to each holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Note surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. Prior to consummating a Change of Control Offer, the Issuer will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant, unless notice of redemption of all Notes has then been given pursuant to the provisions described under the caption "--Optional Redemption" above and such redemption is permitted by the terms of outstanding Senior Debt. The Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Issuer repurchase or redeem 90 the Notes in the event of a takeover, recapitalization or similar transaction. The Change of Control purchase feature is a result of negotiations between the Issuer and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Issuer would decide to do so in the future. Subject to the limitations discussed below, the Issuer could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Debt outstanding at such time or otherwise affect the Issuer's capital structure or credit ratings. The New Credit Facility will prohibit the Issuer from purchasing any Notes, and will also provide that certain change of control events with respect to the Issuer would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Issuer becomes a party or that may be entered into by Subsidiaries of the Issuer may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Issuer is prohibited from purchasing Notes, the Issuer could seek the consent of its lenders to purchase Notes or could attempt to refinance the borrowings that contain such prohibition. If the Issuer does not obtain such a consent or repay such borrowings, the Issuer will remain prohibited from purchasing Notes. In such case, the Issuer's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility or any such future credit or other agreement. In such circumstances, the subordination provisions in the Indenture would restrict payments to the holders of Notes. The Issuer will not be required to make a Change of Control Offer upon a Change of Control if a third party makes and consummates a Change of Control Offer in a manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and not withdrawn under the Change of Control Offer. Asset Sales The Issuer will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Issuer (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; and (2) at least 75% of the consideration therefor received by the Issuer or such Restricted Subsidiary is in the form of cash or Cash Equivalents and/or property or assets that will be used or useful in a Permitted Business of the Issuer or any of its Restricted Subsidiaries; provided that this clause (2) shall not apply to any sale of Equity Interests of or other Investments in Unrestricted Subsidiaries. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities (as shown on the Issuer's or such Restricted Subsidiary's most recent balance sheet), of the Issuer or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or, in the case of liabilities of a Guarantor, the Note Guarantee of such Guarantor) that are assumed by the transferee of any such assets, or from which the Issuer and its Restricted Subsidiaries are released; and (b) any notes or other obligations received by the Issuer or any such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into cash (to the extent of the cash received) within 90 days after receipt. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Issuer may apply such Net Proceeds, at its option: (1) to repay Senior Debt or to repay Debt of any Restricted Subsidiary; 91 (2) to make capital expenditures or to acquire properties and assets that will be used or useful in the business of the Issuer or any of its Subsidiaries; or (3) to the acquisition of a controlling interest in another entity engaged in a Permitted Business; provided that if during such 360-day period the Issuer or a Restricted Subsidiary enters into a definitive agreement committing it to apply such Net Proceeds in accordance with the requirements of clause (2) or (3) or if the application of such Net Proceeds is part of a project authorized by the Board of Directors in good faith that will take longer than 360 days to complete and such project has begun, such 360 day period will be extended with respect to the amount of Net Proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement) or, until completion of such project, as the case may be. Pending the final application of any Net Proceeds, the Issuer or any Restricted Subsidiary may temporarily reduce borrowings under a Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of the preceding paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuer will: (1) make an offer to all holders of Notes; and (2) prepay, purchase or redeem (or make an offer to do so) any Pari Passu Debt of the Issuer in accordance with provisions governing such Debt requiring the Issuer to prepay, purchase or redeem such Debt with the proceeds from any Asset Sales (or offer to do so), pro rata in proportion to the respective principal amounts of the Notes and such other Debt required to be prepaid, purchased or redeemed or tendered for, in the case of the Notes pursuant to such offer (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of such pro rata portion of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of their principal amount plus accrued and unpaid interest and Liquidated Damages (if any) to the date of purchase subject to the right of holders of record on a record date to receive interest on the relevant interest payment date in accordance with the procedures set forth in the Indenture. To the extent that the aggregate principal amount of Notes and Pari Passu Debt tendered pursuant to an Asset Sale Offer or other offer is less than the Excess Proceeds, the Issuer may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by holders thereof exceeds the pro rata portion of such Excess Proceeds to be used to purchase Notes, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Notwithstanding anything to the contrary in the foregoing, the Issuer may commence an Asset Sale Offer prior to the expiration of 360 days after the occurrence of an Asset Sale. The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with the provisions of the Indenture, the Issuer will comply with such securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. Certain Covenants Restricted Payments The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other distribution (including any payment by the Issuer or any Restricted Subsidiary in connection with any merger or consolidation involving the Issuer or any of 92 its Restricted Subsidiaries) on account of the Issuer's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) and dividends payable to the Issuer or any Restricted Subsidiary); (2) purchase, redeem or otherwise acquire or retire for value (including any acquisition or retirement by the Issuer or any Restricted Subsidiary in connection with any merger or consolidation) any Equity Interests of the Issuer; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Subordinated Debt of the Issuer or any Guarantor, except (a) a payment of interest, principal or other related Obligations at Stated Maturity and (b) the purchase, repurchase or other acquisition or retirement of Subordinated Debt of the Issuer or such Guarantor in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or other acquisition or retirement; or (4) make any Restricted Investment, (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Debt pursuant to the Coverage Ratio Exception; and (c) such Restricted Payment, together with (without duplication) the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after the Issue Date, is less than the sum (without duplication) (the "Restricted Payments Basket") of; (i) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) from the beginning of the fiscal quarter during which the Issue Date occurs to the end of the Issuer's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is negative, 100% of such negative amount); plus (ii) 100% of the aggregate net cash proceeds, and the fair market value of any property other than cash, received by the Issuer from the issue or sale (other than to a Subsidiary) of, or from capital contributions with respect to, Equity Interests of the Issuer (other than Disqualified Stock and all warrants, options or other rights to acquire Disqualified Stock (but excluding any debt security that is convertible into, or exchangeable for, Disqualified Stock)), in either case after the Issue Date; plus (iii) the amount by which the aggregate principal amount (or accreted value, if less) of Debt or Disqualified Stock of the Issuer or any Restricted Subsidiary is reduced on the Issuer's consolidated balance sheet upon the conversion or exchange after the Issue Date of any Debt convertible into or exchangeable for Equity Interests (other than Disqualified Stock) of the Issuer, together with the net cash proceeds received by the Issuer at the time of such conversion; plus (iv) 100% of the aggregate net cash proceeds received by the Issuer or a Restricted Subsidiary of the Issuer since the Issue Date (to the extent not included in Consolidated Net Income of the Issuer) from (i) Restricted Investments, whether through interest payments, principal payments, dividends or other distributions and payments, or the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) thereof made by the Issuer and its Restricted Subsidiaries (less the cost of such 93 sale or disposition, if any) and (ii) a cash dividend from, or the sale (other than to the Issuer or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary; plus (v) upon the redesignation as a Restricted Subsidiary of any Subsidiary that was designated an Unrestricted Subsidiary after the Issue Date, the fair market value of the Restricted Investments of the Issuer and its Restricted Subsidiaries (other than such Subsidiary) in such Subsidiary. The foregoing provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would have complied with the provisions of the Indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any Equity Interests or Subordinated Debt of the Issuer in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Issuer) of, other Equity Interests (other than any Disqualified Stock) of, or a capital contribution to, the Issuer; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall not increase the Restricted Payments Basket; (3) the redemption, repurchase, retirement, defeasance or other acquisition of Subordinated Debt of the Issuer (A) made by an exchange for, or with the net cash proceeds from a substantially concurrent incurrence of, Permitted Refinancing Debt or (B) upon a Change of Control or Asset Sale to the extent required by the agreement governing such Subordinated Debt but only if the Issuer shall have complied with the covenants described under the heading "Change of Control" or "Asset Sales", as the case may be, and purchased all Notes validly tendered pursuant to the relevant offer prior to purchasing or repaying such Subordinated Debt; (4) the payment of any dividend by a Restricted Subsidiary of the Issuer to the holders of its common Equity Interests on a pro rata basis; (5) to the extent constituting Restricted Payments, the Specified Affiliate Payments; (6) Restricted Payments in an aggregate amount not to exceed $15.0 million; and (7) without limitation of the parenthetical at the end of clause (1) of the first paragraph of this covenant, the payment of any dividends in respect of the 14% Senior Redeemable Payment-In-Kind Preferred Stock of the Issuer (the "Senior Preferred Stock") in the form of additional shares of Senior Preferred Stock having the terms and conditions set forth in the Certificate of Designation relating to the Senior Preferred Stock as in effect on the Issue Date. In determining the aggregate amount of Restricted Payments made after the Issue Date in accordance with clause (c) of the second preceding paragraph, amounts expended pursuant to clauses (1) (without duplication) and (4) (but not amounts under any other clauses of the immediately preceding paragraph) shall be included in such calculation; provided that any amounts expended pursuant to such clause (4) relating to dividends paid to the Issuer or one of its Restricted Subsidiaries shall not be included in such calculation. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment or any property other than cash that increases the Restricted Payments Basket shall be determined in good faith by the Board of Directors of the Issuer. In making the computations required by this covenant: (a) the Issuer or the relevant Restricted Subsidiary shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Issuer for the remaining portion of such period; and 94 (b) the Issuer or the relevant Restricted Subsidiary will be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Issuer and the Restricted Subsidiary that are available on the date of determination. If the Issuer makes a Restricted Payment that, at the time of the making of such Restricted Payment, would in the good faith determination of the Issuer or any Restricted Subsidiary be permitted under the requirements of the Indenture, such Restricted Payment will be deemed to have been made in compliance with the Indenture notwithstanding any subsequent adjustments made in good faith to the Issuer's or any Restricted Subsidiary's financial statements, affecting Consolidated Net Income of the Issuer for any period. For the avoidance of doubt, it is expressly agreed that no payment or other transaction permitted by clauses (i), (iv), (vi), (vii) and (viii) of the second paragraph of the covenant described under "--Transactions with Affiliates," and no payment contemplated by or otherwise arising pursuant to the Recapitalization, shall be considered a Restricted Payment for purposes of, or otherwise restricted by, the Indenture. Incurrence of Debt and Issuance of Preferred Stock The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Debt (including Acquired Debt) or issue any Disqualified Stock and the Issuer will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence or issuance of any such Debt, the Issuer or any Guarantor or Foreign Subsidiary of the Issuer may incur Debt (including Acquired Debt) or issue shares of Disqualified Stock, and Guarantors may issue Preferred Stock, if, in any such case, the Consolidated Coverage Ratio for the Issuer's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Debt is incurred or such Disqualified Stock or other Preferred Stock is issued would have been at least 2.00 to 1.00, if such Debt is incurred or such Disqualified Stock or other Preferred Stock is issued on or before May 1, 2002, or at least 2.25 to 1.00 thereafter, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Debt had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, at the beginning of such four-quarter period (the "Coverage Ratio Exception"). The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Debt (collectively, "Permitted Debt"): (1) the incurrence by the Issuer or any of its Restricted Subsidiaries of term and revolving Debt and letters of credit (with letters of credit being deemed to have a principal amount equal to the undrawn face amount thereof) under Credit Facilities (including Guarantees of such Debt by the Issuer or any of its Subsidiaries); provided that the aggregate principal amount of such Debt outstanding pursuant to this clause (1) without duplication, does not exceed an amount equal to the sum of (a) $500.0 million and (b) the greater of $170.0 million and the Borrowing Base at the time such Debt is incurred; (2) the incurrence by the Issuer and its Restricted Subsidiaries of Existing Debt; (3) the incurrence by the Issuer of Debt represented by the Notes and by the Guarantors of Debt represented by the Note Guarantees; (4) the incurrence by the Issuer or any of its Restricted Subsidiaries of (a) Acquired Debt or (b) Debt (including Capital Lease Obligations) for the purpose of financing or refinancing all or any part of the lease, purchase price or cost of construction or improvement of any property (real or personal) or other assets that are used or useful in the business of the Issuer or such Restricted Subsidiary (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets and whether such Debt is owed to the seller or Person carrying out such construction or improvement or to any third party), in an aggregate principal amount at the date of such incurrence (including all Permitted Refinancing Debt 95 incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (4)) not to exceed an amount equal to $35.0 million; provided that such Debt exists at the date of such purchase or transaction, or is created within 180 days thereafter; (5) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Debt (other than intercompany Debt) incurred pursuant to the Coverage Ratio Exception, or pursuant to clause (2), (3) or (4) of this paragraph; (6) the incurrence by the Issuer or any of its Restricted Subsidiaries of intercompany Debt or Preferred Stock owed or issued to and held by the Issuer and any of its Restricted Subsidiaries including any Indebtedness arising in connection with a Qualified Receivables Transaction, provided, however, that (a) any such Debt of the Issuer shall be subordinated and junior in right of payment to the Notes and (b)(i) any subsequent issuance or transfer of Equity Interests or other action that results in any such Debt or Preferred Stock being held by a Person other than the Issuer or a Restricted Subsidiary and (ii) any sale or other transfer of any such Debt or Preferred Stock to a Person that is not either the Issuer or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Debt or issuance of such Preferred Stock by the Issuer or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by the Issuer or any of its Restricted Subsidiaries of Hedging Obligations that are incurred (a) for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of the Indenture to be outstanding in a notional amount not exceeding the amount of such Debt or (b) for the purpose of fixing or hedging currency exchange rate risk or commodity price risk incurred in the ordinary course of business, and in each case, not for speculative purposes; (8) the guarantee by the Issuer or any Guarantor of Debt of the Issuer or a Restricted Subsidiary of the Issuer or by any Restricted Subsidiary of Debt of any other Restricted Subsidiary that is not a Guarantor, in each case, that was permitted to be incurred by another provision of this covenant; (9) the incurrence by Foreign Subsidiaries of Debt for working capital purposes (including acquisitions), and by the Issuer or any of its Restricted Subsidiaries of Guarantees of Debt of Foreign Subsidiaries or foreign joint ventures, provided that the aggregate principal amount of such Debt and of the Debt so Guaranteed at any time outstanding does not exceed $30.0 million; and (10) the incurrence by the Issuer or any of its Restricted Subsidiaries of additional Debt (which may comprise Debt under the New Credit Facility) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, pursuant to this clause (10) not to exceed an amount equal to $50.0 million. Notwithstanding any other provision in this covenant, the maximum amount of Debt that the Issuer or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded as a result of fluctuations in the exchange rates of currencies. For purposes of determining compliance with this covenant: (a) the outstanding principal amount of any particular Debt shall be counted only once and any obligation arising under any guarantee, Lien, letter of credit or similar instrument supporting such Debt shall be disregarded; (b) in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Issuer shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant and such item of Debt will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof; provided that all outstanding Debt under the New Credit Facility immediately following the Recapitalization shall be deemed to have been incurred pursuant to clause (1) of the definition of Permitted Debt; and 96 (c) accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Debt. No Senior Subordinated Debt The Issuer will not incur any Debt that is expressly subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes. No Guarantor will incur any Debt that is expressly subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the Note Guarantee of such Guarantor. Liens The Issuer will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Debt or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien; provided that: (1) if such other Debt constitutes Subordinated Debt or is otherwise subordinate or junior in right of payment to the Obligations under the Indenture, the Notes or the relevant Note Guarantee, as the case may be, such Lien is expressly made prior and senior in priority to the Lien securing such other Debt; or (2) in any other case, such Lien ranks equally and ratably with the Lien securing the other Debt or obligations so secured. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) (a) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Debt owed to the Issuer or any of its Restricted Subsidiaries; (2) make loans or advances to the Issuer or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (a) contracts in effect on the Issue Date as in effect on the Issue Date, including the New Credit Facility and other Existing Debt and the related documentation; (b) the Indenture, the Notes, the Note Guarantees and any other agreement entered into after the Issue Date, provided that the encumbrances or restrictions in such agreements are not materially more restrictive than those contained in the foregoing agreements; (c) any agreement or other instrument of a Person acquired by the Issuer or any of its Restricted Subsidiaries as in effect at the time of such acquisition (but not created in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (d) purchase money obligations (including Capital Lease Obligations) for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (3) above on the property so acquired; 97 (e) Debt or other contractual requirements in connection with a Qualified Receivables Transaction that, in the good faith determination of the Board of Directors or senior management of the Issuer, are necessary or advisable to effect such Qualified Receivables Transaction; (f) in the case of clause (3) above, any encumbrance or restriction (i) that restricts in a customary manner the subletting, assignment, or transfer of any property or asset that is subject to a lease, license or similar contract or (ii) contained in security agreements or mortgages securing Debt to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; (g) in the case of clause (3) above, any Lien on property or assets of the Issuer or any Restricted Subsidiary not otherwise prohibited by the Indenture; (h) any restriction under an agreement (including an option or right) to sell property or assets of, or Equity Interests in, the Issuer or any Restricted Subsidiary pending the closing of such sale, which sale is permitted under the Indenture; (i) restrictions on cash or other deposits or net worth imposed by leases or other agreements entered into in the ordinary course of business; (j) customary provisions in joint venture agreements and other similar agreements (in each case relating solely to the respective joint venture or similar entity or the Equity Interests therein) entered into in the ordinary course of business; (k) any encumbrances or restrictions created with respect to (i) Debt or Preferred Stock of Guarantors permitted to be incurred or issued subsequent to the Issue Date pursuant to the provisions of the covenant described under the caption "--Incurrence of Debt and Issuance of Preferred Stock" and (ii) Debt or Preferred Stock of Subsidiary Non-Guarantors permitted to be incurred or issued subsequent to the Issue Date pursuant to the provisions of the covenant described under the caption "--Incurrence of Debt and Issuance of Preferred Stock", provided that in the case of this clause (ii) the Board of Directors of the Issuer determines (as evidenced by a resolution of the Board of Directors) in good faith at the time such encumbrances or restrictions are created that such encumbrances or restrictions would not reasonably be expected to impair the ability of the Issuer to make payments of interest and scheduled payments of principal on the Notes in each case as and when due; (l) any encumbrances or restrictions required by any governmental, local or regulatory authority having jurisdiction over the Issuer or any of its Restricted Subsidiaries or any of their businesses in connection with any development grant made or other assistance provided to the Issuer or any of its Restricted Subsidiaries by such governmental authority; or (m) any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (l) above, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings, taken as a whole, are, in the good faith judgment of the Issuer, not materially more restrictive with respect to such encumbrances or restrictions than those contained in the contracts, instruments or obligations prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. Merger, Consolidation, or Sale of all or Substantially all Assets The Issuer may not consolidate or merge with or into (whether or not the Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless: (1) the Issuer is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, lease, 98 conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Issuer under the Notes, the Indenture and the Registration Rights Agreement pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (3) immediately before and immediately after giving effect to such transaction (including giving effect to any Debt being incurred in connection in with the transaction) no Default or Event of Default exists; and (4) except in the case of a merger of the Issuer with or into a Wholly Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, either (a) be permitted to incur at least $1.00 of additional Debt pursuant to the Coverage Ratio Exception or (b) have a Consolidated Coverage Ratio at least equal to the Consolidated Coverage Ratio of the Issuer for such four-quarter reference period. Notwithstanding the foregoing clauses (3) and (4): (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Issuer; and (b) the Issuer may merge with an Affiliate incorporated solely for the purpose of reincorporating the Issuer in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Restricted Subsidiaries of the Issuer, the Capital Stock of which constitutes all or substantially all of the assets and properties of the Issuer (determined on a consolidated basis for the Issuer and its Subsidiaries), shall be deemed to be the transfer of all or substantially all of the properties and assets of the Issuer. This covenant does not apply to the merger of Saturn Acquisition Corporation with and into the Issuer on the Issue Date. Transactions with Affiliates The Issuer will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance, guarantee or other transaction with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that, taken as a whole, are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person; and (2) the Issuer delivers to the Trustee: (a) with respect to any Affiliate Transaction entered into after the Issue Date involving aggregate consideration in excess of $4.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (1) above and 99 that such Affiliate Transaction has been approved by a majority of the members of the Board of Directors; and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Issuer or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an investment banking, appraisal or accounting firm of national standing. Notwithstanding the foregoing, the following will not be deemed to be Affiliate Transactions: (i) any employment agreements, non-competition agreements, stock purchase or option agreements, collective bargaining agreements, employee benefit plans or arrangements (including vacation plans, health and life insurance plans, deferred compensation plans, stock loan programs, long- term incentive plans, directors' and officers' indemnification agreements and retirement, savings or similar plans), related trust agreements or any similar arrangements, in each case in respect of employees, officers or directors and entered into in the ordinary course of business, any payments or other transactions contemplated by any of the foregoing and any other payments of compensation to employees, officers, directors or consultants in the ordinary course of business or in connection with the Issuer's transition to new ownership; (ii) transactions between or among (a) the Issuer and/or its Restricted Subsidiaries or (b) the Issuer and/or one or more of its Restricted Subsidiaries and any joint venture; provided no Affiliate of the Issuer (other than a Restricted Subsidiary) owns Capital Stock of any such joint venture; (iii) Permitted Investments and Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments;" (iv) loans or advances to employees (or guarantees of third party loans to employees) in the ordinary course of business or pursuant to a stock loan program; (v) transactions among the Issuer and/or one or more of its Subsidiaries effected as part of a Qualified Receivables Transaction; (vi) payments to Investcorp and its Affiliates (whether or not such Persons are Affiliates of the Issuer) for annual management, consulting and advisory fees and related expenses, which fees shall not exceed $1.5 million per year; provided, however, that such fees with respect to the first five years after the Issue Date were paid on the Issue Date; (vii) any agreement as in effect on the Issue Date (including the Recapitalization Agreement) or any amendment thereto (so long as any such amendment is not disadvantageous to the holders of the Notes in any material respect) or any transaction pursuant thereto (including the payment of all fees and expenses related to the Recapitalization); (viii) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to the Issuer or its Restricted Subsidiaries, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, in each case in the reasonable determination of the Board of Directors of the Issuer or the senior management thereof; (ix) Debt permitted by paragraph (10) of the covenant described under the caption "--Incurrence of Debt and Issuance of Preferred Stock" on terms that, taken as a whole, are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction with an unrelated Person, or, if there is no comparable transaction, have been negotiated in good faith by the parties thereto and, if any member of management is then a member of the Board of Directors of the Issuer or the relevant Restricted Subsidiary, also approved by such member; 100 (x) any transaction on arm's length terms with non-affiliates that become Affiliates as a result of such transaction; and (xi) the issuance of common stock of the Issuer. Limitations on Designations of Unrestricted Subsidiaries The Board of Directors may designate (a "Designation") any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of the Issuer) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Issuer or any Restricted Subsidiary, so long as such Designation would not cause a Default; provided that: (1) any then existing Guarantee by the Issuer or any Restricted Subsidiary of any Debt of the Subsidiary being so designated shall be deemed an "incurrence" of such Debt at the time of such Designation; and (2) either (a) the Subsidiary to be so designated has total assets of $1.0 million or less or (b) if such Subsidiary has assets greater than $1.0 million, the "incurrence" of Debt referred to in clause (1) of this provision would be permitted under the "--Incurrence of Debt and Issuance of Preferred Stock" covenant described above. For purposes of making the determination of whether such Designation would cause a Default, the portion of the fair market value of the net assets of any Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary that is represented by the interest of the Issuer and its Restricted Subsidiaries (excluding Permitted Investments) in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Issuer, shall be deemed to be a Restricted Payment. Such Designation will only be permitted if such Restricted Payment would be permitted at such time. The Board of Directors may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"); provided that: (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Revocation; and (b) all Liens and Debt of such Unrestricted Subsidiary outstanding immediately after such Revocation would, if incurred at such time, have been permitted to be incurred (and shall be deemed to have been incurred) for all purposes of the Indenture. Any such Designation or Revocation by the Board of Directors after the Issue Date shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such Designation or Revocation and an Officers' Certificate certifying that such Designation or Revocation complied with the foregoing provisions. Additional Note Guarantees All current and future Subsidiaries of the Issuer, other than Foreign Subsidiaries, Receivables Subsidiaries and Subsidiaries that have been properly designated as Unrestricted Subsidiaries in accordance with the Indenture for so long as they continue to constitute Unrestricted Subsidiaries, will be Guarantors in accordance with the terms of the Indenture to the extent such Subsidiaries are guarantors or are otherwise obligors under any Credit Facility incurred under clause (1) in the second paragraph under "--Incurrence of Debt and Issuance of Preferred Stock." Notwithstanding the foregoing, if any Foreign Subsidiary that is a Restricted Subsidiary shall Guarantee any Debt of the Issuer or any Domestic Subsidiary while the Notes are outstanding, then such Foreign Subsidiary shall become a Guarantor under the Indenture and will execute a Note Guarantee in accordance with the provisions of the Indenture. 101 Business Activities The Issuer will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as is not material to the Issuer and its Restricted Subsidiaries taken as a whole. Reports Notwithstanding that the Issuer may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Issuer will file with the Securities and Exchange Commission (the "Commission") and provide, within 15 days after the Issuer is required to file the same with the Commission, the Trustee and the holders with the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act. In the event the Issuer is not permitted to file such reports, documents and information with the Commission, the Issuer will provide substantially similar information to the Trustee and the holders, as if the Issuer were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Events of Default and Remedies Each of the following constitutes an Event of Default with respect to the Notes: (1) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by the subordination provisions of the Indenture); (2) default in payment when due of the principal of or premium, if any, on the Notes (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or an Asset Sale Offer) (whether or not prohibited by the subordination provisions of the Indenture); (3) failure by the Issuer for 30 days after receipt of notice from the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes to comply with the provisions described under the captions "--Repurchase at the Option of Holders--Change of Control," "-- Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants-- Restricted Payments," "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock" or "--Certain Covenants--Merger, Consolidation, or Sale of all or Substantially all Assets;" (4) failure by the Issuer for 60 days after receipt of notice from the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes specifying such failure to comply with any of its other agreements in the Indenture or the Notes; (5) the failure by the Issuer or any Restricted Subsidiary that is a Significant Subsidiary to pay any Debt within any applicable grace period after final maturity or acceleration by the holders thereof because of a default if the total amount of all such Debt unpaid or accelerated at the time exceeds $25.0 million; (6) any judgment or decree for the payment of money in excess of $25.0 million (net of any insurance or indemnity payments actually received in respect thereof prior to or within 60 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) is entered against the Issuer or any Significant Subsidiary that is a Restricted Subsidiary and is not discharged, waived or stayed and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; (7) any Note Guarantee by a Guarantor that is a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or, except as permitted by the Indenture, shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (8) certain events of bankruptcy or insolvency with respect to the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary. 102 If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Upon such a declaration, such amounts shall be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Issuer all outstanding Notes will become due and payable without further action or notice. The Indenture will provide that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the holders of a majority in aggregate principal amount of the Notes may rescind and cancel such declaration and its consequences: (a) if the rescission would not conflict with any judgment or decree; (b) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (c) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; and (d) if the Issuer has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of or premium on, the Notes. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, interest or Liquidated Damages when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless: (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in aggregate principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and (5) the holders of a majority in aggregate principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to 103 indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. If a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is known to a trust officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium, if any, interest or Liquidated Damages on any Note, the Trustee may withhold notice if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interests of holders of Notes. In addition, the Issuer is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof actually know of any Default that occurred during the previous year. The Issuer also is required to deliver to the Trustee, forthwith upon any Senior Officer obtaining actual knowledge of any such Default, written notice of any event which would constitute certain Defaults, their status and what action the Issuer is taking or proposes to take in respect thereof. No Personal Liability of Directors, Officers, Employees and Stockholders No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of the Issuer, as such, shall have any liability for any obligations of the Issuer under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of any of the Guarantors, as such, shall have any liability for any obligations of the Guarantors under the Note Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes and Note Guarantees by accepting a Note and a Note Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Notes and the Note Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Satisfaction and Discharge Upon the request of the Issuer, the Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) and the Trustee, at the expense of the Issuer, will execute proper instruments acknowledging satisfaction and discharge of the Indenture, the Note Guarantees, the Registration Rights Agreement relating thereto and the Notes when: (1) either: (a) all the Notes theretofore authenticated and delivered (other than destroyed, lost or stolen Notes that have been replaced or paid and Notes that have been subject to defeasance as described under the caption "-- Legal Defeasance and Covenant Defeasance") have been delivered to the Trustee for cancellation; or (b) all Notes not theretofore delivered to the Trustee for cancellation: (i) have become due and payable; (ii) will become due and payable at maturity 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 the expense, of the Issuer, and the Issuer has irrevocably deposited or caused to be deposited with the Trustee funds in trust for such purpose in an amount sufficient to pay and discharge the entire Debt on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any, on) and interest on the Notes to the date of such deposit (in case of Notes that have become due and payable) or to the Stated Maturity or redemption date, as the case may be; (2) the Issuer has paid or caused to be paid all sums payable under the Indenture by the Issuer; and 104 (3) the Issuer has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in the Indenture relating to the satisfaction and discharge of the Indenture, the Note Guarantees, the security agreements relating thereto and the Notes have been complied with. Legal Defeasance and Covenant Defeasance The Issuer may, at its option and at any time, elect to have all of its and the Guarantors' obligations discharged with respect to the outstanding Notes and Note Guarantees ("Legal Defeasance") and cure all then existing Events of Default, except for: (1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due from the trust referred to below; (2) the Issuer's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for Note payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer's obligations in connection therewith; and (4) the Legal Defeasance provisions of the Indenture. In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer and the Guarantors released with respect to certain covenants that are described in the Indenture and the Note Guarantees ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes and the Note Guarantees. In the event Covenant Defeasance occurs, certain events (not including non-payment, and, solely with respect to the Issuer, bankruptcy and insolvency events) described under "--Events of Default and Remedies" will no longer constitute an Event of Default with respect to the Notes and the Note Guarantees. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes cash in U.S. dollars, non-callable Government Notes, or a combination thereof, in such amounts as will be sufficient (without reinvestment), in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Issuer must specify whether the Notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that: (a) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the Issue Date, 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, subject to customary assumptions and exclusions, the holders of the outstanding Notes 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; (3) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary 105 assumptions and exclusions, the holders of the outstanding Notes 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; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing); (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound; (6) the Issuer must have delivered to the Trustee an opinion of counsel, subject to customary assumptions and exclusions, to the effect that after the 91st day following the deposit, the trust funds will not be part of any "estate" formed by the bankruptcy or reorganization of the Issuer or subject to the "automatic stay" under the Bankruptcy Law or, in the case of Covenant Defeasance, will be subject to a first priority Lien in favor of the Trustee for the benefit of the holders; (7) the Issuer must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuer with the intent of preferring the holders of Notes over the other creditors of the Issuer or the Guarantors, as applicable, or with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or the Guarantors, as applicable, or others; and (8) the Issuer must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions), each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Transfer and Exchange A holder may transfer or exchange Notes in accordance with the Indenture. The Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuer may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuer is not required to transfer or exchange any Note selected for redemption or repurchase. Also, the Issuer is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed or before any repurchase offer. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of it for all purposes. Amendment, Supplement and Waiver Except as provided in the next two succeeding paragraphs, the Indenture, the Notes and the Note Guarantees may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; 106 (2) reduce the principal of, change the fixed maturity of any Note, reduce any premium payable upon optional redemption of the Notes or otherwise alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any Note; (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) impair the rights of holders of Notes to receive payments of principal of or premium, if any, or interest or Liquidated Damages on the Notes; (7) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Notes or the Note Guarantees in a manner which adversely affects the holders of the Notes; (8) make any change in the foregoing amendment and waiver provisions; or (9) except as permitted by the Indenture, release any Note Guarantee. Notwithstanding the foregoing, without the consent of any holder of Notes, the Issuer and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Issuer's or any Guarantor's obligations to holders of Notes in the case of a merger, consolidation or sale of assets, to release any Note Guarantee in accordance with the provisions of the Indenture, to provide for additional Guarantors, to make any change that would provide any additional rights or benefits to the holders of Notes or that, as determined by the Board of Directors of the Company in good faith, does not adversely affect the legal rights of any such holder under the Indenture, the Notes or the Notes Guarantees, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Concerning the Trustee The Indenture contains certain limitations on the rights of the Trustee, should the Trustee become a creditor of the Issuer, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if the Trustee acquires any conflicting interest the Trustee must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. In case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Copies of Documents Anyone who receives this prospectus may obtain a copy of the Indenture and Registration Rights Agreement from the SEC as set forth below under the heading "Where You Can Find More Information." 107 Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Debt of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including Debt incurred in connection with, or in contemplation of, such other Person's merging with or into or becoming a Restricted Subsidiary of such specified Person; and (2) Debt secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means: (1) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; (2) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Voting Stock; or (3) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (1) or (2) above. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Applicable Premium" means, with respect to a Note at any redemption date, the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess of (A) the present value at such time of (1) the redemption price of such Note at May 1, 2005 (such redemption price being set forth in the table under the subheading "Optional Redemption") plus (2) all required interest payments due on such Note through May 1, 2005 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note, if greater. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights (including by way of a sale and leaseback) (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "--Certain Covenants--Merger, Consolidation, or Sale of all or Substantially all Assets" and not by the provisions of the Asset Sale covenant), and (2) the issue or sale by the Issuer or any of its Restricted Subsidiaries of Equity Interests of any of the Issuer's Subsidiaries (other than director's qualifying shares), in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions: (1) that have a fair market value in excess of 1.0% of Total Assets; or (2) for Net Proceeds in excess of 1.0% of Total Assets. Notwithstanding the foregoing, the following will not be Asset Sales: (a) a transfer of assets or an issuance of Equity Interests by a Restricted Subsidiary to the Issuer or to another Restricted Subsidiary or a transfer of assets by the Issuer to a Restricted Subsidiary; 108 (b) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "--Certain Covenants-- Restricted Payments" (including any formation of or contribution of assets to a Subsidiary or joint venture); (c) leases or subleases to third parties, of real property owned in fee or leased by the Issuer or its Subsidiaries or a disposition of a lease of real property, in each case, in the ordinary course of business; (d) any disposition of property or assets (including inventory, accounts receivable and licensing agreements) of the Issuer or any of its Subsidiaries in the ordinary course of business, or that in the reasonable judgment of the Issuer, have become uneconomic, obsolete or worn out; (e) the disposition of Cash Equivalents or cash; and (f) sales of accounts or other receivables and related assets (or a fractional undivided interest therein) for the fair market value thereof, in a Qualified Receivables Transaction. "Bankruptcy Law" means Title 11, United States Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person, or (except if used in the definition of "Change of Control") any authorized committee of the Board of Directors of such Person. "Borrowing Base" means, as of any date, an amount equal to the sum of: (1) 85% of the aggregate book value of all accounts receivable of the Issuer and its Restricted Subsidiaries; and (2) 60% of the aggregate book value of all inventory owned by the Issuer and its Restricted Subsidiaries, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Issuer shall use the most recent available information for purposes of calculating the Borrowing Base. "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York are authorized or required by law to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (3) in the case of an association or other business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of stock. "Cash Equivalents" means: (1) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof; 109 (2) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank or trust company having capital and surplus in excess of $300 million; (3) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1) and (2) above entered into with any financial institution meeting the qualifications specified in clause (2) above; (4) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and in each case maturing within one year after the date of acquisition; (5) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P; (6) Debt with a rating of "A" or higher from S&P or "A2" or higher from Moody's; and (7) investment funds investing at least 95% of their assets in securities of the types described in clauses (1)-(4) above. "Change of Control" means the occurrence of any of the following events: (1) prior to the first public offering after the Issue Date of Voting Stock of the Issuer, the Initial Control Group ceases to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Issuer, whether as a result of the issuance of securities of the Issuer, any merger, consolidation, liquidation or dissolution of the Issuer, any direct or indirect transfer of securities by the Initial Control Group or otherwise (for purposes of this clause (1) and clause (2) below, the Initial Control Group shall be deemed to beneficially own any Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Initial Control Group beneficially owns (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity); (2) following the first public offering after the Issue Date of Voting Stock of the Issuer, (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more members of the Initial Control Group, is or becomes the beneficial owner (as defined in clause (1) above), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Issuer, and (b) the Initial Control Group "beneficially owns" (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Issuer than such other person and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Issuer (for purposes of this clause (2), such other person shall be deemed to beneficially own any Voting Stock of a specified entity held by a parent entity, if such other person "beneficially owns" (as defined in clause (1) above), directly or indirectly, in the aggregate more than 40% of the voting power of the Voting Stock of such parent entity and the Initial Control Group "beneficially owns" (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity); or (3) at any time after the first public offering of common stock of the Issuer, any person other than the Initial Control Group (or their designated Board of Directors), (a)(i) nominates one or more individuals for election to the Board of Directors of the Issuer, and (ii) solicits proxies, authorizations or consents in connection therewith and (b) such number of nominees elected to serve on the Board of Directors in such election and all previous elections after the Issue Date represents a majority of the Board of Directors of the Issuer following such election. 110 "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Hedging Agreements" means any futures contract or other similar agreement or arrangement designed to protect the Issuer or any Restricted Subsidiary against fluctuations in commodities prices. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period: (1) plus, to the extent deducted in computing such Consolidated Net Income: (a) Consolidated Interest Expense and the amortization of debt issuance costs, commissions, fees and expenses of such Person and its Restricted Subsidiaries for such period; (b) provision for taxes based on income or profits (including franchise taxes) of such Person and its Restricted Subsidiaries for such period; (c) depreciation and amortization expense, including amortization of inventory write-up under APB 16, amortization of intangibles (including goodwill and the non-cash costs of Interest Rate Agreements, Commodity Hedging Agreements or Currency Agreements, license agreements and non- competition agreements), amortization of management fees, non-cash amortization of Capital Lease Obligations, and organization costs; (d) expenses and charges related to any equity offering or incurrence of Debt permitted to be incurred by the Indenture (including any such expenses or charges relating to the Recapitalization); (e) the amount of any restructuring or other type of special charge or reserve; (f) unrealized gains and losses from hedging, foreign currency or commodities translations and transactions; (g) expenses consisting of internal software development costs that are expensed during the period but could have been capitalized in accordance with GAAP; (h) any write-downs, write-offs, and other non-cash charges, items and expenses; (i) the amount of any expense relating to any minority interest of Restricted Subsidiaries; and (j) costs of surety bonds in connection with financing activities, and (2) minus any cash payment for which a reserve or charge of the kind described in clause (e), (h) or (i) of subclause (1) above was taken previously during such period. "Consolidated Coverage Ratio" means with respect to any Person, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for the four full fiscal quarters ending on or prior to the date the transaction giving rise to the need to calculate the Consolidated Coverage Ratio (the "Calculation Date") for which financial statements are available to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Issuer or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Debt (other than working capital borrowings) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to Calculation Date, then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Debt, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers and consolidations that have been made by the Issuer or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, and discontinued operations determined in accordance with GAAP on or prior to the Calculation Date, shall be 111 given effect on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers and consolidations or discontinued operations (and the reduction or increase of any associated Consolidated Interest Expense, and the change in Consolidated Cash Flow, resulting therefrom, including because of Pro Forma Cost Savings) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Issuer or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, acquisition, disposition, merger or consolidation or determined a discontinued operation, that would have required adjustment pursuant to this definition, then the Consolidated Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger or consolidation or discontinued operations had occurred at the beginning of the applicable four- quarter period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a financial or accounting officer of the Issuer. If any Debt to which pro forma effect is given bears interest at a floating rate, the interest expense on such Debt shall be calculated as if the rate in effect on the Calculation Date had been the applicable interest rate for the entire period (taking into account any Interest Rate Agreement in effect on the Calculation Date). Interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP. Interest on Debt that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of: (1) the consolidated net interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings or any Qualified Receivables Transaction, and net payments (if any) pursuant to Hedging Obligations relating to Interest Rate Agreements or Currency Agreements with respect to Debt, excluding, however (a) amortization of debt issuance costs, commissions, fees and expenses and (b) customary commitment, administrative and transaction fees and charges); (2) dividends paid in respect of any Disqualified Stock of the Issuer or any Restricted Subsidiary, or cash dividends paid in respect of any Preferred Stock of a Restricted Subsidiary of the Issuer held by Persons other than the Issuer or a Subsidiary; and (3) commissions, discounts and other fees and charges incurred in connection with a Qualified Receivables Transaction of the Issuer or any Restricted Subsidiary, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary of such Person and the net losses of any such Person shall only be included to the extent funded with cash or property from the Issuer or any Restricted Subsidiary; 112 (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders unless such restriction with respect to the payment of dividends has been permanently waived; (3) except for purposes of calculating the Consolidated Coverage Ratio, the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded (effected either through cumulative effect adjustment or a retroactive application, in each case, in accordance with GAAP); (5) to the extent deducted in determining Net Income, the fees, expenses and other costs incurred in connection with the Recapitalization, including payments to management contemplated by the Recapitalization Agreement or in connection with the Issuer's transition to new ownership, in each case, to the extent that such fee, expense, cost or payment was disclosed in this prospectus, shall be excluded; and (6) with respect to periods prior to the Issue Date, Consolidated Net Income shall include (without duplication) all adjustments relating to reductions in costs related to employee terminations, elimination of certain unprofitable businesses, excess rebates related to the JDS program, closing the Mexico manufacturing facility, excess labor costs associated with the recognition segment and other items in each case of the type reflected in the calculation of Adjusted EBITDA set forth in footnote 3 to "Summary Consolidated Unaudited Pro Forma Financial Data". To the extent that all employee terminations referred to above have not been completed before the Issue Date, such costs shall be added back to Consolidated Net Income in periods after the Issue Date; provided, however, that if Consolidated Net Income is being calculated after September 30, 2000, the expected cost savings of such employee terminations with respect to employees that have not been terminated prior to the date of such calculation shall not be added back to Consolidated Net Income. "Coverage Ratio Exception" shall have the meaning set forth in the first paragraph of the covenant described under the caption "--Certain Covenants-- Incurrence of Debt and Issuance of Preferred Stock." "Credit Facilities" means, with respect to the Issuer and its Restricted Subsidiaries, one or more unsubordinated debt facilities (including the New Credit Facility) or commercial paper facilities with banks, insurance companies or other institutional lenders providing for unsubordinated revolving credit loans, unsubordinated term loans, unsubordinated notes, factoring or other receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from or issue securities to such lenders against such receivables) or unsubordinated letters of credit or other unsubordinated credit facilities, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement to which the Issuer or any Restricted Subsidiary is a party or of which it is a beneficiary. "Debt" means, with respect to any Person (without duplication): (1) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, which purchase price is due more than 113 six months after the date of placing such property in final service or taking final delivery thereof, or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP; (2) all indebtedness under clause (1) of other Persons secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) provided that the amount of indebtedness of such Person shall be the lesser of: (a) the fair market value of such asset at such date of determination; and (b) the amount of such indebtedness of such other Persons, and (3) to the extent not otherwise included, the Guarantee by such Person of any Debt under clause (1) of any other Person; provided, however, that Debt shall not include: (a) obligations and liabilities in respect of synthetic lease facilities that are accounted for as operating leases in accordance with GAAP (including Guarantees of loans then outstanding by the lenders under any such facility to the lessor thereunder); (b) obligations of the Issuer or any of its Restricted Subsidiaries arising from agreements of the Issuer or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Debt incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that: (i) such obligations are not reflected on the balance sheet of the Issuer or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)); and (ii) the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Issuer and its Restricted Subsidiaries in connection with such disposition, (c) (i) obligations under (or constituting reimbursement obligations with respect to) letters of credit, performance bonds, surety bonds, appeal bonds, completion guarantees or similar instruments issued in connection with the ordinary course of a Permitted Business, including letters of credit in respect of workers' compensation claims, security or lease deposits and self-insurance; provided, however, that upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing, and (ii) obligations arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of day-light overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such obligations are extinguished within three business days of incurrence; (d) purchase price holdbacks in connection with purchasing in the ordinary course of business of the Issuer and its Restricted Subsidiaries; (e) leases of precious metals used in the ordinary course of business of the Issuer and its Restricted Subsidiaries, whether or not accounted for as operating leases under GAAP; or (f) customer deposits in the ordinary course of business. 114 Except as otherwise expressly provided in this definition, the amount of any Debt outstanding as of any date shall be: (i) the accreted value thereof, in the case of any Debt issued at a discount to par value; and (ii) the principal amount thereof in the case of any other Debt. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means: (1) any Senior Debt outstanding under our credit facility; and (2) any other Senior Debt permitted under the Indenture the outstanding principal amount of which is $10.0 million or more and that has been designated by the Issuer by notice to the Trustee as "Designated Senior Debt." "Disqualified Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is: (1) required to be redeemed or is redeemable at the option of the holder of such class or series of Capital Stock at any time on or prior to the date that is 91 days after the Stated Maturity of the Notes; or (2) convertible into or exchangeable at the option of the holder thereof for Capital Stock referred to in clause (1) above or Debt having a scheduled maturity on or prior to the date that is 91 days after the Stated Maturity of the Notes. Notwithstanding the preceding sentence, (A) if such Capital Stock is issued to any plan for the benefit of employees or by any such plan to such employees, in each case in the ordinary course of business of the Issuer or its Subsidiaries, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer in order to satisfy applicable statutory or regulatory obligations, (B) any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Issuer to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Issuer may not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Issuer's purchase of such Notes as are required to be repurchased pursuant to the provisions of the Indenture as described under "--Repurchase at the Option of Holders--Change of Control" and (C) the Senior Preferred Stock having the terms and conditions set forth in the Certificate of Designation for the Senior Preferred Stock as in effect on the Issue Date shall not constitute Disqualified Stock under the Indenture. For purposes hereof, the amount of any Disqualified Stock shall be equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. The "maximum fixed repurchase price" of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date as of which the Consolidated Coverage Ratio shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Stock. "Domestic Subsidiary" means any Restricted Subsidiary of the Issuer other than a Foreign Subsidiary. 115 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries (other than Debt under the New Credit Facility) in existence on the Issue Date, until such amounts are repaid. "Foreign Subsidiary" means any Subsidiary of the Issuer formed under the laws of any jurisdiction other than the United States or any political subdivision thereof substantially all of the assets of which are located outside of the United States or that conducts substantially all of its business outside of the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP as in effect as of the Issue Date. "Government Notes" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantors" means: (1) each of the Issuer's Restricted Subsidiaries on the Issue Date other than any (a) Foreign Subsidiary and (b) Subsidiary that is a Receivables Subsidiary; and (2) each Restricted Subsidiary that executes and delivers a Note Guarantee and a supplemental indenture assuming the obligations of a Guarantor under the Indenture after the Issue Date, and their respective successors and assigns, in each case until released from its Note Guarantee in accordance with the terms of the Indenture. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under Interest Rate Agreements, Currency Agreements or Commodity Hedging Agreements. "Initial Control Group" means Investcorp S.A., Deutsche Bank Securities Inc. and their respective Affiliates, any Person acting in the capacity of an underwriter or initial purchaser in connection with a public or private offering of the Issuer's Capital Stock, or any Permitted Transferee of any of the foregoing Persons. "Initial Purchasers" means Deutsche Bank Securities Inc., UBS Warburg LLC, and Goldman, Sachs & Co. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, repurchase agreement, futures contract or other financial agreement or arrangement designed to protect the Issuer or any Restricted Subsidiary against fluctuations in interest rates. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (but excluding Guarantees of Debt not otherwise prohibited to be incurred under the Indenture (to the extent that such Guarantees of Debt do not then require cash payments by the Issuer and in the event that cash payments are then required, such payments shall constitute an Investment under the Indenture only 90 days subsequent to such payment)), advances or capital contributions (excluding commission, travel, payroll, entertainment, relocation and similar advances to officers 116 and employees and profit sharing plan contributions made in the ordinary course of business), and purchases or other acquisitions for consideration of Debt, Equity Interests or other securities. If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Issuer such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the second to last paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Issue Date" means May 10, 2000. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement or any lease in the nature thereof); provided that in no event shall an operating lease be deemed to constitute a Lien. "Net Income" means, with respect to any Person and any period, the net income (or loss) of such Person (but not any Subsidiaries) for such period, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends of such Person (but not any Subsidiaries), excluding, however: (1) any extraordinary or non-recurring gains or losses or charges (including non-cash charges resulting from any write-up, write-down or write-off of amounts in connection with the Recapitalization) and gains or losses or charges from the sale of assets outside the ordinary course of business, together with any related provision for taxes on such gain or loss or charges; and (2) deferred financing costs written off in connection with the early extinguishment of Debt; provided, however, that Net Income shall be deemed to include any increases during such period to shareholder's equity of such Person attributable to tax benefits from net operating losses and the exercise of stock options that are not otherwise included in Net Income for such period. "Net Proceeds" means the aggregate cash proceeds or Cash Equivalents received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees, and brokerage and sales commissions) and any relocation, redundancy and closing costs incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts applied to the repayment of principal, premium, if any, and interest on Debt that is not subordinated to the Notes required (other than required by clause (1) of the second paragraph of "-- Repurchase at the Option of Holders--Asset Sales") to be paid as a result of such transaction, all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and any deduction of appropriate amounts to be provided by the Issuer as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Issuer after such sale or other disposition thereof, including pension and other post- employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction. "New Credit Facility" means the Credit Agreement expected to be dated as of May 10, 2000 among the Issuer, the Subsidiaries of the Issuer party thereto and the financial institutions named therein, and any related notes, collateral documents, letters of credit and Guarantees, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), in each case, as such agreements may be amended, modified, supplemented or restated from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid or extended from time to time (whether with the original agents and lenders or other agents or lenders or otherwise, and whether provided under the original credit agreement or other credit agreements or otherwise). 117 "Note Guarantee" means the unconditional Guarantee by each Guarantor of the Issuer's Obligations under the Notes. "Notes" means the $225,000,000 aggregate principal amount of 12 3/4% Senior Subordinated Notes due 2010 issued by the Issuer on the Issue Date pursuant to the Indenture together with any Additional Notes and any exchange notes issued pursuant to this exchange offer. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages, Guarantees and other liabilities payable under the documentation governing any Debt, in each case, whether now or hereafter existing, renewed or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred, whether or not arising on or after the commencement of a proceeding under Title 11, U.S. Code or any similar federal or state law for the relief of debtors (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding. "Officers" means any of the following: Chairman, President, Chief Executive Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior Vice President, Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer reasonably acceptable to the Trustee. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer or the Trustee. "Pari Passu Debt" means any Debt of the Issuer or any Guarantor that ranks pari passu with the Notes or the relevant Note Guarantee. "Permitted Business" means the businesses conducted by the Issuer and its Subsidiaries as of the date of the Indenture and any other business reasonably related, complementary or incidental to any of those businesses including the provision of goods or services related to educational institutions. "Permitted Investments" means: (1) any Investment in the Issuer or in a Restricted Subsidiary (including in any Equity Interests of a Restricted Subsidiary); (2) any Investment in (a) cash or Cash Equivalents or (b) to the extent determined by the Issuer in good faith to be necessary for local currency working capital requirements of a Foreign Subsidiary, other cash equivalents, provided in the case of clause (b), the Investment is made by the Foreign Subsidiary having such operations; (3) any Investment by the Issuer or any Restricted Subsidiary of the Issuer in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary or (B) such Person, in one transaction or a series of substantially concurrent related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary; (4) any securities received or other Investments made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales" or in connection with any other disposition of assets not constituting an Asset Sale; (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Issuer; (6) any Investments relating to a Receivables Subsidiary; (7) loans or advances to employees (or guarantees of third-party loans to employees) in the ordinary course of business or pursuant to a stock loan program; (8) stock, obligations or securities received in satisfaction of judgments, foreclosure of liens or settlement of debts (whether pursuant to a plan of reorganization or similar arrangement); 118 (9) receivables owing to the Issuer or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (including such concessionary terms as the Issuer or such Restricted Subsidiary deems reasonable); (10) any Investment existing on the Issue Date or made pursuant to legally binding written commitments in existence on the Issue Date which Investment is disclosed in this prospectus; (11) Investments in Interest Rate Agreements, Currency Agreements and Commodity Hedging Agreements not otherwise prohibited under the Indenture; (12) any Investment in a Permitted Business having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (12) that are at that time outstanding, not to exceed 10.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); and (13) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (13) that are at that time outstanding, not to exceed 2.5% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Permitted Junior Securities" means debt or equity securities of the Issuer, any Guarantor or any successor corporation to the Issuer or such Guarantor issued pursuant to a plan of reorganization or readjustment of the Issuer or such Guarantor that are subordinated to the payment of all then outstanding Senior Debt of the Issuer or such Guarantor, as applicable, at least to the extent that (i) in the case of the Issuer, the Notes are subordinated to the payment of all Senior Debt on the Issue Date and (ii) in the case of such Guarantor, that the Note Guarantee of such Guarantor is subordinated to the payment of Senior Debt of such Guarantor on the Issue Date, so long as: (1) the effect of the use of this defined term in the subordination provisions described under the caption "--Subordination" is not to cause the Notes or the Note Guarantee, as applicable to be treated as part of (A) the same class of claims as the Senior Debt of the Issuer or such Guarantor, as applicable, or (B) any class of claims pari passu with, or senior to, the Senior Debt of the Issuer or such Guarantor, as applicable, for any payment or distribution in any case or proceeding or similar event relating to the liquidation, insolvency, bankruptcy, dissolution, winding up or reorganization of the Issuer or such Guarantor; and (2) to the extent that any Senior Debt of the Issuer or such Guarantor, as applicable, outstanding on the date of consummation of any such plan of reorganization or readjustment is not paid in full in cash on such date, either (A) the holders of any such Senior Debt not so paid in full in cash have consented to the terms of such plan of reorganization or readjustment or (B) such holders receive securities which constitute Senior Debt of the Issuer or such Guarantor, as applicable, and which have been determined by the relevant court to constitute satisfaction in full in money or money's worth of any Senior Debt of the Issuer or such Guarantor, as applicable, not paid in full in cash. "Permitted Liens" means: (1) Liens securing Senior Debt of the Issuer or Debt of a Restricted Subsidiary (in each case including related Obligations) that was permitted by the terms of the Indenture to be incurred; (2) Liens in favor of the Issuer or any Restricted Subsidiary; (3) Liens on property (i) existing at the time of acquisition thereof or (ii) of a Person existing at the time such Person is merged into or consolidated with or acquired by the Issuer or any Restricted Subsidiary of the Issuer; provided that such Liens were in existence prior to the contemplation of such acquisition, merger or consolidation and do not extend to any assets other than those acquired or to those of the Person merged into or consolidated with the Issuer or a Restricted Subsidiary, as the case may be; (4) Liens that secure Debt of a Person existing at the time any such Person becomes a Restricted Subsidiary of the Issuer; provided that such Liens do not extend to any assets other than those of the Person that became a Restricted Subsidiary of the Issuer; 119 (5) banker's Liens, rights of setoff and Liens to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) without limitation of clause (1) above, Liens to secure Debt (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock" covering only the assets acquired, leased, constructed or improved with such Debt; (7) Liens existing on the Issue Date; (8) customary Liens incurred in connection with a Qualified Receivables Transaction; (9) (A) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and (B) Liens for taxes, assessments or governmental charges or claims, in each case, that are not yet due or delinquent or that are bonded or that are being contested in good faith and by appropriate proceedings; provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (10) Liens, pledges or deposits in connection with (A) workmen's compensation, obligations and general liability exposure of the Issuer and its Restricted Subsidiaries and (B) unemployment insurance and other social security legislation; (11) Liens on goods (and the proceeds thereof) and documents of title and the property covered thereby securing Debt in respect of commercial letters of credit; (12) (A) mortgages, Liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Issuer or any Restricted Subsidiary of the Issuer has easement rights or on any real property leased by the Issuer or any Restricted Subsidiary on the Issue Date and subordination or similar agreements relating thereto and (B) any condemnation or eminent domain proceedings affecting any real property; (13) Liens arising by reason of a judgment, decree or court order, to the extent not otherwise resulting in an Event of Default, and any Liens that are required to protect or enforce any rights in any administrative, arbitration or other court proceedings in the ordinary course of business; (14) Liens securing Hedging Obligations entered into in the ordinary course of business; (15) without limitation of clause (1) above, Liens securing Refinancing Debt permitted to be incurred under the Indenture or amendments or renewals of Liens that were permitted to be incurred; provided, in each case, that such Liens do not extend to any additional property or asset of the Issuer or a Restricted Subsidiary; (16) any provision for the retention of title to an asset by the vendor or transferor of such asset which asset is acquired by the Issuer or any Restricted Subsidiary in a transaction entered into in the ordinary course of business of the Issuer or such Restricted Subsidiary; (17) Liens that secure Debt incurred by Foreign Subsidiaries for working capital purposes (including acquisitions), and by the Issuer or any of its Restricted Subsidiaries of Guarantees of Debt of Foreign Subsidiaries or foreign joint ventures; provided that the aggregate principal amount of such Debt and of the Debt so Guaranteed at any time outstanding does not exceed $30.0 million or was permitted to be incurred pursuant to the Coverage Ratio Exception; and (18) Liens incurred in the ordinary course of business of the Issuer or any Restricted Subsidiary of the Issuer with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Issuer or such Restricted Subsidiary. 120 "Permitted Refinancing Debt" means any Debt of the Issuer or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Issuer or any of its Restricted Subsidiaries incurred in compliance with the Indenture; provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable premium and fees and expenses incurred in connection therewith); (2) in the case of term Debt, principal payments required under such Permitted Refinancing Debt have a Stated Maturity no earlier than the earlier of (A) the Stated Maturity of those under the Debt being refinanced and (B) the maturity date of the Notes and such Permitted Refinancing Debt has a Weighted Average Life to Maturity equal to or greater than the lesser of the Weighted Average Life to Maturity of the Debt being extended, refinanced, renewed, replaced, defeased or refunded and the Weighted Average Life to Maturity of the Notes; (3) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Debt is incurred either by the Restricted Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded or by the Issuer. The Issuer may incur Permitted Refinancing Debt not more than six months prior to the application of the proceeds thereof to repay the Debt to be refinanced; provided that upon the incurrence of such Permitted Refinancing Debt, the Issuer shall provide written notice thereof to the Trustee, specifically identifying the Debt to be refinanced with Permitted Refinancing Debt. "Permitted Transferee" means, with respect to any Person: (1) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; and (2) any investment fund or investment entity that is a subsidiary of such Person or a Permitted Transferee of such Person. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means, with respect to any Person, any Capital Stock of such Person (however designated) that is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. With respect to the Issuer, "Preferred Stock" includes the Senior Preferred Stock. "Pro Forma Cost Savings" means, with respect to any period ended on any Calculation Date, the reductions in costs with respect to the applicable four- quarter reference period that (1) are directly attributable to any Investments, acquisitions, dispositions, mergers, consolidations or discontinued operations and calculated on a basis that is consistent with Article 11 of Regulation S-X under the Securities Act as in effect on the date of the Indenture or (2) have begun to be implemented prior to the Calculation Date by, or have been identified and approved in good faith by the Board of Directors of, the Issuer, any Restricted Subsidiary or the business that was the subject of any such Investments, acquisitions, dispositions, mergers, consolidations or discontinued 121 operations pursuant to a formalized plan, in the case of each of clause (1) and (2), based on a supportable, good faith estimate of the Chief Financial Officer or other senior financial officer of the Issuer and determined on a pro forma basis as if all such reductions in costs had been effected as of the beginning of such period, decreased by any incremental expenses (other than capitalized expenses) incurred or to be incurred during the four-quarter reference period in order to achieve such reduction in costs. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by the Issuer, any Restricted Subsidiary or any Receivables Subsidiary pursuant to which the Issuer, any Restricted Subsidiary or any Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a security interest in for the benefit of, (a) a Receivables Subsidiary (in the case of a transfer or encumbrancing by the Issuer or a Restricted Subsidiary) and (b) any other Person, accounts and other receivables (whether now existing or arising in the future) of the Issuer or a Restricted Subsidiary which arose in the ordinary course of business of the Issuer or a Restricted Subsidiary, and any assets related thereto, including all collateral securing such receivables, all contracts and all guarantees or other obligations in respect of such receivables, proceeds of such receivables and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization or factoring transactions involving receivables. "Recapitalization" means the recapitalization of the Issuer pursuant to which Saturn Acquisition Corporation was merged with and into the Issuer and the financing transactions related thereto. "Recapitalization Agreement" means the Agreement and Plan of Merger dated as of December 27, 1999 by and between the Issuer and Saturn Acquisition Corporation, as amended through the Issue Date. "Receivables Subsidiary" means a Wholly Owned Subsidiary of the Issuer which engages in no activities other than in connection with the financing of receivables and related assets which is designated by the Board of Directors of the Issuer (as provided below) as a Receivables Subsidiary (a) no portion of any Debt or any other obligations (contingent or otherwise) of which, directly or indirectly, contingently or otherwise, (1) is guaranteed by the Issuer or a Restricted Subsidiary of the Issuer (excluding Standard Securities Undertakings), (2) is recourse to or obligates the Issuer or a Restricted Subsidiary of the Issuer in any way other than pursuant to Standard Securitization Undertakings, or (3) subjects any asset of the Issuer or a Restricted Subsidiary of the Issuer to the satisfaction thereof, other than Standard Securitization Undertakings, (b) with which neither the Issuer nor a Restricted Subsidiary of the Issuer has any material contract, agreement, arrangement or understanding other than those customarily entered into in connection with Qualified Receivables Transactions, and (c) with which neither the Issuer nor a Restricted Subsidiary of the Issuer has any obligation, directly or indirectly, contingently or otherwise, to maintain or preserve such Subsidiary's financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Issuer shall be evidenced to the Trustee by the filing with the Trustee a certified copy of the resolution of the Board of Directors of the Issuer giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Representative" means any agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payments Basket" shall have the meaning set forth in clause (4)(c) of the first paragraph of the covenant described under the caption "-- Certain Covenants--Restricted Payments." "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Secured Debt" means any Debt of the Issuer or any Guarantor secured by a Lien. 122 "Senior Debt" means: (1) all Debt of the Issuer or any Guarantor outstanding under the New Credit Facility and all Hedging Obligations with respect thereto; (2) any other Debt (including Acquired Debt) permitted to be incurred by the Issuer or any Guarantor under the terms of the Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or the relevant Note Guarantee; and (3) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by the Issuer; (2) any Debt of the Issuer or any Guarantor to any of its Subsidiaries or other Affiliates (other than Debt under any Credit Facility to any such Affiliate); (3) any trade payables; (4) that portion of Debt incurred in violation of the covenant described above under the caption""--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock" (but as to any such Debt under any Credit Facility, no such violation shall be deemed to exist for purposes of this clause (4) if the lenders have obtained a representation from a responsible financial officer of the Issuer to the effect that the issuance of such Debt does not violate such covenant); or (5) any Debt or obligation of the Issuer or any Guarantor which is expressly subordinated in right of payment to any other Debt or obligation of the Issuer or such Guarantor, as applicable, including any Subordinated Debt of the Issuer. "Senior Officer" means the Chief Executive Officer or the Chief Financial Officer of the Issuer. "Significant Subsidiary" means (a) any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the Issue Date or (b) any one or more Restricted Subsidiaries of the Issuer that (1) are not otherwise Significant Subsidiaries, (2) as to which any event described in clause (6), (7) or (8) under "-- Events of Default and Remedies" has occurred and is continuing and (3) would together constitute a Significant Subsidiary under clause (a) of this definition. "Specified Affiliate Payments" means: (1) the direct or indirect repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any Restricted Subsidiary of the Issuer, held by any future, present or former employee, director, officer or consultant of the Issuer (or any of its Restricted Subsidiaries) pursuant to any management equity subscription agreement, stock option agreement or plan, stock ownership plan, put agreement, stockholder agreement or similar agreement that may be in effect from time to time; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $5.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum amount of repurchases, redemptions or other acquisitions or retirements pursuant to this clause (1) (without giving effect to the immediately following proviso) of $10.0 million in any calendar year) and no payment default on Senior Debt or the Notes shall have occurred and be continuing; provided further that such amount in any calendar year may be increased by an amount not to exceed: (a) the cash proceeds received by the Issuer (including by way of capital contribution) since the Issue Date from the sale of Equity Interests of the Issuer to employees, directors, officers or 123 consultants of, the Issuer or its Subsidiaries that occurs in such calendar year (it being understood that such cash proceeds shall be excluded from clause (c)(2) of the first paragraph under the covenant described under the caption "--Certain Covenants--Restricted Payments") plus (b) the cash proceeds from key man life insurance policies received by the Issuer and its Restricted Subsidiaries in such calendar year (including proceeds from the sale of such policies to the person insured thereby); and provided further that cancellation of Debt owing to the Issuer from employees, directors, officers or consultants of the Issuer or any of its Subsidiaries in connection with a repurchase of Equity Interests of the Issuer will not be deemed to constitute a Restricted Payment for purposes of the Indenture; (2) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants as a result of the payment of all or a portion of the exercise price of such options or warrants with Equity Interests; and (3) payments by the Issuer to shareholders or members of management of the Issuer and its Subsidiaries in connection with the Recapitalization that are reflected as adjustments to the pro forma financial statements included in this offering memorandum. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Issuer or a Restricted Subsidiary which are reasonably customary in a receivables securitization transaction. "Stated Maturity" means, with respect to any installment of interest on or principal of, or any other amount payable in respect of, any series of Debt, the date on which such interest, principal or other amount was scheduled to be paid in the documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest, principal or other amount prior to the date scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Issuer or any Guarantor (whether outstanding on the Issue Date or thereafter incurred) that is subordinate or junior in right of payment to the Notes or the applicable Note Guarantee pursuant to written agreement. "Subsidiary" means, with respect to any Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). Unless otherwise specified, "Subsidiary" refers to a Subsidiary of the Issuer. "Total Assets" means, at any time, the total consolidated assets of the Issuer and its Restricted Subsidiaries at such time, determined in accordance with GAAP. For the purposes of paragraph (4) of the covenant described under the caption "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock," Total Assets shall be determined giving pro forma effect to the lease, acquisition, construction or improvement of the assets being leased, acquired, constructed or improved with the proceeds of the relevant Debt. "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 124 Release H. 15(519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the redemption date to May 1, 2005; provided, however, that if the period from the redemption date to May 1, 2005 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 period from the redemption date to May 1, 2005 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. "Unrestricted Subsidiary" means: (1) any Subsidiary of the Issuer that is designated an Unrestricted Subsidiary by the Board of Directors of the Issuer in the manner provided under "--Certain Covenants--Limitations on Designations of Unrestricted Subsidiaries"; and (2) any Subsidiary of an Unrestricted Subsidiary; but only to the extent permissible under the Indenture, as described above under "--Certain Covenants--Limitations on Designations of Unrestricted Subsidiaries." "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (2) the then outstanding principal amount of such Debt. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. 125 DESCRIPTION OF THE WARRANTS The warrants to purchase Class E common stock of Jostens were issued pursuant to a warrant agreement (the "Warrant Agreement"), dated as of May 10, 2000, between the Issuer and The Bank of New York, as Warrant Agent. General Each warrant, when exercised, will entitle the holder to purchase 1.889155 shares of our Class E common stock at a price equal to $0.01 per share. The number of shares issuable upon exercise of a warrant is subject to adjustment in certain cases as described below. In the aggregate, the warrants represent the right to purchase shares of our Class E common stock representing 4.0% of the total number of shares of our common equity (of all classes) outstanding on a fully diluted basis. The warrants are exercisable at any time prior to May 1, 2010. The number of shares issuable upon exercise of a warrant, was initially 1.889155 and is subject to adjustment from time to time upon the occurrence of certain events. Registration Rights Registration Rights Pursuant to a warrant registration rights agreement, if we propose to effect a public offering, we must, not later than the date of the initial filing of the related registration statement, provide written notice to the holders of the warrants and the warrant shares. Each holder will have the right, within 15 days after receipt of such notice, to request that Jostens include such holder's shares subject to the warrant for sale pursuant to such registration statement. We will include in any public offering all the warrant shares for which we receive notice pursuant to the preceding sentence subject to certain "underwriter's cutback" provisions which may reduce the number of warrant shares offered. In addition, at any time following 90 days, subject to any lock-up period then in effect, after the completion of an initial public offering, on one separate occasion only, holders of 25% of the outstanding warrants and warrant shares will have the right to require Jostens, at the expense of Jostens (other than customary underwriting and broker commissions), to file a registration statement for the registration of resale of the warrants and warrant shares. Tag-Along Rights; Mandatory Redemption Holders of warrants and warrant shares shall have the benefit of tag-along rights and, whether or not the Warrants have been exercised, will be subject to the mandatory redemption provisions of sections 4 and 5 of article IV of our articles of incorporation. See "Description of Capital Stock--New Common Stock--Tag-Along Rights; Mandatory Redemption" for a description of these provisions. 126 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES General The following is a general discussion of certain United States federal income tax considerations relating to the exchange of the outstanding notes for the notes issued in this exchange offer. This discussion is based upon the Internal Revenue Code of 1986 as amended (the "Code"), existing and proposed Treasury Regulations, and judicial decisions and administrative interpretations thereunder, as of the date hereof, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. We cannot assure you that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax considerations described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the United States federal tax considerations resulting from exchange of, holding or disposing of the notes. In this discussion, we do not purport to address all tax considerations that may be important to a particular holder in light of the holder's circumstances, or to certain categories of investors (such as certain financial institutions, insurance companies, tax-exempt organizations, dealers in securities, persons who hold notes through partnerships or other pass-through entities, U.S. expatriates, or persons who hold the notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction) that may be subject to special rules. This discussion is limited to holders who hold the notes as capital assets. This discussion also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSIDERATIONS TO YOU OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS. U.S. Holders As used herein, the term "non-U.S. holder" means a holder of notes that is not any of the following: (1) a citizen or resident of the United States for United States federal income tax purposes; (2) a corporation created or organized in or under the laws of the United States or of any political subdivision thereof; (3) an estate, the income of which is subject to United States federal income taxation regardless of its source; or (4) a trust that either is subject to the supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. As used herein, the term "U.S. holder" means any holder other than a non- U.S. holder, as defined. The Notes Exchange Pursuant to Exercise of Registration Rights Neither an exchange of outstanding notes for exchange notes nor the filing of a registration statement with respect to the resale of the notes should be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing. Stated Interest Stated interest on a note will be includible in your gross income as ordinary interest income in accordance with your usual method of accounting for tax purposes. 127 Original Issue Discount The "issue price" of a unit for U.S. federal income tax purposes equalled the first price at which a substantial number of units were sold for money, excluding sales to underwriters, placement agents or wholesalers. The issue price of a note was determined by allocating the issue price of the units between the notes and the warrants in proportion to their relative fair market values. We allocated the issue price of each unit as follows: $911.73 to each note and $47.70 to each warrant. Our allocation of the issue price is binding on you unless you explicitly disclose on a statement attached to your income tax return that you have made a different determination. Because the units were sold at a substantial discount from their principal amount at maturity, and a portion of the offering price for a unit was allocated to the warrants, the issuance of the notes resulted in original issue discount, referred to as "OID," in an amount equal to the excess of the "stated redemption price at maturity" over the issue price of the notes. The "stated redemption price at maturity" is the sum of all payments to be made on the notes other than "qualified stated interest." The term "qualified stated interest" means, generally, stated interest that is unconditionally payable at least annually at a single fixed rate. In general, you must include in income OID calculated on a constant-yield accrual method in advance of the receipt of some or all of the related cash payments. The amount of OID includible in income by you is the sum of the "daily portions" of OID with respect to the notes for each day during the taxable year or portion of the taxable year in which you hold such notes. This amount is referred to as "Accrued OID." The daily portion is determined by allocating to each day in any accrual period a pro rata portion of the OID allocable to that accrual period. The amount of OID allocable to any accrual period is equal to: . the product of the notes' adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less . the qualified stated interest allocable to such accrual period. OID allocable to the final accrual period is the difference between the amount payable at maturity of the notes (other than qualified stated interest) and the notes' "adjusted issue price" at the beginning of the final accrual period. Special rules will apply calculating OID for an initial short accrual period. The "adjusted issue price" of a note at the beginning of any accrual period is equal to its issue price, increased by the Accrued OID for each prior accrual period and reduced by any payments other than qualified stated interest made on such note on or before the first day of the accrual period. We will furnish annually to the IRS and to holders (other than with respect to certain exempt holders, including, in particular, corporations) information with respect to the OID accruing while notes were held by the holders. You may be required to include different amounts of OID in gross income based on your individual circumstances. Market Discount If you acquire a note at a "market discount", some or all of any gain realized upon a disposition of, or full or partial principal payment on such note may be treated as ordinary income, as described below. "Market discount" is the excess (if any) of the principal amount of a note over your initial tax basis in the note. Such excess is not treated as market discount if it does not exceed a certain de minimis amount. Unless you have elected to include the market discount in income as it accrues, gain, if any, realized on a disposition or a full or partial principal payment of a note with market discount will be treated as ordinary income to the extent of the market discount that is treated as having accrued during the period you held such note. Gain may not be required to be recognized if you dispose of a note in connection with certain nonrecognition transactions. 128 The amount of market discount treated as having accrued will be determined on a ratable basis unless you elect to accrue such discount on a constant interest basis. You may make that election with respect to any note but, once made, such election may never be revoked. Under the ratable accrual method, the accrued market discount on a note is an amount that bears the same ratio to the total market discount on the note as (A) the number of days you held the note bears to (B) the number of days after the date you acquired the note up to and including the date of maturity. In other words: Accrued Market Discount =Number of Days Note Held - --------------------- --------------------- Total Market Discount Number of Days After Date of Acquisition to Date of Maturity. Under the constant interest method, the accrued market discount is calculated using the purchased note's yield to maturity based on the purchase price. The yield to maturity is the interest rate at which the present value of all principal and interest payments to be made under the note equals the purchase price of the note. It must be constant over the term of the note. You may elect to include market discount in income currently, on either a ratable or constant interest basis. If you make this election, you will not be required to recharacterize gain upon disposition as ordinary income as discussed above. Once made, this election will apply to all debt instruments acquired by you at a market discount during the taxable year for which the election is made, and all subsequent taxable years. This election may be revoked only with the consent of the IRS. If you make this election, your tax basis in the note will be increased by the amount of the market discount that is included in income. Unless you elect to include market discount in income currently, you may be required to defer deductions for a portion of the interest paid on debt created to acquire a note. The amount deferred will not exceed the deferred market discount. The deferred amount will be deductible when the deferred market discount is realized. Bond Premium If you purchase a note and immediately after the purchase your tax basis in the note exceeds the sum of all amounts payable on the note after the purchase date (other than payments of stated interest), the note will be treated as having been acquired with "bond premium". You may elect to amortize such bond premium over the remaining term of such note using the constant yield method, but only as you take stated interest into account under your regular method of tax accounting (or, if it results in a smaller amount of amortizable bond premium, until an earlier call date). If bond premium is amortized, the amount of interest that must be included in your income for each period ending on an interest payment date or at the stated maturity of the note, as the case may be, will be reduced. The reduction will be equal to the portion of premium allocable to such period based on your yield to maturity with respect to the note as determined under the bond premium rules. If you elect to amortize bond premium, you must reduce your tax basis in the note as described below under "-- Sale, Exchange or Redemption of the Notes". If you do not elect to amortize bond premium, you must include the full amount of each interest payment as ordinary income in accordance with your regular method of tax accounting. You may receive a tax benefit (in the form of capital loss or reduced capital gain) from the premium only in computing your gain or loss upon the sale or disposition or payment of the principal amount of the note. An election to amortize premium will apply to amortizable bond premium on all notes and other bonds held at the beginning of your first taxable year to which the election applies (if the interest on such notes or bonds is includible in the your gross income) or that are thereafter acquired. This election may be revoked only with the consent of the IRS. 129 Optional Redemption The notes may be redeemed prior to their stated maturity at the option of Jostens or the holders upon certain circumstances. We do not anticipate that either Jostens' or the holders' ability to redeem or cause the redemption of the notes prior to the stated maturity thereof would affect the yield of the notes for U.S. federal income tax purposes. Sale, Exchange or Redemption of the Notes Upon the disposition of a note by sale, exchange or redemption, you will generally recognize gain or loss equal to the difference between (i) the amount realized on the disposition (other than amounts attributable to accrued interest) and (ii) your adjusted federal income tax basis in the note. Your adjusted federal income tax basis in a note generally will equal the cost of the note (other than amounts attributable to accrued interest), increased by the amount of OID you previously included in income, and decreased by payments previously received by you other than payments of stated interest and any premium amortized by you. Assuming that the note is held as a capital asset, subject to the market discount rules discussed above, such gain or loss will generally constitute capital gain or loss and will be long-term capital gain or loss if you have held the note for longer than one year. Non-corporate taxpayers are generally subject to a maximum regular federal income tax rate of 20% on net long-term capital gains. The deductibility of capital losses is subject to certain limitations. Backup Withholding and Information Reporting Under the Code, you may be subject, under certain circumstances, to information reporting and/or backup withholding at a 31% rate with respect to cash payments in respect of the notes. This withholding applies only if you (i) fail to furnish your social security or other taxpayer identification number ("TIN") within a reasonable time after a request therefor, (ii) furnish an incorrect TIN, (iii) fail to report interest properly, or (iv) fail, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is your correct number and that you are not subject to backup withholding. Any amount withheld from a payment under the backup withholding rules is allowable as a credit against your United States federal income tax liability (and may entitle you to a refund), provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and certain financial institutions. You should consult your tax advisor as to your qualification for exemption from withholding and the procedure for obtaining such exemption. Non-United States Holders U.S. Federal Withholding Tax The 30% U.S. federal withholding tax will not apply to any payment of principal or interest (including original issue discount) on a particular series of notes provided that: . you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of the Code and the U.S. Treasury regulations; . you are not a controlled foreign corporation that is related to us through stock ownership; and . you are not a bank whose receipt of interest on the notes is pursuant to a loan agreement entered into in the ordinary course of business; and (a) you provide your name and address on an IRS Form W-8BEN (or successor form), and certify, under penalty of perjury, that you are not a U.S. person or (b) a financial institution holding the notes on your behalf certifies, under penalty of perjury, that it has received an IRS Form W-8BEN (or successor form) from the beneficial owner and provides us with a copy. If you cannot satisfy the requirements described above, payments of principal and interest made to you will be subject to the 30% U.S. federal withholding tax, unless you provide us with a properly executed (1) IRS Form W- 8BEN (or successor form) claiming an exemption from (or a reduction of) withholding under the 130 benefit of a tax treaty or (2) IRS Form W-8ECI (or successor form) stating that interest paid on the note is not subject to withholding tax because it is effectively connected with your conduct of a trade or business in the United States. The 30% U.S. federal withholding tax will generally not apply to any gain or income that you realize on the sale, exchange, or other disposition of the notes. U.S. Federal Estate Tax Your estate will not be subject to U.S. federal estate tax on notes beneficially owned by you at the time of your death, provided that (1) you do not own 10% or more of the total combined voting power of all classes of our voting stock (within the meaning of the Code and the U.S. Treasury Regulations) and (2) interest on that note would not have been, if received at the time of your death, effectively connected with the conduct by you of a trade or business in the United States. U.S. Federal Income Tax If you are engaged in a trade or business in the United States and interest on the notes is effectively connected with the conduct of that trade or business, you will be subject to U.S. federal income tax on the interest on a net income basis (although exempt from the 30% withholding tax) in the same manner as if you were a U.S. person as defined under the Code. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of your earnings and profits for the taxable year that are effectively connected with the conduct by you of a trade or business in the United States. For this purpose, interest on notes will be included in earnings and profits if so effectively connected. Any gain or income realized on the sale, exchange, or redemption of notes generally will not be subject to U.S. federal income tax unless: . that gain or income is effectively connected with the conduct of a trade or business in the United States by you, . you are an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met, or . you are subject to tax under tax laws applicable to certain U.S. expatriates. Information Reporting and Backup Withholding In general, you will not be subject to information reporting and backup withholding with respect to payments that we make to you provided that we do not have actual knowledge that you are a U.S. person and we have received from you the statement described above under "U.S. Federal Withholding Tax." In addition, you will not be subject to backup withholding and information reporting with respect to the proceeds of the sale of a note within the United States or conducted through certain U.S.-related financial intermediaries, if the payor receives the statement described above and does not have actual knowledge that you are a U.S. person, as defined under the Code, or you otherwise establish an exemption. U.S. Treasury regulations were recently issued that generally modify the information reporting and backup withholding rules applicable to certain payments made after December 31, 2000. In general, the new U.S. Treasury regulations would not significantly alter the present rules discussed above, except in certain special situations. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS. 131 BOOK-ENTRY; DELIVERY AND FORM The certificates representing the notes will be issued in fully registered form. Except as described below, the notes will initially be represented by one or more global notes in fully registered form, without interest coupons. The global notes will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or will remain in the custody of the trustee pursuant to the FAST Balance Certificate Agreement between DTC and the trustee. Certain Book Entry Procedures for the Global Notes The descriptions of the operations and procedures of DTC set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of DTC and are subject to change by them from time to time. Neither we nor any of the initial purchasers takes any responsibility for these operations or procedures, and investors are urged to contact DTC or its participants directly to discuss these matters. The Global Notes We expect that pursuant to procedures established by DTC (i) upon the issuance of the global notes, DTC or its custodian will credit, on its internal system, the principal amount of notes of the individual beneficial interests represented by such global notes to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the global notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the initial purchasers and ownership of beneficial interests in the global notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Holders may hold their interests in the global notes directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of the notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such global notes for all purposes under the indenture. No beneficial owner of an interest in the global notes will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the indenture. Payments on the global notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of Jostens, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. We expect that DTC or its nominee, upon receipt of any payment on the global notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the applicable global notes as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global notes held through such participants will be governed by standing instructions and customary practice, as is now the case with notes held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a certificated note for any reason, including to sell notes to persons in states which require physical delivery of the notes, or to pledge such notes, such holder must transfer its interest in a global note in accordance with the normal procedures of DTC and with the procedures set forth in the indenture. 132 DTC has advised us that it will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the global notes are credited and only in respect of such portion of the aggregate principal amount of or beneficial interests in notes as to which such participant or participants has or have given such direction. However, in the case of the notes, if there is an event of default under the indenture, DTC will exchange the global notes for certificated notes, which it will distribute to its participants. DTC has advised us as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). The rules applicable to DTC and its direct and indirect participants are on file with the SEC. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the global notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither Jostens nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof. Certificated Notes Certificated notes shall be issued in exchange for beneficial interests in the global notes (i) if requested by a holder of such interests or (ii) if DTC is at any time unwilling or unable to continue as a depositary for the global notes and a successor depositary is not appointed by us within 90 days. 133 PLAN OF DISTRIBUTION Each broker-dealer that receives notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for outstanding notes where the outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 90 days after the expiration date of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any resale. In addition, until [ ], 2000, all dealers effecting transactions in the notes may be required to deliver a prospectus. Jostens will not receive any proceeds from any sale of notes by broker- dealers. Notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over- the-counter market, in negotiated transactions, or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to these prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker- dealer or the purchasers of any of the notes. Any broker-dealer that resells notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of these notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of notes and any commission or concessions received any these persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Furthermore, any broker dealer that acquired any of its outstanding notes directly from us: . may not rely on the applicable interpretation of the staff of the SEC's position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1988), Morgan Stanley & Co., Inc., SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993); and . must also be named a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. For a period of 90 days after the expiration date of the exchange offer we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer other than commissions or concessions of any broker-dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the exchange notes will be passed upon by William J. George, General Counsel of Jostens, Minneapolis, Minnesota. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedule at January 1, 2000 and January 2, 1999, and for each of the three years in the period ended January 1, 2000, as set forth in their report. We've included our financial statements and schedule in the Prospectus and elsewhere in the Registration Statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 134 JOSTENS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number ----------- Index to Consolidated Financial Statements........................ F-1 Report of Independent Auditors.................................... F-2 Consolidated Statements of Operations for the Fiscal Years Ended January 3, 1998, January 2, 1999 and January 1, 2000.............................. F-3 Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000............................................................. F-4 Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 1998, January 2, 1999 and January 1, 2000.............................. F-5 Consolidated Statements of Changes in Shareholders' Investment for the Fiscal Years Ended January 3, 1998, January 2, 1999 and January 1, 2000.................................................. F-6 Notes to Consolidated Financial Statements........................ F-7 Condensed Consolidated Statements of Operations for the Six-Months Ended July 3, 1999 and July 1, 2000 (unaudited).................. F-33 Consolidated Balance Sheets as of July 3, 1999 and July 1, 2000 (unaudited)...................................................... F-34 Condensed Consolidated Statement of Cash Flows for the Six-Months Ended July 3, 1999 and July 1, 2000 (unaudited).................. F-35 Condensed Consolidated Statement of Change in Shareholders' Investment (Deficit) for the Six-Months Ended July 3, 1999 and July 1, 2000 (unaudited)...................................................... F-36 Notes to Condensed Consolidated Financial Statements (unaudited).. F-37
F-1 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Jostens, Inc.: We have audited the accompanying consolidated balance sheets of Jostens, Inc. and subsidiaries as of January 1, 2000 and January 2, 1999, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for each of the three fiscal years in the period ended January 1, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jostens, Inc. and subsidiaries as of January 1, 2000 and January 2, 1999, and the consolidated results of their operations and cash flows for each of the three fiscal years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota February 2, 2000, except for note 16, as to which the date is April 13, 2000 F-2 JOSTENS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
1999 1998 1997 -------- -------- -------- (in thousands, except per- share data) Net sales......................................... $782,438 $770,917 $742,479 Cost of products sold............................. 349,691 351,795 351,290 -------- -------- -------- Gross profit.................................... 432,747 419,122 391,189 Selling and administrative expenses............... 330,895 316,933 291,527 Special charge.................................... 20,194 -- -- -------- -------- -------- Operating income.................................. 81,658 102,189 99,662 Interest income................................... (487) (366) (587) Interest expense.................................. 7,486 7,026 6,866 Write-off of JLC notes receivable, net............ -- 12,009 -- -------- -------- -------- Income before income taxes...................... 74,659 83,520 93,383 Income taxes...................................... 31,480 41,700 36,200 -------- -------- -------- Net income........................................ $ 43,179 $ 41,820 $ 57,183 ======== ======== ======== Earnings per common share Basic........................................... $ 1.27 $ 1.14 $ 1.47 Diluted......................................... $ 1.27 $ 1.14 $ 1.47 Weighted average common shares outstanding Basic........................................... 34,004 36,527 38,773 Diluted......................................... 34,093 36,705 38,969
See accompanying notes to consolidated financial statements. F-3 JOSTENS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 1, 2000 and January 2, 1999
1999 1998 -------- -------- (in thousands, except per-share ASSETS data) Current assets Cash and cash equivalents.................................. $ 38,517 $ 2,595 Accounts receivable, net of allowance of $5,775 and $7,308, respectively.............................................. 107,638 106,347 Inventories................................................ 87,839 90,494 Deferred income taxes...................................... 17,400 14,682 Salespersons overdrafts, net of allowance of $6,332 and $7,061, respectively...................................... 26,194 20,689 Prepaid expenses and other current assets.................. 8,721 5,737 -------- -------- Total current assets..................................... 286,309 240,544 Other assets Intangibles, net........................................... 18,895 28,165 Other...................................................... 17,872 8,811 -------- -------- Total other assets....................................... 36,767 36,976 Property and equipment, net................................ 84,640 88,647 -------- -------- $407,716 $366,167 ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities Short-term borrowings...................................... $117,608 $ 93,922 Accounts payable........................................... 23,641 23,682 Employee compensation...................................... 29,478 27,560 Commissions payable........................................ 26,134 22,131 Customer deposits.......................................... 112,958 92,092 Income taxes............................................... 17,223 4,713 Other accrued liabilities.................................. 30,100 23,679 -------- -------- Total current liabilities................................ 357,142 287,779 Other noncurrent liabilities............................... 14,064 19,836 -------- -------- Total liabilities.......................................... 371,206 307,615 Commitments and contingencies Shareholders' investment Preferred shares, $1.00 par value: authorized 4,000 shares, none issued............................................... -- -- Common shares, $.33 1/3 par value: authorized 100,000 shares, issued January 1, 2000 --33,324; January 2, 1999 -- 35,071................................................. 11,108 11,690 Retained earnings.......................................... 31,072 54,627 Accumulated other comprehensive loss....................... (5,670) (7,765) -------- -------- Total shareholders' investment........................... 36,510 58,552 -------- -------- $407,716 $366,167 ======== ========
See accompanying notes to consolidated financial statements. F-4 JOSTENS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
1999 1998 1997 -------- -------- -------- (in thousands) Operating activities Net income...................................... $ 43,179 $ 41,820 $ 57,183 Depreciation.................................... 23,329 20,587 19,845 Amortization.................................... 2,009 2,584 2,297 Deferred income taxes........................... (2,671) 15,712 (3,403) Special charge (non-cash portion)............... 14,101 -- -- Write-off of JLC notes receivable, net.......... -- 12,009 -- Changes in assets and liabilities, net of effects of business acquisition Accounts receivable........................... (1,291) 2,167 (651) Inventories................................... 2,655 1,568 6,431 Salespersons overdrafts....................... (5,505) 4,806 (602) Prepaid expenses and other current assets..... (2,984) (1,058) 4,554 Accounts payable.............................. 8,364 (1,171) 1,506 Employee compensation......................... 1,918 8,114 4,457 Commissions payable........................... 4,003 2,909 1,628 Customer deposits............................. 20,866 (6,567) 22,625 Income taxes.................................. 12,593 (6,044) 5,658 Other......................................... 4,653 4,179 (4,811) -------- -------- -------- Net cash provided by operating activities... 125,219 101,615 116,717 -------- -------- -------- Investing activities Purchases of property and equipment............. (27,830) (36,936) (24,381) Business acquisition............................ -- -- (9,883) Equity investments.............................. (10,611) -- -- Other........................................... 1,262 1,675 -- -------- -------- -------- Net cash used for investing activities...... (37,179) (35,261) (34,264) -------- -------- -------- Financing activities Net short-term borrowings (repayments).......... 15,281 38,248 (36,238) Principal payments on long-term debt............ -- -- (281) Dividends paid.................................. (29,998) (32,332) (34,198) Proceeds from exercise of stock options......... 2,452 4,258 11,693 Repurchases of common stock..................... (39,853) (80,001) (20,000) -------- -------- -------- Net cash used for financing activities...... (52,118) (69,827) (79,024) -------- -------- -------- Change in cash and cash equivalents............. 35,922 (3,473) 3,429 Cash and cash equivalents, beginning of period.. 2,595 6,068 2,639 -------- -------- -------- Cash and cash equivalents, end of period........ $ 38,517 $ 2,595 $ 6,068 ======== ======== ======== Supplemental information Income taxes paid............................... $ 20,623 $ 32,357 $ 26,300 Interest paid................................... $ 5,702 $ 6,426 $ 5,900
See accompanying notes to consolidated financial statements. F-5 JOSTENS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
Accumulated Common shares other --------------- Capital Retained comprehensive Comprehensive Number Amount surplus earnings loss Total income ------ ------- ------- -------- ------------- -------- ------------- (in thousands, except per-share data) Balance -- December 28, 1996................... 38,665 $12,888 $ 1,480 $101,687 $(3,442) $112,613 Stock options and restricted stock, net.. 584 241 11,452 11,693 Cash dividends declared of $0.88 per share..... (34,198) (34,198) Share repurchases....... (827) (276) (14,430) (5,294) (20,000) Tax benefit of stock options................ 1,498 1,498 Net income.............. 57,183 57,183 $57,183 Change in cumulative translation adjustment............. (824) (824) (824) Adjustment in minimum pension liability, net of $606 tax............ (872) (872) (872) ------- Comprehensive income.... $55,487 ------ ------- ------- -------- ------- -------- ======= Balance -- January 3, 1998................... 38,422 12,853 -- 119,378 (5,138) 127,093 Stock options and restricted stock, net.. 234 78 4,180 4,258 Cash dividends declared of $0.88 per share..... (32,332) (32,332) Share repurchases....... (3,585) (1,241) (4,521) (74,239) (80,001) Tax benefit of stock options................ 341 341 Net income.............. 41,820 41,820 $41,820 Change in cumulative translation adjustment............. (1,576) (1,576) (1,576) Adjustment in minimum pension liability, net of $649 tax............ (1,051) (1,051) (1,051) ------- Comprehensive income.... $39,193 ------ ------- ------- -------- ------- -------- ======= Balance -- January 2, 1999................... 35,071 11,690 -- 54,627 (7,765) 58,552 Stock options and restricted stock, net.. 129 43 2,409 2,452 Cash dividends declared of $0.88 per share..... (29,998) (29,998) Share repurchases....... (1,876) (625) (2,492) (36,736) (39,853) Tax benefit of stock options................ 83 83 Net income.............. 43,179 43,179 $43,179 Change in cumulative translation adjustment............. 1,078 1,078 1,078 Adjustment in minimum pension liability, net of $667 tax............ 1,017 1,017 1,017 ------- Comprehensive income.... $45,274 ------ ------- ------- -------- ------- -------- ======= Balance -- January 1, 2000................... 33,324 $11,108 $ -- $ 31,072 $(5,670) $ 36,510 ====== ======= ======= ======== ======= ========
See accompanying notes to consolidated financial statements. F-6 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Our Business We are a leading manufacturer and marketer of school-related affinity products and one of the leading manufacturers and suppliers of corporate-based affinity products that help people celebrate important moments, recognize achievements and build affiliations. Fiscal Year Our fiscal year ends the Saturday closest to December 31. Fiscal years 1999, 1998 and 1997 ended on January 1, 2000, January 2, 1999 and January 3, 1998, respectively. Normally each fiscal year consists of 52 weeks, but periodically, there will be a 53-week year, as was the case in 1997. Principles of Consolidation Our consolidated financial statements include the accounts of our company and our subsidiaries. Significant intercompany accounts and transactions have been eliminated. Certain balances have been reclassified to conform to the 1999 presentation. Use of Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, time deposits and commercial paper. Short-term investments have an original maturity of three months or less and are considered cash equivalents. Investments in debt securities have an original maturity of three months or less and are held to maturity. All short- term securities are carried at amortized cost, which approximates fair value. Negative cash as of the end of 1998 was $8.4 million and is included in "accounts payable" on the consolidated balance sheets. There was no negative cash as of the end of 1999. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method for all inventories except gold and certain other precious metals which are determined using the last-in, first-out (LIFO) method. LIFO inventories were $0.1 million and $0.2 million as of the end of 1999 and 1998 and approximate replacement cost. Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2 million after tax or 6 cents per share) and $6.8 million ($3.5 million after tax or 10 cents per share), respectively, resulting from a reduction in LIFO gold inventories. Intangibles Intangibles primarily represent the excess of the purchase price over the fair value of the net tangible assets of acquired businesses and are amortized over various periods of up to 40 years. Accumulated amortization as of the end of 1999 and 1998 was $14.1 million and $16.6 million, respectively. F-7 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Property and Equipment Property and equipment are stated at cost. Depreciation and amortization is computed for financial reporting purposes principally using the straight-line method over the following estimated useful lives:
Years -------- Buildings........................................................ 15 to 40 Machinery and equipment.......................................... 3 to 10 Capitalized software............................................. 2 to 5
Impairment of Long-Lived Assets We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets and any related goodwill, the carrying value is reduced to the estimated fair value as measured by the discounted cash flows. Income Taxes Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. Revenue Recognition, Sales Returns and Warranty Costs Sales are recognized when product is shipped. Provisions for sales returns and warranty costs are recorded at the time of sale based on historical information and current trends. Foreign Currency Translation Assets and liabilities denominated in foreign currency are translated at the current exchange rate as of the balance sheet date, and income statement amounts are translated at the average monthly exchange rate. Translation adjustments resulting from fluctuations in exchange rates are recorded in comprehensive income. Financial Instruments From time to time, we may use derivative financial instruments to manage market risks and reduce our exposure resulting from fluctuations in foreign currency and interest rates. Financial instruments are not used for trading purposes. We may enter into foreign currency forward contracts to hedge purchases of inventory in foreign currency. The purpose of these hedging activities is to protect us from the risk that inventory purchases denominated in foreign currency will be adversely affected by changes in foreign currency rates. Gains or losses on forward contracts used to purchase inventory for which we have firm purchase commitments qualify as accounting hedges and are therefore deferred and recognized in income when the inventory is sold. Counterparties expose us to credit loss in the event of nonperformance as measured by the unrealized gains on the contracts. There were no foreign currency contracts outstanding as of the end of 1999 or 1998. We may enter into interest rate swap agreements to limit the effect of increases in the interest rates on any floating rate debt. The differential is accrued as interest rates change and is recorded in interest expense. There were no open interest rate swap agreements as of the end of 1999 or 1998. F-8 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Earnings Per Common Share Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding, including the dilutive effects of options, restricted stock and contingently issuable shares. Unless otherwise noted, references are to diluted earnings per share. Basic and diluted earnings per share were calculated using the following:
1999 1998 1997 ------- ------- ------- (in thousands, except per-share data) Weighted average common shares outstanding -- basic............................................. 34,004 36,527 38,773 Dilutive shares.................................... 89 178 196 ------- ------- ------- Weighted average common shares outstanding -- diluted........................................... 34,093 36,705 38,969 ======= ======= ======= Net income for basic and diluted earnings per share............................................. $43,179 $41,820 $57,183 Earnings per share -- basic........................ $ 1.27 $ 1.14 $ 1.47 Earnings per share -- diluted...................... $ 1.27 $ 1.14 $ 1.47
Stock-Based Compensation We use the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock options. Under the intrinsic value method, compensation expense is recognized only to the extent the market price of the common stock exceeds the exercise price of the stock at the date of grant. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is required to be adopted in years beginning after June 15, 2000. The effect of adopting the Statement is not currently expected to have a material effect on our future financial position or overall trends in results of operations. 2. Merger and Recapitalization On December 27, 1999, we entered into a merger agreement with Saturn Acquisition Corporation, a newly formed corporation controlled by Investcorp S.A., a global investment group, and its co-investors. Under this agreement, Saturn Acquisition Corporation will merge with and into Jostens. The merger will be accounted for as a recapitalization by Jostens. Upon completion of the merger, Investcorp and its co-investors, including Jostens' senior management, will own approximately 94 percent of Jostens' common stock. The remaining 6 percent of our post-merger common stock will be retained by some or all of our pre-merger public shareholders. As a result of the merger: . approximately 98 percent of Jostens' outstanding common stock will be purchased for cash of $25.25 per share; . all outstanding options to purchase Jostens' common stock will automatically vest and be cancelled in exchange for a cash payment equal to $25.25 per underlying share, less the applicable exercise price; and . we will incur a substantial amount of debt. F-9 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The merger agreement obligates us to pay a fee of $19.125 million, plus up to $5.0 million in expenses if the agreement is terminated under certain circumstances, including a decision by us to accept a more favorable acquisition proposal. Successful completion of the recapitalization depends principally upon shareholder approval and satisfaction of conditions to closing in the merger agreement with Saturn Acquisition Corporation. It is currently anticipated that the merger and recapitalization will be completed in the second quarter of 2000. In connection with our execution of the merger agreement, our Board of Directors approved the following amendments to the shareholder rights agreement: . neither Saturn Acquisition nor its affiliates will be deemed to be an acquiring person; . the execution and delivery of the merger agreement will not give rise to a distribution date or a triggering event; and . no holder of rights shall be entitled to exercise such rights as a result of the execution and delivery of the merger agreement. If the merger is not approved, the rights will expire in August 2008 unless extended or redeemed earlier by us. 3. Special Charge In the fourth quarter of 1999, we completed a strategic review of product lines, manufacturing operations, infrastructure projects, and support functions based on performance trends. In addition, we decided to refocus our organization on sales growth versus infrastructure improvement. As a result of this review, we incurred a pre-tax special charge of $20.2 million ($13.3 million after tax or $0.39 per share), which was approved by our Board of Directors. Information relating to the special charge follows:
Balance Initial Used in end of accrual 1999 1999 ------- ------- ------- (in thousands) Employee termination benefits......................... $ 4,910 $ -- $4,910 Abandonment of internal use software under development.......................................... 6,455 6,245 210 Write-off of impaired goodwill related to retail class ring sales channel................................... 4,560 4,560 -- Write-off of goodwill related to exiting the direct marketing sales channel to college alumni............ 3,086 3,086 -- Other costs related to exiting the direct marketing sales channel to college alumni...................... 1,183 270 913 ------- ------- ------ $20,194 $14,161 $6,033 ======= ======= ======
Of the $20.2 million special charge, $4.8 million relates to the School Products segment and $15.4 million relates to our "Other" segment. Included in other accrued liabilities on the consolidated balance sheets is the unused portion of the special charge of $6.0 million, which will be used or paid in 2000. F-10 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Of the total special charge, $4.9 million relates to employee termination benefits for the elimination of about 100 full-time positions, primarily in corporate staff and executive functions and in exiting the direct marketing sales channel to college alumni. Headcount reductions will be completed and termination benefits paid in 2000. We reviewed and modified our strategies for the retail class ring product line and, as a result, determined that the carrying value of the related goodwill was impaired based upon anticipated inadequate projected cash flows. Accordingly, an impairment charge of $4.6 million was recorded as part of the special charge for the write-off of all of the goodwill. We also reviewed the Jostens Direct business and decided in the fourth quarter of 1999 to close down the business due to 1999 performance and forecasted decline in sales volume. As a result of that decision, the remaining balance of the related goodwill of $3.1 million was written off and other exiting costs of $1.2 million were recorded. 4. Comprehensive Income The following amounts were included in accumulated other comprehensive loss as of the end of 1999 and 1998:
1999 1998 ------- ------- (in thousands) Minimum pension liability adjustments, net of tax...... $(1,026) $(2,043) Foreign currency translation adjustments............... (4,644) (5,722) ------- ------- Accumulated other comprehensive loss................. $(5,670) $(7,765) ======= =======
5. Inventories As of the end of 1999 and 1998, inventories were comprised of:
1999 1998 ------- ------- (in thousands) Raw materials and supplies............................... $17,886 $22,618 Work-in-process.......................................... 29,772 29,735 Finished goods........................................... 40,181 38,141 ------- ------- Total inventories...................................... $87,839 $90,494 ======= =======
Precious Metals Consignment Arrangement We have a precious metals consignment arrangement with a major financial institution whereby we have the ability to obtain up to $25.0 million in consigned inventory. In 1999, 1998 and 1997, we expensed consignment fees related to this facility of approximately $0.3 million, $0.1 million and $0.1 million, respectively. Under the terms of the consignment arrangement, we do not own the consigned inventory until it is shipped in the form of a product to a customer. Accordingly, we do not include the value of consigned inventory or the corresponding liability in our financial statements. The value of our consigned inventory as of the end of 1999 and 1998 was $22.1 million and $14.4 million. F-11 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 6. Property and Equipment As of the end of 1999 and 1998, property and equipment, net consisted of:
1999 1998 -------- -------- (in thousands) Land................................................... $ 3,618 $ 4,866 Buildings.............................................. 36,420 36,210 Machinery and equipment................................ 195,673 182,698 Capitalized software................................... 36,079 32,391 -------- -------- Total property and equipment........................... 271,790 256,165 Less accumulated depreciation and amortization......... 187,150 167,518 -------- -------- Property and equipment, net............................ $ 84,640 $ 88,647 ======== ========
Capitalized interest was $0.4 million in 1999 and $0.7 million in 1998. 7. Borrowings Line of Credit and Commercial Paper We have a $180.0 million, five-year bank credit agreement that expires on December 31, 2000. Credit available under the agreement is reduced by commercial paper borrowings outstanding. Commercial paper outstanding is due within 90 days and is included in short-term borrowings in the consolidated balance sheets. Annual fees and interest on borrowings are based on our commercial paper rating. Annual fees range from 0.075 to 0.15 percent of the commitment. The weighted average interest rate on commercial paper outstanding as of the end of 1999 and 1998 was 5.9 percent and 5.8 percent. Under the restrictive covenants of the agreement, we must maintain a defined minimum interest coverage ratio and a maximum leverage ratio. As of the end of 1999, $62.4 million was available under the bank credit agreement. Demand Facilities As of the end of 1999, we had available unsecured demand facilities with three banks totaling $54.5 million. Such credit arrangements are renegotiated periodically based on the anticipated seasonal needs for short-term financing. 8. Income Taxes The following summarizes the differences between income taxes computed at the federal statutory rate and income tax expense for financial reporting purposes:
1999 1998 1997 ------- ------- ------- (in thousands) Federal statutory income tax rate............ 35% 35% 35% Federal tax at statutory rate................ $26,130 $29,232 $32,684 State income taxes, net of federal tax benefit..................................... 3,086 4,509 4,223 Write-off of JLC notes and related deferred tax assets.................................. -- 7,245 -- Write-off of goodwill........................ 1,080 -- -- Reduction in deferred tax valuation allowance................................... -- (750) (2,030) Other differences, net....................... 1,184 1,464 1,323 ------- ------- ------- Income tax expense........................... $31,480 $41,700 $36,200 ======= ======= =======
F-12 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The U.S. and foreign components of income before income taxes and the provision for income taxes were as follows:
1999 1998 1997 ------- ------- ------- (in thousands) Income before income taxes Domestic........................................ $68,044 $77,756 $88,275 Foreign......................................... 6,615 5,764 5,108 ------- ------- ------- Income before income taxes...................... $74,659 $83,520 $93,383 ======= ======= ======= Provision for income taxes Federal......................................... $25,828 $18,435 $30,227 State........................................... 5,276 4,439 6,864 Foreign......................................... 3,047 3,114 2,512 ------- ------- ------- Total current taxes............................. 34,151 25,988 39,603 Deferred........................................ (2,671) 15,712 (3,403) ------- ------- ------- Income tax expense.............................. $31,480 $41,700 $36,200 ======= ======= =======
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. Significant components of the deferred income tax liabilities and assets as of the end of 1999 and 1998 consisted of:
1999 1998 -------- -------- (in thousands) Deferred tax liabilities Tax over book depreciation.......................... $ (3,558) $ (4,083) Capitalized software development costs.............. (8,712) (8,076) Other, net.......................................... (3,616) (2,792) -------- -------- Deferred tax liabilities............................ (15,886) (14,951) -------- -------- Deferred tax assets Reserves for accounts receivable and salespersons overdrafts......................................... 6,936 7,194 Reserves for employee benefits...................... 10,669 8,698 Other reserves not recognized for tax purposes...... 4,025 4,215 Foreign tax credit carryforwards.................... 838 1,900 Other, net.......................................... 4,483 3,066 -------- -------- Deferred tax assets................................. 26,951 25,073 Valuation allowance................................. (838) (1,900) -------- -------- Deferred tax assets................................. 26,113 23,173 -------- -------- Net deferred tax asset.............................. $ 10,227 $ 8,222 ======== ========
The net deferred tax asset as of the end of 1999 consisted of $17.4 million current net deferred tax assets and $7.2 million noncurrent net deferred tax liabilities. The net deferred tax asset as of the end of 1998 consisted of $14.7 million current net deferred tax assets and $6.5 million noncurrent net deferred tax assets. We also have foreign tax credit carryforwards of $0.8 million that expire in 2000 through 2002. The foreign tax credits of $0.8 million and $1.9 million as of the end of 1999 and 1998 were fully reserved. F-13 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 9. Benefit Plans Pension and Postretirement Benefits We have noncontributory defined-benefit pension plans that cover nearly all employees. The benefits provided under the plans are based on years of service and/or compensation levels. We also provide health care insurance benefits for nearly all retirees. Generally, the health care plans require contributions from retirees. The assumptions used for these plans consisted of:
Pension benefits Retiree health benefits ------------------- ------------------------- 1999 1998 1997 1999 1998 1997 ----- ----- ----- ------- ------- ------- Discount rate.............. 7.75% 7.00% 7.75% 7.75% 7.00% 7.75% Expected return on plan assets.................... 10.00% 10.00% 10.00% -- -- -- Rate of compensation increase.................. 5.00% 5.00% 5.00% -- -- -- Initial health care cost trend rate (1)............ -- -- -- 7.00% 8.00% 9.00%
-------- (1) Assumed to decrease to 6% in 2001. Net periodic benefit (income) or expense for 1999, 1998 and 1997 included the following components:
Pension benefits Retiree health benefits ---------------------------- ----------------------------- 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- --------- (in thousands) Service cost............ $ 4,419 $ 4,044 $ 3,988 $ 74 $ 65 $ 61 Interest cost........... 9,462 8,838 8,346 351 372 377 Expected return on plan assets................. (14,942) (13,447) (11,653) -- -- -- Amortization of prior year service cost...... 1,869 1,716 1,585 (8) (7) (7) Amortization of transition amount...... (885) (894) (894) -- -- -- Amortization of net actuarial gains........ (341) (929) (698) (41) (95) (109) -------- -------- -------- -------- -------- --------- Net periodic benefit (income) expense....... $ (418) $ (672) $ 674 $ 376 $ 335 $ 322 ======== ======== ======== ======== ======== =========
F-14 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The following tables present a reconciliation of the benefit obligation of the plans, plan assets, and funded status of the plans.
Retiree health Pension benefits benefits ------------------ ---------------- 1999 1998 1999 1998 -------- -------- ------- ------- (in thousands) Change in benefit obligation Benefit obligation beginning of year.... $138,825 $117,670 $ 5,238 $ 5,047 Service cost............................ 4,419 4,044 74 65 Interest cost........................... 9,462 8,838 351 372 Plan amendments......................... -- 1,575 -- -- Actuarial loss (gain)................... (12,284) 14,004 (894) 643 Benefits paid........................... (7,919) (7,306) (762) (889) -------- -------- ------- ------- Benefit obligation end of year.......... $132,503 $138,825 $ 4,007 $ 5,238 ======== ======== ======= ======= Change in plan assets Fair value of plan assets beginning of year................................... $164,103 $167,246 $ -- $ -- Actual return on plan assets............ 43,651 2,397 -- -- Company contributions................... 1,938 1,766 762 889 Benefits paid........................... (7,919) (7,306) (762) (889) -------- -------- ------- ------- Fair value of plan assets end of year... $201,773 $164,103 $ -- $ -- ======== ======== ======= ======= Funded status Funded (unfunded) status end of year.... $ 69,270 $ 25,278 $(4,007) $(5,238) Unrecognized cost: Net actuarial gains..................... (64,263) (23,611) (1,947) (1,095) Transition amount....................... (3,294) (4,179) -- -- Prior service cost...................... 8,416 10,285 (50) (58) -------- -------- ------- ------- Prepaid (accrued) benefit cost.......... $ 10,129 $ 7,773 $(6,004) $(6,391) ======== ======== ======= ======= Plan assets consist primarily of corporate equity investments as well as corporate and U.S. government debt and real estate. The components in the consolidated balance sheets consist of: Retiree health Pension benefits benefits ------------------ ---------------- 1999 1998 1999 1998 -------- -------- ------- ------- (in thousands) Prepaid benefit cost.................... $ 25,612 $ 22,918 $ -- $ -- Accrued benefit liability............... (18,185) (19,808) (6,004) (6,391) Intangible asset........................ 1,005 1,283 -- -- Accumulated other comprehensive income.. 1,697 3,380 -- -- -------- -------- ------- ------- Net amount recognized................... $ 10,129 $ 7,773 $(6,004) $(6,391) ======== ======== ======= ======= Pension plans with obligations in excess of plan assets were as follows: 1999 1998 -------- -------- (in thousands) Projected benefit obligation............ $ 19,159 $ 21,048 Accumulated benefit obligation.......... 18,185 19,808 Fair value of plan assets............... -- --
F-15 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) A one-percent change in the assumed health care cost trend rate would have the following effects:
1-Percent 1-Percent Increase Decrease --------- --------- (in thousands) Effect on total of service and interest cost components for 1999............................... $ 19 $ 19 Effect on postretirement benefit obligation at the end of 1999....................................... $218 $212
Savings Plan We have a retirement savings plan (401k plan), which covers nearly all nonunion employees. We provide a matching contribution on amounts, limited to 6 percent of compensation, contributed by employees. Our contribution, in the form of our common stock purchased in the open market, was $2.9 million, $2.6 million and $2.3 million in 1999, 1998 and 1997, respectively and this represents 50 percent of eligible employee contributions. 10. Shareholders' Investment Share Repurchases In December 1998, the Board of Directors authorized the repurchase of up to $100.0 million shares of our common stock in open market or negotiated transactions. During 1999, we repurchased 1.9 million shares for $39.9 million. This share repurchase program was suspended in the fourth quarter of 1999. A similar $100.0 million repurchase program was authorized in July 1997 and completed in the fourth quarter of 1998. Under this program we repurchased 4.4 million shares, including 3.6 million shares for $80.0 million in 1998. Shareholder Rights Plan In July 1998, the Board of Directors declared a distribution to shareholders of one preferred share purchase right for each outstanding share of common stock. The dividend was payable August 19, 1998, to shareholders of record at the close of business on that date. Each right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $90. If a person or group acquires at least 20 percent of our common stock, each right will entitle the holder (other than the acquiring person or group) to purchase, at the right's then-current exercise price, a number of our common shares having a market value of twice the exercise price. In addition, if we are acquired in a merger or other business combination transaction after a person has acquired at least 20 percent of our common stock, each right will entitle the holder to purchase, at the right's then-current exercise price, a number of the acquiring company's common shares having a market value of twice the exercise price. If a person or group acquires at least 20 percent and less than 50 percent of our common stock, the Board of Directors may exchange the rights (other than the rights owned by the acquiring person or group), in whole or in part, for the number of shares of common stock per right as could be purchased at the then-current exercise price. Before a person or group acquires at least 20 percent of our stock, the rights are redeemable for one-tenth of a cent per right at the option of a committee of the board composed exclusively of our independent, non-employee directors. The rights will expire in August 2008 unless extended or redeemed earlier by us. F-16 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 11. Stock Plans Stock Options We may grant stock options to any employee, including officers, under our stock option plans. Options are granted with an exercise price equal to 100 percent of the market price on the dates the options were granted. One plan also provides for increases in the number of shares available for future grants equal to 1 percent of the outstanding common shares on July 1 of each year through 2002. As of the end of 1999, there were 710,320 shares available for future grant under stock option plans. Options are exercisable after five years or less, subject to continuous employment and certain other conditions and expire 10 years after the grant date. We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock options and long-term management incentive plans. Accordingly, no compensation cost has been recognized for these plans. The following table summarizes results as if we had recorded compensation expense for our stock option and long-term management incentive plans under SFAS No. 123, "Accounting for Stock-Based Compensation."
1999 1998 1997 ------------ ------------ ------------ (in thousands, except per-share data) Net income As reported.......................... $ 43,179 $ 41,820 $ 57,183 Pro forma............................ $ 42,428 $ 41,404 $ 56,800 Basic earnings per share As reported.......................... $ 1.27 $ 1.14 $ 1.47 Pro forma............................ $ 1.25 $ 1.13 $ 1.46 Diluted earnings per share As reported.......................... $ 1.27 $ 1.14 $ 1.47 Pro forma............................ $ 1.24 $ 1.13 $ 1.46
These figures reflect only the impact of grants since July 1, 1995, and reflect only part of the possible compensation expense that we would amortize over the vesting period of the grants. In future years, therefore, the effect on net income and earnings per share may differ from those shown above. The weighted average fair value of options granted in 1999, 1998 and 1997 was $6.72, $4.67 and $4.44 per option, respectively. We estimated the fair values using the Black-Scholes option-pricing model, modified for dividends and using the following assumptions:
1999 1998 1997 ---- ---- ---- Risk-free rate............................................ 6.7% 4.7% 5.4% Dividend yield............................................ 3.9% 3.8% 3.6% Volatility factor of the expected market price of Jostens' common stock............................................. 37% 26% 22% Expected life of the award (years)........................ 5.0 5.2 4.7
F-17 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The following table summarizes stock option activity:
Weighted-average Shares exercise price ------ ---------------- (shares in thousands) Outstanding at December 28, 1996.................... 2,882 $22.38 Granted............................................. 496 24.69 Exercised........................................... (581) 25.05 Canceled............................................ (582) 25.14 ------ ------ Outstanding at January 3, 1998...................... 2,215 22.31 Granted............................................. 946 23.47 Exercised........................................... (199) 19.34 Canceled............................................ (62) 24.40 ------ ------ Outstanding at January 2, 1999...................... 2,900 22.69 Granted............................................. 776 22.66 Exercised........................................... (53) 18.51 Canceled............................................ (453) 24.85 ------ ------ Outstanding at January 1, 2000...................... 3,170 $22.44 ====== ======
The following table summarizes information concerning options outstanding as of the end of 1999:
Options outstanding Options exercisable ------------------------------------------------ ------------------------------- Number Weighted-average Number outstanding remaining life Weighted-average exercisable Weighted-average Range of exercise prices (in thousands) (in years) exercise price (in thousands) exercise price - ------------------------ -------------- ---------------- ---------------- -------------- ---------------- $16.56-$20.00........... 831 4.9 $18.19 804 $18.19 $20.01-$25.00........... 2,161 8.0 23.43 773 23.93 $25.01-$30.00........... 76 1.5 26.42 76 26.42 $30.01-$34.19........... 102 1.6 33.22 102 33.22 ------ ------ ------ ------ ------ 3,170 6.8 $22.44 1,755 $21.94 ====== ====== ====== ====== ======
Restricted Stock Awards We have a stock incentive plan under which eligible employees are awarded restricted shares of our common stock. Awards generally vest from three to five years, subject to continuous employment and certain other conditions. The awards are recorded at market value on the date of the grant as unearned compensation and amortized over the vesting period. The following table summarizes information concerning our restricted stock awards:
1999 1998 1997 ------- ------- ------- Number of restricted shares awarded during the year.............................................. 51,442 5,350 46,050 Average market price of shares awarded during the year.............................................. $ 23.84 $ 23.72 $ 23.51 Restricted shares outstanding at year end.......... 67,492 47,100 53,350 Annual expense, net (in thousands)................. $ 629 $ 416 $ 36
Performance Shares In 1997, a management incentive plan was approved. Under the plan, certain members of the senior management team would receive the market value of up to 56,400 shares of our common stock upon achieving F-18 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) specific financial targets in 1998. Under the plan, 50 percent of the value of the award was paid in cash and 50 percent in unrestricted common stock. We recorded $1.1 million as compensation expense in 1998 as a result of achieving the financial targets contained in the plan. The plan was not renewed in 1999. 12. Business Segments We classify our operations into the following business segments: . SCHOOL PRODUCTS, which manufactures and markets school-related affinity products primarily for the high school and college markets. School Products is comprised of four product lines: Printing & Publishing, Jewelry, Graduation Products and Photography. . RECOGNITION, which manufactures and supplies corporate-based affinity products that help companies and other organizations promote and recognize achievement in people's careers. We concentrate our efforts in service recognition and incentive programs designed to help companies achieve their business objectives through improved employee performance. Products include jewelry and other brand name merchandise from industry leading manufacturers. . OTHER, which represents the operating units which do not meet the quantitative threshold for determining reportable segments. Our "Other" segment primarily is comprised of corporate expenses, the results of the direct marketing sales channel to college alumni, international sales and expenses and expenses associated with new product development. The accounting policies of our operating segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on the operating income of the segment. Revenues are reported in the geographic area where the final sales to customers are made, rather than where the transaction originates. F-19 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Financial information by reportable business segment is included in the following summary:
1999 1998 1997 -------- -------- -------- (in thousands) Net Sales From External Customers School Products............................. $675,511 $653,865 $624,528 Recognition................................. 96,998 103,929 103,651 Other....................................... 9,929 13,123 14,300 -------- -------- -------- Consolidated................................ $782,438 $770,917 $742,479 ======== ======== ======== Operating Income School Products............................. $141,947 $127,016 $108,803 Recognition................................. (361) 10,430 8,916 Other....................................... (59,928) (35,257) (18,057) -------- -------- -------- Consolidated................................ 81,658 102,189 99,662 Net interest expense........................ 6,999 6,660 6,279 Write-off of JLC notes receivable, net...... -- 12,009 -- -------- -------- -------- Income Before Income Taxes.................. $ 74,659 $ 83,520 $ 93,383 ======== ======== ======== Identifiable Assets School Products............................. $247,059 $251,629 $265,638 Recognition................................. 54,109 43,089 43,080 Other....................................... 106,548 71,449 82,012 -------- -------- -------- Consolidated................................ $407,716 $366,167 $390,730 ======== ======== ======== Depreciation and Amortization School Products............................. $ 15,560 $ 16,032 $ 15,244 Recognition................................. 2,649 2,749 3,002 Other....................................... 7,129 4,390 3,896 -------- -------- -------- Consolidated................................ $ 25,338 $ 23,171 $ 22,142 ======== ======== ======== Capital Expenditures School Products............................. $ 12,509 $ 12,358 $ 14,754 Recognition................................. 1,074 1,966 2,036 Other....................................... 14,247 22,612 7,591 -------- -------- -------- Consolidated................................ $ 27,830 $ 36,936 $ 24,381 ======== ======== ========
Operating Income School Products operating income included: . $4.8 million of the $20.2 million special charge in 1999; . charges of $2.5 million in both 1999 and 1998 and $2.6 million in 1997 for plant closing costs; and . LIFO gains from converting owned gold to consigned gold of $2.3 million in 1998 and $5.4 million in 1997. Recognition operating income included LIFO gains from converting owned gold to consigned gold of $1.4 million in both 1998 and 1997. F-20 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Operating loss for our Other segment in 1999 included of $15.4 million of the $20.2 million special charge. The following tables present net sales by product and certain geographic information.
1999 1998 1997 -------- -------- -------- (in thousands) Net Sales by Classes of Similar Products or Services Printing & publishing, primarily yearbooks......... $264,801 $258,452 $243,806 Jewelry, primarily class rings..................... 206,624 194,283 186,816 Graduation products................................ 164,713 159,473 153,066 Photography........................................ 45,971 47,297 48,245 Recognition, primarily jewelry and brand name merchandise....................................... 96,998 103,929 103,651 Other.............................................. 3,331 7,483 6,895 -------- -------- -------- Consolidated....................................... $782,438 $770,917 $742,479 ======== ======== ======== Net Sales by Geographic Area United States...................................... $743,450 $732,433 $703,781 Other, primarily Canada............................ 38,988 38,484 38,698 -------- -------- -------- Consolidated....................................... $782,438 $770,917 $742,479 ======== ======== ======== Net Property and Equipment and Intangibles by Geographic Area United States...................................... $ 98,858 $111,911 $100,999 Other, primarily Canada............................ 4,677 4,901 3,888 -------- -------- -------- Consolidated....................................... $103,535 $116,812 $104,887 ======== ======== ========
13. Commitments and Contingencies Forward Purchase Contracts To manage the risk associated with gold price changes, on an annual basis we simultaneously set our pricing to customers and enter into gold forward or option contracts based upon the estimated ounces needed to satisfy customer requirements. We had open forward contracts of $17.9 million to purchase gold as of the end of 1999 that mature at various times in 2000. Environmental As part of our environmental management program, we are involved in various environmental remediation activities. As sites are identified and assessed in this program, we determine potential environmental liabilities. Factors considered in assessing liability include, but are not limited to: whether we have been designated as a potentially responsible party, the number of other potentially responsible parties designated at the site, the stage of the proceedings and available environmental technology. As of the end of 1999, we had identified three sites requiring further investigation. However, we have not been designated as a potentially responsible party at any site. We have assessed the likelihood that a loss has been incurred at one of these sites as probable, and based on findings included in remediation reports and from discussions with legal counsel, estimated the potential loss as of the end of 1999 to range from $2.8 million to $3.8 million. As of the end of 1999, $3.5 million was accrued and is included in "other accrued liabilities" on the consolidated balance sheets. While we may have a right of contribution or reimbursement under insurance policies, amounts recoverable from other entities with F-21 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) respect to a particular site are not considered until recoveries are deemed probable. No assets for potential recoveries were established as of the end of 1999. Executive Stock Purchase Program In 1998, our Board of Directors approved an Executive Stock Purchase Program ("the Program"). The Program offered certain executives a one-time opportunity to purchase our stock, at current market price, through unsecured, full- recourse loans financed by The First Chicago National Bank and guaranteed by us. The total amounts of such loans outstanding as of the end of 1999 were $7.2 million. Litigation In January 1999, a federal judge in Texas overturned a jury's $25.3 million verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens' post-trial motions, set aside the jury's verdict and dismissed all claims against Jostens in the case. Yearbook competitor Taylor Publishing Company, who is also the plaintiff in the case, has appealed the decision and is seeking to have the jury verdict reinstated. Briefs have been filed and oral arguments were held on December 8, 1999. The date for the decision from the Fifth Circuit Court of Appeals has not been determined. No costs were accrued related to the lawsuit because we believe a loss is not "probable and estimable." Following the public announcement of the merger, three purported class actions were filed, two on December 30, 1999 and the third on January 14, 2000, in the Fourth Judicial District of the District Court for the State of Minnesota, County of Hennepin (the "Court"). By order of the Honorable Daniel H. Mabley dated January 21, 2000, the Actions were consolidated, and the Complaint in File No. MC 99-18533 was thereafter designated as the Consolidated Complaint. The Consolidated Complaint is purportedly brought on behalf of a class of "all holders of Jostens common stock who are being and will be harmed" by the actions alleged in the Consolidated Complaint. In the Consolidated Complaint, the plaintiffs allege that the individual defendants, by virtue of their positions as officers and directors of Jostens, owe fiduciary duties to the shareholders of Jostens, and that by allegedly failing to take all steps reasonably required to maximize the value shareholders will receive in a sale of Jostens, the defendants have breached such duties. More specifically, the plaintiffs allege that the defendants have taken actions designed to halt any other offers and deter higher offers from other potential acquirers including, among other things: . allegedly concealing Jostens' fourth quarter results until after the defendants entered into and disclosed the existence of the merger agreement, thus allegedly capping the price of Jostens' common stock; . allegedly agreeing to include in the merger agreement a termination fee provision which would under specified circumstances require Jostens to pay Saturn Acquisition the sum of $24 million, together with Investcorp's expenses, in the event that Jostens receives a superior offer and terminates the merger agreement; . allegedly structuring a "preferential deal" pursuant to which some of the defendants would receive "change of control" payments following the consummation of the proposed merger; and . allegedly failing to announce any active auction, open bidding, or any other procedures best calculated to maximize shareholder value. F-22 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The Consolidated Complaint seeks an order of the Court: . enjoining the defendants from proceeding with the merger; . enjoining the defendants from consummating the merger, or a business combination with a third party, unless and until Jostens adopts and implements a procedure or process, such as an auction, to obtain the highest possible price for Jostens; . directing the individual defendants to exercise their fiduciary duties to obtain a transaction which is in the best interests of shareholders until the process for the sale or auction of Jostens is completed and the highest possible price is obtained; . awarding compensatory damages against the defendants; . awarding the plaintiffs the costs and disbursements of the Consolidated Complaint, including reasonable attorneys' and experts' fees; and . granting such further relief as the Court may deem just and proper. Jostens is a party to other litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. We believe the effect on our consolidated results of operations and financial position, if any, for the disposition of these matters will not be material. 14. Write-off of JLC Notes Receivable, Net In June 1995 we sold our Jostens Learning Corp. ("JLC") curriculum software subsidiary to a group led by Bain Capital, Inc. As partial consideration for the sale, we received two notes which were subsequently discounted and recorded at their estimated fair values. In addition, a transaction gain of $13.2 million was deferred in accordance with the SEC Staff Accounting Bulletin No. 81, "Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity." The notes were subsequently recorded at their estimated fair value of $12.9 million, net of deferred gain. In January 1999, we received information indicating to us that the carrying value of the notes was permanently impaired. As a result, we wrote-off $12.0 million in 1998 for the carrying value of the notes, net of miscellaneous JLC- related assets and liabilities, plus $3.7 million of net deferred tax assets associated with the initial sale of JLC. We did not record a tax benefit related to the write-off for financial reporting purposes because the tax benefit may not be realized. F-23 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 15. Selected Quarterly Financial Data (Unaudited)
1999 1998 --------------------------------------------------- ---------------------------------------------------- First Second Third Fourth (1) Year (1) First Second Third Fourth (2) Year (2) --------- ---------- -------- ---------- -------- -------- -------- -------- ---------- -------- (in thousands, except per-share and stock data) Net sales....... $ 166,358 $ 303,161 $122,643 $190,276 $782,438 $168,277 $298,879 $127,009 $176,752 $770,917 Gross profit.... 97,859 162,417 52,984 119,487 432,747 99,604 156,320 56,539 106,659 419,122 Net income (loss)......... 8,043 39,046 (6,914) 3,004 43,179 10,496 37,632 (7,178) 870 41,820 Earnings (loss) per share: (3) Basic........... 0.23 1.14 (0.21) 0.09 1.27 0.28 1.02 (0.20) 0.02 1.14 Diluted......... 0.23 1.14 (0.21) 0.09 1.27 0.28 1.01 (0.20) 0.02 1.14 Stock price: High............ 27 1/8 22 5/8 21 24 5/16 27 1/8 24 15/16 26 1/4 25 5/8 26 1/4 26 1/4 Low............. 21 1/4 20 7/16 19 1/8 17 9/16 17 9/16 22 1/16 22 7/8 19 9/16 19 19 Dividends declared per share (4)...... 0.22 0.22 0.22 0.22 0.88 0.22 0.22 0.22 0.22 0.88
- -------- (1) Net income in 1999 reflects a pre-tax special charge of $20.2 million ($13.3 million after tax or 39 cents per share) incurred in the fourth quarter. (2) Net income in 1998 reflects an after tax charge of $15.7 million (43 cents per share) in the fourth quarter for the write-off of JLC notes receivable and related net deferred tax assets. Net income in 1998 also reflects a pre-tax gain of $3.7 million ($2.2 million after tax or 6 cents per share) resulting from a reduction in LIFO gold inventories in the fourth quarter. (3) Amounts may not total to the annual earnings per share because each quarter and the year are calculated separately based on basic and diluted weighted average common shares outstanding during that period. (4) We have historical declared and paid a quarterly dividend to our common stock shareholders. We do not anticipate paying dividends to any class of our common shareholders following the proposed merger and recapitalization. 16. Condensed Consolidating Financial Information Assuming completion of the merger as described in footnote 2 "Merger and Recapitalization," Jostens' sole wholly owned domestic subsidiary will be a co- borrower under a new $645.0 million senior secured credit facility and will guarantee $225.0 million aggregate principal amount of senior subordinated notes. In connection with the issuance of such guarantees, the information which follows presents the condensed consolidating financial position as of January 1, 2000 and January 2, 1999, and the condensed consolidating results of operations and cash flows for each of the three years in the period ended January 1, 2000 of (a) the parent company only ("Parent"), (b) the Guarantor ("Guarantor"), (c) the combined Non-Guarantors ("Non-Guarantors"), (d) eliminating entries and (e) Jostens, Inc. and Subsidiaries on a consolidated basis. F-24 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Balance Sheet As of January 1, 2000 ------------------------------------------------------- Non- Parent Guarantor Guarantors Elimination Consolidated -------- --------- ---------- ----------- ------------ (in thousands) ASSETS ------ Current assets Cash and cash equiva- lents ................. $ 26,567 $ 37 $11,913 $ -- $ 38,517 Accounts receivable, net ....................... 74,392 28,120 5,126 -- 107,638 Inventories ............ 53,466 31,108 3,265 -- 87,839 Deferred income taxes .. 17,400 -- -- -- 17,400 Salespersons overdrafts, net ................... 12,836 6,678 6,680 -- 26,194 Prepaid expenses and other current assets... 2,892 5,565 264 -- 8,721 -------- -------- ------- --------- -------- Total current assets ..................... 187,553 71,508 27,248 -- 286,309 Other assets Intercompany accounts .. (322,245) 323,341 (1,096) -- -- Intangibles, net ....... 457 13,483 4,955 -- 18,895 Other .................. 326,627 248 200 (309,203) 17,872 -------- -------- ------- --------- -------- Total other assets ... 4,839 337,072 4,059 (309,203) 36,767 Property and equipment, net ................... 60,715 20,055 3,870 -- 84,640 -------- -------- ------- --------- -------- $253,107 $428,635 $35,177 $(309,203) $407,716 ======== ======== ======= ========= ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT ---------------------------------------- Current liabilities Short-term borrowings .. $117,608 $ -- $ -- $ -- $117,608 Accounts payable ....... 17,602 4,029 2,010 -- 23,641 Employee compensation .. 19,143 9,210 1,125 -- 29,478 Commissions payable .... 19,170 4,201 2,763 -- 26,134 Customer deposits ...... 38,317 71,634 3,007 -- 112,958 Income taxes ........... 16,974 -- 249 -- 17,223 Other accrued liabili- ties .................. 25,875 3,379 846 -- 30,100 -------- -------- ------- --------- -------- Total current liabilities ......... 254,689 92,453 10,000 -- 357,142 Other noncurrent liabil- ities ................. 11,495 2,569 -- -- 14,064 -------- -------- ------- --------- -------- Total liabilities ...... 266,184 95,022 10,000 -- 371,206 Shareholders' investment ....................... (13,077) 333,613 25,177 (309,203) 36,510 -------- -------- ------- --------- -------- $253,107 $428,635 $35,177 $(309,203) $407,716 ======== ======== ======= ========= ========
F-25 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Balance Sheet As of January 2, 1999 -------------------------------------------------------- Non- Parent Guarantor Guarantors Elimination Consolidated --------- --------- ---------- ----------- ------------ (in thousands) ASSETS Current assets Cash and cash equiva- lents ................. $ (1,171) $ 6 $ 3,760 $ -- $ 2,595 Accounts receivable, net ....................... 75,607 25,172 5,568 -- 106,347 Inventories ............ 56,442 30,786 3,266 -- 90,494 Deferred income taxes .. 14,682 -- -- -- 14,682 Salespersons overdrafts, net ................... 8,333 7,353 5,003 -- 20,689 Prepaid expenses and other current assets .. 4,316 1,295 126 -- 5,737 --------- -------- ------- --------- -------- Total current assets ..................... 158,209 64,612 17,723 -- 240,544 Other assets Intercompany accounts... (277,541) 276,524 1,017 -- -- Intangibles, net........ 9,465 13,398 5,302 28,165 Other................... 317,192 258 (5) (308,634) 8,811 --------- -------- ------- --------- -------- Total other assets ... 49,116 290,180 6,314 (308,634) 36,976 Property and equipment, net ................... 64,685 19,982 3,980 -- 88,647 --------- -------- ------- --------- -------- $ 272,010 $374,774 $28,017 $(308,634) $366,167 ========= ======== ======= ========= ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities Short-term borrowings .. $ 93,922 $ -- $ -- $ -- $ 93,922 Accounts payable ....... 17,494 4,142 2,046 -- 23,682 Employee compensation .. 17,198 9,021 1,341 -- 27,560 Commissions payable .... 17,792 3,460 879 -- 22,131 Customer deposits ...... 34,987 54,647 2,458 -- 92,092 Income taxes ........... 4,342 -- 371 -- 4,713 Other accrued liabili- ties .................. 20,851 1,816 1,012 -- 23,679 --------- -------- ------- --------- -------- Total current liabili- ties ................ 206,586 73,086 8,107 -- 287,779 Other noncurrent liabil- ities ................. 16,032 3,804 -- -- 19,836 --------- -------- ------- --------- -------- Total liabilities ...... 222,618 76,890 8,107 -- 307,615 Shareholders' invest- ment................... 49,392 297,884 19,910 (308,634) 58,552 --------- -------- ------- --------- -------- $ 272,010 $374,774 $28,017 $(308,634) $366,167 ========= ======== ======= ========= ========
F-26 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Operations Year ended January 1, 2000 -------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Net sales ....................... $458,044 $278,225 $46,169 $782,438 Cost of products sold ........... 185,450 148,205 16,036 349,691 -------- -------- ------- -------- Gross profit .................. 272,594 130,020 30,133 432,747 Selling and administrative expenses........................ 237,585 69,727 23,583 330,895 Special charge .................. 19,971 223 -- 20,194 -------- -------- ------- -------- Operating income ................ 15,038 60,070 6,550 81,658 Interest income ................. (280) (1) (206) (487) Interest expense ................ 7,396 -- 90 7,486 -------- -------- ------- -------- Income before income taxes .... 7,922 60,071 6,666 74,659 Income taxes .................... 4,092 24,342 3,046 31,480 -------- -------- ------- -------- Net income ...................... $ 3,830 $ 35,729 $ 3,620 $ 43,179 ======== ======== ======= ========
F-27 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Operations Year ended January 2, 1999 ------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Net sales......................... $455,556 $272,805 $42,556 $770,917 Cost of products sold ............ 182,808 153,604 15,383 351,795 -------- -------- ------- -------- Gross profit ................... 272,748 119,201 27,173 419,122 Selling and administrative expenses......................... 228,780 66,465 21,688 316,933 -------- -------- ------- -------- Operating income ................. 43,968 52,736 5,485 102,189 Interest income .................. 21 (1) (386) (366) Interest expense ................. 6,918 -- 108 7,026 Write-off of JLC notes receivable, net.............................. 12,009 -- -- 12,009 -------- -------- ------- -------- Income before income taxes ..... 25,020 52,737 5,763 83,520 Income taxes ..................... 17,180 21,407 3,113 41,700 -------- -------- ------- -------- Net income ....................... $ 7,840 $ 31,330 $ 2,650 $ 41,820 ======== ======== ======= ========
F-28 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Operations Year ended January 3, 1998 ------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Net sales ................ $440,331 $259,227 $42,921 $742,479 Cost of products sold .... 180,692 152,885 17,713 351,290 -------- -------- ------- -------- Gross profit ........... 259,639 106,342 25,208 391,189 Selling and administrative expenses 198,330 71,775 21,422 291,527 -------- -------- ------- -------- Operating income ......... 61,309 34,567 3,786 99,662 Interest income .......... (400) -- (187) (587) Interest expense ......... 6,761 -- 105 6,866 -------- -------- ------- -------- Income before income taxes ................. 54,948 34,567 3,868 93,383 Income taxes ............. 15,897 17,884 2,419 36,200 -------- -------- ------- -------- Net income ............... $ 39,051 $ 16,683 $ 1,449 $ 57,183 ======== ======== ======= ========
F-29 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Cash Flows Year ended January 1, 2000 -------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Operating activities Net income ...................... $ 3,830 $ 35,729 $ 3,620 $ 43,179 Depreciation .................... 16,269 5,817 1,243 23,329 Amortization .................... 1,083 468 458 2,009 Deferred income taxes ........... (2,671) -- -- (2,671) Special charge (non-cash portion) ................................ 14,101 -- -- 14,101 Changes in assets and liabilities Accounts receivable ............ 1,215 (2,948) 442 (1,291) Inventories .................... 2,976 (322) 1 2,655 Salespersons overdrafts ........ (4,503) 675 (1,677) (5,505) Prepaid expenses and other current assets ................ 1,424 (4,270) (138) (2,984) Intercompany accounts .......... 44,704 (46,817) 2,113 -- Accounts payable ............... 8,513 (113) (36) 8,364 Employee compensation .......... 1,945 189 (216) 1,918 Commissions payable ............ 1,378 741 1,884 4,003 Customer deposits .............. 3,330 16,987 549 20,866 Income taxes ................... 12,715 -- (122) 12,593 Other .......................... 3,703 (215) 1,165 4,653 -------- -------- ------- -------- Net cash provided by operating activities................... 110,012 5,921 9,286 125,219 -------- -------- ------- -------- Investing activities Purchases of property and equipment ...................... (20,810) (5,898) (1,122) (27,830) Equity investments .............. (10,611) -- -- (10,611) Other ........................... 1,265 8 (11) 1,262 -------- -------- ------- -------- Net cash used for investing activities .................. (30,156) (5,890) (1,133) (37,179) -------- -------- ------- -------- Financing activities Net short-term borrowings ....... 15,281 -- -- 15,281 Dividends paid .................. (29,998) -- -- (29,998) Proceeds from exercise of stock options ........................ 2,452 -- -- 2,452 Repurchases of common stock ..... (39,853) -- -- (39,853) -------- -------- ------- -------- Net cash used for financing activities .................. (52,118) -- -- (52,118) -------- -------- ------- -------- Change in cash and cash equivalents .................... 27,738 31 8,153 35,922 Cash and cash equivalents, beginning of period ............ (1,171) 6 3,760 2,595 -------- -------- ------- -------- Cash and cash equivalents, end of period.......................... $ 26,567 $ 37 $11,913 $ 38,517 ======== ======== ======= ======== Supplemental information Income taxes paid................ $ 2,604 $ 14,724 $ 3,295 $ 20,623 Interest paid.................... $ 5,612 $ -- $ 90 $ 5,702
F-30 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Cash Flows Year ended January 2, 1999 -------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Operating activities Net income ........................ $ 7,840 $ 31,330 $ 2,650 $ 41,820 Depreciation ...................... 12,992 6,493 1,102 20,587 Amortization ...................... 5,380 451 (3,247) 2,584 Deferred income taxes ............. 15,712 -- -- 15,712 Write-off of JLC notes receivable, net .............................. 12,009 -- -- 12,009 Changes in assets and liabilities Accounts receivable ............. (1,804) 3,020 951 2,167 Inventories ..................... (1,307) 2,852 23 1,568 Salespersons overdrafts ......... 5,801 (1,819) 824 4,806 Prepaid expenses and other current assets ................. (2,591) 1,458 75 (1,058) Intercompany accounts ........... 45,875 (42,818) (3,057) -- Accounts payable ................ (1,468) (723) 1,020 (1,171) Employee compensation ........... 4,284 3,214 616 8,114 Commissions payable ............. 648 2,512 (251) 2,909 Customer deposits ............... 2,265 (9,550) 718 (6,567) Income taxes .................... (6,179) -- 135 (6,044) Other ........................... 3,779 1,998 (1,598) 4,179 -------- -------- ------- -------- Net cash provided by (used for) operating activities ......... 103,236 (1,582) (39) 101,615 -------- -------- ------- -------- Investing activities Purchases of property and equipment .................................. (31,299) (3,759) (1,878) (36,936) Other ............................. 135 1,901 (361) 1,675 -------- -------- ------- -------- Net cash used for investing ac- tivities ..................... (31,164) (1,858) (2,239) (35,261) -------- -------- ------- -------- Financing activities Net short-term repayments ......... 38,248 -- -- 38,248 Dividends paid .................... (32,332) -- -- (32,332) Proceeds from exercise of stock options .......................... 4,258 -- -- 4,258 Repurchases of common stock ....... (80,001) -- -- (80,001) -------- -------- ------- -------- Net cash used for financing ac- tivities ..................... (69,827) -- -- (69,827) -------- -------- ------- -------- Change in cash and cash equivalents....................... 2,245 (3,440) (2,278) (3,473) Cash and cash equivalents, beginning of period............... (3,416) 3,446 6,038 6,068 -------- -------- ------- -------- Cash and cash equivalents, end of period............................ $ (1,171) $ 6 $ 3,760 $ 2,595 ======== ======== ======= ======== Supplemental information Income taxes paid.................. $ 11,787 $ 17,848 $ 2,722 $ 32,357 Interest paid...................... $ 6,318 $ -- $ 108 $ 6,426
F-31 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Condensed Consolidating Statement of Cash Flows Year ended January 3, 1998 -------------------------------------------- Non- Parent Guarantor Guarantors Consolidated -------- --------- ---------- ------------ (in thousands) Operating activities Net income ...................... $ 39,051 $ 16,683 $ 1,449 $ 57,183 Depreciation .................... 11,955 6,866 1,024 19,845 Amortization .................... 1,556 624 117 2,297 Deferred income taxes ........... (3,403) -- -- (3,403) Changes in assets and liabilities, net of effects of business acquisition Accounts receivable ............ 1,376 (118) (1,909) (651) Inventories .................... 6,423 80 (72) 6,431 Salespersons overdrafts ........ (513) (1,079) 990 (602) Prepaid expenses and other current assets ................ 6,607 (2,269) 216 4,554 Intercompany accounts .......... 26,173 (27,994) 1,821 -- Accounts payable ............... 333 1,598 (425) 1,506 Employee compensation .......... 3,498 866 93 4,457 Commissions payable ............ 1,761 151 (284) 1,628 Customer deposits .............. 8,020 14,814 (209) 22,625 Income taxes ................... 5,019 -- 639 5,658 Other .......................... (2,268) (197) (2,346) (4,811) -------- -------- ------- -------- Net cash provided by operating activities................... 105,588 10,025 1,104 116,717 -------- -------- ------- -------- Investing activities Purchases of property and equipment ...................... (16,606) (7,403) (372) (24,381) Business acquisition ............ (9,883) -- -- (9,883) -------- -------- ------- -------- Net cash used for investing activities .................. (26,489) (7,403) (372) (34,264) -------- -------- ------- -------- Financing activities Net short-term repayments........ (36,238) -- -- (36,238) Principal payments on long-term debt ........................... (281) -- -- (281) Dividends paid .................. (34,198) -- -- (34,198) Proceeds from exercise of stock options ........................ 11,693 -- -- 11,693 Repurchases of common stock ..... (20,000) -- -- (20,000) -------- -------- ------- -------- Net cash used for financing activities .................. (79,024) -- -- (79,024) -------- -------- ------- -------- Change in cash and cash equivalents .................... 75 2,622 732 3,429 Cash and cash equivalents, beginning of period ............ (3,491) 824 5,306 2,639 -------- -------- ------- -------- Cash and cash equivalents, end of period.......................... $ (3,416) $ 3,446 $ 6,038 $ 6,068 ======== ======== ======= ======== Supplemental information Income taxes paid................ $ 14,134 $ 10,424 $ 1,742 $ 26,300 Interest paid.................... $ 5,795 -- $ 105 $ 5,900
F-32 JOSTENS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six months ended ------------------ July 1, July 3, 2000 1999 -------- -------- (in thousands, except per-share data) Net sales................................................... $476,387 $469,519 Cost of products sold....................................... 201,787 209,243 -------- -------- Gross profit.............................................. 274,600 260,276 Selling and administrative expenses......................... 180,799 178,636 Transaction costs........................................... 45,711 -- -------- -------- Operating income............................................ 48,090 81,640 Interest income............................................. (488) (201) Interest expense............................................ 15,292 2,699 -------- -------- Income before income taxes................................ 33,286 79,142 Income taxes................................................ 26,257 32,053 -------- -------- Net income.................................................. $ 7,029 $ 47,089 Dividends and accretion on redeemable preferred stock....... 1,243 -- -------- -------- Net income available to common shareholders................. $ 5,786 $ 47,089 ======== ======== Net income per share available to common shareholders Basic..................................................... $ 0.23 $ 1.37 Diluted................................................... $ 0.23 $ 1.36 Weighted average common shares outstanding Basic..................................................... 25,043 34,488 Diluted................................................... 25,316 34,590
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-33 JOSTENS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 1, July 3, 2000 1999 -------- -------- (in thousands, except per-share data) ASSETS Current assets Cash and cash equivalents................................. $ 35,875 $ 8,405 Accounts receivable, net of allowance for doubtful accounts of $5,535 and $6,234............................ 125,505 129,379 Inventories............................................... 66,319 77,783 Deferred income taxes..................................... 17,400 14,682 Salespersons overdrafts, net of allowance of $5,301 and $7,157................................................... 11,108 11,934 Prepaid expenses and other current assets................. 5,592 4,382 -------- -------- Total current assets..................................... 261,799 246,565 Other Assets Intangibles, net.......................................... 18,309 27,638 Deferred financing costs, net............................. 35,606 -- Other..................................................... 25,930 14,163 -------- -------- Total other assets....................................... 79,845 41,801 Property and equipment.................................... 278,010 268,654 Less accumulated depreciation............................. (199,192) (179,583) -------- -------- Property and equipment, net............................. 78,818 89,071 -------- -------- $420,462 $377,437 ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT) Current liabilities Short-term borrowings..................................... $ -- $ 93,690 Accounts payable.......................................... 18,979 16,002 Accrued employee compensation and related taxes........... 25,674 23,160 Commissions payable....................................... 53,410 51,641 Customer deposits......................................... 55,277 53,576 Income taxes payable...................................... 34,617 30,953 Current portion of long-term debt......................... 5,500 -- Other accrued liabilities................................. 36,171 21,092 -------- -------- Total current liabilities................................ 229,628 290,114 Long-term debt, net of current maturities................. 694,797 3,600 Other noncurrent liabilities.............................. 8,215 15,698 -------- -------- Total liabilities........................................ 932,640 309,412 Commitments and contingencies............................. -- -- Redeemable preferred shares, $.01 par value, liquidation preference $60,000, issued and outstanding; July 1, 2000 -- 60....................................... 44,243 -- Preferred shares, $.01 par value: authorized 4,000 shares, issued and outstanding; July 1, 2000 -- 60 in the form of redeemable preferred shares listed above, the remaining 3,940 undesignated Shareholders' investment (deficit) Common shares............................................. 1,015 11,350 Warrants to purchase common shares........................ 24,733 -- Officer notes receivable.................................. (2,050) -- Retained earnings (accumulated deficit)................... (573,787) 63,672 Accumulated other comprehensive loss...................... (6,332) (6,997) -------- -------- Total shareholders' investment (deficit)................. (556,421) 68,025 -------- -------- $420,462 $377,437 ======== ========
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-34 JOSTENS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended ----------------- July 1, July 3, 2000 1999 -------- ------- (in thousands) Operating activities Net income............................................. $ 7,029 $47,089 Depreciation........................................... 12,684 11,663 Amortization of debt discount and deferred financing costs................................................. 1,011 6 Amortization of goodwill............................... 536 1,125 Changes in operating assets and liabilities Accounts receivable.................................. (17,867) (23,032) Inventories.......................................... 21,520 12,711 Salespersons overdrafts.............................. 15,086 8,755 Prepaid expenses and other current assets............ 3,129 1,355 Accounts payable..................................... (10,294) (2,497) Accrued employee compensation and related taxes...... (3,804) (4,400) Commissions payable.................................. 27,276 29,510 Customer deposits.................................... (57,681) (38,516) Income taxes payable................................. 17,394 26,240 Other................................................ (2,877) (2,715) -------- ------- Net cash provided by operating activities.......... 13,142 67,294 -------- ------- Investing activities Purchases of property and equipment.................... (7,150) (13,339) Equity investments..................................... (1,103) (5,000) Other.................................................. 395 654 -------- ------- Net cash used for investing activities............. (7,858) (17,685) -------- ------- Financing activities Net short-term borrowings (repayments)................. (111,976) (5,415) Repurchases of common stock............................ (823,630) (25,007) Principal payments on long-term debt................... (3,600) -- Proceeds from issuance of long-term debt............... 700,139 -- Proceeds from issuance of common shares................ 208,693 -- Net proceeds from the issuance of preferred stock...... 43,000 -- Proceeds from the issuance of warrants to purchase common shares......................................... 24,733 -- Dividends paid to common shareholders.................. (7,331) (15,231) Proceeds from exercise of stock options................ 555 1,854 Issuance of officer note receivable.................... (2,050) -- Debt acquisition costs................................. (36,459) -- -------- ------- Net cash used for financing activities............. (7,926) (43,799) -------- ------- Change in cash and cash equivalents.................... (2,642) 5,810 Cash and cash equivalents, beginning of period......... 38,517 2,595 -------- ------- Cash and cash equivalents, end of period............... $ 35,875 $ 8,405 ======== ======= Supplemental information Income taxes paid...................................... $ 8,763 $ 4,989 Interest paid.......................................... $ 6,767 $ 2,976
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-35 JOSTENS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT (DEFICIT) FOR THE SIX MONTHS ENDED JULY 1, 2000 (UNAUDITED)
Warrants to Retained Accumulated Common shares purchase Officer earnings other ---------------- common Capital notes (accumulated comprehensive Number Amount shares surplus receivable deficit) loss Total ------- ------- -------- --------- ---------- ------------ ------------- --------- (in thousands, except per-share data) Balance--January 1, 2000................... 33,324 $11,108 $ -- $ -- $ -- $ 31,072 $(5,670) $ 36,510 Exercise of stock options and restricted stock--net............. 23 8 1,520 1,528 Cash dividends declared to common shareholders of $0.22 per share..... (7,331) (7,331) Issuance of common shares................. -- Class A................ 2,134 711 53,176 (2,050) 51,837 Class B................ 5,300 53 133,772 133,825 Class C................ 811 8 20,470 20,478 Class D................ 20 -- 505 505 Repurchases of common stock.................. (32,619) (10,873) (209,443) (603,314) (823,630) Issuance of warrants to purchase common shares................. 24,733 24,733 Preferred stock dividend accrual................ (1,187) (1,187) Preferred stock accretion.............. (56) (56) Net income.............. 7,029 7,029 Change in cumulative translation adjustment............. (662) (662) ------- ------- ------- --------- ------- ---------- ------- --------- Balance--July 1, 2000... 8,993 $ 1,015 $24,733 $ -- $(2,050) $ (573,787) $(6,332) $(556,421) ======= ======= ======= ========= ======= ========== ======= =========
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-36 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation We prepared our accompanying unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted. Therefore, we suggest that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2000 ("1999 Form 10-K"). The condensed consolidated balance sheet data as of January 1, 2000 were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States. Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, when read in conjunction with the 1999 Form 10-K, our financial position, results of operations and cash flows for the periods presented. Certain balances have been reclassified to conform to the 2000 presentation. 2. Merger and Recapitalization On December 27, 1999, we entered into a merger agreement with Saturn Acquisition Corporation, an entity organized for the sole purpose of effecting a merger on behalf of certain affiliates of Investcorp S.A. and other investors. On May 10, 2000, Saturn Acquisition Corporation merged with and into Jostens, with Jostens as the surviving corporation. The merger was part of a recapitalization of Jostens which resulted in affiliates of Investcorp and the other investors acquiring approximately 92 percent of our post-merger common stock. The remaining 8 percent of our common stock was retained by pre- recapitalization shareholders and five members of senior management and was redesignated as shares of Class A common stock. As a result of the transaction, our shares have been de-listed from the New York Stock Exchange. Voting Rights The post-merger common stock consists of Class A through Class E common stock as well as undesignated common stock. Holders of Class A common stock are entitled to one vote per share, whereas holders of Class D common stock are entitled to 306.55 votes per share. Holders of Class B common stock, Class C common stock and Class E common stock have no voting rights. The par value and number of authorized, issued and outstanding shares for July 1, 2000 for each class of common stock is set forth below:
Par Authorized Issued and Value Shares Outstanding Shares -------- ---------- ------------------ (in thousands) Class A............................. $.33 1/3 4,200 2,862 Class B............................. $.01 5,300 5,300 Class C............................. $.01 2,500 811 Class D............................. $.01 20 20 Class E............................. $.01 1,900 -- Undesignated........................ $.01 12,020 --
F-37 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) As of July 3, 1999 there were 34,049 thousand shares of common stock outstanding. Recapitalization Financing The recapitalization was funded by (a) $495.0 million of borrowings under a senior secured credit facility with a syndicate of banks which included term loans and a revolving credit facility (collectively the "senior secured credit facility"), (b) issuance of $225.0 million in principal amount of senior subordinated notes (the "notes") and warrants to purchase 425,060 shares of Class E common stock, (c) issuance of $60.0 million in principal amount of redeemable preferred stock and warrants to purchase 531,325 shares of Class E common stock and (d) $208.7 million of proceeds from the sale of shares of common stock to the investors. The proceeds from these financings funded (a) the payment of approximately $823.6 million to holders of common stock, (b) repayment of $67.6 million of outstanding indebtedness (c) payment of $10.0 million in consideration for cancellation of employee stock options (d) approximately $71.9 million of fees and expenses associated with the recapitalization, including approximately $12.7 million of advisory fees paid to Investcorp and (e) a pre-payment of $7.5 million for a management and consulting services agreement for a five-year term with Investcorp. This pre-payment is being amortized on a straight-line basis over the term of the agreement. Recapitalization Accounting The transaction was accounted for as a recapitalization and as such, the historical basis of our assets and liabilities has not been affected. Recapitalization related costs of $45.7 million consisting of investment banker fees, transaction fees, legal and accounting fees, cash transaction bonuses, stock option payments, and other miscellaneous costs were expensed in the six month periods ended July 1, 2000. Additionally, $3.0 million of recapitalization costs incurred related to the issuance of shares of redeemable preferred stock was netted against the proceeds of $60.0 million. Finally, $36.5 million associated with the debt financing was capitalized and is being amortized over the applicable lives of the debt for up to a maximum of ten years. Other Arrangements We adopted a new employee stock option plan to purchase shares of Class A common stock. The number of shares available to be awarded under the new stock option plan is 676,908. The stock option plan is administered by the Compensation Committee of the Board of Directors who designate the amount, timing and other terms and conditions applicable to the option awards. Under the stock option plan, an optionee has certain rights to put to an affiliate of Investcorp, and we have certain rights to call from the optionee, after a six- month waiting period, vested stock options issued to the optionee under the stock option plan upon termination of the optionee's employment prior to a public offering of Jostens' common stock. At the time of the transaction, options to purchase 502,846 of our Class A common stock were granted to five members of senior management. The options have an exercise price of $25.25 and, prior to a public offering, become exercisable annually in one-fifth increments upon Jostens meeting or exceeding target cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA"). We adopted a new stock loan program to make loans to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea in amounts up to 100% of their outstanding loans at the time of the transaction, the proceeds of which were used to purchase shares of our common stock. Loans made under the stock loan program bear interest at our cost of funds under our revolving credit facility and are recourse loans. Subject to certain prepayment provisions, the loans will mature and all principal and accrued interest will be payable on May 10, 2005; provided, however, that each loan may be extended for a period of two years under certain circumstances. Each loan will become payable in full in the event the borrower's employment with us is terminated other than due to death or disability or for a reason other than cause or by the borrower for good reason. Loans are collateralized by the shares of our capital stock owned by such individual, and each individual has entered into a pledge agreement and executed a secured promissory note. At July 1, 2000, total borrowings under the new stock loan program were $2.0 million. F-38 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-- (Continued) 3.Long-Term Debt Long-term debt consists of the following:
July 1, July 3, 2000 1999 -------- ------- (in thousands) Term loan A, 9.87 percent variable rate at July 1, 2000, semi-annual principal and interest payments through May 2006........................................................ $150,000 $ -- Term loan B, 10.37 percent variable rate at July 1, 2000, semi-annual principal and interest payments through May 2008........................................................ 345,000 -- Senior subordinated notes, 12.75 percent fixed rate, net of discounts of $19,703, semi-annual interest payments of $14.3 million, interest due and payable at maturity -- May 2010......................... 205,297 -- Industrial revenue bonds, 6.75 percent fixed rate, covering general offices............................................. -- 3,600 -------- ----- 700,297 3,600 Less current portion 5,500 -- -------- ----- $694,797 $ 3,600 ======== =====
Maturities of long-term debt including $19.7 million of discount as of July 1, 2000 are as follows:
(in thousands) -------------- 2001..................................................... $ 5,500 2002..................................................... 23,250 2003..................................................... 28,250 2004..................................................... 33,250 2005..................................................... 38,250 Thereafter............................................... 591,500 -------- $720,000 ========
Principal payments under term loan A commence in 2001 with a $5.0 million payment due June 30, 2001 and a $10.0 million payment due December 31, 2001. Thereafter, semi-annual payments increase $1.25 million per period through December 2005 with the remaining $10.0 million due in May 2006. Principal payments under term loan B commence in 2001 with a $0.5 million payment due June 30, 2001 and semiannual payments of $1.0 million thereafter through December 2005. Semiannual payments increase on an escalating scale from $25.5 million in June 2006 to $112.5 million in December 2007 with a final payment of $66.2 million due in May 2008. The fair value of long-term debt at July 1, 2000 and July 3, 1999 approximated the carrying value and is estimated based on quoted market prices for comparable instruments. In connection with the merger and recapitalization, we entered into a $150 million, six year revolving credit facility that expires on May 31, 2006. We may borrow funds and elect to pay interest under the "alternative base rate" or "eurodollar" interest rate provisions of the agreement. There were no amounts outstanding under this facility as of July 1, 2000. Our previous credit facility, due to expire on December 31, 2000, was terminated as part of the transaction. The senior subordinated notes are not collateralized and are subordinate in right of payment to the term loans and borrowings under the new revolving credit facility (collectively the "senior secured credit facility"). F-39 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-- (Continued) The senior secured credit facility is with the same lenders and is collateralized by substantially all the assets of our domestic operations and all of our capital stock (limited to 65 percent in the case of foreign subsidiaries). The senior secured credit facility requires that we meet certain financial covenants, ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio. In addition, we are required to pay certain fees in connection with the senior secured credit facility, including letter of credit fees, agency fees and commitment fees. Commitment fees will be payable quarterly, initially at a rate per annum of 0.5 percent on the average daily unused portion of the revolving credit facility. The senior secured credit facility and senior subordinated notes contain certain cross-default provisions whereby a violation of a covenant under one debt obligation would, consequently, violate covenants under the other debt obligations. The variable rate on the senior secured credit facility is predominantly linked to the London Interbank Offered Rate ("LIBOR") as determined in three month intervals. To manage our exposure to changes in the LIBOR, we entered into an interest rate swap agreement on July 7, 2000. The interest rate provided by the swap agreement is fixed at 7.0 percent, in lieu of LIBOR. The swap agreement becomes effective on August 15, 2000 with a notional amount of $135.0 million, decreasing to $70.0 million quarterly over the next three years. The notional amount is used to measure the interest to be paid or received and does not represent the amount of exposure to loss. The senior subordinated notes were issued with detachable warrants and an original issuance discount, resulting in total discounts of $19.7 million. The detachable warrants were valued at $10.7 million and are exercisable through 2011. The value of the warrants has been included as a component of stockholders' deficit. If all the warrants were to be exercised, the holders would acquire shares (at a price of $0.01 per share) of our Class E common stock representing approximately 4.0 percent of the total number of shares (outstanding immediately after the recapitalization) of our common equity on a fully diluted basis. The entire discount is being amortized to interest expense through 2011. 4.Redeemable Preferred Stock In connection with the recapitalization, we issued redeemable, payment-in- kind preferred shares which have an initial liquidation preference of $60.0 million and are entitled to receive dividends at 14.0 percent per annum, compounded quarterly and payable either in cash or in additional shares of the same series of preferred stock. The redeemable preferred shares are subject to mandatory redemption by Jostens in May 2011. In connection with the redeemable preferred shares, the company ascribed $14.0 million of the proceeds to detachable warrants to purchase shares of our Class E common stock, which is reflected as a component of stockholders' deficit. The warrants have an exercise price of $0.01 per share and expire in 2011. In addition, $3.0 million of issuance costs have been netted against the initial proceeds and are reflected as a reduction to the carrying amount of the preferred stock. The carrying value of the preferred stock will be accreted to full liquidation preference value plus unpaid preferred stock dividends over the eleven year period of the redeemable preferred stock through charges to the accumulated deficit account. F-40 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) 5. Earnings Per Common Share Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common shareholders by the average number of common shares outstanding, including the dilutive effects of options, restricted stock and contingently issuable shares. Basic and diluted earnings per share were calculated using the following:
Six months ended ------------------ July 1, July 3, 2000 1999 ------ ------- (in thousands, except per- share data) Net income................................................. $7,029 $47,089 Dividends and accretion on redeemable preferred stock...... 1,243 -- ------ ------- Net income available to common shareholders................ $5,786 $47,089 ====== ======= Weighted average number of common shares outstanding-- basic..................................................... 25,043 34,488 Dilutive shares............................................ 273 (1) 102 ------ ------- Weighted average number of common shares outstanding-- diluted................................................... 25,316 34,590 ====== ======= Earnings per share--basic.................................. $ 0.23 $ 1.37 Earnings per share--diluted................................ $ 0.23 $ 1.36
(1) Options to purchase 503 shares were not included as their effect would have been antidilutive. F-41 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) 6. Special Charge During the fourth quarter of 1999, we recorded a special charge of $20.2 million. Cash outlays associated with the charge were $2.2 million in the first half of 2000. The components of the special charge and utilization in 1999 and the first half of 2000 are as follows:
Utilization --------------------------------- Six months Initial ended Balance accrual 1999 July 1, 2000 July 1, 2000 ------- ------- ------------ ------------ (in thousands) Employee termination benefits.... $ 4,910 $ -- $2,015 $2,895 Abandonment of internal use software under development...... 6,455 6,245 -- 210 Write-off of impaired goodwill related to retail class ring sales channel................... 4,560 4,560 -- -- Write-off of goodwill related to exiting the college alumni direct marketing business....... 3,086 3,086 -- -- Other costs related to exiting the college alumni direct marketing business.............. 1,183 270 210 703 ------- ------- ------ ------ $20,194 $14,161 $2,225 $3,808 ======= ======= ====== ======
We expect to complete restructuring activities and utilize the majority of remaining charge by the end of 2000. As a result of the special charge, the work force was reduced by about 100 personnel, primarily in corporate staff and executive functions and in our college alumni direct marketing business. 7. Inventories Inventories were comprised of the following:
July 1, July 3, 2000 1999 ------- ------- (in thousands) Raw material and supplies.................................. $18,765 $26,229 Work-in-process............................................ 28,178 27,089 Finished goods............................................. 19,376 24,465 ------- ------- Total inventories.......................................... $66,319 $77,783 ======= =======
F-42 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) 8. Comprehensive Income Comprehensive income and its components are as follows:
Six months ended ---------------------- July 1, July 3, 2000 1999 ---------------------- (in thousands) Net income............... $ 7,029 $ 47,089 Change in cumulative translation adjustment.. (662) 768 --------- -------- Comprehensive income..... $ 6,367 $ 47,857 ========= ======== 9. Supplier Concentration We purchase substantially all synthetic and semiprecious stones from a single supplier located in Germany, who is also a supplier to substantially all of the class ring manufacturers in the United States. 10.Revenue Recognition In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB101), which summarizes certain of the SEC's views regarding the application of generally accepted accounting principles to revenue recognition in financial statements. We are in the process of analyzing the requirements of SAB101 and are required to comply with its provisions by the fourth quarter of fiscal 2000. Management believes the ultimate outcome will not have a significant effect on our consolidated results of operations, financial position or liquidity. 11.Business Segments Financial information by reportable business segment is included in the following summary: Six months ended ---------------------- July 1, July 3, 2000 1999 ---------------------- (in thousands) Net Sales From External Customers School Products.......... $ 424,662 $408,923 Recognition.............. 45,568 53,536 Other.................... 6,157 7,060 --------- -------- Consolidated............. $ 476,387 $469,519 ========= ======== Operating Income School Products.......... $ 108,657 $100,942 Recognition.............. (76) 2,162 Other.................... (60,491)(1) (21,464) --------- -------- Consolidated............. 48,090 81,640 Net interest expense..... 14,804 (2) 2,498 --------- -------- Income before income taxes................... $ 33,286 $ 79,142 ========= ========
- -------- (1) The Other segment includes $45.7 million of transaction related costs as discussed in footnote 2 "Merger and Recapitalization." (2) Net interest expense increased due to higher debt levels resulting from the transaction as discussed in footnote 2, "Merger and Recapitalization." F-43 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) Capitalized deferred financing costs associated with obtaining financing for the transaction have been included in the Other segment's identifiable assets. 12. Income Taxes Income taxes for the six month periods ended July 1, 2000 were accrued at a rate of 41.5 percent (excluding effects of the non-deductible transaction costs) compared with 40.5 percent for the comparable periods in 1999. The year- to-date effective rate for July 1, 2000 was 78.9 percent and reflects the impact of non-deductible transaction related costs of approximately $30.0 million. 13. Condensed Consolidating Information Jostens' wholly-owned foreign subsidiaries are not co-borrowers under the new $645.0 million senior secured credit facility and do not guarantee $225.0 million aggregate principal amount of senior subordinated notes. As such, the information which follows presents the condensed consolidating financial position as of July 1, 2000 and July 3, 1999, and the condensed consolidating results of operations and cash flows for the six month periods ended July 1, 2000 and July 3, 1999 of (a) the parent company only ("Parent"), (b) the combined Non-Guarantors ("Non-Guarantors"), (c) eliminating entries and (d) Jostens, Inc. and Subsidiaries on a consolidated basis. Effective July 29, 2000, Jostens wholly-owned domestic subsidiary merged with and into Jostens and as a result, amounts and balances of this wholly-owned domestic subsidiary have been consolidated with the parent company. F-44 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Condensed Consolidating Balance Sheets As of July 1, 2000 ---------------------------------------------- Non- Parent guarantors Eliminations Consolidated -------- ---------- ------------ ------------ (in thousands) ASSETS ------ Current assets Cash and cash equivalents...... $ 19,200 $16,675 $ -- $ 35,875 Accounts receivable, net of al- lowance....................... 120,597 4,908 -- 125,505 Inventories.................... 62,684 3,635 -- 66,319 Deferred income taxes.......... 17,400 -- -- 17,400 Salespersons overdrafts, net of allowance..................... 6,822 4,286 -- 11,108 Prepaid expenses and other cur- rent assets................... 5,230 362 -- 5,592 -------- ------- -------- -------- Total current assets......... 231,933 29,866 -- 261,799 Other Assets Intercompany accounts.......... 4,712 (4,712) -- -- Intangibles, net............... 13,626 4,683 -- 18,309 Deferred financing costs, net.. 35,606 -- -- 35,606 Other.......................... 43,438 218 (17,726) 25,930 -------- ------- -------- -------- Total other assets........... 97,382 189 (17,726) 79,845 Property and equipment, net.... 75,571 3,247 -- 78,818 -------- ------- -------- -------- $404,886 $33,302 $(17,726) 420,462 ======== ======= ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT) -------------------------------------------------- Current liabilities Accounts payable............... $ 17,688 $ 1,291 $ -- $ 18,979 Accrued employee compensation and related taxes............. 24,694 980 -- 25,674 Commissions payable............ 51,762 1,648 -- 53,410 Customer deposits.............. 52,213 3,064 -- 55,277 Income taxes payable........... 34,688 (71) -- 34,617 Current portion of long-term debt.......................... 5,500 -- -- 5,500 Other accrued liabilities...... 35,856 315 -- 36,171 -------- ------- -------- -------- Total current liabilities.... 222,401 7,227 -- 229,628 Long-term debt, net of current maturities.................... 694,797 -- -- 694,797 Other noncurrent liabilities... 8,215 -- -- 8,215 -------- ------- -------- -------- Total liabilities.............. 925,413 7,227 -- 932,640 Commitments and contingencies.. -- -- -- -- Redeemable Preferred Stock..... 44,243 -- -- 44,243 Shareholders' investment (defi- cit).......................... (564,770) 26,075 (17,726) (556,421) -------- ------- -------- -------- $404,886 $33,302 $(17,726) 420,462 ======== ======= ======== ========
F-45 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Condensed Consolidating Balance Sheets As of July 3, 1999 --------------------------------------------- Non- Parent guarantors Eliminations Consolidated -------- ---------- ------------ ------------ (in thousands) ASSETS Current assets Cash and cash equivalents....... $ 614 $ 7,791 $ -- $ 8,405 Accounts receivable, net of allowance...................... 124,011 5,368 -- 129,379 Inventories..................... 73,408 4,375 -- 77,783 Deferred income taxes........... 14,682 -- 14,682 Salespersons overdrafts, net of allowance...................... 6,993 4,941 -- 11,934 Prepaid expenses and other current assets................. 4,142 240 -- 4,382 -------- ------- --------- -------- Total current assets.......... 223,850 22,715 -- 246,565 Other Assets Intercompany accounts........... 3,376 (3,376) -- -- Intangibles, net................ 22,483 5,155 -- 27,638 Other........................... 31,258 62 (17,157) 14,163 -------- ------- --------- -------- Total other assets............ 57,117 1,841 (17,157) 41,801 Property and equipment, net..... 85,306 3,765 -- 89,071 -------- ------- --------- -------- $366,273 $28,321 $ (17,157) $377,437 ======== ======= ========= ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT) Current liabilities Short-term borrowings........... $ 93,690 $ -- $ -- $ 93,690 Accounts payable................ 15,080 922 -- 16,002 Accrued employee compensation and related taxes.............. 21,846 1,314 -- 23,160 Commissions payable............. 50,385 1,256 -- 51,641 Customer deposits............... 50,657 2,919 -- 53,576 Income taxes payable............ 31,409 (456) -- 30,953 Other accrued liabilities....... 20,720 372 -- 21,092 -------- ------- --------- -------- Total current liabilities..... 283,787 6,327 -- 290,114 Long-term debt, net of current maturities..................... 3,600 3,600 Other noncurrent liabilities.... 15,698 -- -- 15,698 -------- ------- --------- -------- Total liabilities............. 303,085 6,327 -- 309,412 Commitments and contingencies... -- -- -- Shareholders' investment (deficit)...................... 63,188 21,994 (17,157) 68,025 -------- ------- --------- -------- $366,273 $28,321 $ (17,157) $377,437 ======== ======= ========= ========
F-46 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Condensed Consolidating Statements of Operations for The Six Months Ended July 1, 2000 --------------------------------- Non- Parent guarantors Consolidated -------- ---------- ------------ (in thousands) Net sales..................................... $452,724 $23,663 $476,387 Cost of products sold......................... 191,133 10,654 201,787 -------- ------- -------- Gross profit................................ 261,591 13,009 274,600 Selling and administrative expenses........... 170,451 10,348 180,799 Transaction costs............................. 45,711 -- 45,711 -------- ------- -------- Operating income.............................. 45,429 2,661 48,090 Interest income............................... (247) (241) (488) Interest expense.............................. 15,251 41 15,292 -------- ------- -------- Income before income taxes.................. 30,425 2,861 33,286 Income taxes.................................. 24,957 1,300 26,257 -------- ------- -------- Net income.................................... $ 5,468 $ 1,561 $ 7,029 ======== ======= ========
Condensed Consolidating Statements of Operations for The Six Months Ended July 3, 1999 --------------------------------- Non- Parent guarantors Consolidated -------- ---------- ------------ (in thousands) Net sales..................................... $449,831 $19,688 $469,519 Cost of products sold......................... 200,747 8,496 209,243 -------- ------- -------- Gross profit.................................. 249,084 11,192 260,276 Selling and administrative expenses........... 169,578 9,058 178,636 -------- ------- -------- Operating income.............................. 79,506 2,134 81,640 Interest income............................... (104) (97) (201) Interest expense.............................. 2,659 40 2,699 -------- ------- -------- Income before income taxes.................. 76,951 2,191 79,142 Income taxes.................................. 31,178 875 32,053 -------- ------- -------- Net income.................................... $ 45,773 $ 1,316 $ 47,089 ======== ======= ========
F-47 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Condensed Consolidating Statements of Cash Flows for The Six Months Ended July 1, 2000 --------------------------------- Non- Parent guarantors Consolidated -------- ---------- ------------ (in thousands) Operating activities Net income.................................. $ 5,468 $ 1,561 $ 7,029 Depreciation................................ 12,061 623 12,684 Amortization of debt discount and deferred financing costs............................ 1,011 -- 1,011 Amortization of goodwill.................... 314 222 536 Changes in operating assets and liabilities Accounts receivable....................... (18,085) 218 (17,867) Inventories............................... 21,890 (370) 21,520 Salespersons overdrafts................... 12,692 2,394 15,086 Prepaid expenses and other current assets................................... 3,227 (98) 3,129 Intercompany accounts..................... (3,616) 3,616 -- Accounts payable.......................... (9,575) (719) (10,294) Accrued employee compensation and related taxes.................................... (3,659) (145) (3,804) Commissions payable....................... 28,391 (1,115) 27,276 Customer deposits......................... (57,738) 57 (57,681) Income taxes payable...................... 17,714 (320) 17,394 Other..................................... (1,819) (1,058) (2,877) -------- ------- -------- Net cash provided by operating activities............................. 8,276 4,866 13,142 -------- ------- -------- Investing activities Purchases of property and equipment......... (7,150) -- (7,150) Equity investments.......................... (1,103) -- (1,103) Other....................................... 499 (104) 395 -------- ------- -------- Net cash used for investing activities.. (7,754) (104) (7,858) -------- ------- -------- Financing activities Net short-term borrowings (repayments)...... (111,976) -- (111,976) Repurchases of common stock................. (823,630) -- (823,630) Principal payments on long-term debt........ (3,600) -- (3,600) Proceeds from issuance of long-term debt.... 700,139 -- 700,139 Proceeds from issuance of common shares..... 208,693 -- 208,693 Net proceeds from the issuance of preferred stock...................................... 43,000 -- 43,000 Proceeds from the issuance of warrants to purchase common shares..................... 24,733 -- 24,733 Dividends paid to common shareholders....... (7,331) -- (7,331) Proceeds from exercise of stock options..... 555 -- 555 Issuance of officer note receivable......... (2,050) -- (2,050) Debt acquisition costs...................... (36,459) -- (36,459) -------- ------- -------- Net cash used for financing activities.. (7,926) -- (7,926) -------- ------- -------- Change in cash and cash equivalents......... (7,404) 4,762 (2,642) Cash and cash equivalents, beginning of period..................................... 26,604 11,913 38,517 -------- ------- -------- Cash and cash equivalents, end of period.... $ 19,200 $16,675 $ 35,875 ======== ======= ======== Supplemental information Income taxes paid........................... $ 7,135 $ 1,628 $ 8,763 Interest paid............................... $ 6,726 $ 41 $ 6,767
F-48 JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Condensed Consolidating Statements of Cash Flows for The Six Months Ended July 3, 1999 --------------------------------- Non- Parent guarantors Consolidated -------- ---------- ------------ (in thousands) Operating activities Net income.................................. $ 45,773 $ 1,316 $ 47,089 Depreciation................................ 11,072 591 11,663 Amortization of debt discount and deferred financing costs............................ 6 -- 6 Amortization of goodwill.................... 928 197 1,125 Changes in operating assets and liabilities Accounts receivable....................... (23,232) 200 (23,032) Inventories............................... 13,820 (1,109) 12,711 Salespersons overdrafts................... 8,693 62 8,755 Prepaid expenses and other current assets................................... 1,469 (114) 1,355 Intercompany accounts..................... (4,393) 4,393 -- Accounts payable.......................... (1,373) (1,124) (2,497) Accrued employee compensation and related taxes.................................... (4,373) (27) (4,400) Commissions payable....................... 29,133 377 29,510 Customer deposits......................... (38,977) 461 (38,516) Income taxes payable...................... 27,067 (827) 26,240 Other..................................... (2,793) 78 (2,715) -------- ------- -------- Net cash provided by operating activities............................. 62,820 4,474 67,294 -------- ------- -------- Investing activities Purchases of property and equipment......... (12,963) (376) (13,339) Equity investments.......................... (5,000) -- (5,000) Other....................................... 721 (67) 654 -------- ------- -------- Net cash used for investing activities.. (17,242) (443) (17,685) -------- ------- -------- Financing activities Net short-term borrowings (repayments)...... (5,415) -- (5,415) Repurchases of common stock................. (25,007) -- (25,007) Dividends paid to common shareholders....... (15,231) -- (15,231) Proceeds from exercise of stock options..... 1,854 -- 1,854 -------- ------- -------- Net cash used for financing activities.. (43,799) -- (43,799) -------- ------- -------- Change in cash and cash equivalents......... 1,779 4,031 5,810 Cash and cash equivalents, beginning of period..................................... (1,165) 3,760 2,595 -------- ------- -------- Cash and cash equivalents, end of period.... $ 614 $ 7,791 $ 8,405 ======== ======= ======== Supplemental information Income taxes paid........................... $ 3,273 $ 1,716 $ 4,989 Interest paid............................... $ 2,936 $ 40 $ 2,976
F-49 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Until [ ], all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ----------- TABLE OF CONTENTS
Page ---- Where You Can Find More Information...................................... i Prospectus Summary....................................................... 1 Risk Factors............................................................. 14 The Exchange Offer....................................................... 21 Use of Proceeds.......................................................... 30 Capitalization........................................................... 30 Unaudited Pro Forma Condensed Consolidated Financial Statements.......... 31 Selected Consolidated Historical Financial Data.......................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 38 Business................................................................. 52 Management............................................................... 62 Security Ownership of Certain Beneficial Owners and Management........... 71 Certain Relationships and Related Transactions........................... 73 The Recapitalization..................................................... 74 Description of Capital Stock............................................. 76 Description of the Credit Facility....................................... 81 Description of the Units................................................. 84 Description of the Notes................................................. 84 Description of the Warrants.............................................. 126 Certain United States Federal Tax Consequences........................... 127 Book-Entry; Delivery and Form............................................ 132 Plan of Distribution..................................................... 134 Legal Matters............................................................ 134 Experts.................................................................. 134 Index to Consolidated Financial Statements............................... F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PROSPECTUS - ------------------------------------------------------------------------------- [LOGO OF JOSTENS] Exchange Offer for All Outstanding 12 3/4% Senior Subordinated Notes due 2010 for New 12 3/4% Senior Subordinated Notes due 2010 , 2000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers Indemnification under the Minnesota Business Corporation Act and Josten's Articles of Incorporation and By-laws Unless stated otherwise in the articles of incorporation or by-laws, Section 302A.521 of the Minnesota Business Corporation Act (the "MBCA") requires a Minnesota corporation to indemnify a person made a party to a proceeding by reason of his or her former or present official capacity with the corporation, against judgments, penalties, fines, including without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorney's fees and disbursements, incurred by the person in connection with the proceeding, if, with respect to the acts or omissions of the person complained of in the proceeding, the person: . has not been indemnified by another organization or employee benefit plan for the same liabilities in connection with the same proceedings; . acted in good faith; . received no improper benefit; . in the case of a criminal proceeding, had no reason to believe the conduct was unlawful; and . in the case of acts or omissions occurring in such person's official capacity as a director, officer or employee, the person reasonably believed that the conduct was in the best interests of the corporation, or at least not opposed to the best interests of the corporation depending on the capacity in which that person is serving. Jostens' articles of incorporation and bylaws provide that Jostens shall indemnify all directors and officers for such expenses and liabilities, in such manner, under such circumstances, and to the extent permitted by law. Advances of Expenses The MBCA states that a person made or threatened to be made a party to a proceeding (as described above), is entitled, upon written request to the corporation, to payment or reimbursement by the corporation of reasonable expenses, including attorney's fees and disbursements, incurred by the person in advance of the final disposition of the proceeding, (1) upon receipt by the corporation of a written affirmation by the person of a good faith belief that the criteria for indemnification set forth in MBCA 302A.521 have been satisfied and a written undertaking by the person to repay all amounts so paid or reimbursed by the corporation, if it is ultimately determined that such criteria for indemnification have not been satisfied and (2) if, after a determination of the facts then known to those making the determination, such facts would not preclude indemnification under the statute. The applicability of this provision may be limited by a corporation's articles of incorporation or bylaws, however, Jostens' Articles and bylaws are silent with regard to the advancement of expenses. Limitation on Liability of Directors Jostens' articles of incorporation state that no director shall be personally liable to Jostens or its shareholders for monetary damages for breach of fiduciary duty as a director, except as otherwise required by law. While these provisions provide directors with protection from awards for monetary damages for breaches of their duty of care, they do not eliminate such duty. Accordingly, these provisions will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. Furthermore, the MBCA provides that the articles of incorporation of a corporation cannot eliminate or limit director's liability for: . any breach of the director's duty of loyalty to the corporation or shareholders; II-1 . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . any transaction from which the director derived an improper personal benefit; or . any act or omission occurring prior to the date when the provision in the articles eliminating or limiting liability became effective. Insurance As is permitted by the MBCA, Jostens' articles of incorporation and by-laws provide that Jostens may purchase and maintain insurance, at its expense, to protect itself and any director, officer, or employee of Jostens acting in his or her official capacity against any expense, liability or loss, whether or not Jostens would be required or permitted to indemnify such person against such expense, liability or loss. Indemnification under the Merger Agreement Pursuant to the merger agreement, for six years after the closing date of the merger, Jostens will indemnify and hold harmless our present and former officers and directors for acts or omissions occurring before the completion of the merger to the extent provided under our articles of incorporation and by- laws in effect on the date of the merger agreement. In addition, all indemnification agreements with any current or former directors, officers and employees of Jostens or any subsidiary will survive the merger and terminate as provided in such agreements. For six years after the completion of the merger, Jostens will provide officers' and directors' or fiduciary liability insurance for acts or omissions occurring before the completion of the merger covering each such person currently covered by our officers' and directors' or fiduciary liability insurance policy on terms with respect to coverage and amount no less favorable than those in effect on the date of the merger agreement, provided, that the cost of such insurance does not exceed 200% of the most recent annual premium paid by us. Item 21. Exhibits and Financial Statement Schedules (a) See the Exhibit Index at page II-4 to this Form S-4 for the list of exhibits, which is incorporated herein by reference. (b) Financial Statement Schedules Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Item 22. Undertakings (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-2 (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 EXHIBIT INDEX The following exhibits are filed with this registration statement or are incorporated by reference to previously filed material.
Exhibit Description of Exhibit ------- ---------------------- (a) 2.1 -- Agreement and Plan of Merger, dated as of December 27, 1999, by and between Jostens, Inc. and Saturn Acquisition Corporation, incorporated by reference to Appendix A to the Proxy Statement/Prospectus which is a part of Jostens' registration statement on Form S-4 filed April 7, 2000. 2.2 -- First Amendment to the Agreement and Plan of Merger, dated as of March 31, 2000, by and between Jostens, Inc. and Saturn Acquisition Corporation, incorporated by reference to Appendix A to the Proxy Statement/Prospectus which is a part of Jostens' registration statement on Form S-4 filed April 7, 2000. 3.1 -- Form of Amended and Restated Articles of Incorporation of Jostens, Inc., incorporated by reference to Appendix D to the Proxy Statement/Prospectus which is a part of Jostens' registration statement on Form S-4 filed April 7, 2000. *3.2 -- By-Laws of Jostens, Inc. 4.1 -- Indenture, dated as of May 10, 2000, including therein the form of Note, between Jostens, Inc. and The Bank of New York, as Trustee, providing for 12 3/4% Senior Subordinated Notes due 2010. Incorporated by reference to Exhibit 4.1 to Jostens' Form 8-K filed on May 25, 2000. 4.2 -- Registration Rights Agreement, dated as of May 10, 2000, between Jostens, Inc. and American Yearbook Company, Inc. as Issuers, and Deutsche Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs & Co. as Initial Purchasers. Incorporated by reference to Exhibit 4.2 to Jostens' Form 8-K filed on May 25, 2000. 4.3 -- Purchase Agreement dated May 5, 2000, for 225,000 Units Consisting of $225,000,000 12 3/4% Senior Subordinated Notes due 2010 and Warrants to Purchase 425,060 Shares of Class E Common Stock, between Jostens, Inc. and American Yearbook Company, and Deutsche Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs & Co. Incorporated by reference to Exhibit 4.6 to Jostens' Form 8-K filed on May 25, 2000. *4.4 -- Form of Exchange Note *5.1 -- Opinion of William J. George, Esq., regarding the legality of the exchange notes being issued by Jostens. 10.1 -- Certificate of Designation, effective May 10, 2000, of the Powers, Preferences and Rights of the 14% Senior Redeemable Payment-In- Kind Preferred Stock, and Qualifications, Limitations and Restrictions Thereof. Incorporated by reference to Exhibit 4.3 to Jostens' Form 8-K filed on May 25, 2000. *10.2 -- Warrant Agreement, dated May 10, 2000, including therein the form of Warrant, between Jostens, Inc. and The Bank of New York, as Warrant Agent. 10.3 -- Warrant Registration Rights Agreement, dated May 10, 2000, between Jostens, Inc. and Deutsche Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs & Co. Incorporated by reference to Exhibit 4.5 to Jostens' Form 8-K filed on May 25, 2000. 10.4 -- Purchase Agreement, dated May 10, 2000, for 14% Senior Redeemable Payment In Kind Preferred Stock with Warrants to Purchase Shares of Class E Common Stock, between Jostens, Inc. and DB Capital Investors, L.P. Incorporated by reference to Exhibit 4.6 to Jostens' Form 8-K filed on May 25, 2000.
II-4
Exhibit Description of Exhibit ------- ---------------------- *10.5 -- Warrant Agreement, dated May 10, 2000, including therein the form of Warrant, between Jostens, Inc. and The Bank of New York, as Warrant Agent. 10.6 -- Preferred Stock Registration Rights Agreement, dated May 10, 2000, between Jostens, Inc. and DB Capital Investors, L.P. Incorporated by reference to Exhibit 4.8 to Jostens' Form 8-K filed on May 25, 2000. 10.7 -- Shareholder Agreement, dated May 10, 2000, between Jostens, Inc., and DB Capital Investors, L.P. and Certain Other Holders of Stock of Jostens, Inc. Incorporated by reference to Exhibit 4.9 to Jostens' Form 8-K filed on May 25, 2000. 10.8 -- Shareholder Agreement, dated May 10, 2000, between Jostens, Inc., and First Union Leveraged Capital, LLC and Certain Other Holders of Stock of Jostens, Inc. Incorporated by reference to Exhibit 4.10 to Jostens' Form 8-K filed on May 25, 2000. 10.9 -- Common Equity Registration Rights Agreement, dated May 10, 2000, between Jostens, Inc., and Certain Holders as Defined Therein. Incorporated by reference to Exhibit 4.11 to Jostens' Form 8-K filed on May 25, 2000. *10.10 -- Management Shareholder Agreement, dated as of May 10, 2000, between Jostens, Inc. and Robert Buhrmaster. *10.11 -- Management Shareholder Agreement, dated as of May 10, 2000, between Jostens, Inc. and William Priesmeyer. *10.12 -- Management Shareholder Agreement, dated as of May 10, 2000, between Jostens, Inc. and Carl Blowers. *10.13 -- Management Shareholder Agreement, dated as of May 10, 2000, between Jostens, Inc. and Michael Bailey. *10.14 -- Management Shareholder Agreement, dated as of May 10, 2000, between Jostens, Inc. and Gregory Lea. *10.15 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens, Inc. and William Priesmeyer. *10.16 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens, Inc. and Carl Blowers. *10.17 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens, Inc. and Michael Bailey. *10.18 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens, Inc. and Gregory Lea. *10.19 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens, Inc. and Robert Buhrmaster. *10.20 -- Loan and Pledge Agreement, dated as of May 10, 2000, between Jostens, Inc. and Robert Buhrmaster, together with form of proxy and promissory note. *10.21 -- Loan and Pledge Agreement, dated as of May 10, 2000, between Jostens, Inc. and William Priesmeyer, together with form of proxy and promissory note. *10.22 -- Loan and Pledge Agreement, dated as of May 10, 2000, between Jostens, Inc. and Michael Bailey, together with form of proxy and promissory note. *10.23 -- Loan and Pledge Agreement, dated as of May 10, 2000, between Jostens, Inc. and Gregory Lea, together with form of proxy and promissory note. *10.24 -- Management Stock Incentive Plan established by Jostens, Inc. dated as of May 10, 2000. *10.25 -- Jostens, Inc. 2000 Stock Loan Plan. *10.26 -- Management Shareholder Bonus Plan established by Credit Agreement *10.27 -- Credit Agreement, dated as of May 10, 2000, between Jostens, Inc. and Chase Securities Inc., Deutsche Bank Securities Inc., and Goldman Sachs Credit Partners L.P., as Co-Lead Arrangers, Bankers Trust Company, as Syndication Agent, Goldman Sachs Credit Partners L.P., as Documentation Agent, and The Chase Manhattan Bank, as Administrative Agent. 10.28 -- Separation Agreement, dated as of August 13, 1999, between Jostens, Inc. and John Mann. Incorporated by reference to Exhibit 10.14 contained in Josten's Report on Form 10-K filed on March 10, 2000.
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Exhibit Description of Exhibit ------- ---------------------- *12.1 -- Computation of Ratio of Earnings to Fixed Charges *21.1 -- Subsidiaries of Jostens *23.1 -- Consent of Independent Auditors--Ernst & Young LLP *23.2 -- Consent of William J. George, Esq. (included in Exhibit 5.1) *24.1 -- Powers of Attorney (included on signature page) *25.1 -- Statement of Eligibility of Trustee under Trust Indenture Act of 1939 on Form T-1 *99.1 -- Form of Letter of Transmittal *99.2 -- Form of Notice of Guaranteed Delivery *(b) Schedule II--Valuation and Qualifying Accounts (c) Not applicable.
- -------- * Filed herewith. II-6 EX-3.2 2 0002.txt BY-LAWS OF JOSTENS, INC. EXHIBIT 3.2 BY-LAWS of JOSTENS, INC. TABLE OF CONTENTS SHAREHOLDERS................................................................. 1 Section 1.01 Place of Meetings............................................. 1 Section 1.02 Regular Meetings.............................................. 1 Section 1.03 Special Meetings.............................................. 1 Section 1.04 Meetings Held Upon Shareholder Demand......................... 1 Section 1.05 Adjournments.................................................. 2 Section 1.06 Notice of Meetings............................................ 2 Section 1.07 Waiver of Notice.............................................. 2 Section 1.08 Voting Rights................................................. 2 Section 1.09 Proxies....................................................... 2 Section 1.10 Quorum........................................................ 3 Section 1.11 Acts of Shareholders.......................................... 3 Section 1.12 Action Without a Meeting...................................... 3 DIRECTORS.................................................................... 3 Section 2.01 Number; Qualifications........................................ 3 Section 2.02 Term.......................................................... 3 Section 2.03 Vacancies..................................................... 4 Section 2.04 Place of Meetings............................................. 4 Section 2.05 Regular Meetings.............................................. 4 Section 2.06 Special Meetings.............................................. 4 Section 2.07 Waiver of Notice; Previously Scheduled Meetings............... 4 Section 2.08 Quorum........................................................ 4 Section 2.09 Acts of Board................................................. 5 Section 2.10 Participation by Electronic Communications.................... 5 Section 2.11 Absent Directors.............................................. 5 Section 2.12 Action Without a Meeting...................................... 5 Section 2.13 Committees.................................................... 5 Section 2.14 Special Litigation Committee.................................. 6 Section 2.15 Compensation.................................................. 6 OFFICERS..................................................................... 6 Section 3.01 Number and Designation........................................ 6 Section 3.02 Chief Executive Officer....................................... 6 Section 3.03 Chief Financial Officer....................................... 6 Section 3.04 President..................................................... 7
i Section 3.05 Vice Presidents.............................................. 7 Section 3.06 Secretary.................................................... 7 Section 3.07 Treasurer.................................................... 7 Section 3.08 Authority and Duties......................................... 7 Section 3.09 Term......................................................... 8 Section 3.10 Salaries..................................................... 8 INDEMNIFICATION............................................................. 8 Section 4.01 Indemnification.............................................. 8 Section 4.02 Insurance.................................................... 8 SHARES...................................................................... 8 Section 5.01 Certificated and Uncertificated Shares....................... 8 Section 5.02 Declaration of Dividends and Other Distributions............. 9 Section 5.03 Transfer of Shares........................................... 9 Section 5.04 Record Date.................................................. 9 MISCELLANEOUS............................................................... 9 Section 6.01 Execution of Instruments..................................... 9 Section 6.02 Advances..................................................... 10 Section 6.03 Corporate Seal............................................... 10 Section 6.04 Fiscal Year.................................................. 10 Section 6.05 Amendments................................................... 10
This Table of Contents is not part of the By-Laws of the Corporation. It is intended merely to aid in the utilization of the By-Laws. ii BY-LAWS of JOSTENS, INC. SHAREHOLDERS ------------ Section 1.01 Place of Meetings. Each meeting of the shareholders ------------ ----------------- shall be held at the principal executive office of the Corporation or at such other place as may be designated by the Board of Directors or the Chief Executive Officer; provided, however, that any meeting called by or at the demand of a shareholder or shareholders shall be held in the county where the principal executive office of the Corporation is located. Section 1.02 Regular Meetings. Regular meetings of the shareholders ------------ ---------------- may be held on an annual or other less frequent basis as determined by the Board of Directors; provided, however, that if a regular meeting has not been held during the immediately preceding 15 months, a shareholder or shareholders holding three percent or more of the voting power of all shares entitled to vote may demand a regular meeting of shareholders by written demand given to the Chief Executive Officer or Chief Financial Officer of the Corporation. At each regular meeting the shareholders shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and may transact any other business, provided, however, that no business with respect to which special notice is required by law shall be transacted unless such notice shall have been given. Section 1.03 Special Meetings. A special meeting of the ------------ ---------------- shareholders may be called for any purpose or purposes at any time by the Chief Executive Officer; by the Chief Financial Officer; by the Board of Directors or any two or more members thereof; or by one or more shareholders holding not less than ten percent of the voting power of all shares of the Corporation entitled to vote (except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the composition of the Board for that purpose, must be called by shareholders holding not less than 25 percent of the voting power of all shares of the Corporation entitled to vote), who shall demand such special meeting by written notice given to the Chief Executive Officer or the Chief Financial Officer of the Corporation specifying the purposes of such meeting. Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days ------------ ------------------------------------- after receipt of a demand by the Chief Executive Officer or the Chief Financial Officer from any shareholder or shareholders entitled to call a meeting of the shareholders, it shall be the duty of the Board of Directors of the Corporation to cause a special or regular meeting of shareholders, as the case may be, to be duly called and held on notice no later than 90 days after receipt of such demand. If the Board fails to cause such a meeting to be called and held as required by this Section, the shareholder or shareholders making the demand may call the meeting by giving notice as provided in Section 1.06 hereof at the expense of the Corporation. Section 1.05 Adjournments. Any meeting of the shareholders may be ------------ ------------ adjourned from time to time to another date, time and place. If any meeting of the shareholders is so adjourned, no notice as to such adjourned meeting need be given if the adjourned meeting is to be held not more than 120 days after the date fixed for the original meeting and the date, time and place at which the meeting will be reconvened are announced at the time of adjournment. Section 1.06 Notice of Meetings. Unless otherwise required by law, ------------ ------------------ written notice of each meeting of the shareholders, stating the date, time and place and, in the case of a special meeting, the purpose or purposes, shall be given at least ten days and not more than 60 days prior to the meeting to every holder of shares entitled to vote at such meeting except as specified in Section 1.05 or as otherwise permitted by law. The business transacted at a special meeting of shareholders is limited to the purposes stated in the notice of the meeting. Section 1.07 Waiver of Notice. A shareholder may waive notice of ------------ ---------------- the date, time, place and purpose or purposes of a meeting of shareholders. A waiver of notice by a shareholder entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a shareholder at a meeting is a waiver of notice of that meeting, unless the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. Section 1.08 Voting Rights. Subdivision 1. Except or otherwise ------------ ------------- provided in the Articles of Incorporation, a shareholder shall have one vote for each share held which is entitled to vote. Except as otherwise required by law, a holder of shares entitled to vote may vote any portion of the shares in any way the shareholder chooses. If a shareholder votes without designating the proportion or number of shares voted in a particular way, the shareholder is deemed to have voted all of the shares in that way. Subdivision 2. The Board of Directors may fix, or authorize an officer to fix, a date not more than 60 days before the date of a meeting of shareholders as the date for the determination of the holders of shares entitled to notice of and entitled to vote at the meeting. When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders. Section 1.09 Proxies. A shareholder may cast or authorize the ------------ ------- casting of a vote by filing a written appointment of a proxy, signed by the shareholder, with an officer of the Corporation at or before the meeting at which the appointment is to be effective. In addition, as long as the Corporation is a publicly-held corporation, a shareholder may cast or authorize the 2 written appointment by telegram, cablegram or other means of electronic transmission, including telephonic transmission, whether or not accompanied by written instructions of the shareholder. The electronic transmission must set forth or be submitted with information from which it can be determined that the appointment was authorized by the shareholder. Any copy, facsimile, telecommunication or other reproduction of the original of either the writing or transmission may be used in lieu of the original, provided that it is a complete and legible reproduction of the entire original. Section 1.10 Quorum. The holders of a majority of the voting power ------------ ------ of the shares entitled to vote at a shareholders meeting are a quorum for the transaction of business. If a quorum is present when a duly called or held meeting is convened, the shareholders present may continue to transact business until adjournment, even though the withdrawal of a number of the shareholders originally present leaves less than the proportion or number otherwise required for a quorum. Section 1.11 Acts of Shareholders. Subdivision 1. Except as ------------ -------------------- otherwise required by law or specified in the Articles of Incorporation of the Corporation, the shareholders shall take action by the affirmative vote of the holders of the greater of (a) a majority of the voting power of the shares present and entitled to vote on that item of business or (b) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at a duly held meeting of shareholders. Subdivision 2. A shareholder voting by proxy authorized to vote on less than all items of business considered at the meeting shall be considered to be present and entitled to vote only with respect to those items of business for which the proxy has authority to vote. A proxy who is given authority by a shareholder who abstains with respect to an item of business shall be considered to have authority to vote on that item of business. Section 1.12 Action Without a Meeting. Any action required or ------------ ------------------------ permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by written action signed by all of the shareholders entitled to vote on that action. The written action is effective when it has been signed by all of those shareholders, unless a different effective time is provided in the written action. DIRECTORS --------- Section 2.01 Number; Qualifications. Except as authorized by the ------------ ---------------------- shareholders pursuant to a shareholder control agreement or unanimous affirmative vote, the business and affairs of the Corporation shall be managed by or under the direction of a Board of one or more directors. Directors shall be natural persons. The number of directors to constitute the Board shall be determined from time to time by resolution of the Board. Directors need not be shareholders. Section 2.02 Term. Each director shall serve for an indefinite term ------------ ---- that expires at the next regular meeting of the shareholders. A director shall hold office until a successor is 3 elected and has qualified or until the earlier death, resignation, removal or disqualification of the director. Section 2.03 Vacancies. Vacancies on the Board of Directors ------------ --------- resulting from the death, resignation, removal or disqualification of a director may be filled by the affirmative vote of a majority of the remaining members of the Board, though less than a quorum. Vacancies on the Board resulting from newly created directorships may be filled by the affirmative vote of a majority of the directors serving at the time such directorships are created. Each person elected to fill a vacancy shall hold office until a qualified successor is elected by the shareholders at the next regular meeting or at any special meeting duly called for that purpose. Section 2.04 Place of Meetings. Each meeting of the Board of ------------ ----------------- Directors shall be held at the principal executive office of the Corporation or at such other place as may be designated from time to time by a majority of the members of the Board or by the Chief Executive Officer. A meeting may be held by conference among the directors using any means of communication through which the directors may simultaneously hear each other during the conference. Section 2.05 Regular Meetings. Regular meetings of the Board of ------------ ---------------- Directors for the election of officers and the transaction of any other business shall be held without notice at the place of and immediately after each regular meeting of the shareholders. Section 2.06 Special Meetings. A special meeting of the Board of ------------ ---------------- Directors may be called for any purpose or purposes at any time by any member of the Board by giving not less than two days' notice to all directors of the date, time and place of the meeting, provided that when notice is mailed, at least four days' notice shall be given. The notice need not state the purpose of the meeting. Section 2.07 Waiver of Notice; Previously Scheduled Meetings. ------------ ----------------------------------------------- Subdivision 1. A director of the Corporation may waive notice of the date, time and place of a meeting of the Board. A waiver of notice by a director entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, unless the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting. Subdivision 2. If the day or date, time and place of a Board meeting have been provided herein or announced at a previous meeting of the Board, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken of the date, time and place at which the meeting will be reconvened. Section 2.08 Quorum. The presence in person of a majority of the ------------ ------ directors currently holding office shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when 4 a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of the directors originally present leaves less than the proportion or number otherwise required for a quorum. Section 2.09 Acts of Board. Except as otherwise required by law or ------------ ------------- specified in the Articles of Incorporation of the Corporation, the Board shall take action by the affirmative vote of the greater of (a) a majority of the directors present at a duly held meeting at the time the action is taken or (b) a majority of the minimum proportion or number of directors that would constitute a quorum for the transaction of business at the meeting. Section 2.10 Participation by Electronic Communications. A director ------------ ------------------------------------------ may participate in a Board meeting by any means of communication through which the director, other directors so participating and all directors physically present at the meeting may simultaneously hear each other during the meeting. A director so participating shall be deemed present in person at the meeting. Section 2.11 Absent Directors. A director of the Corporation may ------------ ---------------- give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as the vote of a director present at the meeting in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 2.12 Action Without a Meeting. An action required or ------------ ------------------------ permitted to be taken at a Board meeting may be taken without a meeting by written action signed by all of the directors. Any action, other than an action requiring shareholder approval, if the Articles of Incorporation so provide, may be taken by written action signed by the number of directors that would be required to take the same action at a meeting of the Board at which all directors were present. The written action is effective when signed by the required number of directors, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all directors, all directors shall be notified immediately of its text and effective date. Section 2.13 Committees. Subdivision 1. A resolution approved by ------------ ---------- the affirmative vote of a majority of the Board may establish committees having the authority of the Board in the management of the business of the Corporation only to the extent provided in the resolution. Committees shall be subject at all times to the direction and control of the Board, except as provided in Section 2.14 or otherwise provided by law. Subdivision 2. A committee shall consist of one or more natural persons, who need not be directors, appointed by affirmative vote of a majority of the directors present at a duly held Board meeting. 5 Subdivision 3. Section 2.04 and Sections 2.06 to 2.12 hereof shall apply to committees and members of committees to the same extent as those sections apply to the Board and directors. Subdivision 4. Minutes, if any, of committee meetings shall be made available upon request to members of the committee and to any director. Section 2.14 Special Litigation Committee. Pursuant to the ------------ ---------------------------- procedure set forth in Section 2.13, the Board may establish a committee composed of one or more independent directors or other independent persons to determine whether it is in the best interests of the Corporation to consider legal rights or remedies of the Corporation and whether those rights and remedies should be pursued. The committee, once established, is not subject to the direction or control of, or (unless required by law) termination by, the Board. To the extent permitted by law, a vacancy on the committee may be filled by a majority vote of the remaining committee members. The good faith determinations of the committee are binding upon the Corporation and its directors, officers and shareholders to the extent permitted by law. The committee terminates when it issues a written report of its determinations to the Board. Section 2.15 Compensation. The Board may fix the compensation, if ------------ ------------ any, of directors. OFFICERS -------- Section 3.01 Number and Designation. The Corporation shall have one ------------ ---------------------- or more natural persons exercising the functions of the offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the Corporation, with such powers, rights, duties and responsibilities as may be determined by the Board, including, without limitation, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall have the powers, rights, duties and responsibilities set forth in these By-Laws unless otherwise determined by the Board. Any of the offices or functions of those offices may be held by the same person. Section 3.02 Chief Executive Officer. Unless provided otherwise by ------------ ----------------------- a resolution adopted by the Board of Directors, the Chief Executive Officer (a) shall have general active management of the business of the Corporation; (b) shall, when present, preside at all meetings of the shareholders and Board; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) may maintain records of and certify proceedings of the Board and shareholders; and (e) shall perform such other duties as may from time to time be assigned by the Board. Section 3.03 Chief Financial Officer. Unless provided otherwise by ------------ ----------------------- a resolution adopted by the Board of Directors, the Chief Financial Officer (a) shall keep accurate financial records for the Corporation; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the Corporation in such banks and depositories as the Board shall 6 designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor; (d) shall disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board; (e) shall render to the Chief Executive Officer and the Board, whenever requested, an account of all of such officer's transactions as Chief Financial Officer and of the financial condition of the Corporation; and (f) shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer from time to time. Section 3.04 President. Unless otherwise determined by the Board of ------------ --------- Directors, the President shall be the Chief Executive Officer of the Corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board. Section 3.05 Vice Presidents. Any one or more Vice Presidents, if ------------ --------------- any, may be designated by the Board of Directors as Executive Vice Presidents or Senior Vice Presidents. During the absence or disability of the President, it shall be the duty of the highest ranking Executive Vice President, and, in the absence of any such Vice President, it shall be the duty of the highest ranking Senior Vice President or other Vice President, who shall be present at the time and able to act, to perform the duties of the President. The determination of who is the highest ranking of two or more persons holding the same office shall, in the absence of specific designation of order of rank by the Board, be made on the basis of the earliest date of appointment or election, or, in the event of simultaneous appointment or election, on the basis of the longest continuous employment by the Corporation. Section 3.06 Secretary. The Secretary, unless otherwise determined ------------ --------- by the Board of Directors, shall attend all meetings of the shareholders and all meetings of the Board, shall record or cause to be recorded all proceedings thereof in a book to be kept for that purpose, and may certify such proceedings. Except as otherwise required or permitted by law or by these By-Laws, the Secretary shall give or cause to be given notice of all meetings of the shareholders and all meetings of the Board. Section 3.07 Treasurer. Unless otherwise determined by the Board of ------------ --------- Directors, the Treasurer shall be the Chief Financial Officer of the Corporation. If an officer other than the Treasurer is designated Chief Financial Officer, the Treasurer shall perform such duties as may from time to time be assigned by the Board. Section 3.08 Authority and Duties. In addition to the foregoing ------------ -------------------- authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board may, without the approval of the Board, delegate some or all of the duties and powers of an office to other persons. 7 Section 3.09 Term. Subdivision 1. All officers of the Corporation ------------ ---- shall hold office until their respective successors are chosen and have qualified or until their earlier death, resignation or removal. Subdivision 2. An officer may resign at any time by giving written notice to the Corporation. The resignation is effective without acceptance when the notice is given to the Corporation, unless a later effective date is specified in the notice. Subdivision 3. An officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present at a duly held Board meeting. Subdivision 4. A vacancy in an office because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the office of Chief Executive Officer or Chief Financial Officer shall, be filled for the unexpired portion of the term by the Board. Section 3.10 Salaries. The salaries of all officers of the ------------ -------- Corporation shall be fixed by the Board of Directors or by the Chief Executive Officer if authorized by the Board. INDEMNIFICATION --------------- Section 4.01 Indemnification. The Corporation shall indemnify its ------------ --------------- officers and directors for such expenses and liabilities, in such manner, under such circumstances, and to such extent, as required or permitted by Minnesota Statutes, Section 302A.521, as amended from time to time, or as required or permitted by other provisions of law. Section 4.02 Insurance. The Corporation may purchase and maintain ------------ --------- insurance on behalf of any person in such person's official capacity against any liability asserted against and incurred by such person in or arising from that capacity, whether or not the Corporation would otherwise be required to indemnify the person against the liability. SHARES ------ Section 5.01 Certificated and Uncertificated Shares. Subdivision 1. ------------ -------------------------------------- The shares of the Corporation shall be either certificated shares or uncertificated shares. Each holder of duly issued certificated shares is entitled to a certificate of shares. Subdivision 2. Each certificate of shares of the Corporation shall bear the corporate seal, if any, and shall be signed by the Chief Executive Officer, or the President or any Vice President, and the Chief Financial Officer, or the Secretary or any Assistant Secretary, but when a certificate is signed by a transfer agent or a registrar, the signature of any such officer and the corporate seal upon such certificate may be facsimiles, engraved or printed. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent or registrar of the Corporation, the certificate may be issued by the Corporation, even if the person 8 has ceased to serve in that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue. Subdivision 3. A certificate representing shares issued by the Corporation shall, if the Corporation is authorized to issue shares of more than one class or series, set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series authorized to be issued, so far as they have been determined, and the authority of the Board to determine the relative rights and preferences of subsequent classes or series. Subdivision 4. A resolution approved by the affirmative vote of a majority of the directors present at a duly held meeting of the Board may provide that some or all of any or all classes and series of the shares of the Corporation will be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation. Section 5.02 Declaration of Dividends and Other Distributions. The ------------ ------------------------------------------------ Board of Directors shall have the authority to declare dividends and other distributions upon the shares of the Corporation to the extent permitted by law. Section 5.03 Transfer of Shares. Shares of the Corporation may be ------------ ------------------ transferred only on the books of the Corporation by the holder thereof, in person or by such person's attorney. In the case of certificated shares, shares shall be transferred only upon surrender and cancellation of certificates for a like number of shares. The Board of Directors, however, may appoint one or more transfer agents and registrars to maintain the share records of the Corporation and to effect transfers of shares. Section 5.04 Record Date. The Board of Directors may fix a time, ------------ ----------- not exceeding 60 days preceding the date fixed for the payment of any dividend or other distribution, as a record date for the determination of the shareholders entitled to receive payment of such dividend or other distribution, and in such case only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend or other distribution, notwithstanding any transfer of any shares on the books of the Corporation after any record date so fixed. MISCELLANEOUS ------------- Section 6.01 Execution of Instruments. Subdivision 1. All deeds, ------------ ------------------------ mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Corporation shall be signed on behalf of the Corporation by the Chief Executive Officer, or the President, or any Vice President, or by such other person or persons as may be designated from time to time by the Board of Directors. 9 Subdivision 2. If a document must be executed by persons holding different offices or functions and one person holds such offices or exercises such functions, that person may execute the document in more than one capacity if the document indicates each such capacity. Section 6.02 Advances. The Corporation may, without a vote of the ------------ -------- directors, advance money to its directors, officers or employees to cover expenses that can reasonably be anticipated to be incurred by them in the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance. Section 6.03 Corporate Seal. The seal of the Corporation, if any, ------------ -------------- shall be a circular embossed seal having inscribed thereon the name of the Corporation and the following words: "Corporate Seal Minnesota". Section 6.04 Fiscal Year. The fiscal year of the Corporation shall ------------ ----------- be determined by the Board of Directors. Section 6.05 Amendments. The Board of Directors shall have the ------------ ---------- power to adopt, amend or repeal the By-Laws of the Corporation, subject to the power of the shareholders to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any By-Law fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board, or fixing the number of directors or their classifications, qualifications or terms of office, but may adopt or amend a By- Law that increases the number of directors. 10 EX-4.4 3 0003.txt FORM OF EXCHANGE NOTE EXHIBIT 4.4 [FORM OF FACE OF EXCHANGE SECURITY] UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("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 SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR 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. /1/ JOSTENS, INC. 12 3/4 % SENIOR SUBORDINATED NOTE DUE 2010 No. 1 CUSIP No. _________ $225,000,000 JOSTENS, INC., a Minnesota corporation (the "Company"), promises to pay to Cede & Co., or its registered assigns, the principal sum of $225,000,000 in U.S. Dollars on May 1, 2010. Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 _________________ /1/ This paragraph should only be added if the Security is issued in global form Additional provisions of this Security are set forth on the other side of this Security. JOSTENS, INC., by ____________________________ Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK, as Trustee, certifies that this is [Seal] one of the Securities referred to in the Indenture, by _____________________ Authorized Signatory 2 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 12 3/4 % Senior Subordinated Note due 2010 1. INTEREST -------- JOSTENS, INC., a Minnesota corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above and shall pay Liquidated Damages, if any, payable pursuant to the relevant Registration Rights Agreement. The Company will pay interest and Liquidated Damages, if any, semi-annually in arrears on May 1 and November 1 of each year commencing on November 1, 2000. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date with respect to this Security. Interest will be computed on the basis of a 360- day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. METHOD OF PAYMENT ----------------- The Company will pay interest (except defaulted interest) on and Liquidated Damages, if any, in respect of the Securities to the Persons who are registered holders of Securities at the close of business on the 15th of April and the 15th of October immediately preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money or by wire transfer of federal funds. 3. PAYING AGENT AND REGISTRAR -------------------------- Initially, THE BANK OF NEW YORK (the "Trustee") will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to the Holders. The Company or any domestically organized Wholly Owned Restricted Subsidiary may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE --------- The Company issued the Securities under an Indenture dated as of May 10, 2000 (the "Indenture"), among the Company, the Initial Guarantor and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the TIA. Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. 3 The Securities are unsecured senior subordinated obligations of the Company and are limited to $350,000,000 in aggregate principal amount outstanding, of which $225,000,000 in aggregate principal amount will be initially issued on the Closing Date. Subject to the conditions set forth in the Indenture, the Company may issue up to an additional $125,000,000 aggregate principal amount of Additional Securities. This Security is one of the Exchange Securities referred to in the Indenture. The Securities include the Initial Securities, the Additional Securities and any Exchange Securities and Private Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture. The Initial Securities, the Additional Securities, the Exchange Securities and the Private Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the incurrence of Debt by the Company and its Restricted Subsidiaries; the payment of dividends and other payments by the Company and its Restricted Subsidiaries; Investments; sales of assets of the Company and Restricted Subsidiaries; certain transactions with Affiliates; the lines of business in which the Company and its Restricted Subsidiaries may operate; Liens; and consolidations, mergers and transfers of all or substantially all of the Company's or a Guarantor's assets. In addition, the Indenture prohibits certain restrictions on distributions from Restricted Subsidiaries. 5. OPTIONAL REDEMPTION ------------------- Except as set forth in the next two paragraphs, the Securities may not be redeemed at the Company's option prior to May 1, 2005. Thereafter, the Securities will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on May 1 of the years indicated below: Redemption Period Price - ------ ----- 2005 106.375% 2006 104.250% 2007 102.125% 2008 and thereafter 100.000% In addition, at any time and from time to time, prior to May 1, 2003, the Company may redeem up to 35% of the aggregate principal amount of Securities issued under the Indenture at a redemption price of 112.75% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds of an underwritten registered public offering of common stock of the Company; provided that at least 65% of the aggregate principal -------- amount of Securities issued under the Indenture remains outstanding immediately after the occurrence of any such 4 redemption; and provided further, that such redemption shall occur within 90 -------- ------- days of the date of the closing of such public offering. At any time on or prior to May 1, 2005, the Securities may be redeemed as a whole but not in part at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 120 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued but unpaid interest and Liquidated Damages, if any, to, the redemption date, subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date. 6. NOTICES OF REDEMPTION --------------------- Notices of redemption shall be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address all in accordance with the Indenture. If less than all of the Securities are to be redeemed at any time, selection of Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or, if the Securities are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and - --- ---- appropriate; provided that no Securities of $1,000 or less shall be redeemed in -------- part; provided further, however, that if a partial redemption is made with the -------- ------- ------- proceeds of a public offering of common stock, selection of the Securities or portions thereof for redemption shall be made by the Trustee on a pro rata basis -------- only or on as nearly a pro rata basis as is practicable (subject to DTC -------- procedures), unless such method is otherwise prohibited. If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. 7. REPURCHASE AT THE OPTION OF THE HOLDER -------------------------------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions set forth in the Indenture, to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of the Securities of such Holder at a purchase price equal to 101% of the aggregate principal amount of the Securities to be repurchased plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of repurchase) as provided in, and subject to the terms of, the Indenture. 8. SUBORDINATION ------------- The Securities are subordinated to Senior Debt of the Company, as defined in the Indenture. To the extent provided in the Indenture, Senior Debt of the Company must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a 5 Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS; TRANSFER; EXCHANGE --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 10. PERSONS DEEMED OWNERS --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY --------------- If money for the payment of principal or interest remains unclaimed for two years, the Paying Agent shall pay the money back to the Company at its request, or if then held by the Company or a Wholly Owned Restricted Subsidiary, shall be discharged from such trust (unless an abandoned property law designates another Person for payment thereof). After any such payment, Holders entitled to the money must look only to the Company for payment thereof, and all liability of the Paying Agent with respect to such money, and all liability of the Company or such permitted Wholly Owned Restricted Subsidiary as trustee thereof, shall thereupon cease. 12. DISCHARGE AND DEFEASANCE ------------------------ Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Indenture, the Security Guarantees, any Registration Rights Agreement and the Securities if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. AMENDMENT, WAIVER ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture, the Securities or the Security Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any existing default or noncompliance with any provision of the Indenture, the Securities or the Security Guarantees (other than payment of principal, premium, if any, Liquidated Damages, if any, and interest) may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for 6 uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Company's or any Guarantor's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets, to release any Security Guarantee in accordance with the provisions of the Indenture, to provide for additional Guarantors, to make any change that would provide any additional rights or benefits to the Holders of Securities or that, as determined by the Board of Directors of the Company in good faith, does not adversely affect the legal rights of any such Holder under the Indenture, the Securities or the Security Guarantees, to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA or to provide for the issuance of Additional Securities in compliance with Article II and Section 4.03 of the Indenture. 14. DEFAULTS AND REMEDIES --------------------- Under the Indenture, an Event of Default occurs if there is: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Securities (whether or not prohibited by Article X in the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Securities (including the failure to make a payment to purchase Securities tendered pursuant to a Change of Control Offer or an Asset Sale Offer) (whether or not prohibited by Article X in the Indenture); (iii) failure by the Company for 30 days after receipt of notice from the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities to comply with Section 4.03, 4.04, 4.06, 4.08 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after receipt of notice from the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities specifying such failure to comply with any of its other agreements in the Indenture or the Securities; (v) the failure by the Company or any Restricted Subsidiary that is a Significant Subsidiary to pay any Debt within any applicable grace period after final maturity or acceleration by the holders thereof because of a default if the total amount of all such Debt unpaid or accelerated at the time exceeds $25.0 million; (vi) any judgment or decree for the payment of money in excess of $25.0 million (net of any insurance or indemnity payments actually received in respect thereof prior to or within 60 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) is entered against the Company or any Significant Subsidiary that is a Restricted Subsidiary and is not discharged, waived or stayed and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; (vii) any Security Guarantee by a Guarantor that is a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or, except as permitted by the Indenture, shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Security Guarantee; or (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a 7 majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal, premium, if any, or interest) if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interest of the Holders. 15. TRUSTEE DEALINGS WITH THE COMPANY --------------------------------- Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS ------------------------------------------------------------------------ No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of any of the Guarantors, as such, shall have any liability for any obligations of the Guarantors under the Security Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Securities and Security Guarantees by accepting a Security and a Security Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Securities and the Security Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 17. GOVERNING LAW ------------- THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 18. AUTHENTICATION -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. ABBREVIATIONS ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint 8 tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. CUSIP NUMBERS ------------- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: JOSTENS, INC. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Attention of Secretary 9 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to ____________________________________ (Print or type assignee's name, address and zip code) ____________________________________ (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ___________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ________________ Your Signature: ____________________ Signature Guarantee:________________________________________ (Signature must be guaranteed by a participant in a recognized signature guarantee medallion program) ____________________________________________________________ Sign exactly as your name appears on the other side of this Security. 10 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or Global Security Global Security such decrease or increase Securities Custodian
11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box: 4.06 Asset Sale 4.08 Change of Control If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount: $__________. Date: __________________ Your Signature: __________________ (Sign exactly as your name appears on the other side of the Security) __________________ Tax I.D. number Signature Guarantee:__________________________________________ (Signature must be guaranteed by a participant in a recognized signature guarantee medallion program) 12 EX-5.1 4 0004.txt OPINION OF WILLIAM J. GEORGE, ESQ. EXHIBIT 5.1 [Letterhead of William J. George - Jostens, Inc.] __________, 2000 Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Re: Jostens, Inc. Registration Statement on Form S-4 Ladies and Gentlemen: I am the Vice President, General Counsel and Corporate Secretary of Jostens, Inc., a Minnesota corporation (the "Company"), and I am rendering this opinion in connection with the Registration Statement on Form S-4 (the "Registration Statement") being filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement is being filed in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act"), of $225,000,000 principal amount of the Company's 12 3/4 % Senior Subordinated Notes due 2010 (the "Notes") to be offered in exchange for the Company's outstanding $225,000,000 principal amount of the Company's 12 3/4 % Senior Subordinated Notes due 2010. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act. I have examined the Registration Statement, the Indenture between the Company and the Bank of New York, as Trustee, pursuant to which the Notes are to be issued (the "Indenture"), the form of the Notes to be issued and such other documents and such questions of law as I have deemed necessary to render the opinion expressed below. In my examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies and the authenticity of the originals of such copied documents. I have also assumed, with respect to all persons and entities other than the Company, the power (corporate or otherwise) of such persons or entities to enter into and perform all of their obligations under the Indenture, the due authorization by all requisite action (corporate or otherwise) on the part of such persons or entities, the due execution and delivery by such persons or entities of such document and the validity and binding effect thereof. As to any facts material to the opinion expressed herein that I did not independently establish or verify, I have relied upon oral or written statements, certificates and representations of officers and other representatives of the Company and others. Jostens, Inc Page 2 Based upon the foregoing, and subject to the qualifications set forth below, I am of the opinion that when the Notes are executed and authenticated in accordance with the terms of the Indenture and delivered in the manner and for the consideration described in the Registration Statement, the Notes will be binding and enforceable obligations of the Company. The opinion expressed above is subject to the following qualifications: A. The binding nature and enforceability of the Notes may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer and other similar laws affecting the enforcement of creditors' rights generally and (ii) equitable principles of general application and judicial discretion that may limit or affect the availability or grant of certain equitable remedies in certain instances. In addition, the binding nature and enforceability of certain of the remedial, waiver and other provisions of the Notes, or of the Indenture, may be restricted by applicable state law, but such restrictions will not, in my opinion, render the Notes invalid as a whole or substantially interfere with the realization of the principal legal benefits purported to be provided by the Notes or by the Indenture (except to the extent of any procedural delay that may result therefrom). Further, the binding nature and enforceability of the indemnification provisions of the Indenture may be limited by public policies embodied in or reflected by various state and federal securities laws. B. The opinion expressed herein is limited to the laws of the United States of America and the laws of the State of Minnesota, and I assume no responsibility as to the applicability or the effect of any other laws. I have assumed that the laws of the State of New York, which purport to govern the Notes and the Indenture, are the same as the laws of the State of Minnesota with respect to the binding nature and enforceability of the Notes. I consent to the use of this opinion letter as an exhibit to the Registration Statement and to the use of my name in the Registration Statement under the heading "Legal Matters." My consent, however, is not an admission that I come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission. Very truly yours, William J. George By: /s/ William J. George ---------------------- William J. George Vice President, General Counsel and Corporate Secretary EX-10.2 5 0005.txt WARRANT AGREEMENT EXHIBIT 10.2 ================================================================================ NOTE: The original template, (C:\CGR Templates\Workgroup Templates\Corporate\Basic with Sequence Numbers.dot) could not be found. Document has been attached to Blank.dot template. WARRANT AGREEMENT Between JOSTENS, INC. and THE BANK OF NEW YORK, as Warrant Agent ________________ Dated as of May 10, 2000 ================================================================================ TABLE OF CONTENTS ----------------- Page ---- SECTION 1. Appointment of Warrant Agent................................. 4 SECTION 2. Warrant Certificates......................................... 4 SECTION 3. Execution of Warrant Certificates............................ 4 SECTION 4. Registration and Countersignature............................ 5 SECTION 5. Transfer and Exchange of Warrants............................ 5 SECTION 6. Registration of Transfers and Exchanges...................... 6 (a) Transfer and Exchange of Warrants...................... 6 (b) Restrictions on Transfer of a Definitive Warrant for a Beneficial Interest in a Global Warrant................ 7 (c) Transfer or Exchange of Global Warrants................ 8 (d) Transfer or Exchange of a Beneficial Interest in a Global Warrant for a Definitive Warrant................ 8 (e) Restrictions on Transfer or Exchange of Global Warrants............................................... 10 (f) Authentication of Definitive Warrants in Absence of Depositary............................................. 10 (g) Cancellation or Adjustment of a Global Warrant......... 10 (h) Legends................................................ 10 (i) Obligations with Respect to Transfers and Exchanges of Definitive and Global Warrants......................... 11 (j) Payment of Taxes....................................... 11 SECTION 7. Terms of Warrants; Exercise of Warrants...................... 11 SECTION 8. Payment of Taxes............................................. 14 SECTION 9. Mutilated or Missing Warrant Certificates.................... 15 SECTION 10. Reservation of Warrant Shares............................... 15 SECTION 11. Obtaining Stock Exchange Listings........................... 16 SECTION 12. Adjustment of Number of Warrant Shares Issuable............. 16 (a) Adjustment for Change in Capital Stock................. 16 i (b) Adjustment for Certain Sales of Common Stock Below Current Market Value................................... 17 (c) Adjustment upon Certain Distributions.................. 19 (d) Notice of Adjustment................................... 21 (e) Reorganization of Company; Fundamental Transaction..... 21 (f) Other Events........................................... 22 (g) Company Determination Final............................ 22 (h) Warrant Agent's Adjustment Disclaimer.................. 22 (i) Specificity of Adjustment.............................. 22 (j) Voluntary Adjustment................................... 23 (k) Multiple Adjustments................................... 23 (l) When De Minimis Adjustment May Be Deferred............. 23 (m) Tag-Along Transfers.................................... 23 (n) Amendments of the Articles of Incorporation............ 24 SECTION 13. Fractional Interests........................................ 24 SECTION 14. Notice of Certain Distributions; Certain Rights............. 24 SECTION 15. Notices to the Company and Warrant Agent.................... 24 SECTION 16. Supplements and Amendments.................................. 25 SECTION 17. Concerning the Warrant Agent................................ 26 SECTION 18. Change of Warrant Agent..................................... 29 SECTION 19. Identity of Transfer Agent.................................. 29 SECTION 20. SEC Reports and Other Information........................... 29 SECTION 21. Successors.................................................. 30 SECTION 22 Termination.................................................. 30 SECTION 23. Governing Law............................................... 30 SECTION 24. Benefits of This Agreement.................................. 30 SECTION 25. Counterparts................................................ 30 Exhibit A Class E Common Stock Purchase Warrant of Jostens, Inc. Exhibit B(1) Private Placement Legend Exhibit B(2) Unit Legend ii Exhibit B(3) Global Warrant Legend Exhibit C Certificate to be Delivered upon Exchange or Registration of Transfer of Warrants Exhibit D Form of Transferee Letter of Representation in Connection with Transfers to Institutional Accredited Investors Exhibit E Form of Transferee Letter of Representation in Connection with Transfers Pursuant to Regulation S iii WARRANT AGREEMENT (the "Agreement"), dated as of May 10, 2000, between --------- JOSTENS, INC., a Minnesota corporation (together with any successors and assigns, the "Company"), and THE BANK OF NEW YORK, as warrant agent (with any ------- successor warrant agent, the "Warrant Agent"). ------------- A. Pursuant to a purchase agreement (the "Purchase Agreement") dated ------------------ May 5, 2000 between the Company and Deutsche Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs & Co. (the "Initial Purchasers"), the Company has agreed ------------------ to sell to the Initial Purchasers 225,000 units (the "Units"), each consisting ----- of (i) $1,000 principal amount of 12 3/4% Senior Subordinated Notes due 2010 (the "Notes") of the Company and (ii) one warrant (collectively, the ----- "Warrants"), each Warrant initially entitling the holder thereof to purchase -------- 1.889155 shares of Class E Common Stock (as defined herein) of the Company. B. The Notes and the Warrants comprising the Units shall not be separately transferable until the Separability Date (as defined herein). C. The holders of the Warrants are entitled to the benefits of a Registration Rights Agreement dated as of May 10, 2000 by and between the Company and the Initial Purchasers (the "Warrant Registration Rights --------------------------- Agreement"). - --------- D. The Company desires the Warrant Agent as warrant agent to assist the Company in connection with the issuance, exchange, cancellation, replacement and exercise of the Warrants, and in this Agreement wishes to set forth, among other things, the terms and conditions on which the Warrants may be issued, exchanged, canceled, replaced and exercised. NOW, THEREFORE, in consideration of the premises and mutual agreements herein, the Company and the Warrant Agent hereby agree as follows: Defined terms used in this Agreement shall, unless the context otherwise requires, have the meanings specified below. Certain additional terms are set forth elsewhere in this Agreement. Any reference to any section of applicable law shall be deemed to include successor provisions thereto. "Affiliate" has the meaning given to it in the Indenture. --------- "Business Day" means any day that is not a Saturday, Sunday or a day ------------ on which banking institutions in New York are authorized or required by law to be closed. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations, rights in or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, whether outstanding on the Issue Date or issued -2- after the Issue Date, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "class" means, when referring to any Capital Stock, any class or ----- series of such Capital Stock. "Class A Common Stock" means the Class A Common Stock of the Company, -------------------- par value $0.33-1/3 per share. "Class E Common Stock" means the Class E Common Stock of the Company, -------------------- par value $0.01 per share. Each issued and outstanding share of Class E Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock at any time commencing 30 days after the original date of issuance of such share of Class E Common Stock. "Common Stock" means all shares of Capital Stock of the Company, ------------ whether or not denominated as "common stock," which are entitled to share ratably in the ordinary dividends of the Company or share ratably in the proceeds of any liquidation of the Company after the payment of all preferential claims, and shall include, without limitation, the Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock or Class E Common Stock of the Company authorized on the Issue Date. "Convertible Security" shall mean any securities convertible or -------------------- exercisable or exchangeable into Common Stock of the Company of the same class as Warrant Shares, whether outstanding on the Issue Date or thereafter issued. "DB Capital Warrants" means the warrants issued on the Issue Date to ------------------- DB Capital Investors, L.P. to purchase shares of Class E Common Stock. "Distribution Compliance Period" means the period from the Issue Date ------------------------------ through the first anniversary of the Issue Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Exchange Offer Registration Statement" means the registration ------------------------------------- statement to be filed by the Company under the Securities Act with respect to the exchange of the Notes for Exchange Notes (as defined in the Note Registration Rights Agreement). "Guarantor" means American Yearbook Company, Inc. --------- "Indenture" means the indenture dated as of May 10, 2000, among the --------- Company, the Guarantor and The Bank of New York, as trustee, relating to the Notes. -3- "Independent Financial Expert" means a nationally recognized ---------------------------- independent investment banking firm, appraisal or accounting firm. "Initial Public Equity Offering" means a primary public offering ------------------------------ (whether or not underwritten) of Common Stock pursuant to an effective registration statement under the Securities Act, but excluding any offering pursuant to Form S-8 (or any successor form) under the Securities Act or any other publicly registered offering pursuant to the Securities Act pertaining to an issuance of shares of Common Stock or securities exercisable therefor under any benefit plan, employee compensation plan, or employee or director stock purchase plan. "Issue Date" means May 10, 2000, the date of the Indenture. ---------- "Note Registration Rights Agreement" means the Registration Rights ---------------------------------- Agreement dated as of May 10, 2000 among the Company, the Guarantor and the Initial Purchasers relating to the registration of the Notes. "Person" means any individual, corporation, limited liability company, ------ partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "SEC" means the Securities and Exchange Commission. --- "Securities Act" means the Securities Act of 1933, as amended. -------------- "Separability Date" means the earliest of: (1) the date which is 210 ----------------- days after the Issue Date; (2) the date on which an Event of Default has occurred or the time immediately prior to the occurrence of a Change of Control (each as such term is defined in the Indenture); (3) the date on which a registration statement filed pursuant to the Note Registration Rights Agreement has become effective; (4) the date immediately preceding an Initial Public Equity Offering; (5) the date on which a "Transfer Notice" is given by a holder of Class D Common Stock in respect of a proposed "Tag-Along Transfer," as contemplated by article IV of the amended and restated articles of incorporation of the Company; and (6) such earlier date that Deutsche Bank Securities Inc., in its sole discretion, notifies the Company is the Separability Date. "Time of Determination" means (i) in the case of any distribution of --------------------- securities or other property to existing shareholders to which Section 12(b) or 12(c) applies, the time and date of the determination of shareholders entitled to receive such securities or property or (ii) in the case of any other issuance and sale to which Section 12(b) or 12(c) applies, the time and date of such issuance or sale. "Warrant Shares" means the shares of Class E Common Stock or other -------------- securities issuable upon exercise of Warrants from time to time. -4- SECTION 1. Appointment of Warrant Agent. The Company hereby ---------------------------- appoints the Warrant Agent to act as agent for the Company in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment. SECTION 2. Warrant Certificates. (a) The certificates -------------------- representing the Warrants ("Warrant Certificates") will initially be issued -------------------- either in global form (the "Global Warrants") or in registered form as --------------- definitive Warrant Certificates (the "Definitive Warrants"), in either case ------------------- substantially in the form of Exhibit A attached hereto. Any Global Warrants to --------- be delivered pursuant to this Agreement shall bear the legend set forth in Exhibit B(3) attached hereto. The Global Warrants shall represent such of the - ------------ outstanding Warrants as shall be specified therein, and each Global Warrant shall provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Warrant to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Warrant Agent and the Depositary in accordance with instructions given by the holder thereof. The Depository Trust Company ("DTC") shall act as the "Depositary" with respect to the Global --- ---------- Warrants until a successor shall be appointed by the Company and the Warrant Agent. Upon written request, a holder of Warrants may receive from the Warrant Agent or the Depositary Definitive Warrants as set forth in Section 6 hereof. (b) Warrants sold in offshore transactions in reliance on Regulation S will initially be represented by one or more temporary legended Global Warrants in definitive, fully registered form (each a "Legended Regulation S --------------------- Global Warrant") and shall bear a legend substantially to the effect set forth - -------------- in Exhibit B(1). The Company may execute, and the Warrant Agent shall ------------ countersign and deliver, Legended Regulation S Global Warrant Certificates, which are printed, lithographed, typewritten or otherwise produced, substantially of the tenor of the definitive Warrant Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Warrant Certificates may determine, as evidenced by their execution of such Warrant Certificates. The Legended Regulation S Global Warrants will be exchangeable for one or more unlegended permanent Global Warrants on or after the first anniversary of the Issue Date. Subject to the provisions of Section 5 hereof, such exchange shall be without charge to the holder. Upon surrender for cancellation of any one or more Legended Regulation S Global Warrant Certificates, the Company shall execute, and the Warrant Agent shall countersign and deliver in exchange therefor, one or more unlegended permanent global Warrant Certificates representing in the aggregate a like number of Warrants. Until so exchanged, the holder of a Legended Regulation S Global Warrant Certificate shall in all respects be entitled to the same benefits under this Agreement as a holder of an unlegended permanent global Warrant Certificate. -5- SECTION 3. Execution of Warrant Certificates. Warrant Certificates --------------------------------- shall be signed on behalf of the Company by its Chairman of the Board, President, Chief Executive Officer, a Vice President, Treasurer, an Assistant Treasurer or Chief Financial Officer and by its Secretary or an Assistant Secretary under its corporate seal. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of any such present or future officer and may be imprinted or otherwise reproduced on the Warrant Certificates. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificates so signed shall have been countersigned by the Warrant Agent, or disposed of by the Company, such Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. Warrant Certificates shall be dated the date of countersignature by the Warrant Agent. SECTION 4. Registration and Countersignature. The Warrants shall --------------------------------- be numbered and shall be registered on the books of the Company maintained at the principal office of the Warrant Agent in the Borough of Manhattan, City of New York (the "Warrant Register") as they are issued. ---------------- Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, Chief Executive Officer, a Vice President, the Treasurer, an Assistant Treasurer, Chief Financial Officer, Secretary or an Assistant Secretary of the Company, initially countersign and deliver Warrants entitling the holders thereof to purchase not more than the number of Warrant Shares referred to above in the first recital hereof and shall thereafter countersign and deliver Warrants as otherwise provided in this Agreement. The Company and the Warrant Agent may deem and treat the registered holders (the "Holders" or "Warrantholders") of the Warrant Certificates as the ------- -------------- absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. SECTION 5. Transfer and Exchange of Warrants. The Warrant Agent --------------------------------- shall from time to time, subject to the limitations of Section 6, register the transfer of any outstanding Warrants upon the records to be maintained by it for that purpose, upon surrender -6- thereof duly endorsed or accompanied (if so required by it) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Subject to the terms of this Agreement, each Warrant Certificate may be exchanged for another certificate or certificates entitling the Holder thereof to purchase a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle each Holder to purchase. Any Holder desiring to exchange a Warrant Certificate or Certificates shall make such request in writing delivered to the Warrant Agent, and shall surrender, duly endorsed or accompanied (if so required by the Warrant Agent) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, the Warrant Certificate or Certificates to be so exchanged. Upon registration of transfer, the Company shall execute and the Warrant Agent shall countersign and deliver by certified mail a new Warrant Certificate or Certificates to the persons entitled thereto. The Warrant Certificates may be exchanged at the option of the Holder thereof, when surrendered at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York for another Warrant Certificate, or other Warrant Certificates of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares. No service charge shall be made for any exchange or registration of transfer of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any stamp or other tax or other governmental charge that is imposed in connection with any such exchange or registration of transfer. SECTION 6. Registration of Transfers and Exchanges. --------------------------------------- (a) Transfer and Exchange of Warrants. When Warrants are presented --------------------------------- to the Warrant Agent with a request: (i) to register the transfer of the Warrants; or (ii) to exchange such Definitive Warrants for an equal number of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if (and may refuse to register any transfer or exchange unless) the requirements under this Agreement as set forth in this Section 6 for such transactions are met; provided, however, that the Warrants presented or surrendered for -------- ------- registration of transfer or exchange: -7- (x) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Company and the Warrant Agent, duly executed by the holder thereof or by his or her attorney, duly authorized in writing; and (y) in the case of Warrants the offer and sale of which have not been registered under the Securities Act, such Warrants shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable, it being understood, however, that the Warrant Agent need not determine which clause (A) through (D) below is applicable: (A) if such Warrant is being delivered to the Warrant Agent by a holder for registration in the name of such holder, without transfer, a certification from such holder to that effect (in substantially the form of Exhibit C); or --------- (B) if such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act ("Rule ---- 144A")) (a "QIB") in accordance with Rule 144A or pursuant to an ---- --- exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act, a certification to that effect (in substantially the form of Exhibit C); or --------- (C) if such Warrant is being transferred to an institutional accredited investor within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act (an "Institutional Accredited Investor"), delivery of a Certificate --------------------------------- of Transfer (in substantially the form of Exhibit D) and an --------- opinion of counsel and/or other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act; or (D) if such Warrant is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor (in substantially the form of Exhibit C), and an --------- opinion of counsel from the transferee or transferor reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. If such transfer is made specifically pursuant to Regulation S, delivery by the transferor must also deliver a Certificate for Regulation S Transfers in substantially the form of Exhibit E. --------- (b) Restrictions on Transfer of a Definitive Warrant for a Beneficial ----------------------------------------------------------------- Interest in a Global Warrant. A Definitive Warrant may not be transferred by a - ---------------------------- holder for a beneficial interest in a Global Warrant except upon satisfaction of the requirements set forth below. -8- Upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with: (i) certification from such holder (in substantially the form of Exhibit C) that such Definitive Warrant is being transferred --------- to a QIB in accordance with Rule 144A under the Securities Act; and (ii) written instructions directing the Warrant Agent to make, or to direct the Depositary to make, an endorsement on the Global Warrant to reflect an increase in the aggregate amount of the Warrants represented by the Global Warrant, then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct the Depositary to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the number of Warrant Shares represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall upon written instructions from the Company authenticate a new Global Warrant in the appropriate amount. (c) Transfer or Exchange of Global Warrants. The transfer or --------------------------------------- exchange of Global Warrants or beneficial interests therein shall be effected through the Depositary, in accordance with this Section 6, the Private Placement Legend set forth in Exhibit B(1), this Agreement (including the restrictions on ------------ transfer set forth herein) and the procedures of the Depositary therefor. (d) Transfer or Exchange of a Beneficial Interest in a Global Warrant ----------------------------------------------------------------- for a Definitive Warrant. - ------------------------ (i) Any Person having a beneficial interest in a Global Warrant may transfer or exchange such beneficial interest for a Definitive Warrant upon receipt by the Warrant Agent of written instructions or such other form of instructions as is customary for the Depositary from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Global Warrant, including a written order containing registration instructions and the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification from such Person to that effect (in substantially the form of Exhibit C); or --------- -9- (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certification from the transferor to that effect (in substantially the form of Exhibit C); or --------- (C) if such beneficial interest is being transferred to an Institutional Accredited Investor, delivery of a Certificate of Transfer to that effect (in substantially the form of Exhibit D) and an opinion of counsel and/or --------- other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act; or (D) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor to that effect (in substantially in the form of Exhibit C) and an --------- opinion of counsel and/or other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act (if such transfer is made specifically pursuant to Regulation S, the transferor must also deliver a Certificate for Regulation S Transfers in substantially the form of Exhibit E), --------- then the Warrant Agent will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the aggregate amount of the Global Warrant to be reduced and, following such reduction, the Company will execute and, upon receipt of an countersignature order in the form of an officers' certificate (a certificate signed by two officers of the Company, one of whom must be the principal executive officer, principal financial officer or principal accounting officer) (an "Officers' Certificate"), the --------------------- Warrant Agent will countersign and deliver to the transferee a Definitive Warrant. (ii) Definitive Warrants issued in exchange for a beneficial interest in a Global Warrant pursuant to this Section 6 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Warrant Agent in writing. The Warrant Agent shall deliver such Definitive Warrants to the Persons in whose names such Warrants are so registered and adjust the Global Warrant pursuant to paragraph (h) of this Section 6. -10- (e) Restrictions on Transfer or Exchange of Global Warrants. ------------------------------------------------------- Notwithstanding any other provisions of this Agreement (other than the provisions set forth in subsection (f) of this Section 6), a Global Warrant may not be transferred or exchanged as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (f) Countersignature of Definitive Warrants in Absence of ----------------------------------------------------- Depositary. If at any time: (i) the Depositary for the Global Warrants notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Warrants and a successor Depositary for the Global Warrant is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants for all Global Warrants under this Agreement, then the Company will execute, and the Warrant Agent will, upon receipt of an Officers' Certificate requesting the countersignature and delivery of Definitive Warrants, countersign and deliver Definitive Warrants, in an aggregate number equal to the aggregate number of Warrants represented by the Global Warrant, in exchange for such Global Warrant. (g) Cancellation or Adjustment of a Global Warrant. At such time as ---------------------------------------------- all beneficial interests in a Global Warrant have either been exchanged for Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant shall be returned to the Company or, upon written order to the Warrant Agent in the form of an Officers' Certificate from the Company, retained and canceled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in a Global Warrant is exchanged for Definitive Warrants, redeemed, repurchased or canceled, the number of Warrants represented by such Global Warrant shall be reduced and an endorsement shall be made on such Global Warrant by the Warrant Agent to reflect such reduction. (h) Legends. ------- (i) Private Placement Legend. Except as permitted by the following ------------------------ sentence, each Warrant Certificate evidencing the Warrants (and all Warrants issued in exchange therefor or substitution thereof and, if the Company deems appropriate, Warrant Shares issuable upon exercise of the Warrants) shall bear a legend substantially to the effect set forth in Exhibit B(1). Upon ------------ any sale or transfer of a Warrant or Warrant Share -11- pursuant to Rule 144 under the Securities Act in accordance with this Section 6 or under an effective registration statement under the Securities Act, the Warrant Agent shall permit the holder of a Warrant to exchange such Warrant for a Definitive Warrant and the Company shall permit the holder of a Warrant Share to exchange such Warrant Share for a share of Common Stock, in each case, that does not bear the legend set forth in Exhibit B(1). ------------ (ii) Unit Legend. Each Warrant issued prior to the Separability ----------- Date shall bear a legend substantially to the effect set forth in Exhibit B(2). ------------ (i) Obligations with Respect to Transfers and Exchanges of Definitive ----------------------------------------------------------------- and Global Warrants. - ------------------- (i) To permit registrations of transfers and exchanges, the Company shall execute, at the Warrant Agent's request, and the Warrant Agent shall authenticate Definitive and Global Warrants. (ii) All Definitive and Global Warrants issued upon any registration, transfer or exchange of Definitive and Global Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Agreement as the Definitive and Global Warrants surrendered upon the registration of transfer or exchange. (iii) Prior to due presentment for registration of transfer of any Warrant, the Warrant Agent and the Company may deem and treat the Person in whose name any Warrant is registered as the absolute owner of such Warrant, and neither the Warrant Agent nor the Company shall be affected by notice to the contrary. (j) Payment of Taxes. The Company will pay all documentary stamp ---------------- taxes attributable to the initial issuance of the Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required -------- ------- to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for the Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates or any certificates for the Warrant Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 7. Terms of Warrants; Exercise of Warrants. Subject to the --------------------------------------- terms of this Agreement, each Warrantholder shall have the right, which may be exercised -12- commencing on or after the Separability Date and until 5:00 p.m., New York City time, on May 1, 2010 (the "Expiration Date"), to receive from the --------------- Company upon the exercise of each Warrant the number of fully paid and nonassessable Warrant Shares which the holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price (as defined) for such Warrant Shares. Each Warrant not exercised prior to the Expiration Date shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants. The price per share at which Warrant Shares shall be purchasable upon exercise of Warrants (the "Exercise Price") regardless of the Exercise Rate (as -------------- defined) then in effect, shall be equal to $0.01. A Warrant may be exercised upon surrender at the office or agency of the Company maintained for such purpose, which initially will be at the principal office of the Company, of the Warrant Certificate or Certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof (the "Election to ----------- Exercise") duly filled in and signed, which signature shall be guaranteed by a - -------- participant in a recognized Signature Guarantee Medallion Program. The "Exercise Date" for a Warrant shall be the date when all of the ------------- items referred to in the immediately preceding sentence are received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business Day and the exercise of the Warrants will be effective as of such Exercise Date. If any items referred to in such sentence are received after 11:00 a.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be effective on the next succeeding Business Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on the Expiration Date, if all of the items referred to in such sentence are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, the exercise of the Warrants to which such items relate will be effective on the Expiration Date. The Exercise Price may be paid only by the surrender of one or more Warrant Certificates (and without the payment of the Exercise Price in cash) in exchange for a number of Warrant Shares equal to the product of (a) the number of Warrant Shares for which such Warrant is exercisable as of the Exercise Date (if the Exercise Price were being paid in cash), and (b) the Cashless Exercise Ratio. The "Cashless Exercise Ratio" shall equal a fraction, the numerator of ----------------------- which is the excess of the Current Market Value per Warrant Share on the Exercise Date over the Exercise Price per Warrant Share as of the Exercise Date and the denominator of which is the Current Market Value per Warrant Share on the Exercise Date. Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the holder's option to exercise, the number of Warrant Shares deliverable upon exercise shall be equal to the product of the number of Warrant Shares issuable in respect of those Warrants that the holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be -13- applicable with respect to a surrender of a Warrant Certificate for less than the full number of Warrants represented thereby. "Current Market Value" per share of any class of Common Stock of the -------------------- Company at any date shall mean: (1) if no class of Common Stock is then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, (a) the value of such class of Common Stock, determined in good faith by the board of directors of the Company and certified in a board resolution, taking into account the most recently completed arm's-length transaction between the Company and a Person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the fair market value of the security as determined by a nationally recognized Independent Financial Expert; provided that, in the case of the calculation of Current Market Value -------- for determining the cash value of fractional shares, any such determination within six months that is, in the good faith judgment of the board of directors, a reasonable determination of value may be utilized, or (2) (a) if any class of Common Stock is then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, the average of the daily closing sales prices of such class of Common Stock for the 20 consecutive trading days immediately preceding such date, or (b) if such class of Common Stock has been registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System for less than 20 consecutive trading days before such date, then the average of the daily closing sales prices for all of the trading days before such date for which closing sales prices are available, in the case of each of (2)(a) and (2)(b), as certified to the Warrant Agent by the Chief Executive Officer, the President, any Executive Vice President or the Chief Financial Officer of the Company. The closing sales price for each such trading day shall be the closing sales price, regular way, on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day. The Current Market Value of the Class E Common Stock shall be deemed to be equal to the Current Market Value of the Class A Common Stock. -14- Subject to the provisions of Section 6 hereof, upon such surrender of Warrants, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Warrantholder may designate a certificate or certificates for the number of Warrant Shares issuable upon the exercise of such Warrants. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants. At the election of the Company with the consent of the holder of record of the relevant Warrant Shares, Warrant Shares may initially be issued in global form (the "Global Shares"). Such Global Shares shall represent such of the outstanding - -------------- Warrant Shares as shall be specified therein and each Global Share shall provide that it represents the aggregate amount of outstanding Warrant Shares from time to time endorsed thereon and that the aggregate amount of outstanding Warrant Shares represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Share to reflect any increase or decrease in the amount of outstanding Warrant Shares represented thereby shall be made by the registrar for the Warrant Shares and the Depositary (referred to below) in accordance with instructions given by the holder thereof. DTC shall (if possible) act as the Depositary with respect to the Global Shares until a successor shall be appointed by the Company and the registrar for the Warrant Shares. The Warrants shall be exercisable only in whole. In the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrants evidenced thereby at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is irrevocably authorized to countersign and to deliver the required new Warrant Certificate or Certificates pursuant to this Agreement, and the Company, whenever required by the Warrant Agent, will promptly supply the Warrant Agent with Warrant Certificates duly executed on behalf of the Company for such purpose. All Warrant Certificates surrendered upon exercise of Warrants shall be canceled by the Warrant Agent. Such canceled Warrant Certificates shall then be disposed of by the Warrant Agent in a manner consistent with the Warrant Agent's customary procedure for such disposal and in a manner reasonably satisfactory to the Company. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised. The Warrant Agent shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at its office. The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Agreement as the Warrant Agent may request. SECTION 8. Payment of Taxes. The Company will pay all documentary ---------------- stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required -------- ------- to pay any tax or taxes -15- which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 9. Mutilated or Missing Warrant Certificates. In case any ----------------------------------------- of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company may at its discretion issue and the Warrant Agent may countersign, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such Warrant Certificate and indemnity also satisfactory to them. SECTION 10. Reservation of Warrant Shares. The Company will at all ----------------------------- times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class E Common Stock or its authorized and issued Class E Common Stock held in its treasury, for the purpose of enabling it to satisfy its obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Class E Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class A Common Stock or its authorized and issued Class A Common Stock held in its treasury, for the purpose of enabling it to satisfy its obligation to issue shares of Class A Common Stock upon conversion of all shares of Class E Common Stock issuable upon exercise of all Warrants, the maximum number of shares of Class A Common Stock issuable upon conversion of all shares of Class E Common Stock issuable upon exercise of all Warrants. The Company or, if appointed, the transfer agent for the Class A Common Stock and the Class E Common Stock (the "Transfer Agent") and every -------------- subsequent transfer agent for any shares of the Company's Capital Stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's Capital Stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which -16- may be payable as provided in Section 13. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each holder pursuant to Section 14 hereof. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants made in accordance with the terms of this Agreement will, upon issuance, be validly authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issuance thereof. The Company covenants that all shares of Class A Common Stock issuable upon conversion of all shares of Class E Common Stock issuable upon exercise of all Warrants in accordance with this Agreement will, upon issuance, be validly authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issuance thereof. The Company will take no action to increase the par value of the Class E Common Stock to an amount in excess of the Exercise Price, and the Company will not enter into any agreements inconsistent with the rights of Holders hereunder. The Company will use its reasonable best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Agreement. SECTION 11. Obtaining Stock Exchange Listings. The Company will --------------------------------- from time to time take all action which may be necessary so that the Warrant Shares, immediately upon their issuance upon the exercise of Warrants, will be listed on the principal securities exchanges and markets within the United States of America (including the Nasdaq National Market System), if any, on which the Class A Common Stock or the Class E Common Stock is then listed. In the event that, at any time during the period in which the Warrants are exercisable, the Class E Common Stock is not listed on any principal securities exchanges or markets within the United States of America, the Company will use its best efforts to permit the Warrant Shares to be designated Portal securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in The Portal Market. SECTION 12. Adjustment of Number of Warrant Shares Issuable. The ----------------------------------------------- number of shares of Class E Common Stock issuable upon the exercise of each Warrant (the "Exercise Rate") is subject to adjustment from time to time upon ------------- the occurrence of the events enumerated in this Section 12. The Exercise Rate shall initially be 1.889155. (a) Adjustment for Change in Capital Stock. If, after the Issue -------------------------------------- Date, the Company: (i) pays a dividend or makes a distribution on shares of any class of its Common Stock payable in shares of its Common Stock or other Capital Stock of the Company (except to the extent any such dividend results in the grant, issuance, sale or -17- making of Distribution Rights or Distributions to holders of Warrants pursuant to Section 12(c)); (ii) subdivides or splits any of its outstanding shares of any class of Common Stock into a greater number of shares; (iii) combines any of its outstanding shares of any class of Common Stock into a smaller number of shares; or (iv) issues by reclassification of any class of its Common Stock any shares of any of its Capital Stock; then the Exercise Rate in effect immediately prior to such action for each Warrant then outstanding shall be adjusted by multiplying the Exercise Rate in effect immediately prior to such action by a fraction (A) the numerator of which shall be the number of shares of all classes of Common Stock outstanding immediately after such action and (B) the denominator of which shall be the number of shares of all classes of Common Stock outstanding immediately prior to such action or the record date applicable to such action, if any (regardless of whether the Warrants then outstanding are then exercisable). The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. In the event that such dividend or distribution is not so paid or made or such subdivision, combination or reclassification is not effected, the Exercise Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such record date or effective date had not been so fixed. If after an adjustment a holder of a Warrant upon exercise of such Warrant may receive shares of two or more classes of Capital Stock of the Company, the Exercise Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Section 12 with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Section 12. (b) Adjustment for Certain Sales of Common Stock Below Current Market ----------------------------------------------------------------- Value. If, after the Issue Date, the Company (i) grants or sells to any - ----- Affiliate of the Company (other than a subsidiary of the Company) or (ii) grants, sells or offers to grant or sell to all holders of any class of Common Stock, any shares of any class of Common Stock or any securities convertible into or exchangeable or exercisable for any class of Common Stock (other than (1) pursuant to the exercise of the Warrants, (2) pursuant to any security convertible into, or exchangeable or exercisable for, shares of Common Stock outstanding as of the Issue Date, (3) upon the conversion, exchange or exercise of any convertible, exchangeable or exercisable security as to which upon the issuance thereof an adjustment pursuant to this Section 12 has been made or (4) upon the conversion, exchange or exercise of -18- convertible, exchangeable or exercisable securities of the Company outstanding on the Issue Date (to the extent in accordance with the terms of such securities as in effect on such date), including any DB Capital Warrants) at a price below the then Current Market Value, the Exercise Rate for each Warrant then outstanding shall be adjusted in accordance with the formula: E/1/ = E x (O+N) --------------- (O + (N x P/M)) where: E/1/ = the adjusted Exercise Rate for each Warrant then outstanding; E = the then current Exercise Rate for each Warrant then outstanding; O = the aggregate number of shares of Common Stock of all classes outstanding immediately prior to the sale of such Common Stock or issuance of securities convertible, exchangeable or exercisable for Common Stock; N = the number of shares of Common Stock of any class so sold or the maximum stated number of shares of Common Stock of any class issuable upon the conversion, exchange or exercise of any such convertible, exchangeable or exercisable securities, as the case may be; P = the proceeds per share of Common Stock of the relevant class received by the Company, which (i) in the case of shares of Common Stock of any class is the amount received by the Company in consideration for the sale and issuance of such shares; and (ii) in the case of securities convertible into or exchangeable or exercisable for shares of Common Stock of any class is the amount received by the Company in consideration for the sale and issuance of such convertible or exchangeable or exercisable securities, plus the minimum aggregate amount of additional consideration, other than the surrender of such convertible or exchangeable securities, payable to the Company upon exercise, conversion or exchange thereof; and M = the Current Market Value as of the Time of Determination or at the time of sale, as the case may be, of a share of Common Stock of the relevant class. The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this paragraph (b) applies or upon consummation of the sale of Common Stock, as the case -19- may be. To the extent that shares of Common Stock are not delivered after the expiration of such rights, warrants or options, the Exercise Rate for each Warrant then outstanding shall be readjusted to the Exercise Rate which would otherwise be in effect had the adjustment made upon the issuance of such rights, warrants or options been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Exercise Rate for each Warrant then outstanding shall again be adjusted to be the Exercise Rate which would then be in effect if such date fixed for determination of shareholders entitled to receive such rights, warrants or options had not been so fixed. No adjustment shall be made under this paragraph (b) if the application of the formula stated above in this paragraph (a) would result in a value of E/1/ that is lower than the value of E. No adjustment shall be made under this paragraph (b) for any adjustment which is the subject of paragraphs (a) and (d) of this Section 12. Notwithstanding the foregoing, no adjustment in the Exercise Rate will be required in respect of: (a) the grant of any stock option or other stock incentive award pursuant to any stock option or stock incentive plan or arrangement as disclosed in the Offering Memorandum dated May 5, 2000 relating to the Units, (b) the grant of any stock option or stock incentive award at an exercise price at least equal to the lesser of $25.25 per share (other than in the case of Class D Common Stock) or the then Current Market Value, (c) the grant of any other stock option or stock incentive award to any officer, director or employee of the Company or any of its Subsidiaries pursuant to any compensatory plan or arrangement that has been approved by the Company's Board of Directors, or (d) the exercise of any such option or award. (c) Adjustment upon Certain Distributions. ------------------------------------- (i) If at any time after the Issue Date the Company grants, issues or sells options, any Convertible Security, or rights to purchase Capital Stock or other securities (other than Common Stock) pro rata to the record holders of any --- ---- class or series of Common Stock ("Distribution Rights") or, without duplication, ------------------- makes any distribution (other than a distribution pursuant to a plan of liquidation) (a "Distribution") on shares of any class of Common Stock (whether ------------ in cash, property, evidences of indebtedness, or otherwise), then the Exercise Rate shall be adjusted in accordance with the formula: E/1/ = E x (M/(M-F)) where: -20- E/1/ = the adjusted Exercise Rate; E = the current Exercise Rate for each Warrant; M = the Current Market Value per Warrant Share at the Time of Determination; F = the fair market value at the Time of Determination of such portion of the options, Convertible Securities, Capital Stock or other securities, cash, property or assets distributable pursuant to such Distribution Rights or Distribution per share of outstanding Common Stock. The adjustment shall become effective immediately after the Time of Determination with respect to the shareholders entitled to receive the options, Convertible Securities, warrants, cash, property, evidences of indebtedness or other securities or assets to which this paragraph (c)(i) applies. No adjustment shall be made under this paragraph (c) if the application of the formula stated above in this paragraph (c)(i) would result in a value of E1 that is lower than the value of E. This paragraph (c)(i) does not apply to any securities which result in an adjustment pursuant to paragraphs (a) or (b) of this Section 12. (ii) Notwithstanding the provisions of paragraph (c)(i) of this Section 12, an event which would otherwise give rise to an adjustment pursuant to Section 12(c)(i) shall not give rise to such adjustment if the Company grants, issues or sells Distribution Rights to the Holders of Warrants or includes the holders of the Warrants in such Distribution, in each case on a pro --- rata basis, assuming for the purpose of this Section 12(c)(ii) that (x) all - ---- outstanding shares of Common Stock are of one class and (y) the Warrants had been exercised. (iii) Notwithstanding anything to the contrary set forth in this Section 12(c), if, at any time, the Company makes any distribution pursuant to any plan of liquidation (a "Liquidating Distribution") on shares of Class A ------------------------ Common Stock or Class E Common Stock (whether in cash, property, evidences of indebtedness or otherwise), then, subject to applicable law, the Company shall make to each Holder of Warrants the aggregate Liquidating Distribution which such Holder would have acquired if such Holder had held the maximum number of shares of Class E Common Stock acquirable upon the complete exercise of each Holder's Warrants (regardless of whether the Warrants are then exercisable) immediately before the Time of Determination of shareholders entitled to receive Liquidating Distributions; provided that any Holder of Warrants may elect to -------- receive Liquidating Distributions on the basis that such Holder held the maximum number of shares of Class A Common Stock into which the shares of Class E Common Stock described in this sentence could be converted (without reference to any required holding period) immediately before the Time of Determination of shareholders entitled to receive Liquidating Distributions. -21- (d) Notice of Adjustment. Whenever the Exercise Rate is adjusted, -------------------- the Company shall promptly mail to holders of Warrants then outstanding at the addresses appearing on the Warrant Register a notice of the adjustment. The Company shall file with the Warrant Agent and any other Registrar such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct, absent manifest error. Neither the Warrant Agent nor any such Registrar shall be under any duty or responsibility with respect to any such certificate except to exhibit the same during normal business hours to any holder desiring inspection thereof. (e) Reorganization of Company; Fundamental Transaction. -------------------------------------------------- (i) If the Company, in a single transaction or through a series of related transactions, consolidates with or merges with or into any other person or sells, assigns, transfers, leases, conveys or otherwise disposes of all or substantially all of its properties and assets to another person or group of affiliated persons or is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Stock (a "Fundamental ----------- Transaction"), as a condition to consummating any such transaction the person - ----------- formed by or surviving any such consolidation or merger if other than the Company or the person to whom such transfer has been made (the "Surviving --------- Person") shall enter into a supplemental warrant agreement. The supplemental - ------ warrant agreement shall provide (a) that the holder of a Warrant then outstanding may exercise the Warrant for the kind and amount of securities, cash or other assets which such holder would have received immediately after the Fundamental Transaction if such holder had exercised the Warrant and, if such Warrant is then exercisable into shares of a class of Common Stock (such as Class E Common Stock as constituted on the Issue Date) that is convertible into shares of another class of Common Stock (such as Class A Common Stock as constituted on the Issue Date) if such holder had converted such Warrant Shares into such other class of Common Stock, in each case immediately before the effective date of the transaction (whether or not the Warrants were then exercisable), it being understood that the Warrants will remain exercisable only in accordance with their terms so that conditions to exercise will remain applicable, such as surrender of the Warrant Certificate, assuming (to the extent applicable) that such holder (i) was not a constituent person or an affiliate of a constituent person to such transaction, (ii) made no election with respect thereto, and (iii) was treated alike with the plurality of non- electing holders, and (b) that the Surviving Person shall succeed to and be substituted to every right and obligation of the Company in respect of this Agreement and the Warrants. The supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 12. The Surviving Person shall mail to holders of Warrants at the addresses appearing on the Warrant Register a notice briefly describing the supplemental warrant agreement. If the issuer of securities deliverable upon exercise of Warrants is an affiliate of the Surviving Person, that issuer shall join in the supplemental warrant agreement. -22- (ii) Notwithstanding the foregoing, if the Company enters into a Fundamental Transaction with another Person (other than a subsidiary of the Company) and consideration is payable to holders of shares of Capital Stock (or other securities or property) issuable or deliverable upon exercise of the Warrants that are exercisable in exchange for such shares in connection with such Fundamental Transaction which consideration consists solely of cash (assuming (to the extent applicable) that each such holder (i) was not a constituent person or an affiliate of a constituent person to such transaction, (ii) made no election with respect thereto, and (iii) was treated alike with the plurality of non-electing holders), then the holders of Warrants shall be entitled to receive distributions on the date of such event on an equal basis with holders of such shares (or other securities issuable upon exercise of the Warrants) as if the Warrants had been exercised immediately prior to such event, less the aggregate Exercise Price therefor. Upon receipt of such payment, if any, the rights of a holder of such Warrant shall terminate and cease and such holder's Warrants shall expire. (iii) If this paragraph (e) applies, it shall supersede the application of paragraph (a) of this Section 12. (f) Other Events. If any event occurs as to which the provisions of ------------ this Section 12 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly and adequately protect the rights of the Warrantholders in accordance with the essential intent and principles of such provisions, then such Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board of Directors, to protect such rights as aforesaid, but in no event shall any such adjustment have the effect of decreasing the Exercise Rate or decreasing the number of Warrant Shares issuable upon exercise of the Warrants. (g) Company Determination Final. Any determination that the Company --------------------------- or the board of directors of the Company must make pursuant to this Section 12 shall be conclusive, absent manifest error. (h) Warrant Agent's Adjustment Disclaimer. The Warrant Agent shall ------------------------------------- have no duty to determine when an adjustment under this Section 12 should be made, how it should be made or what it should be. The Warrant Agent shall have no duty to determine whether a supplemental warrant agreement under paragraph (e) need be entered into or whether any provisions of any supplemental warrant agreement are correct. The Warrant Agent shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon exercise of Warrants. The Warrant Agent shall not be responsible for the Company's failure to comply with this Section 12. (i) Specificity of Adjustment. Regardless of any adjustment in the ------------------------- number or kind of shares purchasable upon the exercise of the Warrants, Warrant Certificates theretofore -23- or thereafter issued may continue to express the same number and kind of Warrant Shares per Warrant as are stated on the Warrant Certificates initially issuable pursuant to this Agreement. (j) Voluntary Adjustment. The Company from time to time may -------------------- increase the Exercise Rate by any number and for any period of time; provided -------- that such period is not less than 20 Business Days. Whenever the Exercise Rate is so increased, the Company shall mail to holders at the addresses appearing on the Warrant Register and file with the Warrant Agent a notice of the increase. The Company shall give the notice at least 15 days before the date the increased Exercise Rate takes effect. The notice shall state the increased Exercise Rate and the period it will be in effect. A voluntary increase in the Exercise Rate shall not change or adjust the Exercise Rate otherwise in effect as determined by this Section 12. (k) Multiple Adjustments. After an adjustment to the Exercise Rate -------------------- for outstanding Warrants under this Section 12, any subsequent event requiring an adjustment under this Section 12 shall cause an adjustment to the Exercise Rate for outstanding Warrants as so adjusted. (l) When De Minimis Adjustment May Be Deferred. No adjustment in ------------------------------------------ the Exercise Rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any -------- ------- adjustments which by reason of the foregoing are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made by the Issuer and shall be rounded to the sixth decimal place. No adjustment need be made for a change in the par value or no par value of the Class A Common Stock or Class E Common Stock and no adjustment shall be deferred beyond the date on which a Warrant is exercised. (m) Tag-Along Transfers. ------------------- (i) If the Company receives any Transfer Notice by a holder of Class D Common Stock in respect of a proposed Tag-Along Transfer, as contemplated by Article IV, Section 4 of the Amended and Restated Articles of Incorporation of the Company (the "Articles"), the Company shall promptly provide a copy of such -------- notice to each Holder of a Warrant. (ii) Notwithstanding anything herein to the contrary, upon a Tag-Along Transfer of a number of shares of Class D Common Stock equal to or greater than 80% of the outstanding shares of Class D Common Stock, then to the extent the Warrants shall not have been exercised or the holder of the Warrant Shares issued upon such exercise shall not have given a Tag-Along Notice in each case on or before the Tag-Along Acceptance Date, such Warrants shall be subject to redemption pursuant to Article IV, Section 5 of the Articles and the Holders thereof shall be entitled to receive the Tag-Along Redemption Price (reduced by the aggregate Exercise Price payable by such Holders), in each case as if such Warrants had been exercised immediately prior to the Tag-Along Acceptance Date. Upon receipt of such -24- payment, if any, the rights of a holder of such Warrant shall terminate and cease and such holder's Warrants shall expire. (iii) Capitalized terms not otherwise defined in this Section 12(m) have the meanings set forth in the Articles. (n) Amendments of the Articles of Incorporation. The Company shall ------------------------------------------- not amend Section 4, Section 5, Section 6(b) or Section 8 of Article IV of its Articles of Incorporation in a manner that adversely affects the holders of Warrants, without the prior consent of the holders of a majority of the Warrants outstanding (excluding Warrants held by the Company or any of its Affiliates). SECTION 13. Fractional Interests. The Company shall not be -------------------- required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. SECTION 14. Notice of Certain Distributions; Certain Rights. The ----------------------------------------------- Company shall give prompt written notice to the Warrant Agent and shall cause the Warrant Agent, on behalf of and at the expense of the Company to give to each Holder written notice of any determination to make a distribution to the holders of its Common Stock of any cash dividends, assets, debt securities, preferred stock, or any rights or warrants to purchase debt securities, preferred stock, assets or other securities (other than Common Stock, or rights, options, or warrants to purchase Common Stock) of the Company, which notice shall state the nature and amount of such planned dividend or distribution and the record date therefor, and shall be received by the Holders at least 20 days prior to such record date therefor. Except as expressly provided in this Agreement or in any Warrant Certificate, the Holders shall have no right to vote, to consent, to exercise any preemptive rights or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. SECTION 15. Notices to the Company and Warrant Agent. Any notice ---------------------------------------- or demand authorized by this Agreement to be given or made by the Warrant Agent or by any Holder to or on the Company shall be sufficiently given or made when received at the office of the Company expressly designated by the Company as its office for purposes of this -25- Agreement (until the Warrant Agent is otherwise notified in accordance with this Section 15 by the Company), as follows: Jostens Inc. copies to: 5501 Norman Center Drive Gibson, Dunn & Crutcher, LLP Minneapolis, Minnesota 55437 200 Park Avenue Attn: General Counsel 47th Floor New York, NY 10166 Attn: Joerg H. Esdorn Any notice pursuant to this Agreement to be given by the Company or by any Holder(s) to the Warrant Agent shall be sufficiently given when received by the Warrant Agent at the address appearing below (until the Company is otherwise notified in accordance with this Section by the Warrant Agent). The Bank of New York 101 Barclay Street, 21W New York, NY 10286 Attn: Corporate Trust Trustee Administration Any notice or communication to a holder shall be mailed by first class mail, postage prepaid, to its address shown on the register kept by Warrant Agent. SECTION 16. Supplements and Amendments. (a) The Company and the -------------------------- Warrant Agent may from time to time supplement or amend this Agreement without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not in any way adversely affect the interests of any holder of Warrants as evidenced by an opinion of counsel, which may be in-house counsel, delivered to the Warrant Agent. (b) No other amendment or modifications of any provision of this Agreement or the Warrant Certificates or consent to any departure by the Company therefrom, shall in any event be effective without written consent of the Holders of a majority of the Warrants, excluding Warrants held by the Company or any of its Affiliates. The consent of each Holder of Warrants affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the Exercise Rate would be decreased (other than pursuant to adjustments provided in this Agreement) or any of the adjustment provisions in this Agreement would be changed in a manner that would have any such effect. -26- After an amendment or modification under this Section 16 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing such amendment or modification. 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 amendment or modification. In connection with any amendment or modification under this Section 16, the Company may offer, but shall not be obligated to offer, to any Holder who consents to such amendment or modification, consideration for such Holder's consent, so long as such consideration is offered to all Holders. (c) Executed or true and correct copies of any amendment or modification effected pursuant to the provisions of this Section 16 shall be delivered by the Company to each Holder of outstanding Warrants or Warrant Shares forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Warrant Shares (but only to the extent the Company has been provided with the addresses for the Holders). SECTION 17. Concerning the Warrant Agent. The Warrant Agent ---------------------------- undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the Holders, by their acceptance of Warrants, shall be bound: (a) The statements contained herein and in the Warrant Certificate shall be taken as statements of the Company, and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or any action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. (b) The Warrant Agent shall be protected and shall not be responsible for and shall incur no liability to the Company or any Holder for any failure of the Company to comply with the covenants contained in this Agreement or in the Warrants to be complied with by the Company. (c) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself (through its employees) or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct of any attorney or agent appointed with due care. (d) The Warrant Agent may consult at any time with legal counsel satisfactory to it (who may be counsel for the Company), and the Warrant Agent shall incur no liability or responsibility to the Company or to any holder in respect of any action taken, suffered or -27- omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. (e) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless such evidence in respect thereof be herein specifically prescribed) may be deemed conclusively to be proved and established by a certificate signed by the Chairman of the Board, the President, one of the Vice Presidents, the Treasurer or the Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (f) The Company agrees to pay the Warrant Agent such compensation for all services rendered by the Warrant Agent in the performance of its duties under this Agreement as may be separately agreed in writing, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Warrant Agent in the performance of its duties under this Agreement (including, without limitation, reasonable fees and expenses of counsel), and to indemnify the Warrant Agent and its agents, employees, directors, officers and affiliates and save it and them harmless against any and all liabilities, losses and expenses, including, without limitation, judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the acceptance and performance of its duties under this Agreement, except as a result of the Warrant Agent's gross negligence or bad faith, including, without limitation, the costs and expenses of defending against any claim (whether asserted by the Company, a Holder or any other Person) of liability in the premises including reasonable attorneys' fees and expenses. The provisions of this paragraph shall survive the resignation or removal of the Warrant Agent and the termination of this Agreement. (g) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the holders, as their respective rights or interests may appear. -28- (h) The Warrant Agent and any stockholder, director, officer or employee ("Related Parties") of the Warrant Agent may buy, sell or deal in any --------------- of the Warrants or other securities of the Company or become pecuniarily interested in any transactions in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement or such director, officer or employee. Nothing herein shall preclude the Warrant Agent or any Related Party from acting in any other capacity for the Company or for any other legal entity including, without limitation, acting as Transfer Agent or as a lender to the Company or an affiliate thereof. (i) The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions thereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own negligence or bad faith. No implied duties or obligations shall be read into this Agreement against the Warrant Agent. (j) The Warrant Agent will be protected and will not incur any liability or responsibility to the Company or to any holder for any action taken, suffered or omitted by it in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (k) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, Treasurer any Vice President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith and without negligence in accordance with instructions of any such officer or officers. (l) By countersigning Warrant Certificates or by any other act hereunder the Warrant Agent shall not be deemed to make any representations as to validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon) or of any securities or other property delivered upon exercise or tender of any Warrant, or as to the accuracy of the computation of the Exercise Price or the number or kind or amount of stock or other securities or other property deliverable upon exercise of any Warrant or the correctness of the representations of the Company made in any certifications that the Warrant Agent receives. The Warrant Agent shall not have any duty to calculate or determine any adjustments with respect either to the Exercise Price or the kind and amount of shares or other securities or any property receivable by holders of Warrants upon the exercise or tender of Warrants required from time to time, and the Warrant Agent shall have no duty or responsibility in determining the accuracy or correctness of any such calculation. -29- (m) No provision of this Agreement shall require the Warrant Agent 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 its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. SECTION 18. Change of Warrant Agent. The Warrant Agent may resign ----------------------- and be discharged from its duties under this Agreement by giving to the Company 30 days' notice in writing. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any holder (who shall with such notice submit his Warrant for inspection by the Company), then any holder or the resigning or removed Warrant Agent may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such court, the duties of the Warrant Agent shall be carried out by the Company. Any successor warrant agent, whether appointed by the Company or such a court, shall be a bank or trust company in good standing, incorporated under the laws of the United States of America or any State thereof or the District of Columbia and having at the time of its appointment as warrant agent a combined capital and surplus of at least $50,000,000. After appointment, the successor warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the former Warrant Agent shall deliver and transfer to the successor warrant agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for such purpose. Failure to file any notice provided for in this Section 18, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor warrant agent, as the case may be. In the event of such resignation or removal, the Company or the successor warrant agent shall mail by first class mail, postage prepaid, to each Holder, written notice of such removal or resignation and the name and address of such successor warrant agent. SECTION 19. Identity of Transfer Agent. Forthwith upon the -------------------------- appointment of any Transfer Agent for the Common Stock, or any other shares of the Company's Capital Stock issuable upon the exercise of the Warrants, the Company shall file with the Warrant Agent a statement setting forth the name and address of such Transfer Agent. SECTION 20. SEC Reports and Other Information. The Company shall --------------------------------- at all times provide the Warrant Agent and Holders of Warrants with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the -30- Exchange Act of documents and other reports to be so provided at the times specified for the filing of such information, documents and reports under such Sections of the Exchange Act. In addition, for so long as any Warrants remain outstanding, the Company will furnish to the Holders and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to beneficial holders of Warrants, if not obtainable from the SEC, information of the type that would be filed with the SEC pursuant to the foregoing provisions, upon the request of any such holder. Delivery of such reports, information and documents to the Warrant Agent is for informational purposes only and the Warrant Agent's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Warrant Agent is entitled to rely exclusively on Officers' Certificates). SECTION 21. Successors. All the covenants and provisions of this ---------- Agreement by or for the benefit of the Company, the Warrant Agent or any holder of Warrants shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 22. Termination. This Agreement shall terminate on the ----------- Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on any earlier date if all Warrants have been exercised or redeemed pursuant to this Agreement or the Company's Articles of Incorporation. SECTION 23. Governing Law. This Agreement and each Warrant ------------- Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and shall be governed by and construed in accordance with the laws of said State, without regard to the conflict of law rules thereof. SECTION 24. Benefits of This Agreement. Nothing in this Agreement -------------------------- shall be construed to give to any person or corporation other than the Company, the Warrant Agent and the registered holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the registered holders of the Warrant Certificates. SECTION 25. Counterparts. This Agreement may be executed in any ------------ number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. -31- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. JOSTENS, INC. By: /s/ Robert C. Buhrmaster ------------------------ Name: Robert C. Buhrmaster Title: Chairman of the Board, President and Chief Executive Officer THE BANK OF NEW YORK, as Warrant Agent By: /s/ Terrence Rawlins ------------------------ Name: Terrence Rawlins Title: Asst. Vice President EXHIBIT A The Warrants represented by this certificate may be required to be exercised upon the demand of the Company, upon the occurrence of certain events specified in the amended and restated articles of incorporation of the Company. The Company will furnish without charge to each holder who so requests a copy of the amended and restated articles of incorporation of the Company. This security is subject to mandatory redemption by the Company. Such redemption can be accomplished without the certificates representing such security being surrendered and whether or not the Company gives notice of such redemption. The Company will furnish without charge to each securityholder who so requests a full statement of the designations, preferences, limitations and relative rights of each class of stock or series of stock of the Company authorized to be issued, so far as they have been determined, and the authority of the board of directors to determine the relative rights and preferences of subsequent classes or series. No. [ ] CLASS E COMMON STOCK PURCHASE WARRANT OF JOSTENS, INC. THIS CERTIFIES THAT [ ], or its registered assigns, is the registered holder of ______________ Warrants (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option at any ------ time on or after the Separability Date and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from Jostens, Inc., a Minnesota corporation (the "Company"), 1.889155 shares of Class E Common ------- Stock, par value $0.01 per share, of the Company at an exercise price per share equal to $0.01 (the "Exercise Price"). -------------- This Warrant Certificate shall terminate and become void as of the close of business on May 1, 2010 (the "Expiration Date") or, if earlier, upon --------------- the exercise hereof as to all the shares of Class E Common Stock subject hereto. The number of shares issuable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement (as defined). This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of May 10, 2000 (the "Warrant Agreement"), between ----------------- the Company and The Bank of New York, as Warrant Agent, and is subject to the terms and provisions A-1 contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Warrantholders. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company at 5501 Norman Center Drive, Minneapolis, Minnesota 55437, Attn: General Counsel. Subject to the terms of the Warrant Agreement, the Warrants may be exercised upon surrender at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York, of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, and upon payment to the Warrant Agent for the account of the Company of the Exercise Price for the number of Warrant Shares in respect of which such Warrants are then exercised. The Exercise Price may be paid only by the surrender of one or more warrant certificates (and without the payment of the Exercise Price in cash) in exchange for such number of shares of Common Stock equal to the product of (a) the number of Warrant Shares for which such Warrant is exercisable as of the Exercise Date (if the Exercise Price were being paid in cash), and (b) the Cashless Exercise Ratio. The "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the excess of the Current Market Value per Warrant Share on the Exercise Date over the Exercise Price per share as of the Exercise Date and the denominator of which is the Current Market Value per Warrant Share on the Exercise Date. Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the holder's option to elect a Cashless Exercise, the number of Warrant Shares deliverable upon a Cashless Exercise shall be equal to the product of the number of Warrant Shares issuable in respect of those Warrants that the holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of the Agreement shall be applicable with respect to a surrender of a Warrant Certificate for less than the full number of Warrants represented thereby. The Warrants shall be exercisable only in whole. In the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrants evidenced thereby at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is irrevocably authorized to countersign and to deliver the required new Warrant Certificate or Certificates pursuant to the Warrant Agreement, and the Company, whenever required by the Warrant Agent, will promptly supply the Warrant Agent with Warrant Certificates duly executed on behalf of the Company for such purpose. A-2 This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent as such term is used in the Warrant Agreement. As provided in the Warrant Agreement, the Exercise Rate is subject to adjustment upon the happening of certain events. The Company will pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, -------- however, that the Company shall not be required to pay any tax or taxes which - ------- may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. All Warrant Shares issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The Company and the Warrant Agent may deem and treat Holders of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. A-3 The Warrants do not entitle any Holder hereof to any of the rights of a stockholder of the Company. JOSTENS, INC. By: -------------------------- Name: Title: By: -------------------------- Name: Title: DATED: COUNTERSIGNED: THE BANK OF NEW YORK, as Warrant Agent By: -------------------- Authorized Signature A-4 FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) JOSTENS, INC. The undersigned hereby irrevocably elects to exercise __________________ Warrants on the terms and conditions specified in the Warrant Certificate and the Warrant Agreement, surrenders this Warrant Certificate and all right, title and interest therein to Jostens, Inc. and directs that the Warrant Shares deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ____________, ____ Your Signature.______________________________________________________________ (Sign exactly as your name appears on the face of this Warrant Certificate) ___________________________________________________________________________ (Street Address) ___________________________________________________________________________ (City) (State) (Zip Code) Signature Guaranteed by: _________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: ASSIGNMENT FORM To assign this Warrant, fill in the form below: I or we assign and transfer this Warrant to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Warrant 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 face of this Warrant Certificate) Signature Guaranteed by: _________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EXHIBIT B(1) [Private Placement Legend] -------------------------- Neither this security nor any security issuable upon the exercise hereof has been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state or other jurisdiction. Neither such security nor any interest or participation herein or therein may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, such registration. By its acquisition hereby (but subject to certain rights to require registration of the warrants), the holder (1) represents that (a) it is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (b) it is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act) or (c) it is a foreign purchaser and is acquiring this security outside the United States within the meaning of Regulation S under the Securities Act; (2) agrees that it will not prior to two years after the later to occur of (i) the original issuance of the warrant evidenced hereby or (ii) acquisition thereof from an affiliate of Jostens, Inc. (or such later date specified in the warrant agreement referred to below, the "Resale Restriction Termination Date") resell or otherwise transfer the warrant evidenced hereby, except pursuant to an effective registration statement under the Securities Act or in a transaction not requiring registration under the Securities Act (a) to Jostens, Inc. or any subsidiary thereof, (b) inside the United States to a qualified institutional buyer in compliance with Rule 144A under the Securities Act, (c) inside the United States to an accredited investor that, prior to such transfer, furnishes to The Bank of New York (or any successor, the "Warrant Agent") a signed letter containing certain representations and agreements relating to the restriction on transfer of the warrants evidenced hereby (the form of which letter can be obtained from Jostens, Inc. or the Warrant Agent), (d) outside the United States in compliance with Regulation S promulgated under the Securities Act, (e) pursuant to any other available exemption from the registration requirements of the Securities Act, including the exemption provided by Rule 144 under the Securities Act (if available), subject in each of the foregoing cases to any requirement of law that the disposition of the property of such holder be at all times within such holder's control and to compliance with any applicable state securities laws; and (3) agrees that it will deliver to each person to whom this warrant is transferred a notice substantially to the effect of this legend. In connection with any transfer of the warrant evidenced hereby prior to the restriction termination date, in the case of certain transfers pursuant to clause (2)(b), 2(c) or (2)(d), the holder must make certain certifications to the Warrant Agent to confirm that such transfers are being made pursuant an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In addition, in the case of any transfer referred to in clause (2)(e) above, the holder must, prior to such transfer furnish to the Warrant Agent such certifications, legal opinions or other information as Jostens, Inc. or the Warrant Agent may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a B-1-1 transaction not subject to, the registration requirements of the Securities Act. Hedging transactions involving this security or any security issuable upon exercise hereof may not be conducted unless in compliance with the Securities Act. B-1- EXHIBIT B(2) [Unit Legend] ------------- [Any Warrant issued on or after the Issue Date and prior to the Separability Date shall bear the legend set forth in the following paragraph:] The Warrants evidenced by this certificate are initially issued as part of an issuance of units, each of which consists of $1,000 principal amount of the 12 3/4% Senior Subordinated Notes due 2010 of Jostens, Inc. (the "Notes") and one warrant (each, a "Warrant" and collectively, the "Warrants"), each Warrant initially entitling the holder thereof to purchase 1.889155 shares of Class E Common Stock, $0.01 par value, of Jostens, Inc. (the "Class E Common Stock"). Prior to the Separability Date, the Warrants evidenced by this certificate may not be transferred or exchanged separately from, and may be transferred or exchange only together with, the Notes. B-2-1 EXHIBIT B(3) [GLOBAL WARRANT LEGEND] Any Global Warrant countersigned and delivered hereunder shall bear a legend in substantially the following form: This security is a Global Warrant within the meaning of the Warrant Agreement hereinafter referred to and is registered in the name 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 Warrant Agreement, 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 Warrant Agreement. Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the issuer 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. B-3-1 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Class E Common Stock (the "Warrants") -------- of Jostens, Inc. This Certificate relates to __________ Warrants held by ________________ (the "Transferor"). ---------- The Transferor has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor hereby certifies that the Transferor is familiar with the Warrant Agreement dated as of May 10, 2000, between Jostens, Inc., a Minnesota corporation, and The Bank of New York, as warrant agent (the "Warrant ------- Agreement"), relating to the above captioned Warrants and the restrictions on - --------- transfers thereof as provided in Section 1.08 of such Warrant Agreement, and that the transfer of this Warrant does not require registration under the Securities Act of 1933, as amended (the "Act"), because*: --- / / Such Warrant is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 6(a)(y)(A) of the Warrant Agreement). / / Such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Act) in reliance on Rule 144A or is being transferred in accordance with Regulation S under the Act. / / Such Warrant is being transferred in accordance with Rule 144 under the Act. / / Such Warrant is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act, other than Rule 144A or Rule 144 or Regulation S under the Act. An opinion of counsel to the effect that such transfer does not require registration under the Act accompanies this Certificate. C-1 _______________________________ [INSERT NAME OF TRANSFEROR] By: ___________________________ Date: _____________________ *Check applicable box. C-2 EXHIBIT D [Form of Transferee Letter of Representation in Connection with Transfers to Institutional Accredited Investors] The Bank of New York [address] Ladies and Gentlemen: In connection with our proposed purchase of warrants to purchase Class E Common Stock, par value $0.01 per share (the "Securities"), of Jostens, Inc. ---------- (the "Company"), we confirm that: ------- 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, unless -------------- so registered, may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor Securities) (the "Resale Restriction ------------------ Termination Date") only (a) to the Company, (b) pursuant to a registration ---------------- statement which has been declared effective under the Securities Act, (c) for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer as defined in Rule 144A (a "QIB") that purchases for --- its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act that is acquiring the Securities for its own account or for the account of such an institutional "accredited investor", for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, or (f) pursuant to another available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the D-1 transferee substantially in the form of this letter to the warrant agent under the Warrant Agreement pursuant to which the Securities were issued (the "Warrant Agent") which shall provide, among other things, that the ------------- transferee is an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. The Warrant Agent and the Company reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Securities pursuant to clause (c), (d), (e) or (f) above to require the delivery of a written opinion of counsel, certifications, and or other information satisfactory to the Company and the Warrant Agent. 2. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor", and we are acquiring the Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act and we 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 its investment for an indefinite period. 3. We are acquiring the Securities purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion. D-2 4. You and your counsel are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, ________________________________ (Name of Purchaser) By: ____________________________ Date: ___________________________ Upon transfer the Securities would be registered in the name of the new beneficial owner as follows: Name: ______________________________ Address: ____________________________ Taxpayer ID Number: _________________ D-3 EXHIBIT E [Form of Transferee Letter of Representation in Connection with Transfers Pursuant to Regulation S] The Bank of New York [Address] Ladies and Gentlemen: In connection with our proposed purchase of warrants (the "Securities") to purchase Class E Common Stock, par value $0.01 per share, of Jostens, Inc. (the "Company"), we confirm that such sale has been effected ------- pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) The undersigned certifies that it is not a U.S. person and is not acquiring the Securities for the account or benefit of any U.S. person. (2) The undersigned agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act of 1933 or pursuant to an available exemption from registration. (3) The undersigned agrees not to engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act. You and your counsel 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. Defined terms used herein without definition have the respective meanings provided in Regulation S under the Securities Act. Very truly yours, (Name of Purchaser) By: ----------------------------- E-1 Upon transfer the Securities would be registered in the name of the new beneficial owner as follows: Name: ___________________________________ Address: _________________________________ Taxpayer ID Number: ______________________ E-2 EX-10.5 6 0006.txt WARRANT AGREEMENT EXHIBIT 10.5 ================================================================================ WARRANT AGREEMENT Between JOSTENS, INC. and THE BANK OF NEW YORK as Warrant Agent ------------------------- Dated as of May 10, 2000 ================================================================================ WARRANT AGREEMENT ----------------- WARRANT AGREEMENT (the "Agreement"), dated as of May 10, 2000, between Jostens Corp., a Minnesota corporation (together with any successors and assigns, the "Company"), and The Bank of New York, a New York banking corporation, as Warrant Agent (the "Warrant Agent"). WHEREAS, the Company proposes, among other things, to issue and sell pursuant to a Purchase Agreement, dated as of May 10, 2000, among the Company and DB Capital Investors, L.P. ("DB Capital"), (the "Purchase Agreement"), 14% Senior Redeemable Payment-In-Kind Preferred Stock (the "Preferred Stock"), along with Class E Common Stock Purchase Warrants (the "Warrants"), for the purchase of 531,325 shares of its Series E Common Stock, par value $0.01 per share (the "Class E Common Stock," and the shares of Class E Common Stock issuable upon exercise of the Warrants, together with any shares of the Class A Common Stock, par value $0.33-1/3 per share of the Company ("Class A Common Stock") issued upon conversion of such shares of Class E Common Stock, being referred to herein as the "Warrant Shares"); WHEREAS, the Company wishes the Warrant Agent to act on behalf of the Company and the Warrant Agent is willing to act in connection with the issuance, division, transfer, exchange and exercise of Warrants as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements herein, the Company and the Warrant Agent hereby agree as follows: SECTION 1. Appointment of Warrant Agent. The Company hereby appoints ---------------------------- the Warrant Agent to act as agent for the Company in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment. SECTION 2. Warrant Certificates. The Warrants will be certificated -------------------- and issued in registered form. Any certificates (the "Warrant Certificates") evidencing the Warrants to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit A attached hereto. --------- SECTION 3. Execution of Warrant Certificates. Warrant Certificates --------------------------------- shall be signed on behalf of the Company by its Chairman of the Board, President, Chief Executive Officer, Vice President, Treasurer or Chief Financial Officer and by its Secretary or an Assistant Secretary under its corporate seal. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, President, Chief Executive Officer, Vice President, Treasurer, Chief Financial Officer, Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, President, Chief Executive Officer, Vice President, Treasurer, Chief Financial Officer, Secretary or Assistant Secretary, notwithstanding the fact that at the time the Warrant Certificates shall be countersigned and delivered or disposed of he shall have ceased to hold such office. The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, Chief Executive Officer, a Vice President, the Treasurer, an Assistant Treasurer, Chief Financial Officer, Secretary or an Assistant Secretary of the Company, initially countersign and deliver Warrants entitling the holders thereof to purchase not more than the number of Warrant Shares referred to above in the first recital hereof and shall thereafter countersign and deliver Warrants as otherwise provided in this Agreement. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificates so signed shall have been countersigned by the Warrant Agent, or disposed of by the Company, such Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. Warrant Certificates shall be dated the date of countersignature by the Warrant Agent. SECTION 4. Registration and Countersignature. The Warrants shall be --------------------------------- numbered and shall be registered on the books of the Company maintained at the principal office of the Warrant Agent in the Borough of Manhattan, City of New York (the "Warrant Register") as they are issued. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, Chief Executive Officer, a Vice President, the Treasurer, Chief Financial Officer, Secretary or an Assistant Secretary of the Company, initially countersign and deliver Warrants entitling the holders thereof to purchase not more than the number of Warrant Shares referred to above in the first recital hereof and shall thereafter countersign and deliver Warrants as otherwise provided in this Agreement. The Company and the Warrant Agent may deem and treat the registered holders (the "Holders") of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. SECTION 5. Transfer and Exchange of Warrants. The Warrant Agent --------------------------------- shall from time to time, subject to the limitations of Section 6, register the transfer of any outstanding Warrants upon the records to be maintained by it for that purpose, upon surrender thereof duly endorsed or accompanied (if so required by it) by a written instrument or instruments of transfer in form reasonably satisfactory to the Warrant Agent, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Subject to the terms of this Agreement, each Warrant Certificate may be exchanged for another certificate or certificates entitling the Holder thereof to purchase a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle each Holder to purchase. Any Holder desiring to exchange a Warrant Certificate or Certificates shall make such request in writing delivered to the Warrant Agent, and shall surrender, duly endorsed or accompanied (if so required by the Warrant Agent) by a written instrument or instruments of transfer in form reasonably satisfactory to the Warrant Agent, the Warrant Certificate or Certificates to be so exchanged. Upon registration of transfer, the Company shall execute and the Warrant Agent shall countersign and deliver, by certified mail or such other method of delivery which shall provide proof of delivery, a new Warrant Certificate or Certificates to the persons entitled thereto. The Warrant Certificates may be exchanged at the option of the Holder thereof, when surrendered at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York for another Warrant Certificate, or other Warrant Certificates of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares. No service charge shall be made for any exchange or registration of transfer of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any stamp or other tax or other governmental charge that is imposed in connection with any such exchange or registration of transfer. SECTION 6. Registration of Transfers and Exchanges. (a) Transfer --------------------------------------- -------- and Exchange. The Warrants shall be transferable upon the surrender of a - ------------ Warrant Certificate for registration of transfer and in compliance with the provisions of this Agreement. When a Warrant is presented to the Warrant Agent with a request to register a transfer, the Warrant Agent shall register the transfer as requested if the requirements of Section 8-401(a) of the Uniform Commercial Code are met. When Warrants are presented to the Warrant Agent with a request to exchange them for an equal number of Warrants of other denominations, the Warrant Agent shall make the exchange as requested if the requirements of Sections 8-401(a)(1) and (2) of the Uniform Commercial Code of the State of New York are met. To permit registration of transfers and exchanges, the Company shall execute Warrant Certificates at the Warrant Agent's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer, exchange or exercise pursuant to this Section 6. Subject to the restrictions set forth in this Section 6, each Holder may at any time and from time to time freely transfer its Warrant and the Warrant Shares in whole or in part. No Warrant has been, and the Warrant Shares at the time of their issuance may not be, registered under the Securities Act, and, except as provided in any separate agreement providing for registration rights, nothing herein contained shall be deemed to require the Company to so register any Warrant or Warrant Shares. The Warrants and the Warrant Shares are issued or issuable subject to the provisions and conditions contained herein, and every Holder of a Warrant or Warrant Shares by accepting such Warrant or Warrant Shares agrees with the Company to such provisions and conditions, and represents to the Company that such Warrant has been acquired and the Warrant Shares will be acquired for the account of such Warrantholder for investment and not with a view to or for sale in connection with any distribution thereof. Except as otherwise permitted by this Section 6, each Warrant (including each Warrant issued upon the transfer of any Warrant) and/or all Warrant Shares, as appropriate, shall be stamped or otherwise imprinted with legends in substantially the following form: (i) "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE COMPANY SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS" and (ii) "THIS SECURITY IS ALSO SUBJECT TO A SHAREHOLDERS AGREEMENT, DATED AS OF MAY 10, 2000, AMONG THE COMPANY, INVESTCORP INVESTMENT EQUITY LIMITED, THE OTHER HOLDERS OF THE CLASS D COMMON STOCK OF THE COMPANY AND DB CAPITAL INVESTORS L.P. A COPY OF SUCH SHAREHOLDERS AGREEMENT MAY BE OBTAINED WITHOUT CHARGE AND UPON REQUEST ADDRESSED TO THE SECRETARY OF THE COMPANY AT THE REGISTERED OFFICE OF THE COMPANY" and (iii) "THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY BE REQUIRED TO BE EXERCISED UPON THE DEMAND OF THE COMPANY, UPON THE OCCURRENCE OF CERTAIN EVENTS SPECIFIED IN THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH HOLDER WHO SO REQUESTS A COPY OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY" and (iv) "THIS SECURITY IS SUBJECT TO MANDATORY REDEMPTION BY THE COMPANY. SUCH REDEMPTION CAN BE ACCOMPLISHED WITHOUT THE CERTIFICATES REPRESENTING SUCH SECURITIES BEING SURRENDERED AND WHETHER OR NOT THE COMPANY GIVES NOTICE OF SUCH REDEMPTION. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SECURITYHOLDER WHO SO REQUESTS A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF EACH CLASS OF STOCK OR SERIES OF STOCK OF THE CORPORATION AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES". Each Warrant issued upon the transfer of any Warrant shall bear the restrictive legends set forth above, unless, with respect to the legend in paragraph (i) above, to the extent that the Holder thereof has delivered to the Company an opinion of counsel (which may be an opinion of an internal counsel of the Holder) reasonably satisfactory to the Company to the effect that such legend is not required in order to ensure compliance with the Securities Act. (b) Obligations with Respect to Transfers and Exchanges of Warrants. --------------------------------------------------------------- (i) To permit registrations of transfers and exchanges, the Company shall execute, at the Warrant Agent's request, and the Warrant Agent shall countersign Warrants. (ii) All Warrants issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Agreement as the Warrants surrendered upon the registration of transfer or exchange. SECTION 7. Separation of Warrants; Terms of Warrants; Exercise of ------------------------------------------------------ Warrants. The Preferred Stock and Warrants will be separately transferable as - -------- of the date hereof. Subject to the terms of this Agreement, each Warrant holder shall have the right, which may be exercised commencing on or after the date of issuance and until 5:00 p.m., New York City time, on May 1, 2011 (the "Expiration Date"), to receive from the Company upon the exercise of each Warrant the number of fully paid and nonassessable Warrant Shares which the holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price (as defined) for such Warrant Shares. Each Warrant not exercised prior to the Expiration Date shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants. The price per share at which Warrant Shares shall be purchasable upon exercise of Warrants (the "Exercise Price") regardless of the Exercise Rate (as defined) then in effect shall be $0.01. A Warrant may be exercised upon surrender at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York, of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by a participant in a recognized Signature Guarantee Medallion Program, and upon payment to the Warrant Agent for the account of the Company of the Exercise Price for the number of Warrant Shares in respect of which such Warrants are then exercised. The "Exercise Date" for a Warrant shall be the date when all of the items ------------- referred to in the immediately preceding sentence are received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business Day and the exercise of the Warrants will be effective as of such Exercise Date. If any items referred to in such sentence are received after 11:00 a.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be effective on the next succeeding Business Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on the Expiration Date, if all of the items referred to in such sentence are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, the exercise of the Warrants to which such items relate will be effective on the Expiration Date. Payment of the aggregate Exercise Price shall be made (i) in cash or by certified or official bank check to the order of the Company in New York Clearing House Funds, (ii) by wire transfer to an account specified by the Company on request of the Holder, such request to be made not less than two Business Days prior to the proposed exercise of the Warrants or (iii) without the payment of cash, by reducing the number of shares of Class E Common Stock obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Class E Common Stock upon the exercise of such Warrant equal to the product of (A) the number of shares of Class E Common Stock issuable as of the Exercise Date upon the exercise of such Warrant (if payment of the Exercise Price were being made in cash) and (B) a fraction (the "Cashless Exercise Ratio"), the numerator of which is the excess of the Current Market Value (as defined below) per share of the Class A Common Stock of the Company on the Exercise Date over the Exercise Price per share as of the Exercise Date of such Warrant and the denominator of which is the Current Market Value per share of the Class A Common Stock of the Company on such Exercise Date. An exercise of a Warrant in accordance with the immediately preceding clause (ii) is herein called a "Cashless Exercise." Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the Holder's option to elect a Cashless Exercise, the number of shares of Class E Common Stock deliverable upon a Cashless Exercise shall be equal to the number of shares of Common Stock issuable upon the exercise of Warrants that the Holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. Subject to the provisions of Section 6 hereof, upon such surrender of Warrants and payment of the Exercise Price or the election of a Cashless Exercise, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Warrantholder may designate a certificate or certificates for the number of Warrant Shares issuable upon the exercise of such Warrants together with cash as provided in Section 13. The Warrants shall be exercisable, at the election of the holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably authorized to countersign and to deliver the required new Warrant Certificate or Certificates pursuant to the provisions of this Section and of Section 3 hereof, and the Company, whenever required by the Warrant Agent, will promptly supply the Warrant Agent with Warrant Certificates duly executed on behalf of the Company for such purpose. All Warrant Certificates surrendered upon exercise of Warrants shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall then be disposed of by the Warrant Agent in a manner consistent with the Warrant Agent's customary procedure for such disposal and in a manner reasonably satisfactory to the Company. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all monies received by the Warrant Agent for the purchase of the Warrant Shares through the exercise of such Warrants. The Warrant Agent shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the holders during normal business hours at its office. The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Agreement as the Warrant Agent may request. SECTION 8. Payment of Taxes. The Company will pay all documentary ---------------- stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required -------- ------- to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 9. Mutilated or Missing Warrant Certificates. In case any of ----------------------------------------- the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company may at its discretion issue and the Warrant Agent may countersign, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such Warrant Certificate and indemnity also satisfactory to them. SECTION 10. Reservation of Warrant Shares. The Company will at all ----------------------------- times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class E Common Stock or its authorized and issued Class E Common Stock held in its treasury, for the purpose of enabling it to satisfy an obligation to issue shares of Class E Common Stock upon exercise of Warrants, the maximum number of shares of Class E Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. In addition, the Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class A Common Stock or its authorized and issued Class A Common Stock held in its treasury, for the purpose of enabling it to satisfy an obligation to issue shares of Class A Common Stock upon the conversion of shares of Class E Common Stock issuable upon the exercise of Warrants, the maximum number of shares of Class A Common Stock which may then be deliverable upon the conversion of all such shares of Class E Common Stock. The Company or, if appointed, the transfer agent for the Class A Common Stock and the Class E Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 13. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each holder pursuant to Section 14 hereof. The Company covenants that all shares of Class E Common Stock which may be issued upon exercise of Warrants made in accordance with the terms of this Agreement will, upon payment of the Exercise Price therefor (or the election of a Cashless Exercise, as the case may be) and issue, be validly authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issuance thereof. The Company further covenants that all shares of Class A Common Stock which may be issued upon the conversion in accordance with the terms thereof of any shares of Class E Common Stock issuable upon the exercise of Warrants made in accordance with the terms of this Agreement will be validly authorized and issued, fully paid, non-assessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issuance thereof. The Company will take no action to increase the par value of the Class E Common Stock to an amount in excess of the Exercise Price, and the Company will not enter into any agreements inconsistent with the rights of Holders hereunder. The Company will use its reasonable best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Agreement. The Company shall not take any action reasonably within its control, including the hiring of a broker to solicit exercises, which would render unavailable an exemption from registration under the Securities Act which might otherwise be available with respect to the issuance of Warrant Shares upon exercise of any Warrants. SECTION 11. Obtaining Stock Exchange Listings. The Company will from --------------------------------- time to time take all action which may be necessary so that the Warrant Shares which are shares of Class A Common Stock, immediately upon their issuance upon the conversion of the shares of Class E Common Stock issuable upon the exercise of Warrants, will be listed on the principal securities exchanges and markets within the United States of America (including the NASDAQ National Market System), if any, on which other shares of Class A Common Stock are then listed. In the event that, at any time during the period in which the Warrants are exercisable, the Class A Common Stock is not listed on any principal securities or exchanges or markets within the United States of America, the Company will use its reasonable best efforts to permit the Warrant Shares to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the Private Offering, Resales and Trading through Automated Linkages market. SECTION 12. Adjustment of Number of Warrant Shares Issuable. The ----------------------------------------------- number of shares of Class E Common Stock issuable upon the exercise of each Warrant (the "Exercise Rate") is subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 12. The Exercise Rate shall initially be one (1.00). (a) Adjustment for Change in Capital Stock. If, after the Issue Date, -------------------------------------- the Company: (i) pays a dividend or makes a distribution on shares of any class or series of its Common Stock payable in shares of its Common Stock of the Company, except to the extent any such dividend or distribution results in the grant, issuance, sale or making of Distribution Rights or a Distribution pursuant to Section 12(c); (ii) subdivides or splits any of its outstanding shares of any class or series of Common Stock into a greater number of shares; (iii) combines any of its outstanding shares of any class or series of Common Stock into a smaller number of shares; or (iv) issues by reclassification of any class or series of its Common Stock any shares of any of its Capital Stock; then the Exercise Rate in effect immediately prior to such action for each Warrant then outstanding shall be adjusted by multiplying the Exercise Rate in effect immediately prior to such action by a fraction (A) the numerator of which shall be the number of shares of all classes or series of Common Stock outstanding immediately after such action and (B) the denominator of which shall be the number of shares of all classes or series of Common Stock outstanding immediately prior to such action or the record date applicable to such action, if any (regardless of whether the Warrants then outstanding are then exercisable and without giving effect to the Cashless Exercise option). The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. In the event that such dividend or distribution is not so paid or made or such subdivision, combination or reclassification is not effected, the Exercise Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such record date or effective date had not been so fixed. If after an adjustment a holder of a Warrant upon exercise of such Warrant may receive shares of two or more classes or series of Capital Stock of the Company, the Exercise Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class or series of Capital Stock as is contemplated by this Section 12 with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Section 12. (b) Adjustment for Certain Sales of Common Stock Below Current Market ----------------------------------------------------------------- Value. If, after the Issue Date, the Company (i) grants or sells to any - ----- Affiliate of the Company (other than a Subsidiary) or (ii) grants or sells, or offers to grant or sell to all holders of any class or series of Common Stock, shares of any class or series of Common Stock or any securities convertible into or exchangeable or exercisable for any class or series of Common Stock (other than (1) pursuant to the exercise of the Warrants, (2) pursuant to any security convertible into, or exchangeable or exercisable for, shares of Common Stock outstanding as of the Issue Date, (3) upon the conversion, exchange or exercise of any convertible, exchangeable or exercisable security as to which upon the issuance thereof an adjustment pursuant to this Section 12 has been made or (4) upon the conversion, exchange or exercise of convertible, exchangeable or exercisable securities of the Company outstanding on the Issue Date (to the extent in accordance with the terms of such securities as in effect on such date), including any warrants issued to purchasers of the Company's 12 3/4% Senior Subordinated Notes due 2010 at a price per share below the then Current Market Value, the Exercise Rate for each Warrant then outstanding shall be adjusted in accordance with the formula: E/1/ = E x (O+N) ----------- (O + (N x P/M)) where: E/1/ = the adjusted Exercise Rate for each Warrant then outstanding; E = the then current Exercise Rate for each Warrant then outstanding; O = the aggregate number of shares of Common Stock of all classes outstanding immediately prior to the sale of such Common Stock or issuance of securities convertible, exchangeable or exercisable for Common Stock; N = the number of shares of Common Stock of any class or series so sold or the maximum stated number of shares of Common Stock of any class or series issuable upon the conversion, exchange or exercise of any such convertible, exchangeable or exercisable securities, as the case may be; P = the proceeds per share of Common Stock of the relevant class or series received by the Company, which (i) in the case of shares of Common Stock of any class or series is the amount received by the Company in consideration for the sale and issuance of such shares; and (ii) in the case of securities convertible into or exchangeable or exercisable for shares of Common Stock of any class or series is the amount received by the Company in consideration for the sale and issuance of such convertible or exchangeable or exercisable securities, plus the minimum aggregate amount of additional consideration, other than the surrender of such convertible or exchangeable securities, payable to the Company upon exercise, conversion or exchange thereof; and M = the Current Market Value as of the Time of Determination or at the time of sale, as the case may be, of a share of Common Stock of the relevant class or series. The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this paragraph (b) applies or upon consummation of the sale of Common Stock, as the case may be. To the extent that shares of Common Stock are not delivered after the expiration of such rights, warrants or options, the Exercise Rate for each Warrant then outstanding shall be readjusted to the Exercise Rate which would otherwise be in effect had the adjustment made upon the issuance of such rights, warrants or options been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Exercise Rate for each Warrant then outstanding shall again be adjusted to be the Exercise Rate which would then be in effect if such date fixed for determination of shareholders entitled to receive such rights, warrants or options had not been so fixed. No adjustment shall be made under this paragraph (b) if the application of the formula stated above in this paragraph (b) would result in a value of E/1/ that is lower than the value of E. No adjustment shall be made under this paragraph (b) for any adjustment which is the subject of paragraphs (a) and (e) of this Section 12. Notwithstanding the foregoing, no adjustment in the Exercise Rate shall be required upon the grant, conversion, exchange or exercise of options to or by officers, directors or employees of the Company to acquire Common Stock that (i) are granted or exercised pursuant to any option or option plan as in effect on the Issue Date or described in the offering memorandum concerning the Units or (ii) have an exercise price, at the time of issuance thereof, at least equal to the then Current Market Value of the Common Stock underlying such options. (c) Adjustment Upon Certain Distributions. ------------------------------------- (i) If at any time after the Issue Date, the Company grants, issues or sells any Capital Stock or other securities (other than Common Stock), any Convertible Security, or options, warrants or rights to purchase Capital Stock or other securities (other than Common Stock) pro rata to the record holders of --- ---- any class or series of Common Stock (the "Distribution Rights") or, without duplication, makes any distribution (other than a distribution pursuant to a plan of liquidation) (a "Distribution") on shares of any class or series of Common Stock (whether in cash, property, evidences of indebtedness, or otherwise), then the Exercise Rate shall be adjusted in accordance with the formula: E/1/ = E x (M/(M-F)) where: E/1/ = the adjusted Exercise Rate; E = the current Exercise Rate for each Warrant; M = the Current Market Value per share of Class A Common Stock at the Time of Determination; F = the fair market value at the Time of Determination of such portion of the options, Convertible Securities, warrants, cash, property or other securities or assets distributable pursuant to such Distribution Rights or Distribution per share of outstanding of Common Stock. The adjustment shall become effective immediately after the Time of Determination with respect to the shareholders entitled to receive the options, Convertible Securities, warrants, cash, property, evidences of indebtedness or other securities or assets to which this paragraph (c)(i) applies. No adjustment shall be made under this paragraph (b) if the application of the formula stated above in this paragraph (c)(i) would result in a value of E1 that is lower than the value of E. This paragraph (c)(i) does not apply to any securities which result in an adjustment pursuant to paragraphs (a) or (b) of this Section 12. (ii) Notwithstanding the provisions of paragraph (c)(i) of this Section 12, an event which would otherwise give rise to an adjustment pursuant to Section 12(c)(i) shall not give rise to such adjustment if the Company grants, issues or sells Distribution Rights to the Holders of Warrants or includes the holders of the Warrants in such Distribution, in each case on a pro rata basis, assuming --- ---- for the purpose of this Section 12(c)(ii) that (x) all outstanding shares of Common Stock are of one class and (y) the Warrants had been exercised (disregarding for this purpose all provisions with respect to Cashless Exercise). (iii) Notwithstanding anything to the contrary set forth in this Section 12(c), if, at any time, the Company makes any distribution pursuant to any plan of liquidation (a "Liquidating Distribution") on shares of Class A Common Stock or Class E Common Stock (whether in cash, property, evidences of indebtedness or otherwise), then, subject to applicable law, the Company shall make to each Holder of Warrants the aggregate Liquidating Distribution which such Holder would have acquired if such Holder had held the maximum number of shares of Class E Common Stock acquirable upon the complete exercise of each Holder's Warrants (regardless of whether the Warrants are then exercisable and without giving effect to the Cashless Exercise option) immediately before the Time of Determination of shareholders entitled to receive Liquidating Distributions; provided, any Holder of Warrants may elect to receive Liquidating Distributions - -------- on the basis that such Holder held the maximum number of shares of Class A Common Stock into which the shares of Class E Common Stock described in this sentence could be converted (without reference to any required holding period) immediately before the Time of Determination of shareholders entitled to receive Liquidating Distributions. (d) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the -------------------- Company shall promptly mail to holders of Warrants then outstanding at the addresses appearing on the Warrant Register a notice of the adjustment. The Company shall file with the Warrant Agent and any other Registrar such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct, absent manifest error. Neither the Warrant Agent nor any such Registrar shall be under any duty or responsibility with respect to any such certificate except to exhibit the same during normal business hours to any holder desiring inspection thereof. (e) Reorganization of Company; Fundamental Transaction. -------------------------------------------------- (i) If the Company, in a single transaction or through a series of related transactions, consolidates with or merges with or into any other person or sells, assigns, transfers, leases, conveys or otherwise disposes of all or substantially all of its properties and assets to another person or group of affiliated persons or is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Stock (a "Fundamental ----------- Transaction"), as a condition to consummating any such transaction the person - ----------- formed by or surviving any such consolidation or merger if other than the Company or the person to whom such transfer has been made (the "Surviving --------- Person") shall enter into a supplemental warrant agreement. The supplemental - ------ warrant agreement shall provide (a) that the holder of a Warrant then outstanding may exercise the Warrant for the kind and amount of securities, cash or other assets which such holder would have received immediately after the Fundamental Transaction if such holder had exercised the Warrant and, if such Warrant is then exercisable into shares of a class or series of Common Stock (such as Class E Common Stock as constituted on the Issue Date) that is convertible into shares of another class or series of Common Stock (such as Class A Common Stock as constituted on the Issue Date) if such holder had converted such Warrant Shares into such other class or series of Common Stock, in each case immediately before the effective date of the transaction (whether or not the Warrants were then exercisable and without giving effect to the Cashless Exercise option), it being understood that the Warrants will remain exercisable only in accordance with their terms so that conditions to exercise will remain applicable, such as payment of Exercise Price, assuming (to the extent applicable) that such holder (i) was not a constituent person or an affiliate of a constituent person to such transaction, (ii) made no election with respect thereto, and (iii) was treated alike with the plurality of non- electing holders, and (b) that the Surviving Person shall succeed to and be substituted to every right and obligation of the Company in respect of this Agreement and the Warrants. The supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 12. The Surviving Person shall mail to holders of Warrants at the addresses appearing on the Warrant Register a notice briefly describing the supplemental warrant agreement. If the issuer of securities deliverable upon exercise of Warrants is an affiliate of the Surviving Person, that issuer shall join in the supplemental warrant agreement. (ii) Notwithstanding the foregoing, if the Company enters into a Fundamental Transaction with another Person (other than a subsidiary of the Company) and consideration is payable to holders of shares of Capital Stock (or other securities or property) issuable or deliverable upon exercise of the Warrants that are exercisable in exchange for such shares in connection with such Fundamental Transaction which consideration consists solely of cash ( assuming (to the extent applicable) that each such holder (i) was not a constituent person or an affiliate of a constituent person to such transaction, (ii) made no election with respect thereto, and (iii) was treated alike with the plurality of non-electing holders), then the holders of Warrants shall be entitled to receive distributions on the date of such event on an equal basis with holders of such shares (or other securities issuable upon exercise of the Warrants) as if the Warrants had been exercised immediately prior to such event, less the aggregate Exercise Price therefor. Upon receipt of such payment, if any, the rights of a holder of such Warrant shall terminate and cease and such holder's Warrants shall expire. (iii) If this paragraph (e) applies, it shall supersede the application of paragraph (a) of this Section 12. (f) Other Events. If any event occurs as to which the foregoing provisions ------------ of this Section 12 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then such Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board of Directors, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of decreasing the Exercise Rate or decreasing the number of Warrant Shares issuable upon exercise of the Warrants. (g) Warrant Agent's Adjustment Disclaimer. The Warrant Agent shall have no ------------------------------------- duty to determine when an adjustment under this Section 12 should be made, how it should be made or what it should be. The Warrant Agent shall have no duty to determine whether a supplemental warrant agreement under paragraph (e) need be entered into or whether any provisions of any supplemental warrant agreement are correct. The Warrant Agent shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon exercise of Warrants. The Warrant Agent shall not be responsible for the Company's failure to comply with this Section 12. (h) Adjustment for Tax Purposes. In the event of a taxable distribution to --------------------------- holders of shares of Common Stock which results in an adjustment to the number of shares of Common Stock or other consideration for which such a Warrant may be exercised, the holders of the Warrants may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend. (i) Specificity of Adjustment. Regardless of any adjustment in the number ------------------------- or kind of shares purchasable upon the exercise of the Warrants, Warrant Certificates theretofore or thereafter issued may continue to express the same number and kind of Warrant Shares per Warrant as are stated on the Warrant Certificates initially issuable pursuant to this Agreement. (j) Voluntary Adjustment. The Company from time to time may increase the -------------------- Exercise Rate by any number and for any period of time provided that such period is not less than 20 Business Days. Whenever the Exercise Rate is so increased, the Company shall mail to holders at the addresses appearing on the Warrant Register and file with the Warrant Agent a notice of the increase. The Company shall give the notice at least 15 days before the date the increased Exercise Rate takes effect. The notice shall state the increased Exercise Rate and the period it will be in effect. A voluntary increase in the Exercise Rate shall not change or adjust the Exercise Rate otherwise in effect as determined by this Section 12. (k) Multiple Adjustments. After an adjustment to the Exercise Rate for -------------------- outstanding Warrants under this Section 12, any subsequent event requiring an adjustment under this Section 12 shall cause an adjustment to the Exercise Rate for outstanding Warrants as so adjusted. (l) When De Minimis Adjustment May Be Deferred. No adjustment in the ------------------------------------------ Exercise Rate need be made unless the adjustment would require an increase of at least one percent (1%) in the Exercise Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustments. All calculations under this Section 12 shall be made to the nearest 1/1000th of a share, as the case may be. (m) Treasury Shares Disregarded. For purposes of this Section 12, the --------------------------- number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (n) Tag-Along Transfers. ------------------- (i) If the Company receives any Transfer Notice by a holder of Class D Common Stock in respect of a proposed Tag-Along Transfer, as contemplated by Section 4 of the Amended and Restated Articles of Incorporation of the Company (the "Articles"), the Company shall promptly provide a copy of such notice to -------- each Holder of a Warrant. (ii) Notwithstanding anything herein to the contrary, upon a Tag-Along Transfer of a number of shares of Class D Common Stock equal to or greater than 80% of the outstanding shares of Class D Common Stock, then to the extent the Warrants shall not have been exercised or the holder of the Warrant Shares issued upon such exercise shall not have given a Tag-Along Notice in each case on or before the Tag-Along Acceptance Date, such Warrants shall be subject to redemption pursuant to Section 5 of the Articles and the Holders thereof shall be entitled to receive the Tag-Along Redemption Price (reduced by the aggregate Exercise Price payable by such Holders), in each case as if such Warrants had been exercised immediately prior to the Tag-Along Acceptance Date. Upon receipt of such payment, if any, the rights of a holder of such Warrant shall terminate and cease and such holder's Warrants shall expire. (iii) Capitalized terms not otherwise defined in this Section 12(n) have the meanings set forth in the Articles. (iv) Sections 4 and 5 of the Articles shall not be amended without the consent of a majority-in-interest of the Holders of Warrants. SECTION 13. Fractional Interests. The Company shall not be required -------------------- to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value per share of the Class A Common Stock of the Company on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. SECTION 14. Notice of Certain Distributions; Certain Rights. The ----------------------------------------------- Company shall give prompt written notice to the Warrant Agent and shall cause the Warrant Agent, on behalf of and at the expense of the Company to give to each Holder written notice of any determination to make a distribution to the holders of its Common Stock of any cash dividends, assets, debt securities, preferred stock, or any rights or warrants to purchase debt securities, preferred stock, assets or other securities (other than Common Stock, or rights, options, or warrants to purchase Common Stock) of the Company, which notice shall state the nature and amount of such planned dividend or distribution and the record date therefor, and shall be received by the Holders at least 20 days prior to such record date therefor. Nothing contained in this Agreement or in any Warrant Certificate shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. SECTION 15. Notices to the Company and Warrant Agent. Any notice or ---------------------------------------- demand authorized by this Agreement to be given or made by the Warrant Agent or by any Holder to or on the Company shall be sufficiently given or made when received at the office of the Company expressly designated by the Company as its office for purposes of this Agreement (until the Warrant Agent is otherwise notified in accordance with this Section 15 by the Company), as follows: Jostens Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Attn: General Counsel with a copy to: Gibson, Dunn & Crutches LLP 200 Park Avenue 47th Floor New York, New York 10166 Attention: Joerg H. Esdorn, Esq. Any notice pursuant to this Agreement to be given by the Company or by any Holder(s) to the Warrant Agent shall be sufficiently given when received by the Warrant Agent at the address appearing below (until the Company is otherwise notified in accordance with this section by the Warrant Agent). Any notice or communication to a Holder shall be mailed by first class mail, postage prepaid, to its address shown on the register kept by Warrant Agent. SECTION 16. Supplements and Amendments. (a) The Company and the -------------------------- Warrant Agent may from time to time supplement or amend this Agreement without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not in any way adversely affect the interests of any holder of Warrants as evidenced by an opinion of counsel which may be in-house counsel delivered to the Warrant Agent. (b) No other amendment or modifications of any provision of this Agreement or the Warrant Certificates or consent to any departure by the Company therefrom, shall in any event be effective without written consent of the Holders of Warrants representing at least a majority of all the Warrant Shares issued or issuable upon exercise of the Warrants (the "Requisite Holders"), provided, however, -------- ------- that without the consent of each Holder affected thereby, no amendment, modification, termination or waiver may: (i) make any change to the definition of "Requisite Holders"; or (ii) make any change in the foregoing amendment and waiver provisions. After an amendment or modification under this Section 16 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing such amendment or modification. 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 amendment or modification. In connection with any amendment or modification under this Section 16, the Company may offer, but shall not be obligated to offer, to any Holder who consents to such amendment or modification, consideration for such Holder's consent, so long as such consideration is offered to all Holders. (c) The Company will not effect any proposed amendment or modification of any of the provisions of this Agreement or the Warrant Certificates unless each Holder (irrespective of the amount of Warrants or Warrant Shares then owned by it) shall be informed thereof by the Company prior to the effectuation thereof (but only to the extent the Company has been provided with addresses for the Holders) and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any amendment or modification effected pursuant to the provisions of this Section 16 shall be delivered by the Company to each Holder of outstanding Warrants or Warrant Shares forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Warrant Shares (but only to the extent the Company has been provided with the addresses for the Holders). SECTION 17. Concerning the Warrant Agent. The Warrant Agent ---------------------------- undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the Holders, by their acceptance of Warrants, shall be bound (it being understood that the Company, to the extent that it acts as Warrant Agent, shall not be entitled to the benefits or protections of this Section 17.): (a) The statements contained herein and in the Warrant Certificate shall be taken as statements of the Company, and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or any action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. (b) The Warrant Agent shall not be responsible for and shall incur no liability to the Company or any Holder for any failure of the Company to comply with the covenants contained in this Agreement or in the Warrants to be complied with by the Company. (c) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself (through its employees) or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct of any attorney or agent appointed with due care. (d) The Warrant Agent may consult at any time with legal counsel satisfactory to it (who may be counsel for the Company), and the Warrant Agent shall incur no liability or responsibility to the Company or to any holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. (e) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless such evidence in respect thereof be herein specifically prescribed) may be deemed conclusively to be proved and established by a certificate signed by the Chairman of the Board, the President, one of the Vice Presidents, the Treasurer or the Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (f) The Company agrees to pay the Warrant Agent such compensation for all services rendered by the Warrant Agent in the performance of its duties under this Agreement as may be separately agreed in writing, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Warrant Agent in the performance of its duties under this Agreement (including, without limitation, reasonable fees and expenses of counsel), and to indemnify the Warrant Agent and its agents, employees, directors, officers and affiliates and save it and them harmless against any and all liabilities, losses and expenses, including, without limitation, judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the performance of its duties under this Agreement, except as a result of the Warrant Agent's negligence or bad faith. The provisions of this paragraph shall survive the resignation or removal of the Warrant Agent and the termination of this Agreement. (g) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the holders, as their respective rights or interests may appear. (h) The Warrant Agent and any stockholder, director, officer or employee ("Related Parties") of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transactions in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement or such director, officer or employee. Nothing herein shall preclude the Warrant Agent or any Related Party from acting in any other capacity for the Company or for any other legal entity including, without limitation, acting as Transfer Agent or as a lender to the Company or an affiliate thereof. (i) The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions thereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own negligence or bad faith. No implied duties or obligations shall be read into this Agreement against the Warrant Agent. (j) The Warrant Agent will not incur any liability or responsibility to the Company or to any holder for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (k) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant (except its countersignature thereof); nor shall the Warrant Agent by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Warrant Shares (or other stock) to be issued pursuant to this Agreement or any Warrant, or as to whether any Warrant Shares (or other stock) will, when issued, be validly issued, fully paid and nonassessable, or as to the Exercise Price or the number or amount of Warrant Shares or other securities or other property issuable upon exercise of any Warrant. (l) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, Treasurer any Vice President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith and without negligence in accordance with instructions of any such officer or officers. (m) By countersigning Warrant Certificates or by any other act hereunder the Warrant Agent shall not be deemed to make any representations as to validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon) or of any securities or other property delivered upon exercise or tender of any Warrant, or as to the accuracy of the computation of the Exercise Price or the number or kind or amount of stock or other securities or other property deliverable upon exercise of any Warrant or the correctness of the representations of the Company made in any certifications that the Warrant Agent receives. The Warrant Agent shall not have any duty to calculate or determine any adjustments with respect either to the Exercise Price or the kind and amount of shares or other securities or any property receivable by holders of Warrants upon the exercise or tender of Warrants required from time to time, and the Warrant Agent shall have no duty or responsibility in determining the accuracy or correctness of any such calculation. SECTION 18. Change of Warrant Agent. The Warrant Agent may resign ----------------------- and be discharged from its duties under this Agreement by giving to the Company 30 days' notice in writing. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any holder (who shall with such notice submit his Warrant for inspection by the Company), then the resigning or removed Warrant Agent or any holder may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such court, the duties of the Warrant Agent shall be carried out by the Company. Any successor warrant agent, whether appointed by the Company or such a court, shall be a bank or trust company in good standing, incorporated under the laws of the United States of America or any State thereof or the District of Columbia and having at the time of its appointment as warrant agent a combined capital and surplus of at least $250,000,000. After appointment, the successor warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the former Warrant Agent shall deliver and transfer to the successor warrant agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for such purpose. Failure to file any notice provided for in this Section 18, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor warrant agent, as the case may be. In the event of such resignation or removal, the Company or the successor warrant agent shall mail by first class mail, postage prepaid, to each Holder, written notice of such removal or resignation and the name and address of such successor warrant agent. SECTION 19. Identity of Transfer Agent. Forthwith upon the -------------------------- appointment of any Transfer Agent for the Class A Common Stock or the Class E Common Stock, or any other shares of the Company's capital stock issuable upon the exercise of the Warrants, the Company shall file with the Warrant Agent (or if the Company is the Warrant Agent, deliver to the Warrantholders) a statement setting forth the name and address of such Transfer Agent. SECTION 20. Certain Defined Terms. Defined terms used in this --------------------- Agreement shall, unless the context otherwise requires, have the meanings specified below. Certain additional terms are set forth elsewhere in this Agreement. Any reference to any section of applicable law shall be deemed to include successor provisions thereto. "Affiliate" of any specified Person means (i) any other Person, directly or --------- indirectly, controlling or controlled by or under direct or indirect common control with such specified person; (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Voting Stock; or (iii) any Person who is a director or officer (a) of such person, (b) of any Subsidiary of Such Person or (c) any Person described in clause (1) or (2) above. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations, rights in or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "Common Stock" means all shares of Capital Stock of the Company, whether or ------------ not denominated as "common stock" which are entitled to share ratably in the ordinary dividends of the Company or share ratably in the proceeds of any liquidation of the Company after the payment of all preferential claims, and shall include, without limitation, the Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock or Class E Common Stock of the Company authorized on the Issue Date. "Convertible Security" shall mean any securities convertible or exercisable -------------------- or exchangeable into Common Stock of the Company of the same class as Warrant Shares, whether outstanding on the Issue Date or thereafter issued. "Current Market Value" per share of any class or series of Common Stock of -------------------- the Company at any date shall mean (i) if no class or series of Common Stock is then (A) registered under the Exchange Act and (B) traded on a national securities exchange or on the NASDAQ National Market System, (a) the value of such class or series of Common Stock, determined in good faith by the board of directors of the Company and certified in a board resolution, taking into account the most recently completed arms-length transaction between the Company and a Person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the fair market value of the security as determined by a nationally recognized Independent Financial Expert, provided that, in the case of the calculation of Current Market Value for determining the cash value of fractional shares, any such determination within six months that is, in the good faith judgment of the board of directors, a reasonable determination of value, may be utilized) or (ii) (a) if any class or series of Common Stock is then (A) registered under the Exchange Act and (B) traded on a national securities exchange or on the NASDAQ National Market System, the average of the daily closing sales prices of such class or series of Common Stock for the 20 consecutive trading days immediately preceding such date, or (b) if such class or series of Common Stock has been registered under the Exchange Act and traded on a national securities exchange or on the NASDAQ National Market System for less than 20 consecutive trading days before such date, then the average of the daily closing sales prices for all of the trading days before such date for which closing sales prices are available, in the case of each of (ii)(a) and (ii)(b), as certified to the Warrant Agent by the chief executive officer, the president, any executive vice president or the chief financial officer of the Company. The closing sales price for each such trading day shall be the closing sales price, regular way, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Independent Financial Expert" means a nationally recognized independent ---------------------------- financial expert, investment banking firm or accounting firm. "Issue Date" means the date of this Agreement. ---------- "Person" means any individual, corporation, limited liability company, ------ partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Subsidiary" means with respect to any Person, (i) any corporation, ---------- association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Time of Determination" means, (i) in the case of any distribution of --------------------- securities or other property to existing shareholders to which Section 12(b) or (c) applies, the time and date of the determination of shareholders entitled to receive such securities or property or (ii) in the case of any other issuance and sale to which Section 12(b) or (c) applies, the time and date of such issuance or sale. "Voting Stock" of any Person means any Capital Stock of such Person that is ------------ at the time entitled to vote in the election of the Board of Directors of such Person. SECTION 21. Successors. All the covenants and provisions of this ---------- Agreement by or for the benefit of the Company, the Warrant Agent or any holder of Warrants shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 22. Termination. This Agreement shall terminate on the ----------- Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on any earlier date if all Warrants have been exercised or redeemed pursuant to this Agreement or the Articles. SECTION 23. Governing Law. This Agreement and each Warrant ------------- Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and shall be governed by and construed in accordance with the laws of said State, without regard to the conflict of law rules thereof. SECTION 24. Benefits of This Agreement. Nothing in this Agreement -------------------------- shall be construed to give to any person or corporation other than the Company, the Warrant Agent and the registered holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the registered holders of the Warrant Certificates. SECTION 25. Counterparts. This Agreement may be executed in any ------------ number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. JOSTENS, INC. /s/ Lee V. McGrath By: ___________________________ Name: Lee V. McGrath Title: Vice President and Treasurer THE BANK OF NEW YORK as Warrant Agent /s/ Terrence Rawlins By: ___________________________ Name: Terrence Rawlins Title: Asst. Vice President [FORM OF FACE OF WARRANT CERTIFICATE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE COMPANY SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY IS ALSO SUBJECT TO A SHAREHOLDERS AGREEMENT, DATED AS OF MAY 10, 2000, AMONG THE COMPANY, INVESTCORP INVESTMENT EQUITY LIMITED, THE OTHER HOLDERS OF THE CLASS D COMMON STOCK OF THE COMPANY AND DB CAPITAL INVESTORS L.P. A COPY OF SUCH SHAREHOLDERS AGREEMENT MAY BE OBTAINED WITHOUT CHARGE AND UPON REQUEST ADDRESSED TO THE SECRETARY OF THE COMPANY AT THE REGISTERED OFFICE OF THE COMPANY. THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY BE REQUIRED TO BE EXERCISED UPON THE DEMAND OF THE COMPANY, UPON THE OCCURRENCE OF CERTAIN EVENTS SPECIFIED IN THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH HOLDER WHO SO REQUESTS A COPY OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY. THIS SECURITY IS SUBJECT TO MANDATORY REDEMPTION BY THE COMPANY. SUCH REDEMPTION CAN BE ACCOMPLISHED WITHOUT THE CERTIFICATES REPRESENTING SUCH SECURITIES BEING SURRENDERED AND WHETHER OR NOT THE COMPANY GIVES NOTICE OF SUCH REDEMPTION. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SECURITYHOLDER WHO SO REQUESTS A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF EACH CLASS OF STOCK OR SERIES OF STOCK OF THE CORPORATION AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES. No. [ ] CLASS E COMMON STOCK PURCHASE WARRANT OF JOSTENS, INC. THIS CERTIFIES THAT [ ], or its registered assigns, is the registered holder of ______________ Class E Common Stock Purchase Warrants (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from Jostens, Inc., a Minnesota corporation (the "Company"), one (1) share of Class E Common Stock, par value $0.01 per share, of the Company (the "Common Stock") at the per share exercise price of $0.01 (the "Exercise Price") or by Cashless Exercise referred to below. This Warrant Certificate shall terminate and become void as of the close of business on May 1, 2011 (the "Expiration Date") or upon the exercise hereof as to all the shares of Class E Common Stock subject hereto. The number of shares issuable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement (as defined). This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of May 10, 2000 (the "Warrant Agreement"), between the Company and The Bank of New York, as Warrant Agent, and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Warrantholders. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company at 5501 Norman Center Drive, Minneapolis, Minnesota 55437, Attn: General Counsel. Subject to the terms of the Warrant Agreement, the Warrants may be exercised upon surrender at the office or agency of the Company maintained for such purpose, which initially will be the principal office of the Company of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by a participant in a recognized Signature Guarantee Medallion Program, and upon payment to the Warrant Agent for the account of the Company of the Exercise Price for the number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Exercise Price shall be made (i) in cash or by certified or official bank check to the order of the Company in New York Clearing House Funds, (ii) by wire transfer to an account specified by the Company on request of the Holder, such request to be made not less than two Business Days prior to the proposed exercise of the Warrants or (iii) without the payment of cash, by reducing the number of shares of Common Stock obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Common Stock upon the exercise of such Warrant equal to the product of (A) the number of shares of Common Stock issuable as of the Exercise Date upon the exercise of such Warrant (if payment of the Exercise Price were being made in cash) and (B) the Cashless Exercise Ratio. The Warrants shall be exercisable, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is irrevocably authorized to countersign and to deliver the required new Warrant Certificate or Certificates pursuant to the Warrant Agreement, and the Company, whenever required by the Warrant Agent, will promptly supply the Warrant Agent with Warrant Certificates duly executed on behalf of the Company for such purpose. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent as such term is used in the Warrant Agreement. As provided in the Warrant Agreement, the Exercise Rate is subject to adjustment upon the happening of certain events. The Company will pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, -------- ------- that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value per share of the Class A Common Stock of the Company on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The Company and the Warrant Agent may deem and treat Holders of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. The Warrants do not entitle any Holder hereof to any of the rights of a stockholder of the Company. JOSTENS, INC. By: --------------------------- Name: Title: Attest: _______________________________ Name: Title: DATED: COUNTERSIGNED: THE BANK OF NEW YORK, as Warrant Agent By:____________________ Authorized Signature FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) JOSTENS, INC. The undersigned hereby irrevocably elects to exercise __________________ Warrants to acquire shares of Class E Common Stock, par value $0.01 per share, of Jostens, Inc., (i) at an exercise price per share of Class E Common Stock of $0.01 or (ii) through Cashless Exercise and otherwise on the terms and conditions specified in the Warrant Certificate and the Warrant Agreement, surrenders this Warrant Certificate and all right, title and interest therein to Jostens, Inc. and directs that the shares of Class E Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Check method of exercise: Exercise at $0.01 per share of Common Stock: ___ Cashless Exercise: _____ Date: _______, ________ _______________________________________/1/ (Signature of Owner) (Street Address) ___________________________________________________________________ (City) (State) (Zip Code) Signature Guaranteed by: ____________________________________________________________ - --------------------- /1/ The signature must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a national bank or trust company or by a member firm of any national securities exchange. Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: A new Warrant Certificate evidencing any unexercised Warrants evidenced by the within Warrant Certificate is to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: ASSIGNMENT FORM To assign this Warrant, fill in the form below: I or we assign and transfer this Warrant to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Warrant on the books of the Company. The agent may substitute another to act for him. _________________________________________________________________ Date: __________ Your Signature: _______________________ _________________________________________________________________ The signature must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a national bank or trust company or by a member firm of any national securities exchange. TABLE OF CONTENTS ----------------- Page ---- SECTION 1. Appointment of Warrant Agent................................... 1 SECTION 2. Warrant Certificates........................................... 1 SECTION 3. Execution of Warrant Certificates.............................. 1 SECTION 4. Registration and Countersignature.............................. 2 SECTION 5. Transfer and Exchange of Warrants.............................. 2 SECTION 6. Registration of Transfers and Exchanges........................ 3 SECTION 7. Separation of Warrants; Terms of Warrants; Exercise of Warrants....................................................... 5 SECTION 8. Payment of Taxes............................................... 7 SECTION 9. Mutilated or Missing Warrant Certificates...................... 7 SECTION 10. Reservation of Warrant Shares.................................. 7 SECTION 11. Obtaining Stock Exchange Listings.............................. 8 SECTION 12. Adjustment of Number of Warrant Shares Issuable................ 8 SECTION 13. Fractional Interests........................................... 15 SECTION 14. Notice of Certain Distributions; Certain Rights................ 15 SECTION 15. Notices to the Company and Warrant Agent....................... 16 SECTION 16. Supplements and Amendments..................................... 16 SECTION 17. Concerning the Warrant Agent................................... 17 SECTION 18. Change of Warrant Agent........................................ 20 (i) SECTION 19. Identity of Transfer Agent..................................... 20 SECTION 20. Certain Defined Terms.......................................... 20 SECTION 21. Successors..................................................... 22 SECTION 22. Termination.................................................... 22 SECTION 23. Governing Law.................................................. 22 SECTION 24. Benefits of This Agreement..................................... 23 SECTION 25. Counterparts................................................... 23 (ii) EX-10.10 7 0007.txt AGREEMENT BETWEEN JOSTENS, INC & ROBERT BUHRMASTER Exhibit 10.10 MANAGEMENT SHAREHOLDER AGREEMENT THIS MANAGEMENT SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of May 10, 2000, between Jostens, Inc., a Minnesota corporation (the "Company"), and Robert Buhrmaster (the "Shareholder"). R E C I T A L S A. The Company is a party to an Agreement and Plan of Merger dated as of December 27, 1999 (as amended, the "Merger Agreement") by and between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), pursuant to which MergerCo will, subject to the terms and conditions of the Merger Agreement, be merged with and into the Company (the "Merger"). B. The Shareholder is the beneficial owner of 93,205 shares of the Company's common stock, par value $0.33? per share, which in connection with the Merger will be retained by the Shareholder and redesignated as Class A Common Stock, par value $0.33? per share ("Class A Stock") (the "Retained Shares"). C. The Shareholder entered into a Stock Option Agreement with the Company, dated the date hereof, pursuant to which the Shareholder was granted an option to purchase shares of Class A Stock (such shares, when issued, the "Option Shares"). D. The Shareholder has entered into a Loan and Pledge Agreement with the Company, pursuant to which the Shareholder has pledged all or a portion of his Retained Shares to the Company (the "Pledged Shares"). All Retained Shares held by the Shareholder that are not pledged to the Company are referred to herein as the "Non-Pledged Shares." E. The Company and the Shareholders desire to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Certain Definitions. Capitalized terms used herein shall have ------------------- the following meanings: "Additional Put Right" is defined in Section 3(b). "Agreement" means this Shareholder Agreement. "Annual Valuation" is defined in Section 3(c). "Appraisers" is defined in Section 3(c). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Shareholder's gross misconduct; (B) the Shareholder's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Shareholder's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Shareholder by the Board which specifically identifies the manner in which the Board believes that the Shareholder has not substantially performed his or her duties and provides for a reasonable period of time within which the Shareholder may take corrective measures, or (C) the Shareholder's conviction (including a plea of nolo ---- contendere) of willfully engaging in illegal conduct constituting a felony or - ---------- gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Shareholder's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital B. "Company" is defined in the preamble. "Cost" of Class A Stock means $25.25 per share plus interest from the date hereof at a floating rate calculated quarterly as follows: for the period from the date hereof through June 30, 2000, at a per annum rate equal to the 3- month t-bill rate for May 10, 2000, as published in the Wall Street Journal, and for each calendar quarter thereafter, at a per annum rate equal to the 3-month t-bill rate for the last day of the immediately preceding quarter, as published in the Wall Street Journal; provided, that for purposes of Section 3(a) of this Agreement, in the event the Shareholder is terminated for Cause, "Cost" shall mean $25.25 per share. "Endorsed Certificate" is defined in Section 3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 3(c). "Good Reason" means, unless the Shareholder shall have consented in writing thereto, any of the following: (A) a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Shareholder, (B) a reduction by the Company in the Shareholder's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Shareholder's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Shareholder under benefit plans 2 that, in the aggregate, provide substantially similar benefits to the Shareholder and/or his or her family and dependents as a substantially similar total cost to the Shareholder (e.g., premiums, deductibles, co-pays, out-of- pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Shareholder (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Shareholder to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Shareholder undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Shareholder's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Shareholder to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Shareholder was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Securities Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Investcorp Shareholders" means Investcorp Bank E.C. and/or one or more of its affiliates ("Investcorp") and other international investors with whom Investcorp has an administrative relationship. "Non-Pledged Shares" is defined in recital D. "Option Shares" is defined in recital C. "Permanent Disability" means the failure by the Shareholder to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Permitted Transferee" means any of (A) the Shareholder's spouse, child, estate, personal representative, heir or successor, (B) a trust for the benefit of the Shareholder or his spouse, child or heir, or (C) a partnership, the partners of which consist solely of the Shareholder and/or his spouse, child, heir, and/or successor. "Pledged Shares" is defined in recital D. "Put Period" and "Put Right" are defined in Section 3(b). "Repurchase Period" and "Repurchase Right" are defined in Section 3(a). "Retained Shares" is defined in recital B. 3 "Retirement" means age 65. "Securities Act" means the Securities Act of 1933, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Shares" means the Option Shares and the Retained Shares. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Shareholder ceases to be employed by the Company for any reason. Certain other terms are defined elsewhere in this Agreement. SECTION 2. Restrictions on Transfer. ------------------------ (a) Subject to Section 3 hereof and the Articles of Incorporation, prior to an Initial Public Offering, the Retained Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Shareholder may transfer the Retained Shares to a Permitted Transferee. This Agreement shall be binding on and enforceable against any person who is a Permitted Transferee of the Retained Shares except a person who acquires any Retained Shares pursuant to the Articles of Incorporation or as part of an Initial Public Offering. The stock certificates issued to evidence Retained Shares shall bear a legend referring to this Agreement and the restrictions contained herein. (b) Certificates representing Retained Shares shall bear a legend referring to this Agreement and the transfer restrictions contained herein, in addition to any other legends that the Company may deem appropriate. SECTION 3. Repurchase of Shares. -------------------- (a) In the event that the Shareholder ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (the "Repurchase Period") shall have the right to purchase all or any portion of the Retained Shares (the "Repurchase Right"). The purchase price for each Retained Share shall equal Fair Market Value unless the Shareholder resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or Cost. If the Company elects to purchase the Retained Shares, it shall notify the Shareholder at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Shareholder has presented to the Company stock certificates evidencing the Retained Shares duly endorsed for transfer (the "Endorsed Certificates"). If the Shareholder fails to deliver the Endorsed Certificates, the Retained Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Shareholder or his or her 4 Permitted Transferee or (ii) notice to the Shareholder or such Permitted Transferee that the Company is holding the purchase price for the account of the Shareholder or such Permitted Transferee, and upon such payment or notice the Shareholder and such Permitted Transferee will have no further rights in or to such Retained Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Retained Shares are not purchased pursuant to Section 3(a) or 3(b), the restrictions on transfer thereof contained in Section 2 of this Agreement shall terminate and be of no further force and effect. (b) If the Shareholder's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Shareholder's Retirement, death or Permanent Disability; (iii) by the Shareholder for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Shareholder or his or her representative or Permitted Transferee, during the 120 days following the Termination Date (the "Put Period") shall have the right to require SEL to purchase all or any portion of the Retained Shares then held by the Shareholder (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Retained Shares on the same terms as such Retained Shares were to be purchased by SEL, in which case such Retained Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Shareholder is terminated without Cause prior to May 10, 2003, in which case (i) for Pledged Shares, the purchase price will be the lower of Fair Market Value or Cost and (ii) for Non-Pledged Shares, the purchase price will be Cost if the termination occurs prior to May 10, 2001 and will be Fair Market Value thereafter. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Shareholder presents to the Company the Endorsed Certificates. If the Shareholder's employment with the Company is terminated by the Shareholder without Good Reason at any time prior to May 10, 2003, the Shareholder or his or her representative or Permitted Transferee, during the Put Period, shall have the right to require SEL to purchase all or any portion of the Shares pledged by the Shareholder pursuant to the Shareholder's Loan and Pledge Agreement entered into in connection with borrowings under the Company's Stock Loan Plan (the "Additional Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Additional Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Shares on the same terms as such Shares were to be purchased by SEL, in which case such Shares will be acquired by the Company. The purchase price shall be at the lower of Fair Market Value or Cost. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period. (c) The Fair Market Value of the Retained Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the 5 next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Shareholder, each of the Shareholder and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Shareholder. The Shareholder shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Shareholder. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Shareholder if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Shareholder. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Shareholder. If it is determined that the Shareholder bears some or all of the costs incurred in connection with the services of the Appraisers, the Shareholder shall promptly pay or reimburse the Company for such costs. (d) The Shareholder shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. SECTION 4. Registration of Shares. ---------------------- (a) Subject to Sections 6 and 7 of this Agreement, if the Company proposes to file a registration statement with respect to common equity securities of the Company (excluding a registration statement filed prior to or in connection with the Initial Public Offering and any registration statement on Form S-8 or S-4 or comparable successor forms or a registration statement relating to a dividend reinvestment plan), which is available for use for the sale of Retained Shares under the Securities Act, then the Company shall give written notice of such proposed filing to the Shareholder at least 10 business days before the anticipated filing date of such registration statement, and such notice shall offer the Shareholder the opportunity to include in such registration statement the Retained Shares then owned by the Shareholder, as the Shareholder may request in writing within 7 business days after receipt of the Company's notice (which request shall specify the number of Retained Shares to be included in such registration statement and the intended method of disposition). The Company may require the Shareholder to furnish the Company such information regarding the Shareholder and the distribution of the Retained Shares as the Company may from time to time reasonably request in writing and as shall be required by law or by the Securities and Exchange Commission in connection with such registration. 6 (b) If any registration statement governed by Section 4(a) relates to an underwritten offering and the managing underwriter of such offering advises the Company in writing that the total number of shares which the Company, the Shareholder and other Persons whose contractual rights (now existing or hereafter granted) give them the right to be included in such registration intend to include in such offering is sufficiently large to affect adversely the ability of such underwriter to complete successfully an offering that does not significantly and adversely impact the market price of the shares being offered, then the number of shares to be included in such registration statement shall be reduced pro rata among the Company, the Shareholder and such other Persons. (c) The Company shall, to the extent that it is subject to the reporting requirements of the Exchange Act, use its reasonable best efforts to file the reports required to be filed by it under the Exchange Act so as to enable the Shareholder to sell Retained Shares without registration pursuant to Rule 144 under the Securities Act. In connection with any sale, transfer or other disposition by the Shareholder of any Retained Shares pursuant to Rule 144 under the Securities Act, the Company shall, to the extent permissible under applicable law, cooperate with the Shareholder to facilitate the timely preparation and delivery of certificates representing Retained Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Retained Shares to be issued at least two business days prior to any sale of such Retained Shares for such number of Retained Shares and registered in such names as the Shareholder may reasonably request upon ten (10) business days prior notice. The Company's obligation set forth in the previous sentence shall be subject to the delivery, if reasonably requested by the Company or its transfer agent, by counsel to the Shareholder (which counsel shall be reasonably acceptable to the Company and its transfer agent), in form and substance reasonably satisfactory to the Company and its transfer agent, of an opinion that such Securities Act legend need not appear on such certificate. (d) Within 30 days following an Initial Public Offering, the Company will file with the Securities and Exchange Commission a registration statement on Form S-8 providing for the registration of sales of Option Shares. SECTION 5. Compliance with Legal Requirements. ---------------------------------- (a) No Shares shall be transferred pursuant to this Agreement unless and until all legal requirements applicable to such transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Securities Act, if available, or upon another exemption from the Securities Act, or obtaining the consent or approval of any governmental regulatory body. 7 SECTION 6. Lock-Ups. -------- (a) If and to the extent requested by the managing underwriter in connection with the Initial Public Offering, the Shareholder shall agree in writing that the Shareholder will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 180 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 180 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(a). (b) If and to the extent requested by the managing underwriter in connection with any other underwritten offering of equity securities of the Company (whether for the account of the Company, selling shareholders or both), the Shareholder shall agree in writing that he will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 90 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 90 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(b). (c) The Shareholder agrees that he shall not be permitted to sell any Shares in the Initial Public Offering unless (x) the Investcorp Shareholders sell shares in the Initial Public Offering and (y) the underwriter managing the Initial Public Offering believes, in its sole discretion, that the inclusion of the Shareholder's Shares will not affect adversely such offering. In the event the Shareholder is entitled to sell Shares pursuant to the preceding sentence, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares; provided that in no event shall the Shareholder be permitted to include in such offering a number of Shares greater than the number of shares included in such offering by the Investcorp Shareholders. SECTION 7. Sales Following an Initial Public Offering. ------------------------------------------ (a) Following the earlier to occur of (i) the sale by the Investcorp Shareholders of an aggregate of 20% or more of the shares of Company common stock purchased by the Investcorp Shareholders on the date hereof or (ii) the third anniversary of the Initial Public Offering, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares, in each subsequent calendar year, and a pro rata portion of such amount, determined on a monthly basis, for the year in which such event occurs; provided that if the event described in clause (i) shall occur in the same year as the Initial Public Offering, any Shares sold by the Shareholder in the Initial Public Offering shall be counted toward the total Shares the Shareholder is entitled to sell for such year. The Shareholder may make additional sales of Shares only with the consent of the Investcorp Shareholders (and SEL shall have the authority to speak on behalf of the Investcorp Shareholders for this purpose). (b) The Shareholder shall be permitted to participate in a registered secondary offering of the Company in which the Investcorp Shareholders sell shares; provided that the total number of the Shareholder's Shares that may be included in such offering shall not exceed the lesser of (i) the amount of Shares that the Shareholder is entitled to sell pursuant to clause (a) above (taking into account any other sales by the Shareholder in such year) and (ii) the percentage of the Shareholder's Shares, including Option Shares, equal to the percentage of the 8 total shares of Company common stock owned by the Investcorp Shareholders being sold by the Investcorp Shareholders in such offering. (c) Notwithstanding clause (a) above, the Investcorp Shareholders shall be entitled to delay any sale of Shares by the Shareholder made pursuant to such clause (a) for a period not to exceed 90 days, if the Investcorp Shareholders intend to cause the Company to effect a secondary registered offering or if the Investcorp Shareholders intend to sell a significant block of Company common stock in such 90-day period. (d) All of the restrictions on the Shareholder's ability to sell his Shares shall also apply to Shares the ownership of which is attributable to the Shareholder pursuant to Rule 144(a)(2) under the Securities Act of 1933, as amended. All of the restrictions on the Shareholder's ability to sell such Shares shall lapse upon the earlier to occur of (i) the date upon which the Investcorp Shareholders own less than 10% of the total outstanding shares of Company common stock or (ii) the fifth anniversary of the Initial Public Offering. SECTION 8. RELIANCE ON THIS AGREEMENT. -------------------------- (a) THE SHAREHOLDER ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE SHAREHOLDER HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE SHAREHOLDER THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE SHAREHOLDER CONFIRMS THAT THE SHAREHOLDER HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE SHAREHOLDER FURTHER CONFIRMS THAT THE SHAREHOLDER HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE SHAREHOLDER CONCERNING THIS AGREEMENT. (c) THE SHAREHOLDER FURTHER REPRESENTS THAT, ALTHOUGH THE SHAREHOLDER IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE SHAREHOLDER IS HOLDING THE SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE SHARES WILL ENTITLE THE SHAREHOLDER TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER 9 AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE SHAREHOLDER WERE NOT A SHAREHOLDER. THE SHAREHOLDER FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE SHAREHOLDER ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE SHAREHOLDER THAT THE COMPANY HAS THE EXPECTATION THAT THE SHAREHOLDER WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE SHAREHOLDER'S OWNERSHIP OF THE SHARES. SECTION 9. Miscellaneous. ------------- (a) Notices. All notices, instructions and other communications in ------- connection with this Agreement shall be in writing and may be given by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) delivery by a nationally recognized overnight courier, to the parties at the addresses of each as set forth on the signature pages to this Agreement or to such other address as any party may specify in a notice to the other parties. Notices will be deemed to have been given (w) when actually delivered personally, (x) the next business day if sent by overnight courier (with proof of delivery) and (y) on the fifth day after mailing by certified mail. (b) No Waiver. No course of dealing and no delay on the part of any party --------- hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies conferred by this Agreement or shall preclude any other or further exercise thereof or the exercise of any other right, power and remedy. (c) Binding Effect; Assignability. This Agreement shall be binding upon ----------------------------- and, except as otherwise provided herein, shall inure to the benefit of the respective parties and their permitted successors and assigns, including, without limitation, Permitted Transferees to the extent specifically provided for herein. This Agreement shall not be assignable except as otherwise specifically provided herein. (d) Amendment and Waiver. This Agreement may not be amended, modified or -------------------- supplemented without the consent of the Company and the Shareholder, and no waiver or consent to departures from the provisions hereof shall bind any party who has not given such waiver or consent. (e) Governing Law; Service of Process. This Agreement shall be construed --------------------------------- both as to validity and performance in accordance with, and governed by, the laws of the State of Minnesota applicable to agreements to be performed in Minnesota, without regard to principles of conflict of laws. 10 (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. (g) Headings. All headings and captions in this Agreement are for purposes -------- of reference only and shall not be construed to limit or affect the substance of this Agreement. All references to Section in this Agreement refer to Sections of this Agreement, unless the context otherwise expressly provides. (h) Entire Agreement. This Agreement contains, and is intended as, a ---------------- complete statement of all the terms of the arrangements between the parties with respect to the matters provided for herein and supersedes any previous agreements and understandings between the parties with respect to those matters. (i) Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JOSTENS, INC. a Minnesota corporation By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer Address:_____________________ _____________________ _____________________ /s/ Robert Buhrmaster ---------------------- Name: Robert Buhrmaster Address:_____________________ _____________________ _____________________ Accepted and agreed to for purposes of Section 3(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 12 EX-10.11 8 0008.txt AGREEMENT BETWEEN JOSTENS INC.& WILLIAM PRIESMEYER Exhibit 10.11 MANAGEMENT SHAREHOLDER AGREEMENT THIS MANAGEMENT SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of May 10, 2000, between Jostens, Inc., a Minnesota corporation (the "Company"), and William Priesmeyer (the "Shareholder"). R E C I T A L S A. The Company is a party to an Agreement and Plan of Merger dated as of December 27, 1999 (as amended, the "Merger Agreement") by and between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), pursuant to which MergerCo will, subject to the terms and conditions of the Merger Agreement, be merged with and into the Company (the "Merger"). B. The Shareholder is the beneficial owner of 28,034 shares of the Company's common stock, par value $0.33 per share, which in connection with the Merger will be retained by the Shareholder and redesignated as Class A Common Stock, par value $0.33 per share ("Class A Stock") (the "Retained Shares"). C. The Shareholder entered into a Stock Option Agreement with the Company, dated the date hereof, pursuant to which the Shareholder was granted an option to purchase shares of Class A Stock (such shares, when issued, the "Option Shares"). D. The Shareholder has entered into a Loan and Pledge Agreement with the Company, pursuant to which the Shareholder has pledged all or a portion of his Retained Shares to the Company (the "Pledged Shares"). All Retained Shares held by the Shareholder that are not pledged to the Company are referred to herein as the "Non-Pledged Shares." E. The Company and the Shareholders desire to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Certain Definitions. Capitalized terms used herein shall have ------------------- the following meanings: "Additional Put Right" is defined in Section 3(b). "Agreement" means this Shareholder Agreement. "Annual Valuation" is defined in Section 3(c). "Appraisers" is defined in Section 3(c). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Shareholder's gross misconduct; (B) the Shareholder's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Shareholder's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Shareholder by the Board which specifically identifies the manner in which the Board believes that the Shareholder has not substantially performed his or her duties and provides for a reasonable period of time within which the Shareholder may take corrective measures, or (C) the Shareholder's conviction (including a plea of nolo ---- contendere) of willfully engaging in illegal conduct constituting a felony or - ---------- gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Shareholder's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital B. "Company" is defined in the preamble. "Cost" of Class A Stock means $25.25 per share plus interest from the date hereof at a floating rate calculated quarterly as follows: for the period from the date hereof through June 30, 2000, at a per annum rate equal to the 3- month t-bill rate for May 10, 2000, as published in the Wall Street Journal, and for each calendar quarter thereafter, at a per annum rate equal to the 3-month t-bill rate for the last day of the immediately preceding quarter, as published in the Wall Street Journal; provided, that for purposes of Section 3(a) of this Agreement, in the event the Shareholder is terminated for Cause, "Cost" shall mean $25.25 per share. "Endorsed Certificate" is defined in Section 3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 3(c). "Good Reason" means, unless the Shareholder shall have consented in writing thereto, any of the following: (A) a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Shareholder, (B) a reduction by the Company in the Shareholder's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the 2 Shareholder's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Shareholder under benefit plans that, in the aggregate, provide substantially similar benefits to the Shareholder and/or his or her family and dependents as a substantially similar total cost to the Shareholder (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Shareholder (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Shareholder to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Shareholder undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Shareholder's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Shareholder to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Shareholder was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Securities Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Investcorp Shareholders" means Investcorp Bank E.C. and/or one or more of its affiliates ("Investcorp") and other international investors with whom Investcorp has an administrative relationship. "Non-Pledged Shares" is defined in recital D. "Option Shares" is defined in recital C. "Permanent Disability" means the failure by the Shareholder to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Permitted Transferee" means any of (A) the Shareholder's spouse, child, estate, personal representative, heir or successor, (B) a trust for the benefit of the Shareholder or his spouse, child or heir, or (C) a partnership, the partners of which consist solely of the Shareholder and/or his spouse, child, heir, and/or successor. "Pledged Shares" is defined in recital D. "Put Period" and "Put Right" are defined in Section 3(b). "Repurchase Period" and "Repurchase Right" are defined in Section 3(a). 3 "Retained Shares" is defined in recital B. "Retirement" means age 65. "Securities Act" means the Securities Act of 1933, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Shares" means the Option Shares and the Retained Shares. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Shareholder ceases to be employed by the Company for any reason. Certain other terms are defined elsewhere in this Agreement. SECTION 2. Restrictions on Transfer. ------------------------ (a) Subject to Section 3 hereof and the Articles of Incorporation, prior to an Initial Public Offering, the Retained Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Shareholder may transfer the Retained Shares to a Permitted Transferee. This Agreement shall be binding on and enforceable against any person who is a Permitted Transferee of the Retained Shares except a person who acquires any Retained Shares pursuant to the Articles of Incorporation or as part of an Initial Public Offering. The stock certificates issued to evidence Retained Shares shall bear a legend referring to this Agreement and the restrictions contained herein. (b) Certificates representing Retained Shares shall bear a legend referring to this Agreement and the transfer restrictions contained herein, in addition to any other legends that the Company may deem appropriate. SECTION 3. Repurchase of Shares. -------------------- (a) In the event that the Shareholder ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (the "Repurchase Period") shall have the right to purchase all or any portion of the Retained Shares (the "Repurchase Right"). The purchase price for each Retained Share shall equal Fair Market Value unless the Shareholder resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or Cost. If the Company elects to purchase the Retained Shares, it shall notify the Shareholder at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Shareholder has presented to the Company stock certificates evidencing the Retained Shares duly endorsed for transfer (the "Endorsed Certificates"). If the Shareholder fails to deliver the Endorsed 4 Certificates, the Retained Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Shareholder or his or her Permitted Transferee or (ii) notice to the Shareholder or such Permitted Transferee that the Company is holding the purchase price for the account of the Shareholder or such Permitted Transferee, and upon such payment or notice the Shareholder and such Permitted Transferee will have no further rights in or to such Retained Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Retained Shares are not purchased pursuant to Section 3(a) or 3(b), the restrictions on transfer thereof contained in Section 2 of this Agreement shall terminate and be of no further force and effect. (b) If the Shareholder's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Shareholder's Retirement, death or Permanent Disability; (iii) by the Shareholder for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Shareholder or his or her representative or Permitted Transferee, during the 120 days following the Termination Date (the "Put Period") shall have the right to require SEL to purchase all or any portion of the Retained Shares then held by the Shareholder (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Retained Shares on the same terms as such Retained Shares were to be purchased by SEL, in which case such Retained Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Shareholder is terminated without Cause prior to May 10, 2003, in which case (i) for Pledged Shares, the purchase price will be the lower of Fair Market Value or Cost and (ii) for Non-Pledged Shares, the purchase price will be Cost if the termination occurs prior to May 10, 2001 and will be Fair Market Value thereafter. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Shareholder presents to the Company the Endorsed Certificates.. If the Shareholder's employment with the Company is terminated by the Shareholder without Good Reason at any time prior to May 10, 2003, the Shareholder or his or her representative or Permitted Transferee, during the Put Period, shall have the right to require SEL to purchase all or any portion of the Shares pledged by the Shareholder pursuant to the Shareholder's Loan and Pledge Agreement entered into in connection with borrowings under the Company's Stock Loan Plan (the "Additional Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Additional Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Shares on the same terms as such Shares were to be purchased by SEL, in which case such Shares will be acquired by the Company. The purchase price shall be at the lower of Fair Market Value or Cost. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period. (c) The Fair Market Value of the Retained Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") 5 promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Shareholder, each of the Shareholder and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Shareholder. The Shareholder shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Shareholder. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Shareholder if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Shareholder. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Shareholder. If it is determined that the Shareholder bears some or all of the costs incurred in connection with the services of the Appraisers, the Shareholder shall promptly pay or reimburse the Company for such costs. (d) The Shareholder shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. SECTION 4. Registration of Shares. ---------------------- (a) Subject to Sections 6 and 7 of this Agreement, if the Company proposes to file a registration statement with respect to common equity securities of the Company (excluding a registration statement filed prior to or in connection with the Initial Public Offering and any registration statement on Form S-8 or S-4 or comparable successor forms or a registration statement relating to a dividend reinvestment plan), which is available for use for the sale of Retained Shares under the Securities Act, then the Company shall give written notice of such proposed filing to the Shareholder at least 10 business days before the anticipated filing date of such registration statement, and such notice shall offer the Shareholder the opportunity to include in such registration statement the Retained Shares then owned by the Shareholder, as the Shareholder may request in writing within 7 business days after receipt of the Company's notice (which request shall specify the number of Retained Shares to be included in such registration statement and the intended method of disposition). The Company may require the Shareholder to furnish the Company such information regarding the Shareholder and the distribution of the Retained Shares as the Company may from time to time reasonably request in writing and as 6 shall be required by law or by the Securities and Exchange Commission in connection with such registration. (b) If any registration statement governed by Section 4(a) relates to an underwritten offering and the managing underwriter of such offering advises the Company in writing that the total number of shares which the Company, the Shareholder and other Persons whose contractual rights (now existing or hereafter granted) give them the right to be included in such registration intend to include in such offering is sufficiently large to affect adversely the ability of such underwriter to complete successfully an offering that does not significantly and adversely impact the market price of the shares being offered, then the number of shares to be included in such registration statement shall be reduced pro rata among the Company, the Shareholder and such other Persons. (c) The Company shall, to the extent that it is subject to the reporting requirements of the Exchange Act, use its reasonable best efforts to file the reports required to be filed by it under the Exchange Act so as to enable the Shareholder to sell Retained Shares without registration pursuant to Rule 144 under the Securities Act. In connection with any sale, transfer or other disposition by the Shareholder of any Retained Shares pursuant to Rule 144 under the Securities Act, the Company shall, to the extent permissible under applicable law, cooperate with the Shareholder to facilitate the timely preparation and delivery of certificates representing Retained Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Retained Shares to be issued at least two business days prior to any sale of such Retained Shares for such number of Retained Shares and registered in such names as the Shareholder may reasonably request upon ten (10) business days prior notice. The Company's obligation set forth in the previous sentence shall be subject to the delivery, if reasonably requested by the Company or its transfer agent, by counsel to the Shareholder (which counsel shall be reasonably acceptable to the Company and its transfer agent), in form and substance reasonably satisfactory to the Company and its transfer agent, of an opinion that such Securities Act legend need not appear on such certificate. (d) Within 30 days following an Initial Public Offering, the Company will file with the Securities and Exchange Commission a registration statement on Form S-8 providing for the registration of sales of Option Shares. SECTION 5. Compliance with Legal Requirements. No Shares shall be ---------------------------------- transferred pursuant to this Agreement unless and until all legal requirements applicable to such transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Securities Act, if available, or upon another exemption from the Securities Act, or obtaining the consent or approval of any governmental regulatory body. SECTION 6. Lock-Ups. -------- 7 (a) If and to the extent requested by the managing underwriter in connection with the Initial Public Offering, the Shareholder shall agree in writing that the Shareholder will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 180 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 180 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(a). (b) If and to the extent requested by the managing underwriter in connection with any other underwritten offering of equity securities of the Company (whether for the account of the Company, selling shareholders or both), the Shareholder shall agree in writing that he will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 90 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 90 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(b). (c) The Shareholder agrees that he shall not be permitted to sell any Shares in the Initial Public Offering unless (x) the Investcorp Shareholders sell shares in the Initial Public Offering and (y) the underwriter managing the Initial Public Offering believes, in its sole discretion, that the inclusion of the Shareholder's Shares will not affect adversely such offering. In the event the Shareholder is entitled to sell Shares pursuant to the preceding sentence, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares; provided that in no event shall the Shareholder be permitted to include in such offering a number of Shares greater than the number of shares included in such offering by the Investcorp Shareholders. 8 SECTION 7. Sales Following an Initial Public Offering. ------------------------------------------ (a) Following the earlier to occur of (i) the sale by the Investcorp Shareholders of an aggregate of 20% or more of the shares of Company common stock purchased by the Investcorp Shareholders on the date hereof or (ii) the third anniversary of the Initial Public Offering, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares, in each subsequent calendar year, and a pro rata portion of such amount, determined on a monthly basis, for the year in which such event occurs; provided that if the event described in clause (i) shall occur in the same year as the Initial Public Offering, any Shares sold by the Shareholder in the Initial Public Offering shall be counted toward the total Shares the Shareholder is entitled to sell for such year. The Shareholder may make additional sales of Shares only with the consent of the Investcorp Shareholders (and SEL shall have the authority to speak on behalf of the Investcorp Shareholders for this purpose). (b) The Shareholder shall be permitted to participate in a registered secondary offering of the Company in which the Investcorp Shareholders sell shares; provided that the total number of the Shareholder's Shares that may be included in such offering shall not exceed the lesser of (i) the amount of Shares that the Shareholder is entitled to sell pursuant to clause (a) above (taking into account any other sales by the Shareholder in such year) and (ii) the percentage of the Shareholder's Shares, including Option Shares, equal to the percentage of the total shares of Company common stock owned by the Investcorp Shareholders being sold by the Investcorp Shareholders in such offering. (c) Notwithstanding clause (a) above, the Investcorp Shareholders shall be entitled to delay any sale of Shares by the Shareholder made pursuant to such clause (a) for a period not to exceed 90 days, if the Investcorp Shareholders intend to cause the Company to effect a secondary registered offering or if the Investcorp Shareholders intend to sell a significant block of Company common stock in such 90-day period. (d) All of the restrictions on the Shareholder's ability to sell his Shares shall also apply to Shares the ownership of which is attributable to the Shareholder pursuant to Rule 144(a)(2) under the Securities Act of 1933, as amended. All of the restrictions on the Shareholder's ability to sell such Shares shall lapse upon the earlier to occur of (i) the date upon which the Investcorp Shareholders own less than 10% of the total outstanding shares of Company common stock or (ii) the fifth anniversary of the Initial Public Offering. SECTION 8. Termination of Chief Executive Officer. If, at any time prior -------------------------------------- to the first anniversary of the date of this Agreement, (a) Robert Buhrmaster's employment as Chief Executive Officer of the Company is terminated by the Company without Cause or by Mr. Buhrmaster for Good Reason (as such terms are defined in the Stock Option Agreement dated the date hereof between the Company and Mr. Buhrmaster) and (b) within 60 days following such termination, the Shareholder elects to terminate his employment with the Company, the Shareholder shall be entitled to receive severance benefits in an amount equal to the severance benefits the Shareholder was entitled to receive pursuant to the Company plans in effect at the effective time of the Merger in the event of a Change of Control (as defined in any such plan) and the Shareholder's termination of his employment for Good Reason (as defined in any such plan). 9 SECTION 9. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE SHAREHOLDER ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE SHAREHOLDER HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE SHAREHOLDER THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE SHAREHOLDER CONFIRMS THAT THE SHAREHOLDER HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE SHAREHOLDER FURTHER CONFIRMS THAT THE SHAREHOLDER HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE SHAREHOLDER CONCERNING THIS AGREEMENT. (c) THE SHAREHOLDER FURTHER REPRESENTS THAT, ALTHOUGH THE SHAREHOLDER IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE SHAREHOLDER IS HOLDING THE SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE SHARES WILL ENTITLE THE SHAREHOLDER TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE SHAREHOLDER WERE NOT A SHAREHOLDER. THE SHAREHOLDER FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE SHAREHOLDER ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE SHAREHOLDER THAT THE COMPANY HAS THE EXPECTATION THAT THE SHAREHOLDER WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE SHAREHOLDER'S OWNERSHIP OF THE SHARES. SECTION 10. Miscellaneous. ------------- 10 (a) Notices. All notices, instructions and other communications in ------- connection with this Agreement shall be in writing and may be given by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) delivery by a nationally recognized overnight courier, to the parties at the addresses of each as set forth on the signature pages to this Agreement or to such other address as any party may specify in a notice to the other parties. Notices will be deemed to have been given (w) when actually delivered personally, (x) the next business day if sent by overnight courier (with proof of delivery) and (y) on the fifth day after mailing by certified mail. (b) No Waiver. No course of dealing and no delay on the part of any party --------- hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies conferred by this Agreement or shall preclude any other or further exercise thereof or the exercise of any other right, power and remedy. (c) Binding Effect; Assignability. This Agreement shall be binding upon ----------------------------- and, except as otherwise provided herein, shall inure to the benefit of the respective parties and their permitted successors and assigns, including, without limitation, Permitted Transferees to the extent specifically provided for herein. This Agreement shall not be assignable except as otherwise specifically provided herein. (d) Amendment and Waiver. This Agreement may not be amended, modified or -------------------- supplemented without the consent of the Company and the Shareholder, and no waiver or consent to departures from the provisions hereof shall bind any party who has not given such waiver or consent. (e) Governing Law; Service of Process. This Agreement shall be construed --------------------------------- both as to validity and performance in accordance with, and governed by, the laws of the State of Minnesota applicable to agreements to be performed in Minnesota, without regard to principles of conflict of laws. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. (g) Headings. All headings and captions in this Agreement are for purposes -------- of reference only and shall not be construed to limit or affect the substance of this Agreement. All references to Section in this Agreement refer to Sections of this Agreement, unless the context otherwise expressly provides. (h) Entire Agreement. This Agreement contains, and is intended as, a ---------------- complete statement of all the terms of the arrangements between the parties with respect to the matters provided for herein and supersedes any previous agreements and understandings between the parties with respect to those matters. (i) Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the 11 economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JOSTENS, INC. a Minnesota corporation By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer Address:____________________________ ____________________________ ____________________________ /s/ William Priesmeyer ---------------------- Name: William Priesmeyer Address:____________________________ ____________________________ ____________________________ Accepted and agreed to for purposes of Section 3(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EX-10.12 9 0009.txt AGREEMENT BETWEEN JOSTENS, INC. & CARL BLOWERS. Exhibit 10.12 MANAGEMENT SHAREHOLDER AGREEMENT THIS MANAGEMENT SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of May 10, 2000, between Jostens, Inc., a Minnesota corporation (the "Company"), and Carl Blowers (the "Shareholder"). R E C I T A L S A. The Company is a party to an Agreement and Plan of Merger dated as of December 27, 1999 (as amended, the "Merger Agreement") by and between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), pursuant to which MergerCo will, subject to the terms and conditions of the Merger Agreement, be merged with and into the Company (the "Merger"). B. The Shareholder is the beneficial owner of 41,858 shares of the Company's common stock, par value $0.33 per share, which in connection with the Merger will be retained by the Shareholder and redesignated as Class A Common Stock, par value $0.33 per share ("Class A Stock") (the "Retained Shares"). C. The Shareholder entered into a Stock Option Agreement with the Company, dated the date hereof, pursuant to which the Shareholder was granted an option to purchase shares of Class A Stock (such shares, when issued, the "Option Shares"). D. The Shareholder has entered into a Loan and Pledge Agreement with the Company, pursuant to which the Shareholder has pledged all or a portion of his Retained Shares to the Company (the "Pledged Shares"). All Retained Shares held by the Shareholder that are not pledged to the Company are referred to herein as the "Non-Pledged Shares." E. The Company and the Shareholders desire to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Certain Definitions. Capitalized terms used herein shall have ------------------- the following meanings: "Additional Put Right" is defined in Section 3(b). "Agreement" means this Shareholder Agreement. "Annual Valuation" is defined in Section 3(c). "Appraisers" is defined in Section 3(c). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Shareholder's gross misconduct; (B) the Shareholder's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Shareholder's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Shareholder by the Board which specifically identifies the manner in which the Board believes that the Shareholder has not substantially performed his or her duties and provides for a reasonable period of time within which the Shareholder may take corrective measures, or (C) the Shareholder's conviction (including a plea of nolo ---- contendere) of willfully engaging in illegal conduct constituting a felony or - ---------- gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Shareholder's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital B. "Company" is defined in the preamble. "Cost" of Class A Stock means $25.25 per share plus interest from the date hereof at a floating rate calculated quarterly as follows: for the period from the date hereof through June 30, 2000, at a per annum rate equal to the 3- month t-bill rate for May 10, 2000, as published in the Wall Street Journal, and for each calendar quarter thereafter, at a per annum rate equal to the 3-month t-bill rate for the last day of the immediately preceding quarter, as published in the Wall Street Journal; provided, that for purposes of Section 3(a) of this Agreement, in the event the Shareholder is terminated for Cause, "Cost" shall mean $25.25 per share. "Endorsed Certificate" is defined in Section 3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 3(c). "Good Reason" means, unless the Shareholder shall have consented in writing thereto, any of the following: (A) a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Shareholder, (B) a reduction by the Company in the Shareholder's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the 2 Shareholder's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Shareholder under benefit plans that, in the aggregate, provide substantially similar benefits to the Shareholder and/or his or her family and dependents as a substantially similar total cost to the Shareholder (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Shareholder (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Shareholder to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Shareholder undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Shareholder's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Shareholder to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Shareholder was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Securities Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Investcorp Shareholders" means Investcorp Bank E.C. and/or one or more of its affiliates ("Investcorp") and other international investors with whom Investcorp has an administrative relationship. "Non-Pledged Shares" is defined in recital D. "Option Shares" is defined in recital C. "Permanent Disability" means the failure by the Shareholder to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Permitted Transferee" means any of (A) the Shareholder's spouse, child, estate, personal representative, heir or successor, (B) a trust for the benefit of the Shareholder or his spouse, child or heir, or (C) a partnership, the partners of which consist solely of the Shareholder and/or his spouse, child, heir, and/or successor. "Pledged Shares" is defined in recital D. "Put Period" and "Put Right" are defined in Section 3(b). "Repurchase Period" and "Repurchase Right" are defined in Section 3(a). 3 "Retained Shares" is defined in recital B. "Retirement" means age 65. "Securities Act" means the Securities Act of 1933, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Shares" means the Option Shares and the Retained Shares. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Shareholder ceases to be employed by the Company for any reason. Certain other terms are defined elsewhere in this Agreement. SECTION 2. Restrictions on Transfer. ------------------------ (a) Subject to Section 3 hereof and the Articles of Incorporation, prior to an Initial Public Offering, the Retained Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Shareholder may transfer the Retained Shares to a Permitted Transferee. This Agreement shall be binding on and enforceable against any person who is a Permitted Transferee of the Retained Shares except a person who acquires any Retained Shares pursuant to the Articles of Incorporation or as part of an Initial Public Offering. The stock certificates issued to evidence Retained Shares shall bear a legend referring to this Agreement and the restrictions contained herein. (b) Certificates representing Retained Shares shall bear a legend referring to this Agreement and the transfer restrictions contained herein, in addition to any other legends that the Company may deem appropriate. SECTION 3. Repurchase of Shares. -------------------- (a) In the event that the Shareholder ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (the "Repurchase Period") shall have the right to purchase all or any portion of the Retained Shares (the "Repurchase Right"). The purchase price for each Retained Share shall equal Fair Market Value unless the Shareholder resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or Cost. If the Company elects to purchase the Retained Shares, it shall notify the Shareholder at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Shareholder has presented to the Company stock certificates evidencing the Retained Shares duly endorsed for transfer (the "Endorsed Certificates"). If the Shareholder fails to deliver the Endorsed 4 Certificates, the Retained Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Shareholder or his or her Permitted Transferee or (ii) notice to the Shareholder or such Permitted Transferee that the Company is holding the purchase price for the account of the Shareholder or such Permitted Transferee, and upon such payment or notice the Shareholder and such Permitted Transferee will have no further rights in or to such Retained Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Retained Shares are not purchased pursuant to Section 3(a) or 3(b), the restrictions on transfer thereof contained in Section 2 of this Agreement shall terminate and be of no further force and effect. (b) If the Shareholder's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Shareholder's Retirement, death or Permanent Disability; (iii) by the Shareholder for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Shareholder or his or her representative or Permitted Transferee, during the 120 days following the Termination Date (the "Put Period") shall have the right to require SEL to purchase all or any portion of the Retained Shares then held by the Shareholder (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Retained Shares on the same terms as such Retained Shares were to be purchased by SEL, in which case such Retained Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Shareholder is terminated without Cause prior to May 10, 2003, in which case (i) for Pledged Shares, the purchase price will be the lower of Fair Market Value or Cost and (ii) for Non-Pledged Shares, the purchase price will be Cost if the termination occurs prior to May 10, 2001 and will be Fair Market Value thereafter. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Shareholder presents to the Company the Endorsed Certificates.. If the Shareholder's employment with the Company is terminated by the Shareholder without Good Reason at any time prior to May 10, 2003, the Shareholder or his or her representative or Permitted Transferee, during the Put Period, shall have the right to require SEL to purchase all or any portion of the Shares pledged by the Shareholder pursuant to the Shareholder's Loan and Pledge Agreement entered into in connection with borrowings under the Company's Stock Loan Plan (the "Additional Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Additional Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Shares on the same terms as such Shares were to be purchased by SEL, in which case such Shares will be acquired by the Company. The purchase price shall be at the lower of Fair Market Value or Cost. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period. (c) The Fair Market Value of the Retained Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") 5 promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Shareholder, each of the Shareholder and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Shareholder. The Shareholder shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Shareholder. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Shareholder if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Shareholder. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Shareholder. If it is determined that the Shareholder bears some or all of the costs incurred in connection with the services of the Appraisers, the Shareholder shall promptly pay or reimburse the Company for such costs. (d) The Shareholder shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. SECTION 4. Registration of Shares. ---------------------- (a) Subject to Sections 6 and 7 of this Agreement, if the Company proposes to file a registration statement with respect to common equity securities of the Company (excluding a registration statement filed prior to or in connection with the Initial Public Offering and any registration statement on Form S-8 or S-4 or comparable successor forms or a registration statement relating to a dividend reinvestment plan), which is available for use for the sale of Retained Shares under the Securities Act, then the Company shall give written notice of such proposed filing to the Shareholder at least 10 business days before the anticipated filing date of such registration statement, and such notice shall offer the Shareholder the opportunity to include in such registration statement the Retained Shares then owned by the Shareholder, as the Shareholder may request in writing within 7 business days after receipt of the Company's notice (which request shall specify the number of Retained Shares to be included in such registration statement and the intended method of disposition). The Company may require the Shareholder to furnish the Company such information regarding the Shareholder and the distribution of the Retained Shares as the Company may from time to time reasonably request in writing and as 6 shall be required by law or by the Securities and Exchange Commission in connection with such registration. (b) If any registration statement governed by Section 4(a) relates to an underwritten offering and the managing underwriter of such offering advises the Company in writing that the total number of shares which the Company, the Shareholder and other Persons whose contractual rights (now existing or hereafter granted) give them the right to be included in such registration intend to include in such offering is sufficiently large to affect adversely the ability of such underwriter to complete successfully an offering that does not significantly and adversely impact the market price of the shares being offered, then the number of shares to be included in such registration statement shall be reduced pro rata among the Company, the Shareholder and such other Persons. (c) The Company shall, to the extent that it is subject to the reporting requirements of the Exchange Act, use its reasonable best efforts to file the reports required to be filed by it under the Exchange Act so as to enable the Shareholder to sell Retained Shares without registration pursuant to Rule 144 under the Securities Act. In connection with any sale, transfer or other disposition by the Shareholder of any Retained Shares pursuant to Rule 144 under the Securities Act, the Company shall, to the extent permissible under applicable law, cooperate with the Shareholder to facilitate the timely preparation and delivery of certificates representing Retained Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Retained Shares to be issued at least two business days prior to any sale of such Retained Shares for such number of Retained Shares and registered in such names as the Shareholder may reasonably request upon ten (10) business days prior notice. The Company's obligation set forth in the previous sentence shall be subject to the delivery, if reasonably requested by the Company or its transfer agent, by counsel to the Shareholder (which counsel shall be reasonably acceptable to the Company and its transfer agent), in form and substance reasonably satisfactory to the Company and its transfer agent, of an opinion that such Securities Act legend need not appear on such certificate. (d) Within 30 days following an Initial Public Offering, the Company will file with the Securities and Exchange Commission a registration statement on Form S-8 providing for the registration of sales of Option Shares. SECTION 5. Compliance with Legal Requirements. No Shares shall be ---------------------------------- transferred pursuant to this Agreement unless and until all legal requirements applicable to such transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Securities Act, if available, or upon another exemption from the Securities Act, or obtaining the consent or approval of any governmental regulatory body. SECTION 6. Lock-Ups. -------- 7 (a) If and to the extent requested by the managing underwriter in connection with the Initial Public Offering, the Shareholder shall agree in writing that the Shareholder will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 180 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 180 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(a). (b) If and to the extent requested by the managing underwriter in connection with any other underwritten offering of equity securities of the Company (whether for the account of the Company, selling shareholders or both), the Shareholder shall agree in writing that he will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 90 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 90 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(b). (c) The Shareholder agrees that he shall not be permitted to sell any Shares in the Initial Public Offering unless (x) the Investcorp Shareholders sell shares in the Initial Public Offering and (y) the underwriter managing the Initial Public Offering believes, in its sole discretion, that the inclusion of the Shareholder's Shares will not affect adversely such offering. In the event the Shareholder is entitled to sell Shares pursuant to the preceding sentence, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares; provided that in no event shall the Shareholder be permitted to include in such offering a number of Shares greater than the number of shares included in such offering by the Investcorp Shareholders. 8 SECTION 7. Sales Following an Initial Public Offering. ------------------------------------------ (a) Following the earlier to occur of (i) the sale by the Investcorp Shareholders of an aggregate of 20% or more of the shares of Company common stock purchased by the Investcorp Shareholders on the date hereof or (ii) the third anniversary of the Initial Public Offering, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares, in each subsequent calendar year, and a pro rata portion of such amount, determined on a monthly basis, for the year in which such event occurs; provided that if the event described in clause (i) shall occur in the same year as the Initial Public Offering, any Shares sold by the Shareholder in the Initial Public Offering shall be counted toward the total Shares the Shareholder is entitled to sell for such year. The Shareholder may make additional sales of Shares only with the consent of the Investcorp Shareholders (and SEL shall have the authority to speak on behalf of the Investcorp Shareholders for this purpose). (b) The Shareholder shall be permitted to participate in a registered secondary offering of the Company in which the Investcorp Shareholders sell shares; provided that the total number of the Shareholder's Shares that may be included in such offering shall not exceed the lesser of (i) the amount of Shares that the Shareholder is entitled to sell pursuant to clause (a) above (taking into account any other sales by the Shareholder in such year) and (ii) the percentage of the Shareholder's Shares, including Option Shares, equal to the percentage of the total shares of Company common stock owned by the Investcorp Shareholders being sold by the Investcorp Shareholders in such offering. (c) Notwithstanding clause (a) above, the Investcorp Shareholders shall be entitled to delay any sale of Shares by the Shareholder made pursuant to such clause (a) for a period not to exceed 90 days, if the Investcorp Shareholders intend to cause the Company to effect a secondary registered offering or if the Investcorp Shareholders intend to sell a significant block of Company common stock in such 90-day period. (d) All of the restrictions on the Shareholder's ability to sell his Shares shall also apply to Shares the ownership of which is attributable to the Shareholder pursuant to Rule 144(a)(2) under the Securities Act of 1933, as amended. All of the restrictions on the Shareholder's ability to sell such Shares shall lapse upon the earlier to occur of (i) the date upon which the Investcorp Shareholders own less than 10% of the total outstanding shares of Company common stock or (ii) the fifth anniversary of the Initial Public Offering. SECTION 8. Termination of Chief Executive Officer. If, at any time prior -------------------------------------- to the first anniversary of the date of this Agreement, (a) Robert Buhrmaster's employment as Chief Executive Officer of the Company is terminated by the Company without Cause or by Mr. Buhrmaster for Good Reason (as such terms are defined in the Stock Option Agreement dated the date hereof between the Company and Mr. Buhrmaster) and (b) within 60 days following such termination, the Shareholder elects to terminate his employment with the Company, the Shareholder shall be entitled to receive severance benefits in an amount equal to the severance benefits the Shareholder was entitled to receive pursuant to the Company plans in effect at the effective time of the Merger in the event of a Change of Control (as defined in any such plan) and the Shareholder's termination of his employment for Good Reason (as defined in any such plan). 9 SECTION 9. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE SHAREHOLDER ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE SHAREHOLDER HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE SHAREHOLDER THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE SHAREHOLDER CONFIRMS THAT THE SHAREHOLDER HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE SHAREHOLDER FURTHER CONFIRMS THAT THE SHAREHOLDER HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE SHAREHOLDER CONCERNING THIS AGREEMENT. (c) THE SHAREHOLDER FURTHER REPRESENTS THAT, ALTHOUGH THE SHAREHOLDER IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE SHAREHOLDER IS HOLDING THE SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE SHARES WILL ENTITLE THE SHAREHOLDER TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE SHAREHOLDER WERE NOT A SHAREHOLDER. THE SHAREHOLDER FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE SHAREHOLDER ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE SHAREHOLDER THAT THE COMPANY HAS THE EXPECTATION THAT THE SHAREHOLDER WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE SHAREHOLDER'S OWNERSHIP OF THE SHARES. SECTION 10. Miscellaneous. ------------- 10 (a) Notices. All notices, instructions and other communications in ------- connection with this Agreement shall be in writing and may be given by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) delivery by a nationally recognized overnight courier, to the parties at the addresses of each as set forth on the signature pages to this Agreement or to such other address as any party may specify in a notice to the other parties. Notices will be deemed to have been given (w) when actually delivered personally, (x) the next business day if sent by overnight courier (with proof of delivery) and (y) on the fifth day after mailing by certified mail. (b) No Waiver. No course of dealing and no delay on the part of any party --------- hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies conferred by this Agreement or shall preclude any other or further exercise thereof or the exercise of any other right, power and remedy. (c) Binding Effect; Assignability. This Agreement shall be binding upon ----------------------------- and, except as otherwise provided herein, shall inure to the benefit of the respective parties and their permitted successors and assigns, including, without limitation, Permitted Transferees to the extent specifically provided for herein. This Agreement shall not be assignable except as otherwise specifically provided herein. (d) Amendment and Waiver. This Agreement may not be amended, modified or -------------------- supplemented without the consent of the Company and the Shareholder, and no waiver or consent to departures from the provisions hereof shall bind any party who has not given such waiver or consent. (e) Governing Law; Service of Process. This Agreement shall be construed --------------------------------- both as to validity and performance in accordance with, and governed by, the laws of the State of Minnesota applicable to agreements to be performed in Minnesota, without regard to principles of conflict of laws. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. (g) Headings. All headings and captions in this Agreement are for purposes -------- of reference only and shall not be construed to limit or affect the substance of this Agreement. All references to Section in this Agreement refer to Sections of this Agreement, unless the context otherwise expressly provides. (h) Entire Agreement. This Agreement contains, and is intended as, a ---------------- complete statement of all the terms of the arrangements between the parties with respect to the matters provided for herein and supersedes any previous agreements and understandings between the parties with respect to those matters. (i) Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the 11 economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JOSTENS, INC. a Minnesota corporation By: /s/ Lee U. McGrath ------------------ Name: Lee U. McGrath Title: Vice President and Treasurer Address: _____________________ _____________________ _____________________ /s/ Carl Blowers ----------------- Name: Carl Blowers Address: _____________________ _____________________ _____________________ Accepted and agreed to for purposes of Section 3(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EX-10.13 10 0010.txt AGREEMENT BETWEEN JOSTENS, INC. & MICHAEL BAILEY Exhibit 10.13 MANAGEMENT SHAREHOLDER AGREEMENT THIS MANAGEMENT SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of May 10, 2000, between Jostens, Inc., a Minnesota corporation (the "Company"), and Michael Bailey (the "Shareholder"). R E C I T A L S A. The Company is a party to an Agreement and Plan of Merger dated as of December 27, 1999 (as amended, the "Merger Agreement") by and between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), pursuant to which MergerCo will, subject to the terms and conditions of the Merger Agreement, be merged with and into the Company (the "Merger"). B. The Shareholder is the beneficial owner of 15,913 shares of the Company's common stock, par value $0.33? per share, which in connection with the Merger will be retained by the Shareholder and redesignated as Class A Common Stock, par value $0.33? per share ("Class A Stock") (the "Retained Shares"). C. The Shareholder entered into a Stock Option Agreement with the Company, dated the date hereof, pursuant to which the Shareholder was granted an option to purchase shares of Class A Stock (such shares, when issued, the "Option Shares"). D. The Shareholder has entered into a Loan and Pledge Agreement with the Company, pursuant to which the Shareholder has pledged all or a portion of his Retained Shares to the Company (the "Pledged Shares"). All Retained Shares held by the Shareholder that are not pledged to the Company are referred to herein as the "Non-Pledged Shares." E. The Company and the Shareholders desire to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Certain Definitions. Capitalized terms used herein shall have ------------------- the following meanings: "Additional Put Right" is defined in Section 3(b). "Agreement" means this Shareholder Agreement. "Annual Valuation" is defined in Section 3(c). "Appraisers" is defined in Section 3(c). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Shareholder's gross misconduct; (B) the Shareholder's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Shareholder's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Shareholder by the Board which specifically identifies the manner in which the Board believes that the Shareholder has not substantially performed his or her duties and provides for a reasonable period of time within which the Shareholder may take corrective measures, or (C) the Shareholder's conviction (including a plea of nolo ---- contendere) of willfully engaging in illegal conduct constituting a felony or - ---------- gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Shareholder's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital B. "Company" is defined in the preamble. "Cost" of Class A Stock means $25.25 per share plus interest from the date hereof at a floating rate calculated quarterly as follows: for the period from the date hereof through June 30, 2000, at a per annum rate equal to the 3- month t-bill rate for May 10, 2000, as published in the Wall Street Journal, and for each calendar quarter thereafter, at a per annum rate equal to the 3-month t-bill rate for the last day of the immediately preceding quarter, as published in the Wall Street Journal; provided, that for purposes of Section 3(a) of this Agreement, in the event the Shareholder is terminated for Cause, "Cost" shall mean $25.25 per share. "Endorsed Certificate" is defined in Section 3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 3(c). "Good Reason" means, unless the Shareholder shall have consented in writing thereto, any of the following: (A) a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Shareholder, (B) a reduction by the Company in the Shareholder's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the 2 Shareholder's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Shareholder under benefit plans that, in the aggregate, provide substantially similar benefits to the Shareholder and/or his or her family and dependents as a substantially similar total cost to the Shareholder (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Shareholder (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Shareholder to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Shareholder undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Shareholder's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Shareholder to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Shareholder was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Securities Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Investcorp Shareholders" means Investcorp Bank E.C. and/or one or more of its affiliates ("Investcorp") and other international investors with whom Investcorp has an administrative relationship. "Non-Pledged Shares" is defined in recital D. "Option Shares" is defined in recital C. "Permanent Disability" means the failure by the Shareholder to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Permitted Transferee" means any of (A) the Shareholder's spouse, child, estate, personal representative, heir or successor, (B) a trust for the benefit of the Shareholder or his spouse, child or heir, or (C) a partnership, the partners of which consist solely of the Shareholder and/or his spouse, child, heir, and/or successor. "Pledged Shares" is defined in recital D. "Put Period" and "Put Right" are defined in Section 3(b). "Repurchase Period" and "Repurchase Right" are defined in Section 3(a). 3 "Retained Shares" is defined in recital B. "Retirement" means age 65. "Securities Act" means the Securities Act of 1933, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Shares" means the Option Shares and the Retained Shares. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Shareholder ceases to be employed by the Company for any reason. Certain other terms are defined elsewhere in this Agreement. SECTION 2. Restrictions on Transfer. ------------------------ (a) Subject to Section 3 hereof and the Articles of Incorporation, prior to an Initial Public Offering, the Retained Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Shareholder may transfer the Retained Shares to a Permitted Transferee. This Agreement shall be binding on and enforceable against any person who is a Permitted Transferee of the Retained Shares except a person who acquires any Retained Shares pursuant to the Articles of Incorporation or as part of an Initial Public Offering. The stock certificates issued to evidence Retained Shares shall bear a legend referring to this Agreement and the restrictions contained herein. (b) Certificates representing Retained Shares shall bear a legend referring to this Agreement and the transfer restrictions contained herein, in addition to any other legends that the Company may deem appropriate. SECTION 3. Repurchase of Shares. -------------------- (a) In the event that the Shareholder ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (the "Repurchase Period") shall have the right to purchase all or any portion of the Retained Shares (the "Repurchase Right"). The purchase price for each Retained Share shall equal Fair Market Value unless the Shareholder resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or Cost. If the Company elects to purchase the Retained Shares, it shall notify the Shareholder at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Shareholder has presented to the Company stock certificates evidencing the Retained Shares duly endorsed for transfer (the "Endorsed Certificates"). If the Shareholder fails to deliver the Endorsed 4 Certificates, the Retained Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Shareholder or his or her Permitted Transferee or (ii) notice to the Shareholder or such Permitted Transferee that the Company is holding the purchase price for the account of the Shareholder or such Permitted Transferee, and upon such payment or notice the Shareholder and such Permitted Transferee will have no further rights in or to such Retained Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Retained Shares are not purchased pursuant to Section 3(a) or 3(b), the restrictions on transfer thereof contained in Section 2 of this Agreement shall terminate and be of no further force and effect. (b) If the Shareholder's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Shareholder's Retirement, death or Permanent Disability; (iii) by the Shareholder for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Shareholder or his or her representative or Permitted Transferee, during the 120 days following the Termination Date (the "Put Period") shall have the right to require SEL to purchase all or any portion of the Retained Shares then held by the Shareholder (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Retained Shares on the same terms as such Retained Shares were to be purchased by SEL, in which case such Retained Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Shareholder is terminated without Cause prior to May 10, 2003, in which case (i) for Pledged Shares, the purchase price will be the lower of Fair Market Value or Cost and (ii) for Non-Pledged Shares, the purchase price will be Cost if the termination occurs prior to May 10, 2001 and will be Fair Market Value thereafter. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Shareholder presents to the Company the Endorsed Certificates.. If the Shareholder's employment with the Company is terminated by the Shareholder without Good Reason at any time prior to May 10, 2003, the Shareholder or his or her representative or Permitted Transferee, during the Put Period, shall have the right to require SEL to purchase all or any portion of the Shares pledged by the Shareholder pursuant to the Shareholder's Loan and Pledge Agreement entered into in connection with borrowings under the Company's Stock Loan Plan (the "Additional Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Additional Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Shares on the same terms as such Shares were to be purchased by SEL, in which case such Shares will be acquired by the Company. The purchase price shall be at the lower of Fair Market Value or Cost. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period. (c) The Fair Market Value of the Retained Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") 5 promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Shareholder, each of the Shareholder and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Shareholder. The Shareholder shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Shareholder. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Shareholder if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Shareholder. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Shareholder. If it is determined that the Shareholder bears some or all of the costs incurred in connection with the services of the Appraisers, the Shareholder shall promptly pay or reimburse the Company for such costs . (d) The Shareholder shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. SECTION 4. Registration of Shares. ---------------------- (a) Subject to Sections 6 and 7 of this Agreement, if the Company proposes to file a registration statement with respect to common equity securities of the Company (excluding a registration statement filed prior to or in connection with the Initial Public Offering and any registration statement on Form S-8 or S-4 or comparable successor forms or a registration statement relating to a dividend reinvestment plan), which is available for use for the sale of Retained Shares under the Securities Act, then the Company shall give written notice of such proposed filing to the Shareholder at least 10 business days before the anticipated filing date of such registration statement, and such notice shall offer the Shareholder the opportunity to include in such registration statement the Retained Shares then owned by the Shareholder, as the Shareholder may request in writing within 7 business days after receipt of the Company's notice (which request shall specify the number of Retained Shares to be included in such registration statement and the intended method of disposition). The Company may require the Shareholder to furnish the Company such information regarding the Shareholder and the distribution of the Retained Shares as the Company may from time to time reasonably request in writing and as 6 shall be required by law or by the Securities and Exchange Commission in connection with such registration. (b) If any registration statement governed by Section 4(a) relates to an underwritten offering and the managing underwriter of such offering advises the Company in writing that the total number of shares which the Company, the Shareholder and other Persons whose contractual rights (now existing or hereafter granted) give them the right to be included in such registration intend to include in such offering is sufficiently large to affect adversely the ability of such underwriter to complete successfully an offering that does not significantly and adversely impact the market price of the shares being offered, then the number of shares to be included in such registration statement shall be reduced pro rata among the Company, the Shareholder and such other Persons. (c) The Company shall, to the extent that it is subject to the reporting requirements of the Exchange Act, use its reasonable best efforts to file the reports required to be filed by it under the Exchange Act so as to enable the Shareholder to sell Retained Shares without registration pursuant to Rule 144 under the Securities Act. In connection with any sale, transfer or other disposition by the Shareholder of any Retained Shares pursuant to Rule 144 under the Securities Act, the Company shall, to the extent permissible under applicable law, cooperate with the Shareholder to facilitate the timely preparation and delivery of certificates representing Retained Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Retained Shares to be issued at least two business days prior to any sale of such Retained Shares for such number of Retained Shares and registered in such names as the Shareholder may reasonably request upon ten (10) business days prior notice. The Company's obligation set forth in the previous sentence shall be subject to the delivery, if reasonably requested by the Company or its transfer agent, by counsel to the Shareholder (which counsel shall be reasonably acceptable to the Company and its transfer agent), in form and substance reasonably satisfactory to the Company and its transfer agent, of an opinion that such Securities Act legend need not appear on such certificate. (d) Within 30 days following an Initial Public Offering, the Company will file with the Securities and Exchange Commission a registration statement on Form S-8 providing for the registration of sales of Option Shares. SECTION 5. Compliance with Legal Requirements. No Shares shall be ---------------------------------- transferred pursuant to this Agreement unless and until all legal requirements applicable to such transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Securities Act, if available, or upon another exemption from the Securities Act, or obtaining the consent or approval of any governmental regulatory body. SECTION 6. Lock-Ups. -------- 7 (a) If and to the extent requested by the managing underwriter in connection with the Initial Public Offering, the Shareholder shall agree in writing that the Shareholder will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 180 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 180 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(a). (b) If and to the extent requested by the managing underwriter in connection with any other underwritten offering of equity securities of the Company (whether for the account of the Company, selling shareholders or both), the Shareholder shall agree in writing that he will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 90 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 90 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(b). (c) The Shareholder agrees that he shall not be permitted to sell any Shares in the Initial Public Offering unless (x) the Investcorp Shareholders sell shares in the Initial Public Offering and (y) the underwriter managing the Initial Public Offering believes, in its sole discretion, that the inclusion of the Shareholder's Shares will not affect adversely such offering. In the event the Shareholder is entitled to sell Shares pursuant to the preceding sentence, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares; provided that in no event shall the Shareholder be permitted to include in such offering a number of Shares greater than the number of shares included in such offering by the Investcorp Shareholders. 8 SECTION 7. Sales Following an Initial Public Offering. ------------------------------------------ (a) Following the earlier to occur of (i) the sale by the Investcorp Shareholders of an aggregate of 20% or more of the shares of Company common stock purchased by the Investcorp Shareholders on the date hereof or (ii) the third anniversary of the Initial Public Offering, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares, in each subsequent calendar year, and a pro rata portion of such amount, determined on a monthly basis, for the year in which such event occurs; provided that if the event described in clause (i) shall occur in the same year as the Initial Public Offering, any Shares sold by the Shareholder in the Initial Public Offering shall be counted toward the total Shares the Shareholder is entitled to sell for such year. The Shareholder may make additional sales of Shares only with the consent of the Investcorp Shareholders (and SEL shall have the authority to speak on behalf of the Investcorp Shareholders for this purpose). (b) The Shareholder shall be permitted to participate in a registered secondary offering of the Company in which the Investcorp Shareholders sell shares; provided that the total number of the Shareholder's Shares that may be included in such offering shall not exceed the lesser of (i) the amount of Shares that the Shareholder is entitled to sell pursuant to clause (a) above (taking into account any other sales by the Shareholder in such year) and (ii) the percentage of the Shareholder's Shares, including Option Shares, equal to the percentage of the total shares of Company common stock owned by the Investcorp Shareholders being sold by the Investcorp Shareholders in such offering. (c) Notwithstanding clause (a) above, the Investcorp Shareholders shall be entitled to delay any sale of Shares by the Shareholder made pursuant to such clause (a) for a period not to exceed 90 days, if the Investcorp Shareholders intend to cause the Company to effect a secondary registered offering or if the Investcorp Shareholders intend to sell a significant block of Company common stock in such 90-day period. (d) All of the restrictions on the Shareholder's ability to sell his Shares shall also apply to Shares the ownership of which is attributable to the Shareholder pursuant to Rule 144(a)(2) under the Securities Act of 1933, as amended. All of the restrictions on the Shareholder's ability to sell such Shares shall lapse upon the earlier to occur of (i) the date upon which the Investcorp Shareholders own less than 10% of the total outstanding shares of Company common stock or (ii) the fifth anniversary of the Initial Public Offering. SECTION 8. Termination of Chief Executive Officer. If, at any time prior -------------------------------------- to the first anniversary of the date of this Agreement, (a) Robert Buhrmaster's employment as Chief Executive Officer of the Company is terminated by the Company without Cause or by Mr. Buhrmaster for Good Reason (as such terms are defined in the Stock Option Agreement dated the date hereof between the Company and Mr. Buhrmaster) and (b) within 60 days following such termination, the Shareholder elects to terminate his employment with the Company, the Shareholder shall be entitled to receive severance benefits in an amount equal to the severance benefits the Shareholder was entitled to receive pursuant to the Company plans in effect at the effective time of the Merger in the event of a Change of Control (as defined in any such plan) and the Shareholder's termination of his employment for Good Reason (as defined in any such plan). 9 SECTION 9. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE SHAREHOLDER ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE SHAREHOLDER HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE SHAREHOLDER THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE SHAREHOLDER CONFIRMS THAT THE SHAREHOLDER HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE SHAREHOLDER FURTHER CONFIRMS THAT THE SHAREHOLDER HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE SHAREHOLDER CONCERNING THIS AGREEMENT. (c) THE SHAREHOLDER FURTHER REPRESENTS THAT, ALTHOUGH THE SHAREHOLDER IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE SHAREHOLDER IS HOLDING THE SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE SHARES WILL ENTITLE THE SHAREHOLDER TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE SHAREHOLDER WERE NOT A SHAREHOLDER. THE SHAREHOLDER FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE SHAREHOLDER ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE SHAREHOLDER THAT THE COMPANY HAS THE EXPECTATION THAT THE SHAREHOLDER WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE SHAREHOLDER'S OWNERSHIP OF THE SHARES. SECTION 10. Miscellaneous. ------------- 10 (a) Notices. All notices, instructions and other communications in ------- connection with this Agreement shall be in writing and may be given by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) delivery by a nationally recognized overnight courier, to the parties at the addresses of each as set forth on the signature pages to this Agreement or to such other address as any party may specify in a notice to the other parties. Notices will be deemed to have been given (w) when actually delivered personally, (x) the next business day if sent by overnight courier (with proof of delivery) and (y) on the fifth day after mailing by certified mail. (b) No Waiver. No course of dealing and no delay on the part of any party --------- hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies conferred by this Agreement or shall preclude any other or further exercise thereof or the exercise of any other right, power and remedy. (c) Binding Effect; Assignability. This Agreement shall be binding upon ----------------------------- and, except as otherwise provided herein, shall inure to the benefit of the respective parties and their permitted successors and assigns, including, without limitation, Permitted Transferees to the extent specifically provided for herein. This Agreement shall not be assignable except as otherwise specifically provided herein. (d) Amendment and Waiver. This Agreement may not be amended, modified or -------------------- supplemented without the consent of the Company and the Shareholder, and no waiver or consent to departures from the provisions hereof shall bind any party who has not given such waiver or consent. (e) Governing Law; Service of Process. This Agreement shall be construed --------------------------------- both as to validity and performance in accordance with, and governed by, the laws of the State of Minnesota applicable to agreements to be performed in Minnesota, without regard to principles of conflict of laws. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. (g) Headings. All headings and captions in this Agreement are for purposes -------- of reference only and shall not be construed to limit or affect the substance of this Agreement. All references to Section in this Agreement refer to Sections of this Agreement, unless the context otherwise expressly provides. (h) Entire Agreement. This Agreement contains, and is intended as, a ---------------- complete statement of all the terms of the arrangements between the parties with respect to the matters provided for herein and supersedes any previous agreements and understandings between the parties with respect to those matters. (i) Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the 11 economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JOSTENS, INC. a Minnesota corporation By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer Address:____________________________ ____________________________ ____________________________ /s/ Michael :Bailey ------------------- Name: Michael Bailey Address:____________________________ ____________________________ ____________________________ Accepted and agreed to for purposes of Section 3(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EX-10.14 11 0011.txt AGREEMENT BETWEEN JOSTENS, INC. & GREGORY LEA Exhibit 10.14 MANAGEMENT SHAREHOLDER AGREEMENT THIS MANAGEMENT SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of May 10, 2000, between Jostens, Inc., a Minnesota corporation (the "Company"), and Gregory Lea (the "Shareholder"). R E C I T A L S A. The Company is a party to an Agreement and Plan of Merger dated as of December 27, 1999 (as amended, the "Merger Agreement") by and between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), pursuant to which MergerCo will, subject to the terms and conditions of the Merger Agreement, be merged with and into the Company (the "Merger"). B. The Shareholder is the beneficial owner of 9,522 shares of the Company's common stock, par value $0.33 per share, which in connection with the Merger will be retained by the Shareholder and redesignated as Class A Common Stock, par value $0.33 per share ("Class A Stock") (the "Retained Shares"). C. The Shareholder entered into a Stock Option Agreement with the Company, dated the date hereof, pursuant to which the Shareholder was granted an option to purchase shares of Class A Stock (such shares, when issued, the "Option Shares"). D. The Shareholder has entered into a Loan and Pledge Agreement with the Company, pursuant to which the Shareholder has pledged all or a portion of his Retained Shares to the Company (the "Pledged Shares"). All Retained Shares held by the Shareholder that are not pledged to the Company are referred to herein as the "Non-Pledged Shares." E. The Company and the Shareholders desire to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Certain Definitions. Capitalized terms used herein shall have ------------------- the following meanings: "Additional Put Right" is defined in Section 3(b). "Agreement" means this Shareholder Agreement. "Annual Valuation" is defined in Section 3(c). "Appraisers" is defined in Section 3(c). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Shareholder's gross misconduct; (B) the Shareholder's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Shareholder's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Shareholder by the Board which specifically identifies the manner in which the Board believes that the Shareholder has not substantially performed his or her duties and provides for a reasonable period of time within which the Shareholder may take corrective measures, or (C) the Shareholder's conviction (including a plea of nolo ---- contendere) of willfully engaging in illegal conduct constituting a felony or - ---------- gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Shareholder's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital B. "Company" is defined in the preamble. "Cost" of Class A Stock means $25.25 per share plus interest from the date hereof at a floating rate calculated quarterly as follows: for the period from the date hereof through June 30, 2000, at a per annum rate equal to the 3- month t-bill rate for May 10, 2000, as published in the Wall Street Journal, and for each calendar quarter thereafter, at a per annum rate equal to the 3-month t-bill rate for the last day of the immediately preceding quarter, as published in the Wall Street Journal; provided, that for purposes of Section 3(a) of this Agreement, in the event the Shareholder is terminated for Cause, "Cost" shall mean $25.25 per share. "Endorsed Certificate" is defined in Section 3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 3(c). "Good Reason" means, unless the Shareholder shall have consented in writing thereto, any of the following: (A) a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Shareholder's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Shareholder, (B) a reduction by the Company in the Shareholder's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the 2 Shareholder's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Shareholder under benefit plans that, in the aggregate, provide substantially similar benefits to the Shareholder and/or his or her family and dependents as a substantially similar total cost to the Shareholder (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Shareholder (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Shareholder to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Shareholder undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Shareholder's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Shareholder to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Shareholder was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Securities Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Investcorp Shareholders" means Investcorp Bank E.C. and/or one or more of its affiliates ("Investcorp") and other international investors with whom Investcorp has an administrative relationship. "Non-Pledged Shares" is defined in recital D. "Option Shares" is defined in recital C. "Permanent Disability" means the failure by the Shareholder to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Permitted Transferee" means any of (A) the Shareholder's spouse, child, estate, personal representative, heir or successor, (B) a trust for the benefit of the Shareholder or his spouse, child or heir, or (C) a partnership, the partners of which consist solely of the Shareholder and/or his spouse, child, heir, and/or successor. "Pledged Shares" is defined in recital D. "Put Period" and "Put Right" are defined in Section 3(b). "Repurchase Period" and "Repurchase Right" are defined in Section 3(a). 3 "Retained Shares" is defined in recital B. "Retirement" means age 65. "Securities Act" means the Securities Act of 1933, or any successor law, as amended from time to time, including the various rules and regulations issued pursuant to that Act or any successor law. "Shares" means the Option Shares and the Retained Shares. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Shareholder ceases to be employed by the Company for any reason. Certain other terms are defined elsewhere in this Agreement. SECTION 2. Restrictions on Transfer. ------------------------ (a) Subject to Section 3 hereof and the Articles of Incorporation, prior to an Initial Public Offering, the Retained Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Shareholder may transfer the Retained Shares to a Permitted Transferee. This Agreement shall be binding on and enforceable against any person who is a Permitted Transferee of the Retained Shares except a person who acquires any Retained Shares pursuant to the Articles of Incorporation or as part of an Initial Public Offering. The stock certificates issued to evidence Retained Shares shall bear a legend referring to this Agreement and the restrictions contained herein. (b) Certificates representing Retained Shares shall bear a legend referring to this Agreement and the transfer restrictions contained herein, in addition to any other legends that the Company may deem appropriate. SECTION 3. Repurchase of Shares. -------------------- (a) In the event that the Shareholder ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (the "Repurchase Period") shall have the right to purchase all or any portion of the Retained Shares (the "Repurchase Right"). The purchase price for each Retained Share shall equal Fair Market Value unless the Shareholder resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or Cost. If the Company elects to purchase the Retained Shares, it shall notify the Shareholder at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Shareholder has presented to the Company stock certificates evidencing the Retained Shares duly endorsed for transfer (the "Endorsed Certificates"). If the Shareholder fails to deliver the Endorsed 4 Certificates, the Retained Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Shareholder or his or her Permitted Transferee or (ii) notice to the Shareholder or such Permitted Transferee that the Company is holding the purchase price for the account of the Shareholder or such Permitted Transferee, and upon such payment or notice the Shareholder and such Permitted Transferee will have no further rights in or to such Retained Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Retained Shares are not purchased pursuant to Section 3(a) or 3(b), the restrictions on transfer thereof contained in Section 2 of this Agreement shall terminate and be of no further force and effect. (b) If the Shareholder's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Shareholder's Retirement, death or Permanent Disability; (iii) by the Shareholder for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Shareholder or his or her representative or Permitted Transferee, during the 120 days following the Termination Date (the "Put Period") shall have the right to require SEL to purchase all or any portion of the Retained Shares then held by the Shareholder (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Retained Shares on the same terms as such Retained Shares were to be purchased by SEL, in which case such Retained Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Shareholder is terminated without Cause prior to May 10, 2003, in which case (i) for Pledged Shares, the purchase price will be the lower of Fair Market Value or Cost and (ii) for Non-Pledged Shares, the purchase price will be Cost if the termination occurs prior to May 10, 2001 and will be Fair Market Value thereafter. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Shareholder presents to the Company the Endorsed Certificates.. If the Shareholder's employment with the Company is terminated by the Shareholder without Good Reason at any time prior to May 10, 2003, the Shareholder or his or her representative or Permitted Transferee, during the Put Period, shall have the right to require SEL to purchase all or any portion of the Shares pledged by the Shareholder pursuant to the Shareholder's Loan and Pledge Agreement entered into in connection with borrowings under the Company's Stock Loan Plan (the "Additional Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Shareholder's election to exercise the Additional Put Right, the Company has notified the Shareholder and SEL of its election, exercisable at the discretion of the Company, to purchase the Shares on the same terms as such Shares were to be purchased by SEL, in which case such Shares will be acquired by the Company. The purchase price shall be at the lower of Fair Market Value or Cost. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period. (c) The Fair Market Value of the Retained Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") 5 promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Shareholder, each of the Shareholder and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Shareholder. The Shareholder shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Shareholder. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Shareholder if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Shareholder. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Shareholder. If it is determined that the Shareholder bears some or all of the costs incurred in connection with the services of the Appraisers, the Shareholder shall promptly pay or reimburse the Company for such costs. (d) The Shareholder shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. SECTION 4. Registration of Shares. ---------------------- (a) Subject to Sections 6 and 7 of this Agreement, if the Company proposes to file a registration statement with respect to common equity securities of the Company (excluding a registration statement filed prior to or in connection with the Initial Public Offering and any registration statement on Form S-8 or S-4 or comparable successor forms or a registration statement relating to a dividend reinvestment plan), which is available for use for the sale of Retained Shares under the Securities Act, then the Company shall give written notice of such proposed filing to the Shareholder at least 10 business days before the anticipated filing date of such registration statement, and such notice shall offer the Shareholder the opportunity to include in such registration statement the Retained Shares then owned by the Shareholder, as the Shareholder may request in writing within 7 business days after receipt of the Company's notice (which request shall specify the number of Retained Shares to be included in such registration statement and the intended method of disposition). The Company may require the Shareholder to furnish the Company such information regarding the Shareholder and the distribution of the Retained Shares as the Company may from time to time reasonably request in writing and as 6 shall be required by law or by the Securities and Exchange Commission in connection with such registration. (b) If any registration statement governed by Section 4(a) relates to an underwritten offering and the managing underwriter of such offering advises the Company in writing that the total number of shares which the Company, the Shareholder and other Persons whose contractual rights (now existing or hereafter granted) give them the right to be included in such registration intend to include in such offering is sufficiently large to affect adversely the ability of such underwriter to complete successfully an offering that does not significantly and adversely impact the market price of the shares being offered, then the number of shares to be included in such registration statement shall be reduced pro rata among the Company, the Shareholder and such other Persons. (c) The Company shall, to the extent that it is subject to the reporting requirements of the Exchange Act, use its reasonable best efforts to file the reports required to be filed by it under the Exchange Act so as to enable the Shareholder to sell Retained Shares without registration pursuant to Rule 144 under the Securities Act. In connection with any sale, transfer or other disposition by the Shareholder of any Retained Shares pursuant to Rule 144 under the Securities Act, the Company shall, to the extent permissible under applicable law, cooperate with the Shareholder to facilitate the timely preparation and delivery of certificates representing Retained Shares to be sold and not bearing any Securities Act legend, and enable certificates for such Retained Shares to be issued at least two business days prior to any sale of such Retained Shares for such number of Retained Shares and registered in such names as the Shareholder may reasonably request upon ten (10) business days prior notice. The Company's obligation set forth in the previous sentence shall be subject to the delivery, if reasonably requested by the Company or its transfer agent, by counsel to the Shareholder (which counsel shall be reasonably acceptable to the Company and its transfer agent), in form and substance reasonably satisfactory to the Company and its transfer agent, of an opinion that such Securities Act legend need not appear on such certificate. (d) Within 30 days following an Initial Public Offering, the Company will file with the Securities and Exchange Commission a registration statement on Form S-8 providing for the registration of sales of Option Shares. SECTION 5. Compliance with Legal Requirements. No Shares shall be ---------------------------------- transferred pursuant to this Agreement unless and until all legal requirements applicable to such transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Securities Act, if available, or upon another exemption from the Securities Act, or obtaining the consent or approval of any governmental regulatory body. SECTION 6. Lock-Ups. -------- 7 (a) If and to the extent requested by the managing underwriter in connection with the Initial Public Offering, the Shareholder shall agree in writing that the Shareholder will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 180 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 180 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(a). (b) If and to the extent requested by the managing underwriter in connection with any other underwritten offering of equity securities of the Company (whether for the account of the Company, selling shareholders or both), the Shareholder shall agree in writing that he will not, without the consent of the managing underwriter: (x) effect any public sale or distribution of any Shares for a period of 90 days following effectiveness of the registration statement relating to such offering or (y) effect any other transfer of Shares during such 90 day period unless the transferee agrees in writing to be bound by the terms and conditions of this Section 6(b). (c) The Shareholder agrees that he shall not be permitted to sell any Shares in the Initial Public Offering unless (x) the Investcorp Shareholders sell shares in the Initial Public Offering and (y) the underwriter managing the Initial Public Offering believes, in its sole discretion, that the inclusion of the Shareholder's Shares will not affect adversely such offering. In the event the Shareholder is entitled to sell Shares pursuant to the preceding sentence, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares; provided that in no event shall the Shareholder be permitted to include in such offering a number of Shares greater than the number of shares included in such offering by the Investcorp Shareholders. 8 SECTION 7. Sales Following an Initial Public Offering. ------------------------------------------ (a) Following the earlier to occur of (i) the sale by the Investcorp Shareholders of an aggregate of 20% or more of the shares of Company common stock purchased by the Investcorp Shareholders on the date hereof or (ii) the third anniversary of the Initial Public Offering, the Shareholder shall be permitted to sell a number of Shares not greater than 15% of the Shareholder's total Shares, including Option Shares, in each subsequent calendar year, and a pro rata portion of such amount, determined on a monthly basis, for the year in which such event occurs; provided that if the event described in clause (i) shall occur in the same year as the Initial Public Offering, any Shares sold by the Shareholder in the Initial Public Offering shall be counted toward the total Shares the Shareholder is entitled to sell for such year. The Shareholder may make additional sales of Shares only with the consent of the Investcorp Shareholders (and SEL shall have the authority to speak on behalf of the Investcorp Shareholders for this purpose). (b) The Shareholder shall be permitted to participate in a registered secondary offering of the Company in which the Investcorp Shareholders sell shares; provided that the total number of the Shareholder's Shares that may be included in such offering shall not exceed the lesser of (i) the amount of Shares that the Shareholder is entitled to sell pursuant to clause (a) above (taking into account any other sales by the Shareholder in such year) and (ii) the percentage of the Shareholder's Shares, including Option Shares, equal to the percentage of the total shares of Company common stock owned by the Investcorp Shareholders being sold by the Investcorp Shareholders in such offering. (c) Notwithstanding clause (a) above, the Investcorp Shareholders shall be entitled to delay any sale of Shares by the Shareholder made pursuant to such clause (a) for a period not to exceed 90 days, if the Investcorp Shareholders intend to cause the Company to effect a secondary registered offering or if the Investcorp Shareholders intend to sell a significant block of Company common stock in such 90-day period. (d) All of the restrictions on the Shareholder's ability to sell his Shares shall also apply to Shares the ownership of which is attributable to the Shareholder pursuant to Rule 144(a)(2) under the Securities Act of 1933, as amended. All of the restrictions on the Shareholder's ability to sell such Shares shall lapse upon the earlier to occur of (i) the date upon which the Investcorp Shareholders own less than 10% of the total outstanding shares of Company common stock or (ii) the fifth anniversary of the Initial Public Offering. SECTION 8. Termination of Chief Executive Officer. If, at any time prior -------------------------------------- to the first anniversary of the date of this Agreement, (a) Robert Buhrmaster's employment as Chief Executive Officer of the Company is terminated by the Company without Cause or by Mr. Buhrmaster for Good Reason (as such terms are defined in the Stock Option Agreement dated the date hereof between the Company and Mr. Buhrmaster) and (b) within 60 days following such termination, the Shareholder elects to terminate his employment with the Company, the Shareholder shall be entitled to receive severance benefits in an amount equal to the severance benefits the Shareholder was entitled to receive pursuant to the Company plans in effect at the effective time of the Merger in the event of a Change of Control (as defined in any such plan) and the Shareholder's termination of his employment for Good Reason (as defined in any such plan). 9 SECTION 9. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE SHAREHOLDER ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE SHAREHOLDER HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE SHAREHOLDER THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE SHAREHOLDER CONFIRMS THAT THE SHAREHOLDER HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE SHAREHOLDER FURTHER CONFIRMS THAT THE SHAREHOLDER HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE SHAREHOLDER CONCERNING THIS AGREEMENT. (c) THE SHAREHOLDER FURTHER REPRESENTS THAT, ALTHOUGH THE SHAREHOLDER IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE SHAREHOLDER IS HOLDING THE SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE SHARES WILL ENTITLE THE SHAREHOLDER TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE SHAREHOLDER WERE NOT A SHAREHOLDER. THE SHAREHOLDER FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE SHAREHOLDER ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE SHAREHOLDER THAT THE COMPANY HAS THE EXPECTATION THAT THE SHAREHOLDER WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE SHAREHOLDER'S OWNERSHIP OF THE SHARES. SECTION 10. Miscellaneous. ------------- 10 (a) Notices. All notices, instructions and other communications in ------- connection with this Agreement shall be in writing and may be given by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) delivery by a nationally recognized overnight courier, to the parties at the addresses of each as set forth on the signature pages to this Agreement or to such other address as any party may specify in a notice to the other parties. Notices will be deemed to have been given (w) when actually delivered personally, (x) the next business day if sent by overnight courier (with proof of delivery) and (y) on the fifth day after mailing by certified mail. (b) No Waiver. No course of dealing and no delay on the part of any party --------- hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies conferred by this Agreement or shall preclude any other or further exercise thereof or the exercise of any other right, power and remedy. (c) Binding Effect; Assignability. This Agreement shall be binding upon ----------------------------- and, except as otherwise provided herein, shall inure to the benefit of the respective parties and their permitted successors and assigns, including, without limitation, Permitted Transferees to the extent specifically provided for herein. This Agreement shall not be assignable except as otherwise specifically provided herein. (d) Amendment and Waiver. This Agreement may not be amended, modified or -------------------- supplemented without the consent of the Company and the Shareholder, and no waiver or consent to departures from the provisions hereof shall bind any party who has not given such waiver or consent. (e) Governing Law; Service of Process. This Agreement shall be construed --------------------------------- both as to validity and performance in accordance with, and governed by, the laws of the State of Minnesota applicable to agreements to be performed in Minnesota, without regard to principles of conflict of laws. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. (g) Headings. All headings and captions in this Agreement are for purposes -------- of reference only and shall not be construed to limit or affect the substance of this Agreement. All references to Section in this Agreement refer to Sections of this Agreement, unless the context otherwise expressly provides. (h) Entire Agreement. This Agreement contains, and is intended as, a ---------------- complete statement of all the terms of the arrangements between the parties with respect to the matters provided for herein and supersedes any previous agreements and understandings between the parties with respect to those matters. (i) Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the 11 economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JOSTENS, INC. a Minnesota corporation By: /s/ Lee U. McGrath ------------------ Name: Lee U. McGrath Title: Vice President and Treasurer Address:_____________________ _____________________ _____________________ /s/ Gregory Lea --------------- Name: Gregory Lea Address:_____________________ _____________________ _____________________ Accepted and agreed to for purposes of Section 3(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EX-10.15 12 0012.txt STOCK OPTION AGREEMENT JOSTENS & WILLIAMS PRIESMEYER EXHIBIT 10.15 STOCK OPTION AGREEMENT PURSUANT TO THE JOSTENS, INC. STOCK INCENTIVE PLAN THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of May 10, 2000 (the "Effective Date"), between Jostens, Inc., a Minnesota corporation (the "Company"), and William Priesmeyer (the "Optionee"). R E C I T A L S - - - - - - - - A. The Company has adopted the Jostens, Inc. Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1. B. The Company desires to grant the Optionee the opportunity to acquire a proprietary interest in the Company to encourage the Optionee's contribution to the success and progress of the Company. C. In accordance with the Plan, the Committee (as defined in the Plan) has granted to the Optionee a non-qualified option to purchase shares of Class A Stock, $0.33 par value per share, of the Company (the "Class A Stock") subject to the terms and conditions of the Plan and this Agreement. AGREEMENTS ---------- 1. Definitions. Capitalized terms used herein shall have the following ----------- meanings: "Act" is defined in Section 10(a). "Agreement" means this Stock Option Agreement. "Annual Valuation" is defined in Section 9(d). "Appraisers" is defined in Section 9(d). "Approved Sale" means a transaction or a series of related transactions which results in a bona fide, unaffiliated change of economic ---- ---- beneficial ownership of the Company or its business of greater than 50% (disregarding for this purpose any disparate voting rights attributable to the outstanding stock of the Company), whether pursuant to the sale of the stock of the Company, the sale of the assets of the Company, or a merger or consolidation (other than a sale of stock by an Initial Stockholder to (i) another Initial Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to which an Initial Stockholder or affiliate thereof has an administrative relationship). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Optionee's gross misconduct; (B) the Optionee's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Optionee's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Optionee by the Board which specifically identifies the manner in which the Board believes that the Optionee has not substantially performed his or her duties and provides for a reasonable period of time within which the Optionee may take corrective measures, or (C) the Optionee's conviction (including a plea of nolo contendere) of willfully ---- ---------- engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Optionee's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital C. "Closing Date" means May 10, 2000. "Company" is defined in the preamble. "EBITDA" is defined in Section 3(a). "Effective Date" is defined in the preamble. "Endorsed Certificate" is defined in Section 9(a). "Exercise Price" is defined in Section 2. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 9(d). "Fiscal Year" means the fiscal year of the Company. "Good Reason" means, unless the Optionee shall have consented in writing thereto, any of the following: (A) a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Optionee, (B) a reduction by the Company in the Optionee's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Optionee's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Optionee under benefit plans that, in the aggregate, provide substantially similar benefits to the Optionee and/or his or her family and dependents as a substantially similar total cost to the Optionee (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Optionee (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Optionee to be based more than 30 miles from where his or 2 her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Optionee undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Optionee's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Optionee to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Optionee was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Initial Stockholders" means the shareholders of the Company who became shareholders as of the Closing Date (other than any such shareholders who are also employees of the Company or were shareholders of the Company prior to the Closing Date). "Option" is defined in Section 2. "Optionee" is defined in the preamble. "Option Shares" is defined in Section 2. "Permanent Disability" means the failure by the Optionee to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Plan" is defined in recital A. "Put Period" and "Put Right" are defined in Section 9(b). "Repurchase Period" and "Repurchase Right" are defined in Section 9(a). "Retirement" means age 65. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Optionee ceases to be employed by the Company for any reason. 2. Grant of Option. The Company grants to the Optionee the right and --------------- option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of 3 the number of shares of Class A Stock set forth below the Optionee's signature below (the "Option Shares"), at the purchase price of $25.25 per Share (as such amount may be adjusted, the "Exercise Price"), on the terms and conditions set forth herein. 3. Exercisability. -------------- (a) The Option shall become exercisable to the extent of one-fifth (1/5) of the number of Option Shares as of the end of each fiscal year set forth on Exhibit 2 of this Agreement if the Company's Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the Target annual EBITDA amount set forth in column (A) of Exhibit 2 with respect to such fiscal year. If for any fiscal year set forth on Exhibit 2 the Company's cumulative annual EBITDA amount for that and the preceding fiscal years equals or exceeds the Cumulative Target EBITDA amount set forth in column (B) of Exhibit 2 with respect to such fiscal year, the Option shall become exercisable to the extent that it would have become exercisable had the Company achieved its Target annual EBITDA amounts for that and each of the preceding fiscal years. (b) Notwithstanding Section 3(a), (i) upon the occurrence of an Initial Public Offering, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right (A) to exercise one-third (1/3) of all unexercisable Options on the first anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (B) to exercise an additional one third (1/3) of all unexercisable Options (as of the first anniversary) on the second anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; and (C) to exercise the remaining one-third (1/3) of all unexercisable Options on the third anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (ii) upon the occurrence of an Approved Sale, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right to exercise up to fifty percent (50%) of all unexercisable Options, provided, and to the extent, that the Initial Stockholders receive a twenty percent (20%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale); and shall have the right to exercise up to seventy-five percent (75%) of all unexercisable options if the Initial Stockholders receive a twenty-five percent (25%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the closing of the Approval Sale (taking into account the Approved Sale); and shall have the right to exercise up to one-hundred percent (100%) of all unexercisable Options if the Initial Stockholders receive a thirty percent (30%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale), and (iii) upon the seventh (7th) anniversary of the date hereof, provided the Optionee remains continuously employed by the Company through such anniversary, any unexercisable Option shall immediately become fully exercisable. 4 4. Expiration. ---------- (a) Subject to Section 6(a), the exercisable portion of the Option shall expire upon the thirtieth (30th) day following the seventh (7th) anniversary of the Effective Date unless, if earlier, (i) the Optionee resigns without Good Reason, in which case the exercisable portion of the Option shall expire thirty (30) days following the Termination Date, or (ii) the Optionee is terminated for Cause from employment by the Company, in which case the exercisable portion of the Option shall expire immediately on the Termination Date, or (iii) in the event of the death or Disability of the Optionee the exercisable portion of the option shall expire one (1) year from the date of death or Disability or (iv) the Optionee resigns for Good Reason or is terminated by the Company without Cause, in which case the exercisable portion of the Option shall expire one hundred eighty (180) days following the Termination Date; or (v) in the event the Company exercises the repurchase right pursuant to Section 9 hereof, or in the event the Optionee or his or her representative exercises the put right pursuant to Section 9 hereof, the exercisable portion of the Option shall expire on the business day immediately preceding the Repurchase Date, the Put Date, or the date on which the Company acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be. (b) The unexercisable portion of the Option shall expire on the Termination Date; provided, that in the case where the employment of the Optionee is terminated without Cause, for Good Reason, or due to death or Permanent Disability, the unexercisable portion of the Option scheduled to become exercisable in such year shall not terminate until the thirtieth (30th) day following the date on which the Optionee received notice of the EBITDA for the Fiscal Year during which the Termination Date occurred, and a pro rata portion of the portion of the Option scheduled to become exercisable in the year including the Termination Date shall become exercisable as if the Optionee's employment had not been terminated, such proration to be determined upon the number of days elapsed in the year in which the Termination Date occurred. 5. Nontransferability. Subject to Section 9 hereof, the Option shall not ------------------ be transferable by the Optionee except that the Optionee may transfer the Option to (a) his or her spouse, child, estate, personal representative, heir or successor (b) a trust for the benefit of the Optionee or his or her spouse, child or heir, or (c) a partnership the partners of which consist solely of the Optionee and/or his or her spouse, child, heir, and/or successor (each, a "permitted transferee") and the Option is exercisable, during the Optionee's lifetime, only by him or her or a permitted transferee, or, in the event of the Optionee's Permanent Disability, his or her guardian or legal representative. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option that would otherwise effect a change in the ownership of the Option, shall terminate the Option; provided, however, that in the case of the involuntary levy of any attachment or similar involuntary process upon the Option, the Optionee shall have thirty (30) days after notice thereof to cure such levy or process before the Option terminates. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option. 5 6. Effect of Approved Sale; Adjustments. ------------------------------------ (a) In the event of an Approved Sale, the unexercised portion of the Option shall terminate upon such Approved Sale, provided that, unless the agreement or plan of merger effecting such Approved Sale provides that the Optionee shall receive upon such Approved Sale, with respect to the entire exercisable but unexercised portion of the Option, the same consideration that the holders of the Class A Stock shall be entitled to receive upon such Approved Sale, less the Exercise Price attributable to such exercisable but unexercised portion, then the Optionee shall be given at least thirty (30) days' prior notice of the proposed Approved Sale and shall be entitled to exercise such exercisable but unexercised portion of the Option at any time during such thirty (30) day period up to and until the close of business on the day immediately preceding the date of consummation of such Approved Sale and upon exercise of the Option the Option Shares shall be treated in the same manner as the shares of any other holder of Class A Stock. (b) Subject to Section 6(a), if the shares of the Class A Stock are changed into or exchanged for a different number or kind of shares or securities, as the result of any one or more reorganizations, recapitalizations, mergers, acquisitions, stock splits, reverse stock splits, stock dividends or similar events, an appropriate adjustment shall be made in the number and kind of shares or other securities subject to the Option, and the price for each share or other unit of any securities subject to this Agreement, in accordance with Section 13 of the Plan. No fractional interests shall be issued on account of any such adjustment unless the Committee specifically determines to the contrary; provided, however, that in lieu of fractional interests, the Optionee, upon the exercise of the Option in whole or part, shall receive cash in an amount equal to the amount by which the fair market value of such fractional interests exceeds the Exercise Price attributable to such fractional interests. 7. Exercise of the Option. Prior to the expiration thereof, the Optionee ---------------------- may exercise the exercisable portion of the Option from time to time in whole or in part. Upon electing to exercise the Option, the Optionee shall deliver to the Secretary of the Company a written and signed notice of such election setting forth the number of Option Shares the Optionee has elected to purchase and shall at the time of delivery of such notice tender cash or a cashier's or certified bank check to the order of the Company for the full Exercise Price of such Option Shares and any amount required pursuant to Section 16 hereof. Alternatively, if the Company is not at the time prohibited from purchasing or acquiring shares of its capital stock, the Exercise Price may be paid in whole or in part by delivery of shares of the Class A Stock owned by the Optionee provided that Optionee has owned such shares for at least six (6) months. The value of any such shares delivered or withheld as payment of the Exercise Price shall be such shares' fair market value as determined by the Committee. The Committee further may, in its discretion, permit payment of the Exercise Price in such form or in such manner as may be permissible under the Plan and under any applicable law. 8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject ---------------------------------------------------------- to Section 9 hereof, prior to the earlier of (A) 180 days following an Initial Public Offering or (B) an Approved Sale, the Option Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Optionee may transfer the Option Shares (i) to a permitted transferee, as defined in Section 5 of this Agreement, or (ii) as permitted by the Articles of Incorporation. This Agreement shall be binding on and enforceable against any person who is a permitted 6 transferee of the Option Shares except a person who acquires the Option Shares pursuant to the Articles of Incorporation or as part of the Initial Public Offering. The stock certificates issued to evidence Option Shares upon exercise of the Option hereunder shall bear a legend referring to this Agreement and the restrictions contained herein. 9. Repurchase of Option Shares. --------------------------- (a) In the event that the Optionee ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (subject to Section 9(c), the "Repurchase Period") shall have the right to purchase all or any portion of the Option Shares (the "Repurchase Right"). The purchase price for each Option Share shall equal Fair Market Value unless the Optionee resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. If the Company elects to purchase the Option Shares, it shall notify the Optionee at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Optionee has presented to the Company a stock certificate evidencing the Option Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee fails to deliver the Endorsed Certificate, the Option Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Optionee or his or her permitted transferee or (ii) notice to the Optionee or such permitted transferee that the Company is holding the purchase price for the account of the Optionee or such permitted transferee, and upon such payment or notice the Optionee and such permitted transferee will have no further rights in or to such Option Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Option Shares are not purchased pursuant to Section 9(a) or 9(b), the restrictions on transfer thereof contained in Sections 5 and 8 of this Agreement shall terminate and be of no further force and effect. (b) If the Optionee's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Optionee's Retirement, death or Permanent Disability; (iii) by the Optionee for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Optionee or his or her representative or permitted transferee, during the 120 days following the Termination Date (subject to Section 9(c), the "Put Period") shall have the right to require SEL to purchase all or any portion of the Option Shares then held by Optionee (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Optionee's election to exercise the Put Right, the Company has notified the Optionee and SEL of its election, exercisable at the discretion of the Company, to purchase the Option Shares on the same terms as such Option Shares were to be purchased by SEL, in which case such Option Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Optionee is terminated without Cause prior to May 10, 2003, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Optionee presents to the Company the Endorsed Certificate. 7 (c) In the event that (i) on the Termination Date, Optionee owns Option Shares that have not been owned by the Optionee for a period of at least six (6) months, and/or (ii) following the Termination Date, the Optionee exercises any then outstanding vested Option pursuant to this Agreement (including without limitation any Option which becomes exercisable by virtue of Section 4(b) hereof), with respect to all such Option Shares, the Repurchase Period and the Put Period will not commence on the Termination Date but rather will commence on the first date on which all such Option Shares have been owned by Optionee for six (6) months. (d) The Fair Market Value of Option Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Optionee, each of the Optionee and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Optionee. The Optionee shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Optionee. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Optionee if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Optionee. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Optionee. If it is determined that the Optionee bears some or all of the costs incurred in connection with the services of the Appraisers, the Optionee shall promptly pay or reimburse the Company for such costs. (e) The Optionee shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. 10. Compliance with Legal Requirements. ---------------------------------- (a) No Option Shares shall be issued or transferred pursuant to this Agreement unless and until all legal requirements applicable to such issuance or transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Option Shares under any state 8 or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Act"), and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if available, or upon another exemption from the Act, or obtaining the consent or approval of any governmental regulatory body. (b) The Optionee understands that the Company intends for the offering and sale of Option Shares to be effected in reliance upon Rule 701 or another available exemption from registration under the Act, and that the Company is under no obligation to register for resale the Option Shares issued upon exercise of the Option, subject to other applicable agreements or the Articles of Incorporation. In connection with any such issuance or transfer, the person acquiring the Option Shares shall, if requested by the Company, provide information and assurances satisfactory to counsel to the Company with respect to such matters as the Company reasonably may deem desirable to assure compliance with all applicable legal requirements. 11. Subject to Articles of Incorporation. The Optionee acknowledges that ------------------------------------ the Option Shares are subject to the terms of the Articles of Incorporation. 12. No Interest in Shares Subject to Option. Neither the Optionee --------------------------------------- (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Optionee shall have any right, title, interest, or privilege in or to any shares of stock allocated or reserved for the purpose of the Plan or subject to this Agreement except as to such Option Shares, if any, as shall have been issued to such person upon exercise of an Option or any part thereof. 13. Plan Controls. The Option hereby granted is subject to, and the ------------- Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan as the same may be amended from time to time in accordance with the terms thereof, but no such amendment shall be effective as to the Option without the Optionee's consent insofar as it may adversely affect the Optionee's rights under this Agreement. 14. Not an Employment Contract. Nothing in the Plan, in this Agreement or -------------------------- any other instrument executed pursuant thereto shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or any Subsidiary to terminate the employment of the Optionee with or without Cause. 15. Governing Law. All terms of and rights under this Agreement shall be ------------- governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to principles of conflicts of law. 16. Taxes. The Committee may, in its discretion, make such provisions and ----- take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the issuance or exercise of the Option including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, requiring the 9 Optionee to pay to the Company the amount required to be withheld or to execute such documents as the Committee deems necessary or desirable to enable it to satisfy its withholding obligations, or any other means provided in the Plan; provided further that the Optionee may satisfy all aforesaid withholding tax obligations by directing the Company to withhold that number of Option Shares with an aggregate Fair Market Value equal to the amount of all federal, state, local and other taxes required to be withheld, or delivering to the Company such number of previously held Shares, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 17. Notices. All notices, requests, demands and other communications ------- pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telexed or telecopied to, or, if mailed, when received by, the other party at the following addresses (or at such other address as shall be given in writing by either party to the other): If to the Company to: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Facsimile: (612) 830-3380 Attention: General Counsel With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue, 47th Floor New York, New York 10166-0193 Facsimile: (212) 351-4035 Attention: E. Michael Greaney, Esq. If to the Optionee to the address set forth below the Optionee's signature below. 18. Amendments and Waivers. This Agreement may be amended, and any ---------------------- provision hereof may be waived, only by a writing signed by the party to be charged. 19. Entire Agreement. This Agreement, together with the Plan, sets forth ---------------- the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral discussions, agreements and understandings of any kind or nature. 20. Separability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby 10 are fulfilled to the maximum extent possible. 21. Headings. The headings preceding the text of the sections hereof are -------- inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 22. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instrument. 23. Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement. 24. Remedies. In the event of a breach by any party to this Agreement of -------- its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived. 25. Binding Effect. This Agreement shall inure to the benefit of and be -------------- binding upon the parties hereto and their respective permitted successors and assigns. 26. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE OPTIONEE ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE OPTIONEE HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE OPTIONEE THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE OPTIONEE CONFIRMS THAT THE OPTIONEE HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE OPTIONEE FURTHER CONFIRMS THAT THE OPTIONEE HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE OPTIONEE CONCERNING THIS AGREEMENT. (c) THE OPTIONEE FURTHER REPRESENTS THAT, ALTHOUGH THE OPTIONEE IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT 11 SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE OPTIONEE IS HOLDING THE OPTION AND THE OPTION SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE OPTION OR THE OPTION SHARES WILL ENTITLE THE OPTIONEE TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE OPTIONEE WERE NOT AN OPTIONHOLDER OR SHAREHOLDER. THE OPTIONEE FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE OPTIONEE ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE OPTIONEE THAT THE COMPANY HAS THE EXPECTATION THAT THE OPTIONEE WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE OPTIONEE'S OWNERSHIP OF THE OPTIONS OR THE OPTION SHARES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. JOSTENS, INC. By: /s/ Lee U. McGrath ------------------ Name: Lee U. McGrath Title: Vice President and Treasurer /s/ William Priesmeyer ---------------------- Name: William Priesmeyer Address: Number of Option Shares: 48,351 Accepted and agreed to for purposes of Section 9(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EXHIBIT 1 JOSTENS, INC. STOCK INCENTIVE PLAN 14 EXHIBIT 2 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (IN MILLIONS OF DOLLARS) (A) (B) Cumulative Fiscal Year Target Target ----------- ------ ---------- 2000 $142.9 2001 $173.2 $316.1 2002 $198.5 $514.6 2003 $216.3 $730.9 2004 $224.9 $955.8 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP, consistently applied, which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year,(ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan; plus (minus), to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment), the following: 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board. The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of 15 material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. The Optionee and his or her representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting such computation, but the Board's determination shall be conclusive and binding. 16 EX-10.16 13 0013.txt STOCK OPTION AGREEMENT JOSTENS & CARL BLOWERS EXHIBIT 10.16 STOCK OPTION AGREEMENT PURSUANT TO THE JOSTENS, INC. STOCK INCENTIVE PLAN THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of May 10, 2000 (the "Effective Date"), between Jostens, Inc., a Minnesota corporation (the "Company"), and Carl Blowers (the "Optionee"). R E C I T A L S - - - - - - - - A. The Company has adopted the Jostens, Inc. Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1. B. The Company desires to grant the Optionee the opportunity to acquire a proprietary interest in the Company to encourage the Optionee's contribution to the success and progress of the Company. C. In accordance with the Plan, the Committee (as defined in the Plan) has granted to the Optionee a non-qualified option to purchase shares of Class A Stock, $0.33? par value per share, of the Company (the "Class A Stock") subject to the terms and conditions of the Plan and this Agreement. AGREEMENTS ---------- 1. Definitions. Capitalized terms used herein shall have the following ----------- meanings: "Act" is defined in Section 10(a). "Agreement" means this Stock Option Agreement. "Annual Valuation" is defined in Section 9(d). "Appraisers" is defined in Section 9(d). "Approved Sale" means a transaction or a series of related transactions which results in a bona fide, unaffiliated change of economic ---- ---- beneficial ownership of the Company or its business of greater than 50% (disregarding for this purpose any disparate voting rights attributable to the outstanding stock of the Company), whether pursuant to the sale of the stock of the Company, the sale of the assets of the Company, or a merger or consolidation (other than a sale of stock by an Initial Stockholder to (i) another Initial Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to which an Initial Stockholder or affiliate thereof has an administrative relationship). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Optionee's gross misconduct; (B) the Optionee's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Optionee's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Optionee by the Board which specifically identifies the manner in which the Board believes that the Optionee has not substantially performed his or her duties and provides for a reasonable period of time within which the Optionee may take corrective measures, or (C) the Optionee's conviction (including a plea of nolo contendere) of willfully ---- ---------- engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Optionee's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital C. "Closing Date" means May 10, 2000. "Company" is defined in the preamble. "EBITDA" is defined in Section 3(a). "Effective Date" is defined in the preamble. "Endorsed Certificate" is defined in Section 9(a). "Exercise Price" is defined in Section 2. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 9(d). "Fiscal Year" means the fiscal year of the Company. "Good Reason" means, unless the Optionee shall have consented in writing thereto, any of the following: (A) a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Optionee, (B) a reduction by the Company in the Optionee's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Optionee's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Optionee under benefit plans that, in the aggregate, provide substantially similar benefits to the Optionee and/or his or her family and dependents as a substantially similar total cost to the Optionee (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Optionee (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Optionee to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for 2 required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Optionee undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Optionee's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Optionee to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Optionee was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Initial Stockholders" means the shareholders of the Company who became shareholders as of the Closing Date (other than any such shareholders who are also employees of the Company or were shareholders of the Company prior to the Closing Date). "Option" is defined in Section 2. "Optionee" is defined in the preamble. "Option Shares" is defined in Section 2. "Permanent Disability" means the failure by the Optionee to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Plan" is defined in recital A. "Put Period" and "Put Right" are defined in Section 9(b). "Repurchase Period" and "Repurchase Right" are defined in Section 9(a). "Retirement" means age 65. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Optionee ceases to be employed by the Company for any reason. 2. Grant of Option. The Company grants to the Optionee the right and --------------- option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of the number of shares of Class A Stock set forth below the Optionee's signature below (the 3 "Option Shares"), at the purchase price of $25.25 per Share (as such amount may be adjusted, the "Exercise Price"), on the terms and conditions set forth herein. 3. Exercisability. -------------- (a) The Option shall become exercisable to the extent of one-fifth (1/5) of the number of Option Shares as of the end of each fiscal year set forth on Exhibit 2 of this Agreement if the Company's Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the Target annual EBITDA amount set forth in column (A) of Exhibit 2 with respect to such fiscal year. If for any fiscal year set forth on Exhibit 2 the Company's cumulative annual EBITDA amount for that and the preceding fiscal years equals or exceeds the Cumulative Target EBITDA amount set forth in column (B) of Exhibit 2 with respect to such fiscal year, the Option shall become exercisable to the extent that it would have become exercisable had the Company achieved its Target annual EBITDA amounts for that and each of the preceding fiscal years. (b) Notwithstanding Section 3(a), (i) upon the occurrence of an Initial Public Offering, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right (A) to exercise one-third (1/3) of all unexercisable Options on the first anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (B) to exercise an additional one third (1/3) of all unexercisable Options (as of the first anniversary) on the second anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; and (C) to exercise the remaining one-third (1/3) of all unexercisable Options on the third anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (ii) upon the occurrence of an Approved Sale, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right to exercise up to fifty percent (50%) of all unexercisable Options, provided, and to the extent, that the Initial Stockholders receive a twenty percent (20%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale); and shall have the right to exercise up to seventy-five percent (75%) of all unexercisable options if the Initial Stockholders receive a twenty-five percent (25%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the closing of the Approval Sale (taking into account the Approved Sale); and shall have the right to exercise up to one-hundred percent (100%) of all unexercisable Options if the Initial Stockholders receive a thirty percent (30%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale), and (iii) upon the seventh (7th) anniversary of the date hereof, provided the Optionee remains continuously employed by the Company through such anniversary, any unexercisable Option shall immediately become fully exercisable. 4. Expiration. ---------- (a) Subject to Section 6(a), the exercisable portion of the Option shall 4 expire upon the thirtieth (30th) day following the seventh (7th) anniversary of the Effective Date unless, if earlier, (i) the Optionee resigns without Good Reason, in which case the exercisable portion of the Option shall expire thirty (30) days following the Termination Date, or (ii) the Optionee is terminated for Cause from employment by the Company, in which case the exercisable portion of the Option shall expire immediately on the Termination Date, or (iii) in the event of the death or Disability of the Optionee the exercisable portion of the option shall expire one (1) year from the date of death or Disability or (iv) the Optionee resigns for Good Reason or is terminated by the Company without Cause, in which case the exercisable portion of the Option shall expire one hundred eighty (180) days following the Termination Date; or (v) in the event the Company exercises the repurchase right pursuant to Section 9 hereof, or in the event the Optionee or his or her representative exercises the put right pursuant to Section 9 hereof, the exercisable portion of the Option shall expire on the business day immediately preceding the Repurchase Date, the Put Date, or the date on which the Company acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be. (b) The unexercisable portion of the Option shall expire on the Termination Date; provided, that in the case where the employment of the Optionee is terminated without Cause, for Good Reason, or due to death or Permanent Disability, the unexercisable portion of the Option scheduled to become exercisable in such year shall not terminate until the thirtieth (30th) day following the date on which the Optionee received notice of the EBITDA for the Fiscal Year during which the Termination Date occurred, and a pro rata portion of the portion of the Option scheduled to become exercisable in the year including the Termination Date shall become exercisable as if the Optionee's employment had not been terminated, such proration to be determined upon the number of days elapsed in the year in which the Termination Date occurred. 5. Nontransferability. Subject to Section 9 hereof, the Option shall not ------------------ be transferable by the Optionee except that the Optionee may transfer the Option to (a) his or her spouse, child, estate, personal representative, heir or successor (b) a trust for the benefit of the Optionee or his or her spouse, child or heir, or (c) a partnership the partners of which consist solely of the Optionee and/or his or her spouse, child, heir, and/or successor (each, a "permitted transferee") and the Option is exercisable, during the Optionee's lifetime, only by him or her or a permitted transferee, or, in the event of the Optionee's Permanent Disability, his or her guardian or legal representative. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option that would otherwise effect a change in the ownership of the Option, shall terminate the Option; provided, however, that in the case of the involuntary levy of any attachment or similar involuntary process upon the Option, the Optionee shall have thirty (30) days after notice thereof to cure such levy or process before the Option terminates. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option. 6. Effect of Approved Sale; Adjustments. ------------------------------------ 5 (a) In the event of an Approved Sale, the unexercised portion of the Option shall terminate upon such Approved Sale, provided that, unless the agreement or plan of merger effecting such Approved Sale provides that the Optionee shall receive upon such Approved Sale, with respect to the entire exercisable but unexercised portion of the Option, the same consideration that the holders of the Class A Stock shall be entitled to receive upon such Approved Sale, less the Exercise Price attributable to such exercisable but unexercised portion, then the Optionee shall be given at least thirty (30) days' prior notice of the proposed Approved Sale and shall be entitled to exercise such exercisable but unexercised portion of the Option at any time during such thirty (30) day period up to and until the close of business on the day immediately preceding the date of consummation of such Approved Sale and upon exercise of the Option the Option Shares shall be treated in the same manner as the shares of any other holder of Class A Stock. (b) Subject to Section 6(a), if the shares of the Class A Stock are changed into or exchanged for a different number or kind of shares or securities, as the result of any one or more reorganizations, recapitalizations, mergers, acquisitions, stock splits, reverse stock splits, stock dividends or similar events, an appropriate adjustment shall be made in the number and kind of shares or other securities subject to the Option, and the price for each share or other unit of any securities subject to this Agreement, in accordance with Section 13 of the Plan. No fractional interests shall be issued on account of any such adjustment unless the Committee specifically determines to the contrary; provided, however, that in lieu of fractional interests, the Optionee, upon the exercise of the Option in whole or part, shall receive cash in an amount equal to the amount by which the fair market value of such fractional interests exceeds the Exercise Price attributable to such fractional interests. 7. Exercise of the Option. Prior to the expiration thereof, the Optionee ---------------------- may exercise the exercisable portion of the Option from time to time in whole or in part. Upon electing to exercise the Option, the Optionee shall deliver to the Secretary of the Company a written and signed notice of such election setting forth the number of Option Shares the Optionee has elected to purchase and shall at the time of delivery of such notice tender cash or a cashier's or certified bank check to the order of the Company for the full Exercise Price of such Option Shares and any amount required pursuant to Section 16 hereof. Alternatively, if the Company is not at the time prohibited from purchasing or acquiring shares of its capital stock, the Exercise Price may be paid in whole or in part by delivery of shares of the Class A Stock owned by the Optionee provided that Optionee has owned such shares for at least six (6) months. The value of any such shares delivered or withheld as payment of the Exercise Price shall be such shares' fair market value as determined by the Committee. The Committee further may, in its discretion, permit payment of the Exercise Price in such form or in such manner as may be permissible under the Plan and under any applicable law. 8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject ---------------------------------------------------------- to Section 9 hereof, prior to the earlier of (A) 180 days following an Initial Public Offering or (B) an Approved Sale, the Option Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Optionee may transfer the Option Shares (i) to a permitted transferee, as defined in Section 5 of this Agreement, or (ii) as permitted by the Articles of Incorporation. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option Shares except a person who acquires the Option Shares pursuant to the Articles of Incorporation or as part of the Initial Public Offering. The stock certificates 6 issued to evidence Option Shares upon exercise of the Option hereunder shall bear a legend referring to this Agreement and the restrictions contained herein. 9. Repurchase of Option Shares. --------------------------- (a) In the event that the Optionee ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (subject to Section 9(c), the "Repurchase Period") shall have the right to purchase all or any portion of the Option Shares (the "Repurchase Right"). The purchase price for each Option Share shall equal Fair Market Value unless the Optionee resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. If the Company elects to purchase the Option Shares, it shall notify the Optionee at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Optionee has presented to the Company a stock certificate evidencing the Option Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee fails to deliver the Endorsed Certificate, the Option Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Optionee or his or her permitted transferee or (ii) notice to the Optionee or such permitted transferee that the Company is holding the purchase price for the account of the Optionee or such permitted transferee, and upon such payment or notice the Optionee and such permitted transferee will have no further rights in or to such Option Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Option Shares are not purchased pursuant to Section 9(a) or 9(b), the restrictions on transfer thereof contained in Sections 5 and 8 of this Agreement shall terminate and be of no further force and effect. (b) If the Optionee's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Optionee's Retirement, death or Permanent Disability; (iii) by the Optionee for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Optionee or his or her representative or permitted transferee, during the 120 days following the Termination Date (subject to Section 9(c), the "Put Period") shall have the right to require SEL to purchase all or any portion of the Option Shares then held by Optionee (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Optionee's election to exercise the Put Right, the Company has notified the Optionee and SEL of its election, exercisable at the discretion of the Company, to purchase the Option Shares on the same terms as such Option Shares were to be purchased by SEL, in which case such Option Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Optionee is terminated without Cause prior to May 10, 2003, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Optionee presents to the Company the Endorsed Certificate. (c) In the event that (i) on the Termination Date, Optionee owns Option Shares that have not been owned by the Optionee for a period of at least six (6) months, 7 and/or (ii) following the Termination Date, the Optionee exercises any then outstanding vested Option pursuant to this Agreement (including without limitation any Option which becomes exercisable by virtue of Section 4(b) hereof), with respect to all such Option Shares, the Repurchase Period and the Put Period will not commence on the Termination Date but rather will commence on the first date on which all such Option Shares have been owned by Optionee for six (6) months. (d) The Fair Market Value of Option Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Optionee, each of the Optionee and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Optionee. The Optionee shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Optionee. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Optionee if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Optionee. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Optionee. If it is determined that the Optionee bears some or all of the costs incurred in connection with the services of the Appraisers, the Optionee shall promptly pay or reimburse the Company for such costs. (e) The Optionee shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. 10. Compliance with Legal Requirements. ---------------------------------- (a) No Option Shares shall be issued or transferred pursuant to this Agreement unless and until all legal requirements applicable to such issuance or transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Option Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on 8 the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Act"), and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if available, or upon another exemption from the Act, or obtaining the consent or approval of any governmental regulatory body. (b) The Optionee understands that the Company intends for the offering and sale of Option Shares to be effected in reliance upon Rule 701 or another available exemption from registration under the Act, and that the Company is under no obligation to register for resale the Option Shares issued upon exercise of the Option, subject to other applicable agreements or the Articles of Incorporation. In connection with any such issuance or transfer, the person acquiring the Option Shares shall, if requested by the Company, provide information and assurances satisfactory to counsel to the Company with respect to such matters as the Company reasonably may deem desirable to assure compliance with all applicable legal requirements. 11. Subject to Articles of Incorporation. The Optionee acknowledges that ------------------------------------ the Option Shares are subject to the terms of the Articles of Incorporation. 12. No Interest in Shares Subject to Option. Neither the Optionee --------------------------------------- (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Optionee shall have any right, title, interest, or privilege in or to any shares of stock allocated or reserved for the purpose of the Plan or subject to this Agreement except as to such Option Shares, if any, as shall have been issued to such person upon exercise of an Option or any part thereof. 13. Plan Controls. The Option hereby granted is subject to, and the ------------- Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan as the same may be amended from time to time in accordance with the terms thereof, but no such amendment shall be effective as to the Option without the Optionee's consent insofar as it may adversely affect the Optionee's rights under this Agreement. 14. Not an Employment Contract. Nothing in the Plan, in this Agreement or -------------------------- any other instrument executed pursuant thereto shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or any Subsidiary to terminate the employment of the Optionee with or without Cause. 15. Governing Law. All terms of and rights under this Agreement shall be ------------- governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to principles of conflicts of law. 16. Taxes. The Committee may, in its discretion, make such provisions and ----- take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the issuance or exercise of the Option including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, requiring the Optionee to pay to the Company the amount required to be withheld or to execute such documents as the Committee deems necessary or desirable to enable it to satisfy its 9 withholding obligations, or any other means provided in the Plan; provided further that the Optionee may satisfy all aforesaid withholding tax obligations by directing the Company to withhold that number of Option Shares with an aggregate Fair Market Value equal to the amount of all federal, state, local and other taxes required to be withheld, or delivering to the Company such number of previously held Shares, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 17. Notices. All notices, requests, demands and other communications ------- pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telexed or telecopied to, or, if mailed, when received by, the other party at the following addresses (or at such other address as shall be given in writing by either party to the other): If to the Company to: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Facsimile: (612) 830-3380 Attention: General Counsel With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue, 47th Floor New York, New York 10166-0193 Facsimile: (212) 351-4035 Attention: E. Michael Greaney, Esq. If to the Optionee to the address set forth below the Optionee's signature below. 18. Amendments and Waivers. This Agreement may be amended, and any ---------------------- provision hereof may be waived, only by a writing signed by the party to be charged. 19. Entire Agreement. This Agreement, together with the Plan, sets forth ---------------- the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral discussions, agreements and understandings of any kind or nature. 20. Separability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 10 21. Headings. The headings preceding the text of the sections hereof are -------- inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 22. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instrument. 23. Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement. 24. Remedies. In the event of a breach by any party to this Agreement of -------- its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived. 25. Binding Effect. This Agreement shall inure to the benefit of and be -------------- binding upon the parties hereto and their respective permitted successors and assigns. 26. RELIANCE ON THIS AGREEMENT. -------------------------- (a) THE OPTIONEE ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE OPTIONEE HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE OPTIONEE THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE OPTIONEE CONFIRMS THAT THE OPTIONEE HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE OPTIONEE FURTHER CONFIRMS THAT THE OPTIONEE HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE OPTIONEE CONCERNING THIS AGREEMENT. (c) THE OPTIONEE FURTHER REPRESENTS THAT, ALTHOUGH THE OPTIONEE IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE OPTIONEE IS 11 HOLDING THE OPTION AND THE OPTION SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE OPTION OR THE OPTION SHARES WILL ENTITLE THE OPTIONEE TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE OPTIONEE WERE NOT AN OPTIONHOLDER OR SHAREHOLDER. THE OPTIONEE FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE OPTIONEE ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE OPTIONEE THAT THE COMPANY HAS THE EXPECTATION THAT THE OPTIONEE WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE OPTIONEE'S OWNERSHIP OF THE OPTIONS OR THE OPTION SHARES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. JOSTENS, INC. By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer /s/ Carl Blowers --------------------- Name: Carl Blowers Address: Number of Option Shares: 48,351 Accepted and agreed to for purposes of Section 9(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EXHIBIT 1 JOSTENS, INC. STOCK INCENTIVE PLAN EXHIBIT 2 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (IN MILLIONS OF DOLLARS) (A) (B) Cumulative Fiscal Year Target Target --------------- ----------- --------------- 2000 $142.9 2001 $173.2 $316.1 2002 $198.5 $514.6 2003 $216.3 $730.9 2004 $224.9 $955.8 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP, consistently applied, which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year,(ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan; plus (minus), to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment), the following: 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board. The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. The Optionee and his or her representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting such computation, but the Board's determination shall be conclusive and binding. EX-10.17 14 0014.txt STOCK OPTION AGREEMENT JOSTENS & MICHAEL BAILEY EXHIBIT 10.17 STOCK OPTION AGREEMENT PURSUANT TO THE JOSTENS, INC. STOCK INCENTIVE PLAN THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of May 10, 2000 (the "Effective Date"), between Jostens, Inc., a Minnesota corporation (the "Company"), and Michael Bailey (the "Optionee"). R E C I T A L S - - - - - - - - A. The Company has adopted the Jostens, Inc. Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1. B. The Company desires to grant the Optionee the opportunity to acquire a proprietary interest in the Company to encourage the Optionee's contribution to the success and progress of the Company. C. In accordance with the Plan, the Committee (as defined in the Plan) has granted to the Optionee a non-qualified option to purchase shares of Class A Stock, $0.33? par value per share, of the Company (the "Class A Stock") subject to the terms and conditions of the Plan and this Agreement. AGREEMENTS ---------- 1. Definitions. Capitalized terms used herein shall have the following ----------- meanings: "Act" is defined in Section 10(a). "Agreement" means this Stock Option Agreement. "Annual Valuation" is defined in Section 9(d). "Appraisers" is defined in Section 9(d). "Approved Sale" means a transaction or a series of related transactions which results in a bona fide, unaffiliated change of economic ---- ---- beneficial ownership of the Company or its business of greater than 50% (disregarding for this purpose any disparate voting rights attributable to the outstanding stock of the Company), whether pursuant to the sale of the stock of the Company, the sale of the assets of the Company, or a merger or consolidation (other than a sale of stock by an Initial Stockholder to (i) another Initial Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to which an Initial Stockholder or affiliate thereof has an administrative relationship). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Optionee's gross misconduct; (B) the Optionee's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Optionee's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Optionee by the Board which specifically identifies the manner in which the Board believes that the Optionee has not substantially performed his or her duties and provides for a reasonable period of time within which the Optionee may take corrective measures, or (C) the Optionee's conviction (including a plea of nolo contendere) of willfully ---- ---------- engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Optionee's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital C. "Closing Date" means May 10, 2000. "Company" is defined in the preamble. "EBITDA" is defined in Section 3(a). "Effective Date" is defined in the preamble. "Endorsed Certificate" is defined in Section 9(a). "Exercise Price" is defined in Section 2. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 9(d). "Fiscal Year" means the fiscal year of the Company. "Good Reason" means, unless the Optionee shall have consented in writing thereto, any of the following: (A) a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Optionee, (B) a reduction by the Company in the Optionee's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Optionee's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Optionee under benefit plans that, in the aggregate, provide substantially similar benefits to the Optionee and/or his or her family and dependents as a substantially similar total cost to the Optionee (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Optionee (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Optionee to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for 2 required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Optionee undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Optionee's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Optionee to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Optionee was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Initial Stockholders" means the shareholders of the Company who became shareholders as of the Closing Date (other than any such shareholders who are also employees of the Company or were shareholders of the Company prior to the Closing Date). "Option" is defined in Section 2. "Optionee" is defined in the preamble. "Option Shares" is defined in Section 2. "Permanent Disability" means the failure by the Optionee to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Plan" is defined in recital A. "Put Period" and "Put Right" are defined in Section 9(b). "Repurchase Period" and "Repurchase Right" are defined in Section 9(a). "Retirement" means age 65. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Optionee ceases to be employed by the Company for any reason. 2. Grant of Option. The Company grants to the Optionee the right and --------------- option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of the number of shares of Class A Stock set forth below the Optionee's signature below (the 3 "Option Shares"), at the purchase price of $25.25 per Share (as such amount may be adjusted, the "Exercise Price"), on the terms and conditions set forth herein. 3. Exercisability. -------------- (a) The Option shall become exercisable to the extent of one-fifth (1/5) of the number of Option Shares as of the end of each fiscal year set forth on Exhibit 2 of this Agreement if the Company's Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the Target annual EBITDA amount set forth in column (A) of Exhibit 2 with respect to such fiscal year. If for any fiscal year set forth on Exhibit 2 the Company's cumulative annual EBITDA amount for that and the preceding fiscal years equals or exceeds the Cumulative Target EBITDA amount set forth in column (B) of Exhibit 2 with respect to such fiscal year, the Option shall become exercisable to the extent that it would have become exercisable had the Company achieved its Target annual EBITDA amounts for that and each of the preceding fiscal years. (b) Notwithstanding Section 3(a), (i) upon the occurrence of an Initial Public Offering, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right (A) to exercise one-third (1/3) of all unexercisable Options on the first anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (B) to exercise an additional one third (1/3) of all unexercisable Options (as of the first anniversary) on the second anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; and (C) to exercise the remaining one-third (1/3) of all unexercisable Options on the third anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (ii) upon the occurrence of an Approved Sale, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right to exercise up to fifty percent (50%) of all unexercisable Options, provided, and to the extent, that the Initial Stockholders receive a twenty percent (20%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale); and shall have the right to exercise up to seventy-five percent (75%) of all unexercisable options if the Initial Stockholders receive a twenty-five percent (25%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the closing of the Approval Sale (taking into account the Approved Sale); and shall have the right to exercise up to one-hundred percent (100%) of all unexercisable Options if the Initial Stockholders receive a thirty percent (30%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale), and (iii) upon the seventh (7/th/) anniversary of the date hereof, provided the Optionee remains continuously employed by the Company through such anniversary, any unexercisable Option shall immediately become fully exercisable. 4. Expiration. ---------- (a) Subject to Section 6(a), the exercisable portion of the Option shall 4 expire upon the thirtieth (30th) day following the seventh (7th) anniversary of the Effective Date unless, if earlier, (i) the Optionee resigns without Good Reason, in which case the exercisable portion of the Option shall expire thirty (30) days following the Termination Date, or (ii) the Optionee is terminated for Cause from employment by the Company, in which case the exercisable portion of the Option shall expire immediately on the Termination Date, or (iii) in the event of the death or Disability of the Optionee the exercisable portion of the option shall expire one (1) year from the date of death or Disability or (iv) the Optionee resigns for Good Reason or is terminated by the Company without Cause, in which case the exercisable portion of the Option shall expire one hundred eighty (180) days following the Termination Date; or (v) in the event the Company exercises the repurchase right pursuant to Section 9 hereof, or in the event the Optionee or his or her representative exercises the put right pursuant to Section 9 hereof, the exercisable portion of the Option shall expire on the business day immediately preceding the Repurchase Date, the Put Date, or the date on which the Company acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be. (b) The unexercisable portion of the Option shall expire on the Termination Date; provided, that in the case where the employment of the Optionee is terminated without Cause, for Good Reason, or due to death or Permanent Disability, the unexercisable portion of the Option scheduled to become exercisable in such year shall not terminate until the thirtieth (30th) day following the date on which the Optionee received notice of the EBITDA for the Fiscal Year during which the Termination Date occurred, and a pro rata portion of the portion of the Option scheduled to become exercisable in the year including the Termination Date shall become exercisable as if the Optionee's employment had not been terminated, such proration to be determined upon the number of days elapsed in the year in which the Termination Date occurred. 5. Nontransferability. Subject to Section 9 hereof, the Option shall not ------------------ be transferable by the Optionee except that the Optionee may transfer the Option to (a) his or her spouse, child, estate, personal representative, heir or successor (b) a trust for the benefit of the Optionee or his or her spouse, child or heir, or (c) a partnership the partners of which consist solely of the Optionee and/or his or her spouse, child, heir, and/or successor (each, a "permitted transferee") and the Option is exercisable, during the Optionee's lifetime, only by him or her or a permitted transferee, or, in the event of the Optionee's Permanent Disability, his or her guardian or legal representative. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option that would otherwise effect a change in the ownership of the Option, shall terminate the Option; provided, however, that in the case of the involuntary levy of any attachment or similar involuntary process upon the Option, the Optionee shall have thirty (30) days after notice thereof to cure such levy or process before the Option terminates. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option. 6. Effect of Approved Sale; Adjustments. ------------------------------------ 5 (a) In the event of an Approved Sale, the unexercised portion of the Option shall terminate upon such Approved Sale, provided that, unless the agreement or plan of merger effecting such Approved Sale provides that the Optionee shall receive upon such Approved Sale, with respect to the entire exercisable but unexercised portion of the Option, the same consideration that the holders of the Class A Stock shall be entitled to receive upon such Approved Sale, less the Exercise Price attributable to such exercisable but unexercised portion, then the Optionee shall be given at least thirty (30) days' prior notice of the proposed Approved Sale and shall be entitled to exercise such exercisable but unexercised portion of the Option at any time during such thirty (30) day period up to and until the close of business on the day immediately preceding the date of consummation of such Approved Sale and upon exercise of the Option the Option Shares shall be treated in the same manner as the shares of any other holder of Class A Stock. (b) Subject to Section 6(a), if the shares of the Class A Stock are changed into or exchanged for a different number or kind of shares or securities, as the result of any one or more reorganizations, recapitalizations, mergers, acquisitions, stock splits, reverse stock splits, stock dividends or similar events, an appropriate adjustment shall be made in the number and kind of shares or other securities subject to the Option, and the price for each share or other unit of any securities subject to this Agreement, in accordance with Section 13 of the Plan. No fractional interests shall be issued on account of any such adjustment unless the Committee specifically determines to the contrary; provided, however, that in lieu of fractional interests, the Optionee, upon the exercise of the Option in whole or part, shall receive cash in an amount equal to the amount by which the fair market value of such fractional interests exceeds the Exercise Price attributable to such fractional interests. 7. Exercise of the Option. Prior to the expiration thereof, the Optionee ---------------------- may exercise the exercisable portion of the Option from time to time in whole or in part. Upon electing to exercise the Option, the Optionee shall deliver to the Secretary of the Company a written and signed notice of such election setting forth the number of Option Shares the Optionee has elected to purchase and shall at the time of delivery of such notice tender cash or a cashier's or certified bank check to the order of the Company for the full Exercise Price of such Option Shares and any amount required pursuant to Section 16 hereof. Alternatively, if the Company is not at the time prohibited from purchasing or acquiring shares of its capital stock, the Exercise Price may be paid in whole or in part by delivery of shares of the Class A Stock owned by the Optionee provided that Optionee has owned such shares for at least six (6) months. The value of any such shares delivered or withheld as payment of the Exercise Price shall be such shares' fair market value as determined by the Committee. The Committee further may, in its discretion, permit payment of the Exercise Price in such form or in such manner as may be permissible under the Plan and under any applicable law. 8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject ---------------------------------------------------------- to Section 9 hereof, prior to the earlier of (A) 180 days following an Initial Public Offering or (B) an Approved Sale, the Option Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Optionee may transfer the Option Shares (i) to a permitted transferee, as defined in Section 5 of this Agreement, or (ii) as permitted by the Articles of Incorporation. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option Shares except a person who acquires the Option Shares pursuant to the Articles of Incorporation or as part of the Initial Public Offering. The stock certificates 6 issued to evidence Option Shares upon exercise of the Option hereunder shall bear a legend referring to this Agreement and the restrictions contained herein. 9. Repurchase of Option Shares. --------------------------- (a) In the event that the Optionee ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (subject to Section 9(c), the "Repurchase Period") shall have the right to purchase all or any portion of the Option Shares (the "Repurchase Right"). The purchase price for each Option Share shall equal Fair Market Value unless the Optionee resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. If the Company elects to purchase the Option Shares, it shall notify the Optionee at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Optionee has presented to the Company a stock certificate evidencing the Option Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee fails to deliver the Endorsed Certificate, the Option Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Optionee or his or her permitted transferee or (ii) notice to the Optionee or such permitted transferee that the Company is holding the purchase price for the account of the Optionee or such permitted transferee, and upon such payment or notice the Optionee and such permitted transferee will have no further rights in or to such Option Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Option Shares are not purchased pursuant to Section 9(a) or 9(b), the restrictions on transfer thereof contained in Sections 5 and 8 of this Agreement shall terminate and be of no further force and effect. (b) If the Optionee's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Optionee's Retirement, death or Permanent Disability; (iii) by the Optionee for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Optionee or his or her representative or permitted transferee, during the 120 days following the Termination Date (subject to Section 9(c), the "Put Period") shall have the right to require SEL to purchase all or any portion of the Option Shares then held by Optionee (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Optionee's election to exercise the Put Right, the Company has notified the Optionee and SEL of its election, exercisable at the discretion of the Company, to purchase the Option Shares on the same terms as such Option Shares were to be purchased by SEL, in which case such Option Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Optionee is terminated without Cause prior to May 10, 2003, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Optionee presents to the Company the Endorsed Certificate. (c) In the event that (i) on the Termination Date, Optionee owns Option Shares that have not been owned by the Optionee for a period of at least six (6) months, 7 and/or (ii) following the Termination Date, the Optionee exercises any then outstanding vested Option pursuant to this Agreement (including without limitation any Option which becomes exercisable by virtue of Section 4(b) hereof), with respect to all such Option Shares, the Repurchase Period and the Put Period will not commence on the Termination Date but rather will commence on the first date on which all such Option Shares have been owned by Optionee for six (6) months. (d) The Fair Market Value of Option Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Optionee, each of the Optionee and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Optionee. The Optionee shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Optionee. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Optionee if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Optionee. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Optionee. If it is determined that the Optionee bears some or all of the costs incurred in connection with the services of the Appraisers, the Optionee shall promptly pay or reimburse the Company for such costs. (e) The Optionee shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. 10. Compliance with Legal Requirements. ---------------------------------- (a) No Option Shares shall be issued or transferred pursuant to this Agreement unless and until all legal requirements applicable to such issuance or transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Option Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on 8 the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Act"), and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if available, or upon another exemption from the Act, or obtaining the consent or approval of any governmental regulatory body. (b) The Optionee understands that the Company intends for the offering and sale of Option Shares to be effected in reliance upon Rule 701 or another available exemption from registration under the Act, and that the Company is under no obligation to register for resale the Option Shares issued upon exercise of the Option, subject to other applicable agreements or the Articles of Incorporation. In connection with any such issuance or transfer, the person acquiring the Option Shares shall, if requested by the Company, provide information and assurances satisfactory to counsel to the Company with respect to such matters as the Company reasonably may deem desirable to assure compliance with all applicable legal requirements. 11. Subject to Articles of Incorporation. The Optionee acknowledges that ------------------------------------ the Option Shares are subject to the terms of the Articles of Incorporation. 12. No Interest in Shares Subject to Option. Neither the Optionee --------------------------------------- (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Optionee shall have any right, title, interest, or privilege in or to any shares of stock allocated or reserved for the purpose of the Plan or subject to this Agreement except as to such Option Shares, if any, as shall have been issued to such person upon exercise of an Option or any part thereof. 13. Plan Controls. The Option hereby granted is subject to, and the ------------- Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan as the same may be amended from time to time in accordance with the terms thereof, but no such amendment shall be effective as to the Option without the Optionee's consent insofar as it may adversely affect the Optionee's rights under this Agreement. 14. Not an Employment Contract. Nothing in the Plan, in this Agreement or -------------------------- any other instrument executed pursuant thereto shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or any Subsidiary to terminate the employment of the Optionee with or without Cause. 15. Governing Law. All terms of and rights under this Agreement shall be ------------- governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to principles of conflicts of law. 16. Taxes. The Committee may, in its discretion, make such provisions and ----- take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the issuance or exercise of the Option including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, requiring the Optionee to pay to the Company the amount required to be withheld or to execute such documents as the Committee deems necessary or desirable to enable it to satisfy its 9 withholding obligations, or any other means provided in the Plan; provided further that the Optionee may satisfy all aforesaid withholding tax obligations by directing the Company to withhold that number of Option Shares with an aggregate Fair Market Value equal to the amount of all federal, state, local and other taxes required to be withheld, or delivering to the Company such number of previously held Shares, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 17. Notices. All notices, requests, demands and other communications ------- pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telexed or telecopied to, or, if mailed, when received by, the other party at the following addresses (or at such other address as shall be given in writing by either party to the other): If to the Company to: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Facsimile: (612) 830-3380 Attention: General Counsel With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue, 47th Floor New York, New York 10166-0193 Facsimile: (212) 351-4035 Attention: E. Michael Greaney, Esq. If to the Optionee to the address set forth below the Optionee's signature below. 18. Amendments and Waivers. This Agreement may be amended, and any ---------------------- provision hereof may be waived, only by a writing signed by the party to be charged. 19. Entire Agreement. This Agreement, together with the Plan, sets forth ---------------- the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral discussions, agreements and understandings of any kind or nature. 20. Separability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 10 21. Headings. The headings preceding the text of the sections hereof are -------- inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 22. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instrument. 23. Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement. 24. Remedies. In the event of a breach by any party to this Agreement of -------- its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived. 25. Binding Effect. This Agreement shall inure to the benefit of and be -------------- binding upon the parties hereto and their respective permitted successors and assigns. 26. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE OPTIONEE ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE OPTIONEE HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE OPTIONEE THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE OPTIONEE CONFIRMS THAT THE OPTIONEE HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE OPTIONEE FURTHER CONFIRMS THAT THE OPTIONEE HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE OPTIONEE CONCERNING THIS AGREEMENT. (c) THE OPTIONEE FURTHER REPRESENTS THAT, ALTHOUGH THE OPTIONEE IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE OPTIONEE IS 11 HOLDING THE OPTION AND THE OPTION SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE OPTION OR THE OPTION SHARES WILL ENTITLE THE OPTIONEE TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE OPTIONEE WERE NOT AN OPTIONHOLDER OR SHAREHOLDER. THE OPTIONEE FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE OPTIONEE ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE OPTIONEE THAT THE COMPANY HAS THE EXPECTATION THAT THE OPTIONEE WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE OPTIONEE'S OWNERSHIP OF THE OPTIONS OR THE OPTION SHARES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. JOSTENS, INC. By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer /s/ Michael Bailey ------------------ Name: Michael Bailey Address: Number of Option Shares: 77,361 Accepted and agreed to for purposes of Section 9(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EXHIBIT 1 JOSTENS, INC. STOCK INCENTIVE PLAN EXHIBIT 2 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (IN MILLIONS OF DOLLARS) (A) (B) Cumulative Fiscal Year Target Target ---------- ------ ---------- 2000 $142.9 2001 $173.2 $316.1 2002 $198.5 $514.6 2003 $216.3 $730.9 2004 $224.9 $955.8 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP, consistently applied, which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year,(ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan; plus (minus), to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment), the following: 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board. The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. The Optionee and his or her representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting such computation, but the Board's determination shall be conclusive and binding. EX-10.18 15 0015.txt STOCK OPTION AGREEMENT JOSTENS & GREGORY LEA Exhibit 10.18 STOCK OPTION AGREEMENT PURSUANT TO THE JOSTENS, INC. STOCK INCENTIVE PLAN THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of May 10, 2000 (the "Effective Date"), between Jostens, Inc., a Minnesota corporation (the "Company"), and Gregory Lea (the "Optionee"). R E C I T A L S - - - - - - - - A. The Company has adopted the Jostens, Inc. Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1. B. The Company desires to grant the Optionee the opportunity to acquire a proprietary interest in the Company to encourage the Optionee's contribution to the success and progress of the Company. C. In accordance with the Plan, the Committee (as defined in the Plan) has granted to the Optionee a non-qualified option to purchase shares of Class A Stock, $0.33? par value per share, of the Company (the "Class A Stock") subject to the terms and conditions of the Plan and this Agreement. AGREEMENTS ---------- 1. Definitions. Capitalized terms used herein shall have the following ----------- meanings: "Act" is defined in Section 10(a). "Agreement" means this Stock Option Agreement. "Annual Valuation" is defined in Section 9(d). "Appraisers" is defined in Section 9(d). "Approved Sale" means a transaction or a series of related transactions which results in a bona fide, unaffiliated change of economic ---- ---- beneficial ownership of the Company or its business of greater than 50% (disregarding for this purpose any disparate voting rights attributable to the outstanding stock of the Company), whether pursuant to the sale of the stock of the Company, the sale of the assets of the Company, or a merger or consolidation (other than a sale of stock by an Initial Stockholder to (i) another Initial Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to which an Initial Stockholder or affiliate thereof has an administrative relationship). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Optionee's gross misconduct; (B) the Optionee's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Optionee's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Optionee by the Board which specifically identifies the manner in which the Board believes that the Optionee has not substantially performed his or her duties and provides for a reasonable period of time within which the Optionee may take corrective measures, or (C) the Optionee's conviction (including a plea of nolo contendere) of willfully ---- ---------- engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Optionee's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital C. "Closing Date" means May 10, 2000. "Company" is defined in the preamble. "EBITDA" is defined in Section 3(a). "Effective Date" is defined in the preamble. "Endorsed Certificate" is defined in Section 9(a). "Exercise Price" is defined in Section 2. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 9(d). "Fiscal Year" means the fiscal year of the Company. "Good Reason" means, unless the Optionee shall have consented in writing thereto, any of the following: (A) a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Optionee, (B) a reduction by the Company in the Optionee's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Optionee's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Optionee under benefit plans that, in the aggregate, provide substantially similar benefits to the Optionee and/or his or her family and dependents as a substantially similar total cost to the Optionee (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Optionee (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Optionee to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for 2 required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Optionee undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Optionee's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Optionee to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Optionee was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Initial Stockholders" means the shareholders of the Company who became shareholders as of the Closing Date (other than any such shareholders who are also employees of the Company or were shareholders of the Company prior to the Closing Date). "Option" is defined in Section 2. "Optionee" is defined in the preamble. "Option Shares" is defined in Section 2. "Permanent Disability" means the failure by the Optionee to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Plan" is defined in recital A. "Put Period" and "Put Right" are defined in Section 9(b). "Repurchase Period" and "Repurchase Right" are defined in Section 9(a). "Retirement" means age 65. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Optionee ceases to be employed by the Company for any reason. 2. Grant of Option. The Company grants to the Optionee the right and --------------- option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of the number of shares of Class A Stock set forth below the Optionee's signature below (the 3 "Option Shares"), at the purchase price of $25.25 per Share (as such amount may be adjusted, the "Exercise Price"), on the terms and conditions set forth herein. 3. Exercisability. -------------- (a) The Option shall become exercisable to the extent of one-fifth (1/5) of the number of Option Shares as of the end of each fiscal year set forth on Exhibit 2 of this Agreement if the Company's Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the Target annual EBITDA amount set forth in column (A) of Exhibit 2 with respect to such fiscal year. If for any fiscal year set forth on Exhibit 2 the Company's cumulative annual EBITDA amount for that and the preceding fiscal years equals or exceeds the Cumulative Target EBITDA amount set forth in column (B) of Exhibit 2 with respect to such fiscal year, the Option shall become exercisable to the extent that it would have become exercisable had the Company achieved its Target annual EBITDA amounts for that and each of the preceding fiscal years. (b) Notwithstanding Section 3(a), (i) upon the occurrence of an Initial Public Offering, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right (A) to exercise one-third (1/3) of all unexercisable Options on the first anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (B) to exercise an additional one third (1/3) of all unexercisable Options (as of the first anniversary) on the second anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; and (C) to exercise the remaining one-third (1/3) of all unexercisable Options on the third anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (ii) upon the occurrence of an Approved Sale, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right to exercise up to fifty percent (50%) of all unexercisable Options, provided, and to the extent, that the Initial Stockholders receive a twenty percent (20%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale); and shall have the right to exercise up to seventy-five percent (75%) of all unexercisable options if the Initial Stockholders receive a twenty-five percent (25%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the closing of the Approval Sale (taking into account the Approved Sale); and shall have the right to exercise up to one-hundred percent (100%) of all unexercisable Options if the Initial Stockholders receive a thirty percent (30%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale), and (iii) upon the seventh (7th) anniversary of the date hereof, provided the Optionee remains continuously employed by the Company through such anniversary, any unexercisable Option shall immediately become fully exercisable. 4. Expiration. ---------- (a) Subject to Section 6(a), the exercisable portion of the Option shall 4 expire upon the thirtieth (30th) day following the seventh (7th) anniversary of the Effective Date unless, if earlier, (i) the Optionee resigns without Good Reason, in which case the exercisable portion of the Option shall expire thirty (30) days following the Termination Date, or (ii) the Optionee is terminated for Cause from employment by the Company, in which case the exercisable portion of the Option shall expire immediately on the Termination Date, or (iii) in the event of the death or Disability of the Optionee the exercisable portion of the option shall expire one (1) year from the date of death or Disability or (iv) the Optionee resigns for Good Reason or is terminated by the Company without Cause, in which case the exercisable portion of the Option shall expire one hundred eighty (180) days following the Termination Date; or (v) in the event the Company exercises the repurchase right pursuant to Section 9 hereof, or in the event the Optionee or his or her representative exercises the put right pursuant to Section 9 hereof, the exercisable portion of the Option shall expire on the business day immediately preceding the Repurchase Date, the Put Date, or the date on which the Company acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be. (b) The unexercisable portion of the Option shall expire on the Termination Date; provided, that in the case where the employment of the Optionee is terminated without Cause, for Good Reason, or due to death or Permanent Disability, the unexercisable portion of the Option scheduled to become exercisable in such year shall not terminate until the thirtieth (30th) day following the date on which the Optionee received notice of the EBITDA for the Fiscal Year during which the Termination Date occurred, and a pro rata portion of the portion of the Option scheduled to become exercisable in the year including the Termination Date shall become exercisable as if the Optionee's employment had not been terminated, such proration to be determined upon the number of days elapsed in the year in which the Termination Date occurred. 5. Nontransferability. Subject to Section 9 hereof, the Option shall not ------------------ be transferable by the Optionee except that the Optionee may transfer the Option to (a) his or her spouse, child, estate, personal representative, heir or successor (b) a trust for the benefit of the Optionee or his or her spouse, child or heir, or (c) a partnership the partners of which consist solely of the Optionee and/or his or her spouse, child, heir, and/or successor (each, a "permitted transferee") and the Option is exercisable, during the Optionee's lifetime, only by him or her or a permitted transferee, or, in the event of the Optionee's Permanent Disability, his or her guardian or legal representative. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option that would otherwise effect a change in the ownership of the Option, shall terminate the Option; provided, however, that in the case of the involuntary levy of any attachment or similar involuntary process upon the Option, the Optionee shall have thirty (30) days after notice thereof to cure such levy or process before the Option terminates. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option. 6. Effect of Approved Sale; Adjustments. ------------------------------------ 5 (a) In the event of an Approved Sale, the unexercised portion of the Option shall terminate upon such Approved Sale, provided that, unless the agreement or plan of merger effecting such Approved Sale provides that the Optionee shall receive upon such Approved Sale, with respect to the entire exercisable but unexercised portion of the Option, the same consideration that the holders of the Class A Stock shall be entitled to receive upon such Approved Sale, less the Exercise Price attributable to such exercisable but unexercised portion, then the Optionee shall be given at least thirty (30) days' prior notice of the proposed Approved Sale and shall be entitled to exercise such exercisable but unexercised portion of the Option at any time during such thirty (30) day period up to and until the close of business on the day immediately preceding the date of consummation of such Approved Sale and upon exercise of the Option the Option Shares shall be treated in the same manner as the shares of any other holder of Class A Stock. (b) Subject to Section 6(a), if the shares of the Class A Stock are changed into or exchanged for a different number or kind of shares or securities, as the result of any one or more reorganizations, recapitalizations, mergers, acquisitions, stock splits, reverse stock splits, stock dividends or similar events, an appropriate adjustment shall be made in the number and kind of shares or other securities subject to the Option, and the price for each share or other unit of any securities subject to this Agreement, in accordance with Section 13 of the Plan. No fractional interests shall be issued on account of any such adjustment unless the Committee specifically determines to the contrary; provided, however, that in lieu of fractional interests, the Optionee, upon the exercise of the Option in whole or part, shall receive cash in an amount equal to the amount by which the fair market value of such fractional interests exceeds the Exercise Price attributable to such fractional interests. 7. Exercise of the Option. Prior to the expiration thereof, the Optionee ---------------------- may exercise the exercisable portion of the Option from time to time in whole or in part. Upon electing to exercise the Option, the Optionee shall deliver to the Secretary of the Company a written and signed notice of such election setting forth the number of Option Shares the Optionee has elected to purchase and shall at the time of delivery of such notice tender cash or a cashier's or certified bank check to the order of the Company for the full Exercise Price of such Option Shares and any amount required pursuant to Section 16 hereof. Alternatively, if the Company is not at the time prohibited from purchasing or acquiring shares of its capital stock, the Exercise Price may be paid in whole or in part by delivery of shares of the Class A Stock owned by the Optionee provided that Optionee has owned such shares for at least six (6) months. The value of any such shares delivered or withheld as payment of the Exercise Price shall be such shares' fair market value as determined by the Committee. The Committee further may, in its discretion, permit payment of the Exercise Price in such form or in such manner as may be permissible under the Plan and under any applicable law. 8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject ---------------------------------------------------------- to Section 9 hereof, prior to the earlier of (A) 180 days following an Initial Public Offering or (B) an Approved Sale, the Option Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Optionee may transfer the Option Shares (i) to a permitted transferee, as defined in Section 5 of this Agreement, or (ii) as permitted by the Articles of Incorporation. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option Shares except a person who acquires the Option Shares pursuant to the Articles of Incorporation or as part of the Initial Public Offering. The stock certificates 6 issued to evidence Option Shares upon exercise of the Option hereunder shall bear a legend referring to this Agreement and the restrictions contained herein. 9. Repurchase of Option Shares. --------------------------- (a) In the event that the Optionee ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (subject to Section 9(c), the "Repurchase Period") shall have the right to purchase all or any portion of the Option Shares (the "Repurchase Right"). The purchase price for each Option Share shall equal Fair Market Value unless the Optionee resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. If the Company elects to purchase the Option Shares, it shall notify the Optionee at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Optionee has presented to the Company a stock certificate evidencing the Option Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee fails to deliver the Endorsed Certificate, the Option Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Optionee or his or her permitted transferee or (ii) notice to the Optionee or such permitted transferee that the Company is holding the purchase price for the account of the Optionee or such permitted transferee, and upon such payment or notice the Optionee and such permitted transferee will have no further rights in or to such Option Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Option Shares are not purchased pursuant to Section 9(a) or 9(b), the restrictions on transfer thereof contained in Sections 5 and 8 of this Agreement shall terminate and be of no further force and effect. (b) If the Optionee's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Optionee's Retirement, death or Permanent Disability; (iii) by the Optionee for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Optionee or his or her representative or permitted transferee, during the 120 days following the Termination Date (subject to Section 9(c), the "Put Period") shall have the right to require SEL to purchase all or any portion of the Option Shares then held by Optionee (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Optionee's election to exercise the Put Right, the Company has notified the Optionee and SEL of its election, exercisable at the discretion of the Company, to purchase the Option Shares on the same terms as such Option Shares were to be purchased by SEL, in which case such Option Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Optionee is terminated without Cause prior to May 10, 2003, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the Optionee presents to the Company the Endorsed Certificate. (c) In the event that (i) on the Termination Date, Optionee owns Option Shares that have not been owned by the Optionee for a period of at least six (6) months, 7 and/or (ii) following the Termination Date, the Optionee exercises any then outstanding vested Option pursuant to this Agreement (including without limitation any Option which becomes exercisable by virtue of Section 4(b) hereof), with respect to all such Option Shares, the Repurchase Period and the Put Period will not commence on the Termination Date but rather will commence on the first date on which all such Option Shares have been owned by Optionee for six (6) months. (d) The Fair Market Value of Option Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Optionee, each of the Optionee and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Optionee. The Optionee shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value determined by such Appraisers is less than or equal to 110% of the determination challenged by the Optionee. All costs in connection with the services of such Appraisers will be borne equally by the Company and the Optionee if the Fair Market Value established by such Appraisers is greater than 110% but less than or equal to 120% of the determination challenged by the Optionee. The Company shall bear all costs incurred in connection with the services of such Appraisers if the Fair Market Value established by such Appraisers is greater than 120% of the determination challenged by the Optionee. If it is determined that the Optionee bears some or all of the costs incurred in connection with the services of the Appraisers, the Optionee shall promptly pay or reimburse the Company for such costs. (e) The Optionee shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. 10. Compliance with Legal Requirements. ---------------------------------- (a) No Option Shares shall be issued or transferred pursuant to this Agreement unless and until all legal requirements applicable to such issuance or transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Option Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on 8 the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Act"), and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if available, or upon another exemption from the Act, or obtaining the consent or approval of any governmental regulatory body. (b) The Optionee understands that the Company intends for the offering and sale of Option Shares to be effected in reliance upon Rule 701 or another available exemption from registration under the Act, and that the Company is under no obligation to register for resale the Option Shares issued upon exercise of the Option, subject to other applicable agreements or the Articles of Incorporation. In connection with any such issuance or transfer, the person acquiring the Option Shares shall, if requested by the Company, provide information and assurances satisfactory to counsel to the Company with respect to such matters as the Company reasonably may deem desirable to assure compliance with all applicable legal requirements. 11. Subject to Articles of Incorporation. The Optionee acknowledges that ------------------------------------ the Option Shares are subject to the terms of the Articles of Incorporation. 12. No Interest in Shares Subject to Option. Neither the Optionee --------------------------------------- (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Optionee shall have any right, title, interest, or privilege in or to any shares of stock allocated or reserved for the purpose of the Plan or subject to this Agreement except as to such Option Shares, if any, as shall have been issued to such person upon exercise of an Option or any part thereof. 13. Plan Controls. The Option hereby granted is subject to, and the ------------- Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan as the same may be amended from time to time in accordance with the terms thereof, but no such amendment shall be effective as to the Option without the Optionee's consent insofar as it may adversely affect the Optionee's rights under this Agreement. 14. Not an Employment Contract. Nothing in the Plan, in this Agreement or -------------------------- any other instrument executed pursuant thereto shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or any Subsidiary to terminate the employment of the Optionee with or without Cause. 15. Governing Law. All terms of and rights under this Agreement shall be ------------- governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to principles of conflicts of law. 16. Taxes. The Committee may, in its discretion, make such provisions and ----- take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the issuance or exercise of the Option including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, requiring the Optionee to pay to the Company the amount required to be withheld or to execute such documents as the Committee deems necessary or desirable to enable it to satisfy its 9 withholding obligations, or any other means provided in the Plan; provided further that the Optionee may satisfy all aforesaid withholding tax obligations by directing the Company to withhold that number of Option Shares with an aggregate Fair Market Value equal to the amount of all federal, state, local and other taxes required to be withheld, or delivering to the Company such number of previously held Shares, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 17. Notices. All notices, requests, demands and other communications ------- pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telexed or telecopied to, or, if mailed, when received by, the other party at the following addresses (or at such other address as shall be given in writing by either party to the other): If to the Company to: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Facsimile: (612) 830-3380 Attention: General Counsel With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue, 47th Floor New York, New York 10166-0193 Facsimile: (212) 351-4035 Attention: E. Michael Greaney, Esq. If to the Optionee to the address set forth below the Optionee's signature below. 18. Amendments and Waivers. This Agreement may be amended, and any ---------------------- provision hereof may be waived, only by a writing signed by the party to be charged. 19. Entire Agreement. This Agreement, together with the Plan, sets forth ---------------- the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral discussions, agreements and understandings of any kind or nature. 20. Separability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 10 21. Headings. The headings preceding the text of the sections hereof are -------- inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 22. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instrument. 23. Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement. 24. Remedies. In the event of a breach by any party to this Agreement of -------- its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived. 25. Binding Effect. This Agreement shall inure to the benefit of and be -------------- binding upon the parties hereto and their respective permitted successors and assigns. 26. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE OPTIONEE ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE OPTIONEE HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE OPTIONEE THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE OPTIONEE CONFIRMS THAT THE OPTIONEE HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE OPTIONEE FURTHER CONFIRMS THAT THE OPTIONEE HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE OPTIONEE CONCERNING THIS AGREEMENT. (c) THE OPTIONEE FURTHER REPRESENTS THAT, ALTHOUGH THE OPTIONEE IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE OPTIONEE IS 11 HOLDING THE OPTION AND THE OPTION SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE OPTION OR THE OPTION SHARES WILL ENTITLE THE OPTIONEE TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE OPTIONEE WERE NOT AN OPTIONHOLDER OR SHAREHOLDER. THE OPTIONEE FURTHER AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE OPTIONEE ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE OPTIONEE THAT THE COMPANY HAS THE EXPECTATION THAT THE OPTIONEE WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE OPTIONEE'S OWNERSHIP OF THE OPTIONS OR THE OPTION SHARES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. JOSTENS, INC. By: /s/ Lee U. McGrath ------------------- Name: Lee U. McGrath Title: Vice President and Treasurer /s/ Gregory Lea --------------- Name: Gregory Lea Address: Number of Option Shares: 38,680 Accepted and agreed to for purposes of Section 9(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EXHIBIT 1 JOSTENS, INC. STOCK INCENTIVE PLAN EXHIBIT 2 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (IN MILLIONS OF DOLLARS) (A) (B) Cumulative Fiscal Year Target Target ----------- ------ ------ 2000 $142.9 2001 $173.2 $316.1 2002 $198.5 $514.6 2003 $216.3 $730.9 2004 $224.9 $955.8 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP, consistently applied, which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year,(ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan; plus (minus), to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment), the following: 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board. The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. The Optionee and his or her representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting such computation, but the Board's determination shall be conclusive and binding. EX-10.19 16 0016.txt STOCK OPTION AGREEMENT JOSTENS & ROBERT BUHRMASTER EXHIBIT 10.19 STOCK OPTION AGREEMENT PURSUANT TO THE JOSTENS, INC. STOCK INCENTIVE PLAN THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of May 10, 2000 (the "Effective Date"), between Jostens, Inc., a Minnesota corporation (the "Company"), and Robert Buhrmaster (the "Optionee"). R E C I T A L S - - - - - - - - A. The Company has adopted the Jostens, Inc. Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1. B. The Company desires to grant the Optionee the opportunity to acquire a proprietary interest in the Company to encourage the Optionee's contribution to the success and progress of the Company. C. In accordance with the Plan, the Committee (as defined in the Plan) has granted to the Optionee a non-qualified option to purchase shares of Class A Stock, $0.33? par value per share, of the Company (the "Class A Stock") subject to the terms and conditions of the Plan and this Agreement. AGREEMENTS ---------- 1. Definitions. Capitalized terms used herein shall have the following ----------- meanings: "Act" is defined in Section 10(a). "Agreement" means this Stock Option Agreement. "Annual Valuation" is defined in Section 9(d). "Appraisers" is defined in Section 9(d). "Approved Sale" means a transaction or a series of related transactions which results in a bona fide, unaffiliated change of economic ---- ---- beneficial ownership of the Company or its business of greater than 50% (disregarding for this purpose any disparate voting rights attributable to the outstanding stock of the Company), whether pursuant to the sale of the stock of the Company, the sale of the assets of the Company, or a merger or consolidation (other than a sale of stock by an Initial Stockholder to (i) another Initial Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to which an Initial Stockholder or affiliate thereof has an administrative relationship). "Articles of Incorporation" means the Articles of Incorporation of the Company, as amended or restated from time to time. "Cause" means (A) the Optionee's gross misconduct; (B) the Optionee's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Optionee's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Optionee by the Board which specifically identifies the manner in which the Board believes that the Optionee has not substantially performed his or her duties and provides for a reasonable period of time within which the Optionee may take corrective measures, or (C) the Optionee's conviction (including a plea of nolo contendere) of willfully ---- ---------- engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Optionee's ability to perform substantially his or her duties with the Company. "Class A Stock" is defined in recital C. "Closing Date" means May 10, 2000. "Company" is defined in the preamble. "EBITDA" is defined in Section 3(a). "Effective Date" is defined in the preamble. "Endorsed Certificate" is defined in Section 9(a). "Exercise Price" is defined in Section 2. "Fair Market Value" means the value of a Share, as of the Termination Date, calculated pursuant to Section 9(d). "Fiscal Year" means the fiscal year of the Company. "Good Reason" means, unless the Optionee shall have consented in writing thereto, any of the following: (A) a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good Reason does not include a change in the Optionee's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by the Optionee, (B) a reduction by the Company in the Optionee's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Optionee's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Optionee under benefit plans that, in the aggregate, provide substantially similar benefits to the Optionee and/or his or her family and dependents as a substantially similar total cost to the Optionee (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Optionee (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Optionee to be based more than 30 miles from where his or 2 her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Optionee undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Optionee's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Optionee to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Optionee was not expressly prohibited by the Company from attending to or engaging in. "Initial Public Offering" means the sale of any of the common stock of the Company pursuant to a registration statement that has been declared effective under the Act, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the NASDAQ National Market System or is traded or quoted on any other national stock exchange or national securities system. "Initial Stockholders" means the shareholders of the Company who became shareholders as of the Closing Date (other than any such shareholders who are also employees of the Company or were shareholders of the Company prior to the Closing Date). "Option" is defined in Section 2. "Optionee" is defined in the preamble. "Option Shares" is defined in Section 2. "Permanent Disability " means the failure by the Optionee to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. "Plan" is defined in recital A. "Put Period" and "Put Right" are defined in Section 9(b). "Repurchase Period" and "Repurchase Right" are defined in Section 9(a). "Retirement" means age 65. "Subsidiary" means any joint venture, corporation, partnership, limited liability company or other entity as to which the Company, whether directly or indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital or profits. "Termination Date" means the date on which the Optionee ceases to be employed by the Company for any reason. 2. Grant of Option. The Company grants to the Optionee the right and --------------- option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of 3 the number of shares of Class A Stock set forth below the Optionee's signature below (the "Option Shares"), at the purchase price of $25.25 per Share (as such amount may be adjusted, the "Exercise Price"), on the terms and conditions set forth herein. 3. Exercisability. -------------- (a) The Option shall become exercisable to the extent of one-fifth (1/5) of the number of Option Shares as of the end of each fiscal year set forth on Exhibit 2 of this Agreement if the Company's Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the Target annual EBITDA amount set forth in column (A) of Exhibit 2 with respect to such fiscal year. If for any fiscal year set forth on Exhibit 2 the Company's cumulative annual EBITDA amount for that and the preceding fiscal years equals or exceeds the Cumulative Target EBITDA amount set forth in column (B) of Exhibit 2 with respect to such fiscal year, the Option shall become exercisable to the extent that it would have become exercisable had the Company achieved its Target annual EBITDA amounts for that and each of the preceding fiscal years. (b) Notwithstanding Section 3(a), in the event the Optionee ceases to be employed by the Company at any time following the date hereof and prior to May 9, 2002 for any reason other than a termination by the Company for Cause or a termination by the Optionee without Good Reason, the Option shall become exercisable as of the date of such termination to the extent of forty percent (40%) of the number of Option Shares without regard to the achievement of any Target annual EBITDA amounts. (c) Notwithstanding Section 3(a), (i) upon the occurrence of an Initial Public Offering, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right (A) to exercise one-third (1/3) of all unexercisable Options on the first anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (B) to exercise an additional one third (1/3) of all unexercisable Options (as of the first anniversary) on the second anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; and (C) to exercise the remaining one-third (1/3) of all unexercisable Options on the third anniversary of the Initial Public Offering, provided that the Optionee remains continuously employed by the Company through such anniversary; (ii) upon the occurrence of an Approved Sale, in which case the schedule set forth in Section 3(a) shall not apply to the extent that Options are not yet exercisable, the Optionee shall have the right to exercise up to fifty percent (50%) of all unexercisable Options, provided, and to the extent, that the Initial Stockholders receive a twenty percent (20%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale); and shall have the right to exercise up to seventy-five percent (75%) of all unexercisable options if the Initial Stockholders receive a twenty-five percent (25%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the closing of the Approval Sale (taking into account the Approved Sale); and shall have the right to exercise up to one-hundred percent (100%) of all unexercisable Options if the Initial Stockholders receive a thirty percent (30%) annual internal rate of return (calculated on a fully diluted basis) from the Closing Date until the date of closing of the Approved Sale (taking into account the Approved Sale), and (iii) upon the seventh (7th) anniversary of the date hereof, provided the Optionee remains continuously employed by the 4 Company through such anniversary, any unexercisable Option shall immediately become fully exercisable. 4. Expiration. ---------- (a) Subject to Section 6(a), the exercisable portion of the Option shall expire upon the thirtieth (30th) day following the seventh (7th) anniversary of the Effective Date unless, if earlier, (i) the Optionee resigns without Good Reason, in which case the exercisable portion of the Option shall expire thirty (30) days following the Termination Date, or (ii) the Optionee is terminated for Cause from employment by the Company, in which case the exercisable portion of the Option shall expire immediately on the Termination Date, or (iii) in the event of the death or Disability of the Optionee the exercisable portion of the option shall expire one (1) year from the date of death or Disability or (iv) the Optionee resigns for Good Reason or is terminated by the Company without Cause, in which case the exercisable portion of the Option shall expire one hundred eighty (180) days following the Termination Date; or (v) in the event the Company exercises the repurchase right pursuant to Section 9 hereof, or in the event the Optionee or his or her representative exercises the put right pursuant to Section 9 hereof, the exercisable portion of the Option shall expire on the business day immediately preceding the Repurchase Date, the Put Date, or the date on which the Company acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be. (b) The unexercisable portion of the Option shall expire on the Termination Date; provided, that in the case where the employment of the Optionee is terminated without Cause, for Good Reason, or due to death or Permanent Disability, the unexercisable portion of the Option scheduled to become exercisable in such year shall not terminate until the thirtieth (30th) day following the date on which the Optionee received notice of the EBITDA for the Fiscal Year during which the Termination Date occurred, and a pro rata portion of the portion of the Option scheduled to become exercisable in the year including the Termination Date shall become exercisable as if the Optionee's employment had not been terminated, such proration to be determined upon the number of days elapsed in the year in which the Termination Date occurred. 5. Nontransferability. Subject to Section 9 hereof, the Option shall not ------------------ be transferable by the Optionee except that the Optionee may transfer the Option to (a) his or her spouse, child, estate, personal representative, heir or successor (b) a trust for the benefit of the Optionee or his or her spouse, child or heir, or (c) a partnership the partners of which consist solely of the Optionee and/or his or her spouse, child, heir, and/or successor (each, a "permitted transferee") and the Option is exercisable, during the Optionee's lifetime, only by him or her or a permitted transferee, or, in the event of the Optionee's Permanent Disability, his or her guardian or legal representative. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option that would otherwise effect a change in the ownership of the Option, shall terminate the Option; provided, however, that in the case of the involuntary levy of any attachment or similar involuntary process upon the Option, the Optionee shall have thirty (30) days after notice thereof to cure such levy or process before the Option terminates. This Agreement shall be 5 binding on and enforceable against any person who is a permitted transferee of the Option. 6. Effect of Approved Sale; Adjustments. ------------------------------------ (a) In the event of an Approved Sale, the unexercised portion of the Option shall terminate upon such Approved Sale, provided that, unless the agreement or plan of merger effecting such Approved Sale provides that the Optionee shall receive upon such Approved Sale, with respect to the entire exercisable but unexercised portion of the Option, the same consideration that the holders of the Class A Stock shall be entitled to receive upon such Approved Sale, less the Exercise Price attributable to such exercisable but unexercised portion, then the Optionee shall be given at least thirty (30) days' prior notice of the proposed Approved Sale and shall be entitled to exercise such exercisable but unexercised portion of the Option at any time during such thirty (30) day period up to and until the close of business on the day immediately preceding the date of consummation of such Approved Sale and upon exercise of the Option the Option Shares shall be treated in the same manner as the shares of any other holder of Class A Stock. (b) Subject to Section 6(a), if the shares of the Class A Stock are changed into or exchanged for a different number or kind of shares or securities, as the result of any one or more reorganizations, recapitalizations, mergers, acquisitions, stock splits, reverse stock splits, stock dividends or similar events, an appropriate adjustment shall be made in the number and kind of shares or other securities subject to the Option, and the price for each share or other unit of any securities subject to this Agreement, in accordance with Section 13 of the Plan. No fractional interests shall be issued on account of any such adjustment unless the Committee specifically determines to the contrary; provided, however, that in lieu of fractional interests, the Optionee, upon the exercise of the Option in whole or part, shall receive cash in an amount equal to the amount by which the fair market value of such fractional interests exceeds the Exercise Price attributable to such fractional interests. 7. Exercise of the Option. Prior to the expiration thereof, the Optionee ---------------------- may exercise the exercisable portion of the Option from time to time in whole or in part. Upon electing to exercise the Option, the Optionee shall deliver to the Secretary of the Company a written and signed notice of such election setting forth the number of Option Shares the Optionee has elected to purchase and shall at the time of delivery of such notice tender cash or a cashier's or certified bank check to the order of the Company for the full Exercise Price of such Option Shares and any amount required pursuant to Section 16 hereof. Alternatively, if the Company is not at the time prohibited from purchasing or acquiring shares of its capital stock, the Exercise Price may be paid in whole or in part by delivery of shares of the Class A Stock owned by the Optionee provided that Optionee has owned such shares for at least six (6) months. The value of any such shares delivered or withheld as payment of the Exercise Price shall be such shares' fair market value as determined by the Committee. The Committee further may, in its discretion, permit payment of the Exercise Price in such form or in such manner as may be permissible under the Plan and under any applicable law. 8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject ---------------------------------------------------------- to Section 9 hereof, prior to the earlier of (A) 180 days following an Initial Public Offering or (B) an Approved Sale, the Option Shares shall not be transferable or transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) except that the Optionee may transfer the Option Shares (i) to a permitted transferee, as defined in 6 Section 5 of this Agreement, or (ii) as permitted by the Articles of Incorporation. This Agreement shall be binding on and enforceable against any person who is a permitted transferee of the Option Shares except a person who acquires the Option Shares pursuant to the Articles of Incorporation or as part of the Initial Public Offering. The stock certificates issued to evidence Option Shares upon exercise of the Option hereunder shall bear a legend referring to this Agreement and the restrictions contained herein. 9. Repurchase of Option Shares. --------------------------- (a) In the event that the Optionee ceases to be employed by the Company for any reason prior to an Initial Public Offering, the Company, during the sixty (60) days following the Termination Date (subject to Section 9(c), the "Repurchase Period") shall have the right to purchase all or any portion of the Option Shares (the "Repurchase Right"). The purchase price for each Option Share shall equal Fair Market Value unless the Optionee resigns without Good Reason prior to May 10, 2003 or is terminated for Cause at any time, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. If the Company elects to purchase the Option Shares, it shall notify the Optionee at or before the end of the Repurchase Period of such election and the purchase price shall be paid in cash at a time set by the Company (the "Repurchase Date") within thirty (30) days after the end of the Repurchase Period, provided that the Optionee has presented to the Company a stock certificate evidencing the Option Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee fails to deliver the Endorsed Certificate, the Option Shares represented thereby shall be deemed to have been purchased upon (i) the payment by the Company of the purchase price to the Optionee or his or her permitted transferee or (ii) notice to the Optionee or such permitted transferee that the Company is holding the purchase price for the account of the Optionee or such permitted transferee, and upon such payment or notice the Optionee and such permitted transferee will have no further rights in or to such Option Shares. The Company may assign its Repurchase Right hereunder to Saturn Equity Limited ("SEL") or to an affiliate of the Company. If the Option Shares are not purchased pursuant to Section 9(a) or 9(b), the restrictions on transfer thereof contained in Sections 5 and 8 of this Agreement shall terminate and be of no further force and effect. (b) If the Optionee's employment with the Company is terminated prior to an Initial Public Offering (i) by the Company without Cause; (ii) due to the Optionee's Retirement, death or Permanent Disability; (iii) by the Optionee for Good Reason; or (iv) at any time after May 10, 2003 for any reason other than for Cause, the Optionee or his or her representative or permitted transferee, during the 120 days following the Termination Date (subject to Section 9(c), the "Put Period") shall have the right to require SEL to purchase all or any portion of the Option Shares then held by Optionee (the "Put Right"), unless, by the thirtieth (30) day after the Company and SEL have received notice of the Optionee's election to exercise the Put Right, the Company has notified the Optionee and SEL of its election, exercisable at the discretion of the Company, to purchase the Option Shares on the same terms as such Option Shares were to be purchased by SEL, in which case such Option Shares will be acquired by the Company. The purchase price shall be at Fair Market Value, unless the employment of the Optionee is terminated without Cause prior to May 10, 2003, in which case the purchase price will be the lower of Fair Market Value or the Exercise Price. The purchase price shall be paid in cash at a time specified by SEL or the Company, as applicable, within thirty (30) days after the end of the Put Period, provided that SEL or the Company, as the case may be, need not pay the purchase price until such later time that the 7 Optionee presents to the Company the Endorsed Certificate. (c) In the event that (i) on the Termination Date, Optionee owns Option Shares that have not been owned by the Optionee for a period of at least six (6) months, and/or (ii) following the Termination Date, the Optionee exercises any then outstanding vested Option pursuant to this Agreement (including without limitation any Option which becomes exercisable by virtue of Section 4(b) hereof), with respect to all such Option Shares, the Repurchase Period and the Put Period will not commence on the Termination Date but rather will commence on the first date on which all such Option Shares have been owned by Optionee for six (6) months. (d) The Fair Market Value of Option Shares to be purchased by the Company hereunder shall be determined in good faith by the Company's Board of Directors. The Board of Directors shall make its determination of Fair Market Value annually (the "Annual Valuation") promptly after the completion of the Company's audited financial statements for the year then completed and such determination shall remain in effect until the Board of Directors makes the next Annual Valuation. Notwithstanding the foregoing, if the Board of Directors or an investment banker or appraiser appointed by the Company makes a determination of Fair Market Value subsequent to an Annual Valuation, such subsequent determination shall supersede the Annual Valuation then in effect and shall establish the Fair Market Value until the next Annual Valuation. The Fair Market Value shall be based on an assumed sale of 100% of the outstanding capital stock of the Company. If such determination of the Fair Market Value is challenged by the Optionee, each of the Optionee and the Board of Directors will select an appraiser or investment banker, and the two appraisers and investment bankers, as the case may be, will select a mutually acceptable investment banker or appraiser. The three selected appraisers or investment bankers, as the case may be (the "Appraisers"), shall establish the Fair Market Value as of the date of valuation referenced in the Annual Valuation or a subsequent determination. The Appraisers' determination shall be conclusive and binding on the Company and the Optionee. (e) The Optionee shall not be considered to have ceased to be employed by the Company for purposes of this Agreement if he continues to be employed by the Company or a Subsidiary, or by a company of which the Company is a subsidiary. 10. Compliance with Legal Requirements. ---------------------------------- (a) No Option Shares shall be issued or transferred pursuant to this Agreement unless and until all legal requirements applicable to such issuance or transfer have, in the opinion of counsel to the Company, been satisfied. Such requirements may include, but are not limited to, registering or qualifying such Option Shares under any state or federal law, satisfying any applicable law relating to the transfer of unregistered securities or demonstrating the availability of an exemption from applicable laws, placing a legend on the Shares to the effect that they were issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Act"), and may not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if available, or upon another exemption from the Act, or obtaining the consent or approval of any governmental regulatory body. (b) The Optionee understands that the Company intends for the offering 8 and sale of Option Shares to be effected in reliance upon Rule 701 or another available exemption from registration under the Act, and that the Company is under no obligation to register for resale the Option Shares issued upon exercise of the Option, subject to other applicable agreements or the Articles of Incorporation. In connection with any such issuance or transfer, the person acquiring the Option Shares shall, if requested by the Company, provide information and assurances satisfactory to counsel to the Company with respect to such matters as the Company reasonably may deem desirable to assure compliance with all applicable legal requirements. 11. Subject to Articles of Incorporation. The Optionee acknowledges that ------------------------------------ the Option Shares are subject to the terms of the Articles of Incorporation. 12. No Interest in Shares Subject to Option. Neither the Optionee --------------------------------------- (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Optionee shall have any right, title, interest, or privilege in or to any shares of stock allocated or reserved for the purpose of the Plan or subject to this Agreement except as to such Option Shares, if any, as shall have been issued to such person upon exercise of an Option or any part thereof. 13. Plan Controls. The Option hereby granted is subject to, and the ------------- Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan as the same may be amended from time to time in accordance with the terms thereof, but no such amendment shall be effective as to the Option without the Optionee's consent insofar as it may adversely affect the Optionee's rights under this Agreement. 14. Not an Employment Contract. Nothing in the Plan, in this Agreement or -------------------------- any other instrument executed pursuant thereto shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or any Subsidiary to terminate the employment of the Optionee with or without Cause. 15. Governing Law. All terms of and rights under this Agreement shall be ------------- governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to principles of conflicts of law. 16. Taxes. The Committee may, in its discretion, make such provisions and ----- take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the issuance or exercise of the Option including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, requiring the Optionee to pay to the Company the amount required to be withheld or to execute such documents as the Committee deems necessary or desirable to enable it to satisfy its withholding obligations, or any other means provided in the Plan; provided further that the Optionee may satisfy all aforesaid withholding tax obligations by directing the Company to withhold that number of Option Shares with an aggregate Fair Market Value equal to the amount of all federal, state, local and other taxes required to be withheld, or delivering to the Company such number of previously held Shares, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 9 17. Notices. All notices, requests, demands and other communications ------- pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telexed or telecopied to, or, if mailed, when received by, the other party at the following addresses (or at such other address as shall be given in writing by either party to the other): If to the Company to: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Facsimile: (612) 830-3380 Attention: General Counsel With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue, 47th Floor New York, New York 10166-0193 Facsimile: (212) 351-4035 Attention: E. Michael Greaney, Esq. If to the Optionee to the address set forth below the Optionee's signature below. 18. Amendments and Waivers. This Agreement may be amended, and any ---------------------- provision hereof may be waived, only by a writing signed by the party to be charged. 19. Entire Agreement. This Agreement, together with the Plan, sets forth ---------------- the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral discussions, agreements and understandings of any kind or nature. 20. Separability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. 21. Headings. The headings preceding the text of the sections hereof are -------- inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 22. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instrument. 10 23. Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement. 24. Remedies. In the event of a breach by any party to this Agreement of -------- its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is hereby waived. 25. Binding Effect. This Agreement shall inure to the benefit of and be -------------- binding upon the parties hereto and their respective permitted successors and assigns. 26. RELIANCE ON THIS AGREEMENT. --------------------------- (a) THE OPTIONEE ACKNOWLEDGES THAT, ALTHOUGH THERE ARE MANY POSSIBLE METHODS OF DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES, THE OPTIONEE HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE EXPECTATION AND UNDERSTANDING THAT THE METHOD(S) CONTAINED IN THIS AGREEMENT FOR DETERMINING THE PURCHASE PRICE OF THE COMPANY'S SHARES WILL BE APPLIED UNDER THE CIRCUMSTANCES AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. ACCORDINGLY, IT IS THE INTENTION AND EXPECTATION OF THE OPTIONEE THAT, IN SITUATIONS IN WHICH THIS AGREEMENT IS APPLICABLE, THE COURTS SHALL INTERPRET AND APPLY THIS AGREEMENT STRICTLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS, WHETHER ACTING UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE. (b) THE OPTIONEE CONFIRMS THAT THE OPTIONEE HAS CAREFULLY REVIEWED THIS AGREEMENT AND UNDERSTANDS IT. THE OPTIONEE FURTHER CONFIRMS THAT THE OPTIONEE HAS CONSULTED WITH LEGAL COUNSEL REPRESENTING THE OPTIONEE CONCERNING THIS AGREEMENT. (c) THE OPTIONEE FURTHER REPRESENTS THAT, ALTHOUGH THE OPTIONEE IS (OR FROM TIME TO TIME MAY BE) AN EMPLOYEE, OFFICER AND/OR DIRECTOR OF THE COMPANY (OR OF A DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY), THE OPTIONEE IS HOLDING THE OPTION AND THE OPTION SHARES FOR THEIR POTENTIAL AS AN EQUITY INVESTMENT AND WITHOUT ANY EXPECTATION UNDER SECTION 302A.751 OF THE MINNESOTA BUSINESS CORPORATION ACT OR OTHERWISE THAT THE OWNERSHIP OF THE OPTION OR THE OPTION SHARES WILL ENTITLE THE OPTIONEE TO ANY RIGHTS AS AN EMPLOYEE, OFFICER OR DIRECTOR OF THE COMPANY (OR ANY SUCH SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) THAT WOULD NOT EXIST IF THE OPTIONEE WERE NOT AN OPTIONHOLDER OR SHAREHOLDER. THE OPTIONEE FURTHER 11 AGREES THAT NO CHANGE IN HIS OR HER EXPECTATIONS CONCERNING EMPLOYMENT OR CONCERNING HIS OR HER PARTICIPATION AS AN OFFICER OR DIRECTOR WILL HAVE A REASONABLE BASIS UNLESS SET FORTH IN A WRITTEN AGREEMENT EXPRESSLY GIVING THE OPTIONEE ADDITIONAL RIGHTS AS TO SUCH MATTERS. THE COMPANY HEREBY ADVISES THE OPTIONEE THAT THE COMPANY HAS THE EXPECTATION THAT THE OPTIONEE WILL NOT HAVE ANY RIGHT TO EMPLOYMENT BY THE COMPANY (OR BY ANY DIRECT OR INDIRECT SUBSIDIARY OR OTHER AFFILIATE OF THE COMPANY) OR TO CONTINUE TO BE AN OFFICER OR DIRECTOR OF THE COMPANY (OR OF ANY SUCH SUBSIDIARY OR OTHER AFFILIATE) BY VIRTUE OF THE OPTIONEE'S OWNERSHIP OF THE OPTIONS OR THE OPTION SHARES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. JOSTENS, INC. By: /s/Lee U. McGrath ----------------- Name: Lee U. McGrath Title: Vice President and Treasurer /s/ Robert Buhrmaster Name: Robert Buhrmaster Address: Number of Option Shares: 290,103 Accepted and agreed to for purposes of Section 9(b) only: SATURN EQUITY LIMITED By: /s/ Sydney J. Coleman --------------------- Name: Sydney J. Coleman Title: Director Address: P.O. Box 1111 Grant Cayman Cayman Islands, BWI 13 EXHIBIT 1 JOSTENS, INC. STOCK INCENTIVE PLAN EXHIBIT 2 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (IN MILLIONS OF DOLLARS)
(A) (B) Cumulative Fiscal Year Target Target ----------- -------- ---------- 2000 $142.9 2001 $173.2 $316.1 2002 $198.5 $514.6 2003 $216.3 $730.9 2004 $224.9 $955.8
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP, consistently applied, which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year,(ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan; plus (minus), to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment), the following: 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board. The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. The Optionee and his or her representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting such computation, but the Board's determination shall be conclusive and binding. EX-10.20 17 0017.txt LOAN & PLEDGE AGREEMENT JOSTENS ROBERT BUHRMASTER EXHIBIT 10.20 - ------------- LOAN AND PLEDGE AGREEMENT ------------------------- LOAN AND PLEDGE AGREEMENT dated as of May 10, 2000, between JOSTENS, INC., a Minnesota corporation (the "Lender"), and Robert C. Buhrmaster (the "Borrower"). The parties hereto agree as follows: 1. Amount and Terms of the Loan. ---------------------------- 1.1. The Loan. On the terms and subject to the conditions of this -------- Agreement, the Lender agrees to lend $1,010,025 to the Borrower for the purpose of enabling the Borrower to finance or refinance the purchase of shares of Class A Common Stock of the Lender, par value $0.33? per share (the "Purchased Shares"), pursuant to the Jostens, Inc. 2000 Stock Loan Plan (the "Plan"). Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. 1.2. Maturity Date. ------------- (a) Subject to the prepayment provisions of subsections 1.3 and 1.4, the acceleration provisions set forth below and in Section 3 below and the extension provision set forth in Section 1.2(b), the Loan shall mature on May 10, 2005 (the "Maturity Date"). Notwithstanding the foregoing, all principal and accrued but unpaid interest outstanding under the Loan will automatically become due and payable on the date the Borrower's employment with the Lender and any of its Subsidiaries terminates if the Borrower terminates employment before age 65 unless his employment (i) terminates by reason of his death or Permanent Disability, (ii) is terminated for a reason other than Cause or (iii) is terminated by the Borrower for Good Reason. (b) In the event that, prior to the Maturity Date, the Lender has not completed an "Initial Public Offering" or an "Approved Sale" (as such terms are defined in Borrower's Stock Option Agreement pursuant to Lender's Stock Incentive Plan), and if at least 90% of the cumulative EBITDA target for 2004 set forth on Exhibit 2 to Borrower's Stock Option Agreement has been achieved, Borrower shall be entitled to extend the term of the Loan until May 10, 2007, and such extension shall be effective upon written notice to Lender. 1.3. Mandatory Prepayments and Interest Payments. ------------------------------------------- (a) In the event that any cash dividend or distribution is paid by the Lender with respect to any Pledged Property relating to the Loan, the Borrower shall make a mandatory prepayment with respect to the Loan equal to the amount of such dividend or distribution, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. Notwithstanding the foregoing, in the event that the Committee under the Plan determines that the Borrower would recognize a net increase in taxable income from the receipt of any such dividends 10 or distributions after giving effect to any deduction for the related payment under the Loan, the Committee may in its discretion permit the Borrower to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (b) Interest shall be compounded quarterly during the term of a Loan; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. 1.4 Optional Prepayments. -------------------- (a) The Borrower may make voluntary prepayments on the Loan at any time without penalty in such minimum amounts as the Committee may determine, which shall be applied first to accrued but unpaid interest, and then to principal. (b) In the event that the Borrower at any time desires to obtain a release of all or part of any Pledged Property securing the Loan, whether for the purpose of selling such Pledged Property or otherwise, as a condition to the release, the Borrower shall make arrangements satisfactory to the Lender for the prepayment by the Borrower of an amount equal to the higher of (i) a percentage of the outstanding Loan balance as of the date of the release equal to the percentage in value of the Pledged Property sought to be released and (ii) a sufficient portion of the outstanding Loan balance so that the amount of the outstanding Loan balance remaining unpaid after giving effect to such payment does not exceed 100% of the fair market value of the Pledged Property, as determined in good faith by the Committee, that will remain subject to this Agreement after giving effect to the release, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. 1.5. Evidence of Borrowing. The Loan will be evidenced by a --------------------- promissory note in substantially the form attached as Exhibit A to this Agreement (the "Note"). The Borrower will promptly execute and deliver to the Lender any other instruments evidencing the Loan reasonably requested by the Lender. 2. Security. -------- 2.1. Grant of Security Interest. As security for the Borrower's -------------------------- performance of this Agreement and the Borrower's indefeasible payment in full of the Loan and all interest thereon in accordance with this Agreement, the Borrower hereby pledges, hypothecates, assigns, transfers and delivers to the Lender and grants the Lender a continuing security interest in the Borrower's right, title and interest in and to the Pledged Property, to have and to hold, together with all rights, titles, interests, privileges and preferences appertaining or incidental thereto, unto the Lender, its successors and assigns, forever, subject to the terms and conditions of this Agreement. The Pledged Property shall initially be as set forth in Schedule A attached hereto. 2.2. Perfection of Security Interest. Simultaneously with the ------------------------------- execution and delivery of this Agreement, the Borrower will deliver to the Lender all instruments and certificates evidencing the Pledged Property and will execute and deliver to the Lender stock 11 powers or assignments in such forms as may reasonably be requested by the Lender with respect to each such instrument or certificate. The Borrower will perform all additional acts and execute all other documents reasonably requested by the Lender at any time to further evidence, perfect, maintain and enforce the Lender's security interest in the Pledged Property. The Borrower will not pledge, hypothecate or grant a security interest in any of the Pledged Property to any other person without the prior written consent of the Lender. 2.3. Voting and Other Rights of the Borrower and the Lender. ------------------------------------------------------ Simultaneously with the execution and delivery of this Agreement, the Borrower will execute and deliver to the Lender a proxy in the form attached as Exhibit B hereto (the "Proxy"). So long as no Event of Default (as described in subsection 3.1) has occurred and is continuing, the Borrower will be entitled to vote and to exercise all other rights and remedies with respect to the Pledged Property. Upon the occurrence and during the continuance of an Event of Default, the Proxy will automatically become effective pursuant to its terms, and the Lender or its substituted proxy will have the right to vote and to exercise all other rights and remedies with respect to the Pledged Property. 2.4. Release of Collateral. In the event of any prepayment of --------------------- principal under the Loan, the Lender will release from the pledge under this Agreement a portion of the Pledged Property equal to the percentage of the outstanding principal balance so paid, provided, that (i) the Lender will retain Pledged Property with an aggregate fair market value, as determined in good faith by the Committee, equal to at least one hundred percent (100%) of the outstanding Loan balance as of the date of the prepayment (after giving effect to the prepayment) and (ii) to the extent any of the released Pledged Property is subject to restriction under section 6 of the Plan, the Lender will retain custody of the property until the end of the Restricted Period. 3. Events of Default. ----------------- 3.1. Events of Default. For purposes of this Agreement, any of the ----------------- following events will constitute an Event of Default: (a) the Borrower fails to pay any amount due under the Loan and the default remains uncured for a period of (10) days after the date the Lender gives the Borrower notice of the default; (b) the Borrower defaults under or breaches any other covenant, representation or warranty under the Note, this Agreement or any other agreement under the Plan and the default or breach remains uncured for a period of thirty (30) days after the date the Lender gives the Borrower notice of his default or breach; (c) the Borrower applies for or consents to the appointment of a receiver, trustee, custodian or liquidator of any of his property, admits in writing his inability to pay his debts as they mature, makes a general assignment as a bankrupt or insolvent or is the subject of an order for relief under Chapter 13 of the United States Bankruptcy Code or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement with creditors to take advantage of any bankruptcy, insolvency, readjustment or debt or liquidation law or statute, or an 12 answer admitting the material allegations of a petition filed against him in any proceeding under any such law; or (d) any court of competent jurisdiction enters an order, judgment or decree, without the application, approval or consent of the Borrower, approving a petition appointing a receiver, trustee, custodian or liquidator of all or a substantial part of the assets of the Borrower, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days. 3.2. Consequences of Events of Default. If an Event of Default --------------------------------- occurs, the Lender may foreclose on the Pledged Property and may otherwise enforce its rights under the Plan, the Note and any other agreement entered into under the Plan. 4. General. ------- 4.1. Compliance with Withholding. The Lender shall have the right to --------------------------- require the Borrower to pay to the Lender the amount of any taxes that are required to be withheld in connection with any repayment of a Loan, any release of Pledged Property or any sale of Pledged Property. To the extent permitted by the Committee, the Borrower may elect to have any distribution otherwise required to be made under this Agreement to be withheld to fulfill any tax withholding obligation. 4.2. Amendment and Waiver. This Agreement may only be amended by -------------------- written agreement of the Borrower and the Lender. 4.3. Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party; but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 4.4. Complete Agreement. This document and the documents referred to ------------------ herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which relate to the subject matter hereof. 4.5. Governing Law. The provisions of this Agreement shall be ------------- construed in accordance with the internal laws of the State of Minnesota. 13 IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above. BORROWER JOSTENS, INC. /s/ Robert C. Buhrmaster By: /s/ Lee U. McGrath Robert C. Buhrmaster Its: Vice President and Treasurer 14 Schedule A Pledged Property - ---------------- 40,001 shares of Class A common stock of Jostens, Inc. 15 Exhibit A FORM OF PROMISSORY NOTE $ May __, 2000 FOR VALUE RECEIVED, the undersigned (the "Borrower") promises to pay, on or before ______________ to the order of Jostens, Inc. or any successor thereto (the "Lender"), at such place as the Lender shall designate, the principal sum shown above, together with interest from the date hereof on the principal balance outstanding under this Note as provided hereinafter and in the Loan and Pledge Agreement dated the date hereof between the Lender and the Borrower (the "Loan and Pledge Agreement"). This Note is subject to the terms of the Jostens, Inc. 2000 Stock Loan Plan (the "Plan") and is secured by the Loan and Pledge Agreement and has been delivered by the Borrower pursuant to such Agreement. The holder of this Note is entitled to the benefits of the Loan and Pledge Agreement and may enforce the agreements of the Borrower herein and therein and exercise the remedies provided for hereby and thereby or otherwise in respect of this Note. Except as set forth below, from the date hereof interest shall accrue on the outstanding principal amount hereof at the rate set forth in the Plan. Interest shall be compounded quarterly during the term of this Note; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. Payments of both principal and interest hereunder shall be made in lawful money of the United States of America. This Note may be prepaid, in whole or in part, at any time without premium or penalty. If an Event of Default (as that term is defined in the Loan and Pledge Agreement) shall occur, all principal and accrued but unpaid interest payable under this Note shall accelerate and become immediately due and payable without any presentment, demand, protest, or other notice of any kind and, until repaid in full, all amounts due hereunder, including without limitation interest due hereunder, shall bear interest at an annual rate equal to the lower of (A) two percent (2%) higher than the rate calculated pursuant to the calculation set forth above and (B) the highest rate, if any, permitted at law. If legal action is necessary to collect any amount due hereunder, Borrower shall be liable for the payment of reasonable attorney's fees and the costs of Lender incurred to others in connection with such collection. The Borrower hereby agrees to be personally liable for payment of this Note. 16 This Note is to be governed by and construed in accordance with the laws of the State of Minnesota. In any action brought under or arising out of this Note, the undersigned hereby consents to the jurisdiction of any competent court within the State of Minnesota and consents to service of process by any means authorized by Minnesota law. BORROWER _______________________________ Name: 17 Exhibit B FORM OF PROXY The undersigned hereby revokes any previous or contemporaneous proxies and appoints _______________ as attorney and proxy of the undersigned to cause notice to be given with respect to and to attend any and all meetings of shareholders of Jostens, Inc., a Minnesota corporation (the "Company"), to vote all shares of capital stock of the Company owned by the undersigned and pledged to the Company (the "Pledged Shares") pursuant to the Loan and Pledge Agreement dated May 10, 2000 between the Company and the undersigned (the "Loan and Pledge Agreement"), and to represent and otherwise to act for the undersigned in the same manner and with the same effect as if the undersigned were personally present. This proxy shall become effective immediately, without further action by the undersigned, upon an Event of Default under the Loan and Pledge Agreement occurs, and shall remain in effect until such Event of Default shall be remedied by the undersigned. This proxy shall be deemed to be a proxy coupled with an interest and is irrevocable and has been granted pursuant to Section 2.3 of the Loan and Pledge Agreement. The undersigned authorizes such attorney and proxy to substitute any other person to act hereunder, to revoke any substitution and to file this proxy (immediately upon its becoming effective as set forth above) and any substitution or revocation with the Secretary of the Company. Dated: May ___, 2000 By: ________________________ 18 JOSTENS, INC. STOCK INCENTIVE PLAN l. Establishment and Purpose of the Plan. This Management Stock ------------------------------------- Incentive Plan (the "Plan") is established by Jostens, Inc., a Minnesota corporation (the "Company"), as of May 10, 2000. The Plan is designed to enable the Company to attract, retain and motivate directors, members of the management and certain other officers and key employees of the Company, and its subsidiaries, by providing for or increasing their proprietary interest in the Company. The Plan provides for the grant of options ("Options") that qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as Options that do not so qualify ("Non-Qualified Options"), for the grant of stock appreciation rights ("Stock Appreciation Rights") and for the sale or grant of restricted stock ("Restricted Stock"). 2. Stock Subject to Plan. The number of shares of stock that may be --------------------- subject to Options or Stock Appreciation Rights granted hereunder plus the number of shares of stock that may be granted or sold as Restricted Stock hereunder shall not in the aggregate exceed 676,907 shares of the Company's Class A Common Stock (the "Shares"), subject to adjustment under Section 13 hereof; provided further that the number of Shares that a Participant (as hereinafter defined) may receive pursuant to the Plan shall in no event exceed 300,000 in any year. The Shares that may be subject to Options granted and Restricted Stock sold or granted under the Plan may be authorized and unissued Shares or Shares reacquired by the Company and held as treasury stock. Shares that are subject to the unexercised portions of any Options that expire, terminate or are canceled, and Shares that are subject to any Stock Appreciation Rights that expire, terminate or are canceled, and Shares of Restricted Stock that are reacquired by the Company pursuant to the restrictions thereon, shall again be available for the grant of Options or Stock Appreciation Rights and the sale or grant of Restricted Stock under the Plan. If a Stock Appreciation Right is exercised, any Option or portion thereof that is surrendered in connection with such exercise shall terminate and the Shares theretofore subject to the Option or portion thereof shall not be available for further use under the Plan. 3. Shares Subject to Articles of Incorporation. All Shares issuable ------------------------------------------- under Options or Stock Appreciation Rights and all Shares of Restricted Stock sold or granted pursuant to this Plan shall be subject to the terms and restrictions contained in the Articles of Incorporation of the Company. A copy of the Articles of Incorporation shall be delivered to the recipient of an Option, Stock Appreciation Right or Restricted Stock at the time of grant or issuance. 4. Administration of the Plan. The Plan shall be administered by a -------------------------- committee (the "Committee") appointed by the Board of Directors (the "Board") of the Company. If no persons are designated by the Board to serve on the Committee, the Plan shall be administered by the Board and all references herein to the Committee shall refer to the Board. The Board shall have the discretion to add, remove or replace members of the Committee, and shall have the sole authority to fill vacancies on the Committee. 1 All actions of the Committee shall be authorized by a majority vote thereof at a duly called meeting. The Committee shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and the agreements and other instruments evidencing Options and Stock Appreciation Rights granted and Restricted Stock sold or granted under the Plan, and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be final and conclusive upon the Participants, as hereinafter defined. Notwithstanding the foregoing, any dispute arising under any Agreement (as defined below) shall be resolved pursuant to the dispute resolution mechanism set forth in such Agreement. Subject to the express provisions of the Plan, the Committee shall determine the number of Shares subject to grants or sales and the terms thereof, including the provisions relating to the exercisability of Options and Stock Appreciation Rights, lapse and non-lapse restrictions upon the Shares obtained or obtainable under the Plan and the termination and/or forfeiture of Options and Stock Appreciation Rights and Restricted Stock under the Plan. The terms upon which Options and Stock Appreciation Rights are granted and Restricted Stock is sold or granted shall be evidenced by a written agreement, executed by the Company and the Participant (each, an "Agreement"), containing such terms and conditions as may be approved by the Committee; provided that such terms and conditions are not inconsistent with the express conditions of the Plan. 5. Eligibility. Persons who shall be eligible for grants of Options ----------- or Stock Appreciation Rights or sales or grants of Restricted Stock hereunder shall be those directors, officers and employees of the Company or a subsidiary of the Company who are members of a select group of directors, management and other key employees that the Committee may from time to time designate to participate under the Plan ("Participants") through grants of Non-Qualified Options, Incentive Stock Options and, if applicable, Stock Appreciation Rights, and/or through sales or grants of Restricted Stock. 6. Terms and Conditions of Options. No Incentive Stock Option shall ------------------------------- be granted for a term of more than ten years and no Non-Qualified Option shall be granted for a term of more than ten (10) years and thirty (30) days. Options may, in the discretion of the Committee, be granted with associated Stock Appreciation Rights or be amended so as to provide for associated Stock Appreciation Rights. The Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee as long as such terms, conditions and provisions are not inconsistent with the Plan. The Committee shall designate as such those Options intended to be eligible to qualify and be treated as Incentive Stock Options and, correspondingly, those Options not intended to be eligible to qualify and be treated as Incentive Stock Options. 7. Exercise Price of Options. The exercise price for each Non-Qualified ------------------------- Option granted hereunder shall be set forth in the Agreement. For so long as required under Section 422 of the Code and the regulations promulgated thereunder (or any successor statute or rules), the exercise price of any Option intended to be eligible to qualify and be treated as an Incentive Stock Option shall not be less than the fair market value of the Shares on the date such Incentive 2 Stock Option is granted, except that if such Incentive Stock Option is granted to a Participant who on the date of grant is treated under Section 424(d) of the Code as owning stock (not including stock purchasable under outstanding options) possessing more than ten percent of the total combined voting power of all classes of the Company's stock, the exercise price shall not be less than one hundred ten percent (110%) of the fair market value of the Shares on the date such Incentive Stock Option is granted. The fair market value of Shares for the purposes of this Plan shall be determined by the Board, whose valuation shall be binding upon each Optionee. Payment for Shares purchased upon exercise of any Option granted hereunder shall be in cash at the time of exercise, except that, if either the Agreement so provides or the Committee so permits, and if the Company is not then prohibited from doing so, such payment may be made in whole or in part with surrendered or withheld shares of stock of the same class as the stock then subject to the Option. The Committee also may on an individual basis permit payment or agree to permit payment by such other alternative means as may be lawful, including by delivery of an executed exercise notice together with irrevocable instructions to a broker promptly to deliver to the Company the amount of sale or loan proceeds required to pay the exercise price. 8. Non-transferability. Unless provided otherwise in the Agreement, ------------------- any Option granted under this Plan shall by its terms be nontransferable by the Participant other than by will or the laws of descent and distribution (in which case such descendant or beneficiary shall be subject to all terms of the Plan applicable to Participants) and is exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. 9. Incentive Stock Options. The provisions of the Plan are intended ----------------------- to satisfy the requirements set forth in Section 422 of the Code and the regulations promulgated thereunder (including the aggregate fair market value limits set forth in Section 422(d) of the Code) with respect to Incentive Stock Options granted under the Plan. For so long as required under Section 422 of the Code and the regulations promulgated thereunder (or any successor statute or rules), during the term of the Plan, the aggregate fair market value of the Shares with respect to which Incentive Stock Options are first exercisable by a Participant during any calendar year shall not exceed $100,000. For the purpose of this Section 9, the fair market value of the Shares shall be determined at the time the Incentive Stock Option is granted. 10. Stock Appreciation Rights. The Committee may, under such terms and ------------------------- conditions as it deems appropriate, grant to any Participant selected by the Committee Stock Appreciation Rights, which may or may not be associated with Options. Upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive payment of an amount equal to the excess of the fair market value, as defined by the Committee, of the underlying Shares on the date of exercise over the Stock Appreciation Right's exercise price. Such payment may be made in additional Shares valued at their fair market value on the date of exercise or in cash, or partly in Shares and partly in cash, as the Committee may designate. The Committee may require that any Stock Appreciation Right shall be subject to the condition that the Committee may at any time in its absolute discretion not allow the exercise of such Stock Appreciation Right. 3 11. Restricted Stock. The Committee may sell or grant Restricted ---------------- Stock under the Plan (either independently or in connection with the exercise of Options or Stock Appreciation Rights under the Plan) to Participants selected by the Committee. The Committee shall in each case determine the number of Shares of Restricted Stock to be sold or granted, the price at which such Shares are sold, if applicable, and the terms and duration of the restrictions to be imposed upon those Shares. 12. Investment Representation. Each Agreement may contain an agreement ------------------------- that, upon demand by the Committee for such a representation, the optionee shall deliver to the Committee at the time of any exercise of an Option a written representation that the Shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any Shares issued upon exercise of an Option and prior to the expiration of the option period shall be a condition precedent to the right of the optionee or such other person to purchase any Shares. 13. Adjustments; Acceleration. In the event of any one or more ------------------------- reorganizations, recapitalizations, stock splits, reverse stock splits, stock dividends, extraordinary dividends, or distributions, or similar events, an appropriate adjustment shall be made in the number, exercise or sale price and/or type of shares or securities for which Options or Stock Appreciation Rights may thereafter be granted and Restricted Stock may thereafter be sold or granted under the Plan. The Committee also shall designate the appropriate changes that shall be made in Options or Stock Appreciation Rights, or rights to purchase Restricted Stock under the Plan, so as to preserve the value of any such Options, Stock Appreciation Rights or Restricted Stock. Any such adjustment in outstanding Options shall be made without changing the aggregate exercise price applicable to the unexercised portions of such Options. Any such adjustments in outstanding rights to purchase Restricted Stock shall be made without changing the aggregate purchase price of such Restricted Stock. The Board or the Committee may at any time accelerate all or any portion of unexercisable Options granted to any holder or holders under the Plan without the consent of the affected holder or holders of such Options. 14. Duration of Plan. Options may not be granted and Restricted Stock ---------------- may not be sold or granted under the Plan after May 10, 2010. 15. Amendment and Termination of the Plan. The Board may at any time ------------------------------------- amend, suspend or terminate the Plan. The Committee may amend the Plan or any Agreement issued hereunder to the extent necessary for any Option or Stock Appreciation Right granted or Restricted Stock sold or granted under the Plan to comply with applicable tax or securities laws. If the Board determines that the approval of such action by the stockholders of the Company is advisable or necessary for compliance with applicable securities law, tax law, stock exchange requirement or other applicable federal or state law, no such action of the Board or the Committee shall be permitted unless taken with or ratified by such approval. No Option or Stock Appreciation Right may be granted or Restricted Stock sold or granted during any suspension of the Plan or after the termination of the Plan. No amendment, suspension or termination of the Plan or of any Agreement issued hereunder shall, without the consent of the affected holder of such Option or Stock Appreciation Right or Restricted Stock, 4 adversely alter or otherwise impair any rights or obligations in any Option or Stock Appreciation Right or Restricted Stock theretofore granted or sold to such holder under the Plan. 16. Nature of Plan. This Plan is intended to qualify as a compensatory -------------- benefit plan within the meaning of Rule 701 under the Securities Act of 1933, as amended. This Plan is intended to constitute an unfunded arrangement for a select group of directors, management and other key employees. 17. Cancellation of Options. Any Option granted under the Plan may be ----------------------- canceled at any time with the consent of the holder and a new Option may be granted to such holder in lieu thereof. 18. Withholding Taxes. Whenever Shares are to be issued with respect to ----------------- the exercise of Options or amounts are to be paid or income earned with respect to Stock Appreciation Rights or Restricted Stock under the Plan, the Committee in its discretion may require the Participant to remit to the Company, prior to the delivery of any certificate or certificates for such Shares or the payment of any such amounts, all or any part of the amount determined in the Committee's discretion to be sufficient to satisfy federal, state and local withholding tax obligations (the "Withholding Obligation") that the Company or its counsel determines may arise with respect to such exercise, issuance or payment. Pursuant to a procedure established by the Committee or as set forth in the Agreement, the Participant may (i) request the Company to withhold delivery of a sufficient number of Shares or a sufficient amount of the Participant's compensation or (ii) deliver a sufficient number of previously-issued Shares, to satisfy the Withholding Obligation, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 5 EX-10.21 18 0018.txt LOAN & PLEDGE AGREEMENT JOSTENS WILLIAM PRIESMEYER EXHIBIT 10.21 - ------------- LOAN AND PLEDGE AGREEMENT ------------------------- LOAN AND PLEDGE AGREEMENT dated as of May 10, 2000, between JOSTENS, INC., a Minnesota corporation (the "Lender"), and William Priesmeyer (the "Borrower"). The parties hereto agree as follows: 1. Amount and Terms of the Loan. ---------------------------- 1.1. The Loan. On the terms and subject to the conditions of this -------- Agreement, the Lender agrees to lend $368,499 to the Borrower for the purpose of enabling the Borrower to finance or refinance the purchase of shares of Class A Common Stock of the Lender, par value $0.33? per share (the "Purchased Shares"), pursuant to the Jostens, Inc. 2000 Stock Loan Plan (the "Plan"). Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. 1.2. Maturity Date. ------------- (a) Subject to the prepayment provisions of subsections 1.3 and 1.4 and the acceleration provisions set forth below and in Section 3 below and the extension provision set forth in Section 1.2(b), the Loan shall mature on May 10, 2005 (the "Maturity Date"). Notwithstanding the foregoing, all principal and accrued but unpaid interest outstanding under the Loan will automatically become due and payable on the date the Borrower's employment with the Lender and any of its Subsidiaries terminates if the Borrower terminates employment before age 65 unless his employment (i) terminates by reason of his death or Permanent Disability, (ii) is terminated for a reason other than Cause or (iii) is terminated by the Borrower for Good Reason. (b) In the event that, prior to the Maturity Date, the Lender has not completed an "Initial Public Offering" or an "Approved Sale" (as such terms are defined in Borrower's Stock Option Agreement pursuant to Lender's Stock Incentive Plan), and if at least 90% of the cumulative EBITDA target for 2004 set forth on Exhibit 2 to Borrower's Stock Option Agreement has been achieved, Borrower shall be entitled to extend the term of the Loan until May 10, 2007, and such extension shall be effective upon written notice to Lender. 1.3. Mandatory Prepayments and Interest Payments. ------------------------------------------- (a) In the event that any cash dividend or distribution is paid by the Lender with respect to any Pledged Property relating to the Loan, the Borrower shall make a mandatory prepayment with respect to the Loan equal to the amount of such dividend or distribution, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. Notwithstanding the foregoing, in the event that the Committee under the Plan determines that the Borrower would recognize a net increase in taxable income from the receipt of any such dividends or distributions after giving effect to any deduction for the related payment under the Loan, the Committee may in its discretion permit the Borrower to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (b) Interest shall be compounded quarterly during the term of a Loan; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. 1.4 Optional Prepayments. -------------------- (a) The Borrower may make voluntary prepayments on the Loan at any time without penalty in such minimum amounts as the Committee may determine, which shall be applied first to accrued but unpaid interest, and then to principal. (b) In the event that the Borrower at any time desires to obtain a release of all or part of any Pledged Property securing the Loan, whether for the purpose of selling such Pledged Property or otherwise, as a condition to the release, the Borrower shall make arrangements satisfactory to the Lender for the prepayment by the Borrower of an amount equal to the higher of (i) a percentage of the outstanding Loan balance as of the date of the release equal to the percentage in value of the Pledged Property sought to be released and (ii) a sufficient portion of the outstanding Loan balance so that the amount of the outstanding Loan balance remaining unpaid after giving effect to such payment does not exceed 100% of the fair market value of the Pledged Property, as determined in good faith by the Committee, that will remain subject to this Agreement after giving effect to the release, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. 1.5. Evidence of Borrowing. The Loan will be evidenced by a --------------------- promissory note in substantially the form attached as Exhibit A to this Agreement (the "Note"). The Borrower will promptly execute and deliver to the Lender any other instruments evidencing the Loan reasonably requested by the Lender. 2. Security. -------- 2.1. Grant of Security Interest. As security for the Borrower's -------------------------- performance of this Agreement and the Borrower's indefeasible payment in full of the Loan and all interest thereon in accordance with this Agreement, the Borrower hereby pledges, hypothecates, assigns, transfers and delivers to the Lender and grants the Lender a continuing security interest in the Borrower's right, title and interest in and to the Pledged Property, to have and to hold, together with all rights, titles, interests, privileges and preferences appertaining or incidental thereto, unto the Lender, its successors and assigns, forever, subject to the terms and conditions of this Agreement. The Pledged Property shall initially be as set forth in Schedule A attached hereto. 2.2. Perfection of Security Interest. Simultaneously with the ------------------------------- execution and delivery of this Agreement, the Borrower will deliver to the Lender all instruments and certificates evidencing the Pledged Property and will execute and deliver to the Lender stock 2 powers or assignments in such forms as may reasonably be requested by the Lender with respect to each such instrument or certificate. The Borrower will perform all additional acts and execute all other documents reasonably requested by the Lender at any time to further evidence, perfect, maintain and enforce the Lender's security interest in the Pledged Property. The Borrower will not pledge, hypothecate or grant a security interest in any of the Pledged Property to any other person without the prior written consent of the Lender. 2.3. Voting and Other Rights of the Borrower and the Lender. ------------------------------------------------------ Simultaneously with the execution and delivery of this Agreement, the Borrower will execute and deliver to the Lender a proxy in the form attached as Exhibit B hereto (the "Proxy"). So long as no Event of Default (as described in subsection 3.1) has occurred and is continuing, the Borrower will be entitled to vote and to exercise all other rights and remedies with respect to the Pledged Property. Upon the occurrence and during the continuance of an Event of Default, the Proxy will automatically become effective pursuant to its terms, and the Lender or its substituted proxy will have the right to vote and to exercise all other rights and remedies with respect to the Pledged Property. 2.4. Release of Collateral. In the event of any prepayment of --------------------- principal under the Loan, the Lender will release from the pledge under this Agreement a portion of the Pledged Property equal to the percentage of the outstanding principal balance so paid, provided, that (i) the Lender will retain Pledged Property with an aggregate fair market value, as determined in good faith by the Committee, equal to at least one hundred percent (100%) of the outstanding Loan balance as of the date of the prepayment (after giving effect to the prepayment) and (ii) to the extent any of the released Pledged Property is subject to restriction under section 6 of the Plan, the Lender will retain custody of the property until the end of the Restricted Period. 3. Events of Default. ----------------- 3.1. Events of Default. For purposes of this Agreement, any of the ----------------- following events will constitute an Event of Default: (a) the Borrower fails to pay any amount due under the Loan and the default remains uncured for a period of (10) days after the date the Lender gives the Borrower notice of the default; (b) the Borrower defaults under or breaches any other covenant, representation or warranty under the Note, this Agreement or any other agreement under the Plan and the default or breach remains uncured for a period of thirty (30) days after the date the Lender gives the Borrower notice of his default or breach; (c) the Borrower applies for or consents to the appointment of a receiver, trustee, custodian or liquidator of any of his property, admits in writing his inability to pay his debts as they mature, makes a general assignment as a bankrupt or insolvent or is the subject of an order for relief under Chapter 13 of the United States Bankruptcy Code or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement with creditors to take advantage of any bankruptcy, insolvency, readjustment or debt or liquidation law or statute, or an 3 answer admitting the material allegations of a petition filed against him in any proceeding under any such law; or (d) any court of competent jurisdiction enters an order, judgment or decree, without the application, approval or consent of the Borrower, approving a petition appointing a receiver, trustee, custodian or liquidator of all or a substantial part of the assets of the Borrower, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days. 3.2. Consequences of Events of Default. If an Event of Default --------------------------------- occurs, the Lender may foreclose on the Pledged Property and may otherwise enforce its rights under the Plan, the Note and any other agreement entered into under the Plan. 4. General. ------- 4.1. Compliance with Withholding. The Lender shall have the right to --------------------------- require the Borrower to pay to the Lender the amount of any taxes that are required to be withheld in connection with any repayment of a Loan, any release of Pledged Property or any sale of Pledged Property. To the extent permitted by the Committee, the Borrower may elect to have any distribution otherwise required to be made under this Agreement to be withheld to fulfill any tax withholding obligation. 4.2. Amendment and Waiver. This Agreement may only be amended by -------------------- written agreement of the Borrower and the Lender. 4.3. Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party; but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 4.4. Complete Agreement. This document and the documents referred to ------------------ herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which relate to the subject matter hereof. 4.5. Governing Law. The provisions of this Agreement shall be ------------- construed in accordance with the internal laws of the State of Minnesota. 4 IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above. BORROWER JOSTENS, INC. /s/ William Priesmeyer By: /s/ Lee U. McGrath William Priesmeyer Its: Vice President and Treasurer 5 Schedule A Pledged Property - ---------------- 14,594 shares of Class A common stock of Jostens, Inc. 6 Exhibit A FORM OF PROMISSORY NOTE $ May __, 2000 FOR VALUE RECEIVED, the undersigned (the "Borrower") promises to pay, on or before ______________ to the order of Jostens, Inc. or any successor thereto (the "Lender"), at such place as the Lender shall designate, the principal sum shown above, together with interest from the date hereof on the principal balance outstanding under this Note as provided hereinafter and in the Loan and Pledge Agreement dated the date hereof between the Lender and the Borrower (the "Loan and Pledge Agreement"). This Note is subject to the terms of the Jostens, Inc. 2000 Stock Loan Plan (the "Plan") and is secured by the Loan and Pledge Agreement and has been delivered by the Borrower pursuant to such Agreement. The holder of this Note is entitled to the benefits of the Loan and Pledge Agreement and may enforce the agreements of the Borrower herein and therein and exercise the remedies provided for hereby and thereby or otherwise in respect of this Note. Except as set forth below, from the date hereof interest shall accrue on the outstanding principal amount hereof at the rate set forth in the Plan. Interest shall be compounded quarterly during the term of this Note; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. Payments of both principal and interest hereunder shall be made in lawful money of the United States of America. This Note may be prepaid, in whole or in part, at any time without premium or penalty. If an Event of Default (as that term is defined in the Loan and Pledge Agreement) shall occur, all principal and accrued but unpaid interest payable under this Note shall accelerate and become immediately due and payable without any presentment, demand, protest, or other notice of any kind and, until repaid in full, all amounts due hereunder, including without limitation interest due hereunder, shall bear interest at an annual rate equal to the lower of (A) two percent (2%) higher than the rate calculated pursuant to the calculation set forth above and (B) the highest rate, if any, permitted at law. If legal action is necessary to collect any amount due hereunder, Borrower shall be liable for the payment of reasonable attorney's fees and the costs of Lender incurred to others in connection with such collection. The Borrower hereby agrees to be personally liable for payment of this Note. 7 This Note is to be governed by and construed in accordance with the laws of the State of Minnesota. In any action brought under or arising out of this Note, the undersigned hereby consents to the jurisdiction of any competent court within the State of Minnesota and consents to service of process by any means authorized by Minnesota law. BORROWER ______________________________ Name: 8 Exhibit B FORM OF PROXY The undersigned hereby revokes any previous or contemporaneous proxies and appoints _______________ as attorney and proxy of the undersigned to cause notice to be given with respect to and to attend any and all meetings of shareholders of Jostens, Inc., a Minnesota corporation (the "Company"), to vote all shares of capital stock of the Company owned by the undersigned and pledged to the Company (the "Pledged Shares") pursuant to the Loan and Pledge Agreement dated May 10, 2000 between the Company and the undersigned (the "Loan and Pledge Agreement"), and to represent and otherwise to act for the undersigned in the same manner and with the same effect as if the undersigned were personally present. This proxy shall become effective immediately, without further action by the undersigned, upon an Event of Default under the Loan and Pledge Agreement occurs, and shall remain in effect until such Event of Default shall be remedied by the undersigned. This proxy shall be deemed to be a proxy coupled with an interest and is irrevocable and has been granted pursuant to Section 2.3 of the Loan and Pledge Agreement. The undersigned authorizes such attorney and proxy to substitute any other person to act hereunder, to revoke any substitution and to file this proxy (immediately upon its becoming effective as set forth above) and any substitution or revocation with the Secretary of the Company. Dated: May __, 2000 By: ________________________ 9 EX-10.22 19 0019.txt LOAN & PLEDGE AGREEMENT JOSTENS MICHAEL BAILEY EXHIBIT 10.22 - ------------- LOAN AND PLEDGE AGREEMENT ------------------------- LOAN AND PLEDGE AGREEMENT dated as of May 10, 2000, between JOSTENS, INC., a Minnesota corporation (the "Lender"), and Michael Bailey (the "Borrower"). The parties hereto agree as follows: 1. Amount and Terms of the Loan. ---------------------------- 1.1. The Loan. On the terms and subject to the conditions of this -------- Agreement, the Lender agrees to lend $291,158 to the Borrower for the purpose of enabling the Borrower to finance or refinance the purchase of shares of Class A Common Stock of the Lender, par value $0.33 per share (the "Purchased Shares"), pursuant to the Jostens, Inc. 2000 Stock Loan Plan (the "Plan"). Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. 1.2. Maturity Date. ------------- (a) Subject to the prepayment provisions of subsections 1.3 and 1.4 and the acceleration provisions set forth below and in Section 3 below and the extension provision set forth in Section 1.2(b), the Loan shall mature on May 10, 2005 (the "Maturity Date"). Notwithstanding the foregoing, all principal and accrued but unpaid interest outstanding under the Loan will automatically become due and payable on the date the Borrower's employment with the Lender and any of its Subsidiaries terminates if the Borrower terminates employment before age 65 unless his employment (i) terminates by reason of his death or Permanent Disability, (ii) is terminated for a reason other than Cause or (iii) is terminated by the Borrower for Good Reason. (b) In the event that, prior to the Maturity Date, the Lender has not completed an "Initial Public Offering" or an "Approved Sale" (as such terms are defined in Borrower's Stock Option Agreement pursuant to Lender's Stock Incentive Plan), and if at least 90% of the cumulative EBITDA target for 2004 set forth on Exhibit 2 to Borrower's Stock Option Agreement has been achieved, Borrower shall be entitled to extend the term of the Loan until May 10, 2007, and such extension shall be effective upon written notice to Lender. 1.3. Mandatory Prepayments and Interest Payments. ------------------------------------------- (a) In the event that any cash dividend or distribution is paid by the Lender with respect to any Pledged Property relating to the Loan, the Borrower shall make a mandatory prepayment with respect to the Loan equal to the amount of such dividend or distribution, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. Notwithstanding the foregoing, in the event that the Committee under the Plan determines that the Borrower would recognize a net increase in taxable income from the receipt of any such dividends or distributions after giving effect to any deduction for the related payment under the Loan, the Committee may in its discretion permit the Borrower to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (b) Interest shall be compounded quarterly during the term of a Loan; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. 1.4 Optional Prepayments. -------------------- (a) The Borrower may make voluntary prepayments on the Loan at any time without penalty in such minimum amounts as the Committee may determine, which shall be applied first to accrued but unpaid interest, and then to principal. (b) In the event that the Borrower at any time desires to obtain a release of all or part of any Pledged Property securing the Loan, whether for the purpose of selling such Pledged Property or otherwise, as a condition to the release, the Borrower shall make arrangements satisfactory to the Lender for the prepayment by the Borrower of an amount equal to the higher of (i) a percentage of the outstanding Loan balance as of the date of the release equal to the percentage in value of the Pledged Property sought to be released and (ii) a sufficient portion of the outstanding Loan balance so that the amount of the outstanding Loan balance remaining unpaid after giving effect to such payment does not exceed 100% of the fair market value of the Pledged Property, as determined in good faith by the Committee, that will remain subject to this Agreement after giving effect to the release, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. 1.5. Evidence of Borrowing. The Loan will be evidenced by a --------------------- promissory note in substantially the form attached as Exhibit A to this Agreement (the "Note"). The Borrower will promptly execute and deliver to the Lender any other instruments evidencing the Loan reasonably requested by the Lender. 2. Security. -------- 2.1. Grant of Security Interest. As security for the Borrower's -------------------------- performance of this Agreement and the Borrower's indefeasible payment in full of the Loan and all interest thereon in accordance with this Agreement, the Borrower hereby pledges, hypothecates, assigns, transfers and delivers to the Lender and grants the Lender a continuing security interest in the Borrower's right, title and interest in and to the Pledged Property, to have and to hold, together with all rights, titles, interests, privileges and preferences appertaining or incidental thereto, unto the Lender, its successors and assigns, forever, subject to the terms and conditions of this Agreement. The Pledged Property shall initially be as set forth in Schedule A attached hereto. 2.2. Perfection of Security Interest. Simultaneously with the ------------------------------- execution and delivery of this Agreement, the Borrower will deliver to the Lender all instruments and certificates evidencing the Pledged Property and will execute and deliver to the Lender stock 2 powers or assignments in such forms as may reasonably be requested by the Lender with respect to each such instrument or certificate. The Borrower will perform all additional acts and execute all other documents reasonably requested by the Lender at any time to further evidence, perfect, maintain and enforce the Lender's security interest in the Pledged Property. The Borrower will not pledge, hypothecate or grant a security interest in any of the Pledged Property to any other person without the prior written consent of the Lender. 2.3. Voting and Other Rights of the Borrower and the Lender. ------------------------------------------------------ Simultaneously with the execution and delivery of this Agreement, the Borrower will execute and deliver to the Lender a proxy in the form attached as Exhibit B hereto (the "Proxy"). So long as no Event of Default (as described in subsection 3.1) has occurred and is continuing, the Borrower will be entitled to vote and to exercise all other rights and remedies with respect to the Pledged Property. Upon the occurrence and during the continuance of an Event of Default, the Proxy will automatically become effective pursuant to its terms, and the Lender or its substituted proxy will have the right to vote and to exercise all other rights and remedies with respect to the Pledged Property. 2.4. Release of Collateral. In the event of any prepayment of --------------------- principal under the Loan, the Lender will release from the pledge under this Agreement a portion of the Pledged Property equal to the percentage of the outstanding principal balance so paid, provided, that (i) the Lender will retain Pledged Property with an aggregate fair market value, as determined in good faith by the Committee, equal to at least one hundred percent (100%) of the outstanding Loan balance as of the date of the prepayment (after giving effect to the prepayment) and (ii) to the extent any of the released Pledged Property is subject to restriction under section 6 of the Plan, the Lender will retain custody of the property until the end of the Restricted Period. 3. Events of Default. ----------------- 3.1. Events of Default. For purposes of this Agreement, any of the ----------------- following events will constitute an Event of Default: (a) the Borrower fails to pay any amount due under the Loan and the default remains uncured for a period of (10) days after the date the Lender gives the Borrower notice of the default; (b) the Borrower defaults under or breaches any other covenant, representation or warranty under the Note, this Agreement or any other agreement under the Plan and the default or breach remains uncured for a period of thirty (30) days after the date the Lender gives the Borrower notice of his default or breach; (c) the Borrower applies for or consents to the appointment of a receiver, trustee, custodian or liquidator of any of his property, admits in writing his inability to pay his debts as they mature, makes a general assignment as a bankrupt or insolvent or is the subject of an order for relief under Chapter 13 of the United States Bankruptcy Code or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement with creditors to take advantage of any bankruptcy, insolvency, readjustment or debt or liquidation law or statute, or an 3 answer admitting the material allegations of a petition filed against him in any proceeding under any such law; or (d) any court of competent jurisdiction enters an order, judgment or decree, without the application, approval or consent of the Borrower, approving a petition appointing a receiver, trustee, custodian or liquidator of all or a substantial part of the assets of the Borrower, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days. 3.2. Consequences of Events of Default. If an Event of Default --------------------------------- occurs, the Lender may foreclose on the Pledged Property and may otherwise enforce its rights under the Plan, the Note and any other agreement entered into under the Plan. 4. General. ------- 4.1. Compliance with Withholding. The Lender shall have the right to --------------------------- require the Borrower to pay to the Lender the amount of any taxes that are required to be withheld in connection with any repayment of a Loan, any release of Pledged Property or any sale of Pledged Property. To the extent permitted by the Committee, the Borrower may elect to have any distribution otherwise required to be made under this Agreement to be withheld to fulfill any tax withholding obligation. 4.2. Amendment and Waiver. This Agreement may only be amended by -------------------- written agreement of the Borrower and the Lender. 4.3. Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party; but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 4.4. Complete Agreement. This document and the documents referred to ------------------ herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which relate to the subject matter hereof. 4.5. Governing Law. The provisions of this Agreement shall be ------------- construed in accordance with the internal laws of the State of Minnesota. 4 IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above. BORROWER JOSTENS, INC. /s/ Michael Bailey By: /s/ Lee U. McGrath Michael Bailey Its: Vice President and Treasurer 5 Schedule A Pledged Property - ---------------- 11,531 shares of Class A common stock of Jostens, Inc. 6 Exhibit A FORM OF PROMISSORY NOTE $ May __, 2000 FOR VALUE RECEIVED, the undersigned (the "Borrower") promises to pay, on or before ______________ to the order of Jostens, Inc. or any successor thereto (the "Lender"), at such place as the Lender shall designate, the principal sum shown above, together with interest from the date hereof on the principal balance outstanding under this Note as provided hereinafter and in the Loan and Pledge Agreement dated the date hereof between the Lender and the Borrower (the "Loan and Pledge Agreement"). This Note is subject to the terms of the Jostens, Inc. 2000 Stock Loan Plan (the "Plan") and is secured by the Loan and Pledge Agreement and has been delivered by the Borrower pursuant to such Agreement. The holder of this Note is entitled to the benefits of the Loan and Pledge Agreement and may enforce the agreements of the Borrower herein and therein and exercise the remedies provided for hereby and thereby or otherwise in respect of this Note. Except as set forth below, from the date hereof interest shall accrue on the outstanding principal amount hereof at the rate set forth in the Plan. Interest shall be compounded quarterly during the term of this Note; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. Payments of both principal and interest hereunder shall be made in lawful money of the United States of America. This Note may be prepaid, in whole or in part, at any time without premium or penalty. If an Event of Default (as that term is defined in the Loan and Pledge Agreement) shall occur, all principal and accrued but unpaid interest payable under this Note shall accelerate and become immediately due and payable without any presentment, demand, protest, or other notice of any kind and, until repaid in full, all amounts due hereunder, including without limitation interest due hereunder, shall bear interest at an annual rate equal to the lower of (A) two percent (2%) higher than the rate calculated pursuant to the calculation set forth above and (B) the highest rate, if any, permitted at law. If legal action is necessary to collect any amount due hereunder, Borrower shall be liable for the payment of reasonable attorney's fees and the costs of Lender incurred to others in connection with such collection. The Borrower hereby agrees to be personally liable for payment of this Note. 7 This Note is to be governed by and construed in accordance with the laws of the State of Minnesota. In any action brought under or arising out of this Note, the undersigned hereby consents to the jurisdiction of any competent court within the State of Minnesota and consents to service of process by any means authorized by Minnesota law. BORROWER ______________________________ Name: 8 Exhibit B FORM OF PROXY The undersigned hereby revokes any previous or contemporaneous proxies and appoints _______________ as attorney and proxy of the undersigned to cause notice to be given with respect to and to attend any and all meetings of shareholders of Jostens, Inc., a Minnesota corporation (the "Company"), to vote all shares of capital stock of the Company owned by the undersigned and pledged to the Company (the "Pledged Shares") pursuant to the Loan and Pledge Agreement dated May 10, 2000 between the Company and the undersigned (the "Loan and Pledge Agreement"), and to represent and otherwise to act for the undersigned in the same manner and with the same effect as if the undersigned were personally present. This proxy shall become effective immediately, without further action by the undersigned, upon an Event of Default under the Loan and Pledge Agreement occurs, and shall remain in effect until such Event of Default shall be remedied by the undersigned. This proxy shall be deemed to be a proxy coupled with an interest and is irrevocable and has been granted pursuant to Section 2.3 of the Loan and Pledge Agreement. The undersigned authorizes such attorney and proxy to substitute any other person to act hereunder, to revoke any substitution and to file this proxy (immediately upon its becoming effective as set forth above) and any substitution or revocation with the Secretary of the Company. Dated: May __, 2000 By: ________________________ 9 EX-10.23 20 0020.txt LOAN & PLEDGE AGREEMENT JOSTENS GREGORY LEA EXHIBIT 10.23 - ------------- LOAN AND PLEDGE AGREEMENT ------------------------- LOAN AND PLEDGE AGREEMENT dated as of May 10, 2000, between JOSTENS, INC., a Minnesota corporation (the "Lender"), and Gregory Lea (the "Borrower"). The parties hereto agree as follows: 1. Amount and Terms of the Loan. ---------------------------- 1.1. The Loan. On the terms and subject to the conditions of this -------- Agreement, the Lender agrees to lend $105,318 to the Borrower for the purpose of enabling the Borrower to finance or refinance the purchase of shares of Class A Common Stock of the Lender, par value $0.33 1/3 per share (the "Purchased Shares"), pursuant to the Jostens, Inc. 2000 Stock Loan Plan (the "Plan"). Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. 1.2. Maturity Date. ------------- (a) Subject to the prepayment provisions of subsections 1.3 and 1.4 and the acceleration provisions set forth below and in Section 3 below and the extension provision set forth in Section 1.2(b), the Loan shall mature on May 10, 2005 (the "Maturity Date"). Notwithstanding the foregoing, all principal and accrued but unpaid interest outstanding under the Loan will automatically become due and payable on the date the Borrower's employment with the Lender and any of its Subsidiaries terminates if the Borrower terminates employment before age 65 unless his employment (i) terminates by reason of his death or Permanent Disability, (ii) is terminated for a reason other than Cause or (iii) is terminated by the Borrower for Good Reason. (b) In the event that, prior to the Maturity Date, the Lender has not completed an "Initial Public Offering" or an "Approved Sale" (as such terms are defined in Borrower's Stock Option Agreement pursuant to Lender's Stock Incentive Plan), and if at least 90% of the cumulative EBITDA target for 2004 set forth on Exhibit 2 to Borrower's Stock Option Agreement has been achieved, Borrower shall be entitled to extend the term of the Loan until May 10, 2007, and such extension shall be effective upon written notice to Lender. 1.3. Mandatory Prepayments and Interest Payments. ------------------------------------------- (a) In the event that any cash dividend or distribution is paid by the Lender with respect to any Pledged Property relating to the Loan, the Borrower shall make a mandatory prepayment with respect to the Loan equal to the amount of such dividend or distribution, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. Notwithstanding the foregoing, in the event that the Committee under the Plan determines that the Borrower would recognize a net increase in taxable income from the receipt of any such dividends or distributions after giving effect to any deduction for the related payment under the Loan, the Committee may in its discretion permit the Borrower to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (b) Interest shall be compounded quarterly during the term of a Loan; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. 1.4 Optional Prepayments. -------------------- (a) The Borrower may make voluntary prepayments on the Loan at any time without penalty in such minimum amounts as the Committee may determine, which shall be applied first to accrued but unpaid interest, and then to principal. (b) In the event that the Borrower at any time desires to obtain a release of all or part of any Pledged Property securing the Loan, whether for the purpose of selling such Pledged Property or otherwise, as a condition to the release, the Borrower shall make arrangements satisfactory to the Lender for the prepayment by the Borrower of an amount equal to the higher of (i) a percentage of the outstanding Loan balance as of the date of the release equal to the percentage in value of the Pledged Property sought to be released and (ii) a sufficient portion of the outstanding Loan balance so that the amount of the outstanding Loan balance remaining unpaid after giving effect to such payment does not exceed 100% of the fair market value of the Pledged Property, as determined in good faith by the Committee, that will remain subject to this Agreement after giving effect to the release, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. 1.5. Evidence of Borrowing. The Loan will be evidenced by a --------------------- promissory note in substantially the form attached as Exhibit A to this Agreement (the "Note"). The Borrower will promptly execute and deliver to the Lender any other instruments evidencing the Loan reasonably requested by the Lender. 2. Security. -------- 2.1. Grant of Security Interest. As security for the Borrower's -------------------------- performance of this Agreement and the Borrower's indefeasible payment in full of the Loan and all interest thereon in accordance with this Agreement, the Borrower hereby pledges, hypothecates, assigns, transfers and delivers to the Lender and grants the Lender a continuing security interest in the Borrower's right, title and interest in and to the Pledged Property, to have and to hold, together with all rights, titles, interests, privileges and preferences appertaining or incidental thereto, unto the Lender, its successors and assigns, forever, subject to the terms and conditions of this Agreement. The Pledged Property shall initially be as set forth in Schedule A attached hereto. 2.2. Perfection of Security Interest. Simultaneously with the ------------------------------- execution and delivery of this Agreement, the Borrower will deliver to the Lender all instruments and certificates evidencing the Pledged Property and will execute and deliver to the Lender stock 2 powers or assignments in such forms as may reasonably be requested by the Lender with respect to each such instrument or certificate. The Borrower will perform all additional acts and execute all other documents reasonably requested by the Lender at any time to further evidence, perfect, maintain and enforce the Lender's security interest in the Pledged Property. The Borrower will not pledge, hypothecate or grant a security interest in any of the Pledged Property to any other person without the prior written consent of the Lender. 2.3. Voting and Other Rights of the Borrower and the Lender. ------------------------------------------------------ Simultaneously with the execution and delivery of this Agreement, the Borrower will execute and deliver to the Lender a proxy in the form attached as Exhibit B hereto (the "Proxy"). So long as no Event of Default (as described in subsection 3.1) has occurred and is continuing, the Borrower will be entitled to vote and to exercise all other rights and remedies with respect to the Pledged Property. Upon the occurrence and during the continuance of an Event of Default, the Proxy will automatically become effective pursuant to its terms, and the Lender or its substituted proxy will have the right to vote and to exercise all other rights and remedies with respect to the Pledged Property. 2.4. Release of Collateral. In the event of any prepayment of --------------------- principal under the Loan, the Lender will release from the pledge under this Agreement a portion of the Pledged Property equal to the percentage of the outstanding principal balance so paid, provided, that (i) the Lender will retain Pledged Property with an aggregate fair market value, as determined in good faith by the Committee, equal to at least one hundred percent (100%) of the outstanding Loan balance as of the date of the prepayment (after giving effect to the prepayment) and (ii) to the extent any of the released Pledged Property is subject to restriction under section 6 of the Plan, the Lender will retain custody of the property until the end of the Restricted Period. 3. Events of Default. ----------------- 3.1. Events of Default. For purposes of this Agreement, any of the ----------------- following events will constitute an Event of Default: (a) the Borrower fails to pay any amount due under the Loan and the default remains uncured for a period of (10) days after the date the Lender gives the Borrower notice of the default; (b) the Borrower defaults under or breaches any other covenant, representation or warranty under the Note, this Agreement or any other agreement under the Plan and the default or breach remains uncured for a period of thirty (30) days after the date the Lender gives the Borrower notice of his default or breach; (c) the Borrower applies for or consents to the appointment of a receiver, trustee, custodian or liquidator of any of his property, admits in writing his inability to pay his debts as they mature, makes a general assignment as a bankrupt or insolvent or is the subject of an order for relief under Chapter 13 of the United States Bankruptcy Code or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement with creditors to take advantage of any bankruptcy, insolvency, readjustment or debt or liquidation law or statute, or an 3 answer admitting the material allegations of a petition filed against him in any proceeding under any such law; or (d) any court of competent jurisdiction enters an order, judgment or decree, without the application, approval or consent of the Borrower, approving a petition appointing a receiver, trustee, custodian or liquidator of all or a substantial part of the assets of the Borrower, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days. 3.2. Consequences of Events of Default. If an Event of Default --------------------------------- occurs, the Lender may foreclose on the Pledged Property and may otherwise enforce its rights under the Plan, the Note and any other agreement entered into under the Plan. 4. General. ------- 4.1. Compliance with Withholding. The Lender shall have the right to --------------------------- require the Borrower to pay to the Lender the amount of any taxes that are required to be withheld in connection with any repayment of a Loan, any release of Pledged Property or any sale of Pledged Property. To the extent permitted by the Committee, the Borrower may elect to have any distribution otherwise required to be made under this Agreement to be withheld to fulfill any tax withholding obligation. 4.2. Amendment and Waiver. This Agreement may only be amended by -------------------- written agreement of the Borrower and the Lender. 4.3. Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party; but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 4.4. Complete Agreement. This document and the documents referred to ------------------ herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which relate to the subject matter hereof. 4.5. Governing Law. The provisions of this Agreement shall be ------------- construed in accordance with the internal laws of the State of Minnesota. 4 IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above. BORROWER JOSTENS, INC. /s/ Gregory Lea By: /s/ Lee U. McGrath Gregory Lea Its: Vice President and Treasurer 5 Schedule A Pledged Property - ---------------- 4,171 shares of Class A common stock of Jostens, Inc. 6 Exhibit A FORM OF PROMISSORY NOTE $ May __, 2000 FOR VALUE RECEIVED, the undersigned (the "Borrower") promises to pay, on or before ______________ to the order of Jostens, Inc. or any successor thereto (the "Lender"), at such place as the Lender shall designate, the principal sum shown above, together with interest from the date hereof on the principal balance outstanding under this Note as provided hereinafter and in the Loan and Pledge Agreement dated the date hereof between the Lender and the Borrower (the "Loan and Pledge Agreement"). This Note is subject to the terms of the Jostens, Inc. 2000 Stock Loan Plan (the "Plan") and is secured by the Loan and Pledge Agreement and has been delivered by the Borrower pursuant to such Agreement. The holder of this Note is entitled to the benefits of the Loan and Pledge Agreement and may enforce the agreements of the Borrower herein and therein and exercise the remedies provided for hereby and thereby or otherwise in respect of this Note. Except as set forth below, from the date hereof interest shall accrue on the outstanding principal amount hereof at the rate set forth in the Plan. Interest shall be compounded quarterly during the term of this Note; provided however, that the Borrower shall be entitled instead to pay such quarterly interest in cash to the Lender. Payments of both principal and interest hereunder shall be made in lawful money of the United States of America. This Note may be prepaid, in whole or in part, at any time without premium or penalty. If an Event of Default (as that term is defined in the Loan and Pledge Agreement) shall occur, all principal and accrued but unpaid interest payable under this Note shall accelerate and become immediately due and payable without any presentment, demand, protest, or other notice of any kind and, until repaid in full, all amounts due hereunder, including without limitation interest due hereunder, shall bear interest at an annual rate equal to the lower of (A) two percent (2%) higher than the rate calculated pursuant to the calculation set forth above and (B) the highest rate, if any, permitted at law. If legal action is necessary to collect any amount due hereunder, Borrower shall be liable for the payment of reasonable attorney's fees and the costs of Lender incurred to others in connection with such collection. The Borrower hereby agrees to be personally liable for payment of this Note. 7 This Note is to be governed by and construed in accordance with the laws of the State of Minnesota. In any action brought under or arising out of this Note, the undersigned hereby consents to the jurisdiction of any competent court within the State of Minnesota and consents to service of process by any means authorized by Minnesota law. BORROWER ______________________________ Name: 8 Exhibit B FORM OF PROXY The undersigned hereby revokes any previous or contemporaneous proxies and appoints _______________ as attorney and proxy of the undersigned to cause notice to be given with respect to and to attend any and all meetings of shareholders of Jostens, Inc., a Minnesota corporation (the "Company"), to vote all shares of capital stock of the Company owned by the undersigned and pledged to the Company (the "Pledged Shares") pursuant to the Loan and Pledge Agreement dated May 10, 2000 between the Company and the undersigned (the "Loan and Pledge Agreement"), and to represent and otherwise to act for the undersigned in the same manner and with the same effect as if the undersigned were personally present. This proxy shall become effective immediately, without further action by the undersigned, upon an Event of Default under the Loan and Pledge Agreement occurs, and shall remain in effect until such Event of Default shall be remedied by the undersigned. This proxy shall be deemed to be a proxy coupled with an interest and is irrevocable and has been granted pursuant to Section 2.3 of the Loan and Pledge Agreement. The undersigned authorizes such attorney and proxy to substitute any other person to act hereunder, to revoke any substitution and to file this proxy (immediately upon its becoming effective as set forth above) and any substitution or revocation with the Secretary of the Company. Dated: May __, 2000 By: ________________________ 9 EX-10.24 21 0021.txt MANAGEMENT STOCK INCENTIVE PLAN EXHIBIT 10.24 JOSTENS, INC. STOCK INCENTIVE PLAN l. Establishment and Purpose of the Plan. This Management Stock ------------------------------------- Incentive Plan (the "Plan") is established by Jostens, Inc., a Minnesota corporation (the "Company"), as of May 10, 2000. The Plan is designed to enable the Company to attract, retain and motivate directors, members of the management and certain other officers and key employees of the Company, and its subsidiaries, by providing for or increasing their proprietary interest in the Company. The Plan provides for the grant of options ("Options") that qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as Options that do not so qualify ("Non-Qualified Options"), for the grant of stock appreciation rights ("Stock Appreciation Rights") and for the sale or grant of restricted stock ("Restricted Stock"). 2. Stock Subject to Plan. The number of shares of stock that may be --------------------- subject to Options or Stock Appreciation Rights granted hereunder plus the number of shares of stock that may be granted or sold as Restricted Stock hereunder shall not in the aggregate exceed 676,907 shares of the Company's Class A Common Stock (the "Shares"), subject to adjustment under Section 13 hereof; provided further that the number of Shares that a Participant (as hereinafter defined) may receive pursuant to the Plan shall in no event exceed 300,000 in any year. The Shares that may be subject to Options granted and Restricted Stock sold or granted under the Plan may be authorized and unissued Shares or Shares reacquired by the Company and held as treasury stock. Shares that are subject to the unexercised portions of any Options that expire, terminate or are canceled, and Shares that are subject to any Stock Appreciation Rights that expire, terminate or are canceled, and Shares of Restricted Stock that are reacquired by the Company pursuant to the restrictions thereon, shall again be available for the grant of Options or Stock Appreciation Rights and the sale or grant of Restricted Stock under the Plan. If a Stock Appreciation Right is exercised, any Option or portion thereof that is surrendered in connection with such exercise shall terminate and the Shares theretofore subject to the Option or portion thereof shall not be available for further use under the Plan. 3. Shares Subject to Articles of Incorporation. All Shares issuable ------------------------------------------- under Options or Stock Appreciation Rights and all Shares of Restricted Stock sold or granted pursuant to this Plan shall be subject to the terms and restrictions contained in the Articles of Incorporation of the Company. A copy of the Articles of Incorporation shall be delivered to the recipient of an Option, Stock Appreciation Right or Restricted Stock at the time of grant or issuance. 4. Administration of the Plan. The Plan shall be administered by a -------------------------- committee (the "Committee") appointed by the Board of Directors (the "Board") of the Company. If no persons are designated by the Board to serve on the Committee, the Plan shall be administered by the Board and all references herein to the Committee shall refer to the Board. The Board shall have the discretion to add, remove or replace members of the Committee, and shall have the sole authority to fill vacancies on the Committee. 1 All actions of the Committee shall be authorized by a majority vote thereof at a duly called meeting. The Committee shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and the agreements and other instruments evidencing Options and Stock Appreciation Rights granted and Restricted Stock sold or granted under the Plan, and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be final and conclusive upon the Participants, as hereinafter defined. Notwithstanding the foregoing, any dispute arising under any Agreement (as defined below) shall be resolved pursuant to the dispute resolution mechanism set forth in such Agreement. Subject to the express provisions of the Plan, the Committee shall determine the number of Shares subject to grants or sales and the terms thereof, including the provisions relating to the exercisability of Options and Stock Appreciation Rights, lapse and non-lapse restrictions upon the Shares obtained or obtainable under the Plan and the termination and/or forfeiture of Options and Stock Appreciation Rights and Restricted Stock under the Plan. The terms upon which Options and Stock Appreciation Rights are granted and Restricted Stock is sold or granted shall be evidenced by a written agreement, executed by the Company and the Participant (each, an "Agreement"), containing such terms and conditions as may be approved by the Committee; provided that such terms and conditions are not inconsistent with the express conditions of the Plan. 5. Eligibility. Persons who shall be eligible for grants of Options ----------- or Stock Appreciation Rights or sales or grants of Restricted Stock hereunder shall be those directors, officers and employees of the Company or a subsidiary of the Company who are members of a select group of directors, management and other key employees that the Committee may from time to time designate to participate under the Plan ("Participants") through grants of Non-Qualified Options, Incentive Stock Options and, if applicable, Stock Appreciation Rights, and/or through sales or grants of Restricted Stock. 6. Terms and Conditions of Options. No Incentive Stock Option shall ------------------------------- be granted for a term of more than ten years and no Non-Qualified Option shall be granted for a term of more than ten (10) years and thirty (30) days. Options may, in the discretion of the Committee, be granted with associated Stock Appreciation Rights or be amended so as to provide for associated Stock Appreciation Rights. The Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee as long as such terms, conditions and provisions are not inconsistent with the Plan. The Committee shall designate as such those Options intended to be eligible to qualify and be treated as Incentive Stock Options and, correspondingly, those Options not intended to be eligible to qualify and be treated as Incentive Stock Options. 7. Exercise Price of Options. The exercise price for each Non- ------------------------- Qualified Option granted hereunder shall be set forth in the Agreement. For so long as required under Section 422 of the Code and the regulations promulgated thereunder (or any successor statute or rules), the exercise price of any Option intended to be eligible to qualify and be treated as an Incentive Stock Option shall not be less than the fair market value of the Shares on the date such Incentive 2 Stock Option is granted, except that if such Incentive Stock Option is granted to a Participant who on the date of grant is treated under Section 424(d) of the Code as owning stock (not including stock purchasable under outstanding options) possessing more than ten percent of the total combined voting power of all classes of the Company's stock, the exercise price shall not be less than one hundred ten percent (110%) of the fair market value of the Shares on the date such Incentive Stock Option is granted. The fair market value of Shares for the purposes of this Plan shall be determined by the Board, whose valuation shall be binding upon each Optionee. Payment for Shares purchased upon exercise of any Option granted hereunder shall be in cash at the time of exercise, except that, if either the Agreement so provides or the Committee so permits, and if the Company is not then prohibited from doing so, such payment may be made in whole or in part with surrendered or withheld shares of stock of the same class as the stock then subject to the Option. The Committee also may on an individual basis permit payment or agree to permit payment by such other alternative means as may be lawful, including by delivery of an executed exercise notice together with irrevocable instructions to a broker promptly to deliver to the Company the amount of sale or loan proceeds required to pay the exercise price. 8. Non-transferability. Unless provided otherwise in the Agreement, ------------------- any Option granted under this Plan shall by its terms be nontransferable by the Participant other than by will or the laws of descent and distribution (in which case such descendant or beneficiary shall be subject to all terms of the Plan applicable to Participants) and is exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. 9. Incentive Stock Options. The provisions of the Plan are intended ----------------------- to satisfy the requirements set forth in Section 422 of the Code and the regulations promulgated thereunder (including the aggregate fair market value limits set forth in Section 422(d) of the Code) with respect to Incentive Stock Options granted under the Plan. For so long as required under Section 422 of the Code and the regulations promulgated thereunder (or any successor statute or rules), during the term of the Plan, the aggregate fair market value of the Shares with respect to which Incentive Stock Options are first exercisable by a Participant during any calendar year shall not exceed $100,000. For the purpose of this Section 9, the fair market value of the Shares shall be determined at the time the Incentive Stock Option is granted. 10. Stock Appreciation Rights. The Committee may, under such terms ------------------------- and conditions as it deems appropriate, grant to any Participant selected by the Committee Stock Appreciation Rights, which may or may not be associated with Options. Upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive payment of an amount equal to the excess of the fair market value, as defined by the Committee, of the underlying Shares on the date of exercise over the Stock Appreciation Right's exercise price. Such payment may be made in additional Shares valued at their fair market value on the date of exercise or in cash, or partly in Shares and partly in cash, as the Committee may designate. The Committee may require that any Stock Appreciation Right shall be subject to the condition that the Committee may at any time in its absolute discretion not allow the exercise of such Stock Appreciation Right. 3 11. Restricted Stock. The Committee may sell or grant Restricted ---------------- Stock under the Plan (either independently or in connection with the exercise of Options or Stock Appreciation Rights under the Plan) to Participants selected by the Committee. The Committee shall in each case determine the number of Shares of Restricted Stock to be sold or granted, the price at which such Shares are sold, if applicable, and the terms and duration of the restrictions to be imposed upon those Shares. 12. Investment Representation. Each Agreement may contain an ------------------------- agreement that, upon demand by the Committee for such a representation, the optionee shall deliver to the Committee at the time of any exercise of an Option a written representation that the Shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any Shares issued upon exercise of an Option and prior to the expiration of the option period shall be a condition precedent to the right of the optionee or such other person to purchase any Shares. 13. Adjustments; Acceleration. In the event of any one or more ------------------------- reorganizations, recapitalizations, stock splits, reverse stock splits, stock dividends, extraordinary dividends, or distributions, or similar events, an appropriate adjustment shall be made in the number, exercise or sale price and/or type of shares or securities for which Options or Stock Appreciation Rights may thereafter be granted and Restricted Stock may thereafter be sold or granted under the Plan. The Committee also shall designate the appropriate changes that shall be made in Options or Stock Appreciation Rights, or rights to purchase Restricted Stock under the Plan, so as to preserve the value of any such Options, Stock Appreciation Rights or Restricted Stock. Any such adjustment in outstanding Options shall be made without changing the aggregate exercise price applicable to the unexercised portions of such Options. Any such adjustments in outstanding rights to purchase Restricted Stock shall be made without changing the aggregate purchase price of such Restricted Stock. The Board or the Committee may at any time accelerate all or any portion of unexercisable Options granted to any holder or holders under the Plan without the consent of the affected holder or holders of such Options. 14. Duration of Plan. Options may not be granted and Restricted ---------------- Stock may not be sold or granted under the Plan after May 10, 2010. 15. Amendment and Termination of the Plan. The Board may at any time ------------------------------------- amend, suspend or terminate the Plan. The Committee may amend the Plan or any Agreement issued hereunder to the extent necessary for any Option or Stock Appreciation Right granted or Restricted Stock sold or granted under the Plan to comply with applicable tax or securities laws. If the Board determines that the approval of such action by the stockholders of the Company is advisable or necessary for compliance with applicable securities law, tax law, stock exchange requirement or other applicable federal or state law, no such action of the Board or the Committee shall be permitted unless taken with or ratified by such approval. No Option or Stock Appreciation Right may be granted or Restricted Stock sold or granted during any suspension of the Plan or after the termination of the Plan. No amendment, suspension or termination of the Plan or of any Agreement issued hereunder shall, without the consent of the affected holder of such Option or Stock Appreciation Right or Restricted Stock, 4 adversely alter or otherwise impair any rights or obligations in any Option or Stock Appreciation Right or Restricted Stock theretofore granted or sold to such holder under the Plan. 16. Nature of Plan. This Plan is intended to qualify as a -------------- compensatory benefit plan within the meaning of Rule 701 under the Securities Act of 1933, as amended. This Plan is intended to constitute an unfunded arrangement for a select group of directors, management and other key employees. 17. Cancellation of Options. Any Option granted under the Plan may ----------------------- be canceled at any time with the consent of the holder and a new Option may be granted to such holder in lieu thereof. 18. Withholding Taxes. Whenever Shares are to be issued with respect ----------------- to the exercise of Options or amounts are to be paid or income earned with respect to Stock Appreciation Rights or Restricted Stock under the Plan, the Committee in its discretion may require the Participant to remit to the Company, prior to the delivery of any certificate or certificates for such Shares or the payment of any such amounts, all or any part of the amount determined in the Committee's discretion to be sufficient to satisfy federal, state and local withholding tax obligations (the "Withholding Obligation") that the Company or its counsel determines may arise with respect to such exercise, issuance or payment. Pursuant to a procedure established by the Committee or as set forth in the Agreement, the Participant may (i) request the Company to withhold delivery of a sufficient number of Shares or a sufficient amount of the Participant's compensation or (ii) deliver a sufficient number of previously- issued Shares, to satisfy the Withholding Obligation, which Shares have been owned by the Optionee for at least six (6) months with an aggregate Fair Market Value equal to the minimum statutory amount of the federal, state, local and other taxes required to be withheld. 5 EX-10.25 22 0022.txt JOSTENS, INC. 2000 STOCK LOAN PLAN Exhibit 10.25 JOSTENS, INC. 2000 STOCK LOAN PLAN -------------------- 1. Purpose. The Jostens, Inc. Stock Loan Plan (the "Plan") has been ------- established by Jostens, Inc. (the "Company") to secure for the Company and its shareholders the benefits arising from capital ownership, and thereby entrepreneurial risk, by certain senior employees of the Company and its direct and indirect Subsidiaries (each a "Subsidiary" and, collectively, the "Subsidiaries") who are and will be responsible for the future growth and continued success of the Company or its Subsidiaries. The Plan will provide a means whereby such individuals, pursuant to loans made under the Plan, may finance the purchase of shares (the "Purchased Shares") of the Company's Class A common stock, par value $0.33? per share ("Class A Stock") or refinance the purchase of shares (the "Retained Shares") of the Company's common stock which will be retained by such individuals in connection with the merger (the "Merger") of Saturn Acquisition Corporation with and into the Company. 2. Administration. The authority to manage and control the operation and -------------- administration of the Plan shall be vested in a Committee (the "Committee") consisting of two or more non-employee members of the Board of Directors of the Company (the "Board") who are appointed by, and may be removed by, the Board. Any interpretation of the Plan by the Committee and any decision made by the Committee on any matter within its discretion is final and binding on all persons. No member of the Committee shall be liable for any action or determination made with respect to the Plan. If the Board does not appoint a Committee, the operation and administration of the Plan (and any other rights, duties or obligations of the Committee described herein) shall be vested in the Board. 3. Participation. The Committee shall determine and designate the ------------- employees who will participate in the Plan ("Participants") from among members of management (including employees who are also directors) (a) who borrowed funds pursuant to the Facility and Guaranty Agreement between the Company and The First National Bank of Chicago (the "Prior Loan Program") in order to purchase Retained Shares or (b) who desire to acquire Purchased Shares in connection with the Merger or in the future as determined by the Committee. The initial Participants and the amount of each Loan (as defined below) are set forth in Schedule A attached hereto. ---------- 4. Purchase Loans. The Company may make a loan (a "Loan") to a -------------- Participant in an amount that shall not exceed (a) in the case of a Loan for Retained Shares, one hundred percent (100%) of the difference between the Participant's after-tax proceeds received in the Merger and the amount of outstanding indebtedness of such Participant under the Prior Loan Program or (b) in the case of a Loan for Purchased Shares, the purchase price of the Purchased Shares, subject to the following: (a) Each Loan shall be evidenced by a promissory note in such form as the Committee shall approve; provided, that the note shall (i) provide full recourse to the Participant, (ii) provide for interest at a rate for each calendar year or part thereof equal to the lesser of (A) the interest accrued under the Company's revolving credit facility during such period divided by the average indebtedness outstanding under the Company's revolving credit facility during such period (based on the daily balances of such facility) and (B) the highest rate permitted by law, (iii) be secured by a Loan and Pledge Agreement (described in subsection 5.1), and (iv) comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. (b) Subject to the prepayment provisions of subsection 5.2, the acceleration provisions set forth in paragraphs (c) and (d) below and the extension provision set forth below, each Loan shall mature on May 10, 2005 (the "Maturity Date"), at which time all unpaid principal and interest shall be payable. In the event that, prior to the Maturity Date, the Lender has not completed an "Initial Public Offering" or an "Approved Sale" (as such terms are defined in Borrower's Stock Option Agreement pursuant to Lender's Stock Incentive Plan), and if at least 90% of the cumulative EBITDA target for 2003 set forth on Exhibit 2 to Borrower's Stock Option Agreement has been achieved, Borrower shall be entitled to extend the term of the Loan until May 10, 2007, and such extension shall be effective upon written notice to Lender. (c) The principal and interest outstanding under a Loan of a Participant who retires on or after age 65 or whose employment with the Company and its affiliates terminates by reason of his death or Permanent Disability (as defined below) or is terminated for a reason other than Cause (as defined below), or who terminates his employment with the Company for Good Reason (as defined below) will not become due and payable until the Maturity Date of the Loan. All principal and interest outstanding under a Loan with respect to any other Participant will automatically become due and payable on the date the Participant's employment with the Company and its affiliates terminates. "Permanent Disability" means the failure by the Participant to render full-time employment services to the Company for an aggregate of sixty (60) business days in any continuous period of six (6) months on account of physical or mental disability. (i) "Cause," when used in connection with the termination of employment of the Participant, means (A) the Participant's gross misconduct; (B) the Participant's willful and continued failure to perform substantially his or her duties with the Company (other than any such failure relating to changes in the Participant's duties that constitute Good Reason (as defined below) after a demand for substantial performance is delivered to the Participant by the Board which specifically identifies the manner in which the Board believes that the Participant has not substantially performed his or her duties and provides for a reasonable period of time within which the Participant may take corrective measures, or (C) the Participant's conviction (including a plea of nolo contendere) ---- ---------- of willfully engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs the Participant's ability to perform substantially his or her duties with the Company. (ii) "Good Reason" means, unless the Participant shall have consented in writing thereto, any of the following: (A) a change in the Participant's title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect at the effective time of the Merger (other than any change directly attributable to the fact that the Company is no longer publicly owned); provided, however, that Good 2 Reason does not include a change in the Participant's title(s), status, position(s), authority, duties or responsibilities caused by an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice of such change given by Participant, (B) a reduction by the Company in the Participant's base pay, or an adverse change in the form or timing of the payment thereof, as in effect at the effective time of the Merger or as thereafter increased or by a reduction in the Participant's target annual incentive award as in effect at the effective time of the Merger or as thereafter increased, (C) the failure by the Company to cover the Participant under benefit plans that, in the aggregate, provide substantially similar benefits to the Participant and/or his or her family and dependents as a substantially similar total cost to the Participant (e.g., premiums, deductibles, co-pays, out-of-pocket maximums, required contributions, taxes and the like) relative to the benefits and total costs under the benefit plans in which the Participant (and/or his or her family or dependents) is participating at any time during the 90-day period immediately preceding the effective time of the Merger, (D) the Company's requiring the Participant to be based more than 30 miles from where his or her office is located immediately prior to the effective time of the Merger, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which the Participant undertook on behalf of the Company during the 180-day period immediately preceding the effective time of the Merger, (E) any purported termination by the Company of the Participant's employment which is not properly effected pursuant to the terms of the Company's Executive Change in Control Severance Pay Plan or (F) any refusal by the Company to continue to allow the Participant to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the effective time of the Merger, the Participant was not expressly prohibited by the Company from attending to or engaging in. (d) The Company has the right to accelerate the principal and interest due under the Loan if any of the following events occurs: (i) the Participant defaults in the payment of any amount due under the Loan and the default remains uncured for a period of ten (10) business days after the date the Company gives the Participant notice of the default, (ii) the Participant defaults under or breaches any other covenant, representation or warranty under the Note, the Loan and Pledge Agreement or any other agreement under the Plan and the default or breach remains uncured for a period of thirty (30) days after the date the Company gives the Participant notice of his default or breach, (iii) the Participant applies for or consents to the appointment of a receiver, trustee, custodian or liquidator of any of his property, admits in writing his inability to pay his debts as they mature, makes a general assignment as a bankrupt or insolvent or is the subject of an order for relief under Chapter 7 or Chapter 13 of the United States Bankruptcy Code or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement with creditors to take advantage of any bankruptcy, insolvency, readjustment or debt or liquidation law or statute, or an answer admitting the material allegations of a petition filed against him in any proceeding under any such law, or (iv) any court of competent jurisdiction enters an order, judgment or decree, without the application, approval or consent of the Participant, approving a petition appointing a receiver, trustee, custodian or liquidator of all or a substantial part of the assets of the Participant, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days. 3 (e) If a Participant fails to make any payment required under his Loan when due, the Company may foreclose on the Pledged Property (as defined in subsection 5.1) and may otherwise enforce its rights under the Plan and any Note or other agreement entered into under the Plan. (f) Interest shall be compounded quarterly during the term of a Note; provided however, that a Participant shall be entitled instead to pay such quarterly interest in cash to the Company. 5. Pledge of Shares. ---------------- 5.1 Loan and Pledge Agreement. Each Participant shall enter into an ------------------------- agreement with the Company in such form as the Committee shall approve (the "Loan and Pledge Agreement") to pledge to the Company all of the Retained Shares or Purchased Shares, as applicable (the "Pledged Shares"), any non- cash dividends or distributions payable with respect to such shares and any securities or other property (other than cash) payable in respect of or in exchange for such shares pursuant to any merger, reorganization, consolidation, recapitalization, exchange offer or other similar corporate transaction ("Related Property") and all proceeds thereof (collectively, the "Pledged Property") to secure repayment of the Loan. Notwithstanding the foregoing, in the event that the Committee determines that a Participant would recognize a net increase in taxable income from the receipt of any such dividends or distributions, the Committee may in its discretion permit the Participant to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (a) Certificates representing shares of stock that consist of Pledged Property shall bear the following legend in addition to any other legends that the Company may deem appropriate: THIS CERTIFICATE AND THE SHARES OF STOCK AND ALL RIGHTS HEREBY REPRESENTED ARE SUBJECT TO THE TERMS, CONDITIONS AND RESTRICTIONS SET FORTH IN THE JOSTENS, INC. 2000 STOCK LOAN PLAN AND ANY AGREEMENT UNDER THAT PLAN AND THE LOAN AND PLEDGE AGREEMENT BETWEEN THE OWNER OF SUCH SHARES AND JOSTENS, INC. AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF SUCH PLAN AND AGREEMENTS, COPIES OF WHICH ARE ON FILE AT THE OFFICES OF JOSTENS, INC. (b) Any cash received upon an exchange or conversion of Pledged Property shall be applied to reduce the outstanding Loan balance (with accrued but unpaid interest being reduced first). Any cash in excess of that applied against the outstanding Loan balance shall be paid to the Participant. 4 5.2. Prepayments of Loan and Releases from Pledge. -------------------------------------------- (a) A Participant may make voluntary prepayments on the Loan at any time without penalty in such minimum amounts as the Committee may determine, which shall be applied first to accrued but unpaid interest, and then to principal. (b) In the event that any cash dividend or distribution is paid by the Company with respect to any Pledged Property relating to the Loan, the Participant shall make a mandatory prepayment with respect to the Loan equal to the amount of such dividend or distribution, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. Notwithstanding the foregoing, in the event that the Committee determines that a Participant would recognize a net increase in taxable income from the receipt of any such dividends or distributions after giving effect to any deduction for the related payment under the Loan, the Committee may in its discretion permit the Participant to retain a portion of the dividends or distributions so as to be able to pay all or part of his related increase in taxes. (c) In the event that the Participant at any time desires to obtain a release of all or part of any Pledged Property securing the Loan, whether for the purpose of selling such Pledged Property or otherwise, as a condition to the release, the Participant shall make arrangements satisfactory to the Company for the prepayment by the Participant of an amount equal to the higher of (i) a percentage of the outstanding Loan balance as of the date of the release equal to the percentage in value of the Pledged Property sought to be released and (ii) a sufficient portion of the outstanding Loan balance so that the amount of the outstanding Loan balance remaining unpaid after giving effect to such payment does not exceed one hundred percent (100%) of the fair market value of the Pledged Property determined in good faith by the Committee that will remain subject to the Loan and Pledge Agreement after giving effect to the release, which shall be applied first to accrued but unpaid interest under the Loan, then to principal. (d) In the event of any prepayment of principal under the Loan, the Company will release from the pledge under the Loan and Pledge Agreement a portion of the Pledged Property equal to the percentage of the outstanding principal balance so paid, provided, that (i) the Company will retain Pledged Property with an aggregate fair market value determined in good faith by the Committee equal to at least 100% of the outstanding Loan balance as of the date of the prepayment (after giving effect to the prepayment) and (ii) to the extent any of the released Pledged Property is subject to restriction under section 6, the Company will retain custody of the property until the end of the Restricted Period (as defined below). 6. Restrictions on Shares. From the date of the purchase of the ---------------------- Purchased Shares, and, with respect to the Retained Shares, from the date of the Merger, until the principal of the Loan and all unpaid interest thereon is repaid in full (the "Restricted Period"): (a) Retained Shares and Purchased Shares may not be sold, assigned, transferred, pledged or otherwise encumbered; 5 (b) the certificate representing such shares shall be registered in the name of the Participant and shall be deposited with the Company, together with a stock power (in such form as the Company may determine); and (c) the Participant shall be treated as a stockholder with respect to the Retained Shares and Purchased Shares, including the right to vote such shares. 7. Transfers at Termination of Restricted Period. At the end of the --------------------------------------------- Restricted Period, the certificate representing such shares shall be transferred to the Participant (or the Participant's legal representative or heir) free of all restrictions under this Agreement. 8. General. ------- 8.1. Effective Date and Duration. The Plan will become effective --------------------------- immediately prior to the closing of the Merger (the "Effective Date"). 8.2. Agreements Evidencing Participation. At the time of his ----------------------------------- designation as a Participant, the Committee may require a Participant to enter into one or more agreements with the Company in a form specified by the Committee agreeing to the terms and conditions of the Plan and to such additional terms and conditions, not inconsistent with the Plan, as the Committee may in its discretion prescribe. 8.3. Nontransferability. No right provided under the Plan to any ------------------ Participant may be transferred pledged or assigned by the Participant (except, in the event of the Participant's death, by will or the laws of descent and distribution), and the Company shall not be required to recognize any attempted assignment of such rights by any Participant. During a Participant's lifetime, purchases may be made only by him or by his guardian or legal representative. 8.4. Compliance with Applicable Law and Withholding. The Company ---------------------------------------------- shall have the right to require a Participant to pay to the Company the amount of any taxes that are required to be withheld with respect to a Participant's participation in the Plan, including any such taxes required to be withheld in connection with (i) the purchase by the Participant of any Purchased Shares, (ii) any dividend or distribution in respect of Retained Shares or Purchased Shares or any Related Property, (iii) any repayment of a Loan, (iv) the lapse of the Restricted Period, (v) any release of Pledged Property or (vi) any sale of Retained Shares or Purchased Shares or any Related Property. To the extent permitted by the Committee, a Participant may elect to have any distribution otherwise required to be made under the Plan to be withheld to fulfill any tax withholding obligation. 8.5. No Employment Rights. The Plan does not constitute a contract of -------------------- employment, and participation in the Plan will not give any Participant the right to be retained in the employ of the Company or an affiliate or the right to continue as an officer or director of the Company or any right or claim to any benefit under the Plan unless such right or claim has specifically accrued under the terms of the Plan or the terms of any award under the Plan. 6 8.6. Governing Law. The Plan and all determinations made and actions ------------- taken thereunder, to the extent not otherwise governed by the laws of the United States, shall be governed by the internal laws of the State of Minnesota and construed accordingly. 7 SCHEDULE A Initial Participants Loan Amount - -------------------- ----------- Robert C. Buhrmaster $ 1,010,025 William Priesmeyer $ 368,499 Carl Blowers $ 250,000 Michael Bailey $ 291,158 Gregory Lea $ 105,318 8 JOSTENS, INC. MANAGEMENT SHAREHOLDER BONUS PLAN This Management Shareholder Bonus Plan is established by Jostens, Inc., a Minnesota corporation (the "Company"), as of May 10, 2000. This plan is designed to motivate certain members of the management of the Company (each, an "Executive") by providing incentives for the achievement of Company performance targets. At the end of each of the three fiscal years beginning with the fiscal year ending December 31, 2000, each Executive will be entitled to an annual performance-based cash bonus equal to such Executive's Standard Bonus (set forth in Exhibit 1 hereto) multiplied by the Applicable Corporate Performance Percentage (set forth below). The Applicable Corporate Performance Percentage shall be determined by the Percent of Target EBITDA Achieved per the following: ------------------------------------------------------------------ Percent of Target Applicable Corporate EBITDA Achieved Performance Percentage ------------------------------------------------------------------ Less than 85% 0% ------------------------------------------------------------------- 85% or above, but below 90% 25% ------------------------------------------------------------------- 90% or above, but below 95% 50% ------------------------------------------------------------------- 95% or above, but below 100% 75% ------------------------------------------------------------------- 100% or above, but below 105% 100% ------------------------------------------------------------------- 105% or above, but below 110% 125% ------------------------------------------------------------------- 110% or above, but below 115% 150% ------------------------------------------------------------------- 115% or above, but below 120% 175% ------------------------------------------------------------------- 120% or above 200% ------------------------------------------------------------------- EBITDA defined in Schedule A attached. EBITDA Targets per Schedule B attached. SCHEDULE A ---------- Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as consolidated net income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP consistently applied plus (minus) the following amounts, to the extent such amounts are ---- otherwise taken into account in determining such consolidated net income (loss) (prior to adjustment): 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating such consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. In determining whether and to what extent EBITDA targets have been met for a period, the aggregate amount of compensation payable to employees as a result of meeting such targets will be deducted from EBITDA to the extent not otherwise included in the calculation of consolidated net income (loss) for such period. SCHEDULE B ---------- EBITDA Targets EBITDA Target Year Ending December 31, ------------- ------------------------ (In Millions of Dollars) 2000 $150.85 2001 * 2002 * * to be determined by the Board of Directors in accordance with the Company's annual budget EXHIBIT A --------- Executive Standard Bonus - --------- -------------- Robert Buhrmaster 60% of base salary William Priesmeyer ** Michael Bailey ** Carl Blowers ** Gregory Lea ** ** To be determined by the Board of Directors of the Company based upon the recommendation of the Chief Executive Officer of the Company and subject to approval by Investcorp Bank, E.C. and its affiliates EX-10.26 23 0023.txt MANAGEMENT SHAREHOLDER BONUS PLAN EXHIBIT 10.26 JOSTENS, INC. MANAGEMENT SHAREHOLDER BONUS PLAN This Management Shareholder Bonus Plan is established by Jostens, Inc., a Minnesota corporation (the "Company"), as of May 10, 2000. This plan is designed to motivate certain members of the management of the Company (each, an "Executive") by providing incentives for the achievement of Company performance targets. At the end of each of the three fiscal years beginning with the fiscal year ending December 31, 2000, each Executive will be entitled to an annual performance-based cash bonus equal to such Executive's Standard Bonus (set forth in Exhibit 1 hereto) multiplied by the Applicable Corporate Performance Percentage (set forth below). The Applicable Corporate Performance Percentage shall be determined by the Percent of Target EBITDA Achieved per the following:
Percent of Target Applicable Corporate EBITDA Achieved Performance Percentage ------------------------------------------------------------ Less than 85% 0% ------------------------------------------------------------ 85% or above, but below 90% 25% ------------------------------------------------------------ 90% or above, but below 95% 50% ------------------------------------------------------------ 95% or above, but below 100% 75% ------------------------------------------------------------ 100% or above, but below 105% 100% ------------------------------------------------------------ 105% or above, but below 110% 125% ------------------------------------------------------------ 110% or above, but below 115% 150% ------------------------------------------------------------ 115% or above, but below 120% 175% ------------------------------------------------------------ 120% or above 200% ------------------------------------------------------------
EBITDA defined in Schedule A attached. EBITDA Targets per Schedule B attached. SCHEDULE A ---------- Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for a particular period is defined as consolidated net income (loss) of the Company and its subsidiaries as shown on the consolidated statement of income (loss) for such period prepared in accordance with U.S. GAAP consistently applied plus (minus) the following amounts, to the extent such amounts are ---- otherwise taken into account in determining such consolidated net income (loss) (prior to adjustment): 1. Any provision (benefit) for taxes, including franchise taxes, deducted (added) in calculating such consolidated net income (loss); 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); 3. Amortization expenses deducted in calculating such consolidated net income (loss); 4. Depreciation expense deducted in calculating such consolidated net income (loss); 5. Management fees paid to Investcorp to the extent recorded as an expense in calculating such consolidated net income (loss); 6. Any unusual losses (gains) deducted (added) in calculating such consolidated net income (loss). This adjustment is intended to exclude, in the calculation of EBITDA, the effects, if any, of any transactions outside of the Company's ordinary course of business as and to the extent determined to be appropriate in good faith by the Board The Board reserves the right to make other adjustments to EBITDA or the EBITDA targets as the Board determines in good faith are appropriate to take into account the effect of material transactions or events during the period, including without limitation acquisitions, divestitures, equity issuances and significant changes to capital expenditure plans. In determining whether and to what extent EBITDA targets have been met for a period, the aggregate amount of compensation payable to employees as a result of meeting such targets will be deducted from EBITDA to the extent not otherwise included in the calculation of consolidated net income (loss) for such period. SCHEDULE B ---------- EBITDA Targets EBITDA Target ------------- Year Ending December 31, (In Millions of Dollars) ------------------------ 2000 $150.85 2001 * 2002 * * to be determined by the Board of Directors in accordance with the Company's annual budget EXHIBIT A --------- Executive Standard Bonus - --------- ------------- Robert Buhrmaster 60% of base salary William Priesmeyer ** Michael Bailey ** Carl Blowers ** Gregory Lea ** ** To be determined by the Board of Directors of the Company based upon the recommendation of the Chief Executive Officer of the Company and subject to approval by Investcorp Bank, E.C. and its affiliates EX-10.27 24 0024.txt CREDIT AGREEMENT, DATED AS OF MAY 10, 2000 EXHIBIT 10.27 EXECUTION COPY ================================================================================ JOSTENS, INC. ____________________________________ CREDIT AGREEMENT dated as of May 10, 2000 ____________________________________ $645,000,000 Senior Secured Credit Facility ____________________________________ CHASE SECURITIES INC., DEUTSCHE BANK SECURITIES INC., and GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arrangers, BANKERS TRUST COMPANY, as Syndication Agent, GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent, and THE CHASE MANHATTAN BANK, as Administrative Agent ================================================================================ TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS................................................................ 2 1.1 Defined Terms............................................................... 2 1.2 Other Definitional Provisions............................................... 22 SECTION 2. TERM LOANS................................................................. 23 2.1 Term Loans.................................................................. 23 2.2 Repayment of Term Loans..................................................... 23 2.3 Use of Proceeds............................................................. 23 SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS........................... 23 3.1 Revolving Credit Commitments................................................ 23 3.2 Commitment Fee.............................................................. 24 3.3 Proceeds of Revolving Credit Loans.......................................... 24 3.4 Swing Line Commitment....................................................... 24 3.5 Issuance of Letters of Credit............................................... 25 3.6 Participating Interests..................................................... 26 3.7 Procedure for Opening Letters of Credit..................................... 26 3.8 Payments in Respect of Letters of Credit.................................... 26 3.9 Letter of Credit Fees....................................................... 27 3.10 Letter of Credit Reserves................................................... 27 3.11 Further Assurances.......................................................... 28 3.12 Obligations Absolute........................................................ 28 3.13 Assignments................................................................. 29 3.14 Participations.............................................................. 29 SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS..................................... 29 4.1 Procedure for Borrowing..................................................... 29 4.2 Conversion and Continuation Options......................................... 30 4.3 Changes of Commitment Amounts............................................... 30 4.4 Optional and Mandatory Prepayments; Repayments of Term Loans................ 31 4.5 Interest Rates and Payment Dates............................................ 35 4.6 Computation of Interest and Fees............................................ 35 4.7 Certain Fees................................................................ 35 4.8 Inability to Determine Interest Rate........................................ 36 4.9 Pro Rata Treatment and Payments............................................. 36 4.10 Illegality.................................................................. 38 4.11 Requirements of Law......................................................... 39 4.12 Indemnity................................................................... 41 4.13 Repayment of Loans; Evidence of Debt........................................ 41 4.14 Replacement of Lenders...................................................... 42 4.15 Appointment of the Company and Reliance on Representation of the Company.... 43 SECTION 5. REPRESENTATIONS AND WARRANTIES............................................. 43 5.1 Financial Condition......................................................... 43 5.2 No Change................................................................... 44 5.3 Existence; Compliance with Law.............................................. 44 5.4 Power; Authorization........................................................ 44 5.5 Enforceable Obligations..................................................... 45
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Page 5.6 No Legal Bar............................................................................ 45 5.7 No Material Litigation.................................................................. 45 5.8 Investment Company Act.................................................................. 45 5.9 Federal Regulation...................................................................... 46 5.10 No Default.............................................................................. 46 5.11 Taxes................................................................................... 46 5.12 Subsidiaries............................................................................ 46 5.13 Ownership of Property; Liens............................................................ 46 5.14 ERISA................................................................................... 47 5.15 Collateral Documents.................................................................... 47 5.16 Copyrights, Patents, Permits, Trademarks and Licenses................................... 48 5.17 Environmental Matters................................................................... 48 5.18 Accuracy and Completeness of Information................................................ 49 5.19 Year 2000............................................................................... 49 SECTION 6. CONDITIONS PRECEDENT................................................................... 50 6.1 Conditions to Initial Loans and Letters of Credit....................................... 50 6.2 Conditions to All Loans and Letters of Credit........................................... 53 SECTION 7. AFFIRMATIVE COVENANTS.................................................................. 54 7.1 Financial Statements.................................................................... 54 7.2 Certificates; Other Information......................................................... 55 7.3 Payment of Obligations.................................................................. 56 7.4 Conduct of Business and Maintenance of Existence........................................ 56 7.5 Maintenance of Property; Insurance...................................................... 56 7.6 Inspection of Property; Books and Records; Discussions.................................. 57 7.7 Notices................................................................................. 57 7.8 Environmental Laws...................................................................... 58 7.9 Additional Collateral................................................................... 59 7.10 Pledge of Certain Subsidiaries.......................................................... 60 SECTION 8. NEGATIVE COVENANTS..................................................................... 60 8.1 Indebtedness............................................................................ 60 8.2 Limitation on Liens..................................................................... 62 8.3 Limitation on Contingent Obligations.................................................... 64 8.4 Prohibition of Fundamental Changes...................................................... 65 8.5 Prohibition on Sale of Assets........................................................... 65 8.6 Limitation on Investments, Loans and Advances........................................... 66 8.7 Capital Expenditures.................................................................... 68 8.8 Interest Rate Agreements................................................................ 69 8.9 Debt to EBITDA........................................................................... 69 8.10 Interest Coverage....................................................................... 70 8.11 Limitation on Dividends................................................................. 71 8.12 Transactions with Affiliates............................................................ 72 8.13 Limitation on Changes in Fiscal Year.................................................... 73 8.14 Limitation on Lines of Business......................................................... 73 8.15 Amendments to Certain Documents......................................................... 73 8.16 Limitation on Prepayments and Amendments of Certain Debt................................ 73
-ii- SECTION 9. EVENTS OF DEFAULT...................................................................... 73 SECTION 10. THE ADMINISTRATIVE AGENT; THE SYNDICATION AGENT; THE DOCUMENTATION AGENT AND THE ISSUING LENDER........................................... 76 10.1 Appointment.......................................................................... 76 10.2 Delegation of Duties................................................................. 76 10.3 Exculpatory Provisions............................................................... 76 10.4 Reliance by Administrative Agent..................................................... 76 10.5 Notice of Default.................................................................... 77 10.6 Non-Reliance on Administrative Agent, Syndication Agent, Documentation Agent and Other Lenders............................................................ 77 10.7 Indemnification...................................................................... 78 10.8 The Administrative Agent in its Individual Capacity.................................. 78 10.9 Successor Administrative Agent....................................................... 78 10.10 Issuing Lender as Issuer of Letters of Credit........................................ 78 10.11 Administrative Agent as Joint and Several Creditor................................... 78 SECTION 11. MISCELLANEOUS........................................................................ 79 11.1 Amendments and Waivers............................................................... 79 11.2 Notices.............................................................................. 80 11.3 No Waiver; Cumulative Remedies....................................................... 81 11.4 Survival of Representations and Warranties........................................... 81 11.5 Payment of Expenses and Taxes........................................................ 81 11.6 Successors and Assigns; Participations and Assignments............................... 83 11.7 Adjustments; Set-off................................................................. 85 11.8 Counterparts......................................................................... 86 11.9 Governing Law; No Third Party Rights................................................. 86 11.10 Submission to Jurisdiction; Waivers.................................................. 86 11.11 Releases............................................................................. 87 11.12 Interest............................................................................. 87 11.13 Special Indemnification.............................................................. 88 11.14 Permitted Payments and Transactions.................................................. 88
SCHEDULES Schedule I List of Addresses for Notices; Lending Offices; Commitment Amounts Schedule II Pricing Grid Schedule 5.7 Litigation Schedule 5.12 Subsidiaries Schedule 5.13 Fee and Leased Properties Schedule 5.15(b) UCC Filing Offices Schedule 5.16 Trademarks and Copyrights Schedule 8.1(a) Existing Indebtedness Schedule 8.2(h) Existing Liens Schedule 8.3(d) Existing Contingent Obligations EXHIBITS EXHIBIT A Form of Revolving Credit Note EXHIBIT B-1 Form of Tranche A Term Note EXHIBIT B-2 Form of Tranche B Term Note -iii- EXHIBIT C Form of Swing Line Note EXHIBIT D Form of Assignment and Acceptance EXHIBIT E Form of Collateral Agreement EXHIBIT F Form of Subsidiary Guarantee EXHIBIT G Form of L/C Participation Certificate EXHIBIT H Form of Swing Line Loan Participation Certificate EXHIBIT I Form of Subsection 4.11(d)(2) Certificate EXHIBIT J-1 Form of Opinion of Gibson, Dunn & Crutcher LLP EXHIBIT J-2 Form of Opinion of General Counsel to the Company EXHIBIT K-1 Form of Borrower Closing Certificate EXHIBIT K-2 Form of Credit Parties Closing Certificate -iv- CREDIT AGREEMENT, dated as of May 10, 2000, among JOSTENS, INC., a Minnesota corporation (the "Company"), AMERICAN YEARBOOK COMPANY, INC., a Kansas ------- corporation and Subsidiary of the Company, as joint and several borrowers hereunder (together with the Company, the "Borrowers" and, individually, a --------- "Borrower"), the several lenders from time to time parties hereto (the -------- "Lenders"), CHASE SECURITIES INC., DEUTSCHE BANK SECURITIES INC. and GOLDMAN ------- SACHS CREDIT PARTNERS L.P., as Co-Lead Arrangers (in such capacities, the "Co- -- Lead Arrangers"), BANKERS TRUST COMPANY, as syndication agent (in such capacity, - -------------- the "Syndication Agent"), GOLDMAN SACHS CREDIT PARTNERS L.P., as documentation ----------------- agent (in such capacity, the "Documentation Agent"), and THE CHASE MANHATTAN ------------------- BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). -------------------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Agreement and Plan of Merger, as amended, between the Company and Saturn Acquisition Corporation, a Minnesota corporation ("MergerCo"), dated as of December 27, 1999 (the "Merger Agreement"), MergerCo -------- ---------------- will merge with and into the Company and consummate a recapitalization transaction (the merger and the recapitalization collectively, the "Merger"); ------ WHEREAS, pursuant to the Merger, and subject to the terms and conditions set forth in the Merger Agreement, the existing shareholders of the Company will receive cash consideration equal to $25.25 per share for their shares of the Company (other than retained shares); WHEREAS, the shareholders of the Company approved the Merger and the terms of the Merger Agreement on May 9, 2000; WHEREAS, after giving effect to the Merger, Investcorp, together with certain affiliated entities and other international investors arranged by Investcorp, certain members of senior management of the Company, DB Capital Investors and First Union Leveraged Capital (collectively, the "Investor -------- Group"), will own and control, indirectly, approximately 94% of the outstanding - ----- common stock of the Company (the remaining amount being retained by certain members of the Company's pre-merger shareholders); and WHEREAS, to refinance the Company's existing indebtedness and to finance the cash purchase price for the Company's existing shares purchased pursuant to the Merger, as well as for general corporate purposes, the Borrowers, jointly and severally, have requested that the Lenders establish a $150,000,000 six-year Tranche A Term Loan Facility, a $345,000,000 eight-year Tranche B Term Loan Facility and a $150,000,000 six-year Revolving Credit Facility pursuant to which term loans and revolving credit loans may be made to the Borrowers and letters of credit may be issued for the account of the Borrowers; NOW, THEREFORE, the Borrowers, the Administrative Agent, the Co-Lead Arrangers, the Syndication Agent, the Documentation Agent and the Lenders agree as follows: SECTION 1. DEFINITIONS ----------- 1.1 Defined Terms. As used in this Agreement, the terms defined in the ------------- caption hereto shall have the meanings set forth therein, and the following terms have the following meanings: "Accepting Tranche B Lenders": as defined in subsection 4.4(e). --------------------------- 2 "Adjustment Date": as defined in the definition of Applicable Margin. --------------- "Administrative Agent": as defined in the Preamble hereto. -------------------- "Affiliate": of any Person (a) any Person (other than a Subsidiary) --------- which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 25% or more of the securities having ordinary voting power for the election of directors of such Person, whether by ownership of securities, contract, proxy or otherwise, or (y) to direct or cause the direction of the management and policies of such Person, whether by ownership of securities, contract, proxy or otherwise. "Agents": the collective reference to the Syndication Agent, the ------ Documentation Agent and the Administrative Agent. "Agreement": this Credit Agreement, as amended, supplemented or --------- modified from time to time. "Alternate Base Rate": for any day, a rate per annum (rounded ------------------- upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such ---- day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the ---- ---------- rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product ------------ of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the CD Reserve Percentage and (b) the CD Assessment Rate; "Three-Month Secondary CD Rate" ----------------------------- shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds Effective Rate" ---------------------------- shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loans": Loans at such time as they are made ------------------------- and/or being maintained at a rate of interest based upon the Alternate Base Rate. 3 "Applicable Margin": for Term Loans, Revolving Credit Loans and Swing ----------------- Line Loans of the Types set forth below, the rate per annum set forth under the relevant column heading opposite such Loans below: Alternate Base Rate Eurodollar Loans Loans --------- ---------- Tranche A Term Loans: 2.00% 3.00% Tranche B Term Loans: 2.50% 3.50% Revolving Credit Loans: 2.00% 3.00% Swing Line Loans: 2.00% Not applicable ; provided that, from and after the first anniversary of the Closing Date, -------- the Applicable Margin with respect to Tranche A Term Loans, Revolving Credit Loans and Swing Line Loans will be adjusted on each Adjustment Date (as defined below) to the applicable rate per annum set forth in the pricing grid attached hereto as Schedule II based on the Leverage Ratio as determined from the relevant financial statements delivered pursuant to subsection 7.1. Changes in the Applicable Margin resulting from changes in the Leverage Ratio shall become effective on the date (the "Adjustment ---------- Date") on which such financial statements are delivered to the Lenders (but ---- in any event not later than the 50th day after the end of each of the first three quarterly periods of each fiscal year or the 95th day after the end of each fiscal year as the case may be) and shall remain in effect until the next change to be effected pursuant to this definition; provided that -------- (a) the Applicable Margin shall be initially the rate per annum set forth under the relevant column heading above; (b) if for any reason the financial statements required by subsection 7.1 are not timely delivered to the Lenders, (i) during the period from the date upon which such financial statements were required to be delivered until the date upon which they actually are delivered, the Applicable Margin shall be the Applicable Margin in effect immediately prior to the date such financial statements were due, and (ii) if such financial statements, when actually delivered, would have required an increase in the Applicable Margin over the Applicable Margin in effect immediately prior to the date such financial statements were due, the Company shall promptly following the delivery of such financial statements pay to the Lenders and the Administrative Agent any additional amounts of interest or fees which would have been payable on any previous Interest Payment Date had such higher Applicable Margin been in effect from the date such financial statements were required to be delivered; (c) any change in the Applicable Margin as a result of a change in the Leverage Ratio shall apply to all Loans for each day during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change in the Applicable Margin; and (d) if an Event of Default exists on any Adjustment Date or other date upon which the Applicable Margin would otherwise be adjusted hereunder, the Applicable Margin shall in no event be reduced on such Adjustment Date or other date from the Applicable Margin in effect immediately prior to such Adjustment Date or other date until such Event of Default is cured or waived. "Asset Sale": any sale, sale-leaseback, or other disposition by the ---------- Company or any of its Subsidiaries restricted by subsection 8.5 of any of its property or assets, including the stock of any Subsidiary, except sales and dispositions permitted by subsections 8.5(a), (b), (c), (f), (g) and (j). "Assignee": as defined in subsection 11.6(c). -------- 4 "Assignment and Acceptance": an assignment and acceptance ------------------------- substantially in the form of Exhibit D. "Available Revolving Credit Commitment": as to any Lender, at a ------------------------------------- particular time, an amount equal to (a) the amount of such Lender's Revolving Credit Commitment at such time less (b) the sum of (i) the ---- aggregate unpaid principal amount at such time of all Revolving Credit Loans made by such Lender pursuant to subsection 3.1, (ii) such Lender's Revolving Credit Commitment Percentage of the aggregate unpaid principal amount at such time of all Swing Line Loans; provided that for purposes of -------- calculating the Revolving Credit Commitments pursuant to subsection 3.2 the amount referred to in this clause (ii) shall be zero, (iii) such Lender's L/C Participating Interest in the aggregate amount available to be drawn at such time under all outstanding Letters of Credit issued by the Issuing Lender and (iv) such Lender's Revolving Credit Commitment Percentage of the aggregate outstanding amount of L/C Obligations; collectively, as to all the Lenders, the "Available Revolving Credit Commitments." -------------------------------------- "Bankers Trust": Bankers Trust Company, a New York banking ------------- corporation, and its successors. "Bankruptcy Code": Title I of the Bankruptcy Reform Act of 1978, as --------------- amended and codified at Title 11 of the United States Code. "Base Amount": as defined in Subsection 8.7 hereof. ----------- "Board": the Board of Governors of the Federal Reserve System, ----- together with any successor. "Borrower": as defined in the Preamble hereto. -------- "Borrowing Date": any Business Day specified in a notice pursuant to -------------- (a) subsection 3.4 or 4.1 as a date on which the Company requests the Swing Line Lender or the Lenders to make Loans hereunder or (b) subsection 3.5 as a date on which the Company requests the Issuing Lender to issue a Letter of Credit hereunder. "Bridge Commitment Letter": the Commitment Letter and term sheet ------------------------ relating thereto dated as of December 24, 1999 by and between Investcorp Investment Equity Limited, on its behalf and on behalf of certain of its affiliates and other investors and Bankers Trust, UBS AG Stanford Branch, Chase and Goldman. "Bridge Loan Agreement": the Bridge Loan Agreement that may be --------------------- entered into pursuant to the Bridge Commitment Letter, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms and the terms of this Agreement. "Bridge Subordinated Debt": the subordinated bridge loans or exchange ------------------------ notes of the Company outstanding from time to time pursuant to the Bridge Loan Agreement or the indenture contemplated thereby. "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City are authorized or required by law to close. "Capital Expenditures": for any period, all amounts which would, in -------------------- accordance with GAAP, be set forth as capital expenditures (exclusive of any amount attributable to capitalized 5 interest) on the consolidated statement of cash flows or other similar statement of the Company and its Subsidiaries for such period but shall exclude (a) any expenditures made with the proceeds of condemnation or eminent domain proceedings affecting real property or with insurance proceeds and (b) any expenditures made in connection with subsection 8.5(g) or (h); provided that any Capital Expenditures financed with the proceeds -------- of any Indebtedness permitted hereunder (other than Indebtedness incurred hereunder) shall be deemed to be a Capital Expenditure only in the period in which, and by the amount which, any principal of such Indebtedness is repaid. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Equivalents": (a) securities issued or directly and fully ---------------- guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any Lender or with any domestic (in the case of any investments, acquisitions or holdings by the Borrowers or their Domestic Subsidiaries) commercial bank or trust company having capital and surplus in excess of $300,000,000, (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (a) and (b) entered into with any financial institution meeting the qualifications specified in clause (b) above, (d) commercial paper having the highest rating obtainable from S&P or Moody's and in each case maturing within one year after date of acquisition; (e) investment funds investing 95% of their assets in securities of the type described in clauses (a) through (d) above, (f) readily marketable direct obligations issued by any state of the United States or any political subdivision thereof having one of the two highest rating categories obtainable from either S&P or Moody's and (g) indebtedness with a rating of "A" or higher from S&P or "A2" or higher from Moody's. "CD Assessment Rate": for any day the net annual assessment rate ------------------ (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Administrative Agent to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time ---- deposits made in Dollars at offices of the Administrative Agent in the United States. "CD Reserve Percentage": for any day, that percentage (expressed as a --------------------- decimal) which is in effect on such day, as prescribed by the Board for determining maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Certificate of Designation": the Certificate of Designation of the -------------------------- redeemable, payment-in-kind preferred stock of Jostens, Inc. to be filed upon consummation of the Merger. "Change in Law": with respect to any Lender, the adoption of, or ------------- change in, any law, rule, regulation, policy, guideline or directive (whether or not having the force of law) or any change in the interpretation or application thereof by any Governmental Authority having jurisdiction over such Lender, in each case after the Closing Date. "Change of Control": shall be considered to have occurred if (i) at ----------------- any time prior to an IPO by the Company: Investcorp or any of its Affiliates (provided that, for purposes of this -------- 6 definition only, the reference to 25% in the definition of Affiliate contained in subsection 1.1 shall be deemed to be 51%) or Subsidiaries, any member of the Investor Group, any Person that is a member of the senior management of the Company, or any entity the majority of the equity ownership interests of which is owned by such senior management of the Company, shall cease to own, directly or indirectly, in the aggregate, at least 51% of the issued and outstanding voting stock of the Company, free and clear of all Liens, (ii) at any time after an IPO by the Company: if any Person (other than Investcorp, any of its Affiliates or Subsidiaries, any member of the Investor Group, any Person that is a member of the senior management of the Company, any entity the majority of the equity ownership interests of which is owned by such senior management of the Company or any Person acting in the capacity of an underwriter), whether singly or in concert with one or more Persons, shall, directly or indirectly, have acquired, or acquire the power (x) to vote or direct the voting of 30% or more, on a fully diluted basis, of the outstanding common stock of the Company or (y) to elect or designate for election a majority of the Board of Directors of the Company by voting power, contract or otherwise, or (iii) a Specified Change of Control shall have occurred. "Chase": The Chase Manhattan Bank, a New York banking corporation, ----- and its successors. "Closing Date": the date (which shall be on or prior to June 30, ------------ 2000) on which the Lenders make their initial Loans or the Issuing Lender issues the initial Letter of Credit. "Co-Lead Arrangers": as defined in the Preamble hereto. ----------------- "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Collateral": all assets of the Credit Parties, now owned or ---------- hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Agreement": the Collateral Agreement, substantially in -------------------- the form of Exhibit E, to be made by the Borrowers and their Domestic Subsidiaries from time to time parties thereto in favor of the Administrative Agent, for the ratable benefit of the Lenders, as the same may be amended, modified or supplemented from time to time. "Commercial L/C": a commercial documentary Letter of Credit under -------------- which the Issuing Lender agrees to make payments in Dollars for the account of the Company, on behalf of the Company or a Subsidiary of the Company, in respect of obligations of the Company or such Subsidiary in connection with the purchase of goods or services in the ordinary course of business. "Commitment": as to any Lender at any time, such Lender's Swing Line ---------- Commitment, Tranche A Term Loan Commitment, Tranche B Term Loan Commitment and/or Revolving Credit Commitment; collectively, as to all the Lenders, the "Commitments." ------------ "Commitment Fee Rate": 1/2 of 1% per annum; provided, that from and ------------------- -------- after the first anniversary of the Closing Date and so long as no Event of Default has occurred and is continuing, the Commitment Fee Rate will be determined pursuant to the pricing grid attached hereto as Schedule II based upon the Leverage Ratio as determined from the relevant financial statements delivered pursuant to subsection 7.1. "Commitment Percentage": as to any Lender at any time, its Term Loan --------------------- Commitment Percentage or its Revolving Credit Commitment Percentage, as the context may require. 7 "Commodity Hedging Agreements": any futures contract or other similar ---------------------------- agreement or arrangement designed to protect a Borrower against fluctuations in commodities prices and not for purposes of speculation. "Commonly Controlled Entity": an entity, whether or not incorporated, -------------------------- which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414(b) or (c) of the Code. "Company": as defined in the Preamble hereto. ------- "Consolidated Current Assets": at a particular date, all amounts --------------------------- which would, in conformity with GAAP, be included under current assets on a consolidated balance sheet of the Company and its Subsidiaries as at such date. "Consolidated Current Liabilities": at a particular date, all amounts -------------------------------- which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of the Company and its Subsidiaries as at such date, excluding the current portion of long-term debt and the entire outstanding principal amount of the Revolving Credit Loans. "Consolidated EBITDA": for any period, the Consolidated Net Income of ------------------- the Company and its Subsidiaries for such period, plus, without duplication ---- and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) total income tax expense, (b) interest expense, amortization or writeoff of debt discount, debt issuance, warrant and other equity issuance costs and commissions, discounts, redemption premium and other fees and charges associated with the Loans, letters of credit permitted hereunder, Financing Leases (excluding any precious metals leases) or the acquisition or repayment of any debt securities of the Company or its Subsidiaries permitted hereunder, and net costs associated with Interest Rate Agreements to which a Borrower is a party in respect of the Loans (including commitment fees and other periodic bank charges), (c) costs of surety bonds, (d) depreciation and amortization expense, (e) amortization of inventory write-up under APB 16, amortization of intangibles (including, but not limited to, goodwill and costs of interest-rate caps and the cost of non-competition agreements) and organization costs, (f) non-cash amortization of Financing Leases, (g) franchise taxes, (h) management fees paid as contemplated by subsection 11.14 and charges related to management fees prepaid in connection with the Transactions, (i) all cash dividend payments (and non-cash dividend expenses) on any series of preferred stock, (j) any expenses incurred in connection with any merger, any acquisition or joint venture permitted herein, including, without limitation, the Transactions (including any payments of success/transition bonuses to management of the Company in connection therewith), (k) any other write-downs, write-offs, minority interests and other non-cash charges or expenses, (l) any non-cash restructuring or other type of non-cash special charge or reserve, (m) expenses and charges related to any equity offering, (n) expenses consisting of internal software development costs that are expensed during the period but could have been capitalized in accordance with GAAP, (o) securitization expense and (p) nonrecurring litigation or claim settlement charges or expenses; provided that (i) the cumulative effect of a change in -------- accounting principles (effected either through cumulative effect adjustment or a retroactive application) shall be excluded, (ii) the net income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iii) the impact of foreign currency and hedging translations and transactions shall be excluded, (iv) all other extraordinary or non-recurring gains, losses and charges shall be excluded and (v) up to $5,000,000 of the amount of expenditures made in any fiscal year of the Company in respect of subsection 8.6(h) shall be excluded. 8 "Consolidated Indebtedness": at a particular date, all Indebtedness ------------------------- other than Indebtedness described in clauses (b) or (c) of the definition of "Indebtedness" included in this subsection 1.1 of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP at such date. "Consolidated Net Income": for any period, net income of the Company ----------------------- and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that: (i) the net income (but not loss) of any Person that -------- is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Company or a wholly owned Subsidiary and (ii) the net income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that net income is prohibited or not permitted at the date of determination. "Contingent Obligation": as to any Person, any obligation of such --------------------- Person guaranteeing or in effect guaranteeing any Indebtedness ("primary ------- obligations") of any other Person (the "primary obligor") in any manner, ----------- --------------- whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, that the term Contingent Obligation shall not include -------- endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount (based on the maximum reasonably anticipated net liability in respect thereof as determined by the Company in good faith) of the primary obligation or portion thereof in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated net liability in respect thereof (assuming such Person is required to perform thereunder) as determined by the Company in good faith. "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of the property owned by it is bound. "Credit Documents": the collective reference to this Agreement, the ---------------- Notes, the Security Agreements, the Mortgages and the Guarantees. "Credit Parties": the collective reference to the Borrowers and each -------------- of their respective direct and indirect Subsidiaries other than any Foreign Subsidiaries of the Borrowers (or any other United States Person). "Default": any of the events specified in Section 9, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Documentation Agent": as defined in the Preamble hereto. ------------------- "Dollars" and "$": refers to lawful money of the United States. ------- - 9 "Domestic Subsidiary": as to any Person, any Subsidiary of such ------------------- Person other than a Foreign Subsidiary of such Person. "Environmental Laws": any and all foreign, Federal, state, local or ------------------ municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority or requirements of law (including, without limitation, common law) regulating or imposing liability or standards of conduct concerning environmental or public health protection matters, including, without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. "Environmental Permits": any and all permits, licenses, --------------------- registrations, notifications, exemptions and any other authorizations required under any Environmental Law. "Equity Contribution": as defined in subsection 6.1(c). ------------------- "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a --------------------------------- Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during each Interest -------------------- Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar ---------- Base Rate" for purposes of this definition shall be determined by reference --------- to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Lending Office": as to any Lender the office of such ------------------------- Lender which shall be making or maintaining Eurodollar Loans. "Eurodollar Loans": Loans at such time as they are made and/or being ---------------- maintained at a rate of interest based upon a Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest --------------- Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ------------------------------------------ 1.00 - Eurocurrency Reserve Requirements 10 "Event of Default": any of the events specified in Section 9; ---------------- provided that any requirement for the giving of notice, the lapse of time, -------- or both, has been satisfied. "Excess Cash Flow": for any fiscal year of the Company, commencing ---------------- with the fiscal year ending on December 29, 2001, the excess of (a) Consolidated EBITDA for such fiscal year over (b) the sum, without duplication, of (i) the aggregate amount actually paid by the Company and its Subsidiaries in cash during such fiscal year on account of capital expenditures or acquisitions (other than capital expenditures made with the proceeds of eminent domain or condemnation proceedings to the extent such proceeds are not included in the determination of Consolidated EBITDA for such fiscal year), (ii) the aggregate amount of payments of principal in respect of any Indebtedness during such fiscal year (other than any such payments of principal pursuant to subsections 4.4(b)(i), (ii), (iii) and (iv) to the extent such amounts are not included in Consolidated EBITDA or any such payments of principal in respect of any revolving credit facility to the extent that there is not an equivalent reduction in such facility), (iii) increases in working capital (excluding any customer deposits) (calculated as Consolidated Current Assets at the end of such fiscal year minus Consolidated Current Liabilities as at the end of such fiscal year) ----- of the Company and its Subsidiaries for such fiscal year (excluding any increase in cash or Cash Equivalents above an increase deemed in good faith by the Company to be necessary or desirable for the operation of the business of the Company and its Subsidiaries), (iv) cash interest expense (including fees paid in connection with letters of credit and surety bonds and commitment fees and other periodic bank charges) of the Company and its Subsidiaries, (v) the amount of taxes actually paid in cash by the Company and its Subsidiaries for such fiscal year either during such fiscal year or within a normal payment period thereof, (vi) to the extent added to Consolidated Net Income of the Company and its Subsidiaries in calculating Consolidated EBITDA for such fiscal year, the net cash cost of Interest Rate Agreements, franchise taxes and management fees, (vii) the net income of any Subsidiary shall be excluded to the extent that such amount is accounted for under the equity method to the extent cash dividends are not paid or the declaration or payment of dividends is not permitted without prior governmental approval (which has not been obtained), (viii) the dividend actually paid in cash by the Company on March 1, 2000, (ix) the amount of cash actually paid by the Company and its Subsidiaries in connection with clauses (b) (without duplication), (g), (h), (i), (j), (m), (n), (o), (p) and clauses (iii) and (iv) of the proviso in the definition of Consolidated EBITDA and (x) the amount of any cash actually paid in connection with reserves established in accordance with GAAP; provided that -------- to the extent any amount of cash is actually paid by the Company and its Subsidiaries in connection with clause (p) in the definition of Consolidated EBITDA in any fiscal year in which the Company does not have Excess Cash Flow, such amount, to the extent it was not applied to reduce Consolidated EBITDA in determining the existence of Excess Cash Flow in the year such amount was paid, may be carried forward to subsequent fiscal years of the Company and applied once to reduce the amount or any Excess Cash Flow for any such fiscal years. "Existing Credit Agreement": the Credit Agreement, dated as of ------------------------- December 20, 1995, among the Company, the lenders named therein and The First National Bank of Chicago, as amended. "Fee Property": as defined in subsection 5.13. ------------ "Financing Lease": (a) any lease of property, real or personal, the --------------- obligations under which are capitalized on a consolidated balance sheet of the Company and its consolidated Subsidiaries and (b) any other such lease to the extent that the then present value of any rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. 11 "Foreign Subsidiary": as to any Person, any Subsidiary of such Person ------------------ which is not organized under the laws of the United States or any state thereof or the District of Columbia. "GAAP": generally accepted accounting principles in the United States ---- in effect from time to time. "Goldman": Goldman Sachs Credit Partners, L.P., and its successors. ------- "Governmental Authority": any nation or government, any state or ---------------------- other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantees": the collective reference to the Subsidiary Guarantee ---------- and any guarantee which may from time to time be executed and delivered by a Subsidiary pursuant to subsection 7.9. "Hazardous Materials": any hazardous materials, hazardous wastes, ------------------- hazardous pesticides or hazardous or toxic substances, and any other material that may give rise to liability under any Environmental Law, including, without limitation, asbestos, petroleum, any other petroleum products (including gasoline, crude oil or any fraction thereof), polychlorinated biphenyls and urea-formaldehyde insulation. "Indebtedness": of a Person, at a particular date, (a) all ------------ indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (b) the undrawn face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder and unpaid reimbursement obligations with respect thereto, (c) all liabilities (other than Lease Obligations and liabilities in connection with reserves established in accordance with GAAP) secured by any Lien on any property owned by such Person, even though such Person has not assumed or become liable for the payment thereof, (d) Financing Leases, (e) all indebtedness of such Person arising under acceptance facilities, but excluding (i) trade and other accounts payable and accrued expenses payable in the ordinary course of business which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person, (ii) letters of credit supporting the purchase of goods in the ordinary course of business and expiring no more than six months from the date of issuance and (iii) precious metal leases, whether capital or operating; provided that -------- obligations in respect of Interest Rate Agreements and Commodity Hedging Agreements shall not be included in this definition. "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Interest Coverage Ratio": on the last day of any fiscal quarter of ----------------------- the Company, the ratio of (a) Consolidated EBITDA for the period of twelve months ending on such day to (b) cash interest expense (excluding (i) fees payable on account of letters of credit, (ii) to the extent included in interest expense in accordance with GAAP, net costs associated with Interest Rate Agreements to which a Borrower is a party in respect of the Loans and other periodic bank charges and amortization of debt discount (including discount of liabilities and reserves established under APB 16), (iii) interest expense in respect of costs of debt issuance and interest expense on customer deposits for such period net of interest income and (iv) interest in respect of 12 seasonal borrowings occurring in the third fiscal quarter of the Company which seasonal borrowings shall be calculated as the lesser of (i) $85,000,000 and (ii) the amount of Revolving Credit Loans outstanding on the date of such calculation, at the applicable interest rate for the relevant period), in each case, for or during such period on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP; and provided, further, that for the periods ending on December 30, 2000 and -------- ------- March 31, 2001 cash interest expense for the relevant period shall be deemed to equal actual cash interest expense for such period (excluding interest in respect of seasonal borrowings occurring in the fiscal quarter ending on September 30, 2000 which seasonal borrowings shall be calculated as the lesser of (i) $85,000,000 and (ii) the amount of Revolving Credit Loans outstanding on the date of such calculation, at the applicable interest rate for such quarter) multiplied by 2 and 4/3, respectively. For clarification, cash interest expense does not include the accretion of interest expense. "Interest Payment Date": (a) as to Alternate Base Rate Loans, the --------------------- last day of each March, June, September and December, commencing on the first such day to occur after any Alternate Base Rate Loans are made or any Eurodollar Loans are converted to Alternate Base Rate Loans, (b) as to any Eurodollar Loan in respect of which the Company, as agent for the Borrowers, has selected an Interest Period of one, two or three months, the last day of such Interest Period and (c) as to any Eurodollar Loan in respect of which the Company, as agent for the Borrowers, has selected a longer Interest Period than the periods described in clause (b), the last day of each three calendar month interval during such Interest Period and, in addition, the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loan: --------------- (a) initially, the period commencing on, as the case may be, the Borrowing Date or conversion date with respect to such Eurodollar Loan and ending one, two, three or six months thereafter (or, if and when available to all the relevant Lenders, nine or twelve months thereafter) as selected by the Company, as agent for the Borrowers, in its notice of borrowing as provided in subsection 4.1 or its notice of conversion as provided in subsection 4.2; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter (or, if and when available to all the relevant Lenders, nine or twelve months thereafter) as selected by the Company, as agent for the Borrowers, by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loan; provided that the foregoing provisions relating to Interest Periods are -------- subject to the following: (A) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period that would otherwise extend beyond (i) in the case of an Interest Period for a Term Loan, the final Tranche A or Tranche B Installment Payment Date shall end on such Tranche A or Tranche B Installment Payment Date or, if such Tranche A or Tranche B Installment Payment Date shall not be a Business Day, on the next preceding Business Day; and (ii) in the case of any Interest Period for a Revolving 13 Credit Loan, the Revolving Credit Termination Date shall end on the Revolving Credit Termination Date, or if the Revolving Credit Termination Date shall not be a Business Day, on the next preceding Business Day; (C) if the Company shall fail to give notice as provided above in clause (b), it shall be deemed to have selected a conversion of a Eurodollar Loan into an Alternate Base Rate Loan (which conversion shall occur automatically and without need for compliance with the conditions for conversion set forth in subsection 4.2); (D) any Interest Period that begins on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (E) the Company shall select Interest Periods so as not to require a prepayment (to the extent practicable) or a scheduled payment of a Eurodollar Loan during an Interest Period for such Eurodollar Loan. "Interest Rate Agreement": any interest rate swap agreement, interest ----------------------- rate cap agreement, interest rate collar agreement or other similar agreement or arrangement. "Investcorp": Investcorp S.A., a Luxembourg corporation. ---------- "Investment Grade Securities": (i) securities issued or directly and --------------------------- fully guaranteed or insured by the Unites States government or any agency or instrumentality thereof (other than Cash Equivalents), (ii) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 by Moody's or the equivalent of such rating by such rating organization, or if no rating of S&P's or Moody's then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries and (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii) which fund may also hold immaterial amounts of cash pending investment and/or distribution. "Investor Group": as defined in the Recitals hereto. -------------- "IPO": as to any Person, any sale by such Person through a public --- offering of its common (or other voting) stock pursuant to an effective registration statement (other than a registration statement on Form S-4, S- 8 or any successor or similar form) filed under the Securities Act of 1933, as amended. "Issuing Lender": collectively, Chase and any of its Affiliates, -------------- including Chase Manhattan Bank Delaware, as issuer of the Letters of Credit; with respect to any Letter of Credit, the term "Issuing Lender" shall mean the Issuing Lender with respect to such Letter of Credit. "L/C Application": as defined in subsection 3.5(a). --------------- "L/C Obligations": the obligations of the Company to reimburse the --------------- Issuing Lender for any payments made by the Issuing Lender under any Letter of Credit that have not been reimbursed by the Company pursuant to subsection 3.8(a). "L/C Participating Interest": an undivided participating interest in -------------------------- the face amount of each issued and outstanding Letter of Credit and the L/C Application relating thereto. 14 "L/C Participation Certificate": a certificate in substantially the ----------------------------- form of Exhibit G. "Lease Obligations": of the Company and its Subsidiaries, as of the ----------------- date of any determination thereof, the rental commitments of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP, if any, under leases for real and/or personal property (net of rental commitments from sub-leases thereof), excluding however, obligations under Financing Leases. "Leased Properties": as defined in subsection 5.13. ----------------- "Lenders": as defined in the Preamble hereto. ------- "Letters of Credit": the collective reference to the Commercial L/Cs, ----------------- the Standby L/Cs, individually, a "Letter of Credit." ---------------- "Leverage Ratio": as defined in subsection 8.9; provided that for -------------- -------- purposes of calculating the Leverage Ratio, the unencumbered (other than Liens permitted pursuant to subsection 8.2 (other than subsections 8.2(i) (only to the extent such Lien is in respect of cash and Cash Equivalents specifically securing Indebtedness in respect of one or more Commercial L/Cs and not all Indebtedness under this Agreement generally) and 8.2(l)) cash and Cash Equivalents balances of the Company and its Subsidiaries on such date shall be deducted from the amount of Consolidated Indebtedness on such date; provided, further, the amount of cash and Cash Equivalent -------- ------- balances of Foreign Subsidiaries of the Company which are not Credit Parties deducted pursuant to the immediately preceding proviso shall not exceed $7,500,000. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing, except for the filing of financing statements in connection with Lease Obligations incurred by the Company or its Subsidiaries to the extent that such financing statements relate to the property subject to such Lease Obligations). "Loans": the collective reference to the Swing Line Loans, the Term ----- Loans, and the Revolving Credit Loans; individually, a "Loan." ---- "Merger": as defined in the Recitals hereto. ------ "Merger Agreement": as defined in the Recitals hereto. ---------------- "MergerCo": as defined in the Recitals hereto. -------- "Moody's": Moody's Investors Service, Inc. ------- "Mortgaged Properties": (a) the Real Property designated as -------------------- "Mortgaged Property" on Schedule 5.13 and (b) any fee Real Property covered by a Mortgage delivered pursuant to subsection 7.9(d). "Mortgages": each of the mortgages and deeds of trust made by any --------- Credit Party in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, in a form 15 reasonably acceptable to the Administrative Agent and the Company, as the same may be amended, supplemented or otherwise modified from time to time. "Multiemployer Plan": a Plan which is a multiemployer plan as defined ------------------ in Section 4001(a)(3) of ERISA. "Net Proceeds": the aggregate cash proceeds received by the Company ------------ or any Subsidiary in respect of: (a) (i) any issuance or borrowing of any debt securities or loans by the Company or any of its Subsidiaries other than debt or loans permitted to be incurred or borrowed pursuant to subsection 8.1 or (ii) any issuance by the Company or any of its Subsidiaries of Capital Stock (excluding any such issuance to any member of the Investor Group or any Affiliate thereof or any such issuance to employees of the Company or any of its Subsidiaries); (b) any Asset Sale, excluding (i) any net proceeds received upon any condemnation or exercise of rights of eminent domain to the extent the same shall be deemed not to constitute Net Proceeds pursuant to the proviso to subsection 8.5(d) and (ii) any proceeds of insurance received upon any casualty or loss; (c) any cash received in respect of substantially like-kind exchanges of property to the extent provided in the proviso to subsection 8.5(e); and (d) any cash payments received in respect of promissory notes delivered to the Company or any of its Subsidiaries in respect of an Asset Sale delivered to the Company or such Subsidiary in respect of an Asset Sale; in each case net of (without duplication) (A) the amount required to repay any Indebtedness (other than the Loans) secured by a Lien on any assets of the Company or any of its Subsidiaries that are collateral for any such debt securities or loans that are sold or otherwise disposed of in connection with such Asset Sale, (B) the reasonable expenses (including legal fees and brokers' and underwriters' commissions, lenders fees or credit enhancement fees, in any case, paid to third parties or, to the extent permitted hereby, Affiliates) incurred in effecting such issuance or sale and (C) any taxes reasonably attributable to such sale and reasonably estimated by the Company or its Subsidiaries to be actually payable. "Non-Funding Lender": as defined in subsection 4.9(c). ------------------ "Notes": the collective reference to the Swing Line Note, the ----- Revolving Credit Notes and the Term Loan Notes; each of the Notes, a "Note." ---- "Offering Memorandum": the offering memorandum dated May 5, 2000 with ------------------- respect to the Senior Subordinated Notes. "Participants": as defined in subsection 11.6(b). ------------ "Participating Lender": any Revolving Credit Lender (other than the -------------------- Issuing Lender) with respect to its L/C Participating Interest in each Letter of Credit. "Payment Sharing Notice": a written notice from the Company or any ---------------------- Lender informing the Administrative Agent that an Event of Default has occurred and is continuing and directing 16 the Administrative Agent to allocate payments thereafter received from or on behalf of any Borrower in accordance with the provisions of subsection 4.9. "PBGC": the Pension Benefit Guaranty Corporation established pursuant ---- to Subtitle A of Title IV of ERISA or any successor. "Permanent Subordinated Debt": (i) unsecured notes or debentures of --------------------------- the Company, subordinated to the prior payment of the Loans and the other obligations under the Credit Documents, that were issued by the Company on the Closing Date or that may be issued by the Company after the Closing Date (including the Senior Subordinated Notes); provided that either (x) -------- such notes or debentures have terms which are as favorable to the Lenders as the terms set forth in the Bridge Commitment Letter or the Offering Memorandum and the conditions contained in clauses (i)(y)(b) and (c) of this definition are met or (y) (a) unless otherwise agreed to by the Required Lenders, (I) the subordination provisions of which are as favorable to the Lenders as such provisions set forth in the Bridge Commitment Letter or the Offering Memorandum and (II) the terms and conditions thereof (including, without limitation, subordination, covenant and events of default provisions thereof but excluding any call protection provisions) taken as a whole shall be at least as favorable to the Company and the Lenders as such terms and conditions set forth in the Bridge Commitment Letter or the Offering Memorandum, (b) no covenant contained in this Agreement or any of the other Credit Documents would be violated on the proposed issuance date after giving effect to (I) the issuance of such notes or debentures, (II) the payment of all issuance costs, commissions, discounts, redemption premiums and other fees and charges associated therewith, (III) the use of proceeds thereof and (IV) the redemption, repayment, retirement and repurchase of all Indebtedness of the Company and its Subsidiaries to be redeemed, repaid or repurchased in connection therewith and (c) substantially final drafts of the documentation governing any such notes or debentures, showing the terms thereof, shall have been furnished to the Administrative Agent at least 5 days prior to the date of issuance of such notes or debentures and (ii) unsecured notes or debentures of the Company, subordinated to the prior payment of the Loans and the other obligations under the Credit Documents, that may be issued by the Company to refinance previously issued Permanent Subordinated Debt; provided that (a) unless otherwise agreed to by the Required Lenders, the -------- interest rate and subordination provisions shall be at least as favorable to the Company and the Lenders as such provisions of refinanced Permanent Subordinated Debt and the other terms and conditions thereof (including, without limitation, the covenant and event of default provisions thereof) taken as a whole shall be at least as favorable to the Company and the Lenders as such refinanced Permanent Subordinated Debt and (b) the conditions contained in clauses (i)(y)(b) and (c) of this definition shall be met. "Permitted Liens": Liens permitted to exist under subsection 8.2. --------------- "Person": an individual, partnership, corporation, business trust, ------ joint stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Photography Division": businesses relating to selling portraits and -------------------- activity photos. "Plan": at a particular time, any employee benefit plan which is ---- covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. 17 "Preferred Stock": the preferred stock of the Company described in --------------- the Certificate of Designation. "Real Property": each Fee Property and Leased Property listed on ------------- Schedule 5.13. "Recognition Division": businesses relating to selling service and -------------------- related recognition affinity awards to companies or other Persons. "Refunded Swing Line Loans": as defined in subsection 3.4(b). ------------------------- "Register": as defined in subsection 11.6(d). -------- "Related Document": any agreement, certificate, document or ---------------- instrument relating to a Letter of Credit. "Reorganization": with respect to any Multiemployer Plan, the -------------- condition that such Plan is in reorganization as such term is used in Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ---------------- ERISA, other than those events as to which the thirty day notice is waived under subpart B of PBGC Reg. (S) 4042. "Required Lenders": at a particular time, the holders of at least 51% ---------------- of the sum of (i) the aggregate unpaid principal amount of the Term Loans, if any, and (ii) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations. The Term Loans and the Revolving Credit Commitments of any Non-Funding Lender shall be disregarded in determining Required Lenders at any time. "Requirement of Law": as to any Person, the Articles or Certificate ------------------ of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, order, or determination of an arbitrator or a court or other Governmental Authority, in each case, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": with respect to any Person, the president, ------------------- treasurer, chief executive officer, the chief operating officer, the chief financial officer, assistant treasurer, corporate controller or any vice president of such Person. "Revolving Credit Commitment": as to any Lender, its obligations to --------------------------- (i) make Revolving Credit Loans to the Borrowers pursuant to subsection 3.1, (ii) to participate in Swingline Loans and (iii) to purchase its L/C Participating Interest in any Letter of Credit, in an aggregate amount not to exceed the amount set forth under such Lender's name in Schedule I opposite the caption "Revolving Credit Commitment" or in Schedule 1 to the Assignment and Acceptance by which such Lender acquired its Revolving Credit Commitment, as the same may be reduced from time to time pursuant to subsection 4.3 or adjusted pursuant to subsection 11.6(c); collectively, as to all the Lenders, the "Revolving Credit Commitments". The original ---------------------------- aggregate principal amount of the Revolving Credit Commitments is $150,000,000. "Revolving Credit Commitment Percentage": as to any Lender at any -------------------------------------- time, the percentage of the aggregate Revolving Credit Commitments then constituted by such Lender's Revolving Credit Commitment. 18 "Revolving Credit Commitment Period": the period from and including ---------------------------------- the Closing Date to but not including the Revolving Credit Termination Date. "Revolving Credit Lender": any Lender with a Revolving Credit ----------------------- Commitment. "Revolving Credit Loans" as defined in subsection 3.1(a). ---------------------- "Revolving Credit Note": as defined in subsection 4.13(e). --------------------- "Revolving Credit Termination Date": the earlier of (a) May 31, 2006 --------------------------------- and (b) such other earlier date as the Revolving Credit Commitments shall terminate hereunder. "Security Agreements": the collective reference to the Collateral ------------------- Agreement and any security agreement which may from time to time be executed and delivered by a Subsidiary of the Company pursuant to subsection 7.9. "Security Documents": the collective reference to the Security ------------------ Agreements and the Mortgages. "Senior Subordinated Note Indenture": the indenture to be entered ---------------------------------- into by the Borrowers in connection with the issuance of the Senior Subordinated Notes, with such material terms and conditions as are not materially less favorable to the Lenders than those of the subordinated bridge loans under the Bridge Commitment Letter or the Offering Memorandum, together with all instruments and other agreements entered into by the Borrowers in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with subsection 8.16. "Senior Subordinated Notes": the senior subordinated notes of the ------------------------- Company (or any refinancing thereof permitted hereunder) which shall be issued under the Senior Subordinated Note Indenture and shall have material terms and conditions not materially less favorable to the Lenders than those of the subordinated bridge loans under the Bridge Commitment Letter or the Offering Memorandum. "Shares": as defined in the Recitals hereto. ------ "Single Employer Plan": any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan. "S&P": Standard and Poor's Ratings Services, a division of McGraw- --- Hill Companies, Inc. "Specified Change of Control": a "Change of Control" as defined from --------------------------- time to time in the Senior Subordinated Note Indenture, so long as the Senior Subordinated Note Indenture exists. "Specified Debt": the (a) Bridge Subordinated Debt and (b) Permanent -------------- Subordinated Debt. "Standby L/C": an irrevocable letter of credit under which the ----------- Issuing Lender agrees to make payments in Dollars for the account of the Company, on behalf of the Borrowers or any Subsidiary of the Borrowers in respect of obligations of such Borrower or such Subsidiary incurred pursuant to contracts made or performances undertaken or to be undertaken or like 19 matters relating to contracts to which such Borrower or such Subsidiary is or proposes to become a party in the ordinary course of such Borrower's or such Subsidiary's business, including, without limiting the foregoing, for insurance purposes or in respect of advance payments or as bid or performance bonds or for any other purpose for which a standby letter of credit might customarily be issued. "Subsection 4.11(d)(2) Certificate": as defined in subsection --------------------------------- 4.11(d). "Subsidiary": as to any Person, a corporation, partnership, limited ---------- liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, by such Person or by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. A Subsidiary shall be deemed wholly- owned by a Person who owns directly or indirectly all of the voting shares of stock or other interests of such Subsidiary having voting power under ordinary circumstances to vote for directors or other managers of such corporation, partnership or other entity, except for (i) directors' qualifying shares, (ii) shares owned by multiple shareholders to comply with local laws and (iii) shares owned by employees. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of each of the Borrowers; provided that any joint venture or Person in which an investment -------- is existing on the Closing Date or is made pursuant to subsection 8.6(h) shall, so long as such investment is maintained in reliance on such subsection, not be a "Subsidiary" of a Borrower for any purpose of this Agreement. "Subsidiary Guarantee": the Subsidiary Guarantee, substantially in -------------------- the form of Exhibit F, to be made by certain Domestic Subsidiaries of the Company in favor of the Administrative Agent for the ratable benefit of the Lenders, as the same may be amended, modified or supplemented from time to time. "Supermajority Lenders": at a particular time, the holders of at --------------------- least 66-2/3% of the sum of (i) the aggregate unpaid principal amount of the Term Loans, if any, and (ii) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations. The Term Loans and the Revolving Credit Commitments of any Non-Funding Lender shall be disregarded in determining Supermajority Lenders at any time. "Swing Line Commitment": the Swing Line Lender's obligation to make --------------------- Swing Line Loans pursuant to subsection 3.4. "Swing Line Lender": Chase, in its capacity as lender of the Swing ----------------- Line Loans. "Swing Line Loan Participation Certificate": a certificate in ----------------------------------------- substantially the form of Exhibit H. "Swing Line Loans": as defined in subsection 3.4(a). ---------------- "Swing Line Note": as defined in subsection 4.13(e). --------------- "Tender Offer": as defined in the Recitals hereto. ------------ 20 "Term Loan" and "Term Loans": as defined in subsection 2.1. --------- ---------- "Term Loan Commitment Percentage": as to any Lender at any time, the ------------------------------- percentage of the aggregate Term Loan Commitments then constituted by such Lender's Term Loan Commitment (or, after the Term Loans are made, the percentage of the aggregate outstanding principal amount of all Term Loans then constituted by the aggregate outstanding principal amount of such Lender's Term Loans). "Term Loan Commitments": collectively, the Tranche A Term Loan --------------------- Commitments and the Tranche B Term Loan Commitments; individually, a "Term ---- Loan Commitment." ---------------- "Term Loan Lender": collectively, the Tranche A Lenders and the ---------------- Tranche B Lenders. "Term Loan Note": a Tranche A Term Note or a Tranche B Term Note, as -------------- the context shall require, collectively, the "Term Notes." ---------- "Tranche": the collective reference to Eurodollar Loans the then ------- current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "Eurodollar Tranches." "Tranche A Installment Payment Date": as defined in subsection ---------------------------------- 4.4(c). "Tranche A Lender": each Lender that has a Tranche A Term Loan ---------------- Commitment or is the holder of a Tranche A Term Loan. "Tranche A Maturity Date": May 31, 2006. ----------------------- "Tranche A Term Loan": as defined in subsection 2.1. ------------------- "Tranche A Term Loan Commitment": as to any Tranche A Lender, its ------------------------------ obligation to make a Tranche A Term Loan to the Borrowers pursuant to subsection 2.1 in an aggregate amount not to exceed the amount set forth under such Lender's name in Schedule I opposite the caption "Tranche A Term Loan Commitment" or in Schedule 1 to the Assignment and Acceptance pursuant to which a Lender acquires its Tranche A Term Loan Commitment, as the same may be adjusted pursuant to subsection 11.6(c); collectively, as to all the Tranche A Lenders, the "Tranche A Term Loan Commitments". The original ------------------------------- aggregate principal amount of the Tranche A Term Loan Commitments is $150,000,000. "Tranche A Term Loan Commitment Percentage": as to any Tranche A ----------------------------------------- Lender at any time, the percentage of the aggregate Tranche A Term Loan Commitments then constituted by such Lender's Tranche A Term Loan Commitment (or, after the Tranche A Term Loans are made, the percentage of the aggregate outstanding principal amount of the Tranche A Term Loans then constituted by the principal amount of such Tranche A Lender's Tranche A Term Loan). "Tranche A Term Note": as defined in subsection 4.13(e). ------------------- "Tranche B Installment Payment Date": as defined in Section 4.4(d). ---------------------------------- "Tranche B Lender": each Lender that has a Tranche B Term Loan ---------------- Commitment or is the holder of a Tranche B Term Loan. 21 "Tranche B Mandatory Prepayment Date": as defined in subsection ----------------------------------- 4.4(e). "Tranche B Maturity Date": May 31, 2008. ----------------------- "Tranche B Prepayment Amount": as defined in subsection 4.4(e). --------------------------- "Tranche B Prepayment Option Notice": as defined in subsection ---------------------------------- 4.4(e). "Tranche B Term Loan": as defined in subsection 2.1. ------------------- "Tranche B Term Loan Commitment": as to any Tranche B Lender, its ------------------------------ obligation to make a Tranche B Term Loan to the Borrowers pursuant to subsection 2.1 in an aggregate amount not to exceed the amount set forth under such Lender's name in Schedule I opposite the caption "Tranche B Term Loan Commitment" or in Schedule 1 to the Assignment and Acceptance pursuant to which a Lender acquires its Tranche B Term Loan Commitment, as the same may be adjusted pursuant to subsection 11.6(c); collectively, as to all the Tranche B Lenders, the "Tranche B Term Loan Commitments." The original ------------------------------- aggregate principal amount of the Tranche B Term Loan Commitments is $345,000,000. "Tranche B Term Loan Commitment Percentage": as to any Tranche B ----------------------------------------- Lender at any time, the percentage of the aggregate Tranche B Term Loan Commitments then constituted by such Lender's Tranche B Term Loan Commitment (or, after the Tranche B Term Loans are made, the percentage of the aggregate outstanding principal amount of the Tranche B Term Loans then constituted by the principal amount of such Tranche B Lender's Tranche B Term Loan). "Tranche B Term Note": as defined in subsection 4.13(e). ------------------- "Transactions": the collective reference to the Merger, the issuance ------------ of the Senior Subordinated Notes, the Equity Contribution, the repayment of certain of the Company's existing indebtedness, including, without limitation, amounts outstanding under the Existing Credit Agreement, and the making of the Loans on the Closing Date hereunder. "Transferee": as defined in subsection 11.6(f). ---------- "Type": as to any Loan, its nature as an Alternate Base Rate Loan or ---- Eurodollar Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary --------------- Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and any subsequent revisions thereof. "United States": the United States of America. ------------- "United States Person": any Person organized under the laws of the -------------------- United States or any state thereof or the District of Columbia. 1.2 Other Definitional Provisions. (a) Unless otherwise specified ----------------------------- therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, any other Credit Document or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, any other Credit Document and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrowers and their 22 respective Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent there are any changes in GAAP from the date of this Agreement, the financial covenants set forth herein at the option of the Company will either (i) continue to be determined in accordance with GAAP in effect on the Closing Date, as applicable, or (ii) be adjusted or reset to reflect such changes in GAAP, such adjustments or resets to be mutually agreed to by the Company and the Administrative Agent. All references in this Agreement to the 2000 fiscal year of each of the Borrowers shall mean the fiscal year commencing on January 2, 2000 and ending on December 30, 2000, and each reference to each subsequent fiscal year of each of the Borrowers shall refer to the corresponding periods of subsequent calendar years. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to the singular and plural forms of such terms. SECTION 2. TERM LOANS ---------- 2.1 Term Loans. Subject to the terms and conditions hereof, (i) each ---------- Tranche A Lender severally agrees to make a loan in Dollars (individually, a "Tranche A Term Loan"; and collectively, the "Tranche A Term Loans") to the ------------------- -------------------- Borrowers on the Closing Date, in an aggregate principal amount equal to such Lender's Tranche A Term Loan Commitment and (ii) each Tranche B Lender severally agrees to make a loan in Dollars (individually, a "Tranche B Term Loan"; and ------------------- collectively, the "Tranche B Term Loans"; together with the Tranche A Term -------------------- Loans, the "Term Loans") to the Borrowers on the Closing Date, in an aggregate ---------- principal amount equal to such Lender's Tranche B Term Loan Commitment. 2.2 Repayment of Term Loans. The Borrowers shall repay the Term ----------------------- Loans as provided in subsection 4.4. 2.3 Use of Proceeds. The proceeds of the Term Loans shall be used to --------------- repay existing indebtedness (including amounts outstanding under the Existing Credit Agreement), to finance the Transactions and to pay fees, expenses and financing costs in connection therewith. SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS ------------------ 3.1 Revolving Credit Commitments. (a) Subject to the terms and ---------------------------- conditions hereof, each Lender severally agrees to the extent of its Revolving Credit Commitment to extend credit to the Borrowers from time to time on any Borrowing Date during the Revolving Credit Commitment Period (i) by purchasing an L/C Participating Interest in each Letter of Credit issued by the Issuing Lender and (ii by making loans in Dollars (individually, a "Revolving Credit ---------------- Loan," and collectively, the "Revolving Credit Loans") to the Borrowers from - ---- ---------------------- time to time. Notwithstanding the above, in no event shall any Revolving Credit Loans be made, or Letter of Credit be issued, if the aggregate amount of the Revolving Credit Loans to be made or Letter of Credit to be issued would, after giving effect to the use of proceeds, if any, thereof, exceed the aggregate Available Revolving Credit Commitments nor shall any Letter of Credit be issued if after giving effect thereto the sum of the undrawn amount of all outstanding Letters of Credit and the amount of all L/C Obligations would exceed $15,000,000. 23 (b) During the Revolving Credit Commitment Period, the Borrowers may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof, and/or by having the Issuing Lender issue Letters of Credit, having such Letters of Credit expire undrawn upon or if drawn upon, reimbursing the Issuing Lender for such drawing, and having the Issuing Lender issue new Letters of Credit. (c) Each borrowing of Revolving Credit Loans pursuant to the Revolving Credit Commitments shall be in an aggregate principal amount of the lesser of (i) $500,000 or a whole multiple of $100,000 in excess thereof in the case of Alternate Base Rate Loans, and $1,000,000 or a whole multiple of $500,000 in excess thereof, in the case of Eurodollar Loans, and (ii) the Available Revolving Credit Commitments, except that any borrowing of Revolving Credit Loans to be used solely to pay a like amount of Swing Line Loans may be in the aggregate principal amount of such Swing Line Loans. 3.2 Commitment Fee. The Company agrees to pay to the Administrative -------------- Agent for the account of each Lender (other than any Non-Funding Lender) a commitment fee from and including the Closing Date to and including the Revolving Credit Termination Date computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made (whether or not the Borrowers shall have satisfied the applicable conditions to borrow or for the issuance of a Letter of Credit set forth in Section 6). Such commitment fee shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first such date to occur following the Closing Date (or, if earlier, the Revolving Credit Termination Date). 3.3 Proceeds of Revolving Credit Loans. The Borrowers shall use the ---------------------------------- proceeds of Revolving Credit Loans (a) to finance up to $5,000,000 of the consideration paid in connection with the Merger (in addition to seasonal working capital usage of up to $40,000,000), (b) to repay existing indebtedness and (c) for general corporate purposes. 3.4 Swing Line Commitment. (a) Subject to the terms and conditions --------------------- hereof, the Swing Line Lender agrees, so long as the Administrative Agent has not received notice that an Event of Default has occurred and is continuing, to make swing line loans (individually, a "Swing Line Loan"; collectively, the --------------- "Swing Line Loans") to the Borrowers from time to time during the Revolving ---------------- Credit Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $10,000,000; provided that no Swing Line Loan may be -------- made if the aggregate principal amount of the Swing Line Loans to be made would exceed the aggregate Available Revolving Credit Commitments at such time. Amounts borrowed by the Borrowers under this subsection 3.4 may be repaid and, through but excluding the Revolving Credit Termination Date, reborrowed. All Swing Line Loans shall be made as Alternate Base Rate Loans and shall not be entitled to be converted into Eurodollar Loans. The Company shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 3:00 P.M., New York City time) on the requested Borrowing Date specifying the amount of each requested Swing Line Loan, which shall be in an aggregate minimum amount of $250,000 or a whole multiple of $100,000 in excess thereof. The proceeds of each Swing Line Loan will be made available by the Swing Line Lender to the Borrowers by crediting the account of the Borrowers at the office of the Swing Line Lender with such proceeds. The proceeds of Swing Line Loans may be used solely for the purposes referred to in subsection 3.3. (b) The Swing Line Lender at any time in its sole and absolute discretion may, and on the fifteenth day (or if such day is not a Business Day, the next Business Day) and last Business Day of each month shall, on behalf of the Company (which hereby irrevocably directs the Swing Line Lender to act on its behalf) request each Revolving Credit Lender, including the Swing Line Lender, to make a Revolving Credit Loan in an amount equal to such Lender's Revolving Credit Commitment Percentage 24 of the amount of the Swing Line Loans (the "Refunded Swing Line Loans") ------------------------- outstanding on the date such notice is given. Unless any of the events described in paragraph (f) of Section 9 shall have occurred (in which event the procedures of paragraph (c) of this subsection 3.4 shall apply) each such Lender shall make the proceeds of its Revolving Credit Loan available to the Swing Line Lender for the account of the Swing Line Lender at the office of the Swing Line Lender specified in subsection 11.2 (or such other location as the Swing Line Lender may direct) prior to 12:00 noon (New York City time) in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the Refunded Swing Line Loans. (c) If prior to the making of a Revolving Credit Loan pursuant to paragraph (b) of this subsection 3.4 one of the events described in paragraph (f) of Section 9 shall have occurred, each Revolving Credit Lender will, on the date such Loan was to have been made, purchase an undivided participating interest in the Refunded Swing Line Loan in an amount equal to its Revolving Credit Commitment Percentage of such Refunded Swing Line Loan. Each such Lender will immediately transfer to the Swing Line Lender in immediately available funds, the amount of its participation and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (d) Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender's participating interest in a Refunded Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded) in like funds as received; provided that in -------- the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it in like funds as such payment is required to be returned by the Swing Line Lender. (e) The obligation of each Revolving Credit Lender to purchase participating interests pursuant to subsection 3.4(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, any Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any adverse change in the condition (financial or otherwise) of any Borrower; (iv) any breach of this Agreement by any Borrower or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.5 Issuance of Letters of Credit. (a) The Company, as agent for ----------------------------- the Borrowers, may from time to time request the Issuing Lender to issue a Standby L/C or a Commercial L/C by delivering to the Administrative Agent at its address specified in subsection 11.2 (or such other location as the Issuing Lender may direct) a letter of credit application in the Issuing Lender's then customary form (the "L/C Application") completed to the satisfaction of the --------------- Issuing Lender, together with the proposed form of such Letter of Credit (which shall comply with the applicable requirements of paragraph (b) below) and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request; provided that if the Issuing Lender informs the -------- Company that it is for any reason unable to open such Letter of Credit, the Company, as agent for the Borrowers, may request any Lender to open such Letter of Credit upon the same terms offered to the Issuing Lender and each reference to the Issuing Lender for purposes of subsections 3.5 through 3.14, 6.1 and 6.2 shall be deemed to be a reference to such Issuing Lender. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any L/C Application or other document submitted by the Company to, or entered into by the Company with, the Issuing Lender relating to any Letter of Credit, the terms and conditions of this Agreement shall control. 25 (b) Each Standby L/C and Commercial L/C issued hereunder shall be issued for the account of the Company and shall, among other things, (i) be denominated in Dollars and be in such form requested by the Company as shall be acceptable to the Issuing Lender in its sole discretion and (ii) have an expiry date occurring not later than 365 days after the date of issuance of such Letter of Credit and, in the case of Standby L/Cs, may be automatically renewed on its expiry date for an additional period equal to the initial term, but in no case shall any Letter of Credit have an expiry date occurring later than the Revolving Credit Termination Date. Each L/C Application and each Letter of Credit shall be subject to the International Standby Practices (ISP 98) of the International Chamber of Commerce (in the case of Standby L/Cs) or the Uniform Customs (in the case of Commercial L/Cs) and, to the extent not inconsistent therewith, the laws of the State of New York. 3.6 Participating Interests. Effective in the case of each Standby ----------------------- L/C and Commercial L/C (if applicable) as of the date of the opening thereof, the Issuing Lender agrees to allot and does allot, to itself and each other Revolving Credit Lender, and each such Lender severally and irrevocably agrees to take and does take in such Letter of Credit and the related L/C Application (if applicable), an L/C Participating Interest in a percentage equal to such Lender's Revolving Credit Commitment Percentage. 3.7 Procedure for Opening Letters of Credit. The Issuing Lender will --------------------------------------- notify each Lender after the end of each calendar month of any L/C Applications received by the Issuing Lender from the Company during such month. Upon receipt of any L/C Application from the Company, the Issuing Lender will process such L/C Application, and the other certificates, documents and other papers delivered to the Issuing Lender in connection therewith, in accordance with its customary procedures and, subject to the terms and conditions hereof, shall promptly open such Letter of Credit by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to the Company and, after the end of the calendar month in which such Letter of Credit was opened, to the other Lenders; provided that no such Letter of Credit shall -------- be issued if subsection 3.1 would be violated thereby. 3.8 Payments in Respect of Letters of Credit. (a) The Company ---------------------------------------- agrees forthwith upon demand by the Issuing Lender and otherwise in accordance with the terms of the L/C Application relating thereto, (i) to reimburse the Issuing Lender for any payment made by the Issuing Lender under any Letter of Credit issued for the account of the Company and (ii) to pay interest on any unreimbursed portion of any such payment from the date of such payment until reimbursement in full thereof at a rate per annum equal to (A) on or prior to the date which is one Business Day after the day on which the Issuing Lender demands reimbursement from the Company for such payment, the Alternate Base Rate plus the Applicable Margin for the Revolving Credit Loans and (B) thereafter, - ---- the Alternate Base Rate plus the Applicable Margin for the Revolving Credit ---- Loans plus 2%. ---- (b) In the event that the Issuing Lender makes a payment under any Letter of Credit and is not reimbursed in full therefor forthwith upon demand of the Issuing Lender, and otherwise in accordance with the terms of the L/C Application relating to such Letter of Credit, the Issuing Lender will promptly notify each other Revolving Credit Lender. Forthwith upon its receipt of any such notice, each such other Lender will transfer to the Issuing Lender, in immediately available funds, an amount equal to such other Lender's pro rata --- ---- share (based on its Revolving Credit Commitment) of the L/C Obligation arising from such unreimbursed payment. Promptly, upon its receipt from such other Lender of such amount, the Issuing Lender will complete, execute and deliver to such other Lender an L/C Participation Certificate dated the date of such receipt and in such amount. (c) Whenever, at any time after the Issuing Lender has made a payment under any Letter of Credit and has received from any other Revolving Credit Lender such other Lender's pro rata share of the L/C Obligation arising --- ---- therefrom, the Issuing Lender receives any reimbursement on account of such L/C Obligation or any payment of interest on account thereof, the Issuing Lender will promptly 26 distribute to such other Lender its pro rata share thereof in like funds as --- ---- received; provided that in the event that the receipt by the Issuing Lender of -------- such reimbursement or such payment of interest (as the case may be) is required to be returned, such other Lender will return to the Issuing Lender any portion thereof previously distributed by the Issuing Lender to it in like funds as such reimbursement or payment is required to be returned by the Issuing Lender. 3.9 Letter of Credit Fees. (a) In lieu of any letter of credit --------------------- commissions and fees provided for in any L/C Application relating to Standby or Commercial L/Cs (other than standard issuance, amendment and negotiation fees), the Company agrees to pay the Administrative Agent, for the account of the Issuing Lender and the Participating Lenders, with respect to each Standby or Commercial L/C issued for the account of the Company, a Standby or Commercial L/C fee, as the case may be, equal to the Applicable Margin for Revolving Credit Loans which are Eurodollar Loans per annum (of which the Issuing Lender shall retain for its own account, as the issuing bank and not on account of its L/C Participating Interest therein, 0.25% per annum) on the daily average amount available to be drawn under each Standby L/C in the case of a Standby L/C and on the maximum face amount of each Commercial L/C in the case of a Commercial L/C, in either case, payable, in arrears, on the last day of each fiscal quarter of the Company. The Administrative Agent will disburse any Standby or Commercial L/C fees received pursuant to this subsection 3.9(a) to the respective Lenders promptly following the receipt of any such fees. Notwithstanding the foregoing, the Company agrees to pay standard issuance, amendment and negotiation fees to the Issuing Lender. (b) For purposes of any payment of fees required pursuant to this subsection 3.9, the Administrative Agent agrees to provide to the Company a statement of any such fees to be so paid; provided that the failure by the -------- Administrative Agent to provide the Company with any such invoice shall not relieve the Company of its obligation to pay such fees. 3.10 Letter of Credit Reserves. (a) If any Change in Law shall ------------------------- either (i) impose, modify, deem or make applicable any reserve, special deposit, assessment or similar requirement against letters of credit issued by the Issuing Lender or (ii) impose on the Issuing Lender any other condition regarding this Agreement (with respect to Letters of Credit) or any Letter of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost of the Issuing Lender of issuing or maintaining any Letter of Credit (which increase in cost shall be the result of the Issuing Lender's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Issuing Lender, the Company shall immediately pay to the Issuing Lender, from time to time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate the Issuing Lender for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the rate applicable to Alternate Base Rate Loans pursuant to subsection 4.5(b). The Company shall not be required to make any payments to the Issuing Lender for any additional amounts pursuant to this subsection 3.10(a) unless the Issuing Lender has given written notice to the Company of its intent to request such payments prior to or within 60 days after the date on which the Issuing Lender became entitled to claim such amounts. A certificate, setting forth in reasonable detail the calculation of the amounts involved, submitted by the Issuing Lender to the Company concurrently with any such demand by the Issuing Lender, shall be conclusive, absent manifest error, as to the amount thereof. (b) In the event that any Change in Law with respect to the Issuing Lender shall, in the opinion of the Issuing Lender, require that any obligation under any Letter of Credit be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by the Issuing Lender or any corporation controlling the Issuing Lender, and such Change in Law shall have the effect of reducing the rate of return on the Issuing Lender's or such corporation's capital, as the case may be, as a consequence of the Issuing Lender's obligations under such Letter of Credit to a level below that which the Issuing Lender or such corporation, as the case may be, could have 27 achieved but for such Change in Law (taking into account the Issuing Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount deemed by the Issuing Lender to be material, then from time to time following notice by the Issuing Lender to the Company of such Change in Law, within 15 days after demand by the Issuing Lender, the Company shall pay to the Issuing Lender such additional amount or amounts as will compensate the Issuing Lender or such corporation, as the case may be, for such reduction. The Issuing Lender agrees that, upon the occurrence of any event giving rise to the operation of paragraph (a) or (b) of this subsection 3.10 with respect to the Issuing Lender, it will, if requested by the Company and to the extent permitted by law or by the relevant Governmental Authority, endeavor in good faith to avoid or minimize the increase in costs or reduction in payments resulting from such event; provided that such avoidance or minimization -------- can be made in such a manner that the Issuing Lender, in its sole determination, suffers no economic, legal or regulatory disadvantage. The Company shall not be required to make any payments to the Issuing Lender for any additional amounts pursuant to this subsection 3.10(b) unless the Issuing Lender has given written notice to the Company of its intent to request such payments prior to or within 60 days after the date on which the Issuing Lender became entitled to claim such amounts. A certificate, in reasonable detail setting forth the calculation of the amounts involved, submitted by the Issuing Lender to the Company concurrently with any such demand by the Issuing Lender, shall be conclusive, absent manifest error, as to the amount thereof. (c) The Company and each Participating Lender agree that the provisions of the foregoing paragraphs (a) and (b) shall apply equally to each Participating Lender in respect of its L/C Participating Interest in such Letter of Credit, as if the references in such paragraphs and provisions referred to, where applicable, such Participating Lender or, in the case of paragraph (b), any corporation controlling such Participating Lender. 3.11 Further Assurances. The Company hereby agrees, from time to ------------------ time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by the Issuing Lender more fully to effect the purposes of this Agreement and the issuance of Letters of Credit hereunder. 3.12 Obligations Absolute. The payment obligations of the Company -------------------- under this Agreement with respect to the Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) the existence of any claim, set-off, defense or other right which the Company or any of its Subsidiaries may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, the Administrative Agent or any Lender, or any other Person, whether in connection with this Agreement, any Credit Document, the transactions contemplated herein, or any unrelated transaction; (ii) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent or invalid or any statement therein being untrue or inaccurate in any respect; (iii) payment by the Issuing Lender under any Letter of Credit against presentation of a draft or certificate or other document which does not comply with the terms of such Letter of Credit or is insufficient in any respect, except where such payment constitutes gross negligence or willful misconduct on the part of the Issuing Lender; or 28 (iv) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except for any such circumstances or happening constituting gross negligence or willful misconduct on the part of the Issuing Lender. 3.13 Assignments. No Participating Lender's participation in any ----------- Letter of Credit or any of its rights or duties hereunder shall be subdivided, assigned or transferred (other than in connection with a transfer of part or all of such Participating Lender's Revolving Credit Commitment in accordance with subsection 11.6(c)) without the prior written consent of the Issuing Lender, which consent will not be unreasonably withheld. Such consent may be given or withheld without the consent or agreement of any other Participating Lender. Notwithstanding the foregoing, a Participating Lender may subparticipate its L/C Participating Interest without obtaining the prior written consent of the Issuing Lender. 3.14 Participations. The obligation of each Revolving Credit Lender -------------- to purchase participating interests pursuant to subsection 3.6 shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender, any Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any adverse change in the condition (financial or otherwise) of any Borrower; (iv) any breach of this Agreement by any Borrower or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS -------------------------------------- 4.1 Procedure for Borrowing. (a) The Borrowers may borrow under the ----------------------- Commitments on any Business Day; provided that, with respect to any borrowing, -------- the Company, as agent for the Borrowers, shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 12:00 noon (or, with respect to Swing Line Loans, 3:00 P.M.), New York City time, (i) three Business Days prior to the requested Borrowing Date if all or any part of the Loans are to be Eurodollar Loans and (ii) on the requested Borrowing Date if the applicable notice is received prior to 9:00 A.M.. on such Borrowing Date and if the borrowing is to be solely of Alternate Base Rate Loans) and specifying (A) the amount of the borrowing, (B) whether such Loans are initially to be Eurodollar Loans or Alternate Base Rate Loans or a combination thereof, (C) if the borrowing is to be entirely or partly Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans and (D) whether the Loan is a Term Loan, a Swing Line Loan or Revolving Credit Loan. Upon receipt of such notice the Administrative Agent shall promptly notify each affected Lender thereof. Not later than 12:00 noon, New York City time, on the Borrowing Date specified in such notice, each affected Lender shall make available to the Administrative Agent at the office of the Administrative Agent specified in subsection 11.2 (or at such other location as the Administrative Agent may direct) an amount in immediately available funds equal to the amount of the Loan to be made by such Lender (except that proceeds of Swing Line Loans will be made available to the Borrowers in accordance with subsection 3.4(a)). Loan proceeds received by the Administrative Agent hereunder shall promptly be made available to the Borrowers by the Administrative Agent's crediting the account of the Borrowers, at the office of the Administrative Agent specified in subsection 11.2, with the aggregate amount actually received by the Administrative Agent from the Lenders and in like funds as received by the Administrative Agent. (b) Any borrowing of Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, (i) the aggregate principal amount of all Eurodollar Loans having the same Interest Period shall not be less than $1,000,000 or a whole multiple of $500,000 in excess thereof and (ii) no more than sixteen Interest Periods shall be in effect at any one time. 29 4.2 Conversion and Continuation Options. (a) Subject to subsection ----------------------------------- 4.12, the Company, as agent for the Borrowers, may elect from time to time to convert Eurodollar Loans into Alternate Base Rate Loans by giving the Administrative Agent irrevocable notice of such election, to be received by the Administrative Agent prior to 12:00 noon, New York City time, at least three Business Days prior to the proposed conversion date. The Company, as agent for the Borrowers, may elect from time to time to convert all or a portion of the Alternate Base Rate Loans (other than Swing Line Loans) then outstanding to Eurodollar Loans by giving the Administrative Agent irrevocable notice of such election, to be received by the Administrative Agent prior to 12:00 noon, New York City time, at least three Business Days prior to the proposed conversion date, specifying the Interest Period selected therefor, and, if no Default or Event of Default has occurred and is continuing, such conversion shall be made on the requested conversion date or, if such requested conversion date is not a Business Day, on the next succeeding Business Day. Upon receipt of any notice pursuant to this subsection 4.2, the Administrative Agent shall promptly notify each affected Lender thereof. All or any part of the outstanding Loans (other than Swing Line Loans) may be converted as provided herein; provided that -------- partial conversions of Alternate Base Loans shall be in the aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof and the aggregate principal amount of the resulting Eurodollar Loans outstanding in respect of any one Interest Period shall be at least $1,000,000 or a whole multiple of $500,000 in excess thereof. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company, as agent for the Borrowers, giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans; provided that no Eurodollar Loan may be continued as -------- such (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have, by written notice to the Company, determined that such a continuation is not appropriate, (ii) if, after giving effect thereto, subsection 4.1(b) would be contravened or (iii) after the date that is one month prior to the Revolving Credit Termination Date (in the case of continuations of Revolving Credit Loans) or the final Installment Payment Date of the Term Loans. 4.3 Changes of Commitment Amounts. (a) The Company, as agent for ----------------------------- the Borrowers, shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate or from time to time to permanently reduce the Revolving Credit Commitments, subject to the provisions of this subsection 4.3. To the extent, if any, that the sum of the amount of the Revolving Credit Loans, Swing Line Loans and L/C Obligations then outstanding and the amounts available to be drawn under outstanding Letters of Credit exceeds the amount of the Revolving Credit Commitments as then reduced, the Company, as agent for the Borrowers, shall be required to make a prepayment equal to such excess amount, the proceeds of which shall be applied, first, to ----- payment of the Swing Line Loans then outstanding, second, to payment of the ------ Revolving Credit Loans then outstanding, third, to payment of any L/C ----- Obligations then outstanding, and fourth, to cash collateralize any outstanding ------ Letters of Credit on terms reasonably satisfactory to the Administrative Agent. Any such termination of the Revolving Credit Commitments shall be accompanied by prepayment in full of the Revolving Credit Loans, Swing Line Loans and L/C Obligations then outstanding and by cash collateralization of any outstanding Letters of Credit on terms reasonably satisfactory to the Administrative Agent. Upon termination of the Revolving Credit Commitments, any Letter of Credit then outstanding that has been so cash collateralized shall no longer be considered a "Letter of Credit" as defined in subsection 1.1 and any L/C Participating Interests heretofore granted by the Issuing Lender to the Lenders in such Letter of Credit shall be deemed terminated (subject to automatic reinstatement in the event that such cash collateral is returned and the Issuing Lender is not fully reimbursed for any such L/C Obligations) but the Letter of Credit fees payable under subsection 3.9 shall continue to accrue to the Issuing Lender and the Participating Lenders (or, in the event of any such automatic reinstatement, as provided in subsection 3.9) with respect to such Letter of Credit until the expiry thereof (provided that in lieu of paying a -------- 30 Standby or Commercial L/C fee, as the case may be, equal to the Applicable Margin for Revolving Credit Loans which are Eurodollar Loans per annum, the Company shall pay to the Administrative Agent an amount equal to 0.25% per annum). (b) In the case of termination of the Revolving Credit Commitments, interest accrued on the amount of any prepayment relating thereto and any unpaid commitment fee accrued hereunder shall be paid on the date of such termination. Any such partial reduction of the Revolving Credit Commitments shall be in an amount of $1,000,000 or a whole multiple of $500,000 in excess thereof and shall, in each case, reduce permanently the amount of the Revolving Credit Commitments then in effect. 4.4 Optional and Mandatory Prepayments; Repayments of Term Loans. ------------------------------------------------------------ (a) Subject to subsection 4.12, the Company, as agent for the Borrowers, may at any time and from time to time prepay Loans, in whole or in part, without premium or penalty, by irrevocable notice to the Administrative Agent by 10:00 A.M., New York City time, on the same Business Day (or, in the case of Swing Line Loans, by irrevocable notice to the Administrative Agent by 12:00 noon, New York City time, on the same Business Day) in the case of Alternate Base Rate Loans, and three Business Days' irrevocable notice to the Administrative Agent in the case of Eurodollar Loans, specifying the date and amount of prepayment and whether the prepayment is of Revolving Credit Loans or Term Loans. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the Borrowers specified in such prepayment notice shall make such prepayment, and the payment amount specified in such notice shall be due and payable, on the date specified therein. Partial prepayments (i) of Term Loans shall be in an aggregate principal amount equal to the lesser of (A) (I) $1,000,000, or a whole multiple of $500,000 in excess thereof with respect to Eurodollar Loans or (II) $500,000, or a whole multiple of $100,000 in excess thereof with respect to Alternate Base Rate Loans and (B) the aggregate unpaid principal amount of the Term Loans, and (ii) of Revolving Credit Loans shall be in an aggregate principal amount equal to the lesser of (A) $1,000,000, or a whole multiple of $500,000 in excess thereof with respect to Eurodollar Loans or (II) $500,000, or a whole multiple of $100,000 in excess thereof with respect to Alternate Base Rate Loans and (B) the aggregate unpaid principal amount of the Revolving Credit Loans, as the case may be. Prepayments of the Term Loans pursuant to this subsection 4.4(a) shall be applied pro rata --- ---- to the Tranche A Term Loans and the Tranche B Term Loans, and shall be applied first, to any installment due to be paid within three months of such prepayment - ----- and, second, ratably to the remaining installments thereof. ------ (b) (i) So long as any Term Loans are outstanding, if, subsequent to the Closing Date, the Company or any of its Subsidiaries shall issue any Capital Stock (other than warrants issued in connection with the issuance of Preferred Stock or the Senior Subordinated Notes), 50% of the Net Proceeds thereof (excluding amounts provided by the Investor Group or their Affiliates or by management employees of such issuer) shall be promptly applied toward the prepayment of the Term Loans pro rata to the Tranche A Term Loans and Tranche B --- ---- Term Loans (with such application being made first, to any installment due to be ----- paid within three months of such prepayment and, second, ratably to the ------ remaining installments thereof); provided that Net Proceeds of such issuance -------- shall be deemed to be Net Proceeds of such issuance for purposes of this subsection 4.4(b)(i) only after deducting therefrom any cash proceeds therefrom actually applied to the redemption of (a) any then outstanding aggregate principal amount of Bridge Subordinated Debt (including all accrued interest on such subordinated bridge loans and the amount of all expenses, premium or penalties associated therewith) and (b) up to 35% of the Specified Debt under any "equity clawback" provisions and (c) the redemption of up to 35% of the Preferred Stock under any "equity clawback" provisions and the payment of any expenses, premium or penalties or accrued interest with respect thereto. (ii) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall incur or permit the incurrence of any Indebtedness (other than Indebtedness permitted pursuant to subsection 8.1, unless otherwise specified in such subsection), 100% of the Net Proceeds thereof shall be 31 promptly applied toward the prepayment of the Term Loans pro rata to the Tranche --- ---- A Term Loans and Tranche B Term Loans (with such application being made first, ----- to any installment due to be paid within three months of such prepayment and, second, ratably to the remaining installments thereof). - ------ (iii) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall incur or permit the incurrence of any Indebtedness permitted pursuant to subsection 8.1(c)(ii) in excess of the Permitted Specified Debt Amount (as defined in subsection 8.1(c)(ii)), 100% of the Net Proceeds thereof shall be promptly applied toward the prepayment of the Tranche B Term Loans (with such application being made first, to any installment due to be paid within three months of such prepayment and, second, ratably to the remaining installments thereof). (iv) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall receive Net Proceeds from any Asset Sale, such Net Proceeds shall be promptly applied toward the prepayment of the Term Loans pro rata to --- ---- the Tranche A Term Loans and Tranche B Term Loans (with such application being made first, to any installment due to be paid within three months of such prepayment and, second, ratably to the remaining installments thereof); provided ------ -------- that such Net Proceeds need not be applied to the prepayment of the Term Loans until the earlier of the date that the aggregate amount of Net Proceeds received by the Borrower or any of its Subsidiaries from any Asset Sales exceeds $1,000,000 (and has not yet been applied to the prepayment of the Term Loans hereunder) and the date which is six months after the last application of Net Proceeds pursuant to this subsection 4.4(b)(iv). (v) If for any fiscal year commencing with its fiscal year ending on December 29, 2001, there shall be Excess Cash Flow for such fiscal year, 50% of such Excess Cash Flow shall be promptly applied toward prepayment of the Term Loans pro rata to the Tranche A Term Loans and Tranche B Term Loans (with such --- ---- application being made first, to any installment due to be paid within three ----- months of such prepayment and, second, ratably to the remaining installments ------ thereof). Each such prepayment shall be made not later than 120 days after the end of such fiscal year. (vi) The Company, as agent for the Borrowers, shall give the Administrative Agent (which shall promptly notify each Lender) at least one Business Day's notice of each prepayment or mandatory reduction pursuant to this subsection 4.4(b) setting forth the date, amount and applicable Borrower thereof. Except as otherwise may be agreed by the Company, as agent for the Borrowers and the Required Lenders, any prepayment of Loans pursuant to this subsection 4.4 shall be applied, first, to any Alternate Base Rate Loans then ----- outstanding and the balance of such prepayment, if any, to the Eurodollar Loans then outstanding; provided that prepayments of Eurodollar Loans, if not on the -------- last day of the Interest Period with respect thereto, shall, at the option of the Company, as agent for the Borrowers, be prepaid subject to the provisions of subsection 4.12 or the amount of such prepayment (after application to any Alternate Base Rate Loans) shall be deposited with the Administrative Agent as cash collateral for the Loans on terms reasonably satisfactory to the Administrative Agent and thereafter shall be applied in the order of the Interest Periods next ending most closely to the date such prepayment is required to be made and on the last day of each such Interest Period. After such application, unless an Event of Default shall have occurred and be continuing, any remaining interest earned on such cash collateral shall be paid to the Company, as agent for the Borrowers. (c) The Tranche A Term Loans shall be repaid in consecutive semi- annual installments on the dates set forth below (each such day, a "Tranche A --------- Installment Payment Date"), commencing on June 30, 2001, in an aggregate amount - ------------------------ equal to the amount specified for each such Tranche A Installment Payment Date: Installment Payment Date Installment Amount ------------------------ ------------------ 32 June 30, 2001 5,000,000 December 31, 2001 10,000,000 June 30, 2002 11,250,000 December 31, 2002 12,500,000 June 30, 2003 13,750,000 December 31, 2003 15,000,000 June 30, 2004 16,250,000 December 31, 2004 17,500,000 June 30, 2005 18,750,000 December 31, 2005 20,000,000 Tranche A Maturity Date 10,000,000 (d) The Tranche B Term Loans shall be repaid in consecutive semi- annual installments on the dates set forth below (each such day, a "Tranche B --------- Installment Payment Date"), commencing on June 30, 2001, in an aggregate amount - ------------------------ equal to the amount specified for each such Tranche B Installment Payment Date. Installment Payment Date Installment Amount ------------------------ ------------------ June 30, 2001 500,000 December 31, 2001 1,000,000 June 30, 2002 1,000,000 December 31, 2002 1,000,000 June 30, 2003 1,000,000 December 31, 2003 1,000,000 June 30, 2004 1,000,000 December 31, 2004 1,000,000 June 30, 2005 1,000,000 December 31, 2005 1,000,000 June 30, 2006 25,500,000 December 31, 2006 50,000,000 June 30, 2007 81,250,000 December 31, 2007 112,500,000 Tranche B Maturity Date 66,250,000 Amounts repaid on account of the Term Loans pursuant to this subsection or otherwise may not be reborrowed. Accrued interest on the amount of any prepayments shall be paid on the Interest Payment 33 Date next succeeding the date of any partial prepayment and on the date of such prepayment in the case of a prepayment in full of the Term Loans. (e) Notwithstanding the provisions of subsection 4.4, with respect to the amount of any mandatory prepayment described therein that is allocated to Tranche B Term Loans (such amount, the "Tranche B Prepayment Amount"), at any --------------------------- time when Tranche A Term Loans remain outstanding, the Administrative Agent shall promptly provide to each Tranche B Lender a notice (each a "Tranche B --------- Prepayment Option Notice") as described below. Each Tranche B Prepayment Option - ------------------------ Notice shall be in writing, shall refer to this subsection 4.4(e) and shall (i) set forth the Tranche B Prepayment Amount and the portion thereof that the applicable Tranche B Lender will be entitled to receive if it accepts such mandatory prepayment in accordance with this subsection 4.4(e), (ii) state that the Company is offering to prepay on a specified date (each a "Tranche B --------- Mandatory Prepayment Date"), which shall be not less than four days or more than - ------------------------- six days after the date of the Tranche B Option Prepayment Notice, the Tranche B Term Loans of such Tranche B Lender in an amount equal to the portion of the Tranche B Prepayment Amount indicated in such Tranche B Lender's Tranche B Prepayment Option Notice as being applicable to such Tranche B Lender, (iii) request such Tranche B Lender to notify the Company and the Administrative Agent in writing, no later than the second day prior to the Tranche B Mandatory Prepayment Date, of such Tranche B Lender's acceptance or rejection of such offer of prepayment and (iv) inform such Tranche B Lender that failure by such Tranche B Lender to accept or reject such offer in writing on or before the second day prior to the Tranche B Mandatory Prepayment Date shall be deemed an acceptance of such prepayment offer. Each Tranche B Prepayment Option Notice shall be given by telecopy, confirmed by hand delivery, overnight courier service or registered or certified mail, in each case addressed as provided in subsection 11.2. On the Tranche B Mandatory Prepayment Date, the Borrowers shall pay the Administrative Agent in immediately available funds (i) the aggregate amount necessary to prepay the portion of the Tranche B Prepayment Amount in respect of which the Tranche B Lenders have accepted prepayment as described above (such Tranche B Lenders, the "Accepting Tranche B Lenders"), and --------------------------- the Administrative Agent shall apply such amount on behalf of such Borrower pro --- rata against the remaining installments of principal due in respect of the - ---- Tranche B Term Loans of the Accepting Tranche B Lenders, and (ii) the aggregate amount of the portion of the Tranche B Prepayment Amount not accepted by the Tranche B Lenders, and the Administrative Agent shall apply such amount on behalf of such Borrower pro rata against the remaining installments of principal --- ---- due in respect of the Tranche A Term Loans. 4.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall -------------------------------- bear interest for each day during each Interest Period applicable thereto, commencing on (and including) the first day of such Interest Period to, but excluding, the last day of such Interest Period, on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. ---- (b) Alternate Base Rate Loans shall bear interest for the period from and including the date such Loans are made to, but excluding, the maturity date thereof, or to, but excluding, the conversion date if such Loans are earlier converted into Eurodollar Loans on the unpaid principal amount thereof at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. ---- (c) If all or a portion of (i) the principal amount of any of the Loans or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar Loan, shall be converted into an Alternate Base Rate Loan at the end of the then-current Interest Period for such Eurodollar Loan (which conversion shall occur automatically and without need for compliance with the conditions for conversion set forth in subsection 4.2), and any such overdue amount shall, without limiting the rights of the Lenders under Section 9, bear interest (which shall be payable on demand) at a rate per annum which is 2% plus the Alternate ---- Base Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the ---- Eurodollar Rate for the Interest Period plus ---- 34 the Applicable Margin plus 2%, if higher) from the date of such non-payment ---- until paid in full (as well after as before judgment). (d) Except as otherwise expressly provided for in this subsection 4.5, interest shall be payable in arrears on each Interest Payment Date. 4.6 Computation of Interest and Fees. (a) Interest in respect of -------------------------------- Alternate Base Rate Loans, at any time that the Alternate Base Rate is determined by reference to the Prime Rate, and all fees hereunder shall be calculated on the basis of a 365 (or 366 as the case may be) day year for the actual days elapsed. Interest in respect of Eurodollar Loans and in respect of Alternate Base Rate Loans at any time that the Alternate Base Rate is determined by reference to the Base CD Rate or the Federal Funds Effective Rate shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the Eurocurrency Reserve Requirements becomes effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, as agent for the Borrowers, or any Lender, deliver to the Company or such Lender a statement showing the quotations used by the Administrative Agent in determining the Eurodollar Rate. 4.7 Certain Fees. The Company agrees to pay to the Administrative ------------ Agent, for its own account, a non-refundable agent's fee in an amount previously agreed to with the Administrative Agent, payable in advance on the Closing Date and on the first day of each fiscal year of the Company thereafter. 4.8 Inability to Determine Interest Rate. In the event that the ------------------------------------ Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that (a) by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period with respect to (i) proposed Loans that the Company, as agent for the Borrowers, has requested be made as Eurodollar Loans, (ii) any Eurodollar Loans that will result from the requested conversion of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii) the continuation of any Eurodollar Loan as such for an additional Interest Period, or (b) dollar deposits in the relevant amount and for the relevant period with respect to any such Eurodollar Loan are not generally available to the Lenders in their respective Eurodollar Lending Offices' interbank eurodollar markets, the Administrative Agent shall forthwith give telecopy or e-mail notice of such determination, confirmed in writing, to the Company and the Lenders at least one day prior to, as the case may be, the requested Borrowing Date, the conversion date or the last day of such Interest Period. If such notice is given (i) any requested Eurodollar Loans shall be made as Alternate Base Rate Loans, (ii) any Alternate Base Rate Loans that were to have been converted to Eurodollar Loans shall be continued as Alternate Base Rate Loans, and (iii) any outstanding Eurodollar Loans shall be converted on the last day of the then current Interest Period applicable thereto into Alternate Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made and no Alternate Base Rate Loans shall be converted to Eurodollar Loans. 35 4.9 Pro Rata Treatment and Payments. (a) Except to the extent ------------------------------- otherwise provided herein, each borrowing of Loans by the Borrowers from the Lenders and any reduction of the Commitments of the Lenders hereunder shall be made pro rata according to the relevant Commitment Percentages of the Lenders --- ---- with respect to the Loans borrowed or the Commitments to be reduced. (b) Whenever any payment received by the Administrative Agent under this Agreement or any Note or any other Credit Document is insufficient to pay in full all amounts then due and payable to the Administrative Agent and the Lenders under this Agreement: (i) If the Administrative Agent has not received a Payment Sharing Notice (or, if the Administrative Agent has received a Payment Sharing Notice but the Event of Default specified in such Payment Sharing Notice has been cured or waived in accordance with the provisions of this Agreement), such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of fees and expenses due and payable to the ----- Administrative Agent under and in connection with this Agreement and the other Credit Documents; second, to the payment of all expenses due and ------ payable under subsection 11.5, ratably among the Lenders in accordance with the aggregate amount of such payments owed to each such Lender; third, to ----- the payment of fees due and payable under subsections 3.2 and 3.9, ratably among the Lenders in accordance with the Commitment Percentage of each Lender of the Commitment for which such payment is owed and, in the case of the Issuing Lender, the amount retained by the Issuing Lender for its own account pursuant to subsection 3.9; fourth, to the payment of interest then ------ due and payable on the Loans and the L/C Obligations ratably in accordance with the aggregate amount of interest owed to each such Lender; and fifth, ----- to the payment of the principal amount of the Loans and the L/C Obligations which is then due and payable ratably among the Lenders in accordance with the aggregate principal amount owed to each such Lender; or (ii) If the Administrative Agent has received a Payment Sharing Notice which remains in effect, all payments received by the Administrative Agent under this Agreement or any Note shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of all amounts ----- described in clauses "first" through "third" of the foregoing clause (i) in ----- ----- the order set forth therein; second, to the payment of the interest accrued ------ on all Loans and L/C Obligations, regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate accrued interest plus the aggregate principal amount of all Loans and L/C Obligations then due and payable and owed to such Lender; and third, to the payment of the principal amount of all Loans and L/C ----- Obligations, regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate principal amount owed to such Lender. (c) If any Lender (a "Non-Funding Lender") has (x) failed to make a ------------------ Revolving Credit Loan required to be made by it hereunder, and the Administrative Agent has determined that such Lender is not likely to make such Revolving Credit Loan or (y) given notice to the Company or the Administrative Agent that it will not make, or that it has disaffirmed or repudiated any obligation to make, any Revolving Credit Loan, in each case by reason of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, or otherwise, (i) any payment made on account of the principal of the Revolving Credit Loans outstanding shall be made as follows: (A) in the case of any such payment made on any date when and to the extent that in the determination of the Administrative Agent the Borrowers would be able under the terms and conditions hereof to reborrow the amount of such payment under the Commitments and to satisfy any applicable conditions precedent set forth in Section 6 to such reborrowing, such 36 payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders other than the Non-Funding Lender pro rata according to --- ---- the respective outstanding principal amounts of the Revolving Credit Loans of such Lenders; and (B) otherwise, such payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders pro rata according --- ---- to the respective outstanding principal amounts of such Revolving Credit Loans; and (ii) any payment made on account of interest on the Revolving Credit Loans shall be made pro rata according to the respective amounts of accrued and unpaid --- ---- interest due and payable on the Revolving Credit Loans with respect to which such payment is being made. Each Borrower agrees to give the Administrative Agent such assistance in making any determination pursuant to subparagraph (i)(A) of this paragraph as the Administrative Agent may reasonably request. Any such determination by the Administrative Agent shall be conclusive and binding on the Lenders. (d) All payments (including prepayments) to be made by any Borrower on account of principal, interest and fees shall be made without set-off or counterclaim and shall be made to the Administrative Agent, for the account of the Lenders at the Administrative Agent's office located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States and in immediately available funds. The Administrative Agent shall promptly distribute such payments in accordance with the provisions of subsection 4.9(b) upon receipt in like funds as received. If any payment hereunder (other than payments on Eurodollar Loans) would become due and payable on a day other than a Business Day, such payment shall become due and payable on the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension), unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day. (e) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount which would constitute its Commitment Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent in accordance with subsection 4.1 and the Administrative Agent may, in reliance upon such assumption, make available to the Company, as agent for the Borrowers, a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 4.9(e) shall be conclusive absent manifest error. If such Lender's Commitment Percentage of such borrowing is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Alternate Base Rate Loans hereunder (in lieu of any otherwise applicable interest), on demand, from the Borrowers, without prejudice to any rights which any such Borrower or the Administrative Agent may have against such Lender hereunder. Nothing contained in this subsection 4.9 shall relieve any Lender which has failed to make available its ratable portion of any borrowing hereunder from its obligation to do so in accordance with the terms hereof. (f) The failure of any Lender to make the Loan to be made by it on any Borrowing Date shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on such Borrowing 37 Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such Borrowing Date. (g) All payments and optional prepayments (other than prepayments as set forth in subsection 4.11 with respect to increased costs) of Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Loans with the same Interest Period shall not be less than $1,000,000 or a whole multiple of $500,000 in excess thereof. 4.10 Illegality. Notwithstanding any other provision herein, if (i) ---------- any Change in Law occurring after the date that any lender becomes a Lender party to this Agreement, shall make it unlawful for such Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, the commitment of such Lender hereunder to make Eurodollar Loans or to convert all or a portion of Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended until such time, if any, as such illegality shall no longer exist and such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Alternate Base Rate Loans for the duration of the respective Interest Periods (or, if permitted by applicable law, at the end of such Interest Periods) and all payments of principal which would otherwise be applied to such Eurodollar Loans shall be applied instead to such Lender's Alternate Base Rate Loans. The Borrowers hereby agree to pay any Lender, promptly upon its demand, any amounts payable pursuant to subsection 4.12 in connection with any conversion in accordance with this subsection 4.10 (such Lender's notice of such costs, as certified in reasonable detail as to such amounts to the Company through the Administrative Agent, to be conclusive absent manifest error). 4.11 Requirements of Law. (a) In the event that any Change in Law or ------------------- compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority occurring after the date that any lender becomes a Lender party to this Agreement: (i) does or shall subject any such Lender or its Eurodollar Lending Office to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loans made by it, or change the basis of taxation of payments to such Lender or its Eurodollar Lending Office of principal, the commitment fee, interest or any other amount payable hereunder (except for (x) net income and franchise taxes imposed on the net income of such Lender or its Eurodollar Lending Office by the jurisdiction under the laws of which such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender's Eurodollar Lending Office is located or any political subdivision or taxing authority thereof or therein, including changes in the rate of tax on the overall net income of such Lender or such Eurodollar Lending Office, and (y) taxes resulting from the substitution of any such system by another system of taxation; provided that the taxes -------- payable by Lenders subject to such other system of taxation are not generally charged to borrowers from such Lenders having loans or advances bearing interest at a rate similar to the Eurodollar Rate); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate; or (iii) does or shall impose on such Lender any other condition; 38 and the result of any of the foregoing is to increase the cost to such Lender or its Eurodollar Lending Office of making, converting, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, then, in any such case, the Borrowers shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender deems to be material as determined by such Lender with respect to such Eurodollar Loans, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the Alternate Base Rate plus 1%. (b) In the event that any Change in Law occurring after the date that any lender becomes a Lender party to this Agreement with respect to any such Lender shall, in the opinion of such Lender, require that any Commitment of such Lender be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by such Lender or any corporation controlling such Lender, and such Change in Law shall have the effect of reducing the rate of return on such Lender's or such corporation's capital, as the case may be, as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation, as the case may be, could have achieved but for such Change in Law (taking into account such Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time following notice by such Lender to the Company of such Change in Law as provided in paragraph (c) of this subsection 4.11, within 15 days after demand by such Lender, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation on an after-tax basis, as the case may be, for such reduction. (c) The Borrowers shall not be required to make any payments to any Lender for any additional amounts pursuant to this subsection 4.11 unless such Lender has given written notice to the Company, through the Administrative Agent, of its intent to request such payments prior to or within 60 days after the date on which such Lender became entitled to claim such amounts. If any Lender has notified the Company through the Administrative Agent of any increased costs pursuant to paragraph (a) of this subsection 4.11, the Borrowers at any time thereafter may, upon at least three Business Days' notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and subject to subsection 4.12, prepay (or convert into Alternate Base Rate Loans) all (but not a part) of the Eurodollar Loans then outstanding. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of paragraph (a) of this subsection 4.11 with respect to such Lender, it will, if requested by the Company to the extent permitted by law or by the relevant Governmental Authority, endeavor in good faith to avoid or minimize the increase in costs or reduction in payments resulting from such event (including, without limitation, endeavoring to change its Eurodollar Lending Office); provided, that -------- such avoidance or minimization can be made in such a manner that such Lender, in its sole determination, suffers no economic, legal or regulatory disadvantage. If any Lender requests compensation from any Borrower under this subsection 4.11, the Company, as agent for the Borrowers may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender thereafter to make or continue Loans of the Type with respect to which such compensation is requested, or to convert Loans of any other Type into Loans of such Type, until the Requirement of Law giving rise to such request ceases to be in effect; provided that such suspension shall not affect the right of such -------- Lender to receive the compensation so requested. (d) Each Lender (and in case of an Assignee on the date it becomes a Lender) that is not a United States Person (as defined in Section 7701(a)(30) of the Code) for federal income tax purposes either (1) in the case of a Lender that is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) represents to each Borrower (for the benefit of the Borrowers and the Administrative Agent) that under applicable law and treaties no taxes are required to be withheld by any Borrower or the Administrative Agent with respect to any payments to be made to such Lender in respect of the Loans or the L/C Participating Interests, (ii) agrees to furnish to the Company, with a copy to the Administrative 39 Agent, either U.S. Internal Revenue Service Form W-8ECI or U.S. Internal Revenue Service Form W-8BEN (wherein such Lender claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) agrees (for the benefit of the Borrowers and the Administrative Agent), to the extent it may lawfully do so at such times, to provide the Company, with a copy to the Administrative Agent, a new Form W-8ECI or Form W- 8BEN upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Lender, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption or (2) in the case of a Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) agrees to furnish to the Company, with a copy to the Administrative Agent, (A) a certificate substantially in the form of Exhibit I hereto (any such certificate, a "Subsection 4.11(d)(2) Certificate") and (B) two accurate and complete original --------------------------------- signed copies of Internal Revenue Service Form W-8BEN, certifying to such Lender's legal entitlement at the Closing Date (or, in the case of an Assignee, on the date it becomes a Lender) to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to all payments to be made under this Agreement, and (ii) agrees, to the extent legally entitled to do so, upon reasonable request by the Company, to provide to the Company (for the benefit of the Borrowers and the Administrative Agent) such other forms as may be required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Agreement. Notwithstanding any provision of this subsection 4.11 or 4.9(d) to the contrary, the Borrowers shall have no obligation to pay any amount to or for the account of any Lender (or the Eurodollar Lending Office of any Lender) on account of any taxes pursuant to this subsection 4.11, to the extent that such amount results from (i) the failure of any Lender to comply with its obligations pursuant to this subsection 4.11, (ii) any representation or warranty made or deemed to be made by any Lender pursuant to this subsection 4.11(d) proving to have been incorrect, false or misleading in any material respect when so made or deemed to be made or (iii) any Change in Law or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, the effect of which would be to subject to any taxes any payment made pursuant to this Agreement to any Lender making the representation and covenants set forth in subsection 4.11(d)(2), which payment would not be subject to such taxes were such Lender eligible to make and comply with, and actually made and complied with, the representation and covenants set forth in subsection 4.11(d)(1) hereinabove. (e) A certificate in reasonable detail as to any amounts submitted by such Lender, through the Administrative Agent, to the Company, shall be conclusive in the absence of manifest error. The covenants contained in this subsection 4.11 shall survive the termination of this Agreement and repayment of the Loans. 4.12 Indemnity. The Borrowers agree to indemnify each Lender and to --------- hold such Lender harmless from any loss or expense (but without duplication of any amounts payable as default interest) which such Lender may sustain or incur as a consequence of (a) default by any Borrower in payment of the principal amount of or interest on any Eurodollar Loans of such Lender, including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder, (b) default by any Borrower in making a borrowing after the Company, as agent for the Borrowers, has given a notice in accordance with subsection 4.1 or in making a conversion of Alternate Base Rate Loans to Eurodollar Loans or in continuing Eurodollar Loans as such, in either case, after the Company, as agent for the Borrowers, has given notice in accordance with subsection 4.2, (c) default by any Borrower in making any prepayment after the Company, as agent for the Borrowers has given a notice in accordance with subsection 4.4 or (d) a payment or prepayment of a Eurodollar Loan or conversion (including without limitation, as a result of subsection 4.4 and/or a conversion pursuant to subsection 4.10) of any Eurodollar Loan into an Alternate Base Rate Loan, in either case on a day which is not the last day of an Interest Period with respect thereto, including, but not limited to, any such loss or expense arising from 40 interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Eurodollar Loans hereunder (but excluding loss of profit). This covenant shall survive termination of this Agreement and repayment of the Loans. 4.13 Repayment of Loans; Evidence of Debt. (a) The Borrowers hereby ------------------------------------ unconditionally promise to pay to the Administrative Agent for the account of each Lender (i) the then unpaid principal amount of each Revolving Credit Loan of such Lender on the Revolving Credit Termination Date, (ii) the principal amount of the Tranche A Term Loan of such Lender, in eleven consecutive installments, payable on each Tranche A Installment Payment Date, in accordance with subsection 4.4(c) (or the then unpaid principal amount of such Tranche A Term Loan on the date that the Tranche A Term Loans become due and payable pursuant to Section 9), (iii) the principal amount of the Tranche B Term Loan of such Lender, in fifteen consecutive installments, payable on each Tranche B Installment Payment Date, in accordance with subsection 4.4(d) (or the then unpaid principal amount of such Tranche B Term Loan on the date that the Tranche B Term Loans become due and payable pursuant to Section 9), and (iv) the then unpaid principal amount of the Swing Line Loans of the Swing Line Lender on the Revolving Credit Termination Date. The Borrowers hereby further agree to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum and on the dates set forth in subsection 4.5. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrowers to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Revolving Credit Loan, Tranche A Term Loan and Tranche B Term Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the applicable Borrower, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iv) both the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 4.13(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the ----- ----- obligations of the Borrowers therein recorded; provided that the failure of any -------- Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of any Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender or to repay any other obligations in accordance with the terms of this Agreement. (e) Each Borrower agrees that, upon the request to the Administrative Agent by any Lender, such Borrower will execute and deliver to such Lender (i) a promissory note of such Borrower evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A with appropriate insertions as to date and principal amount (a "Revolving Credit Note"), (ii) a promissory note of --------------------- such Borrower evidencing the Tranche A Term Loan of such Lender, substantially in the form of Exhibit B-1 with appropriate insertions as to date and principal amount (a "Tranche A Term Note"), (iii) a promissory note of such Borrower ------------------- evidencing the Tranche B Term Loan of such Lender, substantially in the form of Exhibit B-2 with appropriate insertions as to date and principal amount (a "Tranche B Term Note"), and/or (iv) in the case of the Swing Line Lender, a ------------------- promissory note of the Company evidencing the Swing Line Loans of the Swing Line Lender, substantially in the form of Exhibit C with appropriate insertions as to date and principal amount (the "Swing Line Note"). --------------- 41 4.14 Replacement of Lenders. In the event any Lender or the Issuing ---------------------- Lender is a Non-Funding Lender, exercises its rights pursuant to subsection 4.10 or requests payments pursuant to subsections 3.10 or 4.11, the Company, as agent for the Borrowers, may require, at the Borrowers' expense (including payment of any processing fees under subsection 11.6(e)) and subject to subsection 4.12, such Lender or the Issuing Lender to assign, at par plus accrued interest and fees, without recourse (in accordance with subsection 11.6) all of its interests, rights and obligations hereunder (including all of its Commitments and the Loans and other amounts at the time owing to it hereunder and its Notes and its interest in the Letters of Credit) to a bank, financial institution or other entity specified by the Company; provided that (i) such -------- assignment shall not conflict with or violate any law, rule or regulation or order of any court or other Governmental Authority, (ii) the Company shall have received the written consent of the Administrative Agent, which consent shall not unreasonably be withheld, to such assignment, (iii) the Borrowers shall have paid to the assigning Lender or the Issuing Lender all monies other than principal, interest and fees accrued and owing hereunder to it (including pursuant to subsections 3.10, 4.10, 4.11 and 4.12) and (iv) in the case of a required assignment by the Issuing Lender, the Letters of Credit shall be canceled and returned to the Issuing Lender. 4.15 Appointment of the Company and Reliance on Representation of the ---------------------------------------------------------------- Company. Each Borrower hereby appoints the Company as its agent for all purposes - ------- hereunder, and each Borrower agrees that the Administrative Agent and the Lenders may rely on any representation, warranty, certificate, notice, document or telephone request which purports to be executed or made, and which the Administrative Agent or the Lenders in good faith believe to have been executed or made, by the Company or any of its authorized officers, and each Borrower further agrees to indemnify and hold the Administrative Agent and the Lenders harmless for any action, including the making of the borrowings hereunder, and any loss or expense, taken or incurred by any of them as a result of their good faith reliance upon any such representations, warranty, certificate, notice, document or telephone request. All obligations of the Borrowers under this Agreement or any notes, instruments or agreements entered in connection herewith, shall be joint and several obligations of each of the Borrowers. SECTION 5. REPRESENTATIONS AND WARRANTIES ------------------------------ In order to induce the Lenders to enter into this Agreement and to make the Loans and to induce the Issuing Lender to issue, and the Participating Lenders to participate in, the Letters of Credit, each Borrower hereby represents and warrants to each Lender and the Administrative Agent as of the Closing Date and as of the making of any extension of credit hereunder: 5.1 Financial Condition. (a) The audited consolidated balance sheet ------------------- of the Company and its consolidated Subsidiaries as at January 1, 2000, and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by and accompanied by an unqualified report from Ernst & Young LLP, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. (b) The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at April 1, 2000, and the related unaudited consolidated statements of income and cash flows for the three-month period ended on each such date, certified by a Responsible Officer of the Company, copies of which have heretofore been furnished to each Lender, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the three-month period then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Company and its Subsidiaries do not have any material Contingent Obligations, contingent liabilities and liabilities for 42 taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. (c) The unaudited consolidated pro forma balance sheet of the Company --- ----- and its consolidated Subsidiaries, as of January 1, 2000, certified by a Responsible Officer of the Company (the "Pro Forma Balance Sheet"), copies of ----------------------- which have been furnished to each Lender, is the unaudited balance sheet of the Company and its consolidated Subsidiaries adjusted to give effect (as if such events had occurred on the date set forth therein) to (i) the Transactions and (ii) the incurrence of the Loans and the issuance of the Letters of Credit to be incurred or issued, as the case may be, on the Closing Date and all Indebtedness that the Company and its consolidated Subsidiaries expect to incur, and the payment of all amounts the Company and its consolidated Subsidiaries expect to pay, in connection with the Transactions. The Pro Forma Balance Sheet, together with the notes thereto, were prepared based on good faith assumptions in accordance with GAAP and is based on the best information available to the Company as of the date of delivery thereof and reflects on a pro forma basis the --- ----- financial position of the Company and its consolidated Subsidiaries as of January 1, 2000, as adjusted, as described above, assuming that the events specified in the preceding sentence had actually occurred as of January 1, 2000. 5.2 No Change. Since January 1, 2000, (a) there has been no change, --------- and (as of the Closing Date only) no development or event which has had or could reasonably be expected to have a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company and its Subsidiaries to perform their obligations under the Credit Documents and with respect to the other financings contemplated hereby or (iii) the rights and remedies of the Lenders under the Credit Documents and (b) no dividends or other distributions (other than the dividend paid March 1, 2000) have been declared, paid or made upon the Capital Stock of the Company nor has any of the Capital Stock of the Company been redeemed, retired, repurchased or otherwise acquired for value by the Company or any of its Subsidiaries, except in connection with the Transactions and as permitted under this Agreement. 5.3 Existence; Compliance with Law. Each of the Company and its ------------------------------ Subsidiaries (a) is duly organized and validly existing under the laws of the jurisdiction of its incorporation, (b) has full power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to use its corporate name and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, (c) is duly qualified and in good standing (to the extent such concept is applicable in the applicable jurisdiction) to do business in each jurisdiction in which the nature of its business or the ownership, leasing or holding of its properties makes such qualification necessary, except such jurisdictions where the failure so to qualify would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (d) is in compliance with all applicable statutes, laws, ordinances, rules, orders, permits and regulations of any governmental authority or instrumentality, domestic or foreign (including, without limitation, those related to Hazardous Materials and substances), except where noncompliance would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has received any written communication from a Governmental Authority that alleges that the Company or any of its Subsidiaries is not in compliance with federal, state, local or foreign laws, ordinances, rules and regulations except to the extent such noncompliance, individually or in the aggregate, would not 43 reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. 5.4 Power; Authorization. Each of the Company and its Subsidiaries -------------------- has the power and authority to make, deliver and perform each of the Credit Documents to which it is a party, and each Borrower has the power and authority and legal right to borrow hereunder and to have Letters of Credit issued for its account hereunder. Each of the Company and its Subsidiaries has taken all necessary action to authorize the execution, delivery and performance of each of the Credit Documents to which it is or will be a party and each Borrower has taken all necessary action to authorize the borrowings hereunder and the issuance of Letters of Credit for its account hereunder. No consent or authorization of, or filing with, any Person (including, without limitation, any Governmental Authority) is required in connection with the execution, delivery or performance by the Company or any of its Subsidiaries, or for the validity or enforceability in accordance with its terms against the Company or any of its Subsidiaries, of any Credit Document except for consents, authorizations and filings which have been obtained or made and are in full force and effect and except (i) such consents, authorizations and filings, the failure to obtain or perform (x) which would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (y) which would not adversely affect the validity or enforceability of any of the Credit Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder, and (ii) such filings as are necessary to perfect the Liens of the Lenders created pursuant to this Agreement and the Security Documents. 5.5 Enforceable Obligations. This Agreement and the Merger Agreement ----------------------- have been, and each of the other Credit Documents and any other agreement to be entered into by any Credit Party pursuant to the Merger Agreement will be, duly executed and delivered on behalf of each Credit Party that is party thereto. This Agreement and the Merger Agreement each constitutes, and each of the other Credit Documents and any other agreement to be entered into by any Credit Party pursuant to the Merger Agreement will constitute upon execution and delivery, the legal, valid and binding obligation of each Credit Party that is party thereto, and is enforceable against each Credit Party that is party thereto in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 5.6 No Legal Bar. The execution, delivery and performance of each ------------ Credit Document, the incurrence or issuance of and use of the proceeds of the Loans and of drawings under the Letters of Credit and the transactions contemplated by the Merger Agreement and the Credit Documents, (a) will not violate any Requirement of Law or any Contractual Obligation applicable to or binding upon each of the Company or any Subsidiary of the Company or any of their respective properties or assets, in any manner which, individually or in the aggregate, (i) would have a material adverse effect on the ability of the Company or any such Subsidiary taken as a whole to perform its obligations under the Credit Documents and the Merger Agreement and any other agreement to be entered into pursuant to the Merger Agreement, to which it is a party, (ii) would give rise to any liability on the part of the Administrative Agent or any Lender, or (iii) would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, and (b) will not result in the creation or imposition of any Lien on any of its properties or assets pursuant to any Requirement of Law applicable to it, as the case may be, or any of its Contractual Obligations, except for the Liens arising under the Security Documents and Permitted Liens. 5.7 No Material Litigation. Other than as disclosed in the Offering ---------------------- Memorandum or as set forth on Schedule 5.7 (i) no litigation by, investigation known to the Company by, or proceeding of, any Governmental Authority is pending against the Company or any of its Subsidiaries (including after giving effect to the Transactions) with respect to the validity, binding effect or enforceability of the 44 Merger Agreement, any Credit Document, the Loans made hereunder, the use of proceeds thereof, or of any drawings under a Letter of Credit and the other transactions contemplated hereby or by the Merger Agreement and (ii) no lawsuits, claims, proceedings or investigations are pending or, to the best knowledge of the Company, threatened as of the Closing Date against or affecting the Company or any of its Subsidiaries or any of their respective properties, assets, operations or businesses (including after giving effect to the Transactions), in which there is a probability of an adverse determination, and is reasonably likely, if adversely decided, to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. 5.8 Investment Company Act. Neither the Company nor any of its ---------------------- Subsidiaries is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). 5.9 Federal Regulation. No part of the proceeds of any of the Loans ------------------ or any drawing under a Letter of Credit will be used for any purpose which violates the provisions of Regulation T, U or X of the Board. Neither the Company nor any of its Subsidiaries is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under said Regulation U. 5.10 No Default. The Company and each of its Subsidiaries have ---------- performed all material obligations required to be performed by them under their respective Contractual Obligations (including after giving effect to the Transactions) and they are not (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, except to the extent that such breach or default would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries (including after giving effect to the Transactions) is in default under any material judgment, order or decree of any Governmental Authority, domestic or foreign, applicable to it or any of its respective properties, assets, operations or business, except to the extent that any such defaults would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. 5.11 Taxes. Each of the Company and its Subsidiaries (including after ----- giving effect to the Transactions) has filed or caused to be filed all material tax returns which, to the knowledge of the Company, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves (or other sufficient provisions) in conformity with GAAP have been provided on the books of the Company or its Subsidiaries (including after giving effect to the Transactions), as the case may be); and no tax Lien has been filed, and, to the knowledge of the Company, no written claim is being asserted, with respect to any such tax, fee or other charges. 5.12 Subsidiaries. After giving effect to the consummation of the ------------ Transactions, the Subsidiaries of the Company and their jurisdictions of incorporation on the Closing Date shall be as set forth on Schedule 5.12. 5.13 Ownership of Property; Liens. As of the Closing Date and as of ---------------------------- the making of any extension of credit hereunder (subject to transfers and dispositions of property permitted under subsection 8.5), each of the Company and its Subsidiaries has good and valid title to all of its material assets (other than real property or interests in real property) in each case free and clear of all mortgages, 45 liens, security interests or encumbrances of any nature whatsoever except Permitted Liens. With respect to real property or interests in real property, as of the Closing Date, each of the Company and its Subsidiaries has (i) fee title to all of the real property listed on Schedule 5.13 under the heading "Fee Properties" (each, a "Fee Property"), and (ii) good and valid title to the ------------ leasehold estates in all of the real property leased by it and, in the case of any such leasehold estates located in the United States with a base aggregate annual rent in excess of $50,000, listed on Schedule 5.13 under the heading "Leased Properties" (each, a "Leased Property"), in each case, free and clear of --------------- all mortgages, liens, security interests, easements, covenants, rights-of-way and other similar restrictions of any nature whatsoever, except (A) Permitted Liens and (B) as to Leased Property, the terms and provisions of the respective lease therefor, including, without limitation, the matters set forth on Schedule 5.13, and any matters affecting the fee title and any estate superior to the leasehold estate related thereto. The Fee Properties and the Leased Properties constitute, as of the Closing Date, all of the real property owned in fee or leased by the Company and its Subsidiaries in the United States. 5.14 ERISA. Neither a Reportable Event nor an "accumulated funding ----- deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan that would result in a material liability to the Company or any of its Subsidiaries, and each Plan has complied during such period in all material respects with the applicable provisions of ERISA and the Code. Neither the Company nor any Commonly Controlled Entity has been involved in any transaction that would cause the Company or any of its Subsidiaries to be subject to material liability with respect to a Plan to which the Company or any of its Subsidiaries or any Commonly Controlled Entity contributed or was obligated to contribute during the six-year period ending on the date this representation is made or deemed made; or incurred any material liability under Title IV of ERISA which would become or remain a material liability of the Company or any of its Subsidiaries after the Closing Date. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period that would result in a material liability to the Company or any of its Subsidiaries. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits that would result in a material liability to the Company or any of its Subsidiaries. Neither the Company, nor any of its Subsidiaries nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Company, nor any of its Subsidiaries nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any of its Subsidiaries or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, in either case that would result in a material liability to the Company or any of its Subsidiaries. To the knowledge of the Company, no such Multiemployer Plan is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Company, its Subsidiaries and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount that would result in a material liability to the Company or any of its Subsidiaries except as disclosed in the audited financial statements of the Company and its consolidated Subsidiaries provided to the Lenders prior to the Closing Date. For purposes of this subsection 5.14, a material liability shall exceed $10,000,000. 5.15 Collateral Documents. (a) Upon execution and delivery thereof -------------------- by the parties thereto, the Collateral Agreement will be effective to create in favor of the Administrative Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the pledged stock described therein (to the extent such matter is governed by the law of the United States or a jurisdiction 46 therein) and, when stock certificates representing or constituting the pledged stock described in the Collateral Agreement are delivered to the Administrative Agent, such security interest shall constitute a perfected first lien on, and security interest in, all right, title and interest of the pledgor party thereto in the pledged stock described therein (to the extent such matter is governed by the law of the United States or a jurisdiction therein). (b) Upon execution and delivery thereof by the parties thereto, the Collateral Agreement will be effective to create in favor of the Administrative Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the collateral described therein (to the extent such matter is governed by the law of the United States or a jurisdiction therein), and Uniform Commercial Code financing statements have been filed in each of the jurisdictions listed on Schedule 5.15(b), or arrangements have been made for such filing in such jurisdictions, and upon such filing, and upon the taking of possession by the Administrative Agent of any such collateral the security interests in which may be perfected only by possession, such security interests will, subject to the existence of Permitted Liens, constitute perfected first priority liens on, and security interests in, all right, title and interest of the debtor party thereto in the collateral described therein, except to the extent that a security interest cannot be perfected therein by the filing of a financing statement or the taking of possession under the Uniform Commercial Code of the relevant jurisdiction. (c) Upon execution and delivery thereof by the relevant Credit Party, each Mortgage will be effective to create in favor of the Administrative Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the collateral described therein, and upon recording the Mortgages in the jurisdictions listed on Schedule 5.13 (or, in the case of a Mortgage delivered pursuant to subsection 7.9, the jurisdiction in which the property covered by such Mortgage is located), such security interests will, subject to the existence of Permitted Liens, constitute first liens on, and perfected security interests in, all rights, title and interest of the debtor party thereto in the collateral described therein. 5.16 Copyrights, Patents, Permits, Trademarks and Licenses. Schedule ----------------------------------------------------- 5.16 sets forth a true and complete list as of the Closing Date of all material registered trademarks, trade names, service marks, patents, pending patent applications and registered copyrights and applications therefor owned, used or filed by or licensed to the Company and its Subsidiaries (after giving effect to the Transactions) and, with respect to registered trademarks (if any), contains a list of all jurisdictions in which such trademarks are registered or applied for and all registration and application numbers. Except as set forth on Schedule 5.16, the Company or one of its Subsidiaries (after giving effect to the Transactions) owns or has the right to use, registered trademarks, trade names, service marks, patents, pending patent applications and copyrights and applications therefor referred to in such Schedule. Except as set forth on Schedule 5.16, to the best knowledge of the Company, no claims are pending by any Person with respect to the ownership, validity, enforceability or the Company's or any Subsidiary's use of any such registered trademarks, trade names, service marks, patents, pending patent applications and copyrights, or applications therefor, challenging or questioning the validity or effectiveness of any of the foregoing, in any jurisdiction, domestic or foreign, except to the extent such claims could not reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. 5.17 Environmental Matters. Other than as disclosed in the Offering --------------------- Memorandum or except insofar as any exceptions to the following, individually or in the aggregate, could not reasonably be expected to result in a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole: (a) to the best knowledge of the Company, the properties owned, leased, or otherwise operated by the Company or any of its Subsidiaries do not contain, and have not previously 47 contained, in, on or under, including, without limitation, the soil and groundwater thereunder, any Hazardous Materials in amounts or concentrations that constitute or constituted a violation of, or could reasonably give rise to liability under, Environmental Laws; (b) to the best knowledge of the Company, the properties owned or leased, or otherwise operated by the Company or any of its Subsidiaries and all operations and facilities at such properties are in compliance with all Environmental Laws, and there is no contamination or violation of any Environmental Law which could interfere with the continued operation of, or impair the fair saleable value of, such property; (c) neither the Company nor any of its Subsidiaries has received or is aware of any written complaint, notice of violation, alleged violation, or notice of investigation or of potential liability under Environmental Laws with regard to the Company or its Subsidiaries, nor does the Company or any of its Subsidiaries have knowledge that any such action is being contemplated, considered or threatened; (d) to the best knowledge of the Company, Hazardous Materials have not been generated, treated, stored or disposed of at, on or under any properties presently or formerly owned, leased, or otherwise operated by the Company or any of its Subsidiaries, nor have any Hazardous Materials been transported from any such property, or come to be located at any other property, in violation of or in a manner that could reasonably give rise to liability under any Environmental Laws; and (e) there are no governmental administrative actions or judicial proceedings pending or, to the best knowledge of the Company, threatened under any Environmental Law to which the Company or any of its Subsidiaries is a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements, other than permits authorizing operations by the Company or any of its Subsidiaries, outstanding under any Environmental Law. 5.18 Accuracy and Completeness of Information. The factual statements ---------------------------------------- contained in the financial statements referred to in subsection 5.1, the Credit Documents (including the schedules thereto), the Merger Agreement and any other certificates or documents furnished or to be furnished to the Administrative Agent or the Lenders from time to time in connection with this Agreement, taken as a whole, do not and will not, to the best knowledge of the Company, as of the date when made, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which the same were made, all except as otherwise qualified herein or therein, such knowledge qualification being given only with respect to factual statements made by Persons other than the Company or any of its Subsidiaries; provided that with respect to projected -------- financial information, the Company represents only that such information has been and will be prepared in good faith based upon assumptions (in accordance with GAAP) believed by the Company to be reasonable at the time. 5.19 Year 2000. Any reprogramming required to permit the proper --------- functioning, in and following the year 2000, of the Company's computer systems, as so reprogrammed, has been completed in all material respects. The cost to the Company of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company (including, without limitation, reprogramming errors and the failure of others' systems or equipment) has not and would not reasonably be expected to result in a Default or Event of Default or a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. The computer and management information systems of the Company is and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to 48 permit the Company to conduct its businesses without resulting in a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 6. CONDITIONS PRECEDENT -------------------- 6.1 Conditions to Initial Loans and Letters of Credit. The ------------------------------------------------- obligation of each Lender to make its Loans, and the obligation of the Issuing Lender to issue any Letter of Credit, on the Closing Date are subject to the satisfaction, or waiver by such Lender, immediately prior to or concurrently with the making of such Loans or the issuance of such Letters of Credit, as the case may be, of the following conditions: (a) Agreement; Notes. The Administrative Agent shall have received ---------------- (i) a counterpart of this Agreement for each Lender duly executed and delivered by a duly authorized officer of each Borrower, (ii) for the account of each Revolving Credit Lender requesting the same pursuant to subsection 4.13, a Revolving Credit Note of the Borrowers conforming to the requirements hereof and executed by a duly authorized officer of each Borrower, (iii) for the account of each Tranche A Term Loan Lender requesting the same pursuant to subsection 4.13, a Tranche A Term Note, conforming to the requirements hereof and executed by a duly authorized officer of each Borrower, (iv) for the account of each Tranche B Term Loan Lender requesting the same pursuant to subsection 4.13, a Tranche B Term Note, conforming to the requirements hereof and executed by a duly authorized officer of each Borrower, and (v) if requested by Chase, for the account of Chase, a Swing Line Note, conforming to the requirements hereof and executed by a duly authorized officer of the Company. (b) Transactions. (i) The Transactions shall be consummated ------------ simultaneously pursuant to the Merger Agreement with all fees, costs and expenses incurred in connection therewith not to exceed approximately $82,000,000 (provided that if such fees exceed $82,000,000, the Investor -------- Group shall contribute any such excess amount) and (ii) no material provision of the Merger Agreement shall have been amended, supplemented, waived or otherwise modified in any material respect without the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld. (c) Capitalization; Capital Structure. (i) MergerCo shall have --------------------------------- received directly or indirectly (A) at least $275,000,000 in equity from the Investor Group (which includes equity retained by existing shareholders of up to $20,000,000) and up to $60,000,000 of Preferred Stock (the "Equity ------ Contribution"), and (B) the Company and MergerCo shall have collectively ------------ received at least $215,871,750 in gross cash proceeds from the issuance of the Specified Debt. (ii) The terms, conditions and documentation of the Senior Subordinated Note Indenture and of all equity securities (excluding any Preferred Stock) of the Company or any of its Subsidiaries to be outstanding at or after the Closing Date, the certificate of incorporation, by-laws, other governing documents and the corporate and capital structure of the Company and its Subsidiaries (excluding the identity and amount of equity contribution of any member of the Investor Group), in each case after giving effect to the consummation of the Transactions, shall be in form and substance as set forth in the Offering Memorandum or otherwise acceptable to the Administrative Agent. (iii) The terms, conditions and documentation of the Preferred Stock to be outstanding at or after the Closing Date after giving effect to the consummation of the 49 Transactions, shall be in form and substance as set forth in the Certificate of Designation or otherwise acceptable to the Administrative Agent. The execution and delivery of this Agreement by the Lenders and the Administrative Agent shall be deemed to evidence the satisfaction of the Lenders and the Administrative Agent with such of the matters referenced and in clauses (i) and (ii) of this paragraph (c) as shall have been disclosed and made available to the Administrative Agent prior to the date hereof. (d) Financial Statements. The Administrative Agent shall have -------------------- received the financial statements described in subsection 5.1. (e) Fees. The Administrative Agent, the Co-Lead Arrangers and the ---- Lenders shall have received all fees, expenses and other consideration presented for payment required to be paid or delivered on or before the Closing Date. (f) Lien Searches; Lien Perfection. (i) The Administrative Agent ------------------------------ shall have received the results of a search of Uniform Commercial Code, tax and judgment filings made with respect to the Company and its Subsidiaries in the jurisdictions set forth on Schedule 5.15(b), together with copies of financing statements disclosed by such searches and such searches shall disclose no Liens on any assets encumbered by any Security Document, except for Liens permitted hereunder or, if unpermitted Liens are disclosed, the Administrative Agent shall have received satisfactory evidence of the release of such Liens and (ii) the Administrative Agent shall have received duly executed financing statements on Form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents. (g) Environmental. The Agents shall be reasonably satisfied, based ------------- upon the results of the environmental diligence conducted by the Administrative Agent and its advisors in cooperation with the Company, with respect to environmental hazards, conditions or liabilities to which the Company or any of its Subsidiaries may be subject (the execution and delivery of this Agreement by the Lenders and the Administrative Agent being deemed to evidence the satisfaction of the Administrative Agent with such due diligence as shall have been disclosed and made available to the Administrative Agent prior to the date hereof). (h) Collateral Agreement. The Administrative Agent shall have -------------------- received the Collateral Agreement executed and delivered by a duly authorized officer of the parties thereto, together with stock certificates representing 100% (or 65%, in the case of Foreign Subsidiaries of the Company) of all issued and outstanding certificated shares of Capital Stock of each Subsidiary of the Company (excluding Jostens Can Investments B.V., a Netherlands corporation and Jostens International Holdings B.V., a Netherlands corporation), and undated stock powers for each certificate, executed in blank and delivered by a duly authorized officer of the applicable pledgor and the acknowledgment and consent of the issuer thereunder in the form annexed thereto. (i) Indebtedness. After giving effect to the Transactions, the ------------ Company and its Subsidiaries shall have no (i) outstanding preferred stock (other than up to $60,000,000 of Preferred Stock issued to the Investor Group on the Closing Date) and (ii) Indebtedness other than any Indebtedness permitted under Section 8.1 hereof. (j) Subsidiary Guarantee. The Administrative Agent shall have -------------------- received a Subsidiary Guarantee, executed and delivered by a duly authorized officer of each of the Subsidiaries of the Company (other than Foreign Subsidiaries of the Borrower). 50 (k) Merger Agreement. The Administrative Agent shall have received ---------------- the Merger Agreement, executed and delivered by a duly authorized officer of the parties thereto and in form and substance reasonably satisfactory to the Administrative Agent, with no material change to such agreement from the copy thereof delivered to the Administrative Agent prior to the Closing Date. (l) Legal Opinions. The Administrative Agent shall have received, -------------- dated the Closing Date and addressed to the Administrative Agent and the Lenders, (i) an opinion of Gibson, Dunn & Crutcher LLP, counsel to the Credit Parties, in substantially the form of Exhibit J-1, (ii) an opinion of the general counsel of the Company, in substantially the form of Exhibit J-2, and (iii) an opinion of local counsel in each of Minnesota and Kansas, each with such changes thereto as may be approved by the Administrative Agent and its counsel. (m) Closing Certificate. The Administrative Agent shall have ------------------- received a Closing Certificate of each Borrower and each other Credit Party dated the Closing Date, in substantially the form of Exhibits K-1 and K-2, respectively, with appropriate insertions and attachments, in form and substance satisfactory to the Administrative Agent and its counsel, executed by the President or any Vice President and the Secretary or any Assistant Secretary (or other appropriate officers or representatives) of the Borrowers and their Subsidiaries, respectively. (n) Solvency Certificate. The Administrative Agent shall have -------------------- received a certificate of the chief financial officer of the Company in form and substance reasonably satisfactory to it which shall document the solvency of the Company and its Subsidiaries after giving effect to the consummation of the Transactions and the other transactions and related financings contemplated hereby. (o) Insurance. The Administrative Agent shall have received (i) a --------- schedule describing all insurance (including but not limited to business interruption insurance as reasonably requested by the Administrative Agent) maintained by the Company and its Subsidiaries pursuant to subsection 7.5 and (ii) binders (or other customary evidence as to the obtaining and maintenance by the Company of such insurance) for each policy set forth on such schedule insuring against casualty and other usual and customary risks. (p) Other Agreements. The Administrative Agent shall have received ---------------- each additional document or instrument reasonably requested by the Required Lenders. (q) Litigation. On the Closing Date, other than as disclosed in the ---------- Offering Memorandum, there shall be no actions, suits, injunctions, restraining orders or proceedings pending or threatened against any Credit Party (a) with respect to this Agreement or any other Credit Document or the transactions contemplated hereby or thereby (including the Transactions) which would be reasonably expected to have a material adverse effect on the rights or remedies of the Lenders under the Credit Documents or on the ability of any Credit Party to perform its respective obligations to the Lenders hereunder or under any other Credit Document or (b) which the Administrative Agent or the Required Lenders shall determine could reasonably be expected to have a material adverse effect on the rights or remedies of the Lenders hereunder or under any other Credit Document or on the ability of any Credit Party to perform its respective obligations to the Lenders hereunder or under any other Credit Document. (r) Consents, Approvals and Filings. Except for the financing ------------------------------- statements contemplated by the Collateral Agreement, on the Closing Date, all necessary governmental and other third party authorizations, consents, approvals or waivers required in connection with the execution, delivery and performance by the Credit Parties, and the validity and enforceability against the 51 Credit Parties, of the Credit Documents to which any of them is a party, or otherwise in connection with the transactions contemplated by the Credit Documents and the Merger Agreement, shall have been obtained or made and remain in full force and effect (except where the failure to do so would not reasonably be expected to have a material adverse effect on (x) the business, operations, property, condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole or (y) (I) the validity or enforceability of this Agreement, any of the Notes or the other Credit Documents or (II) the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder), and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains or prevents such transactions or imposes materially adverse conditions upon the consummation of such transactions. (s) Contractual Restrictions. Neither the Company nor any of its ------------------------ Subsidiaries shall be subject to any Requirement of Law or any contractual or other restrictions that would be violated by the consummation of the Transactions or the other transactions hereby, including the granting of security interests and guarantees required by this Agreement, except to the extent that any such violation would not reasonably be expected to have a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, (ii) (A) the validity or enforceability of this Agreement or the other Credit Documents, or (B) the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder, or (iii) the ability of the Company or any of its Subsidiaries taken as a whole to satisfy their obligations hereunder or thereunder. (t) Consolidated EBITDA. The Administrative Agent shall be satisfied ------------------- that Consolidated EBITDA for the twelve month period ending January 1, 2000 shall equal or exceed $123,000,000 from planned continuing operations (excluding restructuring and special charges and related adjustments taken by the Company and any charges relating to the Transactions and the other transactions contemplated hereby), and the Company shall have provided support for such calculation of a nature that is reasonably satisfactory to the Administrative Agent. 6.2 Conditions to All Loans and Letters of Credit. The obligation of --------------------------------------------- each Lender to make any Loan (other than any Revolving Credit Loan the proceeds of which are to be used to repay Refunded Swing Line Loans) and the obligation of the Issuing Lender to issue any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties made in or pursuant to Section 5 or which are contained in any other Credit Document shall be true and correct in all material respects on and as of the date of such Loan or of the issuance of such Letter of Credit as if made on and as of such date (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date). (b) No Default or Event of Default. No Default or Event of Default ------------------------------ shall have occurred and be continuing on such Borrowing Date or after giving effect to such Loan to be made or such Letter of Credit to be issued on such Borrowing Date. Each borrowing by the Borrowers hereunder and the issuance of each Letter of Credit by the Issuing Lender hereunder shall constitute a representation and warranty by the Borrowers as of the date of such borrowing or issuance that the conditions in clauses (a) and (b) and of this subsection 6.2 have been satisfied. 52 SECTION 7. AFFIRMATIVE COVENANTS --------------------- The Company hereby agrees that, so long as the Commitments remain in effect, any Loan, Note or L/C Obligation remains outstanding and unpaid, any amount (unless cash in an amount equal to such amount has been deposited to a cash collateral account established by the Administrative Agent) remains available to be drawn under any Letter of Credit or any other amount is owing to any Lender or the Administrative Agent hereunder or under any of the other Credit Documents, it shall, and, in the case of the agreements contained in subsections 7.3 through 7.6, and 7.8 through 7.9, the Company shall cause each of its Subsidiaries to: 7.1 Financial Statements. Furnish to the Administrative Agent (which -------------------- furnishing may be made to the Administrative Agent via a secured internet web page or via delivery of a hard copy to the Administrative Agent with sufficient copies for each Lender which the Administrative Agent shall promptly furnish to each Lender): (a) as soon as available, but in any event within 95 days after the end of each fiscal year of the Company to end after the Closing Date, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of stockholders' equity and cash flows and the consolidated statements of income of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous year and, in the case of the consolidated balance sheet referred to above, reported on, without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, or qualification which would affect the computation of financial covenants, by independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 50 days after the end of each of the first three quarterly periods of each fiscal year of the Company to end after the Closing Date, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and the portion of the fiscal year of the Company through such date, setting forth in each case in comparative form the figures for the corresponding quarter in, and year to date portion of, the previous year, and the figures for such periods in the budget prepared by the Company and furnished to the Administrative Agent, certified by the chief financial officer, controller or treasurer of the Company as being fairly stated in all material respects; (c) as soon as available, but in any event not later than 45 days after the beginning of each fiscal year of the Company to end after the Closing Date, to which such budget relates, a preliminary consolidated operating budget for the Company and its Subsidiaries taken as a whole; and as soon as available, any material revision to or any final revision of any such preliminary annual operating budget or any such consolidated operating budget; and (d) concurrently with the delivery of financial statements pursuant to subsection 7.1(a) or (b), a certificate of the chief financial officer or treasurer of the Company setting forth, in reasonable detail, the computations of Capital Expenditures as of the last day of the fiscal period covered by such financial statements, the Leverage Ratio as of such last day, and the Interest Coverage Ratio as of such last day; all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal year-end audit adjustments) and to be prepared in reasonable detail and 53 (except in the case of the statements referred to in paragraphs (c) and (d) of this subsection 7.1) in accordance with GAAP. 7.2 Certificates; Other Information. Furnish to the Administrative ------------------------------- Agent (with sufficient copies for each Lender which the Administrative Agent shall promptly deliver to each Lender): (a) concurrently with the delivery of the consolidated financial statements referred to in subsection 7.1(a), a letter from the independent certified public accountants reporting on such financial statements stating that in making the examination necessary to express their opinion on such financial statements no knowledge was obtained of any Default or Event of Default under subsections 4.4(b), 8.1, 8.3, and 8.5 through 8.11, except as specified in such letter; (b) within 15 days of the delivery of the financial statements referred to in subsections 7.1(a) and (b) (except that the certificate referred to in clause (iii) below shall be delivered concurrently with such financial statements), a certificate of the chief financial officer or treasurer of the Company stating that, to the best of such officer's knowledge, during such period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the Company has complied with the requirements of subsection 7.9 with respect thereto), (ii) neither the Company nor any of its Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material item of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto, (iii) each of the Company and its Subsidiaries has observed or performed all of its respective covenants and other agreements, and satisfied every material condition, contained in this Agreement, the Notes and the other Credit Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, (iv) showing in detail as of the end of the related fiscal period the figures and calculations supporting such statement in respect of clause (e) of subsection 8.1, clauses (b) and (e) of subsection 8.3 and subsections 8.6 through 8.11 and any other calculations reasonably requested by the Administrative Agent with respect to the quantitative aspects of the other covenants contained herein, (v) if not specified in the financial statements delivered pursuant to subsection 7.1, specifying the aggregate amount of interest paid or accrued by the Company and its Subsidiaries, and the aggregate amount of depreciation, depletion and amortization charged on the books of the Company and its Subsidiaries, during such accounting period, and (vi) identify any owned Real Property of the Company or a Domestic Subsidiary of the Company acquired during such accounting period that, together with any improvements thereon, has a value of at least $5,000,000; (c) promptly upon receipt thereof, copies of all final reports submitted to the Company or to any of its Subsidiaries by independent certified public accountants in connection with each annual, interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants, and, upon the request of any Lender (through the Administrative Agent), any final comment letter submitted by such accountants to management in connection with their annual audit; (d) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available to the public generally by the Company or any of its Subsidiaries, if any, and all regular and periodic reports and all final registration statements and final prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions; 54 (e) concurrently with the delivery of the financial statements referred to in subsections 7.1(a) and (b), a management summary describing and analyzing the performance of the Company and its Subsidiaries during the periods covered by such financial statements; (f) within 50 days after the end of each fiscal quarter, a summary of all Asset Sales during such fiscal quarter including the amount of all Net Proceeds from such Asset Sales not previously applied to prepayments of the Term Loans pursuant to the proviso to subsection 4.4(b)(iv); and (g) promptly, such additional financial and other information as any Lender may from time to time reasonably request (through the Administrative Agent). 7.3 Payment of Obligations. Pay, discharge or otherwise satisfy at ---------------------- or before maturity or before they become delinquent, as the case may be, all its obligations and liabilities of whatever nature, except (a) when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or any of its Subsidiaries, as the case may be, (b) for delinquent obligations which do not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (c) for trade and other accounts payable in the ordinary course of business which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of the Company or any of its Subsidiaries, as the case may be. 7.4 Conduct of Business and Maintenance of Existence. Continue to ------------------------------------------------ engage in businesses of the same general type as now conducted by it, and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, material privileges, franchises, copyrights, patents, trademarks and trade names necessary or desirable in the normal conduct of its business except for rights, privileges, franchises, copyrights, patents, trademarks and tradenames the loss of which would not in the aggregate have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, and except as otherwise permitted by subsections 8.4 and 8.5; and comply with all applicable Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. 7.5 Maintenance of Property; Insurance. (a) Keep all property ---------------------------------- useful and necessary in its business in good working order and condition (ordinary wear and tear excepted); and (b) Maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and with only such deductibles as are usually maintained by, and against at least such risks (but including, in any event, public liability and business interruption insurance) as are usually insured against in the same general area by, companies engaged in the same or a similar business, and furnish to the Administrative Agent (which furnishing may be made to the Administrative Agent via a secured internet web page or via electronic mail), (i) annually, a schedule disclosing (in a manner substantially similar to that used in the schedule provided pursuant to subsection 6.1(o) all insurance against products liability risk maintained by the Company and its Subsidiaries pursuant to this subsection 7.5(b) or otherwise and (ii) upon written request of any Lender, full information as to the insurance carried; provided that the Company may implement programs of self -------- insurance in the ordinary course of business and in accordance with industry standards for a company of similar size so long as reserves are maintained in accordance with GAAP for the liabilities associated therewith. 55 7.6 Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities which permit financial statements to be prepared in conformity with GAAP and all Requirements of Law; and permit representatives of any Lender upon reasonable notice (made through the Administrative Agent and no more frequently than quarterly unless a Default or Event of Default shall have occurred and be continuing) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be requested upon reasonable notice, and to discuss the business, operations, assets and financial and other condition of the Company and its Subsidiaries with officers and employees thereof and with their independent certified public accountants with prior reasonable notice to, and coordination with, the chief financial officer or the treasurer of the Company. 7.7 Notices. Promptly give notice to the Administrative Agent (to be ------- distributed by the Administrative Agent to the Lenders): (a) of the occurrence of any Default or Event of Default; (b) of any (i) default or event of default under any instrument or other agreement, guarantee or collateral document of the Company or any of its Subsidiaries which default or event of default has not been waived and would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, or any other default or event of default under any such instrument, agreement, guarantee or other collateral document which, assuming for the purposes of this subsection 7.7(b) only that the threshold amount contained in the proviso to clause (e) of Section 9 were $5,000,000, would have constituted a Default or Event of Default under this Agreement, or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, or receipt of any notice of any environmental claim or assessment against the Company or any of its Subsidiaries by any Governmental Authority, which in any such case would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole; (c) of any litigation or proceeding against the Company or any of its Subsidiaries (i) in which more than $10,000,000 of the amount claimed is not covered by insurance, or (ii) in which injunctive or similar relief is sought which if obtained would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole; (d) of the following events, as soon as practicable after, and in any event within 30 days after, the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan which Reportable Event could reasonably result in material liability to the Company and its Subsidiaries taken as a whole or (ii) the institution of proceedings or the taking of any other action by PBGC, the Company or any Commonly Controlled Entity to terminate, withdraw or partially withdraw from any Plan and, with respect to a Multiemployer Plan, the Reorganization or Insolvency of such Plan, in each of the foregoing cases which could reasonably result in material liability to the Company and its Subsidiaries taken as a whole, and in addition to such notice, deliver to the Administrative Agent and each Lender whichever of the following may be applicable: (A) a certificate of a Responsible Officer of the Company setting forth details as to such Reportable Event and the action that the Company or such Commonly Controlled Entity proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, 56 or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be; (e) concurrently with the delivery of the information delivered pursuant to subsection 7.2(f) and each prepayment required pursuant to subsection 4.4(b)(iv), of any Asset Sale or substantially like-kind exchange of real property by the Company or any of its Subsidiaries; and (f) of a material adverse change known to the Company or its Subsidiaries in the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Each notice pursuant to this subsection 7.7 shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and (in the cases of clauses (a) through (d)) stating what action the Company proposes to take with respect thereto. 7.8 Environmental Laws. (a) (i) Comply with all Environmental Laws ------------------ applicable to it, and obtain, comply with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned; and (ii) take reasonable efforts to ensure that all of its tenants, subtenants, contractors, subcontractors, and invitees comply with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them insofar as any failure to so comply, obtain or maintain as set forth in (i) and (ii) above could result in a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Noncompliance by the Company or any of its Subsidiaries with any applicable Environmental Law or Environmental Permit shall be deemed not to constitute a breach of this 7.8(a); provided that, -------- upon learning of any such noncompliance, the Company and its Subsidiaries shall promptly undertake reasonable efforts to achieve compliance or to contest by appropriate proceedings any alleged noncompliance and; provided, further, that, -------- ------- in any case, such noncompliance, and any other noncompliance with Environmental Law and any contesting of allegations of noncompliance with Environmental Laws, individually or in the aggregate, after giving effect to any compliance efforts undertaken, would not reasonably be expected to give rise to a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. (b) Comply in a timely manner with all orders and lawful directives regarding Environmental Laws issued to the Company or any of its Subsidiaries by any Governmental Authority, other than such orders and lawful directives as to which an appeal or other challenge has been timely and properly taken in good faith and the pendency of any and all such appeals and other challenges could not reasonably be expected to give rise to a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. (c) Maintain, update as appropriate, and implement in all material respects an environmental program reasonably designed to (i) ensure that the Company and its Subsidiaries, any of their respective operations (including, without limitation, disposal), and any properties owned, leased or operated by any of them, attain and remain in substantial compliance with all applicable Environmental Laws; (ii) reasonably and prudently manage any liabilities or potential liabilities that the Company, any of the other Credit Parties, any of their respective operations (including, without limitation, disposal), and any properties owned or leased by any of them, may have under all applicable Environmental Laws; and (iii) ensure that the Company and its Subsidiaries undertake reasonable efforts to identify, and reasonably evaluate, issues of compliance with and liability under Environmental Laws prior to acquiring, directly or indirectly, any ownership or leasehold interest in real property, or other interest in any real property that could give rise to the Company or any of its Subsidiaries being subjected to liability under any Environmental Law as a result of such acquisition. 57 7.9 Additional Collateral. (a) Subject to subsection 7.9(d), with --------------------- respect to any assets acquired after the Closing Date by the Company or any of its Domestic Subsidiaries that are intended to be subject to the Lien created by any of the Security Documents but which are not so subject (but, in any event, excluding (i) any assets described in paragraph (b) or (c) of this subsection, (ii) assets acquired or owned pursuant to subsection 8.6(h) and (iii) immaterial assets, promptly (and in any event within 30 days after the acquisition thereof): (i) execute and deliver to the Administrative Agent such amendments or supplements to the relevant Security Documents or such other documents as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such assets, and (ii) take all actions necessary or advisable to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. (b) With respect to any Person that is or becomes a Subsidiary (other than any Foreign Subsidiary of the Company) that has material assets, promptly (and in any event within 30 days after such Person becomes a Subsidiary): (i) execute and deliver to the Administrative Agent, for the benefit of the Lenders, a new pledge agreement or such amendments to the relevant Security Agreement as the Administrative Agent reasonably shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Subsidiary, as the case may be, and (iii) cause such new Subsidiary (A) to become a party to the Subsidiary Guarantee and/or the Collateral Agreement or such comparable documentation which is in form and substance reasonably satisfactory to the Administrative Agent, and (B) to take all actions necessary or advisable to cause the Lien created by the Collateral Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. (c) With respect to any Person that is or becomes a Foreign Subsidiary of the Company and that has material assets, promptly (and in any event within 30 days after such Person becomes a Subsidiary): (i) execute and deliver to the Administrative Agent a new pledge agreement or such amendments to the relevant Security Agreement as the Administrative Agent reasonably shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Subsidiaries (provided that in no event shall more than 65% of the Capital Stock of any such Foreign Subsidiary be required to be so pledged), and (ii) if such Capital Stock is issued in certificated form, deliver to the Administrative Agent any certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Subsidiary, as the case may be, and take or cause to be taken all such other actions under the law of the jurisdiction of organization of such Foreign Subsidiary as may be necessary or advisable to perfect such Lien on such Capital Stock, and if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) Upon the request of the Administrative Agent, the Company will, and will cause its Domestic Subsidiaries to, promptly grant to the Administrative Agent, within 60 days of such request, security interests and Mortgages in such owned Real Property of the Company and its Domestic Subsidiaries as are acquired after the Closing Date by the Company or such Subsidiary and that, together with any improvements thereon, individually have a value of at least $5,000,000, as additional security for the obligations of the Credit Parties under any Credit Document (unless the subject property is already mortgaged to a third party to the extent permitted by subsection 8.2). Such Mortgages shall be 58 granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and shall constitute valid and enforceable perfected Liens subject only to Permitted Liens and such other Liens reasonably acceptable to the Administrative Agent. The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. If requested by the Administrative Agent or the Required Lenders, the Company shall provide a lender's title policy with respect to each such Mortgage paid for by the Company, issued by a nationally recognized title insurance company, together with such endorsements, coinsurance and reinsurance as may be reasonably requested by the Administrative Agent, in form and substance reasonably acceptable to the Administrative Agent, insuring each Mortgage as a first lien on the relevant Mortgaged Property and subject only to Liens expressly agreed to by the Administrative Agent. 7.10 Pledge of Certain Subsidiaries. Deliver to the Administrative ------------------------------ Agent within ten Business Days of the Closing Date (i) evidence of the pledge of shares representing 65% of all issued and outstanding shares of Capital Stock of Jostens Can Investments B.V., a Netherlands corporation and Jostens International Holdings B.V., a Netherlands corporation and (ii) the acknowledgment and consent of such issuers in the form annexed to the Collateral Agreement. SECTION 8. NEGATIVE COVENANTS ------------------ The Company hereby agrees that it shall not, and it shall not permit any of its Subsidiaries to, directly or indirectly so long as the Commitments remain in effect or any Loan, Note or L/C Obligation remains outstanding and unpaid, any amount (unless cash in an amount equal to such amount has been deposited to a cash collateral account established by the Administrative Agent) remains available to be drawn under any Letter of Credit or any other amount is owing to any Lender or the Administrative Agent hereunder or under any other Credit Document (it being understood that each of the permitted exceptions to each of the covenants in this Section 8 is in addition to, and not overlapping with, any other of such permitted exceptions except to the extent expressly provided): 8.1 Indebtedness. Create, incur, assume or suffer to exist any ------------ Indebtedness, except: (a) the Indebtedness outstanding on the Closing Date and reflected on Schedule 8.1(a), including the refinancing of any such Indebtedness on terms and conditions taken as a whole no less favorable to the Company and its Subsidiaries or the Lenders; (b) Indebtedness consisting of the Loans and in connection with the Letters of Credit and this Agreement; (c) Indebtedness of the Company in respect of: (i) (A) up to $225,000,000 aggregate principal amount of Bridge Subordinated Debt issued on or prior to the Closing Date, and additional principal amount of Bridge Subordinated Debt issued in lieu of cash interest on the outstanding Bridge Subordinated Debt and otherwise as contemplated by the Bridge Loan Agreement upon exchange of Bridge Subordinated Debt into exchange notes or (B) up to $225,000,000 aggregate principal amount of Senior Subordinated Notes issued on the Closing Date; and (ii) Permanent Subordinated Debt in an aggregate principal amount at any time outstanding not to exceed the sum of (A) $365,000,000 in aggregate principal amount of Permanent Subordinated Debt (or any refinancing thereof permitted hereunder) plus (B) 6% of such amount for ---- related fees and expenses; provided that the Net Proceeds of any such -------- 59 Indebtedness in excess of the then outstanding aggregate principal amount of the Specified Debt issued or permitted by subsection 8.1(c)(i) plus 6% ---- of such amount for related fees and expenses plus the accreted value of the ---- Senior Subordinated Notes (or any refinancing thereof permitted hereunder) (including all accrued and accreted interest on such Indebtedness and the amount of all expenses, premiums or penalties associated therewith) (such amount the "Permitted Specified Debt Amount") shall be applied to prepay the Tranche B Term Loans in accordance with subsection 4.4(b)(iii), subject to the provisions of subsection 4.4(e); (d) Indebtedness (i) of the Company to any Subsidiary, (ii) of any Domestic Subsidiary (with respect to which the requirements of subsection 7.9 have been satisfied) to the Company or any other Subsidiary, and (iii) of any Foreign Subsidiary to the Company or any other Subsidiary in an aggregate principal amount for all Foreign Subsidiaries at any time outstanding not to exceed $35,000,000 (plus the sum of any amounts dividended or distributed by any Foreign Subsidiary to the Company or any Domestic Subsidiary), minus the sum of ----- the amount of (A) any Indebtedness outstanding pursuant to subsection 8.1(j), (B) the amount of any investments made in a Foreign Subsidiary pursuant to subsection 8.6(b)(iv) and (C) the amount of any guarantees of obligations of Foreign Subsidiaries pursuant to subsection 8.3(c)(ii). For purpose of this subsection 8.1(d), the payment, or intercompany loans or advances for such purpose, by the Company or any Subsidiary of expenses and operating costs of the Company or any Subsidiary (x) incurred in the ordinary course of business (provided that, any such payment by the Company or any Subsidiary of expenses - --------- and operating costs of Foreign Subsidiaries of the Company pursuant to this clause shall be promptly repaid by such Foreign Subsidiaries as soon as such Foreign Subsidiaries have funds available to make such repayment and any such repayment shall not increase the amount of loans which may be made to such Foreign Subsidiaries pursuant to clause (iii) of this paragraph) or (y) incurred in association with the initial establishment, start up and capitalization of the Company and its Subsidiaries shall not be considered to be a loan, advance, dividend or other investment, and shall be permitted under this Agreement and such payments shall not reduce any permitted amounts to be so made as specified herein; (e) other unsecured Indebtedness of the Company and its Subsidiaries in an aggregate principal amount at any one time outstanding not in excess of $35,000,000; (f) Indebtedness in respect of letters of credit or surety bonds (other than Letters of Credit issued hereunder) in an aggregate principal amount equal to $10,000,000 at any one time outstanding; (g) (i) Indebtedness of the Company or any of its Subsidiaries assumed in connection with acquisitions permitted by subsection 8.6(g) (so long as such Indebtedness was not incurred in anticipation of such acquisitions), (ii) Indebtedness of newly acquired Subsidiaries of the Company acquired in such acquisitions (so long as such Indebtedness was not incurred in anticipation of such acquisition) and (iii) Indebtedness of the Company or any of its Subsidiaries owed to the seller in any acquisition permitted by subsection 8.6(g) constituting part of the purchase price thereof, all of which Indebtedness permitted by this subsection 8.1(g) shall not exceed in the aggregate at any one time $20,000,000 outstanding; (h) Indebtedness in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; (i) additional unsecured subordinated Indebtedness of the Company and its Subsidiaries in an aggregate principal amount at any time outstanding not to exceed (i) $25,000,000 plus (ii) any additional principal amount of such ---- Indebtedness issued in lieu of cash interest on such outstanding Indebtedness or any refinancing thereof; provided that (i) no part of the principal amount of -------- such Indebtedness shall have a maturity date earlier than the one-year anniversary of the final Tranche B 60 Installment Payment Date, (ii) the non-default cash interest rate thereon shall not exceed 13% per annum, and (iii) such Indebtedness shall be subordinated to the obligations of the Credit Parties under the Credit Documents on customary terms and conditions; (j) Indebtedness of Foreign Subsidiaries of the Company in an aggregate principal amount at any time outstanding not in excess of the equivalent at the date of each incurrence thereof of $35,000,000; (k) Indebtedness of the Company and its Subsidiaries for industrial revenue bonds or other similar governmental and municipal bonds, for the deferred purchase price of newly acquired property and to finance equipment of the Company and its Subsidiaries (pursuant to purchase money mortgages or otherwise and whether owed to the seller or a third party) used in the ordinary course of business (provided such financing is entered into within 180 days of -------- the acquisition of such property) of the Company and its Subsidiaries in an amount (based on the remaining balance of the obligations therefor on the books of the Company and its Subsidiaries) which shall not exceed $25,000,000 in the aggregate at any one time outstanding and Indebtedness of the Company and its Subsidiaries in respect of Financing Leases to the extent subsections 8.7 and 8.9 would not be contravened; and (l) Indebtedness of Jostens Canada in an amount not to exceed the equivalent of $15,000,000 at the time of incurrence thereof. 8.2 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its property, assets, income or profits, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or the relevant Subsidiary, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or the relevant Subsidiary, as the case may be, in accordance with GAAP; (c) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements (including, without limitation, reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in the aggregate materially detract from the aggregate value of the properties of the Company and its Subsidiaries, taken as a whole, or in the aggregate materially interfere with or adversely affect in any material respect the ordinary conduct of the business of the Company and its Subsidiaries on the properties subject thereto, taken as a whole; 61 (f) Liens in favor of the Administrative Agent and the Lenders pursuant to the Credit Documents, including Liens pursuant to the Credit Documents in respect of Interest Rate Agreements, and bankers' liens arising by operation of law; (g) Liens on property of the Company or any of its Subsidiaries created solely for the purpose of securing (i) Indebtedness not exceeding $20,000,000 in aggregate amount at any time outstanding permitted by subsection 8.1(g) (so long as in the case of clauses (i) and (ii) of subsection 8.1(g) such Lien was not incurred in anticipation of the related acquisition), (ii) Indebtedness not exceeding $35,000,000 in aggregate amount at any time outstanding permitted by subsection 8.1(j), or (iii) Indebtedness permitted by subsection 8.1(k) representing or incurred to finance, refinance or refund the purchase price of property; provided that no such Lien incurred in connection -------- with Indebtedness pursuant to subsection 8.1(g) or 8.1(k) shall extend to or cover other property of the Company or such Subsidiary other than the respective property so acquired, and the principal amount of Indebtedness secured by any such Lien shall at no time exceed the original purchase price of such property; (h) Liens existing on the Closing Date after giving effect to the consummation of the Transactions and described in subsection 5.13 or Schedule 8.2(h) (including the extension of any Liens listed on such Schedule relating to any Indebtedness permitted under subsection 8.1(a) in connection with any refinancing of such Indebtedness permitted by such subsection and any Liens securing Indebtedness to be repaid on the Closing Date to the extent the Company has made arrangements to terminate such Liens in a manner satisfactory to the Administrative Agent); provided that (i) no such Lien shall extend to or cover -------- other property of the Company or its Subsidiaries other than the respective property so encumbered and (ii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the original principal amount of the Indebtedness so secured; (i) Liens on documents of title and the property covered thereby securing Indebtedness in respect of the Commercial L/Cs; (j) (i) mortgages, liens, security interests, restrictions, encumbrances or any other matter of record that have been placed by any developer, landlord or other third party on property over which the Company or any of its Subsidiaries has easement rights or on any Leased Property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (k) Liens in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; (l) Liens on goods (and proceeds thereof) financed with drawings under commercial letters of credit securing reimbursement obligations in respect of such commercial letters of credit issued in accordance with the terms of this Agreement; (m) Liens in connection with Indebtedness permitted by subsection 8.1(l); and (n) Liens in connection with Commodity Hedging Agreements and Interest Rate Agreements entered into by the Company in the ordinary course of business. 8.3 Limitation on Contingent Obligations. Create, incur, assume or ------------------------------------ suffer to exist any Contingent Obligation except: (a) the Guarantees; 62 (b) other guarantees by the Company incurred in the ordinary course of business for an aggregate amount not to exceed $5,000,000 at any one time; (c) guarantees by the Company or any Domestic Subsidiary (i) of obligations of Domestic Subsidiaries of the Company or the Company and (ii) of obligations of Foreign Subsidiaries of the Company in an aggregate principal amount not to exceed $35,000,000 (plus the sum of any amounts dividended or ---- distributed by such Foreign Subsidiaries to the Company or any Domestic Subsidiary), as reduced by amounts outstanding in accordance with subsections 8.1(d)(iii), 8.1(j) or 8.6(b)(iv); provided that, in each case, if the primary -------- obligation being guaranteed is subordinated, such guarantees are subordinated to the Guarantees on substantially the same basis as such primary obligation is subordinated to the Loans. For purpose of this subsection 8.3(c), the payment, or intercompany loans or advances for such purpose, by the Company or any Subsidiary of expenses and operating costs of the Company or any Subsidiary (x) incurred in the ordinary course of business (provided that, any such payment by -------- the Company or any Subsidiary of expenses and operating costs of Foreign Subsidiaries of the Company pursuant to this clause shall be promptly repaid by such Foreign Subsidiaries as soon as such Foreign Subsidiaries have funds available to make such repayment and any such repayment shall not increase the amount of guarantees permitted pursuant to clause (ii) of this paragraph) or (y) incurred in association with the initial establishment, start up and capitalization of the Company and its Subsidiaries shall not be considered to be a loan, advance, dividend or other investment, and shall be permitted under this Agreement and such payments shall not reduce any permitted amounts to be so made as specified herein; (d) Contingent Obligations existing on the Closing Date and described in Schedule 8.3(d) and Contingent Obligations relating to any Indebtedness permitted under subsection 8.1(a); (e) guarantees of obligations to third parties in connection with relocation of employees of the Company or any of its Subsidiaries, in an amount which, together with all loans and advances made pursuant to subsection 8.6(f), shall not exceed $7,500,000 at any time outstanding; (f) Contingent Obligations in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; and (g) subordinated guarantees in respect of (i) Indebtedness permitted under subsection 8.1(i) and (ii) the Specified Debt issued by Subsidiaries of the Company which have also issued Guarantees; provided that such subordinated -------- guarantees are subordinated to the Guarantees on substantially the same basis as such Indebtedness is subordinated to the Loans. 8.4 Prohibition of Fundamental Changes. Enter into any merger or ---------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or engage in any type of business other than of the same general type now conducted by it, except (a) for the transactions otherwise permitted pursuant to clause (b) of subsection 8.5, (b) any Domestic Subsidiary of the Company may be merged with and into the Company or a wholly owned Domestic Subsidiary of the Company, (c) any Foreign Subsidiary of the Company may be merged with and into the Company or a wholly owned Subsidiary of the Company, (d) Subsidiaries with a net book value not greater than $100,000 may be dissolved and (e) any Subsidiary may otherwise be dissolved; provided that upon dissolution, the assets of such Subsidiary are -------- transferred to the Company or one of its wholly owned Domestic Subsidiaries (or, in the case of a dissolution of a Foreign Subsidiary, such assets are transferred to the Company or one of its wholly owned Subsidiaries) on the terms and subject to the conditions set forth in subsection 8.5(b). 63 8.5 Prohibition on Sale of Assets. Convey, sell, lease (other than a ----------------------------- sublease of real property), assign, transfer or otherwise dispose of (including through a transaction of merger or consolidation of any Subsidiary) any of its property, business or assets (including, without limitation, other payments and receivables but excluding leasehold interests), whether now owned or hereafter acquired, except: (a) for sales or other dispositions of inventory in the ordinary course of business; (b) that the Company or any Subsidiary of the Company may sell, lease, transfer, or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to, and any Subsidiary of the Company merge with and into, the Company or a wholly owned Domestic Subsidiary of the Company (or, in the case of any Foreign Subsidiary of the Company, the Company or a wholly owned Subsidiary of the Company), and the Company or any Subsidiary of the Company may sell or otherwise dispose of, or part with control of any or all of, the Capital Stock of any Subsidiary to a wholly owned Domestic Subsidiary of the Company or the Company; provided that (i) no such transaction may be -------- effected if it would result in the transfer of any assets of, or any Capital Stock of, the Company or a Subsidiary to, or the merger with and into, another Subsidiary all of the Capital Stock of which owned by the Company or any Subsidiary has not been pledged to the Administrative Agent and which has not guaranteed the obligations of the Company, for the benefit of the Lenders, under the Notes and this Agreement, and granted liens or security interests in favor of the Administrative Agent, for the benefit of the Lenders, on substantially all of its assets to secure such guarantee, pursuant to a guarantee, security agreement and other documentation reasonably satisfactory to the Administrative Agent and (ii) the Company shall not transfer all or substantially all of its assets pursuant to this paragraph; (c) leases of Fee Properties and other real property owned in fee; (d) any condemnation or eminent domain proceedings affecting any real property; provided that the parties hereto agree that the net proceeds received -------- in connection with such proceeding shall be deemed not to constitute "Net Proceeds" if such net proceeds are reinvested in new or existing properties within eighteen months; (e) substantially like-kind exchanges of real property or equipment; provided that only any cash received by the Company or any Subsidiary of the - -------- Company in connection with such an exchange (net of all costs and expenses incurred in connection with such transaction or with the commencement of operation of real property received in such exchange) shall be deemed to be Net Proceeds and shall be applied as provided for in subsection 4.4(b)(iv); (f) for the sale or other disposition of any property that, in the reasonable judgment of the Company has become uneconomic, obsolete or worn out, and which is sold or disposed of in the ordinary course of business; (g) for the sale or other disposition of any property the aggregate amount of the net proceeds received in respect of which shall not exceed $10,000,000 during the term of this Agreement; and (h) any sale or disposition of any interest in property; provided -------- that (i) the net proceeds of any such sale shall constitute Net Proceeds only to the extent such net proceeds are not reinvested in new or existing properties within twelve months from the date of such sale, (ii) if the property so sold constituted Collateral under the Security Documents then any property purchased with the net proceeds thereof shall be mortgaged or pledged, as the case may be, for the benefit of the Lenders if required by subsection 7.9 and in accordance therewith and (iii) the aggregate outstanding amount of net proceeds 64 held by the Company and its Subsidiaries at any time for reinvestment in respect of any property sold pursuant to this paragraph shall not exceed $15,000,000; (i) for the sale or other disposition of the Photography Division and the Recognition Division; provided that (i) 50% of the net proceeds shall constitute Net Proceeds to be applied to the Term Loans in accordance with subsection 4.4(b)(iv), (ii) 50% of the net proceeds of any such sale shall constitute Net Proceeds only to the extent such net proceeds are not reinvested in new or existing properties within twelve months from the date of such sale and (iii) if the property so sold constituted Collateral under the Security Documents then any property purchased with the net proceeds thereof shall be mortgaged or pledged, as the case may be, for the benefit of the Lenders if required by subsection 7.9 and in accordance therewith; and (j) any sale or other disposition of any minority interests in a joint venture or other Person. 8.6 Limitation on Investments, Loans and Advances. Make any advance, --------------------------------------------- loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in (including, without limitation, any acquisition of all or any substantial portion of the assets, and any acquisition of a business or a product line, of other companies, other than the acquisition of inventory in the ordinary course of business), any Person (except to the extent permitted by Section 8.7 or 8.11), except: (a) loans or advances, to the extent, in each case, the Indebtedness created thereby is permitted by subsection 8.1(d); (b) (i) any Subsidiary may make investments in the Company (by way of capital contribution or otherwise), (ii) the Company and any Subsidiary may make investments in, or create, any wholly owned Domestic Subsidiary (by way of capital contribution or otherwise) or make investments permitted by subsection 8.5(b); provided that, in any such case, the requirements of subsection 7.9 are -------- satisfied, (iii) the Company and any Subsidiary may make investments in any Subsidiary financed with contributions of equity after the Closing Date directly or indirectly to the entity making such investment from the Investor Group or their Affiliates, and (iv) the Company and any Subsidiary may make investments in, or create, any Foreign Subsidiary (by way of capital contribution or otherwise) or make investments permitted by subsection 8.5(b); provided that (x) -------- the requirements of subsection 7.9 are satisfied and (y) the aggregate amount of all investments in such Foreign Subsidiaries shall not exceed (I) $35,000,000 (plus the sum of any amounts dividended or distributed by such Foreign ---- Subsidiaries to the Company or any Domestic Subsidiary), minus (II) the amount ----- of any Indebtedness of any Foreign Subsidiary at any such time outstanding in accordance with subsection 8.1(j) or 8.3(c)(ii); (c) the Company and its Subsidiaries may (i) invest in, acquire and hold Cash Equivalents and Investment Grade Securities (ii) make loans in an aggregate amount at any time outstanding not to exceed $1,000,000 in connection with a sale of assets permitted by subsection 8.5; (d) the Company and its Subsidiaries may make payroll advances in the ordinary course of business (including advances against commissions); (e) the Company and its Subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (provided that -------- nothing in this clause (e) shall prevent the Company or any of its Subsidiaries from offering such concessionary trade terms, or from receiving such investments, in connection with the bankruptcy or reorganization of their respective suppliers or customers or the 65 settlement of disputes with such customers or suppliers arising in the ordinary course of business, as management deems reasonable in the circumstances); (f) the Company or any of its Subsidiaries may make travel and entertainment advances and relocation and other loans to officers and employees of the Company or any such Subsidiary; provided that the aggregate principal -------- amount of all such loans and advances outstanding at any one time, together with the guarantees of such loans and advances made pursuant to subsection 8.3(e), shall not exceed $7,500,000 at any one time outstanding; and (g) the Company and its Subsidiaries may make expenditures to acquire all or a portion of the Capital Stock or assets of any Person engaged primarily in one or more businesses in which the Company and its Subsidiaries are engaged or directly related thereto; provided that, after giving pro forma effect to any -------- --- ----- such acquisition and the financing thereof, (i) the amount of the expenditures in connection with such acquisition does not exceed $30,000,000 without the prior written consent of the Required Lenders, (ii) the provisions of subsection 7.9 are satisfied, (iii) the Company is in compliance with subsections 8.9 and 8.10 as of the end of the immediately preceding fiscal quarter for which the appropriate financial information is available; provided that the last four -------- fiscal quarters of Consolidated EBITDA (as may be adjusted for identified post acquisition cost savings reasonably agreed to by the Company and the Administrative Agent) of each acquired company, business or group of assets during the testing period shall be added for purposes of determining compliance with such subsections, and (iv) no Default or Event of Default has occurred and is continuing or would result therefrom; and (h) the Company or any of its Subsidiaries may make investments in, or loans or investments to or expenditures relating to, joint ventures or other Persons engaged primarily in one or more businesses in which the Company and its Subsidiaries are engaged or generally related thereto in an aggregate amount not to exceed (i) $20,000,000 in the aggregate or (ii) $12,500,000 in the aggregate in connection with expenditures relating to such investments (plus the sum of ---- (A) any amounts dividended or distributed to the Company or any Domestic Subsidiary of the Company (whichever party is making such investment, loan or expenditure) by such joint venture or other Person, (B) the net cash proceeds of any issuance of Capital Stock by the Company to, or any capital contribution to the Company by, the Investor Group or its Affiliates (which has not been used to increase the Base Amount of Capital Expenditures permitted under subsection 8.7 for any period) and/or any incurrence of Indebtedness permitted under subsection 8.1(i) in respect of loans made by the Investor Group or its Affiliates and (C) any amounts from sales or distributions permitted by subsection 8.5(j)); provided that at the time of and after giving effect thereto no Default or Event - -------- of Default shall have occurred and be continuing or would result therefrom. For purposes of this subsection 8.6, the payment, or intercompany loans or advances for such purpose, by the Company or any Subsidiary of expenses and operating costs of the Company or any Subsidiary (x) incurred in the ordinary course of business (provided that, any such payment by the Company or -------- any Subsidiary of expenses and operating costs of Foreign Subsidiaries of the Company pursuant to this clause shall be promptly repaid by such Foreign Subsidiaries as soon as such Foreign Subsidiaries have funds available to make such repayment) or (y) incurred in association with the initial establishment, start up and capitalization of the Company and its Subsidiaries shall not be considered to be a loan, advance, dividend or other investment, and shall be permitted under this Agreement and such payments shall not reduce any permitted amounts to be so made as specified herein. 8.7 Capital Expenditures. Make or commit to make any Capital -------------------- Expenditures, except that the Company and its Subsidiaries may make or commit to make Capital Expenditures not exceeding the amount set forth below (the "Base ---- Amount") for each of the fiscal years or periods of the Company (or other - ------ period) set forth below: 66 Fiscal Year or Period Base Amount --------- ----------- Closing Date to the end of FY 2000 $40,000,000 FY 2001 $50,000,000 FY 2002 $32,000,000 FY 2003 $30,000,000 FY 2004 $30,000,000 FY 2005 and thereafter $30,000,000 provided that (i) for any period set forth above, the Base Amount set forth - -------- above may be increased by a maximum of 50% of the Base Amount for any such period by carrying over to any such period any portion of the Base Amount (as increased) not spent in the immediately preceding period, (ii) for each period of the Company, the Base Amount for such period set forth above shall be increased by the amount of any net cash proceeds from the issuance of Capital Stock of the Company to, or any capital contribution to the Company by, the Investor Group or its Affiliates and (iii) for each period of the Company, the Base Amount for such period set forth above shall be increased in the event any Person or assets of such Person (an "Acquired Person") is acquired as permitted --------------- herein by an amount equal to 110% of the amount of capital expenditures (determined in accordance with GAAP) of such Acquired Person for the twelve months prior to the date it was acquired ("Acquired Capital Expenditures"); ----------------------------- provided that, with respect to the fiscal year in which such Person becomes an - -------- Acquired Person, the Base Amount shall be increased by the product of (A) the Acquired Capital Expenditures of such Acquired Person times (B) a fraction, the ----- numerator of which is the number of days remaining in the fiscal year of the Company in which such Acquired Person was acquired and the denominator of which is 365; and provided, further, that, notwithstanding anything to the contrary -------- ------- herein, additional Capital Expenditures may be made with net proceeds received in property sales or dispositions under subsection 8.5(g), 8.5(h) or 8.5(i). 8.8 Interest Rate Agreements. Enter into, create, incur, assume or ------------------------ suffer to exist any Interest Rate Agreements or obligations in respect thereof except in the ordinary course of business for non-speculative purposes. 8.9 Debt to EBITDA. At the last day of any fiscal quarter set forth -------------- below, permit the ratio (the "Leverage Ratio") of Consolidated Indebtedness -------------- (excluding seasonal borrowings occurring in the third fiscal quarter of the Company which shall be calculated as the lesser of (i) $85,000,000 and (ii) the amount of Revolving Credit Loans outstanding on the date of such calculation) as of such day to Consolidated EBITDA for the period of twelve months ending on such day to be greater than the ratio set forth below for such fiscal quarter; provided that, for purposes of calculating Consolidated EBITDA, any costs - -------- related to employee and business terminations described in the definition of "consolidated net income" contained in the Offering Memorandum shall be excluded; and provided further that, with respect to any acquisition permitted -------- ------- by subsection 8.6(g), the last four fiscal quarters of Consolidated EBITDA (as may be adjusted for post acquisition cost savings reasonably agreed to by the Company and the Administrative Agent) of the acquired company shall be added for the purposes of calculating this ratio: 67 Fiscal Year Fiscal Quarter Ratio ----------- -------------- ----- 2000 Fourth 6.00 to 1.00 2001 First 6.00 to 1.00 Second 5.75 to 1.00 Third 5.75 to 1.00 Fourth 5.50 to 1.00 2002 First 5.25 to 1.00 Second 5.25 to 1.00 Third 5.00 to 1.00 Fourth 4.75 to 1.00 2003 First 4.75 to 1.00 Second 4.50 to 1.00 Third 4.50 to 1.00 Fourth 4.25 to 1.00 2004 First 4.25 to 1.00 Second 4.00 to 1.00 Third 4.00 to 1.00 Fourth 3.75 to 1.00 2005 First 3.50 to 1.00 Second 3.50 to 1.00 Third 3.50 to 1.00 Fourth 3.50 to 1.00 2006 First 3.00 to 1.00 Second 3.00 to 1.00 Third 3.00 to 1.00 Fourth 3.00 to 1.00 2007 First 3.00 to 1.00 Second 3.00 to 1.00 Third 3.00 to 1.00 Fourth 3.00 to 1.00 2008 First 3.00 to 1.00 8.10 Interest Coverage. At the last day of any fiscal quarter set ----------------- forth below, permit the Interest Coverage Ratio to be less than the ratio set forth below for such fiscal quarter; provided that, for purposes of calculating -------- Consolidated EBITDA, any costs related to employee and business terminations described in the definition of "consolidated net income" contained in the Offering Memorandum shall be excluded: 68 Fiscal Year Fiscal Quarter Interest Coverage Ratio ----------- -------------- ----------------------- 2000 Fourth 1.50 to 1.00 2001 First 1.50 to 1.00 Second 1.50 to 1.00 Third 1.50 to 1.00 Fourth 1.65 to 1.00 2002 First 1.70 to 1.00 Second 1.70 to 1.00 Third 1.75 to 1.00 Fourth 1.90 to 1.00 2003 First 1.90 to 1.00 Second 2.00 to 1.00 Third 2.00 to 1.00 Fourth 2.25 to 1.00 2004 First 2.25 to 1.00 Second 2.25 to 1.00 Third 2.25 to 1.00 Fourth 2.50 to 1.00 2005 First 2.75 to 1.00 Second 2.75 to 1.00 Third 2.75 to 1.00 Fourth 2.75 to 1.00 2006 First 3.00 to 1.00 Second 3.00 to 1.00 Third 3.00 to 1.00 Fourth 3.00 to 1.00 2007 First 3.00 to 1.00 Second 3.00 to 1.00 Third 3.00 to 1.00 Fourth 3.00 to 1.00 2008 First 3.00 to 1.00 8.11 Limitation on Dividends. Declare any dividends on any shares of ----------------------- any class of Capital Stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement or other acquisition of any shares of any class of Capital Stock, or any warrants or options to purchase such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any of its Subsidiaries; except that: (a) Subsidiaries may pay dividends to the Company or to Domestic Subsidiaries of the Company which are directly or indirectly wholly owned by the Company (or, in case of Foreign Subsidiaries, to the Company or to Subsidiaries of the Company which are directly or indirectly wholly owned by the Company) and any Foreign Subsidiary of the Company organized under the laws of Ireland 69 may pay dividends to its employee shareholders as part of such employee shareholders' compensation package; (b) the Company and its Subsidiaries may pay or make dividends or distributions to any holder of its Capital Stock in the form of additional shares of Capital Stock of the same class and type; (c) the Company may repurchase shares of Capital Stock of the Company owned by former, present or future employees of the Company or its Subsidiaries or their assigns, estates and heirs; provided that the aggregate amount expended -------- by the Company pursuant to this clause (c) shall not in the aggregate exceed (i) $7,500,000 in any fiscal year or (ii) $15,000,000 during the term of this Agreement, plus any amounts contributed to the Company as a result of resales of such repurchased shares of Capital Stock; (d) the Company may redeem Preferred Stock or any outstanding Senior Subordinated Notes with the proceeds of the issuance of Capital Stock so long as such proceeds are not required to be applied to prepay any Loans pursuant to subsection 4.4(b)(i) and provided that the aggregate amount expended by the -------- Company pursuant to this clause (d) and clause (e) below shall not exceed $60,000,000 during the term of this Agreement; (e) subject to compliance with subsection 4.4(b)(v), the Company may redeem Preferred Stock or any outstanding Senior Subordinated Notes with any Excess Cash Flow which is not applied to prepay the Term Loans in accordance with subsection 4.4(b)(v); provided that the aggregate amount expended by the -------- Company pursuant to clause (d) above and this clause (e) shall not exceed $60,000,000 during the term of this Agreement; (f) the Company may repurchase up to 539,592 shares of Class A common stock of the Company at a purchase price of $25.25 per share (the "Repurchased Stock") and in connection therewith pay any reasonable transaction costs related to such repurchase. The Company, at its election, may cancel the Repurchased Stock or hold the Repurchased Stock in its treasury; and (g) Notwithstanding anything to the contrary in this Agreement, any holder of shares of the Company's Class E common stock may exchange such shares for shares of the Company's Class A common stock at any time. 8.12 Transactions with Affiliates. Enter into any transaction, ---------------------------- including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate except for transactions which are otherwise permitted under this Agreement and which are in the ordinary course of the Company's or a Subsidiary's business and which are upon fair and reasonable terms no less favorable to the Company or such Subsidiary than it would obtain in a hypothetical comparable arm's length transaction with a Person not an Affiliate; provided that nothing in this subsection 8.12 shall prohibit -------- the Company or its Subsidiaries from engaging in the following transactions: (x) the performance of the Company's or any Subsidiary's obligations under any employment contract, collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the ordinary course of business, (y) the payment of compensation to employees, officers, directors or consultants in the ordinary course of business or (z) the maintenance of benefit programs or arrangements for employees, officers or directors, including, without limitation, vacation plans, health and life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans, in each case, in the ordinary course of business. 8.13 Limitation on Changes in Fiscal Year. Permit the fiscal year of ------------------------------------ the Company to end on a day other than on the Saturday closest to December 31 in any calendar year. 70 8.14 Limitation on Lines of Business. Enter into any business, either ------------------------------- directly or through any Subsidiary, except for those businesses in which the Company or any Subsidiary is engaged on the date of this Agreement (or which are directly related thereto or generally related thereto, including, without limitation, the provision of goods or services related to educational institutions, parents and students and the recognition businesses). 8.15 Amendments to Certain Documents. Amend, modify, waive or ------------------------------- terminate any provisions of the Merger Agreement in a manner which is materially adverse to the Company or the Lenders, without the consent of the Administrative Agent, which consent shall not be unreasonably withheld. 8.16 Limitation on Prepayments and Amendments of Certain Debt. (a) -------------------------------------------------------- Optionally prepay, retire, redeem, purchase, defease or exchange, or make or arrange for any mandatory prepayment, retirement, redemption, purchase or defeasance of any Indebtedness outstanding pursuant to subsection 8.1(i) or with respect to any Specified Debt (other than (x) any redemption of the Specified Debt with proceeds of Permanent Subordinated Debt as permitted by subsection 8.1(c), (y) any refinancing of the Specified Debt contemplated in the definition thereof or (z) any redemption of Specified Debt or Preferred Stock (1) with the proceeds of the issuance of Capital Stock to the extent permitted by subsection 4.4(b)(i) and 8.11(d) or (2) with Excess Cash Flow to the extent permitted by subsection 8.11(e)), (b) waive, amend, supplement, modify, terminate or release any of the provisions of any such Indebtedness outstanding pursuant to subsection 8.1(i) if, after giving effect to such waiver, amendment, supplement, modification, termination or release, such Indebtedness would not have been permitted to be incurred pursuant to such subsection, or (c) waive, amend, supplement, modify, terminate or release any of the provisions with respect to any Specified Debt without the prior consent of the Administrative Agent, to the extent that any such waiver, amendment, supplement, modification, termination or release would be materially adverse to the Lenders. SECTION 9. EVENTS OF DEFAULT ----------------- Upon the occurrence and during the continuance of any of the following events: (a) Any Borrower shall fail to (i) pay any principal of any Loan or Note when due in accordance with the terms hereof or thereof or to reimburse the Issuing Lender in accordance with subsection 3.8 or (ii) pay any interest on any Loan or Note or any fee or other amount payable hereunder within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by any Credit Party in any Credit Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement contained in subsection 7.7(a) or 7.9 or Section 8 of this Agreement; or (d) Any Credit Party shall default in the observance or performance of any other covenant or agreement contained in any Credit Document and such default shall continue unremedied for a period of 30 days; or (e) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest on or other amounts in respect of any Indebtedness (other than the Loans, the L/C Obligations and any inter-company debt) or Interest Rate Agreement or in the payment of any Contingent Obligation, beyond the period of grace, if any, provided in the instrument or agreement under 71 which such Indebtedness, Interest Rate Agreement or Contingent Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness, Interest Rate Agreement or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness, the party or parties to such Interest Rate Agreements or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity, any applicable grace period having expired, such Interest Rate Agreement to be terminated, any applicable grace period having expired or such Contingent Obligation to become payable, any applicable grace period having expired; in each case; provided that -------- the aggregate principal amount of all such Indebtedness, Interest Rate Agreements and Contingent Obligations under which a default exists or which would then become due or payable equals or exceeds $15,000,000; or (f) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other events or conditions shall occur or exist with respect to a Plan, and such event or condition, together with all other such events or conditions, relating to a Plan, if any, would be reasonably likely to subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate resulting in a material adverse effect to the Company and its Subsidiaries taken as a whole; or 72 (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (to the extent not paid or reserved for or to the extent not covered by insurance or indemnities to the extent the Company, in its reasonable good faith judgment, believes that such judgment or decree will be paid when due by the parties providing such indemnities) of $15,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, paid, stayed or bonded pending appeal within the time required by the terms of such judgment; or (i) Any Credit Document shall cease, for any reason, to be in full force and effect or any Credit Party or any of its Subsidiaries shall so assert in writing, or any Security Document shall cease to be effective to grant a perfected Lien on the collateral described therein with the priority purported to be created thereby (other than as a result of any action or inaction on the part of the Administrative Agent or the Lenders), subject to such exceptions as may be permitted therein or herein, and in the case of any Security Agreement, such condition shall continue unremedied for 30 days after notice thereof to the Company by the Administrative Agent or any Lender; or (j) There shall have occurred a Change of Control; or (k) The subordination provisions of any document governing any Indebtedness permitted under subsection 8.1(c) or 8.1(i) (including, without limitation, the Senior Subordinated Notes) shall cease, for any reason, to be valid or any Credit Party or any of its Subsidiaries shall so assert in writing; then, and in any such event, (a) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically (i) the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (ii) all obligations of the Company in respect of the Letters of Credit, although contingent and unmatured, shall become immediately due and payable and the Issuing Lender's obligations to issue the Letters of Credit shall immediately terminate and (b) if such event is any other Event of Default, so long as any such Event of Default shall be continuing, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Commitments and the Issuing Lender's obligations to issue the Letters of Credit to be terminated forthwith, whereupon the Commitments and such obligations shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice of default to the Company, (A) declare all or a portion of the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable, and (B) declare all or a portion of the obligations of the Company in respect of the Letters of Credit, although contingent and unmatured, to be due and payable forthwith, whereupon the same shall immediately become due and payable and/or demand that the Company discharge any or all of the obligations supported by the Letters of Credit by paying or prepaying any amount due or to become due in respect of such obligations. All payments under this Section 9 on account of undrawn Letters of Credit shall be made by the Company directly to a cash collateral account established by the Administrative Agent for such purpose for application to the Company's reimbursement obligations under subsection 3.8 as drafts are presented under the Letters of Credit, with the balance, if any, to be applied to the Company's obligations under this Agreement and the Notes as the Administrative Agent shall determine with the approval of the Required Lenders. Except as expressly provided above in this Section 9, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 73 SECTION 10. THE ADMINISTRATIVE AGENT; THE SYNDICATION AGENT; THE ---------------------------------------------------- DOCUMENTATION AGENT AND THE ISSUING LENDER ------------------------------------------ 10.1 Appointment. Each Lender hereby irrevocably designates and ----------- appoints Chase as the Administrative Agent, Bankers Trust as the Syndication Agent and Goldman as the Documentation Agent under this Agreement and irrevocably authorizes Chase as Administrative Agent, Bankers Trust as Syndication Agent and Goldman as Documentation Agent for such Lender to take such action on its behalf under the provisions of the Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent, the Syndication Agent or the Documentation Agent by the terms of the Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent, the Syndication Agent and the Documentation Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Credit Documents or otherwise exist against the Administrative Agent, the Syndication Agent or the Documentation Agent. 10.2 Delegation of Duties. The Administrative Agent may execute any -------------------- of its duties under this Agreement and each of the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care, except as otherwise provided in subsection 10.3. 10.3 Exculpatory Provisions. Neither the Administrative Agent nor any ---------------------- of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Credit Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Credit Party or any officer thereof contained in the Credit Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, the Credit Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Credit Documents or for any failure of any Credit Party to perform its obligations thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, any Credit Document, or to inspect the properties, books or records of any Credit Party. 10.4 Reliance by Administrative Agent. The Administrative Agent shall -------------------------------- be entitled to rely, and shall be fully protected in relying, upon any Note, entries maintained in the Register, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Credit Document unless it shall first receive such advice or concurrence of the Required Lenders (or, where a higher percentage of the Lenders is expressly required hereunder, such Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Credit Document in accordance with a request of the Required Lenders (unless a higher percentage of Lenders is expressly 74 required), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 10.5 Notice of Default. The Administrative Agent shall not be deemed ----------------- to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received written notice from a Lender or the Company or any other Credit Party referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have -------- received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.6 Non-Reliance on Administrative Agent, Syndication Agent, -------------------------------------------------------- Documentation Agent and Other Lenders. Each Lender expressly acknowledges that - ------------------------------------- neither the Administrative Agent, the Syndication Agent, the Documentation Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Credit Parties, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent, the Syndication Agent, the Documentation Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, the Syndication Agent, the Documentation Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Credit Parties which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 10.7 Indemnification. The Lenders agree to indemnify the --------------- Administrative Agent in its capacity as such (to the extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit Parties to do so), ratably according to the respective amounts of their respective Commitments (or, to the extent such Commitments have been terminated, according to the respective outstanding principal amounts of the Loans and the L/C Obligations and the respective obligations, whether as Issuing Lender or a Participating Lender, under the Letter of Credit), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Credit Documents or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, 75 judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection 10.7 shall survive the repayment of the Loans and all other amounts payable hereunder. 10.8 The Administrative Agent in its Individual Capacity. The --------------------------------------------------- Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company and its Subsidiaries as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers, duties and liabilities under the Credit Documents as any Lender and may exercise the same as though it were not the Administrative Agent and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. The Administrative Agent may ------------------------------ resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under the Credit Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall, so long as no Event of Default has occurred and is continuing, be approved by the Company, which shall not unreasonably withhold its approval, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Credit Documents. 10.10 Issuing Lender as Issuer of Letters of Credit. Each Revolving --------------------------------------------- Credit Lender hereby acknowledges that the provisions of this Section 10 shall apply to the Issuing Lender, in its capacity as issuer of the Letters of Credit, in the same manner as such provisions are expressly stated to apply to the Administrative Agent, except that obligations to indemnify the Issuing Lender shall be ratable among the Revolving Credit Lenders in accordance with their respective Revolving Credit Commitments (or, if the Revolving Credit Commitments have been terminated, the outstanding principal amount of their respective Revolving Credit Loans and L/C Obligations and their respective participating interests in the outstanding Letters of Credit). 10.11 Administrative Agent as Joint and Several Creditor. Solely for -------------------------------------------------- purposes of the pledge of shares of Jostens Can Investments B.V., a Netherlands corporation and Jostens International Holdings B.V., a Netherlands corporation, each Borrower and each Lender agree that the Administrative Agent shall be the joint and several creditor (together with the relevant Lenders) of each obligation of each Borrower towards each Lender under the Credit Documents, and that accordingly, the Administrative Agent will have its own independent right to demand performance by each Borrower of those obligations. However, (i) any discharge of any such obligation to one of the Administrative Agent or a Lender shall, to the same extent, discharge the corresponding obligation owing to the other, and (ii) a Lender and the Administrative Agent shall not, by virtue of this subsection 10.11, be entitled to pursue each Borrower concurrently for the same obligation. SECTION 11. MISCELLANEOUS ------------- 11.1 Amendments and Waivers. Except as otherwise expressly set forth ---------------------- in this Agreement, no Credit Document nor any terms thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this subsection 11.1. With the written consent of 76 the Required Lenders, the Administrative Agent and the respective Credit Parties or their Subsidiaries may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to any Credit Document to which they are parties or changing in any manner the rights of the Lenders or of any such Credit Party or its Subsidiaries thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of any such Credit Document or any Default or Event of Default and its consequences; provided that: -------- (a) no such waiver and no such amendment, supplement or modification shall (i) release all or substantially all of the collateral without the written consent of all Lenders or (ii) release collateral not required or permitted by any Credit Document to be released and which, in the aggregate with all other collateral released pursuant to this clause (a) (ii) (other than collateral released pursuant to the proviso to this clause (a)) during the calendar year in which such proposed release would be effected and the immediately preceding calendar year, has fair market value on the proposed date of release in excess of 20% of the fair market value of all collateral (including any Guarantee) on such date without the written consent of the Supermajority Lenders; provided -------- that, notwithstanding the foregoing, this clause (a) shall not be applicable to and no consent shall be required for (i) releases of collateral in connection with any dispositions permitted by subsection 8.5, (ii) releases of collateral in accordance with subsection 11.11 or (iii) upon the reincorporation of the Company or any Subsidiary in a new jurisdiction or the creation of a new Subsidiary of the Company, any release of collateral in connection with the transfer of such released collateral to such reincorporated entity or new Subsidiary in compliance with subsection 8.4; provided that the Administrative -------- Agent, in its sole discretion, determines that such release and transfer, together with any grant and perfection of a new Lien therein in favor of the Administrative Agent, will cause no material impairment of the value of the collateral taken as a whole, after giving effect to such release and transfer; (b) no such waiver and no such amendment, supplement or modification shall extend the final maturity date or termination date of any Loan or Commitment or the scheduled payment date of any installment of any Loan, or reduce the rate or extend the time of payment of interest thereon, or change the method of calculating interest thereon, or reduce or extend the time of payment of any fee payable to the Lenders hereunder, or reduce the principal amount thereof, or change the amount of any Lender's Commitment or Commitment Percentage, or amend, modify or waive any provision of subsection 4.9(b) or this subsection 11.1 or reduce the percentage specified in the definition of Required Lenders or reduce the percentage specified in the definition of Supermajority Lenders or consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document, in each case, without the prior written consent of each Lender directly affected thereby; (c) no such waiver and no such amendment, supplement or modification affecting the then Administrative Agent or Issuing Lender shall amend, modify or waive any provision of Section 10 without the written consent of such Administrative Agent or Issuing Lender, as the case may be; (d) without the consent of each of the Lenders which are Revolving Credit Lenders and/or Tranche B Lenders only, each of the Tranche A Lenders may amend this Agreement and the Tranche A Term Notes to extend the maturities of the installments of the Tranche A Term Loans; without the consent of each of the Lenders which are Revolving Credit Lenders and/or Tranche A Lenders only, each of the Tranche B Lenders may amend this Agreement and the Tranche B Term Notes to extend the maturities of the installments of the Tranche B Term Loans; and without the consent of each of the Lenders which are holders of the Term Loans only, each of the Revolving Credit Lenders may amend this Agreement and the Revolving Credit Notes to extend the Revolving Credit Termination Date; and 77 (e) no such waiver, and no such amendment, supplement or modification shall amend, modify or waive the order of application of prepayments specified in subsection 4.4(a) or subsections 4.4(b)(i) through 4.4(b)(v) without the written consent of the holders of at least 51% of each of (i) the aggregate unpaid principal amount of the Term Loans, if any, and (ii) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans (the Term Loans and the Revolving Credit Commitments of any Non-Funding Lender to be disregarded in determining such percentage at any time); any such waiver and any such amendment, supplement or modification described in this subsection 11.1 shall apply equally to each of the Lenders and shall be binding upon each Credit Party and its Subsidiaries, the Lenders, the Administrative Agent and the Issuing Lender and all future holders of the Notes and the Loans. Any extension of a Letter of Credit by the Issuing Lender shall be treated hereunder as a new Letter of Credit. In the case of any waiver, the Credit Parties, the Lenders, the Administrative Agent and Issuing Lender shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 11.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy or telex, if one is listed), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when sent, confirmation of receipt received, or, in the case of telex notice, when sent, answerback received, addressed as follows in the case of the Company and the other Borrower, the Administrative Agent, and as set forth in Schedule I in the case of any Lender, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company and the other Borrower: Jostens, Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Attention: Lee U. McGrath Telecopy: (612) 830-3293 With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 Attention: Janet Vance, Esq. Telecopy: (212) 351-4035 The Administrative Agent and Swing Line Lender: The Chase Manhattan Bank Agent Bank Services 1 Chase Manhattan Plaza, 8th floor New York, New York 10081 Attention: Michael Cerniglia Telecopy: (212) 552-5777 With a copy to: The Chase Manhattan Bank 270 Park Avenue, 37/th/ floor New York, New York 10017 Attention: Lawrence Palumbo 78 Telecopy: (212) 270-7939 provided that any notice, request or demand to or upon the Administrative Agent - -------- or the Lenders pursuant to subsections 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4 shall not be effective until received and; provided, further, that the failure to provide -------- ------- the copies of notices to the Company provided for in this subsection 11.2 shall not result in any liability to the Administrative Agent. 11.3 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement, the Letters of Credit and the Notes. 11.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or ----------------------------- reimburse the Administrative Agent, the Syndication Agent, the Documentation Agent and the Co-Lead Arrangers for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, negotiation, preparation and execution of the Credit Documents and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of one counsel to the Administrative Agent, the Syndication Agent, the Documentation Agent and the Co-Lead Arrangers, (b) to pay or reimburse all of the reasonable expenses, including without limitation, reasonable fees and expenses of counsel, incurred by the Administrative Agent in connection with the administration of the facilities provided for herein or in connection with any amendments, waivers, work-outs or restructurings in respect thereof, (c) to pay or reimburse the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender and each Lender for all their costs and expenses incurred in connection with, and to pay, indemnify, and hold the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender and each Lender harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever arising out of or in connection with, the enforcement or preservation of any rights under any Credit Document and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Administrative Agent, the Co-Lead Arrangers and each Lender incurred in connection with the foregoing and in connection with advising the Administrative Agent with respect to its rights and responsibilities under this Agreement and the documentation relating thereto, (d) to pay, indemnify, and to hold the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co- Lead Arrangers and each Lender harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes (other than withholding taxes), if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Credit Document and any such other documents, and (e) to pay, indemnify, and hold the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender and each Lender and their respective Affiliates, officers, directors and trustees harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel) which may be incurred by or asserted against the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or the Lenders 79 or such Affiliates, officers, directors or trustees (x) arising out of or in connection with any investigation, litigation or proceeding related to this Agreement, the other Credit Documents, the proceeds of the Loans and the transactions contemplated by or in respect of such use of proceeds, or any of the other transactions contemplated hereby, whether or not the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or any of the Lenders or such Affiliates, officers, directors or trustees is a party thereto, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the Company, any of its Subsidiaries or any of the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries, or (y) without limiting the generality of the foregoing, by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make payments under, Letters of Credit (it being agreed that nothing in this subsection 11.5(d)(y) is intended to limit the Company's obligations pursuant to subsection 3.8) (all the foregoing, collectively, the "indemnified liabilities"); provided that the Company shall have no obligation ----------------------- -------- hereunder with respect to indemnified liabilities of the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or any Lender or any of their respective Affiliates, officers, directors and trustees arising from (i) the gross negligence or willful misconduct of the person seeking indemnification or (ii) legal proceedings commenced against the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or any such Lender by any Transferee (as defined in subsection 11.6). Without limiting the foregoing, and to the extent permitted by applicable law, the Company agrees not to assert, and hereby waives (and shall cause the Subsidiaries not to assert and to waive) all rights for contribution or any other rights of recovery with respect to all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, under or related to Environmental Laws, that any of them might have by statute or otherwise against the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, the Issuing Lender or any Lender. The agreements in this subsection 11.5 shall survive repayment of the Loans and all other amounts payable hereunder. 11.6 Successors and Assigns; Participations and Assignments. (a) ------------------------------------------------------ This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers, all future holders of the Notes and the Loans, and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking, lending or investment business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") ------------ participating interests in any Loan owing to such Lender, any participating interest in the Letters of Credit of such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Credit Documents. Each Borrower agrees that if amounts outstanding under this Agreement and the Notes are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided that such right of setoff shall be -------- subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in subsection 11.7. Each Borrower also agrees that each Participant shall be entitled to the benefits of subsections 3.10, 4.11 and 4.12 with respect to its participation in the Letters of Credit and in the Commitments and the Loans outstanding from time to time as if it were a Lender; provided that no Participant shall be entitled -------- to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. Each Lender agrees that the participation agreement pursuant to which any Participant acquires its participating interest (or any other document) may afford voting rights to such Participant, or any right to instruct such Lender with respect to voting hereunder, only with respect to matters requiring the consent of either all of the Lenders hereunder or all of the Lenders holding the relevant Term Loans or Revolving Credit Commitments subject to such participation. (c) Subject to paragraph (g) of this subsection 11.6, any Lender may, in the ordinary course of its commercial banking, lending or investment business and in accordance with applicable law, (i) at any time and from time to time assign all or any part of its rights and obligations under this Agreement and the Notes to any Lender or any Affiliate thereof; provided that, in the event of -------- a sale of less than all of such rights and obligations, such assigning Lender after any such sale to any other Lender or any Affiliate of such Lender shall retain Commitments and/or Loans and/or L/C Participating Interests aggregating at least $5,000,000 (or such lesser amount as the Administrative Agent may determine) and (ii) with the consent of the Company, as agent for the Borrowers, and the Administrative Agent (which in each case shall not be unreasonably withheld or delayed) at any time and from time to time assign to one or more additional banks, mutual funds or financial institutions or entities (each, an "Assignee"), all or any part of its rights and obligations under this Agreement -------- and the Notes, pursuant to an Assignment and Acceptance, executed by such Assignee, such transferor Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Company, as agent for the Borrowers, and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register (as defined below); provided that (A) each such sale pursuant to clause (ii) of this subsection - -------- 11.6(c) shall be in a principal amount of at least $5,000,000 (or such lesser amount as the Administrative Agent and the Company, as agent for the Borrowers, may determine) unless the assigning Lender is transferring all of its rights and obligations and (B) in the event of a sale of less than all of such rights and obligations, such Lender after any such sale shall retain Commitments and/or Loans and/or L/C Participating Interests aggregating at least $5,000,000 (or such lesser amount as the Administrative Agent and the Company, as agent for the Borrowers, may determine). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent of the interest transferred, as reflected in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of the indemnification provisions set forth in subsection 11.5). (d) The Administrative Agent, which for purposes of this subsection 11.6(d) only shall be deemed to be the agent of the Borrowers, shall maintain at the address of the Administrative Agent referred to in subsection 11.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") -------- for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent and 81 the Lenders shall treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Credit Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Company, as agent for the Borrowers, and the Administrative Agent), together with payment to the Administrative Agent of a registration and processing fee of $4,000 if the Assignee is not a Lender prior to the execution of such supplement and $1,000 otherwise, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company (no such assignment shall become effective unless and until so recorded); provided that, in the case -------- of contemporaneous assignments by a Lender to more than one fund managed by the same investment advisor or an Affiliate of such investment advisor (which funds are not then Lenders hereunder), only a single $4,000 fee shall be payable for all such contemporaneous assignments. On or prior to such effective date, the applicable Borrower at its own expense, shall execute and deliver to the Administrative Agent (in exchange for any or all of the Term Loan Notes or Revolving Credit Notes of the assigning Lender, if any) new Term Loan Notes or Revolving Credit Notes, as the case may be, to the order of such Assignee (if requested) in an amount equal to the Revolving Credit Commitment or the Term Loans, as the case may be, assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment or any Term Loans hereunder, new Term Loan Notes or Revolving Credit Notes, as the case may be, to the order of the assigning Lender in an amount equal to the Commitment or such Term Loans, as the case may be, retained by it hereunder (if requested). Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. (f) The Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-Lead Arrangers and the Lenders agree that they will use reasonable efforts to protect the confidentiality of any confidential information concerning the Company and its Subsidiaries and Affiliates. Notwithstanding the foregoing, each Borrower authorizes each Lender to disclose (i) to its employees, officers, affiliates and advisors, who shall be bound by the confidentiality provisions hereof, (ii) to any regulatory authority as required by law, (iii) in connection with any enforcement or other legal action and (iv) to any Participant or Assignee (each, a "Transferee") and any ---------- prospective Transferee any and all information in such Lender's possession concerning the Company and its Subsidiaries which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of any Borrower in connection with such Lender's credit evaluation of the Company and its Subsidiaries prior to becoming a party to this Agreement; provided that each Lender shall cause its -------- respective prospective Transferees to agree in writing to protect the confidentiality of any confidential information concerning the Company and its Subsidiaries and Affiliates. (g) If, pursuant to this subsection 11.6, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the terms of this Agreement including without limitation subsection 4.11(d). (h) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute 82 assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. 11.7 Adjustments; Set-off. (a) If any relevant Lender (a "benefitted -------------------- ---------- Lender") shall at any time receive any payment of all or part of any of its - ------ Loans or L/C Participating Interests, as the case may be, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (f) of Section 9, or otherwise) in a greater proportion than any such payment to and collateral received by any other relevant Lender, if any, in respect of such other relevant Lender's Loans or L/C Participating Interests, as the case may be, or interest thereon, such benefitted Lender shall purchase for cash from the other relevant Lenders such portion of each such other relevant Lender's Loans or L/C Participating Interests, as the case may be, or shall provide such other relevant Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the relevant Lenders; provided that if all or any -------- portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrowers agree that each Lender so purchasing a portion of another Lender's Loans and/or L/C Participating Interests may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. The Administrative Agent shall promptly give the Company notice of any set-off; provided that the failure to give such notice shall not affect the validity of - -------- such set-off. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to any Borrower, any such notice being expressly waived by each Borrower to the extent permitted by applicable law, upon the filing of a petition under any of the provisions of the federal bankruptcy code or amendments thereto, by or against; the making of an assignment for the benefit of creditors by; the application for the appointment, or the appointment, of any receiver of, or of any substantial portion of the property of; the issuance of any execution against any substantial portion of the property of; the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any substantial portion of the property of; or the issuance of a warrant of attachment against any substantial portion of the property of; any Borrower to set off and apply against any indebtedness, whether matured or unmatured, of any Borrower to such Lender, any amount owing from such Lender to any Borrower, at or at any time after, the happening of any of the above mentioned events, and as security for such indebtedness, each Borrower hereby grants to each Lender a continuing security interest in any and all deposits, accounts or moneys of such Borrower then or thereafter maintained with such Lender, subject in each case to subsection 11.7(a) of this Agreement. The aforesaid right of set-off may be exercised by such Lender against any Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of any Borrower, or against anyone else claiming through or against any Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition; assignment for the benefit of creditors; appointment or application for the appointment of a receiver; or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided that the failure to -------- give such notice shall not affect the validity of such set-off and application. 83 11.8 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. This Agreement shall become effective with respect to the Borrowers, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Lenders when the Administrative Agent shall have received copies of this Agreement executed by the Borrowers, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Lenders, or, in the case of any Lender, shall have received telephonic confirmation from such Lender stating that such Lender has executed counterparts of this Agreement or the signature pages hereto and sent the same to the Administrative Agent. 11.9 Governing Law; No Third Party Rights. This Agreement and the ------------------------------------ Notes and the rights and obligations of the parties under this Agreement and the Notes shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and, except as set forth in subsection 11.6, no other Persons shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. 11.10 Submission to Jurisdiction; Waivers. (a) Each party to this ----------------------------------- Agreement hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any of the other Credit Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in subsection 11.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) Each party hereto unconditionally waives trial by jury in any legal action or proceeding referred to in paragraph (a) above and any counterclaim therein. 11.11 Releases. The Administrative Agent and the Lenders agree to -------- cooperate with the Company and its Subsidiaries with respect to any sale or other disposition permitted by subsection 8.5 and promptly take such action and execute and deliver such instruments and documents necessary to release the liens and security interests created by the Security Documents relating to any of the assets or property affected by any such sale permitted by subsection 8.5, including, without limitation, any Uniform Commercial Code amendment, release or termination or partial release or termination statements. 84 11.12 Interest. Each provision in this Agreement and each other -------- Credit Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, by any Borrower for the use, forbearance or detention of the money to be loaned under this Agreement or any other Credit Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Credit Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the highest lawful rate permitted by applicable law (the "Highest Lawful Rate"), and all ------------------- amounts owed under this Agreement and each other Credit Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement or such other Credit Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Notwithstanding any provision in this Agreement or any other Credit Document to the contrary, if the maturity of the Loans or the obligations in respect of the other Credit Documents are accelerated for any reason, or in the event of any prepayment of all or any portion of the Loans or the obligations in respect of the other Credit Documents by any Borrower or in any other event, earned interest on the Loans and such other obligations of any Borrower may never exceed the Highest Lawful Rate, and any unearned interest otherwise payable on the Loans or the obligations in respect of the other Credit Documents that is in excess of the Highest Lawful Rate shall be canceled automatically as of the date of such acceleration or prepayment or other such event and (if theretofore paid) shall, at the option of the holder of the Loans or such other obligations, be either refunded to such Borrower or credited on the principal of the Loans. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, the Borrowers and the Lenders shall, to the maximum extent permitted by applicable law, amortize, prorate, allocate and spread, in equal parts during the period of the actual term of this Agreement, all interest at any time contracted for, charged, received or reserved in connection with this Agreement. 11.13 Special Indemnification. Notwithstanding any provision in this ----------------------- Agreement to the contrary, (A) each Lender, or Transferee of any Lender pursuant to subsection 11.6(g) of this Agreement, shall indemnify the Borrowers and the Administrative Agent, and hold each of them harmless against any and all payments, expenses or taxes which the Borrowers or the Administrative Agent may become subject to or obligated to pay if and to the extent that, (i) on the Closing Date or the effective date of transfer, as the case may be, such Lender, or such Transferee of a Lender pursuant to subsection 11.6(g) of this Agreement, (a) makes the representation and covenants set forth in subsection 4.11(d) of this Agreement and the Assignment and Acceptance, and (b) is not in fact also qualified to make the representation and covenants set forth in subsection 4.11(d) of this Agreement and the Assignment and Acceptance, and (ii) as a result of any Change in Law or compliance by such Lender, or Transferee, with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority the Borrowers or the Administrative Agent is required to make any additional payments on account of U.S. withholding taxes and amounts related thereto with respect to any payments under this Agreement, any Note, or a Eurodollar Loan, made prior to such Change in Law or request or directive, none of which payments would have been required if such Lender, or Transferee, was qualified on the Closing Date or the date of the transfer, as the case may be, to make the representation and covenants set forth in subsection 4.11(d) of this Agreement and the Assignment and Acceptance, as the case may be, and (B) each Lender, or Transferee of any Lender pursuant to subsection 11.6(g) of this Agreement, agrees that to the extent any amount payable by such Lender or Transferee pursuant to this subsection 11.13 remains unpaid on any Interest Payment Date or the date on which any prepayment is made, the Borrowers shall have the right to set-off against any payment due to such Lender or Transferee on such date any amounts owing to the Borrowers pursuant to this subsection 11.13. 11.14 Permitted Payments and Transactions. Notwithstanding any ----------------------------------- provision to the contrary contained in this Agreement, the Company and its Subsidiaries shall be permitted to make payments (including fees and expenses) pursuant to or in respect of, the following agreements, and, in 85 the case of clauses (a) and (d) below, to engage in the following transactions: (a) (i) the Agreement for Management and Advisory Services, between Investcorp International, Inc. ("III") and the Company dated as of May 10, 2000, (ii) the --- Loan Financing Advisory Agreement between III and the Company dated as of December 28, 1999 and (iii) the Merger Agreement; (b) agreements with any Person or Persons providing for the payment of customary fees in connection with serving as a director of the Company or any of its Subsidiaries; (c) agreements providing for the payment of commercially reasonable fees in connection with any permitted financing, refinancing, sale, transfer, sale and leaseback or other permitted disposition of any assets of the Company of any of its Subsidiaries; (d) the borrowing of any Indebtedness to the extent, and upon the terms and conditions, the same is expressly permitted under subsection 8.1; (e) agreements providing for commercially reasonable fees in connection with any permitted purchase or acquisition of stock or assets by the Company or any of its Subsidiaries; and (f) agreements relating to the payment of $2,500,000 in fees to certain members of the Company's management in connection with the provision of transition services to the Company subsequent to the Merger, as more fully described in the Offering Memorandum. [Remainder of Page Left Blank Intentionally] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. JOSTENS, INC. By: /s/ Lee U. McGrath ___________________________________ Name: Lee U. McGrath Title: Vice President & Treasurer AMERICAN YEARBOOK COMPANY, INC. By: /s/ Lee U. McGrath ___________________________________ Name: Lee U. McGrath Title: Treasurer THE CHASE MANHATTAN BANK, as Administrative Agent, Issuing Lender and a Lender By: /s/ Neil R. Boylan ___________________________________ Name: Neil R. Boylan Title: Managing Director BANKERS TRUST COMPANY, as Syndication Agent By: /s/ Gina F. Thompson ___________________________________ Name: Gina F. Thompson Title: Director GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent and a Lender By: /s/ [signature illegible] ___________________________________ Name: Title: Schedule I to the Credit Agreement ---------------- Lenders, Addresses and Commitments
Tranche A Tranche B Revolving Credit Term Loan Term Loan Commitment Commitment Commitment Total --------------- --------------- --------------- --------------- THE CHASE MANHATTAN BANK 270 Park Avenue New York, NY 10017 Attn: Telecopy: (212) [to come] Total Allocation $150,000,000.00 $150,000,000.00 $345,000,000.00 $645,000,000.00
Schedule II to the Credit Agreement -------------------- PRICING GRID ------------
Applicable Margin Applicable Margin Commitment for Eurodollar Loans for ABR Loans Fee Rate ---------------------- ---------------------- -------------- Tranche A Revolving Tranche A Revolving Leverage Term Credit Term Credit Ratio Loans Loans Loans Loans - ------------------------------------------------------------------------------------------------------------------------------ greater than 5.50 to 1.00 3.25% 3.25% 2.25% 2.25% .500% less than 5.50 to 1.00 3.00% 3.00% 2.00% 2.00% .500% but greater than or equals to 5.00 to 1.00 less than 5.00 to 1.00 2.75% 2.75% 1.75% 1.75% .500% but greater than or equals to 4.50 to 1.00 less than 4.50 to 1.00 2.50% 2.50% 1.50% 1.50% .500% but greater than or equals to 4.00 to 1.00 less than 4.00 to 2.25% 2.25% 1.25% 1.25% .375% 1.00 but greater than or equals to 3.50 to 1.00 less than 3.50 to 2.00% 2.00% 2.00% 1.00% .375% 1.00 but greater than or equals to 3.00 to 1.00 less than 3.00 to 1.75% 1.75% 0.75% 0.75% .375% 1.00
EX-12.1 25 0025.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges Jostens, Inc. and subsidiaries
Six months ended Years ended ---------------------- ---------------------------------------------------------------- (Unaudited) July 1 July 3 January 1 January 2 January 3 December 28 Dollars in thousands 2000 1999 2000 1999 1998 1996 - -------------------- ------- ------- --------- --------- --------- ----------- Earnings Income from continuing operations before income taxes............... $33,286 $79,142 $74,659 $83,520 $93,383 $62,953 Interest expense (excluding capitalized interest).. 15,134 2,693 7,312 7,014 6,854 9,343 Portion of rent expense under long-term operating leases representative of an interest factor............................ 601 777 1,483 1,233 2,133 2,100 Amortization of debt expense...... 158 6 174 12 12 62 ------- ------- ------- ------- -------- ------- Total earnings.................... $49,179 $82,618 $83,628 $91,779 $102,382 $74,458 ======= ======= ======= ======= ======== ======= Fixed charges Preferred stock divided requirement....................... 2,072 Interest expense (including capitalized interest).. 15,134 2,949 7,713 7,717 6,854 9,343 Portion of rent expense under long-term operating leases representative of an interest factor............................ 601 777 1,483 1,233 2,133 2,100 Amortization of debt expense...... 158 6 174 12 12 62 ------- ------- ------- ------- ------- ------- Total fixed charges............... $17,965 $ 3,732 $ 9,370 $ 8,962 $ 8,999 $11,505 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges..................... 2.7 22.1 8.9 10.2 11.4 6.5 Pro Forma Six months ended Years ended Year Ended ---------------- ----------------------------- ----------- (Unaudited) December 28 June 30 June 30 June 30 January 1 Dollars in thousands 1996 1996 1995 1994 2000 ---------------- ------- -------- -------- ----------- Earnings Income from continuing operations before income taxes............... $ 26 $87,479 $ 93,893 $48,494 $ (7,400) Interest expense (excluding capitalized interest).. 4,324 9,296 5,350 6,701 82,500 Portion of rent expense under long-term operating leases representative of an interest factor............................ 1,070 2,103 2,100 2,000 1,483 Amortization of debt expense...... 6 107 102 102 5,100 -------- ------- -------- ------- -------- Total earnings.................... $ 5,426 $98,985 $101,445 $57,297 $81,683 ======== ======= ======== ======= ======= Fixed charges Preferred stock divided requirement....................... 16,000 Interest expense (including capitalized interest).. 4,324 9,296 5,350 6,701 82,500 Portion of rent expense under long-term operating leases representative of an interest factor............................ 1,070 2,103 2,100 2,000 1,483 Amortization of debt expense...... 6 107 102 102 5,100 -------- ------- -------- ------- -------- Total fixed charges............... $ 5,400 $11,506 $ 7,552 $ 8,803 $105,083 ======== ======= ======== ======= ======== Ratio of earnings to fixed charges..................... 1.0 8.6 13.4 6.5 0.8
EX-21.1 26 0026.txt SUBSIDIARIES OF JOSTENS EXHIBIT 21.1 JOSTENS, INC. AND SUBSIDIARIES AS OF AUGUST 1, 2000. NAME OF COMPANY Jurisdiction of Incorporation - --------------- ----------------------------- Jostens Canada, Ltd. Canada Balfirm Canada, Inc.+ Canada Jostens Can Investments B.V. The Netherlands Jostens International Holding B.V. The Netherlands C.V. Jostens Global Trading The Netherlands JC Trading, Inc. Puerto Rico Concepts Jostens, S.A. de C.V. Mexico Reconocimientos E Incentivos, S.A. de C.V. Mexico + Balfirm Canada, Inc. is a subsidiary of Jostens Canada, Ltd. EX-23.1 27 0027.txt CONSENT OF INDEPENDENT AUDITORS-ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 2, 2000 (except for Note 16, as to which the date is April 13, 2000) in the Registration Statement (Form S-4) and related Prospectus of Jostens, Inc. for the registration of $225,000,000 of its senior subordinated notes. /s/ Ernst & Young LLP Minneapolis, Minnesota August 29, 2000 EX-25.1 28 0028.txt STATEMENT OF ELIGIBILITY OF TRUSTEE EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [_] _____________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) _____________ JOSTENS, INC. (Exact name of obligor as specified in its charter) Minnesota 41-0343440 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 5501 Norman Center Drive Minneapolis, Minnesota 55437 (Address of principal executive offices) (Zip code) _____________ 12-3/4% Senior Subordinated Notes due 2010 (Title of the indenture securities) ======================================================================== 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - ------------------------------------------ Name Address - ------------------------------------------ Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a- 29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 17th day of August, 2000. THE BANK OF NEW YORK By: /s/ MICHAEL CULHANE ------------------------------------ Name: MICHAEL CULHANE Title: VICE PRESIDENT -3- - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts In Thousands ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin.................................... 3,247,576 Interest-bearing balances............................................................. 6,207,543 Securities: Held-to-maturity securities........................................................... 827,248 Available-for-sale securities......................................................... 5,092,464 Federal funds sold and Securities purchased under agreements to resell................. 5,306,926 Loans and lease financing receivables: Loans and leases, net of unearned income.............. ............................... 37,734,000 LESS: Allowance for loan and lease losses.......................................................................... 575,224 LESS: Allocated transfer risk reserve................................................. 13,278 Loans and leases, net of unearned income, allowance, and reserve...................... 37,145,498 Trading Assets......................................................................... 8,573,870 Premises and fixed assets (including capitalized leases)............................... 723,214 Other real estate owned................................................................ 10,962 Investments in unconsolidated subsidiaries and associated companies.................... 215,006 Customers' liability to this bank on acceptances outstanding........................... 682,590 Intangible assets...................................................................... 1,219,736 Other assets........................................................................... 2,542,157 ------------- Total assets........................................................................... $71,794,790 ============= LIABILITIES Deposits: In domestic offices................................................................... $27,551,017 Noninterest-bearing................................................................... 11,354,172 Interest-bearing v................................................................... 16,196,845 In foreign offices, Edge and Agreement subsidiaries, and IBFs......................... 27,950,004 Noninterest-bearing................................................................... 639,410 Interest-bearing...................................................................... 27,310,594 Federal funds purchased and Securities sold under agreements to repurchase............. 1,349,708 Demand notes issued to the U.S.Treasury................................................ 300,000
Trading liabilities........................................................................... 2,339,554 Other borrowed money: With remaining maturity of one year or less.................................................. 638,106 With remaining maturity of more than one year through three years............................ 449 With remaining maturity of more than three years............................................. 31,080 Bank's liability on acceptances executed and outstanding...................................... 684,185 Subordinated notes and debentures............................................................. 1,552,000 Other liabilities............................................................................. 3,704,252 ---------------- Total liabilities............................................................................. 66,100,355 ================ EQUITY CAPITAL Common stock.................................................................................. 1,135,284 Surplus....................................................................................... 866,947 Undivided profits and capital reserves........................................................ 3,765,900 Net unrealized holding gains (losses) on...................................................... (44,599) available-for-sale securities............................ Cumulative foreign currency translation adjustments........................................... (29,097) ---------------- Total equity capital.......................................................................... 5,694,435 ---------------- Total liabilities and equity capital.......................................................... $71,794,790 ================
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above- named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi | Alan R. Griffith | Directors Gerald L. Hassell | - -------------------------------------------------------------------------------- EX-99.1 29 0029.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 FORM OF LETTER OF TRANSMITTAL Offer for all Outstanding Privately Placed 12 3/4% Senior Subordinated Notes Due 2010 in Exchange for 12 3/4% Senior Subordinated Notes Due 2010 of JOSTENS, INC. - ------------------------------------------------------------------------------- THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2000, UNLESS EXTENDED - ------------------------------------------------------------------------------- The Exchange Agent is The Bank of New York, whose mailing address, facsimile number and telephone number are as follows: By Hand Delivery, Mail or Overnight Express (insured or registered recommended): The Bank of New York 101 Barclay Street New York, New York 10286 Attention: Reorganization Unit--7E By Facsimile: By Telephone: (212) 815-6339 (212) 815-3738
- ------------------------------------------------------------------------------- DESCRIPTION OF SECURITIES TENDERED - ------------------------------------------------------------------------------- Name and address of registered holder as it appears on the privately placed 12 3/4% Senior Subordinated Certificate Principal Amount Notes Due 2010 ("Old number(s) of Old of Old Notes Notes") Notes transmitted transmitted - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Total - -------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. Ladies and Gentlemen: 1. The undersigned hereby agrees to exchange the aggregate principal amount of privately placed 12 3/4% Senior Subordinated Notes Due 2010 (the "Old Notes") for a like principal amount of 12 3/4% Senior Subordinated Notes Due 2010 (the "Notes") of Jostens, Inc. ("Jostens"), upon the terms and subject to the conditions contained in the Registration Statement on Form S-4 filed by Jostens, Inc., a Minnesota corporation, with the Securities and Exchange Commission (the "Registration Statement") and the accompanying Prospectus dated , 2000 included therein (the "Prospectus"), receipt of which is hereby acknowledged. 2. The undersigned hereby acknowledges and agrees that the Notes will bear interest from and including May 10, 2000, the date of issuance of the Old Notes. Accordingly, the undersigned will forego accrued but unpaid interest on his, her or its Old Notes that are exchanged for Notes from and including May 10, 2000 but will receive such interest under the Notes. 3. The undersigned hereby represents and warrants that the undersigned has full authority to tender the Old Notes described above. The undersigned will, upon request, execute and deliver any additional documents deemed by Jostens to be necessary or desirable to complete the exchange of the Old Notes. 4. The undersigned understands that the tender of the Old Notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between the undersigned and Jostens as to the terms and conditions set forth in the Prospectus. 5. The undersigned hereby represents and warrants that (i) any Notes acquired in exchange for Old Notes are being acquired in the ordinary course of business of the undersigned or such other person receiving such Notes, (ii) neither the undersigned nor, to the actual knowledge of the undersigned, any other person receiving Notes from the undersigned is engaging in or intends to engage in a distribution of the Notes, (iii) neither the undersigned, nor to the actual knowledge of the undersigned, any other person receiving Notes from the undersigned has an arrangement or understanding with any person to participate in the distribution of the Notes in violation of the provisions of the Securities Act of 1933, as amended (the "Securities Act"), and (iv) neither the undersigned nor, to the actual knowledge of the undersigned, any other person receiving Notes from the undersigned, is an "affiliate" (as defined in Rule 405 of the Securities Act) of Jostens or, if it is an affiliate of Jostens, it will comply with the registration and prospectus delivery requirements of the Securities Act. 6. If the undersigned is a broker-dealer, (i) it hereby represents and warrants that it acquired the Old Notes for its own account as a result of market-making activities or other trading activities and (ii) it hereby acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Notes received hereby. The acknowledgment contained in the foregoing sentence shall not be deemed an admission that the undersigned is an "underwriter" within the meaning of the Securities Act. 7. Any obligation of the undersigned hereunder shall be binding upon the successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal representatives of the undersigned. 2 SPECIAL ISSUANCE AND DELIVERY SIGNATURE (Name of Registered INSTRUCTIONS (See Instruction 1) Holder) To be completed ONLY IF the (Must be signed by registered Notes are to be issued in the holder exactly as name appears name of someone other than the on Old Notes. If signature is by undersigned or are to be sent to trustee, executor, administra- someone other than the under- tor, guardian, attorney-in-fact, signed or to the undersigned at officer of a corporation or an address other than that pro- other person acting in a fidu- vided above. ciary or representative capaci- ty, please set forth full title. Issue to: See Instruction 3.) Name ____________________________ By:______________________________ (Please Print) Name: Title Address _________________________ Date: ___________________________ _________________________________ Address:_________________________ _________________________________ (Include Zip Code) Telephone No.: __________________ Mail to: Taxpayer Identification No.:_____ Name ____________________________ Signature Guaranteed By: ________ (Please Print) (See Instruction 1) Address _________________________ Title: __________________________ _________________________________ Name of Institution: ____________ _________________________________ Address:_________________________ (Include Zip Code) Date: ___________________________ PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL. 3 INSTRUCTIONS 1. Guarantee of Signatures. Signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office in the United States which is a member of a recognized Medallion Signature Program approved by the Securities Transfer Association, Inc. (an "Eligible Institution") unless (i) the "Special Issuance and Delivery Instructions" above have not been completed or (ii) the old Notes described above are tendered for the account of an Eligible Institution. 2. Delivery of Letter of Transmittal and Old Notes. The Old Notes, together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), should be mailed or delivered to the Exchange Agent at the address set forth above. The method of delivery of Old Notes and other documents is at the election and risk of the respective holder. If delivery is by mail, registered mail (with return receipt), properly insured, is suggested. 3. Guaranteed Delivery Procedures. Registered holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the registered holder of the Old Notes, the certificate number or numbers of such Old Note(s) and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent to registered holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. 4. Signatures on Letter of Transmittal, Bond Powers and Endorsements. If this Letter of Transmittal is signed by a person other than a registered holder of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear on the Old Notes. If this Letter of Transmittal or any Old Notes or bond power is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. 5. Exchange of Old Notes Only. Only the above-described Old Notes may be exchanged for Notes pursuant to the Exchange Offer. 6. Miscellaneous. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any 4 irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any irregularities in connection with tenders or consents must be cured within such time as the Company shall determine. Neither the Company nor the Exchange Agent shall be under any duty to give notification of defects in such tenders or shall incur liabilities for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holder thereof. IMPORTANT TAX INFORMATION Under current Federal income tax law, an Old Noteholder whose tendered Old Notes are accepted for payment generally is required to provide the Exchange Agent (as agent for the payer) with his or her correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If such Old Noteholder is an individual, the TIN is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the Old Noteholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such Old Noteholders with respect to New Notes exchanged pursuant to the Offer may be subject to backup withholding. Certain Old Noteholders (including, among others, all corporations and certain foreign individuals) may not be subject to these backup withholding and reporting requirements. Exempt Old Noteholders should indicate their exempt status on Substitute Form W-9. In order for a foreign individual to qualify as an exempt recipient, that Old Noteholder must submit a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to his or her exempt status. Such statements can be obtained from the Exchange Agent. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Exchange Agent is required to withhold 31 percent of any such payments made to the Old Noteholder. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. Purpose of Substitute Form W-9 To prevent backup withholding on payments that are made to an Old Noteholder with respect to Old Notes exchanged pursuant to the Offer, each Old Noteholder is required to notify the Exchange Agent of his, her or its correct TIN by completing the Substitute Form W-9 below certifying the TIN provided on such form is correct (or that such Old Noteholder is awaiting a TIN) and that (1) the Old Noteholder has not been notified by the Internal Revenue Service that he, she or it is subject to backup withholding as a result of a failure to report all interest or dividends or (2) the Internal Revenue Service has notified the Old Noteholder that he, she or it is no longer subject to backup withholding. What Number to Give the Exchange Agent The Old Noteholder is required to give the Exchange Agent the social security number or employer identification number of the record owner of the Old Notes. If the Old Notes are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. 5 PAYER'S NAME: THE BANK OF NEW YORK, AS AGENT Part 1--PLEASE PROVIDE YOUR Social security number TIN IN THE BOX AT RIGHT AND or Employer CERTIFY BY SIGNING AND identification number DATING BELOW. SUBSTITUTE Form W-9 Department of ---------------------- the Treasury -------------------------------------------------------- Internal Part 2--Certification--Under penalties of perjury, I Revenue certify that: Service (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and Payer's Request for Taxpayer Identification Number (TIN) (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out Item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). -------------------------------------------------------- Part 3-- SIGNATURE ______________ DATE _______ Awaiting TIN [_] NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31 percent of all reportable payments made to me thereafter will be withheld until I provide a number. ___________________________________ ___________________________________ Signature Date 6 EX-99.2 30 0030.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 FORM OF NOTICE OF GUARANTEED DELIVERY for Offer for All Outstanding Privately Placed 12 3/4% Senior Subordinated Notes Due 2010 in Exchange for 12 3/4% Senior Subordinated Notes Due 2010 of JOSTENS, INC. Registered holders of privately placed 12 3/4% Senior Subordinated Notes Due 2010 (the "Old Notes") who wish to tender their Old Notes in exchange for a like principal amount of 12 3/4% Senior Subordinated Notes Due 2010 (the "Notes") and whose Old Notes are not immediately available or who cannot deliver their Old Notes and Letter of Transmittal or any other documents required by the Letter of Transmittal to The Bank of New York, (the "Exchange Agent") prior to the Expiration Date, must use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission or mail to the Exchange Agent. See "THE OFFER--Procedures for Tendering" in the Prospectus. The Exchange Agent for the Offer is THE BANK OF NEW YORK By Hand Delivery, Mail or Overnight Express (insured or registered recommended): The Bank of New York 101 Barclay Street New York, New York 10286 Attention: Reorganization Unit--7E By Facsimile: By Telephone: (212) 815-6339 (212) 815-3738 Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of instructions via a facsimile transmission to a number other than as set forth above will not constitute a valid delivery. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. Ladies and Gentlemen: The undersigned hereby tenders the principal amount of Old Notes indicated below, upon the terms and subject to the conditions contained in the Registration Statement on Form S-4 filed by Jostens, Inc., a Minnesota corporation, with the Securities and Exchange Commission (the "Registration Statement") and the accompanying Prospectus dated , 2000 included therein (the "Prospectus"), receipt of which is hereby acknowledged. DESCRIPTION OF SECURITIES TENDERED - --------------------------------------------------------------------------------
Name and address of registered holder as it appears on the Old Certificate number(s) of Principal Amount of Notes Old Notes transmitted Old Notes transmitted - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - --------------------------------------------------------------
THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE (Not to be used for signature guarantee) The undersigned, a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office, branch, agency or correspondent in the United States, which is a member of a recognized Medallion Signature Program approved by the Securities Transfer Association, Inc., hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the Old Notes, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within five New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. Name of Firm: _______________________ _____________________________________ Address: ____________________________ (Authorized Signature) _____________________________________ Title: ______________________________ (Zip Code) Name: _______________________________ Area Code and Telephone Number: (Please type or print) _____________________________________ Date: _______________________________ NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.B 31 0031.txt SCHEDULE II- VALUATION & QUALIFYING ACCOUNTS EXHIBIT B SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Jostens, Inc. and subsidiaries
ADDITIONS -------------------- CHARGED TO BALANCE CHARGED TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF IN THOUSANDS OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ----------------------------------------------------------------------------------------------------------------------------- RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNTS: ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS: Year ended January 1, 2000..................... $ 7,308 $ 1,882 $ -- $ 3,415/(1)/ $ 5,775 Year ended January 2, 1999..................... $ 7,446 $ 1,858 $ -- $ 1,996/(1)/ $ 7,308 Year ended January 3, 1998..................... $ 6,884 $ 2,245 $ -- $ 1,683/(1)/ $ 7,446 ALLOWANCES FOR SALES RETURNS: Year ended January 1, 2000..................... $ 5,569 $ 22,458 $ -- $ 20,897/(2)/ $ 7,130 Year ended January 2, 1999..................... $ 5,569 $ 17,753 $ -- $ 17,822/(2)/ $ 5,500 Year ended January 3, 1998..................... $ 4,787 $ 18,352 $ -- $ 17,570/(2)/ $ 5,569 SALES PERSON OVERDRAFT RESERVES: Year ended January 1, 2000..................... $ 7,061 $ 2,500 $ 3,229/(1)/ $ 6,332 Year ended January 2, 1999..................... $ 8,322 $ 1,947 $ -- $ 3,208/(1)/ $ 7,061 Year ended January 3, 1998..................... $ 7,344 $ 2,946 $ -- $ 1,968/(1)/ $ 8,322 RESTRUCTURING RESERVES: Year ended January 1, 2000..................... $ -- $ 20,194 $ -- $ 14,161/(3)/ $ 6,033
_______________________ (1) Uncollectible accounts written off, net of recoveries. (2) Returns processed against reserve. (3) Goodwill and property and equipment written off against reserve. -----END PRIVACY-ENHANCED MESSAGE-----