424B3 1 d424b3.htm FINAL PROSPECTUS Final Prospectus
Table of Contents

 

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-151052

PROSPECTUS

LOGO

VISANT CORPORATION

$500,000,000

7 5/8% Senior Subordinated Notes due 2012

 

 

The Company:

 

   

We are a leading marketing and publishing services enterprise servicing the school affinity, direct marketing, fragrance and cosmetics sampling, and educational and trade publishing segments.

The notes:

   

Maturity: October 1, 2012.

 

   

Interest Payment Dates: April 1 and October 1 of each year.

 

   

Optional Redemption: Prior to October 1, 2008, we may redeem the notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus the make-whole premium described under “Description of the Notes—Optional Redemption”. We may redeem some or all of the notes at any time and from time to time on or after October 1, 2008, in whole or in part, in cash at the redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption. See “Description of the Notes—Optional Redemption”.

 

   

Ranking: The notes and the guarantees are our and our subsidiary guarantors’ senior subordinated obligations and rank:

 

   

junior to all of our and the guarantors’ existing and future senior indebtedness, including any borrowings under our senior secured credit facilities;

 

   

equally with any of our and the guarantors’ future senior subordinated indebtedness and trade payables;

 

   

senior to any of our and the guarantors’ future indebtedness that is expressly subordinated in right of payment to the notes;

 

 

 

effectively senior to the 10 1/4% Senior Discount Notes Due 2013 and the 8 3/4% Senior Notes due 2013 of Visant Holding Corp., which are not guaranteed by us; and

 

   

effectively junior to all of the existing and future liabilities of our subsidiaries that do not guarantee the notes.

You should consider carefully the “ Risk Factors” beginning on page 11 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

This prospectus will be used by Credit Suisse Securities (USA) LLC in connection with offers and sales in market-making transactions at negotiated prices related to prevailing market prices. There is currently no public market for the securities. We do not intend to list the securities on any securities exchange. Credit Suisse Securities (USA) LLC has advised us that it is currently making a market in the securities; however, it is not obligated to do so and may stop at any time. Credit Suisse Securities (USA) LLC may act as principal or agent in any such transaction. We will not receive the proceeds of the sale of the securities but will bear the expenses of registration. See “Plan of Distribution”.

Credit Suisse

The date of this prospectus is June 5, 2008.


Table of Contents

 

TABLE OF CONTENTS

 

     Page

WHERE YOU CAN FIND MORE INFORMATION

   ii

SUMMARY

   1

RISK FACTORS

   11

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

   26

INDUSTRY AND MARKET DATA

   27

USE OF PROCEEDS

   27

CAPITALIZATION

   28

SELECTED FINANCIAL DATA

   29

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   32

BUSINESS

   55

MANAGEMENT

   63

EXECUTIVE COMPENSATION

   66

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED S TOCKHOLDER MATTERS

   92

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

   94

DESCRIPTION OF OTHER INDEBTEDNESS

   97

DESCRIPTION OF THE NOTES

   100

CERTAIN ERISA CONSIDERATIONS

   157

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

   158

PLAN OF DISTRIBUTION

   162

LEGAL MATTERS

   163

EXPERTS

   163

INDEX TO FINANCIAL STATEMENTS

   F-1

 

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WHERE YOU CAN FIND MORE INFORMATION

We and our guarantor subsidiaries have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the notes being offered hereby. This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement. For further information with respect to us and the notes, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete. We and our guarantor subsidiaries are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith, file reports and other information with the SEC. The registration statement, such reports and other information can be read and copied at the Public Reference Room of the SEC located at 100 F Street, N.E., Washington D.C. 20549. Copies of such materials, including copies of all or any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC’s home page on the Internet (http://www.sec.gov).

So long as we and our guarantor subsidiaries are subject to the periodic reporting requirements of the Exchange Act, we and our guarantor subsidiaries are required to furnish the information required to be filed with the SEC to the trustee and the holders of the outstanding notes. We and our guarantor subsidiaries have agreed that, even if we and our guarantor subsidiaries are not required under the Exchange Act to furnish such information to the SEC, we will nonetheless continue to furnish information that would be required to be furnished by us and our guarantor subsidiaries by Sections 13 or 15(d) of the Exchange Act.

 

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SUMMARY

This summary highlights material information appearing elsewhere in this prospectus. You should read the entire prospectus carefully. This prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in “Risk Factors” and elsewhere in this prospectus. All references to a particular fiscal year of Visant Corporation, or Visant, are to the four fiscal quarters ended the Saturday nearest to December 31.

Our Company

Except where otherwise indicated, any reference in this prospectus to (1) the “Company,” “Visant,” “we,” “our,” or “us” refer to Visant Corporation and its consolidated subsidiaries, and references to “Visant Holding,” “Holdings,” “our parent” and “our parent company” refer to our indirect parent, Visant Holding Corp., (2) “Jostens” refers to Jostens, Inc. and its subsidiaries, (3) “Lehigh” refers to The Lehigh Press, Inc., (4) “Arcade” or “Arcade Marketing” refers to AKI, Inc. and its subsidiaries, (5) “Dixon” refers to Dixon Direct Corp., (6) “Neff” refers to Neff Holding Company together with Neff Motivation, Inc., and (7) “VSI” refers to Visual Systems, Inc.

We are a leading marketing and publishing services enterprise servicing the school affinity, direct marketing, fragrance and cosmetics sampling, and educational and trade publishing segments. We were formed through the October 2004 consolidation of Jostens, Von Hoffmann Holdings Inc. and its subsidiaries (“Von Hoffmann”) and Arcade (the “Transactions”). We sell our products and services to end customers through several different sales channels including independent sales representatives and dedicated sales forces. Our sales and results of operations are impacted by a number of factors, including general economic conditions, seasonality, cost of raw materials, school population trends, product quality, service and price.

Our three reportable segments consist of:

 

   

Scholastic—provides services related to the marketing, sale and production of class rings and an array of graduation products and other scholastic products to students and administrators primarily in high schools, colleges and other post-secondary institutions;

 

   

Memory Book—provides services related to the publication, marketing, sale and production of school yearbooks, memory books and related products that help people tell their stories and chronicle important events; and

 

   

Marketing and Publishing Services—produces multi-sensory and interactive advertising sampling systems, primarily for the fragrance, cosmetics and personal care market segments, and provides innovative products and services to the direct marketing sector. The group also produces book components and overhead transparencies.

Scholastic

We are a leading provider of services related to the marketing, sale and production of class rings and an array of graduation products, such as caps, gowns, diplomas and announcements, graduation-related accessories and other scholastic products. In the Scholastic segment, we primarily serve U.S. high schools, colleges, universities and other specialty markets, marketing and selling products to students and administrators. Jostens relies on a network of independent sales representatives to sell its scholastic products. Jostens provides a high level of customer service in the marketing and sale of class rings and certain other graduation products, which often involves a high degree of customization. Jostens also provides ongoing warranty service on its class and affiliation rings. Jostens maintains product-specific tooling as well as a library of school logos and mascots that can be used repeatedly for specific school accounts over time. In addition to its class ring offerings, Jostens also

 

 

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designs, manufactures, markets and sells championship rings for professional sports and affinity rings for a variety of specialty markets. Since the acquisition of Neff, a single source provider of custom award programs and apparel, in March 2007, we also market, manufacture and sell an array of additional scholastic products, including chenille letters, letter jackets, mascot mats, plaques and sports apparel.

Memory Book

Through our Jostens subsidiary, we are a leading provider of services related to the publication, marketing, sale and production of memory books serving U.S. high schools, colleges, universities, elementary and middle schools. Jostens generates the majority of its revenues from high school accounts. Jostens’ sales representatives and technical support employees assist students and faculty advisers with the planning and layout of yearbooks, including through the provision of on-line layout and editorial tools to assist in the publication of the yearbook. With a new class of students each year and periodic faculty advisor turnover, Jostens’ independent sales representatives and customer service employees are the main point of continuity for the yearbook production process on a year-to-year basis. Jostens also offers memory book products through its OurHubbub.comTM online personal memory book offering, including under which Jostens partners with local and national organizations and teams to create hard cover memory books to chronicle important events and memories.

Marketing and Publishing Services

The Marketing and Publishing Services segment produces multi-sensory and interactive advertising sampling systems, primarily for the fragrance, cosmetics and personal care segment, and innovative, highly personalized products primarily targeted at the direct marketing sector. We are also a leading producer of supplemental materials and related components such as decorative covers and plastic transparencies for educational and trade publishers. With over a 100-year history as Arcade Marketing, we pioneered our ScentStrip® product in 1980. We also offer an extensive portfolio of proprietary, patented and patent-pending technologies that can be incorporated into various marketing programs designed to reach the consumer at home or in-store, including magazine and catalog inserts, remittance envelopes, statement enclosures, blow-ins, direct mail, direct sell and point-of-sale materials and gift-with-purchase/purchase-with-purchase programs. We specialize in high-quality, in-line finished products and can accommodate large marketing projects with a wide range of dimensional products and in-line finishing production, data processing and mailing services, providing a range of conventional direct marketing pieces to integrated offerings with data collection and tracking features. Our personalized imaging capabilities offer individualized messages to each recipient within a geographical area or demographic group for targeted marketing efforts.

2007 Transactions

In May 2007, we completed the sale of our Von Hoffmann Holdings Inc., Von Hoffmann Corporation and Anthology, Inc. businesses (the “Von Hoffmann businesses”), which previously comprised the Educational Textbook segment and a portion of the Marketing and Publishing Services segment. The operations of Von Hoffmann businesses were reported as discontinued operations in the consolidated financial statements for all periods presented.

During 2007, we expanded our business with the acquisitions of Neff Holding Company, VSI and Publishing Enterprises, Incorporated. Neff, a single source provider of custom award programs and apparel, including chenille letters and letter jackets, was acquired on March 16, 2007 and its results are included in the Scholastic segment as of such date. VSI, a supplier in the overhead transparency and book component business, was acquired on June 14, 2007 and its results are included in the Marketing and Publishing Services segment as of such date. On October 1, 2007, we acquired substantially all of the assets and liabilities of Publishing Enterprises, Incorporated, a producer of school memory books and student planners and its results are included in the Memory Book segment as of such date.

 

 

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Recent Events

On April 1, 2008, Visant announced the completion of the acquisition of Phoenix Color Corp. (“Phoenix Color”), a leading book cover and component manufacturer. Phoenix Color operates as a wholly owned subsidiary of Visant. The total purchase consideration was $219.0 million, subject to certain closing and post-closing adjustments.

Company Background

On October 4, 2004, an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), and affiliates of DLJ Merchant Banking Partners III, L.P. (“DLJMBP III” and together with KKR, the “Sponsors”), completed a series of transactions, which created a marketing and publishing services enterprise through the consolidation of Jostens, Von Hoffmann Holdings Inc. and its subsidiaries and Arcade.

Prior to the Transactions, Von Hoffmann Holdings Inc. and Arcade were each controlled by affiliates of DLJ Merchant Banking Partners II, L.P., or DLJMBP II, and DLJMBP III owned approximately 82.5% of our outstanding equity, with the remainder held by other co-investors and certain members of management. Upon consummation of the Transactions, an affiliate of KKR invested $256.1 million and was issued equity interests representing approximately 49.6% of our voting interest and 45.0% of our economic interest, and affiliates of DLJMBP III held equity interests representing approximately 41.0% of Holdings’ voting interest and 45.0% of Holdings’ economic interest, with the remainder held by other co-investors and certain members of management. Approximately $175.6 million of the proceeds were distributed to certain stockholders, and certain treasury stock held by Von Hoffmann was redeemed. After giving effect to the issuance of equity to additional members of management, as of May 12, 2008, affiliates of KKR and DLJMBP III held approximately 49.0% and 41.0%, respectively, of Holdings’ voting interest, while each continued to hold approximately 44.6% of Holdings’ economic interest. As of May 12, 2008, the other co-investors held approximately 8.4% of the voting interest and 9.2% of the economic interest of Holdings, and members of management held approximately 1.6% of the voting interest and approximately 1.6% of the economic interest of Holdings.

 

 

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Ownership and Corporate Structure

The chart below illustrates our ownership and corporate structure as of March 29, 2008.

LOGO

 

(1)   As of March 29, 2008, affiliates of KKR and DLJMBP III held approximately 49.1% and 41.0%, respectively, of the voting interests of Visant Holding, while each continued to hold approximately 44.6% of the economic interests of Visant Holding. As of March 29, 2008, other co-investors held approximately 8.4% of the voting interests and approximately 9.2% of the economic interests of Visant Holding, while members of management held approximately 1.5% of the voting interest and approximately 1.6% of the economic interest.

(2)

 

Consists of 8 3/4% Senior Notes due 2013 of Visant Holding.

(3)

 

Consists of 10 1/4% Senior Discount Notes Due 2013 of Visant Holding.

(4)   Visant Secondary Holdings Corp. pledged the stock of Visant as security for the benefit of the lenders under Visant’s senior secured credit facilities and is a guarantor of Visant’s senior secured credit facilities.
(5)   Visant’s senior secured credit facilities consist of a Term Loan C facility, with $316.5 million outstanding as of March 29, 2008, and a $250.0 million senior secured revolving facility. As of March 29, 2008, Visant had $234.6 million of availability under the revolving credit facility (net of $15.4 million in outstanding letters of credit). The Term Loan C facility matures in 2011 and the revolving credit facility matures in 2009. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color.
(6)   Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color.

(7)

 

Consists of the 7 5/8% Senior Subordinated Notes due 2012 of Visant.

(8)   On April 1, 2008, Visant announced the completion of the acquisition of Phoenix Color, a leading book cover and component manufacturer. Phoenix Color operates as a wholly owned subsidiary of Visant.

 

 

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Summary of Terms of the Notes

The summary below describes the principal terms of the notes. Some of the terms and conditions described below are subject to important limitations and exceptions. The “Description of the Notes” section of this prospectus contains a more detailed description of the terms and conditions of the notes.

 

Issuer

Visant Corporation

 

Notes Offered

$500,000,000 aggregate principal amount of 7 5/8% Senior Subordinated Notes due 2012.

 

Maturity Date

October 1, 2012.

 

Interest Payment Dates

April 1 and October 1 of each year, beginning April 1, 2005.

 

Guarantees

The notes are guaranteed, jointly and severally, on a senior subordinated unsecured basis, by each of our 100% owned subsidiaries that guarantees our obligations under our senior secured credit facilities and certain of our future subsidiaries.

 

Ranking

The notes and the guarantees are our and our subsidiary guarantors’ senior subordinated obligations and rank:

 

   

junior to all of our and the guarantors’ existing and future senior indebtedness, including any borrowings under our senior secured credit facilities;

 

   

equally with any of our and the guarantors’ future senior subordinated indebtedness and trade payables;

 

   

senior to any of our and the guarantors’ future indebtedness that is expressly subordinated in right of payment to the notes;

 

 

 

effectively senior to the 10 1/4% Senior Discount Notes due 2013 and the 8 3/4% Senior Notes due 2013 of Visant Holding, which are not guaranteed by us; and

 

   

effectively junior to all of the existing and future liabilities of our subsidiaries that do not guarantee the notes.

As of March 29, 2008, the notes and the subsidiary guarantees would have ranked junior to:

 

   

approximately $316.5 million of senior indebtedness; and

 

   

$19.4 million of total liabilities, including trade payables but excluding intercompany obligations, of our non-guarantor subsidiaries.

As of March 29, 2008, our non-guarantor subsidiaries had approximately 2.6% of our assets. Our non-guarantor subsidiaries generated approximately 4.5% of our revenues for the quarter ended March 29, 2008.

 

 

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Optional Redemption

Prior to October 1, 2008, we may redeem the notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus the make-whole premium described under “Description of the Notes—Optional Redemption”. We may redeem some or all of the notes at any time and from time to time on or after October 1, 2008, in whole or in part, in cash at the redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption.

 

Change of Control

If a change of control occurs, each holder of the notes may require us to repurchase all or a portion of such holder’s notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. We may not have sufficient funds to repurchase the notes upon a change of control. Furthermore, restrictions in our senior secured credit facilities may limit our ability to repurchase the notes upon a change of control, as described under “Risk Factors—Risks Related to Our Indebtedness and the Notes—We may not be able to repurchase notes upon a change of control.”

 

Restrictive Covenants

The terms of the notes place certain limitations on our ability and the ability of our restricted subsidiaries to, among other things:

 

   

incur or guarantee additional indebtedness or issue disqualified or preferred stock;

 

   

pay dividends or make other equity distributions;

 

   

repurchase or redeem capital stock;

 

   

make investments;

 

   

sell assets or consolidate or merge with or into other companies;

 

   

create limitations on the ability of our restricted subsidiaries to make dividends or distributions;

 

   

engage in transactions with affiliates; and

 

   

create liens.

These covenants are subject to important exceptions and qualifications, which are described under “Description of the Notes—Certain Covenants”.

 

No Established Market; PORTALsm Market Listing

The notes were offered and sold in October 2004 to a small number of institutional investors. There is currently no established market for the notes. Although we understand that the initial purchasers presently intend to make a market in the notes, they are not obligated to do so and may discontinue market-making at any time without notice. Accordingly, we cannot assure you that a liquid market for the notes will develop or be maintained. The notes are eligible for trading on PORTALsm.

 

 

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Risk Factors

See “Risk Factors” immediately following this summary for a discussion of certain risks relating to an investment in the notes.

Information About Us

Visant Corporation was incorporated in the State of Delaware on July 21, 2003. Our principal executive offices are located at 357 Main Street, Armonk, New York 10504, and our telephone number is (914) 595-8200. We maintain a website at http://www.visant.net. Information contained on our websites does not constitute part of this prospectus and is not being incorporated by reference herein.

 

 

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Summary Historical Consolidated Financial Data

The tables below set forth a summary of our historical consolidated financial data at the dates and for the periods indicated. The summary historical consolidated financial data should be read in conjunction with “Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

As a result of our parent’s merger with a subsidiary established by DLJMBP III on July 29, 2003 (the “2003 Jostens merger”), Jostens applied purchase accounting, which resulted in a new valuation for the assets and liabilities of Jostens to their fair values. In addition, as a result of the 2003 Jostens merger, we have accounted for the combination of Visant, Von Hoffmann and Arcade as entities under common control. The consolidated financial data of Visant set forth below consolidate the historical consolidated financial data of Jostens, Von Hoffmann and Arcade after July 29, 2003 as a result of the common ownership of Jostens, Von Hoffmann and Arcade by affiliates of DLJMBP III on such date. As described in the notes to our consolidated financial statements, certain operations of Von Hoffmann are presented as discontinued operations for all periods presented. The summary consolidated financial data of Visant prior to July 29, 2003 are those of Jostens, as the predecessor of Visant, and have been prepared using Jostens’ historical basis of accounting.

 

    (Successor)     Jostens, Inc.
(Predecessor)
 
    Three Months Ended                           Five
Months
2003
    Seven
Months

2003
 
    March 29,
2008
    March 31,
2007
    2007   2006     2005     2004      
    In millions, except for ratios  

Statement of Operations Data(1):

               

Net sales

  $ 247.0     $ 255.9     $ 1,270.2   $ 1,186.6     $ 1,110.7     $ 1,051.9     $ 326.2     $ 483.5  

Cost of products sold

    128.1       128.1       623.0     587.6       562.2       586.2       201.2       203.0  
                                                             

Gross profit

    118.9       127.8       647.2     599.0       548.5       465.7       125.0       280.5  

Selling and administrative expenses

    105.2       103.6       425.6     394.4       389.2       386.2       144.8       185.8  

Loss (gain) on disposal of assets

    —         0.4       0.6     (1.2 )     (0.4 )     (0.1 )     (0.1 )     —    

Transaction costs(2)

    —         —         —       —         1.2       6.8       0.2       31.0  

Special charges(3)

    1.5       —         2.9     2.4       5.4       11.8       —         —    
                                                             

Operating income (loss)

    12.2       23.8       218.1     203.4       153.1       61.0       (19.9 )     63.8  

Loss on redemption of debt(4)

    —         —         —       —         —         31.9       0.4       13.9  

Interest expense, net

    16.4       25.2       90.2     105.4       106.8       108.7       50.0       32.0  

Other income

    —         —         —       —         —         (1.1 )     —         —    
                                                             

(Loss) income from continuing operations before income taxes

    (4.2 )     (1.4 )     127.9     98.0       46.3       (78.6 )     (70.3 )     17.9  

(Benefit from) provision for income taxes

    (1.4 )     (0.3 )     49.7     31.2       17.2       (28.2 )     (21.0 )     10.5  
                                                             

(Loss) income from continuing operations

    (2.7 )     (1.1 )     78.2     66.8       29.1       (50.4 )     (49.3 )     7.4  

Income (loss) on discontinued operations, net of tax

    —         8.4       110.7     9.6       19.0       (40.0 )     (1.1 )     (4.4 )

Cumulative effect of accounting change, net of tax

    —         —         —       —         —         —         —         4.6  
                                                             

Net (loss) income

    (2.7 )     7.3       188.9     76.4       48.1       (90.4 )     (50.4 )     7.6  

Dividends and accretion on redeemable preferred shares

    —         —         —       —         —         —         —         (6.5 )
                                                             

Net (loss) income available to common stockholders

  $ (2.7 )   $ 7.3     $ 188.9   $ 76.4     $ 48.1     $ (90.4 )   $ (50.4 )   $ 1.1  
                                                             

 

 

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    (Successor)     Jostens, Inc.
(Predecessor)
 
    Three Months Ended                             Five
Months
2003
    Seven
Months

2003
 
    March 29,
2008
    March 31,
2007
    2007     2006     2005     2004      
    In millions, except for ratios  

Statement of Cash Flows:

               

Net cash provided by (used in) operating activities

  $ 51.6     $ 48.2     $ 177.3     $ 182.5     $ 167.5     $ 115.8     $ 103.0     $ (6.8 )

Net cash (used in) provided by investing activities

    (13.6 )     (50.4 )     280.6       (52.6 )     (39.1 )     (38.0 )     (552.3 )     (11.9 )

Net cash (used in) provided by financing activities

    (1.5 )     —         (417.9 )     (131.6 )     (190.8 )     (39.3 )     482.3       12.9  

Other Financial Data(1):

               

Ratio of earnings to fixed charges and preferred stock dividends(5)

    —         —         2.4x       1.9x       1.4x       —         —         1.5x  

Depreciation and amortization

  $ 22.7     $ 20.9     $ 87.0     $ 81.6     $ 87.6     $ 136.5     $ 37.3     $ 13.5  

Capital expenditures

  $ 13.7     $ 20.0     $ 56.4     $ 51.9     $ 28.7     $ 37.7     $ 17.4     $ 5.8  

Balance Sheet Data (at period end):

               

Cash and cash equivalents

  $ 96.1     $ 16.0     $ 59.1     $ 18.0     $ 19.9     $ 82.3     $ 43.7    

Property and equipment, net

    184.7       168.2       181.1       160.6       137.9       144.9       156.4    

Total assets

    2,155.6       2,367.1       2,092.8       2,309.3       2,360.8       2,503.3       2,522.6    

Total debt

    816.5       1,216.5       816.5       1,216.5       1,328.4       1,528.3       1,325.1    

Stockholder’s equity

    679.1       486.4       681.7       477.7       420.9       363.8       173.9    

 

(1)   Certain selected financial data have been reclassified for all periods presented to reflect the results of discontinued operations consisting of our Von Hoffmann businesses in December 2006, our Jostens Photography businesses in June 2006 and the exit of Jostens’ Recognition business in December 2001. See Note 5, Discontinued Operations, to our consolidated financial statements included elsewhere herein.
(2)   For 2005 and 2004, transaction costs represented $1.2 million and $6.8 million, respectively, of expenses incurred in connection with the Transactions. For the successor period in 2003, transaction costs represented $0.2 million of expenses incurred in connection with the 2003 Jostens merger. For the predecessor period in 2003, transaction costs represented $31.0 million of expenses incurred in connection with the 2003 Jostens merger.
(3)   During the three months ended March 29, 2008, the Company recorded $0.6 million of restructuring charges related to the closure of Jostens’ Attleboro, Massachusetts facility in the Scholastic segment and $0.5 million and $0.3 million representing severance and related benefits associated with headcount reductions in the Scholastic and Marketing and Publishing Services segments, respectively. During the three months ended March 31, 2007, the Company did not record any restructuring charges. For the year ended December 29, 2007, the Company recorded $2.3 million of restructuring for severance and related benefit costs primarily in the Scholastic segment related to the closure of Jostens’ Attleboro, Massachusetts facility announced on December 4, 2007, and which was expected to be substantially complete by the end of the first quarter of 2008, and $1.0 million related to termination benefits for management executives offset by a reversal of $0.4 million associated with the reductions in severance liability for the Scholastic and Memory Book segments. For 2006, the Company recorded $2.3 million relating to an impairment loss to reduce the carrying value of Jostens’ former corporate office buildings and $0.1 million of special charges for severance costs and related benefit costs. For 2005, special charges consisted of restructuring charges of $5.1 million for employee severance related to closed facilities and $0.3 million related to a withdrawal liability under a union retirement plan that arose in connection with the consolidation of certain operations. For 2004, special charges consisted of $11.8 million of restructuring charges consisting primarily of severance costs for the termination of senior executives and other employees associated with reorganization activity as a result of the Transactions.

 

 

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(4)   For 2004, loss on redemption of debt represented a loss of $31.5 million in connection with repayment of all existing indebtedness and remaining preferred stock of Jostens and Arcade in conjunction with the Transactions and a loss of $0.4 million in connection with the repurchase of $5.0 million principal amount of Jostens’ 12.75% senior subordinated notes prior to the Transactions. For the successor period in 2003, loss on redemption of debt represented a loss of $0.4 million in connection with the repurchase of $8.5 million principal amount of Jostens’ 12.75% senior subordinated notes. For the predecessor period in 2003, loss on redemption of debt represented a loss of $13.9 million consisting of the write-off of unamortized deferred financing costs in connection with refinancing Jostens’ senior secured credit facility.
(5)   For the purposes of calculating the ratio of earnings to fixed charges, earnings represent income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense (including capitalized interest) on all indebtedness plus amortization of debt issuance costs and the portion of rental expense that we believe is representative of the interest component of rental expense. For the three months ended March 29, 2008, three months ended March 31, 2007, twelve months ended 2004 and the successor five-month period in 2003, earnings did not cover fixed charges by $4.1 million, $1.4 million, $78.6 million and $70.1 million, respectively.

 

 

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RISK FACTORS

Your investment in the notes will involve substantial risks. You should carefully consider the following material factors in addition to the other information set forth in this prospectus before you decide to purchase the notes offered hereby. If any of the following risks actually occur, our business, financial condition, results of operations and our ability to make payments on the notes would likely suffer. In such case the trading price of the notes could fall, and you may lose all or part of your original investment.

Risks Relating to Our Business

If we fail to implement our business strategy, our business, financial condition and results of operations could be materially and adversely affected.

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Our business strategy envisions several initiatives, including marketing and selling strategies to drive growth, enhancing our core product and service offerings and continuing to improve operating efficiencies and asset utilization. We may not be able to successfully implement our business strategy or achieve the benefits of our business plan. If we are unable to do so, our long-term growth and profitability may be adversely affected. Even if we are able to successfully implement some or all of the initiatives of our business plan, our operating results may not improve to the extent we expect, or at all.

Implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, general economic conditions or increased operating costs or expenses. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition, we may have difficulty achieving our strategic objectives. We may also decide to alter or discontinue certain aspects of our business strategy at any time. Any failure to successfully implement our business strategy may adversely affect our business, financial condition and results of operations and thus our ability to service our indebtedness, including our ability to make principal and interest payments on our indebtedness.

We may not be able to continue to realize all of our cost savings and benefits from the Transactions.

Since the time of the Transactions, our cost savings have been realized primarily through procurement initiatives aimed at reducing the costs of materials and services used in our operations and reducing corporate and administrative expenses. A variety of factors could cause us not to continue to realize the annual benefits of the savings plan, including our inability to continue to obtain lower raw material prices. Our inability to continue to realize cost savings could adversely affect our business, financial condition and results of operations.

We may not be able to consummate additional acquisitions and dispositions on acceptable terms, and future acquisitions and dispositions may be disruptive.

As part of our business strategy, we may continue to pursue strategic acquisitions and dispositions to leverage our existing infrastructure, expand our geographic reach, broaden our product and service offerings and focus on our higher growth businesses. Acquisitions and dispositions involve a number of risks and present financial, managerial and operational challenges, including:

 

   

diversion of management attention from existing businesses;

 

   

difficulty with integration of personnel and financial and other systems;

 

   

increased expenses, including compensation expenses resulting from newly hired employees;

 

   

regulatory challenges; and

 

   

potential disputes with the sellers of acquired businesses, technologies, services or products or with the buyers of disposed businesses.

 

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Our ability to continue to consummate acquisitions will be limited by our ability to identify appropriate acquisition candidates on acceptable terms and our financial resources, including available cash and borrowing capacity. In addition, we could experience financial or other setbacks if any of the businesses that we have acquired or invested in have problems or liabilities of which we are not aware. We may not be able to continue to consummate acquisitions or dispositions, and we may experience disruption in our businesses as a result.

We are subject to direct competition in each of our respective industries which may have an adverse effect on our business, financial condition and results of operations.

We face competition in our businesses from a number of companies, some of which have substantial financial and other resources. Our future financial performance will depend, in large part, on our ability to establish and maintain an advantageous market position. Because of substantial resources, some of our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer preferences or to devote greater resources to the promotion and sale of their products than we can. We expect to meet significant competition from existing competitors with entrenched positions and may face additional competition from new competitors, with respect to our existing product lines and new products we might introduce. Further, competitors might expand their product offerings, either through internal product development or acquisitions of our direct competitors. These competitors could introduce products or establish prices for their products in a manner that could adversely affect our ability to compete or result in pricing pressures. Additionally, increases in competition could have an adverse effect on our business, financial condition and results of operations. To maintain a competitive advantage, we may need to make increased investment in product development, manufacturing capabilities and sales and marketing.

We are subject to fluctuations in the cost and availability of raw materials and the possible loss of suppliers.

We are dependent upon the availability of raw materials to produce our products. The principal raw materials that Jostens purchases are gold and other precious metals, paper and precious, semiprecious and synthetic stones. The price of gold increased dramatically during 2007, and we anticipate continued volatility in the price of gold for the foreseeable future. From time to time, we may enter into forward contracts to purchase gold, platinum and silver based upon the estimated ounces needed to satisfy projected customer demand. Higher gold prices have impacted, and could further impact, our manufacturing costs as well as the level of spending by our customers. Our Marketing and Publishing Services business primarily uses paper, ink and adhesives. Similarly, our sampling system business utilizes specific grades of paper and foil in producing its sampling products. The price and availability of these raw materials is affected by numerous factors beyond our control. These factors include:

 

   

the level of consumer demand for these materials;

 

   

the supply of these materials;

 

   

foreign government regulation and taxes;

 

   

market uncertainty;

 

   

environmental conditions in the case of paper; and

 

   

political and worldwide economic conditions.

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 prices for gold, paper products or precious, semiprecious and synthetic stone and other materials could have a material adverse effect on our business, financial condition and results of operations.

 

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We rely on a limited number of suppliers for certain of our raw materials. For example, Jostens purchases substantially all of its precious, semiprecious and synthetic stones from a single supplier located in Germany with manufacturing sites in Germany and Sri Lanka. We believe this supplier provides stones to almost all of the class ring manufacturers in the United States. If access to this supplier were lost or curtailed to any significant extent, particularly during periods of peak demand for rings, Jostens’ business would suffer. We may not be able to secure alternative supply arrangements in a timely and cost-efficient fashion. Similarly, all of our ScentStrip® sampling systems, which accounted for a substantial portion of net sales from our sampling system business for fiscal 2007, utilize specific grades of paper for which we rely primarily on two domestic suppliers, with whom we do not have a written supply agreement in place. A loss of this supply of paper and a resulting possible loss of our competitive advantage could have a material adverse effect on our sampling system business, financial condition and results of operations to the extent that we are unable to obtain the specific paper or in sufficient quantity from other suppliers or elsewhere. Moreover, certain of our primary label sampling systems, including ScentSeal®, LiquaTouch®, BeautiSeal® and BeautiTouch® products, utilize certain foil laminates that are presently sourced primarily from one supplier, with whom we do not have a written supply agreement in place. A loss of supply could have a material adverse effect on our business, financial condition, results of operations and competitive advantage.

Certain of our businesses are dependent on fuel and natural gas in their operations. Prices of fuel and natural gas have shown volatility over time. Unanticipated higher prices could impact our operating expenses.

Any failure to obtain raw materials for our business on a timely basis at an affordable cost, or any significant delays or interruptions of supply, could have a material adverse effect on our business, financial condition, results of operations and competitive advantage.

The seasonality of our industries could have a material adverse effect on our business, financial condition and results of operations.

We experience seasonal fluctuations in our net sales tied primarily to the North American school year. We recorded approximately 40% of our annual net sales for our continuing operations for fiscal 2007 during the second quarter of our fiscal year. Jostens generates a significant portion of its annual net sales in the second quarter. Deliveries of caps, gowns and diplomas for spring graduation ceremonies and spring deliveries of school yearbooks are the key drivers of Jostens’ seasonality. The net sales of sampling and other direct mail and commercial printed products have also historically reflected seasonal variations, and we expect these businesses to continue to generate a majority of their annual net sales during our third and fourth quarters for the foreseeable future. These seasonal variations are based on the timing of customers’ advertising campaigns, which have traditionally been concentrated prior to the Christmas and spring holiday seasons. Net sales of textbook components are impacted seasonally by state and local schoolbook purchasing schedules, which commence in the spring and peak in the summer months preceding the start of the school year. Significant amounts of inventory are acquired by publishers prior to those periods in order to meet customer delivery requirements.

The seasonality of our businesses requires us to manage our cash flows carefully over the course of the year. If we fail to manage our cash flows effectively in response to seasonal fluctuations, we may be unable to offset the results from any such period with results from other periods, which could impair our ability to service our debt. These seasonal fluctuations also require us to allocate our resources accurately in order to manage our manufacturing capacity, which often operates at full or near full capacity during peak seasonal demand periods. If we fail to monitor production and distribution accurately during these peak seasonal periods and are unable to satisfy our customers’ delivery requirements, we could jeopardize our relationships with our customers.

A substantial decrease or interruption in business from our significant customers could adversely affect our business, financial condition and results of operations.

Our sampling system business is dependent on a limited number of customers. Our top five customers in our sampling system business represented approximately 9% of our net sales for 2007 in this business. We do not

 

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generally have long-term contracts for committed volume with any of these customers. We may be required by some customers to qualify our sampling system manufacturing operations under specified supplier standards. If we are unable to qualify under a supplier’s standards, the customer may not continue to purchase sampling systems from us. An adverse change in our relationship with any of our significant sampling system customers could have a material adverse effect on the business, financial condition and results of operations of our sampling system business.

Many of our customer arrangements are by purchase order or are terminable at will at the option of either party. A substantial decrease or interruption in business from our significant customers could result in write-offs or in the loss of future business and could have a material adverse effect on our business, financial condition and results of operations.

Jostens relies on relationships with schools, school administrators and students for the sale of its products. Jostens’ failure to deliver high quality products in a timely manner or failure to respond to changing consumer preferences could jeopardize its customer relationships. Significant customer losses at our Jostens business could have a material adverse effect on our business, financial condition and results of operations.

Our cover and component business is also particularly dependent on a limited number of customers. Customers in our component business include, among others, many autonomous divisions of the major educational textbook and trade publishers. Each of these divisions maintains its own manufacturing relationships and generally makes manufacturing decisions independently of other divisions. Our ability to retain or increase our business with these customers depends upon our relationships with each customer’s divisional managers and senior executives. Any cancellation, deferral or significant reduction in product sold to these principal customers or a significant number of smaller customers could seriously harm our business, financial condition and results of operations.

Changes in Jostens’ relationships with its independent sales representatives may adversely affect our business, financial condition and results of operations.

The success of our Jostens business is highly dependent upon the efforts and abilities of Jostens’ network of independent sales representatives. Many of Jostens’ relationships with customers and schools are cultivated and maintained by its independent sales representatives. Jostens’ independent sales representatives typically operate under one- to three-year contracts for the sale of Jostens products and services. These contracts are generally terminable upon 90 days’ notice from the end of the current contract year. Jostens’ sales representatives can terminate or fail to renew their contracts with Jostens due to factors outside of our control. If Jostens were to experience a significant loss of its independent sales representatives, it could have a material adverse effect upon our business, financial condition and results of operations.

Our businesses depend on numerous complex information systems, and any failure to successfully maintain these systems or implement new systems could materially harm our operations.

Our businesses depend upon numerous information systems for operational and financial information and our billing operations. We are also increasingly dependent on our information technology systems for our e-commerce efforts. We may not be able to enhance existing information systems or implement new information systems that can integrate successfully our business efforts. Furthermore, we may experience unanticipated delays, complications and expenses in acquiring licenses for certain systems or implementing, integrating and operating the systems. In addition, our information systems may require modifications, improvements or replacements that may require substantial expenditures and may require interruptions in operations during periods of implementation. Implementation of these systems is further subject to our ability to license certain proprietary software in certain cases and the availability of information technology and skilled personnel to assist us in creating and implementing the systems. The failure to successfully implement and maintain operational, financial and billing information systems at our businesses could have an adverse effect on our business, financial condition and results of operations.

 

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We may be required to make significant capital expenditures for our businesses in order to remain technologically and economically competitive.

Our capital expenditure requirements have primarily related to our Jostens business. Additionally, we are required to invest capital in order to expand and update our capabilities in certain of our other segments, including our Marketing and Publishing Services segment. We expect our capital expenditure requirements in the Jostens business to continue to relate primarily to capital improvements, including information technology and e-commerce initiatives throughout the Jostens business. Our capital expenditure requirements in the Marketing and Publishing Services segment primarily relate to capacity increases and technological improvements to remain competitive. Changing competitive conditions or the emergence of any significant technological advances utilized by competitors could require us to invest significant capital in additional production technology or capacity in order to remain competitive. If we are unable to fund any such investment or otherwise fail to invest in new technologies, our business, financial condition and results of operations could be materially and adversely affected.

Our businesses are subject to changes arising from developments in technology that could render our products obsolete or reduce product consumption.

New emerging technologies, including those involving the Internet, could result in new distribution channels and new products and services being provided that could compete with our products and services. As a result of these factors, our growth and future financial performance may depend on our ability to develop and market new products and services and create new distribution channels, while enhancing existing products, services and distribution channels, in order to incorporate the latest technological advances and accommodate changing customer preferences and demands, including the use of the Internet. If we fail to anticipate or respond adequately to changes in technology and user preferences and demands or are unable to finance the capital expenditures necessary to respond to such changes, our business, financial condition and results of operations could be materially and adversely affected.

Our results of operations are dependent on certain principal production facilities.

We are dependent on certain key production facilities. Certain sampling system, direct mail and graduation announcement products are generally each produced in a dedicated facility. Any disruption of production capabilities at any of our key dedicated facilities could adversely affect our business, financial condition and results of operations.

Actions taken by the U.S. Postal Service could have a material adverse effect on our sampling system business.

Sampling products are approved by the U.S. Postal Service, or the USPS, for inclusion in subscription magazines mailed at periodical postage rates. USPS approved sampling systems have a significant cost advantage over other competing sampling products, such as miniatures, vials, packets, sachets and blisterpacks, because these competing products cause an increase from periodical postage rates to the higher third-class rates for a magazine’s entire circulation. Subscription magazine sampling inserts delivered to consumers through the USPS are currently an important part of our sampling systems business. If the USPS approves other competing types of sampling products for use in subscription magazines without requiring a postal surcharge, or reclassifies our sampling products such that they would incur a postal surcharge, it could have a material adverse effect on our sampling system business, financial condition and results of operations.

A deterioration in labor relations or labor availability could have an adverse impact on our operations.

As of March 29, 2008, we had approximately 5,961 full-time employees. As of March 29, 2008, approximately 619 of Jostens’ employees were represented under two collective bargaining agreements that

 

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expire in June 2010 and August of 2012, and approximately 509 employees from our Marketing and Publishing Services business were represented under four collective bargaining agreements. These collective bargaining agreements expire at various times between April 2008 and March 2013. The collective bargaining agreement covering certain employees at our Broadview, Illinois plant was due to expire on April 30, 2008 and is currently pending under an extension agreement, which extension agreement may be terminated by either party upon 10 days’ advance written notice.

We may not be able to negotiate labor agreements on satisfactory terms. If any of the employees covered by the collective bargaining agreements were to engage in a strike, work stoppage or other slowdown, we could experience a disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business, financial condition and results of operations. In addition, if our other employees were to become unionized, we could experience a further disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business, financial condition and results of operations. Given the seasonality of our business, we utilize a high percentage of seasonal and temporary employees to maximize efficiency and manage our costs. If these seasonal or temporary employees were to become unavailable to us on acceptable terms, we may not be able to find replacements in a timely or cost effective manner.

We are subject to environmental obligations and liabilities that could impose substantial costs upon us and may adversely affect our financial results and our ability to service our debt.

Our operations are subject to a wide variety of federal, state, local and foreign laws and regulations governing emissions to air, discharges to waters, the generation, handling, storage, transportation, treatment and disposal of hazardous substances and other materials, and employee health and safety matters. Compliance with such laws and regulations has become more stringent and, accordingly, more costly over time.

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, as well as to claims for harm to health or property or for natural resource damages arising out of contamination or exposure to hazardous substances. Some of our current or past operations have involved metalworking and plating, printing and other activities that have resulted or could result in environmental conditions giving rise to liabilities.

We are subject to risks that our intellectual property may not be adequately protected, and we may be adversely affected by the intellectual property rights of others.

We use a combination of patents and trademarks, licensing agreements and unpatented proprietary know-how and trade secrets to establish and protect our intellectual property rights, particularly those of our sampling system and direct mail businesses, which derive a substantial portion of revenue from processes or products with some proprietary protections. We generally enter into confidentiality agreements with customers, vendors, employees, consultants and potential acquisition candidates to protect our know-how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe, impair, misappropriate, dilute or violate our intellectual property rights. In addition, a portion of our manufacturing processes involved in the production of sampling systems and direct mail products are not covered by any patent or patent application. Furthermore, the patents that we use in our sampling system and direct marketing businesses will expire over time. There is no assurance that ongoing research and development efforts will result in new proprietary processes or products. Our competitors may independently develop equivalent or superior know-how, trade secrets processes or production methods to those employed by us.

We are involved in litigation from time to time in the course of our businesses to protect and enforce our intellectual property rights. Third parties from time to time may initiate litigation against us asserting that our

 

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businesses infringe or otherwise violate their intellectual property rights. Our intellectual property rights may not have the value that we believe them to have, and our products or processes may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. Further, we may not prevail in any such litigation, and the results or costs of any such litigation may have a material adverse effect on our business, financial condition and results of operations. The expense involved in protecting our intellectual property in our Marketing and Publishing Services segment, for example, has been and could continue to be significant. Any litigation concerning intellectual property could be protracted and costly, is inherently unpredictable and could have a material adverse effect on our business, financial condition and results of operations regardless of its outcome.

Our results of operations in our educational textbook cover and component business are subject to variations due to the textbook adoption cycle and government funding for education spending.

Our educational textbook cover and component business experiences fluctuations in its results of operations due to the textbook adoption cycle and government funding for education spending. The cyclicality of the elementary and high school market is primarily attributable to the textbook adoption cycle. Our results of operations are also affected by reductions in local, state and/or federal school funding for textbook purchasing. In school districts in states that primarily rely on local tax proceeds, significant reductions in those proceeds, including as a result of economic conditions, can severely restrict district purchases of instructional materials. In districts and states that primarily rely on state funding for instructional materials, a reduction in state allocations, changes in announced school funding or additional restrictions on the use of those funds may affect our results of operations in our educational textbook cover and component business. Lower than expected sales by us due to the cyclicality of the textbook adoption cycle and pricing pressures that may result during any downturn in the textbook adoption cycle or as a reduction in government funding for education spending could have a material adverse effect on our cash flows and, therefore, on our ability to service our obligations with respect to our indebtedness.

Fluctuations in levels of marketing and advertising spending could have an adverse effect on our results of operations.

Revenues in our Marketing and Publishing Services business are dependent on the level of marketing and advertising spending by our customers, which may be impacted by tighter economic and general market conditions affecting overall customers’ demand, the timing of decisions and the extent of spending. There can be no assurance that the demand for our services and, accordingly, our results of operations will not be negatively impacted during a period of economic decline or stagnation as a result of a decline in the level of advertising and marketing spending by our customers.

Our controlling stockholders, affiliates of KKR and DLJMBP III, may have interests that conflict with other investors.

As a result of the Transactions, we are controlled by affiliates of KKR and DLJMBP III. These investors collectively control our affairs and policies. Circumstances may occur in which the interests of these stockholders could be in conflict with the interests of our other investors and debtholders. In addition, these stockholders may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our other investors and debtholders if the transactions resulted in our becoming more leveraged or significantly changed the nature of our business operations or strategy. In addition, if we encounter financial difficulties, or we are unable to pay our debts as they mature, the interests of our stockholders may conflict with those of our debtholders. In that situation, for example, our debtholders might want us to raise additional equity from the Sponsors or other investors to reduce our leverage and pay our debts, while the Sponsors might not want to increase their investment in us or have their ownership diluted and instead choose to take other actions, such as selling our assets. Additionally, the Sponsors and certain of their affiliates are in the business of making investments in companies and currently hold, and may

 

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from time to time in the future acquire, interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. For instance, certain of the Sponsors currently have investments in Merrill Corp. and Primedia Inc. Further, if they pursue such acquisitions or make further investments in our industry, those acquisition and investment opportunities may not be available to us. So long as the Sponsors continue to indirectly own a significant amount of our equity, even if such amount is less than 50%, they will continue to be able to influence or effectively control our decisions.

We are dependent upon certain members of our senior management.

We are substantially dependent on the personal efforts, relationships and abilities of certain members of our senior management, particularly Marc L. Reisch, our Chairman, President and Chief Executive Officer. The loss of Mr. Reisch’s services or the services of other members of senior management could have a material adverse effect on our company.

Risks Relating to Our Indebtedness and the Notes

Our high level of indebtedness could adversely affect our cash flow and our ability to operate our business, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under the notes.

We are highly leveraged. As of March 29, 2008, total indebtedness for Holdings and its subsidiaries was $1,413.2 million, including $15.4 million outstanding in the form of letters of credit. As of March 29, 2008, Visant had availability of $234.6 million (net of standby letters of credit) under its revolving credit facility. Total outstanding indebtedness for Visant and its subsidiaries represented approximately 91.5% of our total consolidated capitalization at March 29, 2008. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color. The total purchase consideration in respect of the Phoenix Color acquisition was $219.0 million, subject to certain closing and post-closing adjustments.

Our substantial indebtedness could have important consequences. For example, it could:

 

   

make it more difficult for us to make payments on the notes;

 

   

make it more difficult for us and our subsidiaries to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including financial and other restrictive covenants, could result in an event of default under agreements governing our indebtedness;

 

   

require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

   

limit our flexibility in planning for and reacting to changes in our businesses and in the industries in which we operate;

 

   

make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

 

   

limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy and other purposes; and

 

   

place us at a disadvantage compared to our competitors who have less debt.

Any of the above listed factors could materially adversely affect our business, financial condition and results of operations. Furthermore, our interest expense could increase if interest rates increase, because the entire

 

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amount of our debt under the Visant senior secured credit facilities bears interest at floating rates, initially, at our option, at either adjusted LIBOR plus 2.50% per annum for the U.S. dollar denominated loans under the revolving credit facility and LIBOR plus 2.25% per annum for the Term Loan C facility or the alternate base rate plus 1.50% for U.S. dollar denominated loans under the revolving credit facility and base rate plus 1.25% for the Term Loan C facility (or, in the case of Canadian dollar denominated loans under the revolving credit facility, the bankers’ acceptance discount rate plus 2.50% or the Canadian prime rate plus 1.50% per annum). If we do not have sufficient earnings to service our debt, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do.

We may be able to incur significant additional indebtedness in the future. Although the indentures governing the Holdings senior notes, the Holdings senior discount notes and these notes and the credit agreement governing the Visant senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, those restrictions are subject to a number of important qualifications and exceptions and the indebtedness incurred in compliance with those restrictions could be substantial. The Visant senior secured credit facilities, for example, allow us to incur (1) an unlimited amount of “purchase money” indebtedness to finance capital expenditures permitted to be made under the senior secured credit facilities and to finance the acquisition, construction or improvement of fixed or capital assets, (2) an unlimited amount of indebtedness to finance acquisitions permitted under the senior secured credit facilities and (3) up to $100 million of additional indebtedness. As of March 29, 2008, the Visant senior secured credit facilities permitted additional borrowings of up to $234.6 million (net of standby letters of credit of approximately $15.4 million) under the revolving credit facility. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color.

The Visant senior secured credit facilities also allow us to incur additional term loans under the Term Loan C facility or under a new term loan facility, in each case in an aggregate principal amount of up to $300 million, subject to (1) the absence of any default under the senior secured credit facilities before and after giving effect to such loans, (2) the accuracy of all representations and warranties in the credit agreement and security documents for the senior secured credit facilities, (3) Visant’s compliance with financial covenants under the senior secured credit facilities and (4) Visant’s ability to obtain commitments from one or more lenders to make such loans. Any additional term loans will have the same security and guarantees as the Term Loan C facility. All of these borrowings may rank senior to these notes and subsidiary guarantees hereof. If the new debt is added to our current debt levels, the related risks that we now face, including those described above, could intensify.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

For the year ended December 29, 2007, Visant voluntarily prepaid $400.0 million of scheduled payments under the term loans in its senior secured credit facilities, including all originally scheduled principal payments due under the Term Loan C facility through most of 2011. Amounts borrowed under the term loans that are repaid or prepaid may not be reborrowed. Our annual payment obligations for 2007 with respect to our existing indebtedness were comprised of approximately $77.2 million of interest payments. Our ability to pay interest on and principal on our debt obligations will primarily depend upon our future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.

If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, including payments on these notes and the Holdings senior notes and senior discount notes, we may have to undertake alternative financing plans, such as refinancing our indebtedness, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to refinance our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In

 

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addition, the terms of existing or future debt instruments, including the Visant senior secured credit facilities, the indentures governing the Holdings senior notes and senior discount notes and the indenture governing these notes, may restrict us from adopting some of these alternatives. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of our indebtedness.

Repayment of our debt, including the Visant term loans, these notes and the Holdings senior notes and senior discount notes, is dependent on cash flow generated by our subsidiaries.

Both Visant and Holdings are holding companies, and all of our assets are owned by our subsidiaries. Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of these senior subordinated notes, our subsidiaries do not have any obligation to pay amounts due on the notes or to make funds available for that purpose. The Holdings senior notes and senior discount notes are not guaranteed by any of Holdings’ subsidiaries. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including these notes and the Holdings senior notes and senior discount notes. Each of our subsidiaries is a distinct legal entity, and legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indentures governing these notes and the Holdings senior notes and senior discount notes limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. If we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the Visant term loans, these notes and the Holdings senior notes and senior discount notes.

Restrictive covenants in Holdings’ and our and our subsidiaries’ debt instruments may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.

The Visant senior secured credit facilities and the indentures governing the Holdings senior notes and senior discount notes and these notes contain, and any future indebtedness of Holdings or ours or of our subsidiaries would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on Holdings, us and our subsidiaries, including restrictions on Holdings and our and our subsidiaries’ ability to engage in acts that may be in our best long-term interest.

The Visant senior secured credit facilities include financial covenants, including requirements that Visant:

 

   

maintain a minimum interest coverage ratio; and

 

   

not exceed a maximum total leverage ratio.

The financial covenants in the Visant senior secured credit facilities will become more restrictive over time. In addition, the Visant senior secured credit facilities limit Visant’s ability to make capital expenditures and require that Visant use a portion of excess cash flow and proceeds of certain asset sales that are not reinvested in its business to repay indebtedness under them.

The Visant senior secured credit facilities also include covenants restricting, among other things, Visant Secondary Holdings Corp.’s, Visant’s and their subsidiaries’ ability to:

 

   

create liens;

 

   

incur indebtedness (including guarantees, debt incurred by direct or indirect subsidiaries, and obligations in respect of foreign currency exchange and other hedging arrangements) or issue preferred stock;

 

   

pay dividends, or make redemptions and repurchases, with respect to capital stock;

 

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prepay, or make redemptions and repurchases, with respect to subordinated indebtedness;

 

   

make loans and investments;

 

   

engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with affiliates;

 

   

change the business conducted by Visant Secondary Holdings Corp., Visant or their subsidiaries; and

 

   

amend the terms of subordinated debt.

The indentures relating to the Holdings senior notes, the Holdings senior discount notes and these notes also contain numerous covenants including, among other things, restrictions on Holdings and our and our subsidiaries’ ability to:

 

   

create liens;

 

   

incur or guarantee indebtedness or issue preferred stock;

 

   

pay dividends, or make redemptions and repurchases, with respect to capital stock;

 

   

prepay, or make redemptions and repurchases, with respect to subordinated indebtedness;

 

   

make loans and investments;

 

   

engage in mergers, acquisitions, asset sales and transactions with affiliates; and

 

   

create limitations on the ability of subsidiaries to make dividends or distributions.

The operating and financial restrictions and covenants in our existing debt agreements and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. A breach of any of the restrictive covenants in the Visant senior secured credit facilities would result in a default under the Visant senior secured credit facilities. If any such default occurs, the lenders under the Visant senior secured credit facilities may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, enforce their security interest or require Visant to apply all of its available cash to repay these borrowings, any of which would result in an event of default under these notes and the Holdings senior notes and senior discount notes. The lenders under the senior secured credit facilities will also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

Only certain of our subsidiaries guarantee the notes, and the assets of our non-guarantor subsidiaries may not be available to make payments on the notes.

Certain of our subsidiaries, including our existing and future foreign subsidiaries, are not required to guarantee the notes. As of March 29, 2008, our non-guarantor subsidiaries had approximately 2.6% of our assets. Our non-guarantor subsidiaries generated approximately 4.5% of our revenues for the quarter ended March 29, 2008. However, the indenture permits these subsidiaries to incur significant amounts of indebtedness in the future. In the event that any non-guarantor subsidiary (including any foreign subsidiary) becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to us. Consequently, your claims with respect to the notes will be effectively subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables, and the claims (if any) of third party holders of preferred equity interests in our non-guarantor subsidiaries.

Your right to receive payments on the notes and the guarantees is junior to the rights of the lenders under our senior secured credit facilities and to all of our and the guarantors’ other senior indebtedness, including any of our or the guarantors’ future senior debt.

The notes and the guarantees rank in right of payment behind all of our and the guarantors’ existing senior indebtedness, including borrowings under our senior secured credit facilities, and rank in right of payment behind

 

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all of our and the guarantors’ future borrowings, except for any future indebtedness that expressly provides that it ranks equal or junior in right of payment to the notes and the related guarantees. See “Description of the Notes”. As of March 29, 2008, we had approximately $316.5 million of senior secured indebtedness, and the revolving credit portion (net of standby letters of credit and short-term borrowings of approximately $15.4 million) of our senior secured credit facilities provided for additional borrowings of up to $234.6 million, all of which would be senior indebtedness when drawn. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color. Our senior secured credit facilities allow us, subject to certain conditions, to incur additional term loans under the Term Loan C facility, or under a new term facility, in either case in an aggregate principal amount of up to $300 million, which additional term loans will have the same security and guarantees as the Term Loan C facility. As of March 29, 2008, the subsidiary guarantors had approximately $316.5 million of senior indebtedness which would have represented guarantees of borrowings under our new senior secured credit facilities. We are also permitted to incur substantial additional indebtedness, including senior indebtedness, in the future.

We and the guarantors may not pay principal, premium, if any, interest or other amounts on account of the notes or the guarantees in the event of a payment default or other defaults in respect of certain of our senior indebtedness, including debt under the senior secured credit facilities, unless the senior indebtedness has been paid in full or the default has been cured or waived. In addition, in the event of certain other defaults with respect to the senior indebtedness, we or the guarantors may not be permitted to pay any amount on account of the notes or the guarantees for a designated period of time. See “Description of the Notes—Payment of Notes”.

Because of the subordination provisions in the notes and the guarantees, in the event of a bankruptcy, liquidation, reorganization or similar proceeding relating to us or a guarantor, our or the guarantor’s assets will not be available to pay obligations under the notes or the applicable guarantee until we or the guarantor has made all payments in cash on its senior indebtedness. Sufficient assets may not remain after all these payments have been made to make any payments on the notes or the applicable guarantee, including payments of principal or interest when due. In addition, in the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors, holders of the notes will participate with trade creditors and all other holders of our and the guarantors’ senior subordinated indebtedness, as the case may be, in the assets remaining after we and the guarantors have paid all of the senior indebtedness. However, because the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior indebtedness instead, holders of the notes may receive less, ratably, than holders of trade payables or other unsecured, unsubordinated creditors in any such proceeding. In any of these cases, we and the guarantors may not have sufficient funds to pay all of our creditors, and holders of the notes may receive less, ratably, than the holders of senior indebtedness. See “Description of the Notes—Ranking”.

The notes are not secured by our assets, and the lenders under our senior credit facilities are entitled to remedies available to a secured lender, which gives them priority over you to collect amounts due to them.

In addition to being contractually subordinated to all existing and future senior indebtedness, the notes and the guarantees are not secured by any of our assets. In contrast, our obligations under the senior secured credit facilities are secured by substantially all of our assets and substantially all of the assets of our material current domestic and future subsidiaries, including all of our capital stock and the capital stock of each of our existing and future direct and indirect subsidiaries (except that with respect to foreign subsidiaries such lien and pledge will be limited to 65% of the capital stock of “first-tier” foreign subsidiaries), and substantially all of our material existing domestic subsidiaries and future domestic subsidiaries’ tangible and intangible assets. In addition, we may incur other senior indebtedness, which may be substantial in amount, and which may, in some circumstances, be secured. As of March 29, 2008, we had $316.5 million of senior secured indebtedness. Our senior secured credit facilities allow us to incur additional term loans under the Term Loan C facility or under a new term loan facility, in each case in an aggregate principal amount of up to $300 million, subject to (1) the absence of any default under the senior secured credit facilities before and after giving effect to such loans, (2) the accuracy of all representations and warranties in the credit agreement and security documents for the

 

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senior secured credit facilities, (3) our compliance with financial covenants under the senior secured credit facilities and (4) our ability to obtain commitments from one or more lenders to make such loans. Any additional term loans will have the same security and guarantees as the Term Loan C facility.

Because the notes and the guarantees are unsecured obligations, your right of repayment may be compromised if any of the following situations occur:

 

   

we enter into bankruptcy, liquidation, reorganization, or other winding-up proceedings;

 

   

there is a default in payment under the senior secured credit facilities or other secured indebtedness; or

 

   

there is an acceleration of any indebtedness under the senior secured credit facilities or other secured indebtedness.

If any of these events occurs, the secured lenders could sell those of our assets in which they have been granted a security interest, to your exclusion, even if an event of default exists under the indenture at such time. As a result, upon the occurrence of any of these events, there may not be sufficient funds to pay amounts due on the notes and the guarantees.

Federal and state statutes allow courts, under specific circumstances, to void the guarantees, subordinate claims in respect of the guarantees and require note holders to return payments received from the guarantors.

Our existing and certain of our future subsidiaries guarantee our obligations under the notes. The issuance of the guarantees by the guarantors may be subject to review under state and federal laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date by, or on behalf of, our unpaid creditors or the unpaid creditors of a guarantor. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a court may void or otherwise decline to enforce a guarantor’s guaranty, or subordinate such guaranty to the applicable guarantor’s existing and future indebtedness. While the relevant laws may vary from state to state, a court might void or otherwise decline to enforce a guarantee if it found that when the applicable guarantor entered into its guaranty or, in some states, when payments became due under such guaranty, the applicable guarantor received less than reasonably equivalent value or fair consideration and either:

 

   

was insolvent or rendered insolvent by reason of such incurrence;

 

   

was engaged in a business or transaction for which such guarantor’s remaining assets constituted unreasonably small capital;

 

   

intended to incur, or believed that such guarantor would incur, debts beyond such guarantor’s ability to pay such debts as they mature; or

 

   

was a defendant in an action for money damages, or had a judgment for money damages docketed against it if, in either case, after final judgment, the judgment is unsatisfied.

The court might also void a guaranty, without regard to the above factors, if the court found that the applicable guarantor entered into its guaranty with actual intent to hinder, delay or defraud its creditors. In addition, any payment by a guarantor pursuant to its guarantees could be voided and required to be returned to such guarantor or to a fund for the benefit of such guarantor’s creditors.

A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for such guaranty if such guarantor did not substantially benefit directly or indirectly from the issuance of the notes. If a court were to void a guaranty, you would no longer have a claim against the applicable guarantor. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. In addition, the court might direct you to repay any amounts that you already received from any guarantor.

 

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The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

 

   

the sum of such guarantor’s debts, including contingent liabilities, was greater than the fair saleable value of such guarantor’s assets; or

 

   

the present fair saleable value of such guarantor’s assets were less than the amount that would be required to pay such guarantor’s probable liability on such guarantor’s existing debts, including contingent liabilities, as they become absolute and mature; or

 

   

such guarantor could not pay such guarantor’s debts as they become due.

To the extent a court voids any of the guarantees as fraudulent transfers or holds any of the guarantees unenforceable for any other reason, holders of notes would cease to have any direct claim against the applicable guarantor. If a court were to take this action, the applicable guarantor’s assets would be applied first to satisfy the applicable guarantor’s liabilities, if any, before any portion of its assets could be applied to the payment of the notes.

Each guaranty contains a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guaranty to be a fraudulent transfer. This provision may not be effective to protect the guarantees from being voided under fraudulent transfer law, or may reduce the guarantor’s obligation to an amount that effectively makes the guaranty worthless.

We may not be able to repurchase notes upon a change of control.

Certain events constitute a change of control under the indenture governing the notes, including the sale, lease or transfer of all or substantially all of our assets to any person other than a permitted holder. See “Description of Notes—Certain Definitions—Change of Control” for additional descriptions of these events. The indentures governing the senior discount notes and senior notes of our parent contain similar provisions. Upon the occurrence of such events, you will have the right to require us to repurchase your notes, and the holders of senior discount notes and senior notes will have the right to require our parent to repurchase their notes at a purchase price in cash equal to 101% of the principal amount or accreted value, as applicable, of the applicable notes plus accrued and unpaid interest, if any, to the extent applicable. The senior secured credit facilities provide that certain change of control events constitute a default, including (1) a Change of Control, as defined in the indenture relating to the notes, (2) the board of directors ceasing to be comprised of at least a majority of directors who (a) were directors as of the closing date of the senior secured credit facilities, (b) have been directors for at least 12 months, (c) were nominated to the board of directors by DLJMBP III, KKR, their respective affiliates or a person nominated by any thereof or (d) were nominated by a majority of the continuing directors then in office and (3) Visant Secondary Holdings Corp. ceasing to own 100% of our outstanding capital.

Any future credit agreement or other agreements relating to senior indebtedness to which we become a party may contain similar provisions. If we experience a change of control that triggers a default under our senior secured credit facilities, we could seek a waiver of such default or seek to refinance our senior secured credit facilities. In the event we do not obtain such a waiver or refinance the senior secured credit facilities, such default could result in amounts outstanding under our new senior secured credit facilities being declared due and payable. In the event we experience a change of control that results in our having to repurchase your notes and/or our parent having to repurchase the senior discount notes and senior notes, we may not have sufficient financial resources to satisfy all of our obligations under our senior secured credit facilities and/or the notes, and our parent may not have sufficient financial resources to satisfy its obligations under the senior discount notes and senior notes. A failure to make the applicable change of control offer or to pay the applicable change of control purchase price when due would result in a default under the relevant indenture. In addition, the change of control

 

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covenant in the indentures governing the notes and our parent’s senior discount notes and senior notes do not cover all corporate reorganizations, mergers or similar transactions and may not provide you with protection in a highly leveraged transaction. See “Description of the Notes—Certain Covenants”.

Your ability to sell the notes may be limited by the absence of an active trading market, and if one develops, it may not be liquid.

The notes were offered and sold in October 2004 to a small number of institutional investors and are eligible for trading in the PORTALSM market. However, we do not intend to apply for the notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation system. There is currently no established market for the notes, and we cannot assure you as to the liquidity of markets that may develop for the notes, your ability to sell the notes or the price at which you would be able to sell the notes. If such markets were to exist, the notes could trade at prices that may be lower than their principal amount or purchase price depending on many factors, including prevailing interest rates and the markets for similar securities. You may not be able to sell your notes at a particular time or at favorable prices or at all.

The liquidity of any market for the notes and the future trading prices of the notes will depend on many factors, including:

 

   

our operating performance and financial condition;

 

   

the interest of securities dealers in making a market in the notes; and

 

   

the market for similar securities.

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. The market for the notes, if any, may be subject to similar disruptions. Any such disruptions may adversely affect the value of your notes.

We understand that Credit Suisse Securities (USA) LLC presently intends to make a market in the notes. However, it is not obligated to do so, and any market making activity with respect to the notes may be discontinued at any time without notice. In addition, any market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act. There can be no assurance that an active trading market will exist for the notes or that any trading market that does develop will be liquid.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements including, without limitation, statements concerning the conditions in our industry, expected cost savings, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts. These forward-looking statements are not historical facts, but only predictions and generally can be identified by use of statements that include such words as “may”, “might”, “will”, “should”, “estimate”, “project”, “plan”, “anticipate”, “expect”, “intend”, “outlook”, “believe” and other similar expressions that are intended to identify forward-looking statements and information. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under “Risk Factors” and elsewhere in this prospectus.

The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

 

   

our substantial indebtedness;

 

   

our inability to implement our business strategy and achieve anticipated cost savings in a timely and effective manner;

 

   

competition from other companies;

 

   

the seasonality of our businesses;

 

   

the loss of significant customers or customer relationships;

 

   

fluctuations in raw material prices;

 

   

our reliance on a limited number of suppliers;

 

   

our reliance on numerous complex information systems;

 

   

the reliance of our businesses on limited production facilities;

 

   

the amount of capital expenditures required at our businesses;

 

   

labor disturbances;

 

   

environmental regulations;

 

   

foreign currency fluctuations and foreign exchange rates;

 

   

the outcome of litigation;

 

   

our dependency on the sale of school textbooks;

 

   

control by our stockholders;

 

   

Jostens’ reliance on independent sales representatives;

 

   

the failure of our sampling systems to comply with U.S. postal regulations;

 

   

levels of customers’ advertising spending, including as may be impacted by economic factors;

 

   

changes in book buying habits; and

 

   

the textbook adoption cycle and levels of government funding for education spending.

We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not in fact occur. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update publicly or revise any of them in light of new information, future events or otherwise, except as required by law.

 

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INDUSTRY AND MARKET DATA

We obtained the industry, market and competitive position data referenced throughout this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties, including Veronis Suhler Communications, the National Center for Educational Statistics and the U.S. Department of Education.

USE OF PROCEEDS

This prospectus is being delivered in connection with the sale of notes by Credit Suisse Securities (USA) LLC in market-making transactions. We will not receive any cash proceeds from the sale of the notes by Credit Suisse Securities (USA) LLC.

 

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CAPITALIZATION

The following table sets forth Visant Holding’s capitalization as of March 29, 2008. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

     As of
March 29, 2008
(unaudited)
     (In millions)

Visant Corporation:

  

Standby letters of credit

   $ 15.4

Term Loan C facility

     316.5

7 5/8% Senior Subordinated Notes

     500.0

Visant Holding Corp.:

  

10 1/2% Senior Discount Notes

     231.3

8 3/4% Senior Notes

     350.0
      

Total debt

     1,413.2

Stockholders’ equity

     131.3
      

Total capitalization

   $ 1,544.5
      

 

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SELECTED FINANCIAL DATA

The following relates to the financial results of Visant Corporation. There are no significant differences between the results of operations and financial condition of Visant and those of Visant Holding other than the interest and related income tax effect of certain indebtedness of Holdings, including Holdings’ senior discount notes, which had an accreted value of $231.3 million and $225.6 million as of March 29, 2008 and December 29, 2007, respectively, including interest thereon, and the $350.0 million of Holdings’ 8.75% senior notes due 2013. The selected financial data of Visant Corporation set forth below presents the consolidated financial data of Visant Corporation, Von Hoffmann and Arcade after July 29, 2003 as a result of the common ownership of these entities by affiliates of DLJMBP III on such date. As described in the notes to our consolidated financial statements, certain operations of Von Hoffmann are presented as discontinued operations for all periods presented.

The selected historical financial data for the successor periods of fiscal years ended December 29, 2007, December 30, 2006, December 31, 2005, January 1, 2005 and the five-month period from July 30, 2003 to January 4, 2004 and for the predecessor period, the seven-month period from December 29, 2002 to July 29, 2003, have been derived from our audited historical consolidated financial statements. The data presented below should be read in conjunction with the consolidated financial statements and related notes included herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

    (Successor)     Jostens, Inc.
(Predecessor)
 
  Three Months Ended           Seven
Months

2003
 
  March 29,
2008
    March 31,
2007
    2007   2006     2005     2004     Five
Months
2003
   
  In millions, except for ratios  

Statement of Operations Data(1):

               

Net sales

  $ 247.0     $ 255.9     $ 1,270.2   $ 1,186.6     $ 1,110.7     $ 1,051.9     $ 326.2     $ 483.5  

Cost of products sold

    128.1       128.1       623.0     587.6       562.2       586.2       201.2       203.0  
                                                             

Gross profit

    118.9       127.8       647.2     599.0       548.5       465.7       125.0       280.5  

Selling and administrative expenses

    105.2       103.6       425.6     394.4       389.2       386.2       144.8       185.8  

Loss (gain) on disposal of assets

    —         0.4       0.6     (1.2 )     (0.4 )     (0.1 )     (0.1 )     —    

Transaction costs(2)

    —         —         —       —         1.2       6.8       0.2       31.0  

Special charges(3)

    1.5       —         2.9     2.4       5.4       11.8       —         —    
                                                             

Operating income (loss)

    12.2       23.8       218.1     203.4       153.1       61.0       (19.9 )     63.8  

Loss on redemption of debt(4)

    —         —         —       —         —         31.9       0.4       13.9  

Interest expense, net

    16.4       25.2       90.2     105.4       106.8       108.7       50.0       32.0  

Other income

    —         —         —       —         —         (1.1 )     —         —    
                                                             

(Loss) income from continuing operations before income taxes

    (4.2 )     (1.4 )     127.9     98.0       46.3       (78.6 )     (70.3 )     17.9  

(Benefit from) provision for income taxes

    (1.4 )     (0.3 )     49.7     31.2       17.2       (28.2 )     (21.0 )     10.5  
                                                             

(Loss) income from continuing operations

    (2.7 )     (1.1 )     78.2     66.8       29.1       (50.4 )     (49.3 )     7.4  

Income (loss) on discontinued operations, net of tax

    —         8.4       110.7     9.6       19.0       (40.0 )     (1.1 )     (4.4 )

Cumulative effect of accounting change, net of tax

    —         —         —       —         —         —         —         4.6  
                                                             

Net (loss) income

    (2.7 )     7.3       188.9     76.4       48.1       (90.4 )     (50.4 )     7.6  

Dividends and accretion on redeemable preferred shares

    —         —         —       —         —         —         —         (6.5 )
                                                             

Net (loss) income available to common stockholders

  $ (2.7 )   $ 7.3     $ 188.9   $ 76.4     $ 48.1     $ (90.4 )   $ (50.4 )   $ 1.1  
                                                             

 

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    (Successor)     Jostens, Inc.
(Predecessor)
 
  Three Months Ended           Seven
Months

2003
 
  March 29,
2008
    March 31,
2007
    2007     2006     2005     2004     Five
Months
2003
   
  In millions, except for ratios  

Statement of Cash Flows:

               

Net cash provided by (used in) operating activities

  $ 51.6     $ 48.2     $ 177.3     $ 182.5     $ 167.5     $ 115.8     $ 103.0     $ (6.8 )

Net cash (used in) provided by investing activities

    (13.6 )     (50.4 )     280.6       (52.6 )     (39.1 )     (38.0 )     (552.3 )     (11.9 )

Net cash (used in) provided by financing activities

    (1.5 )     —         (417.9 )     (131.6 )     (190.8 )     (39.3 )     482.3       12.9  

Other Financial Data(1):

               

Ratio of earnings to fixed charges and preferred stock dividends(5)

    —         —         2.4x       1.9x       1.4x       —         —         1.5x  

Depreciation and amortization

  $ 22.7     $ 20.9     $ 87.0     $ 81.6     $ 87.6     $ 136.5     $ 37.3     $ 13.5  

Capital expenditures

  $ 13.7     $ 20.0     $ 56.4     $ 51.9     $ 28.7     $ 37.7     $ 17.4     $ 5.8  

Balance Sheet Data (at period end):

               

Cash and cash equivalents

  $ 96.1     $ 16.0     $ 59.1     $ 18.0     $ 19.9     $ 82.3     $ 43.7    

Property and equipment, net

    184.7       168.2       181.1       160.6       137.9       144.9       156.4    

Total assets

    2,155.6       2,367.1       2,092.8       2,309.3       2,360.8       2,503.3       2,522.6    

Total debt

    816.5       1,216.5       816.5       1,216.5       1,328.4       1,528.3       1,325.1    

Stockholder’s equity

    679.1       486.4       681.7       477.7       420.9       363.8       173.9    

 

(1)   Certain selected financial data have been reclassified for all periods presented to reflect the results of discontinued operations consisting of the Von Hoffmann businesses in December 2006, our Jostens Photography businesses in June 2006 and the exit of Jostens’ Recognition business in December 2001. See Note 5, Discontinued Operations, to our consolidated financial statements included elsewhere herein.
(2)   For 2005 and 2004, transaction costs represented $1.2 million and $6.8 million, respectively, of expenses incurred in connection with the Transactions. For the successor period in 2003, transaction costs represented $0.2 million of expenses incurred in connection with the 2003 Jostens merger. For the predecessor period in 2003, transaction costs represented $31.0 million of expenses incurred in connection with the 2003 Jostens merger.
(3)  

During the three months ended March 29, 2008, the Company recorded $0.6 million of restructuring charges related to the closure of Jostens’ Attleboro, Massachusetts facility in the Scholastic segment and $0.5 million and $0.3 million representing severance and related benefits associated with headcount reductions in the Scholastic and Marketing and Publishing Services segments, respectively. During the three months ended March 31, 2007, the Company did not record any restructuring charges. For the year ended December 29, 2007, the Company recorded $2.3 million of restructuring for severance and related benefit costs primarily in the Scholastic segment related to the closure of Jostens’ Attleboro, Massachusetts facility announced on December 4, 2007, and which was expected to be substantially complete by the end of the first quarter of 2008, and $1.0 million related to termination benefits for management executives offset by a reversal of $0.4 million associated with the reductions in severance liability for the Scholastic and Memory Book segments. For 2006, the Company recorded $2.3 million relating to an impairment loss to reduce the carrying value of Jostens’ former corporate office buildings and $0.1 million of special charges for severance costs and related benefit costs. For 2005, special charges consisted of restructuring charges of $5.1 million for employee severance related to closed facilities and $0.3 million related to a withdrawal liability under a union retirement plan that arose in connection with the consolidation of certain operations. For 2004, special charges consisted

 

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of $11.8 million of restructuring charges consisting primarily of severance costs for the termination of senior executives and other employees associated with reorganization activity as a result of the Transactions.

(4)   For 2004, loss on redemption of debt represented a loss of $31.5 million in connection with repayment of all existing indebtedness and remaining preferred stock of Jostens and Arcade in conjunction with the Transactions and a loss of $0.4 million in connection with the repurchase of $5.0 million principal amount of Jostens’ 12.75% senior subordinated notes prior to the Transactions. For the successor period in 2003, loss on redemption of debt represented a loss of $0.4 million in connection with the repurchase of $8.5 million principal amount of Jostens’ 12.75% senior subordinated notes. For the predecessor period in 2003, loss on redemption of debt represented a loss of $13.9 million consisting of the write-off of unamortized deferred financing costs in connection with refinancing Jostens’ senior secured credit facility.
(5)   For the purposes of calculating the ratio of earnings to fixed charges, earnings represent income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense (including capitalized interest) on all indebtedness plus amortization of debt issuance costs and the portion of rental expense that we believe is representative of the interest component of rental expense. For the three months ended March 29, 2008, three months ended March 31, 2007, twelve months ended 2004 and the successor five-month period in 2003, earnings did not cover fixed charges by $4.1 million, $1.4 million, $78.6 million and $70.1 million, respectively.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this prospectus under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”. You should read the following discussion in conjunction with the consolidated financial statements and related notes included herein.

Presentation

There are no significant differences between the results of operations and financial condition of Visant and those of Holdings other than the interest and related income tax effect of certain indebtedness of Visant Holding, including Holdings’ senior discount notes, which had an accreted value of $231.3 million and $225.6 million as of March 29, 2008 and December 29, 2007, respectively, including interest thereon, and the $350.0 million of Holdings’ 8.75% senior notes due 2013.

Company Background

On October 4, 2004, an affiliate of KKR and affiliates of DLJMBP III completed the Transactions, which created a marketing and publishing services enterprise through the consolidation of Jostens, Von Hoffmann and Arcade.

Prior to the Transactions, Von Hoffmann and Arcade were each controlled by affiliates of DLJMBP II, and DLJMBP III owned approximately 82.5% of our outstanding equity, with the remainder held by other co-investors and certain members of management. Upon consummation of the Transactions, an affiliate of KKR invested $256.1 million and was issued equity interests representing approximately 49.6% of our voting interest and 45.0% of our economic interest, affiliates of DLJMBP III held equity interests representing approximately 41.0% of Holdings’ voting interest and 45.0% of Holdings’ economic interest, with the remainder held by other co-investors and certain members of management. Approximately $175.6 million of the proceeds were distributed to certain stockholders, and certain treasury stock held by Von Hoffmann was redeemed. After giving effect to the issuance of equity to members of management, as of May 12, 2008, affiliates of KKR and DLJMBP III held approximately 49.0% and 41.0%, respectively, of Holdings’ voting interest, while each continued to hold approximately 44.6% of Holdings’ economic interest. As of May 12, 2008, the other co-investors held approximately 8.4% of the voting interest and 9.2% of the economic interest of Holdings, and members of management held approximately 1.6% of the voting interest and approximately 1.6% of the economic interest of Holdings.

These Transactions were accounted for as a combination of interests under common control.

Overview

We are a leading marketing and publishing services enterprise servicing the school affinity, direct marketing, fragrance and cosmetics sampling, and educational and trade publishing segments.

We sell our products and services to end customers through several different sales channels including independent sales representatives and dedicated sales forces. Our sales and results of operations are impacted by a number of factors, including general economic conditions, seasonality, cost of raw materials, school population trends, product quality and service and price.

During the fourth quarter of 2005, we disaggregated our reportable segments, to reflect better our operations following the integration of the companies as a result of the Transactions and the manner in which the chief

 

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operating decision-maker regularly assesses the information for decision-making purposes. During the second quarter of 2006, we entered into definitive agreements to sell our Jostens Photography businesses, which previously comprised a reportable segment. The transactions closed on June 30, 2006. Accordingly, this segment has been reported as discontinued operations. See Note 5, Discontinued Operations, to the consolidated financial statements included elsewhere herein.

As of December 2006, our Von Hoffmann businesses were held as assets for sale. On January 3, 2007, the Company entered into a stock purchase agreement with R.R. Donnelley & Sons Company providing for the sale of the Von Hoffmann businesses, which previously comprised the Educational Textbook segment and a portion of the Marketing and Publishing Services segment. We closed the transaction on May 16, 2007. The operations of the Von Hoffmann businesses are reported as discontinued operations in the consolidated financial statements for all periods presented. See Note 5, Discontinued Operations, to the consolidated financial statements included elsewhere herein.

On March 16, 2007, we acquired all of the outstanding capital stock of Neff Holding Company and its wholly owned subsidiary Neff Motivation, Inc. Neff is a single source provider of custom award programs and apparel, including chenille letters and letter jackets, to the scholastic market segment. The results of Neff are reported together with the results of the Jostens scholastic operations as the renamed Scholastic segment.

On June 14, 2007, the Company acquired all of the outstanding capital stock of VSI. VSI is a supplier in the overhead transparency and book component business. VSI does business under the name of Lehigh Milwaukee. Results of VSI are included in the Marketing and Publishing Services segment from the date of acquisition.

On October 1, 2007, the Company’s wholly owned subsidiary, Memory Book Acquisition LLC, acquired substantially all of the assets and certain liabilities of Publishing Enterprises, Incorporated, a producer of school memory book and student planners. Results of Memory Book Acquisition LLC are reported as part of the Memory Book segment from the date of acquisition.

On April 1, 2008, Visant announced the completion of the acquisition of Phoenix Color, a leading book cover and component manufacturer. Phoenix Color operates as a wholly owned subsidiary of Visant. The total purchase consideration was $219.0 million, subject to certain closing and post-closing adjustments.

In 2007, we changed the name of our Yearbook segment to Memory Book to reflect our diversified offering of custom yearbooks, memory books and related products that help people tell their stories and chronicle important events.

Our three reportable segments consist of:

 

   

Scholastic—provides services related to the marketing, sale and production of class rings and an array of graduation products and other scholastic products to students and administrators primarily in high schools, colleges and other post-secondary institutions;

 

   

Memory Book—provides services related to the publication, marketing, sale and production of school yearbooks, memory books and related products that help people tell their stories and chronicle important events; and

 

   

Marketing and Publishing Services—produces multi-sensory and interactive advertising sampling systems, primarily for the fragrance, cosmetics and personal care market segments, and provides innovative products and services to the direct marketing sector. The group also produces book components and overhead transparencies.

For additional financial and other information about our operating segments, see Note 16, Business Segments, to the consolidated financial statements.

 

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General

We experience seasonal fluctuations in our net sales tied primarily to the North American school year. We recorded approximately 40% of our annual net sales from our continuing operations for fiscal 2007 during the second quarter of our fiscal year. Jostens generates a significant portion of its annual net sales in the second quarter. Deliveries of caps, gowns and diplomas for spring graduation ceremonies and spring deliveries of school yearbooks are the key drivers of Jostens’ seasonality. The net sales of educational components are impacted seasonally by state and local schoolbook purchasing schedules, which commence in the spring and peak in the summer months preceding the start of the school year. The net sales of sampling and other direct mail and commercial printed products have also historically reflected seasonal variations, and we expect these businesses to continue to generate a majority of their annual net sales during our third and fourth quarters for the foreseeable future. These seasonal variations are based on the timing of customers’ advertising campaigns, which have traditionally been concentrated prior to the Christmas and spring holiday seasons. The seasonality of each of our businesses requires us to allocate our resources to manage our manufacturing capacity, which often operates at full or near full capacity during peak seasonal demands.

Our net sales include sales to certain customers for whom we purchase paper. The price of paper, a primary material across most of our products and services, is volatile over time and may cause swings in net sales and cost of sales. We generally are able to pass on increases in the cost of paper to our customers across most product lines when we realize such increases.

The price of gold and other precious metals has increased dramatically during the past year, and we anticipate continued volatility in the price of gold. These higher gold prices have impacted, and could further impact, our manufacturing costs.

We continued to see softness in the placement of orders during the first quarter 2008 in our direct marketing services business which we believe was the result of tighter economic and general market conditions affecting the timing of decisions and the extent of advertising spending by our customers. To the extent these economic conditions persist we believe they may continue to impact the timing of orders and the level of spending by our customers in direct marketing. While historically the purchase of class rings has been relatively resistant to economic conditions, we saw a shift in jewelry metal mix in the first quarter of 2008 which we believe is attributable primarily to economic factors and the impact of significantly higher precious metal costs on our jewelry prices. We anticipate the trends we saw in the first quarter in jewelry volume, metal mix and price will continue for the remainder of school year 2008.

Restructuring Activity

During the three months ended March 29, 2008, the Company recorded $0.6 million of restructuring charges related to the closure of Jostens’ Attleboro, Massachusetts facility in the Scholastic segment. Additionally, the Scholastic segment recorded charges of $0.5 million of severance and related benefits associated with the headcount reduction of 23 employees. The Marketing and Publishing Services segment recorded charges of $0.3 million related to severance costs that reduced headcount by one employee.

During the three months ended March 31, 2007, the Company did not record any restructuring charges.

Restructuring accruals of $2.1 million as of both March 29, 2008 and December 29, 2007 are included in other accrued liabilities in the condensed consolidated balance sheets. The accruals include amounts provided for severance related to reductions in corporate and administrative employees from the Scholastic, Memory Book and the Marketing and Publishing Services segments.

On a cumulative basis through March 29, 2008, the Company incurred $20.9 million of employee severance costs related to initiatives during the period from 2004 to March 29, 2008, which affected an aggregate of 465 employees. As of March 29, 2008, the Company had paid $18.7 million in cash related to these initiatives.

 

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Changes in the restructuring accruals during the first three months of 2008 were as follows:

 

In thousands

   2008
Initiatives
    2007
Initiatives
    2006
Initiatives
    Total  

Balance at December 29, 2007

   $ —       $ 2,110     $ 43     $ 2,153  

Restructuring charges

     805       646       —         1,451  

Severance paid

     (105 )     (1,349 )     (4 )     (1,458 )
                                

Balance at March 29, 2008

   $ 700     $ 1,407     $ 39     $ 2,146  
                                

The Company expects the majority of the remaining severance related to the 2006, 2007 and 2008 initiatives to be paid by the end of 2008.

Other Factors Affecting Comparability

We utilize a fifty-two, fifty-three week fiscal year ending on the Saturday nearest December 31st. Our 2005, 2006 and 2007 fiscal years consisted of 52 weeks; our 2008 fiscal year will consist of 53 weeks.

In connection with the relocation of Jostens’ diploma operations out of its Red Wing, Minnesota manufacturing facility to certain of its other facilities, Scholastic experienced significant manufacturing inefficiencies in 2005. As a result of its commitment to minimize the impact to its customers, Jostens incurred $14.7 million of costs in an effort to address these manufacturing inefficiencies. These costs included, in certain cases, providing at Jostens’ cost, temporary diploma covers to meet spring graduation deliveries, which were later replaced with permanent diploma covers, significant expedited freight charges, and other efforts to address customer issues to minimize the long-term impact on customer relationships.

Critical Accounting Policies and Estimates

In the ordinary course of business, management makes a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results and require management’s judgment about the effect of matters that are uncertain.

On an ongoing basis, management evaluates its estimates and assumptions, including those related to revenue recognition, continued value of goodwill and intangibles, recoverability of long-lived assets, pension and other postretirement benefits and income tax. Management bases its estimates and assumptions on historical experience, the use of independent third-party specialists and on various other factors that are believed to be reasonable at the time the estimates and assumptions are made. Actual results may differ from these estimates and assumptions under different circumstances or conditions.

Revenue Recognition

The SEC’s Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, provides guidance on the application of accounting principles generally accepted in the United States to selected revenue recognition issues. In accordance with SAB No. 104, we recognize revenue when the earnings process is complete, evidenced by an agreement between us and the customer, delivery and acceptance has occurred, collectibility is probable and pricing is fixed or determinable. Revenue is recognized when (1) products are shipped (if shipped FOB shipping point), (2) products are delivered (if shipped FOB destination) or (3) as services are performed as determined by contractual agreement, but in all cases only when risk of loss has transferred to the customer and we have no further performance obligations.

 

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Goodwill and Indefinite-Lived Intangible Assets

Under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, we are required to test goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if impairment indicators occur. The impairment test requires management to make judgments in connection with identifying reporting units, assigning assets and liabilities to reporting units, assigning goodwill and indefinite-lived intangible assets to reporting units, and determining the fair value of each reporting unit. Significant judgments are required to estimate the fair value of reporting units include projecting future cash flows, determining appropriate discount rates and other assumptions. The projections are based on management’s best estimate given recent financial performance, market trends, strategic plans and other available information. Changes in these estimates and assumptions could materially affect the determination of fair value and/or impairment for each reporting unit. The impairment testing was completed as of the beginning of our fourth quarter of fiscal 2007, and we believe that there are no indications of impairment. However, unforeseen future events could adversely affect the reported value of goodwill and indefinite-lived intangible assets, which at the end of both 2007 and 2006 totaled approximately $1.2 billion.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax liability together with assessing temporary differences resulting from differing treatment of items such as capital assets for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that any deferred tax assets will be recovered from taxable income of the appropriate character within the carryback or carryforward period, and to the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets.

On a consolidated basis, we have established a tax valuation allowance of $14.8 million as of the end of 2007 related to foreign tax credit carryforwards, because we believe the tax benefits are not likely to be fully realized. As described in Note 13, Income Taxes, to our consolidated financial statements, we repatriated a total of $5.1 million of earnings from our foreign subsidiaries during 2007. In connection with those distributions, we generated approximately $1.4 million of foreign tax credit carryforwards which increased our valuation allowance.

Significant judgment is also required in determining and evaluating our tax reserves. Tax reserves are established for uncertain tax positions which are potentially subject to challenge. We review our tax reserves as facts and circumstances change. Although resolution of issues for audits currently in process is uncertain, based on currently available information, we believe the ultimate outcomes will not have a material adverse effect on our financial statements.

Effective at the beginning of 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 requires applying a “more likely than not” threshold to the recognition and derecognition of tax positions. In connection with the adoption of FIN 48, the Company made a change in accounting principle for the classification of interest income on tax refunds. Under the previous policy, the Company recorded interest income on tax refunds as interest income. Under the new policy, any interest income in connection with income tax refunds is recorded as a reduction of income tax expense. In addition, since the adoption of FIN 48, all interest and penalties on income tax assessments have been recorded as income tax expense and included as part of the Company’s unrecognized tax benefit liability.

 

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Pension and Other Postretirement Benefits

Jostens sponsors several defined benefit pension plans that cover nearly all of its employees. Jostens also provides certain medical and life insurance benefits for eligible retirees. Eligible employees from Lehigh also participate in a noncontributory defined benefit pension plan, which was merged with a Jostens plan effective December 31, 2004. Effective December 31, 2006, this plan closed participation for hourly employees hired after December 31, 2006 and froze the plan for salaried employees.

Effective July 1, 2007 and January 1, 2008, the pension plans covering Jostens’ employees covered under respective collective bargaining agreements were closed to new hires.

Jostens also maintains an unfunded supplemental retirement plan (the “Jostens ERISA Excess Plan”) that gives additional 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, calculating the benefits as if such years of service were credited under Jostens’ tax-qualified, non-contributory pension plan, or “Plan D”. Benefits specified in Plan D may exceed the level of benefits that may be paid from a tax-qualified plan under the Internal Revenue Code. The Jostens ERISA Excess Plan also pays benefits that would have been provided from Plan D but cannot because they exceed the level of benefits that may be paid from a tax-qualified plan under the tax code. We also maintain non-contributory unfunded supplemental pension plans (“SERPs”) for certain named executive officers.

We account for our plans under SFAS No. 87, Employer’s Accounting for Pensions, and SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, which requires management to use three key assumptions when computing estimated annual pension expense. These assumptions are the discount rate applied to the projected benefit obligation, expected return on plan assets and the rate of compensation increases.

Of the three key assumptions, only the discount rate is based on external market indicators, such as the yield on currently available high-quality, fixed income investments or annuity settlement rates. The discount rate used to value the pension obligation at any year-end is used for expense calculations the next year. For the rates of expected return on assets and compensation increases, management uses estimates based on experience as well as future expectations. Due to the long-term nature of pension liabilities, management attempts to choose rates for these assumptions that will have long-term applicability.

The following is a summary of the three key assumptions that were used in determining 2007 pension expense, along with the impact of a 1% change in each assumed rate. Brackets indicate annual pension expense would be reduced. Modification of these assumptions does not impact the funding requirements for the qualified pension plans.

 

Assumption

   Rate     Impact
of 1%
increase
    Impact
of 1%
decrease
 

Discount rate(1)

   6.00 %   $ (1,181 )   $ 810  

Expected return on plan assets(2)

   9.50 %   $ (2,545 )   $ 2,545  

Rate of compensation increases(3)

   5.50 %   $ 450     $ (350 )

 

(1)   A discount rate of 6.00% was used for both the qualified and non-qualified pension plans.
(2)   The expected long-term rate of return on plan assets was 9.50% for the qualified pension plans.
(3)   The average compensation rate was 6.3% and 3.0% for Jostens and The Lehigh Press, Inc., respectively. The weighted average compensation rate for the combined salary-related plans was 5.50%.

 

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Results of Operations

The following table sets forth selected information derived from our consolidated statements of operations for the three-month period ended March 29, 2008, the three-month period ended March 31, 2007, and fiscal years 2007, 2006 and 2005. In the text below, amounts and percentages have been rounded and are based on the financial statement amounts.

 

    Holdings     % Change
between
2006 and

2007
    % Change
between
2005 and

2006
 
  Three months                        

In thousands

  2008     2007     2007     2006     2005      

Net sales

  $ 247,040     $ 255,850     $ 1,270,210     $ 1,186,604     $ 1,110,673     7.0 %   6.8 %

Gross profit

    118,922       127,780       647,164       599,049       548,538     8.0 %   9.2 %

% of net sales

    48.1 %     49.9 %     50.9 %     59.5 %     49.4 %    

Selling and administrative expenses

    105,328       103,742       426,740       394,726       389,398     8.1 %   1.4 %

% of net sales

    42.6 %     40.5 %     33.6 %     33.3 %     35.1 %    

Loss (gain) on disposal of assets

    (20 )     391       629       (1,212 )     (387 )   NM     NM  

Transaction costs

    —         —         —         —         1,172     NM     NM  

Special charges

    1,451       —         2,922       2,446       5,389     19.5 %   (54.6 )%

Operating income

    12,163       23,647       216,873       203,089       152,966     6.8 %   32.8 %

% of net sales

    4.9 %     9.2 %     17.1 %     17.1 %     13.8 %    

Interest expense, net

    30,273       38,508       144,004       149,000       124,794     (3.4 )%   19.4 %

Benefit from income taxes

    (6,755 )     (5,249 )     29,102       15,675       10,524     85.7 %   48.9 %

Income (loss) from discontinued operations, net of tax

    —         8,373       110,732       9,561       19,001     1058.2 %   (49.7 )%

Net (loss) income

  $ (11,355 )   $ (1,239 )     154,499       47,975       36,649     222.0 %   30.9 %

 

NM = Not meaningful

Our business is managed on the basis of three reportable segments: Scholastic, Memory Book and Marketing and Publishing Services. The following table sets forth selected segment information derived from our consolidated statements of operations for the three-month period ended March 29, 2008, the three-month period ended March 31, 2007, and fiscal years 2007, 2006 and 2005. For additional financial information about our operating segments, see Note 16, Business Segments, to the consolidated financial statements.

 

    Holdings     % Change
between
2006 and

2007
    % Change
between
2005 and

2006
 
  Three months                        

In thousands

  2008     2007     2007     2006     2005      

Net sales

             

Scholastic

  $ 139,022     $ 140,305     $ 465,439     $ 437,630     $ 424,984     6.4 %   3.0 %

Memory Book

    8,640       7,851       372,063       358,687       348,512     3.7 %   2.9 %

Marketing and Publishing Services

    99,805       108,051       434,057       390,396       337,388     11.2 %   15.7 %

Inter-segment eliminations

    (427 )     (357 )     (1,349 )     (109 )     (211 )   NM     NM  
                                           
    247,040       255,850     $ 1,270,210     $ 1,186,604     $ 1,110,673     7.0 %   6.8 %
                                           

Operating income

             

Scholastic

  $ 12,606     $ 22,492     $ 51,312     $ 51,189     $ 27,069     0.2 %   89.1 %

Memory Book

    (16,062 )     (17,119 )     89,108       82,235       66,700     8.4 %   23.3 %

Marketing and Publishing Services

    15,619       18,274       76,453       69,665       59,197     9.7 %   17.7 %
                                           
  $ 12,163     $ 23,647     $ 216,873     $ 203,089     $ 152,966     6.8 %   32.8 %
                                           

 

NM = Not meaningful

 

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Three Months Ended March 29, 2008 Compared to the Three Months Ended March 31, 2007

Net sales. Consolidated net sales decreased $8.8 million, or approximately 3.4%, to $247.0 million for the three months ended March 29, 2008 as compared to the comparable period in 2007.

Net sales of the Scholastic segment decreased $1.3 million, or 0.9%, to $139.0 million for the first fiscal quarter of 2008 from $140.3 million for the first quarter of 2007. The decrease was primarily attributable to lower volume for jewelry and graduation products, a shift in the timing of orders of graduation products from the first quarter of 2008 to the second quarter of 2008 and a shift in jewelry metal mix. This decrease was primarily offset by sales made by Neff, which was acquired in March 2007, as well as higher prices for jewelry products.

Net sales of the Memory Book segment increased $0.8 million, or 10.0%, to $8.6 million for the first fiscal quarter of 2008 compared to $7.9 million for the first quarter of 2007. The increase was primarily due to volume from the acquisition of certain assets of Publishing Enterprises, Incorporated made during the fourth quarter of 2007.

Net sales of the Marketing and Publishing Services segment decreased $8.2 million, or 7.6%, to $99.8 million for the first fiscal quarter of 2008 from $108.1 million for the first quarter of 2007. This decrease was primarily attributable to lower direct marketing volume. In addition, sampling volumes were lower in the first fiscal quarter of 2008 than those experienced during the very strong first quarter of 2007. These decreases were partially offset by incremental volume from the 2007 acquisition of VSI.

Gross profit. Gross profit decreased $8.9 million, or 6.9%, to $118.9 million for the three months ended March 29, 2008 from $127.8 million for the same period in 2007. As a percentage of net sales, gross profit margin decreased to 48.1% for the three months ended March 29, 2008 from 49.9% for the comparable period in 2007. The decrease was attributable to:

 

   

higher precious metal costs and a shift in product mix in the Scholastic segment;

 

   

the write-off of inventory costs associated with the strategic decision to cease the sale of certain scholastic products;

 

   

lower relative margins of Neff and VSI, which were acquired in 2007; and

 

   

higher depreciation costs.

The decrease was partially offset by:

 

   

increased prices in our Scholastic segment;

 

   

productivity improvements in our Memory Book facilities; and

 

   

the impact of cost reduction initiatives.

Selling and administrative expenses. Selling and administrative expenses increased $1.6 million, or 1.5%, to $105.3 million for the three months ended March 29, 2008 from $103.7 million for the corresponding period in 2007. The increase in selling and administrative expenses was the result of:

 

   

expenses associated with our acquisitions in 2007.

The increase was partially offset by:

 

   

lower sales commissions resulting from decreased volumes; and

 

   

our continued cost-cutting efforts.

As a percentage of net sales, selling and administrative expenses increased 2.1% to 42.6% for the first fiscal quarter of 2008 from 40.5% for the same period in 2007.

 

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Special charges. During the three months ended March 29, 2008, the Company recorded $0.6 million of restructuring charges related to the closure of Jostens’ Attleboro, Massachusetts facility in the Scholastic segment. Additionally, the Scholastic segment recorded charges of $0.5 million of severance and related benefits associated with the headcount reduction of 23 employees. The Marketing and Publishing Services segment recorded charges of $0.3 million related to severance costs that reduced headcount by one employee. During the three months ended March 31, 2007, the Company did not record any special charges.

Operating income. As a result of the foregoing, consolidated operating income decreased $11.4 million to $12.2 million for the three months ended March 29, 2008 compared to $23.6 million for the comparable period in 2007. As a percentage of net sales, operating income decreased to 4.9% for the first fiscal quarter of 2008 from 9.2% for the same period in 2007.

Net interest expense. Net interest expense was comprised of the following:

 

In thousands

   Three months ended              
   March 29,
2008
    March 31,
2007
    $ Change     % Change  

Holdings:

        

Interest expense

   $ 7,635     $ 7,635     $ —       0.0 %

Amortization of debt discount, premium and deferred financing costs

     6,197       5,638       559     9.9 %
                              

Holdings interest expense, net

   $ 13,832     $ 13,273       559     4.2 %
                              

Visant:

        

Interest expense

     15,634     $ 23,598       (7,964 )   (33.7 )%

Amortization of debt discount, premium and deferred financing costs

     1,411       1,849       (438 )   (23.7 )%

Interest income

     (604 )     (212 )     (392 )   NM  
                              

Visant interest expense, net

   $ 16,441     $ 25,235     $ (8,794 )   (34.8 )%
                              

Interest expense, net

   $ 30,273     $ 38,508     $ 8,235 )   (21.4 )%
                              

 

NM =Not meaningful

Net interest expense decreased $8.2 million, or 21.4%, to $30.3 million for the three months ended March 29, 2008 compared to $38.5 million for the comparable prior year period. The decrease was due to overall lower outstanding debt balances and lower average interest rates during the three months ended March 29, 2008 compared with the three months ended March 31, 2007.

Income taxes. The Company has recorded an income tax benefit for the three months ended March 29, 2008 based on its best estimate of the consolidated effective tax rate applicable for the entire year. The estimated full-year consolidated effective tax rates for 2008 are 38.1% and 37.7% for Holdings and Visant, respectively, before consideration of the effect of $0.1 million of tax and interest accruals for unrecognized tax benefits and other income tax adjustments considered a period expense or benefit. The combined effect of the annual estimated consolidated tax rates and the net current period tax adjustments resulted in effective tax rates of 37.3% and 34.2% for Holdings and Visant, respectively, for the three-month period ended March 29, 2008. The annual estimated effective tax rates for fiscal year 2008 are comparable to the annual tax rates reported for 2007 after adjusting for the third quarter effect in 2007 of changes in deferred state income tax rates. Tax and interest accruals considered a period expense or benefit unfavorably affected the tax rate. The Company’s annual effective tax rates do not include the effect of the Company’s acquisition of Phoenix Color during the second quarter of 2008 as described in Note 19, Subsequent Event, to the condensed consolidated financial statements.

For the comparable three-month period ended March 31, 2007, the effective rates of income tax benefit for Holdings and Visant were 35.3% and 21.0%, respectively. The effective tax rates for the prior year quarter were

 

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less favorable than the tax rates for the quarter ended March 29, 2008 because tax and interest accruals on unrecognized tax benefits made up a greater portion of the overall tax provision for the quarter ended March 31, 2007.

As described in Note 13, Income Taxes, to the condensed consolidated financial statements, the Company adopted FIN 48 as of the beginning of 2007. Upon adoption of FIN 48, all interest and penalties in connection with income tax assessments or refunds are recorded as income tax expense or benefit, as applicable, and included as part of the Company’s unrecognized tax benefit liability.

Income from discontinued operations. As of March 31, 2007, the operations of the Von Hoffmann businesses were recorded in income from discontinued operations. The Von Hoffmann businesses previously comprised the Educational Textbook segment and a portion of the Marketing and Publishing Services segment. Net income from the Von Hoffmann businesses for the first quarter of 2007 was $7.4 million.

We also had income of $1.0 million, net of tax, for the three months ended March 31, 2007 from the Jostens Recognition business, which was discontinued in 2001. The income in 2007 resulted from the reversal of an accrual for potential exposure for which the Company did not believe it was likely to have an ongoing liability.

Net loss. As a result of the aforementioned items, the net loss increased $10.1 million to a net loss of $11.3 million for the three months ended March 29, 2008 compared to a net loss of $1.2 million for the three months ended March 31, 2007.

Year Ended December 29, 2007 Compared to the Year Ended December 30, 2006

Net sales. Consolidated net sales increased $83.6 million, or 7.0%, to $1,270.2 million in 2007 from $1,186.6 million in 2006. Scholastic segment sales were $465.4 million in 2007, an increase of 6.4%, compared to $437.6 million in the prior year comparative period. This increase was primarily attributable to incremental volume from the acquisition of Neff, which occurred in the first quarter of 2007, and the impact of price increases, offset by lower jewelry volume.

Net sales for the Memory Book segment were $372.1 million in 2007, an increase of 3.7%, compared to $358.7 million in 2006. The increase was due mainly to growth in number of accounts and in color pages as well as increased prices supported by new and enhanced product and service offerings.

Net sales of the continuing operations of the Marketing and Publishing Services segment increased $43.7 million, or 11.2%, to $434.1 million in 2007 from $390.4 million in 2006. This increase was primarily attributable to higher sales volumes in the sampling and book component businesses, including sales generated by businesses that we acquired in 2006 and 2007.

Gross profit. Gross profit increased $48.1 million, or 8.0%, to $647.2 million for 2007 from $599.1 million for 2006. As a percentage of net sales, gross profit margin increased to 50.9% for 2007 from 50.5% for 2006. The increase was attributable to:

 

   

cost savings realized from continued improvements in plant efficiency and cost reduction initiatives in our Memory Book and Scholastic segments; and

 

   

the impact of price increases in the Scholastic and Memory Book segments.

These increases were partially offset by:

 

   

higher precious metal costs;

 

   

lower relative gross margins of Neff, which was acquired in March 2007;

 

   

increased volume in our Marketing and Publishing Services segment, which comparatively had lower margins than the Scholastic and Memory Book segments; and

 

   

higher depreciation expense in 2007 related to our continued investments in our Memory Book and Marketing and Publishing Services facilities.

 

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Selling and administrative expenses. Selling and administrative expenses increased $32.0 million, or 8.1%, to $426.7 million for 2007 from $394.7 million for 2006. As a percentage of net sales, selling and administrative expenses increased 0.3 % to 33.6% for 2007 from 33.3% in 2006. The increase in selling and administrative expenses as a percentage of net sales was the result of:

 

   

higher commissions in the Scholastic segment associated with increased graduation products net sales, which have a higher commission structure than other Scholastic products;

 

   

costs associated with the acquisitions we made in 2006 and 2007;

 

 

   

development costs across all segments related to growth initiatives; and

 

   

higher information technology costs in the Scholastic and Memory Book segments in connection with the continuation of planned investments related to growth initiatives.

Loss (gain) on disposal of fixed assets. For 2007, the loss on disposal of fixed assets was approximately $0.6 million, which was attributable to the sale of miscellaneous equipment. In 2006, gain on disposal of fixed assets was approximately $1.2 million, primarily related to the sale of the former Jostens corporate office buildings in Bloomington, Minnesota.

Special charges. For the year ended December 29, 2007, the Company recorded $2.3 million of restructuring charges for severance and related benefit costs primarily in the Scholastic segment related to the closure of the Attleboro, Massachusetts facility and $1.0 million related to termination benefits for management executives offset by a reversal of $0.4 million associated with headcount reductions in the Scholastic and Memory Book segments. Of net severance costs and related benefits of $1.9 million for 2007, $1.7 million related to Scholastic and $0.2 million related to Marketing and Publishing Services. Additionally, headcount reductions related to these activities totaled 177 and eight employees for the Scholastic and Marketing and Publishing Services segments, respectively.

For 2006, the Company recorded $2.3 million relating to an impairment loss to reduce the value of the former Jostens corporate office buildings, which were later sold, and a net $0.1 million of special charges for severance and related benefit costs. The severance costs and related benefits included $0.1 million for Memory Book and $0.1 million for the Scholastic segment. Marketing and Publishing Services incurred $0.2 million of special charges for severance costs and related benefits offset by a reduction of $0.3 million of the restructuring accrual that related to withdrawal liability under a union retirement plan that arose in connection with the consolidation of certain operations. Additionally, headcount reductions related to these activities totaled five, 13 and four employees for the Memory Book, Scholastic, and Marketing and Publishing Services segments, respectively.

Operating income. As a result of the foregoing, consolidated operating income increased $13.8 million, or 6.8%, to $216.9 million for 2007 from $203.1 million for 2006. As a percentage of net sales, operating income was 17.1% for both 2007 and 2006.

 

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Net interest expense. Net interest expense is comprised of the following:

 

In thousands

   2007     2006  

Holdings:

    

Interest expense

   $ 30,542     $ 22,739  

Amortization of debt discount, premium and deferred financing costs

     23,281       20,874  

Interest income

     (4 )     (35 )
                

Holdings interest expense, net

   $ 53,819     $ 43,578  
                

Visant:

    

Interest expense

   $ 76,974     $ 97,991  

Amortization of debt discount, premium and deferred financing costs

     14,329       9,880  

Interest income

     (1,118 )     (2,449 )
                

Visant interest expense, net

   $ 90,185     $ 105,422  
                

Interest expense, net

   $ 144,004     $ 149,000  
                

Net interest expense decreased $5.0 million, or 3.4%, to $144.0 million for 2007 as compared to $149.0 million for 2006 due to lower average borrowings from the prepayment of $400.0 million of the term loan C facility during the second quarter of 2007. The decrease was offset somewhat by higher amortization of deferred financing costs as a result of the aforementioned prepayments.

Provision for income taxes. Our consolidated effective tax rate was 39.9% for 2007 compared with 29.0% for 2006. The increase in the tax rate was due primarily to the change in the effective tax rate at which we expect deferred tax assets and liabilities to be realized or settled in the future as a result of changing state tax rates. For 2007, the change in the effective deferred tax rate increased our consolidated effective tax rate, and for 2006, the change decreased the consolidated tax rate. The tax effect of foreign earnings repatriations in 2007 was unfavorable compared with 2006 due to the favorable foreign tax credit utilization in 2006 in connection with the sale of the Jostens Photography businesses. Other effects for 2007 included an increase in state income taxes which was partially offset by the effect of an increase in the rate of the domestic manufacturing profits deduction. For 2008, we anticipate a consolidated effective tax rate between 39.0% and 40.0%.

As described in Note 13, Income Taxes, to our consolidated financial statements, the Company adopted FIN 48, as of the beginning of 2007. Upon adoption of FIN 48, all interest and penalties in connection with income tax assessments or refunds will be recorded as income tax expense or benefit, as applicable, and included as part of the Company’s unrecognized tax benefit liability. Included in our results of operations for 2007 was $0.1 million of net tax and interest accruals for unrecognized tax benefits.

Income from discontinued operations. During the second quarter of 2007, we consummated the sale of the Company’s Von Hoffmann businesses, which previously comprised the Educational Textbook segment and a portion of the Marketing and Publishing Services segment. The sale closed on May 16, 2007, with the Company recognizing net proceeds of $401.8 million and a gain for financial reporting purposes of $98.3 million on the transaction during the year ended 2007. Operations for the Von Hoffmann businesses resulted in income of $11.4 million and $15.5 million for the years ended December 29, 2007 and December 30, 2006, respectively.

We also had income of $1.0 million, net of tax, for the year ended December 29, 2007 from the Jostens Recognition business, which was discontinued in 2001. The income in 2007 resulted from the reversal in March 2007 of an accrual for potential exposure for which the Company does not believe it is likely to have an ongoing liability, and therefore, there are no accrual amounts related to Jostens Recognition at December 29, 2007.

During the second quarter of 2006, we consummated the sale of our Jostens Photography businesses, which previously comprised a reportable segment. Results for the year ended 2007 and the 2006 comparable period for the Jostens Photography businesses included income of $0.4 million and a loss of $6.1 million, respectively.

 

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Net income. As a result of the aforementioned items, net income increased $106.5 million to $154.5 million for 2007 from $48.0 million for 2006.

Year Ended December 30, 2006 Compared to the Year Ended December 31, 2005

Net sales. Consolidated net sales increased $75.9 million, or 6.8%, to $1,186.6 million from $1,110.7 million in 2005. Our Scholastic business reported full year 2006 net sales of $437.6 million, an increase of 3.0% over $425.0 million in 2005. This year-over-year increase was primarily attributable to stronger sales of rings and graduation products, as well as price increases. The Jostens Yearbook segment reported full year 2006 net sales of $358.7 million, an increase of 2.9% over $348.5 million in 2005, due to price increases as well as stronger sales volume.

Our Marketing and Publishing Services segment reported 2006 net sales of $390.4 million, an increase of 15.7% over $337.4 million reported in 2005. This growth was primarily attributable to increased direct marketing and sampling volume, acquisitions made during 2006, as well as an increase in company-supplied paper of $5.9 million.

Gross profit. Gross profit increased $50.5 million, or 9.2%, to $599.0 million for 2006 from $548.5 million for 2005. As a percentage of net sales, gross profit margin increased to 50.5% for 2006 from 49.4% for 2005. The increased gross profit as a percent of sales was the result of several factors including the following:

 

   

improvements in diploma and yearbook production, contributed most significantly;

 

   

increased prices for products and services in both Scholastic and Yearbook; and

 

   

increased operating synergies in all businesses.

The increase in gross profit as a percentage of sales was offset partially by:

 

   

increased gold prices in the Scholastic segment; and

 

   

the impact of increased volume in the Marketing and Publishing Services segment, where gross profit margins are historically lower than in the Jostens businesses.

Selling and administrative expenses. Selling and administrative expenses increased $5.3 million, or 1.4%, to $394.7 million for 2006 from $389.4 million for 2005. As a percentage of net sales, selling and administrative expenses decreased 1.8% to 33.3% for 2006 from 35.1% for 2005. The increase in expenses was attributed mainly to the following factors:

 

   

higher commissions and bonuses in 2006 resulting from the increased sales volume and improved results compared to 2005; and

 

   

acquisitions during the year that contributed additional selling and administrative costs in 2006.

These increases were partially offset by:

 

   

lower professional fees; and

 

   

lower depreciation, mainly relating to the purchase accounting in connection with the 2003 Jostens merger.

Gain on disposal of fixed assets. Gain on disposal of fixed assets was approximately $1.2 million for 2006, primarily related to the sale of the former Jostens corporate office buildings in Bloomington, Minnesota. In 2005, gain on disposal of fixed assets was approximately $0.4 million.

Special charges. For the year ended December 30, 2006, the Company recorded $2.3 million relating to an impairment loss to reduce the value of the former Jostens corporate buildings, which were later sold, and net

 

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$0.1 million of special charges for severance and related benefit costs. The severance costs and related benefits included $0.1 million for Yearbook and $0.1 million for Scholastic. Marketing and Publishing Services incurred $0.2 million of special charges for severance costs and related benefits offset by reduction of $0.3 million of the restructuring accrual that related to withdrawal liability under a union retirement plan that was in connection with the consolidation of certain operations. Additionally, headcount reductions related to these activities totaled five, 13 and four employees for Yearbook, Scholastic, and Marketing and Publishing Services, respectively.

During 2005, we incurred $5.4 million of special charges, including $5.1 million related to severance and benefit costs associated with a reduction in personnel of 83 employees and $0.3 million of costs related to a withdrawal liability under a union retirement plan that arose in connection with the consolidation of certain operations.

Operating income. As a result of the foregoing, consolidated operating income increased $50.1 million, or 32.8%, to $203.1 million for 2006 from $153.0 million for 2005. As a percentage of net sales, operating income increased to 17.1% for 2006 from 13.8% for 2005.

Net interest expense. Net interest expense is comprised of the following:

 

In thousands

   2006     2005  

Holdings:

    

Interest expense

   $ 22,739     $ 2  

Amortization of debt discount, premium and deferred financing costs

     20,874       18,043  

Interest income

     (35 )     (96 )
                

Holdings interest expense, net

   $ 43,578     $ 17,949  
                

Visant:

    

Interest expense

   $ 97,991     $ 94,437  

Amortization of debt discount, premium and deferred financing costs

     9,880       13,603  

Interest income

     (2,449 )     (1,195 )
                

Visant interest expense, net

   $ 105,422     $ 106,845  
                

Interest expense, net

   $ 149,000     $ 124,794  
                

Net interest expense increased $24.2 million, or 19.4%, to $149.0 million for 2006 as compared to $124.8 million for 2005. The increase was the result of higher average interest rates and additional debt from the $350 million of 8 3/4% senior notes issued by Holdings in 2006, offset by a $100.0 million principal payment against the Term C loan.

Provision for (benefit from) income taxes. Our consolidated effective tax rate was 29.0% for 2006 compared with 37.4% for 2005. For 2006, the tax rate was significantly affected by a $3.0 million decrease in income tax expense due to a decrease in the rate at which we expect deferred tax assets and liabilities to be realized or settled in the future. The change in rate was required to reflect the effect of the Company’s 2005 state income tax returns which included a complete year’s results of operations for companies it began to include in the fourth quarter of 2004 as a result of the Transactions. The tax rate was also favorably affected by the domestic manufacturing profits (“DMD”) deduction. The favorable effect of the DMD was greater in 2006 than in 2005, because the deduction was limited in 2005 by our net operating loss carryforward from 2004. The tax effect of foreign earnings repatriations in 2006 was unfavorable compared with 2005 due to the effect of the favorable rate of tax provided under the American Jobs Creation Act of 2004.

Income from discontinued operations. During 2006, we consummated the sale of our Jostens Photography businesses, which was previously a reportable segment. The transactions closed on June 30, 2006 with the Company recognizing net proceeds of $64.1 million. Operations for the Jostens Photography businesses resulted in losses of $6.1 million in 2006 and income of $1.0 million for 2005. This segment typically reported the majority of its earnings in the fourth quarter.

 

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As of December 2006, the Von Hoffmann businesses were held as assets for sale and, accordingly, are currently presented as discontinued operations. The operations of these businesses, which comprised the Educational Textbook segment and a portion of the Marketing and Publishing Services segment, generated income of $15.7 million and $18.0 million in 2006 and 2005, respectively.

Net income. As a result of the aforementioned items, net income increased $11.3 million to $48.0 million for 2006 from $36.6 million for 2005.

Liquidity and Capital Resources

The following table presents cash flow activity of Holdings for the applicable periods noted below and should be read in conjunction with our consolidated statements of cash flows.

 

In thousands

   Three months                    
   2008     2007     2007     2006     2005  

Net cash provided by operating activities

   $ 51,534     $ 47,845     $ 159,310     $ 162,626     $ 168,469  

Net cash provided by (used in) investing activities

     (13,648 )     (50,355 )     280,643       (52,567 )     (39,101 )

Net cash used in financing activities

     (1,458 )     —         (400,041 )     (111,873 )     (193,693 )

Effect of exchange rate change on cash

     441       109       1,020       (114 )     67  
                                        

Increase (decrease) in cash and cash equivalents

   $ 36,869     $ (2,401 )   $ 40,932     $ (1,928 )   $ (64,258 )
                                        

Three Months Ended March 29, 2008 Compared to the Three Months Ended March 31, 2007

For the three months ended March 29, 2008, operating activities generated cash of $51.5 million compared with $47.8 million for the same prior year period. Included in cash flows from operating activities was cash used by discontinued operations of $7.7 million for the three months ended March 31, 2007. Consequently, the cash provided by continuing operations was $51.5 million and $55.6 million for the respective first fiscal quarters of 2008 and 2007. The decrease in cash provided by operating activities from continuing operations of $4.1 million was attributable to lower earnings.

Net cash used in investing activities for the three months ended March 29, 2008 and March 31, 2007 was $13.6 million and $50.4 million, respectively. Included in the cash flows from investing activities was cash used in discontinued operations of $3.1 million for the three-month period ended March 31, 2007. Consequently, the cash used in continuing operations for the three months ended March 29, 2008 and March 31, 2007 was $13.6 million and $47.2 million, respectively. The $33.6 million decrease in cash from investing activities from continuing operations related primarily to the $27.5 million Neff acquisition that closed during the three months ended March 31, 2007. In addition, capital expenditures related to purchases of property, plant and equipment were $6.3 million lower at $13.7 in the first quarter of 2008 versus $20.0 million in the comparable 2007 period.

Net cash used for financing activities for the three months ended March 29, 2008 was $1.5 million, compared with no financing activities for the comparable 2007 period. Cash used for financing activities for the three months ended March 29, 2008 related to the repayment of short-term borrowings of $0.7 million and the repurchase of common stock from a stockholder of $0.7 million.

During the three months ended March 29, 2008, Visant transferred approximately $0.7 million of cash through Visant Secondary Holdings Corp. to Holdings to allow Holdings to repurchase common stock from a management stockholder. The repurchase was included in Holdings’ condensed consolidated balance sheet as treasury stock and the transfer was reflected in Visant’s condensed consolidated balance sheet as a reduction in

 

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additional paid-in-capital and presented in Visant’s condensed consolidated statement of cash flows as a distribution to stockholder. The transfer amount eliminates in consolidation and had no impact on Holdings’ consolidated financial statements. No amounts were transferred for the three months ended March 31, 2007.

As of March 29, 2008, we had cash and cash equivalents of $96.6 million. Our principal sources of liquidity are cash flows from operating activities and available borrowings under Visant’s senior secured credit facilities, which included $234.6 million of additional availability under Visant’s revolving credit facility as of March 29, 2008. We use cash primarily for debt service obligations, capital expenditures and to fund other working capital requirements. We intend to fund ongoing operations through cash generated by operations and borrowings under the revolving credit facility. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under its revolving credit facility to fund the acquisition of Phoenix Color.

As market conditions warrant, we and our Sponsors, including KKR and DLJMBP III and their affiliates, may from time to time redeem or repurchase debt securities issued by Holdings or Visant in privately negotiated or open market transactions, by tender offer or otherwise. No assurance can be given as to whether or when such repurchases or exchanges will occur and at what price.

As of March 29, 2008, we were in compliance with all covenants under our material debt obligations.

Our ability to make scheduled payments of principal, or to pay the interest on, or to refinance our indebtedness, or to fund planned capital expenditures will depend on our future performance. Based upon the current level of operations, we believe that cash flows from operations, available cash and short-term investments, together with borrowings available under Visant’s senior secured credit facilities, are adequate to meet our liquidity needs for the next twelve months. In addition, based on market and other considerations, we may decide to raise additional funds through debt or equity financings. Furthermore, to the extent we make future acquisitions, we may require new sources of funding, including additional debt or equity financings or some combination thereof.

On February 12, 2008, Standard & Poor’s Ratings Services (“S&P”) affirmed all ratings, including its B+ corporate credit on Holdings, and revised the outlook to stable from developing following Visant’s announcement that it had entered into a definitive agreement to acquire Phoenix Color. Also on February 12, 2008, in connection with our announcement with respect to Phoenix Color, Moody’s Investors Services (“Moody’s”) commented that Holdings’ family rating and stable outlook were not affected by the proposed acquisition. Each rating should be evaluated independently of any other rating. Reference is made to the S&P and Moody’s announcements each dated February 12, 2008, for a full explanation of the considerations by each of S&P and Moody’s.

On April 1, 2008, Visant announced the completion of the acquisition of Phoenix Color, a leading book cover and component manufacturer. Phoenix Color operates as a wholly owned subsidiary of Visant. The total purchase consideration was $219.0 million, subject to certain closing and post-closing adjustments.

Full Year 2007

In 2007, operating activities generated cash of $159.3 million, compared to $162.6 million from operating activities for 2006. Included in cash flows from operating activities was cash used by discontinued operations of $5.1 million for 2007 and cash provided by discontinued operations of $35.4 million for 2006. Consequently, the cash provided by continuing operations was $164.4 and $127.3 million for 2007 and 2006, respectively. The $37.2 million increase in cash provided from continuing operations was attributable to higher earnings and lower overall working capital levels in 2007 compared to 2006.

Net cash provided by investing activities for 2007 was $280.6 million compared to cash used in investing activities of $52.6 million for 2006. The $333.2 million increase mainly related to the sale of the Von Hoffmann businesses, which generated proceeds of approximately $401.8 million during 2007, compared to proceeds generated from the sale of the Jostens Photography businesses of $64.1 million in 2006. Capital expenditures

 

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related to purchases of property, plant and equipment for 2007 and 2006 were $56.4 million and $51.9 million, respectively. During 2007 and 2006, the Company acquired businesses, net of cash, totaling approximately $58.3 million and $55.8 million, respectively. Included in the cash flows from investing activities was cash provided by discontinued operations of $396.1 million and $45.0 million for 2007 and 2006, respectively. Cash used by investing activities of the continuing operations for 2007 and 2006 was $115.4 million and $97.6 million, respectively.

Net cash used in financing activities for 2007 was $400.0 million compared to $111.9 million for 2006. The $288.1 million increase primarily related to the Company’s additional voluntary prepayment in the second quarter of 2007 of $400 million on its term loans under its senior secured credit facilities, including all originally scheduled principal payments due under its Term Loan C facility through mid-2011. During 2006, financing activities primarily consisted of proceeds from the issuance by Holdings of $350.0 million of senior notes with $9.5 million used for debt financing costs related to the notes and a distribution to Holdings’ stockholders of $340.7 million as well as a voluntary prepayment of $100 million on the Company’s term loans under its senior credit facilities.

During 2007 and 2006, Visant transferred approximately $18.6 million and $20.2 million, respectively, of cash through Visant Secondary Holdings Corp. to Holdings to allow Holdings to make scheduled interest payments on its $350 million 8.75% senior notes due 2013. This transfer was reflected in Visant’s consolidated balance sheet as a return of capital and presented in the consolidated statement of cash flows as a distribution to stockholder. These amounts eliminate in consolidation and have no impact on Holdings’ consolidated financial statements.

As of December 29, 2007, we had cash and cash equivalents of $59.7 million. Our principal sources of liquidity are cash flows from operating activities and available borrowings under Visant’s senior secured credit facilities, which included $233.9 million available under Visant’s revolving credit facility as of December 29, 2007. We use cash primarily for debt service obligations, capital expenditures and to fund other working capital requirements. We intend to fund ongoing operations through cash generated by operations and borrowings under the revolving credit facility.

Our ability to make scheduled payments of principal, or to pay the interest on, or to refinance our indebtedness, or to fund planned capital expenditures will depend on our future performance. Based upon the current level of operations, we believe that cash flow from operations, available cash and short-term investments, together with borrowings available under Visant’s senior secured credit facilities, are adequate to meet our liquidity needs for the next twelve months. In addition, based on market and other considerations, we may decide to raise additional funds through debt or equity financings. Furthermore, to the extent we make future acquisitions, we may require new sources of funding, including additional debt or equity financing or some combination thereof. We may not be able to secure additional sources of funding on favorable terms.

Full Year 2006

In 2006, operating activities generated cash of $162.6 million, compared with cash generated by operating activities of $168.5 million in 2005. The $5.8 million decrease related primarily to higher cash paid for interest in 2006 compared to 2005 related to the Holdings senior notes issued in April 2006. This decrease was partially offset, however, by increased earnings and decreases in net working capital in 2006 compared to 2005. Included in the cash flows from operating activities is cash provided by discontinued operations of $35.4 million and $42.2 million for 2006 and 2005, respectively. Consequently, the cash provided by continuing operations was $127.3 million and $126.2 million for 2006 and 2005, respectively.

Net cash used in investing activities for 2006 was $52.6 million, compared with $39.1 million for 2005. The $13.5 million increase in cash used related to business acquisitions in 2006 of $55.8 million and increased capital expenditures in 2006 of $23.2 million compared to 2005. These increases in spending were partially offset by proceeds of $10.5 million from the sale of property and equipment in 2006 compared to $1.3 million from the

 

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sale of property and equipment in 2005 as well as proceeds of $64.1 million in 2006 from the sale of the Jostens Photography businesses. Included in the cash flows from investing activities is cash used in discontinued operations of $45.0 million and $11.4 million for 2006 and 2005, respectively.

Net cash used in financing activities for 2006 was $111.9 million, a decrease of $81.8 million, compared with cash used in financing activities of $193.7 million for 2005. The decrease was related to lower debt repayments during 2006 compared to 2005 as well as lower short-term borrowings during 2006. During 2006, Holdings issued $350.0 million in senior notes bearing interest at 8 3/4%, netting proceeds of $340.3 million after transaction costs. These proceeds were offset by a distribution to stockholders of $340.7 million. Included in the cash flows from financing activities is cash used in discontinued operations of $0.1 million for 2005. Consequently, the cash used in continuing operations was $111.9 million and $193.6 million for 2006 and 2005, respectively.

During 2006, Visant voluntarily prepaid $100.0 million of its term loans under its senior secured credit facilities, including all originally scheduled principal payments due under its Term C Loans for 2006 through mid-2011.

Contractual Obligations

The following table shows due dates and amounts of our contractual obligations for future payments as of December 29, 2007.

 

In thousands

   Payments due by calendar year
   Total    2008    2009    2010    2011    2012    Thereafter

7 5/8% senior subordinated notes

   $ 500,000    $ —      $ —      $ —      $ —      $ 500,000      —  

10 1/4% senior discount notes

     247,200      —        —        —        —        —        247,200

8 3/4% senior notes

     350,000      —        —        —        —        —        350,000

Term loans

     316,500      —        —        —        316,500      —        —  

Operating leases

     26,443      5,868      5,075      3,628      3,492      3,087      5,293

Minimum royalties

     2,979      899      875      750      455      —        —  

Pension and other postretirement cash requirements

     178,037      14,133      14,796      15,489      16,350      17,116      100,153

Interest expense(1)

     721,062      126,444      152,049      153,840      148,467      88,375      51,887

Management agreements(2)

     21,364      3,303      3,402      3,504      3,609      3,717      3,829

Contractual capital equipment purchases

     8,502      8,475      14      7      3      3      —  

Note payable related to VSI acquisition

     1,000      —        1,000      —        —        —        —  
                                                

Total contractual cash obligations(3)

   $ 2,373,087    $ 159,122    $ 176,211    $ 177,218    $ 488,876    $ 612,298    $ 758,362
                                                

 

(1)   Projected interest expense related to the variable rate term loans is based on market rates as of the end of 2007.
(2)   In October 2004, we entered into a management agreement with KKR and DLJMBP III to provide management and advisory services to us. We agreed to pay an annual fee of $3.0 million, effective October 2004, subject to 3% annual increases. Since the agreement does not have an expiration date, the obligation as presented above only reflects one additional year of management fees beyond 2012.

 

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(3)   The Company’s gross unrecognized tax benefit obligation at December 29, 2007 was $8.8 million. It is not presently possible to estimate the years in which part or all of the balance would result in a cash disbursement. Also outstanding as of December 29, 2007 was $15.4 million in the form of letters of credit and $0.7 million drawn against the revolving credit sub-facility available to our Canadian subsidiary.

We intend to fund ongoing operations through cash generated by operations and borrowings under our revolving credit facility. We have substantial debt service requirements.

Visant’s senior secured credit facilities were originally comprised of a $150 million senior secured Term Loan A facility with a six-year maturity, an $870 million senior secured Term C loan facility with a seven-year maturity and a $250 million senior secured revolving credit facility with a five-year maturity. As of year-end 2007, we had $15.4 million of standby letters of credit outstanding. In 2007, Visant prepaid $400.0 million of scheduled payments under the term loan facilities with the proceeds generated from the sale of the Von Hoffmann businesses. With these pre-payments, the outstanding balance under the Term C Loan facility was reduced to $316.5 million. Amounts borrowed under the term loan facilities that were repaid or prepaid may not be reborrowed. Visant’s senior secured credit facilities allow us, subject to certain conditions, to incur additional term loans under the Term Loan C facility, or under a new term facility, in either case in an aggregate principal amount of up to $300 million, which additional term loans will have the same security and guarantees as the Term Loan A and Term Loan C facilities. Additionally, restrictions under the Visant senior subordinated note indenture would limit Visant’s ability to borrow the full amount of additional term loan borrowings under such a facility.

Borrowings under the senior secured credit facilities initially bear interest at Visant’s option at either adjusted LIBOR plus 2.50% per annum for the U.S. dollar denominated loans under the revolving credit facility and LIBOR plus 2.25% per annum for the Term C Loan facility or the alternate base rate plus 1.50% for U.S. dollar denominated loans under the revolving credit facility and base rate plus 1.25% for the Term C Loan facility (or, in the case of Canadian dollar denominated loans under the revolving credit facility, the bankers’ acceptance discount rate plus 2.50% or the Canadian prime rate plus 1.50% per annum) and are subject to adjustment based on a pricing grid.

The senior secured credit facilities require Visant to meet a maximum total leverage ratio, a minimum interest coverage ratio and a maximum capital expenditures limitation. In addition, the senior secured credit facilities contain certain restrictive covenants which, among other things, limit Visant’s ability to create liens, incur additional indebtedness, pay dividends or make other equity distributions, repurchase or redeem capital stock, prepay subordinated debt, make investments, merge or consolidate, change Visant’s business, amend the terms of subordinated debt and engage in certain other activities customarily restricted in such agreements. The senior secured credit facilities also contain certain customary events of default, subject to grace periods, as appropriate.

On October 4, 2004, Visant issued $500 million in principal amount of 7.625% senior subordinated notes (the “Visant notes”) due October 1, 2012 in a private placement to a limited number of qualified institutional buyers, as defined under the Securities Act, and to a limited number of persons outside the United States pursuant to Regulation S of the Securities Act. On March 30, 2005, we completed an offer to exchange the entire principal amount of these notes for an equal amount of notes with substantially identical terms that have been registered under the Securities Act. The Visant notes are not collateralized and are subordinated in right of payment to the senior secured credit facilities. The senior secured credit facilities and the Visant notes are guaranteed by Visant’s restricted domestic subsidiaries. Cash interest on the Visant notes accrues and is payable semiannually in arrears on April 1 and October 1 of each year, commencing April 1, 2005, at a rate of 7.625%. The Visant notes may be redeemed at the option of Visant on or after October 1, 2008 at prices ranging from 103.813% of principal to 100% in 2010 and thereafter.

On December 2, 2003, Visant Holding issued $247.2 million in principal amount at maturity of 10.25% senior discount notes (the “Holdings discount notes”) due December 1, 2013 in a private placement to a limited number of qualified institutional buyers, as defined under the Securities Act, and to a limited number of persons

 

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outside the United States pursuant to Regulation S of the Securities Act for gross proceeds of $150 million. On March 8, 2004, we completed an offer to exchange the entire principal amount at maturity of these notes for an equal amount at maturity of notes with substantially identical terms that had been registered under the Securities Act. The Holdings discount notes are not collateralized, are structurally subordinate in right of payment to all debt and other liabilities of our subsidiaries and are not guaranteed. No cash interest accrues on the Holdings discount notes until December 2008, and thereafter cash interest will accrue at a rate of 10.25% per annum and be payable semi-annually in arrears, commencing June 1, 2009. Prior to that time, interest accretes on the Holdings discount notes in the form of an increase in the principal amount of the notes. As discussed in Note 13, Income Taxes, interest on the Holdings discount notes is not deductible for income tax purposes until it is paid.

At the end of the first quarter of 2006, Holdings privately placed $350.0 million of 8.75% Senior Notes due 2013 (the “Holdings senior notes”), with settlement on April 4, 2006. On October 10, 2006, we completed an offer to exchange the entire principal amount of these notes for an equal amount of notes with substantially identical terms that have been registered under the Securities Act. The Holdings senior notes are unsecured and are subordinated in right of payment to all of Holdings’ existing and future secured indebtedness and indebtedness of its subsidiaries, and senior in right of payment to all of Holdings’ existing and future subordinated indebtedness. Cash interest on the Holdings senior notes accrues and is payable semi-annually in arrears on June 1 and December 1, commencing June 1, 2006, at a rate of 8.75%. The Holdings senior notes may be redeemed at the option of Holdings prior to December 1, 2008, in whole or in part, at a price equal to 100% of the principal amount plus a make-whole premium. The Holdings senior notes may be redeemed at the option of Holdings on or after December 1, 2008, in whole or in part, in cash at prices ranging from 106.563% of principal in 2008 to 100.0% of principal in 2011 and thereafter.

The indentures governing the Visant notes, the Holdings discount notes and the Holdings senior notes also contain numerous covenants including, among other things, restrictions on our ability to incur or guarantee additional indebtedness or issue disqualified or preferred stock; pay dividends or make other equity distributions; repurchase or redeem capital stock; make investments or other restricted payments; sell assets or consolidate or merge with or into other companies; create limitations on the ability of our restricted subsidiaries to make dividends or distributions to us; engage in transactions with affiliates; and create liens.

As of March 29, 2008, the Company was in compliance with all covenants under its material debt obligations.

Future principal debt payments are expected to be paid out of cash flows from operations, borrowings under Visant’s revolving credit facilities and future refinancings of our debt. As of March 29, 2008, there was $15.4 million outstanding in the form of letters of credit, leaving $234.6 million available under the $250 million revolving credit facility. Subsequent to March 29, 2008, Visant used cash on hand and borrowings under the revolving credit facility to fund the acquisition of Phoenix Color.

As market conditions warrant, we and our Sponsors, including KKR and DLJMBP III and their affiliates, may from time to time redeem or repurchase debt securities issued by Holdings or Visant, in privately negotiated or open market transactions, by tender offer or otherwise. No assurance can be given as to whether or when such repurchases or exchanges will occur and at what price.

For 2007, 2006 and 2005, we incurred capital expenditures from continuing operations of $56.4 million, $51.9 million and $28.7 million, respectively, primarily for additional capacity, automation, information technology and ongoing maintenance.

 

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Off-Balance Sheet Arrangements

Precious Metals Consignment Arrangement

We have a precious metals consignment agreement with a major financial institution whereby we currently have the ability to obtain up to the lesser of a certain specified quantity of precious metals and $32.5 million in dollar value in consigned inventory. As required by the terms of the agreement, we do not take title to consigned inventory until payment. Accordingly, we do not include the value of consigned inventory or the corresponding liability in our financial statements. The value of consigned inventory at March 29, 2008 and December 29, 2007 was $20.3 million and $26.9 million, respectively. The agreement does not have a stated term, and it can be terminated by either party upon 60 days’ written notice. Additionally, we incurred expenses for consignment fees related to this agreement of $0.2 million for the three months ended March 29, 2008, $0.5 million for 2007, $0.6 million for 2006, and $0.6 million for 2005. The obligations under the consignment agreement are guaranteed by Visant.

Other than our precious metals consignment arrangement and general operating leases, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS No. 158”). SFAS No. 158 requires the recognition of the funded status of a benefit plan in the balance sheet; the recognition in other comprehensive income of gains or losses and prior service costs or credits arising during the period but which are not included as components of periodic benefit cost; the measurement of defined benefit plan assets and obligations as of the balance sheet date; and disclosure of additional information about the effects on periodic benefit cost for the following fiscal year arising from delayed recognition in the current period. In addition, SFAS No. 158 amends SFAS No. 87, Employers’ Accounting for Pensions, and SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, to include guidance regarding selection of assumed discount rates for use in measuring the benefit obligation. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2007. The Company adopted the balance sheet recognition provisions of SFAS 158 as of December 29, 2007, which resulted in an increase to prepaid pension asset of $64.6 million, increase to total liabilities of $32.2 million and increase to stockholders’ equity of $32.4 million, net of taxes. SFAS No. 158 also requires plan assets and benefit obligations to be measured as of the balance sheet of the Company’s fiscal year-end. The Company has historically used a September 30 measurement date. The change in measurement date provision of SFAS No. 158 is effective for Visant’s fiscal year 2008, and as a result, the Company will adopt this change in measurement date by adjusting ending retained earnings. The Company does not expect the impact of adopting the measurement date provision of SFAS No. 158 to be material to the financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy as defined in the standard. SFAS No. 157 became effective as of the beginning of the Company’s 2008 fiscal year. In February 2008, the FASB issued Staff Positions No. 157-1 and No. 157-2, which remove certain leasing transactions from its scope and partially defer the effective date of SFAS 157 for one year for certain nonfinancial assets and liabilities. The Company adopted SFAS No. 157 as of the beginning of fiscal year 2008, with the exception of the application of SFAS No. 157 to non-recurring nonfinancial assets and nonfinancial liabilities. The Company does not have financial assets or financial liabilities that are currently measured and reported on the balance sheet on a fair value basis.

 

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 became effective as of the beginning of the Company’s 2008 fiscal year. The Company has adopted SFAS No. 159 and has elected not to apply the fair value option to any financial instruments.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”), which changes how business acquisitions are accounted. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things: impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices from acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets and tax benefits. SFAS No. 141(R) is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008. The Company is evaluating the future impact and disclosure implications of this standard.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”), an amendment of Accounting Research Bulletin No. 51, which establishes new standards governing the accounting for and reporting on noncontrolling interest (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of SFAS No. 160 indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, among other things, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than a step acquisition or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. SFAS No. 160 also requires changes to certain presentation and disclosure requirements. SFAS No. 160 is effective beginning January 1, 2009. The Company is currently evaluating the impact and disclosure implications of SFAS No. 160 but does not expect it to have a significant impact, if any, in the financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance and cash flows. SFAS No. 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS No. 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with an early adoption permitted. The Company is currently evaluating the disclosure implications of this statement.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are subject to market risk associated with changes in interest rates, foreign currency exchange rates and commodity prices. To reduce any one of these risks, we may at times use financial instruments. All hedging transactions are authorized and executed under clearly defined company policies and procedures, which prohibit the use of financial instruments for trading purposes.

 

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Interest Rate Risk

We are subject to market risk associated with changes in LIBOR and other variable interest rates in connection with our senior secured credit facilities. If the short-term interest rates or the LIBOR averaged 10% more or less, interest expense would have changed by $3.9 million for 2007, $6.0 million for 2006 and $5.7 million for 2005.

Foreign Currency Exchange Rate Risk

We are exposed to market risks from changes in foreign exchange rates. We have foreign operations primarily in Canada and Europe, where substantially all transactions are denominated in Canadian dollars and euros, respectively. From time to time, Jostens enters into forward foreign currency exchange contracts to hedge certain purchases of inventory denominated in foreign currencies. We may also periodically enter into forward foreign currency exchange contracts to hedge certain exposures related to selected transactions that are relatively certain as to both timing and amount and to hedge a portion of the production costs expected to be denominated in foreign currencies. The purpose of these hedging activities is to minimize the impact of foreign currency fluctuations on our results of operations and cash flows. We consider our market risk in such activities to be immaterial.

Commodity Price Risk

We are subject to market risk associated with changes in the price of precious metals. To mitigate our commodity price risk, we may enter into forward contracts to purchase gold, platinum and silver based upon the estimated ounces needed to satisfy projected customer demand. We periodically prepare a sensitivity analysis to estimate our exposure to market risk on open precious metal forward purchase contracts. We consider our market risk associated with these contracts as of the end of 2007 and 2006 to be immaterial. Market risk was estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in fair value and giving effect to the increase in fair value over our aggregate forward contract commitment.

 

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BUSINESS

Our Company

We are a leading marketing and publishing services enterprise servicing the school affinity, direct marketing, fragrance and cosmetics sampling, and educational and trade publishing segments.

Business Strengths

We believe that we are distinguished by the following business strengths:

Leading market positions and competitive advantages

We believe that we have leading positions in the markets in which we operate. The majority of sales for our Memory Book and Scholastic segments are “in the schoolhouse”, to school administrators and students, with whom long-standing relationships and the trust that a customized, quality product will be delivered on time are important. We believe that our Marketing and Publishing Services business is an industry leader in the introduction of innovative products and services, including formats produced under proprietary processes.

Attractive and favorable industry dynamics

Our businesses serve generally stable and growing end market segments. The market segments for our products and services exhibit attractive characteristics that we believe will contribute to the growth of our businesses. We believe that continued growth in the number of high school graduates will benefit our Memory Book and Scholastic segments. Our core memory book and scholastic products are generally purchases that are made through various economic cycles. Additionally, we believe that the anticipated growth in instructional materials over the next several years will be an important contributor to growth for our cover and component business. Similarly, we believe that our sampling system and direct marketing business is well positioned to benefit from growth in specialized, targeted advertising and opportunities in new market segments.

Reputation for superior quality and customer service

We have successfully leveraged the quality and depth of our products and services to establish, maintain and grow our long-term customer relationships. We believe our businesses are well regarded in the market segments in which they operate, where reliable service, product quality, innovation and the ability to solve complex production and distribution problems are important competitive attributes. Jostens and Neff have maintained long-standing relationships with administrators and students through their ability to provide highly customized and personalized products. A high degree of customer satisfaction translates into annual retention rates of over 90% of Jostens’ customers in its major product lines. Our book component, direct marketing and sampling operations’ technical expertise, manufacturing reliability and capabilities have enabled them to offer competitive and cost-effective products and services.

Scalable manufacturing

We operate a scalable and strategically-positioned network of manufacturing facilities which allows us to maintain a sustainable, low-cost competitive advantage. Over the last several years, we have made significant capital investments to increase manufacturing efficiency.

Capital efficient business model with positive cash flow

We have a capital efficient business model driving positive cash flow generation. The combination of our capital efficiency, generally stable revenue streams and margin enhancements has enabled us to pay down a significant amount of indebtedness since the beginning of 2005.

 

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Experienced management team

Our executive management team has considerable industry experience. Marc Reisch, who joined our company in October 2004 as Chairman, President and Chief Executive Officer, has over 25 years experience in the printing and publishing industries. He also has a proven track record of successfully acquiring and integrating companies. Our senior management team has substantial industry experience and on average of over 20 years of experience in the industries in which our companies operate. Our management team members are also highly motivated stakeholders through our equity and option plan, which includes substantial management investment in our equity.

Business Strategy

The principal features of our business strategy include the following:

Improve customer service and selling strategy to drive growth

We strive to enhance our relationships with our customers through marketing and selling initiatives focused on innovation, customer service and sales force effectiveness across our businesses. Each of our businesses maintains separate sales forces to sell their products, which help to ensure continuity in our customer relationships. We believe there are opportunities within each of our businesses to increase sales to existing customers and to expand our customer base through a continued focus on our selling strategy. At Jostens, our sales strategy is focused on improving account retention and buy rates through enhanced customer service and new product offerings, increasing the cross-selling of additional Jostens products to existing customers and adding new customers. We intend to grow our market share within our Marketing and Publishing Services segment through a continued emphasis on customer service, product innovation and technology offerings. We are also making efforts to expand our customer base in this segment by emphasizing the effectiveness of our sampling system advertising solutions in non-fragrance applications.

Enhance core product and service offerings

We have continually invested in our businesses to position ourselves as a leader in innovation and to drive organic growth. Through new product development and services and the addition of new features and customization, in addition to continued conventional expenditures on new equipment and technology improvements, we intend to stimulate the demand for our products, improve account retention and relationships and generate additional revenue. For instance, Jostens continues to be an industry leader in introducing on-line tools to assist in the design and customization of its products. We enhanced our product offerings in our Scholastic segment to include letter jackets, chenille letters and other scholastic products and services through our acquisition of Neff. Similarly, our Marketing and Publishing Services business has selectively added enhanced service and product offerings. For example, we have expanded our sampling system business by developing and acquiring new technologies in the olfactory and beauty sampling system categories. Our direct marketing business continues to develop innovative products and services and in-line manufacturing solutions for its direct marketing and advertising customers. We continue to invest time and resources to maintain our leading positions in the markets in which we operate.

Implement margin enhancement and cost savings initiatives

Since the consummation of the Transactions to form Visant, we have been successful in identifying and realizing significant margin enhancements and cost savings. These enhancements and savings are being achieved primarily through procurement and sourcing initiatives aimed at reducing the costs of materials and services used in our operations and reducing corporate and administrative expenses as well as through rationalizing capacity. We intend to continue to identify and pursue synergistic opportunities, including through acquisitions we complete.

 

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Improve operating efficiencies and asset utilization

The integration of the businesses has provided opportunities to maximize the efficiency of our assets and operations and grow revenue and profitability. The seasonality present in our businesses allows us the opportunity to capture selected production opportunities as well as leveraging asset utilization across product lines. We intend to capitalize on market opportunities by continuing to leverage our production capabilities, our reputation in the markets in which we operate and our management team’s industry experience.

Selectively pursue complementary acquisitions

We intend to continue to pursue opportunistic acquisitions to leverage our existing infrastructure, expand our geographic reach and broaden our product and service offerings.

Our Segments

Our three reportable segments consist of:

 

   

Scholastic—provides services related to the marketing, sale and production of class rings and an array of graduation products and other scholastic products to students and administrators primarily in high schools, colleges and other post-secondary institutions;

 

   

Memory Book—provides services related to the publication, marketing, sale and production of school yearbooks, memory books and related products that help people tell their stories and chronicle important events; and

 

   

Marketing and Publishing Services—produces multi-sensory and interactive advertising sampling systems, primarily for the fragrance, cosmetics and personal care market segments, and provides innovative products and services to the direct marketing sector. The group also produces book components and overhead transparencies.

For additional financial and other information about our operating segments, see Note 16, Business Segments, to our consolidated financial statements included elsewhere herein.

Scholastic

We are a leading provider of services related to the marketing, sale and production of class rings and an array of graduation products, such as caps, gowns, diplomas and announcements, graduation-related accessories and other scholastic products. In the Scholastic segment, we primarily serve U.S. high schools, colleges, universities and other specialty markets, marketing and selling products to students and administrators. Jostens relies on a network of independent sales representatives to sell its scholastic products. Jostens provides a high level of customer service in the marketing and sale of class rings and certain other graduation products, which often involves a high degree of customization. Jostens also provides ongoing warranty service on its class and affiliation rings. Jostens maintains product-specific tooling as well as a library of school logos and mascots that can be used repeatedly for specific school accounts over time. In addition to its class ring offerings, Jostens also designs, manufactures, markets and sells championship rings for professional sports and affinity rings for a variety of specialty markets. Since the acquisition of Neff, a single source provider of custom award programs and apparel, in March 2007, we also market, manufacture and sell an array of additional scholastic products, including chenille letters, letter jackets, mascot mats, plaques and sports apparel.

Memory Book

Through our Jostens subsidiary, we are a leading provider of services related to the publication, marketing, sale and production of memory books serving U.S. high schools, colleges, universities, elementary and middle schools. Jostens generates the majority of its revenues from high school accounts. Jostens’ sales representatives

 

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and technical support employees assist students and faculty advisers with the planning and layout of yearbooks, including through the provision of on-line layout and editorial tools to assist in the publication of the yearbook. With a new class of students each year and periodic faculty advisor turnover, Jostens’ independent sales representatives and customer service employees are the main point of continuity for the yearbook production process on a year-to-year basis. Jostens also offers memory book products through its OurHubbub.comTM online personal memory book offering, including under which Jostens partners with local and national organizations and teams to create hard cover memory books to chronicle important events and memories.

Marketing and Publishing Services

The Marketing and Publishing Services segment produces multi-sensory and interactive advertising sampling systems, primarily for the fragrance, cosmetics and personal care market segment, and innovative, highly personalized products primarily targeted at the direct marketing sector. We are also a leading producer of supplemental materials and related components such as decorative covers and plastic transparencies for educational publishers. With over a 100-year history as Arcade Marketing, we pioneered our ScentStrip® product in 1980. We also offer an extensive portfolio of proprietary, patented and patent-pending technologies that can be incorporated into various marketing programs designed to reach the consumer at home or in-store, including magazine and catalog inserts, remittance envelopes, statement enclosures, blow-ins, direct mail, direct sell and point-of-sale materials and gift-with-purchase/purchase-with-purchase programs. We specialize in high-quality, in-line finished products and can accommodate large marketing projects with a wide range of dimensional products and in-line finishing production, data processing and mailing services, providing a range of conventional direct marketing pieces to integrated offerings with data collection and tracking features. Our personalized imaging capabilities offer individualized messages to each recipient within a geographical area or demographic group for targeted marketing efforts.

Competition

The school-related affinity products and services industry consists principally of four national manufacturers and a number of smaller regional and niche competitors. The four national competitors in the sale of yearbooks, class rings and scholastic products are Jostens, American Achievement Corporation (“American Achievement”), Herff Jones, Inc. (“Herff Jones”) and Walsworth Publishing Company (“Walsworth”). We believe that Jostens is the largest of the national competitors in yearbooks, class rings and graduation products based on the number of schools served. American Achievement and Herff Jones are the only other national manufacturers that sell each of these three product lines. Jostens also competes with numerous conventional and online memory book providers for its sales of memory books.

Scholastic

Jostens’ competition in class rings consists primarily of two national firms, Herff Jones and American Achievement (which market the Balfour and ArtCarved brands, respectively) as well as a host of regional players. Herff Jones distributes its products within schools, while American Achievement distributes its products through multiple distribution channels including schools, independent and chain jewelers and mass merchandisers. Jostens distributes its products primarily within schools and through online offerings. In the affiliation ring market, Jostens competes primarily with national manufacturers, consumer product and jewelry companies and a number of small regional competitors. 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. In the marketing and sale of other graduation products, Jostens competes primarily with American Achievement and Herff Jones as well as numerous local and regional competitors and retailers who offer products similar to Jostens. Each competes on the basis of service, on-time delivery, product quality, price and product offerings, with particular importance given to establishing a proven track record of timely delivery of quality products.

 

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Memory Book

In the sale of yearbooks and memory books, Jostens competes with American Achievement (which markets under the Taylor Publishing brand), Herff Jones, Walsworth and Lifetouch Inc. as well as a host of all other companies providing conventional and online memory book offerings. Each competes on the basis of service, product customization and personalization, on-time delivery, print quality, price and product offerings. Customization and personalization capabilities, combined with technical assistance and customer service, are important factors in yearbook production.

Marketing and Publishing Services

The Marketing and Publishing Services business competes primarily with Orlandi, Inc., Klocke, Marietta and a number of smaller competitors in the fragrance and cosmetic sampling market. Our sampling system business also competes with numerous manufacturers of sampling products such as miniatures, vials, packets, sachets, blister packs and scratch and sniff products. Our direct marketing products and services compete with numerous other marketing and advertising venues for marketing dollars customers allocate to various types of advertising, marketing and promotional efforts such as television and in-store promotions as well as other printed products produced by numerous national and regional printers. We compete with Coral Graphics Services, Inc., Brady-Palmer, Moore Langen and John P. Pow in the sale of book covers and components.

Seasonality

We experience seasonal fluctuations in our net sales tied primarily to the North American school year. We recorded approximately 40% of our annual net sales for our continuing operations for fiscal 2007 during the second quarter of our fiscal year. Jostens generates a significant portion of its annual net sales in the second quarter. Deliveries of caps, gowns and diplomas for spring graduation ceremonies and spring deliveries of school yearbooks are the key drivers of Jostens’ seasonality. The net sales of sampling and other direct mail and printed products have also historically reflected seasonal variations, and we expect these businesses to continue to generate a majority of their annual net sales during our third and fourth quarters. These seasonal variations are based on the timing of customers’ advertising campaigns, which have traditionally been concentrated prior to the Christmas and spring holiday seasons. The seasonality of each of our businesses requires us to allocate our resources to manage our manufacturing capacity, which often operates at full or near full capacity during peak seasonal demands.

Raw Materials

The principal raw materials that Jostens purchases are gold and other precious metals, paper and precious, semiprecious and synthetic stones. The cost of precious metals and precious, semiprecious and synthetic stones is affected by market volatility. To manage the risk associated with changes in the prices of precious metals, we may from time to time enter into forward contracts to purchase gold, platinum and silver based upon the estimated ounces needed to satisfy projected customer demand. The price of gold has increased dramatically during the past year, and we expect the volatility in the price of gold to continue. These higher gold prices have impacted, and could further impact, our manufacturing costs as well as the level of spending by our customers. Jostens purchases substantially all precious, semiprecious and synthetic stones from a single supplier located in Germany whom we believe is also a supplier to Jostens’ major class ring competitors in the United States.

The principal raw materials purchased by the Marketing and Publishing Services business consist of paper, ink, and adhesives. Paper costs generally flow through to the customer as paper is ordered for specific jobs. We do not take significant commodity risk on paper. Our sampling system business utilizes specific grades of paper and foil laminates, which are, respectively, purchased from a limited number of suppliers.

Matters pertaining to our market risks are set forth above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk”.

 

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Backlog

Because of the nature of our business, all orders are generally filled within a few months from the time of placement. However, Jostens typically obtains contracts in the second quarter of one year for student yearbooks to be delivered in the second and third quarters of the subsequent year. Often the total revenue pertaining to a yearbook order is not established at the time of the order because the content of the book is not final. Subject to the foregoing qualifications, we estimate the backlog of orders, related primarily to our Memory Book and Scholastic businesses, was $418.3 million and $393.6 million as the end of fiscal years 2007 and 2006, respectively. We expect most of the 2007 backlog to be confirmed and filled throughout 2008.

Environmental

Our operations are subject to a wide variety of federal, state, local and foreign laws and regulations governing emissions to air, discharges to waters, the generation, handling, storage, transportation, treatment and disposal of hazardous substances and other materials, and employee health and safety matters. Compliance with such laws and regulations has become more stringent and, accordingly, more costly over time. As part of our environmental management program, we have been involved in environmental remediation on a property formerly owned and operated by Jostens for jewelry manufacturing. In July 2006, the State of Illinois Environmental Protection Agency issued a “No Further Remediation” letter with respect to this site. Although Jostens has certain ongoing monitoring obligations, we, however, do not expect the cost of such ongoing monitoring to be material.

Intellectual Property

Our businesses rely on a combination of patents, copyrights, trademarks, confidentiality and licensing agreements and unpatented proprietary know-how and trade secrets to establish and protect the intellectual property rights we employ in our businesses. We also have trademarks registered in the United States and in jurisdictions around the world. In particular, we have a number of registered patents in the United States and abroad covering certain of the proprietary processes and products used in our sampling systems and direct mail businesses, and we have submitted patent applications for certain other manufacturing processes and products. However, many of our sampling system and direct mail manufacturing processes and products are not covered by any patent or patent application. As a result, our business may be adversely affected by competitors who independently develop equivalent or superior technologies, know-how, trade secrets or production methods or processes than those employed by us. We are involved in litigation from time to time in the course of our businesses to protect and enforce our intellectual property rights, and third parties from time to time may initiate litigation against us asserting that our businesses infringe or otherwise violate their intellectual property rights.

Our company has ongoing research and development efforts and expects to seek additional intellectual property protection in the future covering results of its research. Pending patent applications filed by us may not result in patents being issued. Furthermore, the patents that we use in our sampling system and direct marketing businesses will expire over time. Similarly, patents now or hereafter owned by us may not afford protection against competitors with similar or superior technology. Our patents may be infringed upon, designed around by others, challenged by others or held to be invalid or unenforceable.

Employees

As of March 29, 2008, we had approximately 5,961 full-time employees. As of March 29, 2008, approximately 619 of Jostens’ employees were represented under two collective bargaining agreements that expire in June 2010 and August of 2012, and approximately 509 employees from our Marketing and Publishing Services business were represented under four collective bargaining agreements. These collective bargaining agreements expire at various times between April 2008 and March 2013. The collective bargaining agreement covering certain employees at our Broadview, Illinois plant was due to expire on April 30, 2008 and is currently pending under an extension agreement, which extension agreement may be terminated by either party upon 10 days’ advance written notice.

 

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We consider our relations with our employees to be satisfactory.

International Operations

Our foreign sales from continuing operations are derived primarily from operations in Canada and Europe. Local taxation, import duties, fluctuation in currency exchange rates and restrictions on exportation of currencies are among the risks attendant to foreign operations, but these risks are not considered significant with respect to our businesses.

Properties

A summary of the physical properties we currently use follows:

 

Segment

  

Facility Location(1)

   Approximate
Sq. Ft.
  

Interest

Scholastic

   Topeka, Kansas(2)    236,000    Owned
   Laurens, South Carolina    98,000    Owned
   Shelbyville, Tennessee    87,000    Owned
   Unadilla, Georgia    83,000    Owned
   Greenville, Ohio    69,000    Owned
   Denton, Texas    56,000    Owned
   Eagan, Minnesota    34,000    Leased
   Owatonna, Minnesota    30,000    Owned
   Marysville, Ohio    16,000    Leased
   Santiago, Dominican Republic    13,000    Leased
   Winnipeg, Manitoba    13,000    Leased

Memory Book

   Winston-Salem, North Carolina    132,000    Owned
   Clarksville, Tennessee    105,000    Owned
   Visalia, California    96,000    Owned
   State College, Pennsylvania    66,000    Owned
   State College, Pennsylvania    10,900    Leased
   Sedalia, Missouri    26,000    Leased
   Boonville, Missouri    10,000    Leased

Marketing and Publishing Services

   Broadview, Illinois    212,000    Owned
   Hagerstown, Maryland    212,000    Owned
   Dixon, Illinois    160,000    Owned
   Pennsauken, New Jersey(3)    145,000    Owned
   Rockaway, New Jersey    90,000    Leased
   Chattanooga, Tennessee    67,900    Owned
   Milwaukee, Wisconsin    64,000    Owned
   Baltimore, Maryland    60,000    Leased
   Chattanooga, Tennessee    36,700    Owned
   Chattanooga, Tennessee    29,500    Owned
   New York, New York    12,000    Leased
   Paris, France    4,600    Leased

 

(1)   Excludes properties held for sale.
(2)   Also houses yearbook production.
(3)   Includes approximately 31,600 square footage of a leased bindery facility.

 

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We also lease a number of warehouse facilities to support our production. We maintain Visant’s executive office in leased space in Armonk, New York, and Jostens’ executive office in leased space in Bloomington, Minnesota. In addition, we lease other sales and administrative office space. In management’s opinion, all buildings, machinery and equipment are suitable for their purposes and are maintained on a basis consistent with sound operations. The extent of utilization of individual facilities varies significantly due to the seasonal nature of our business. In addition, certain of our properties are subject to a mortgage held by Visant’s lenders under its senior secured credit facilities.

Legal Proceedings

In communications with U.S. Customs and Border Protection (“Customs”), we learned of an alleged inaccuracy of the tariff classification for certain of Jostens’ imports from Mexico. Jostens promptly filed with Customs a voluntary disclosure to limit its monetary exposure. The effect of these tariff classification errors is that back duties and fees (or “loss of revenue”) may be owed on certain imports. Additionally, Customs may impose interest on the loss of revenue, if any is determined. A review of Jostens’ import practices has revealed that during the relevant period, the subject merchandise qualified for duty-free tariff treatment under the North American Free Trade Agreement (“NAFTA”), in which case there should be no loss of revenue or interest payment owed to Customs. However, Customs’ allegations indicate that Jostens committed a technical oversight in the classification used by Jostens in claiming the preferential tariff treatment. Through its prior disclosure to Customs, Jostens addressed this technical oversight and asserted that the merchandise did in fact qualify for duty-free tariff treatment under NAFTA and that there is no associated loss of revenue. In a series of communications received from Customs in December 2006, Jostens learned that Customs was disputing the validity of Jostens’ prior disclosure and asserting a loss of revenue in the amount of $2.9 million for duties owed on entries made in 2002 and 2003 and in a separate pre-penalty notice was advised that Customs is contemplating a monetary penalty in the amount of approximately $5.8 million (two times the alleged loss of revenue). In order to obtain the benefits of the orderly continuation and conclusion of administrative proceedings, Jostens agreed to a two-year waiver of the statute of limitations with respect to the entries made in 2002 and 2003 that otherwise would have expired at the end of 2007 and 2008, respectively. Jostens elected to continue to address this matter by filing a petition in response to the pre-penalty notice in January 2007, disputing Customs’ claims and advancing its arguments to support that no loss of revenue or penalty should be issued against us, or in the alternative, that any penalty based on a purely technical violation should be reduced to a nominal fixed amount reflective of the nature of the violation. In May 2007, Customs issued a penalty notice assessing a loss of revenue (plus interest) and penalty as described above based on asserted negligence by Jostens. In July 2007, Jostens filed a petition in response to the penalty notice challenging Customs’ findings and asserting that there has been no loss of revenue and that no penalty should be issued against Jostens or that, in the alternative, any penalty should be reduced to a nominal fixed amount reflective of the nature of the violation or mitigated on the basis that the imports at issue are nonetheless duty free. At this stage of the proceedings, the matter is being evaluated by Customs. In October 2007, based on recent court rulings, Jostens presented additional arguments for Customs’ consideration supporting that the subject imports at the time of entry were entitled to duty free status. We understand that the matter is currently under review by Customs. Jostens intends to continue to vigorously defend its position and has recorded no accrual for any potential liability pending further communication with Customs. Jostens has the opportunity to extend an offer in compromise to Customs in an effort to settle this matter in advance of a final administrative decision. If Jostens were to do so, it would be required to tender the amount offered to Customs at the time. It is not clear what Customs’ final position will be with respect to the alleged tariff classification errors or that Jostens will not be foreclosed from receiving duty free treatment for the subject imports. Jostens may not be successful in its defense, and the disposition of this matter may have a material effect on our business, financial condition and results of operations.

We are also 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 do not believe the effect on our business, financial condition and results of operations, if any, for the disposition of these matters will be material.

 

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MANAGEMENT

Directors and Executive Officers

Set forth below are the names, ages, positions and business backgrounds of our executive officers and the directors of Visant as of May 12, 2008.

 

Name

   Age   

Position

Marc L. Reisch

   52   

Chairman, President and Chief Executive Officer, Holdings and Visant

Marie D. Hlavaty

   44   

Vice President, General Counsel and Secretary, Holdings and Visant

Paul B. Carousso

   39   

Vice President, Finance, Holdings and Visant

Timothy M. Larson

   34   

President and Chief Executive Officer, Jostens Group

John Van Horn

   67   

Group President, Arcade/Lehigh Direct and President, Chief Executive Officer, Arcade

David F. Burgstahler

   39   

Director, Holdings and Visant

George M.C. Fisher

   67   

Director, Holdings and Visant

Alexander Navab

   42   

Director, Holdings and Visant

Tagar C. Olson

   30   

Director, Holdings and Visant

Charles P. Pieper

   61   

Director, Holdings and Visant

Steven Rattner

   48   

Director, Holdings and Visant

Marc L. Reisch joined Holdings and Visant as Chairman, President and Chief Executive Officer upon the closing of the Transactions. Mr. Reisch had been a director of Jostens since November 2003. Immediately prior to joining Holdings and Visant in October 2004, Mr. Reisch served as a Senior Advisor to KKR. Mr. Reisch has been the Chairman of the Board of Yellow Pages Income Fund since December 2002.

Marie D. Hlavaty served as an advisor to our businesses since August 2004 and joined Holdings and Visant as Vice President, General Counsel and Secretary upon the consummation of the Transactions in October 2004. Prior to joining Visant, Ms. Hlavaty was Of Counsel with Latham & Watkins LLP.

Paul B. Carousso joined Holdings and Visant in October 2004 as Vice President, Finance. From April 2003 until October 2004, Mr. Carousso held the position of Executive Vice President, Chief Financial Officer, of Vestcom International, Inc., a digital printing company.

Timothy M. Larson started working with Jostens in 1992 as an intern and joined Jostens full-time in July 1996. He has held a variety of leadership positions at Jostens in general management, technology, e-business and marketing. Mr. Larson became senior vice president and general manager of Jostens’ Memory Book business in 2005. Mr. Larson was appointed President and Chief Executive Officer of Jostens in January 2008.

John Van Horn served as an advisor to our Arcade/Lehigh Direct businesses since September 2004 and joined us as Group President, Arcade/Lehigh Direct and President and Chief Executive Officer of Arcade upon the consummation of the Transactions in October 2004. Prior to joining us, Mr. Van Horn held various positions at Quebecor World Inc. since August 1999, last serving as President, Catalog Market of Quebecor World North America.

David F. Burgstahler is a Partner of Avista Capital Partners, L.P., a leading private equity firm. Prior to joining Avista Capital Partners in 2005, Mr. Burgstahler was a Partner with DLJ Merchant Banking Partners, the private equity investment arm of CS. Mr. Burgstahler joined CS in 2000 when it merged with Donaldson, Lufkin & Jenrette. Mr. Burgstahler joined Donaldson, Lufkin & Jenrette in 1995. Mr. Burgstahler also serves on the board of Warner Chilcott Limited, WideOpenWest Holdings, Inc., BioReliance Corporation, Namic/VA Inc. and BMS Medical Imaging, Inc.

 

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George M.C. Fisher is currently a senior advisor to KKR. Mr. Fisher is also the former Chairman of PanAmSat Corporation. Mr. Fisher currently serves as a director of General Motors Corporation. Mr. Fisher served as Chairman of the Board of Eastman Kodak Company from December 1993 to December 2000 and was Chief Executive Officer from December 1993 to January 2000. Before joining Kodak, Mr. Fisher was Chairman of the Board and Chief Executive Officer of Motorola, Inc. Mr. Fisher is a past member of the boards of AT&T, American Express Company, Comcast Corporation, Delta Air Lines, Inc., Eli Lilly and Company, Hughes Electronics Corporation, Minnesota Mining & Manufacturing, Brown University and The National Urban League, Inc. He was a member of The Business Council and is an elected fellow of the American Academy of Arts & Sciences and of the International Academy of Astronautics. Mr. Fisher was also an appointed member of the President’s Advisory Council for Trade Policy and Negotiations from 1993 through 2002.

Alexander Navab is a Member of KKR. He joined KKR in 1993 and oversees KKR’s North American investments in media and telecommunications. Mr. Navab serves on the Investment Committee, as well as the Operating Committee, of KKR. Prior to joining KKR, Mr. Navab was with James D. Wolfensohn Incorporated, where he was involved in merger and acquisition transactions as well as corporate finance advisory assignments. From 1987 to 1989, he was with Goldman, Sachs & Co. in the Investment Banking division. Mr. Navab is also a director of The Nielsen Company (formerly VNU Group BV).

Tagar C. Olson is an Executive at KKR. Prior to joining KKR in 2002, Mr. Olson was with Evercore Partners Inc. since 1999, where he was involved in a number of private equity transactions and mergers and acquisitions. Mr. Olson is also a director of Capmark Financial Group Inc., Masonite International Inc. and First Data Corporation.

Charles P. Pieper is Vice Chairman of Alternative Investments (AI) in the Asset Management division and Operating Partner of CS. He is responsible for AI Global Joint Ventures, serves as an Operating Partner of DLJMBP and heads the AI Business Development Task Force. Prior to joining CS in 2004, Mr. Pieper held senior operating positions in both private industry and private equity, including being President and Chief Executive Officer of several General Electric Company businesses. He was self-employed from January 2003 to April 2004 as the head of Charles Pieper and Associates, an investment and advisory firm, and from March 1997 to December 2002, Mr. Pieper was Operating Partner of Clayton, Dubilier and Rice, a private equity investment firm. He also currently serves as a director of Glacier G.P. (the holding company of Grohe AG), China Renaissance Capital Investment and Global Infrastructure Partners.

Steven Rattner is a Managing Director of CS in the Asset Management division and is the Head of DLJ Merchant Banking Partners. He serves on the Investment Committees of DLJMBP II, DLJMBP III, and DLJMBP IV. Mr. Rattner joined CS in November 2000 when the firm merged with Donaldson, Lufkin & Jenrette, where he was Head of International Fixed Income. He joined Donaldson, Lufkin & Jenrette in 1985 as an Associate in the Investment Banking division. Upon the merger with CS, Mr. Rattner became the Head of European Leveraged Finance. Mr. Rattner serves on the boards of Warner Chilcott Limited, United Site Services, Hard Rock Hotels, and Peach Holdings.

Our Board of Directors

Our Board of Directors is currently comprised of seven members. Each of the existing directors was appointed upon the consummation of the Transactions in October 2004, other than Mr. Fisher, who was appointed in November 2005, and Mr. Rattner, who was appointed in May 2008. Under the Stockholders Agreement entered into in connection with the Transactions, KKR and DLJMBP III each has the right to designate four of Holdings’ directors (currently three KKR and three DLJMBP III designees serve on our board) and our Chief Executive Officer and President, Marc Reisch, is Chairman. Our Board of Directors currently has three standing committees—an Audit Committee, a Compensation Committee and an Executive Committee. We expect the chairmanship of each of the Audit Committee and the Compensation Committee to rotate annually between a director designated by KKR and a director designated by DLJMBP III consistent with the terms of the Stockholders Agreement.

 

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Audit Committee

The primary duties of the Audit Committee include assisting the Board of Directors in its oversight of (1) the integrity of the Company’s financial statements and financial reporting process; (2) the integrity of the Company’s internal controls regarding finance, accounting and legal compliance; and (3) the independence and performance of the Company’s independent auditor and internal audit function. The Audit Committee also reviews our critical accounting policies, our annual and quarterly reports on Form 10-K and Form 10-Q, and our earnings releases before they are published. The Audit Committee has sole authority to engage, evaluate and replace the independent auditor. The Audit Committee also has the authority to retain special legal, accounting and other consultants it deems necessary in the performance of its duties. The Audit Committee meets regularly with our management, independent auditors and internal auditors to discuss our internal controls and financial reporting process and also meets regularly with the Company’s independent auditors and internal auditors in private.

The current members of the Audit Committee are Messrs. Olson (Chairman) and Burgstahler. The Board of Directors has determined that both of the current members qualifies as an “audit committee financial expert” through their relevant work experience. Mr. Olson is an Executive with KKR, and Mr. Burgstahler is a Partner of Avista Capital Partners, L.P. Neither of the members of the Audit Committee is considered “independent” as defined under the federal securities law.

Compensation Committee

The primary duty of the Compensation Committee is to discharge the responsibilities of the Board of Directors relating to compensation practices and policies for the Company’s executive officers and other key employees, as the Committee may determine, to ensure that management’s interests are aligned with the interest of the Company’s equity holders. The Committee also reviews and makes recommendations to the Board of Directors with respect to the Company’s employee benefits plans, compensation and equity based plans and compensation of directors. The current members of the Compensation Committee are Messrs. Burgstahler (Chairman), Navab, Olson and Pieper.

Executive Committee

The current members of the Executive Committee are Messrs. Reisch, Navab and Pieper.

Code of Ethics

We have a Code of Business Conduct and Ethics which was adopted to cover the entire Visant organization following the Transactions and which applies to all of our employees, including our Chief Executive Officer, Vice President, Finance and Corporate Controller, our Directors and independent sales representatives. We review our Code of Business Conduct and Ethics and amend it as necessary to be in compliance with current law. We require senior management employees and employees with a significant role in internal control over financial reporting to confirm compliance with the Code on an annual basis. Any changes to, or waiver (as defined under Item 5.05 of Form 8-K) from, our Code that applies to our Chief Executive Officer, Vice President, Finance or Corporate Controller will be posted on our website. A copy of the Code of Business Conduct and Ethics can be found on our website at http://www.visant.net.

Section 16(a) Beneficial Ownership Reporting Compliance

Executive officers and directors of Visant are not subject to the reporting requirements of Section 16 of the Exchange Act.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This compensation discussion and analysis describes the material elements, policies and practices with respect to our principal executive officer, principal financial officer, and the other three most highly-compensated executive officers, which are collectively referred to as the named executive officers. This compensation discussion and analysis also describes the material elements of compensation awarded to, earned by, or paid to each of our named executive officers.

We provide what we believe is a competitive total compensation package to our executive management team through a combination of base salary, an annual cash incentive plan, long-term equity incentives in the form of stock options and restricted stock, retirement and other benefits, perquisites, post-termination severance and acceleration of equity award vesting for named executive officers upon certain termination events and/or a change in control. Certain other post-termination benefits are provided to our Chief Executive Officer. Our other benefits and perquisites include life, disability, medical, dental and vision insurance benefits, a qualified 401(k) savings plan and other retirement benefits and include reimbursement for certain medical expenses and automobile payments. Our philosophy is to provide a total compensation package at a level that is commensurate with our size and provides incentives and rewards for sustained performance and growth and retention of executive talent.

One of our named executive officers, Michael L. Bailey, retired effective January 7, 2008. The separation agreement entered into between us and Mr. Bailey is described in “—Termination, Severance and Change of Control Arrangements—Separation Agreement—Michael L. Bailey”.

Objectives of our Executive Compensation Program

Our compensation programs are designed to achieve the following objectives:

 

   

attract, motivate, retain and reward talented and dedicated executives whose knowledge, skill and performance are critical to our success and long-term growth;

 

   

provide our executive officers with both cash and equity incentives to further our interests and those of our stockholders;

 

   

provide cash and long-term incentive compensation that is competitive to comparable market positions based on revenue size;

 

   

align rewards to measurable performance metrics; and

 

   

compensate our executives to manage our business to meet our long-range objectives.

Compensation Process

Our Compensation Committee reviews and approves all elements of compensation for our named executive officers. The Compensation Committee meets outside the presence of all of our executive officers, including the named executive officers, to consider appropriate compensation for our Chief Executive Officer, or CEO. For all other named executive officers, the Committee meets outside the presence of all executive officers except our CEO. Mr. Reisch annually reviews each other named executive officer’s performance with the Compensation Committee and makes recommendations to the Compensation Committee, other than with respect to his own compensation. The Compensation Committee has from time to time reviewed market and industry data in setting compensation. During 2007, we retained outside compensation consultants to benchmark certain of our executive positions to provide another measure of our existing compensation levels for executive positions within our

 

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company to companies with a comparative revenue base to ours. Positions were matched based on title and responsibilities of the position with comparable positions in the market based on similar company revenue size found within the published survey data of leading human resource organizations. We evaluated base salary and short- and long-term compensation information within the survey information. We may from time to time in the future have benchmarking performed to assist us and the Compensation Committee in setting executive compensation.

Base Salary

We provide the opportunity for our named executive officers and other executives to earn a competitive annual base salary in order to attract and retain an appropriate caliber of ability, experience and talent for the position, and to provide base compensation that is not subject to our performance risk. We establish the base salary for each executive officer based in part in consideration of competitive factors as well as individual factors, such as the individual’s scope of duties, performance and experience and, to a certain extent, the pay of others on the executive team. When establishing the base salary of any executive officer, we have also considered competitive market factors, business requirements for certain skills, individual experience and contributions, the roles and responsibilities of the executive, the potential impact the individual may make on our company now and in the future. We generally review base salaries for our named executive officers on a 12 to 18-month or longer cycle, and increases take into consideration the foregoing factors, individual performance and expanded duties, as applicable.

Our Compensation Committee sets the salary of our CEO. In accordance with his employment agreement, this base salary will not be less than $850,000 during the term of his employment agreement and any renewal term. In 2007, Mr. Reisch’s base salary was increased from $850,000 to $950,000.

The Compensation Committee approved increases in the annual base salary rate for 2008, effective as of April 1, 2008, for Mr. Carousso, from $265,000 to $280,000, and Ms. Hlavaty, from $330,000 to $380,000.

Annual Performance-Based Cash Incentive Compensation

General. We provide the opportunity for our named executive officers and other key employees to earn an annual cash incentive award in order to further align our executives’ compensation opportunity with our annual business and financial goals and the growth objectives of our stockholders and to motivate our executives’ annual performance. Our annual cash incentives generally link the compensation of participants directly to the accomplishment of specific business metrics, primarily the achievement of EBITDA targets, which are important indicators of increased stockholder value and reflect our emphasis on financial performance and stockholder return. However, the Compensation Committee may also exercise discretion in establishing annual bonus awards based on extraordinary achievements and contributions to the growth of our business and appreciation of our stockholder value.

Consolidated and business unit budgets and business plans which contain annual financial and strategic objectives are developed each year by management and reviewed by the Board of Directors, which institutes such changes that are deemed appropriate by the Board of Directors. The budgets and business plans set the basis for the annual incentive plan targets and stretch measures. The annual incentive compensation plan targets and other material terms by business unit are presented to the Compensation Committee for review and approval with such modifications deemed appropriate by the Compensation Committee. The specific financial targets and business plan initiatives set for our named executive officers are not disclosed because we believe disclosure of this information would cause our company competitive harm. The targets are intended to be challenging but achievable. Because these targets are tied to our business plan, it is expected that they will be achieved when they are set at the beginning of the fiscal year. However, there is risk that payments will not be made at all or will be made at less than 100%. This uncertainty ensures that any payments under the plan are truly performance-based.

 

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Annual cash award opportunity for the executive officers is expressed as a percentage of qualifying base salary, with an established percentage for payout based on meeting a target, and enhanced opportunity if certain stretch targets are met. For the 2007 fiscal year, annual cash incentive opportunities for the named executive officers at target are summarized below:

 

     Target Annual Cash
Incentive Award
Opportunity
   % of Salary     Amount

Marc L. Reisch

   100 %   $ 950,000

Paul B. Carousso

   50 %   $ 132,500

Marie D. Hlavaty

   55 %   $ 181,500

Michael L. Bailey

   70 %   $ 385,000

John Van Horn

   50 %   $ 200,000

Annual incentive compensation plan awards for our named executive officers and other executives are determined annually following the completion of the annual audit, based on our performance against the approved annual incentive compensation plan targets, subject to the exercise of discretion by the Compensation Committee as discussed above. The annual incentive compensation plan award amounts of all executive officers, including the named executive officers, must be reviewed and approved by the Compensation Committee. Approved payments under the annual incentive plans are made not later than March 15th of the year following the fiscal year during which performance is measured.

2007 Annual Incentive Compensation Plan Awards. For the last completed fiscal year, substantially all of the annual incentive plan payments to the CEO and the other named executive officers were based on the achievement of consolidated or business unit targets. There were no specific individual performance goals for 2007 incentive awards to the named executive officers, but the Compensation Committee took into account individual performance, as applicable, particularly when it contributed to extraordinary transactions and achievements in 2007, in evaluating payment at or above target. Under the annual incentive plans, the Compensation Committee may consider for adjustments to performance goals and our reported financial results. These adjustments may exclude all or a portion of both the positive or negative effect of external non-recurring events that are outside the reasonable control of our executives, including, without limitation, regulatory changes in accounting or taxation standards. These adjustments may also exclude all or a portion of both the positive or negative effect of unusual or extraordinary transactions that are within the control of our executives but that are undertaken with an expectation of improving our long-term financial performance, or growth such as restructurings, acquisitions or divestitures.

For 2008, we plan to use performance metrics based on our current year business plan to assess incentive compensation awards. In addition, the Compensation Committee will continue to reserve discretion in determining awards to account for extraordinary achievement and contributions that impact the growth of our business and appreciation of stockholder value.

Other. Our Compensation Committee reserves the right to grant discretionary bonuses from time to time based on individual contribution to extraordinary transactions which result in measurable and appreciable return for us and our stockholders.

Long-Term Equity Incentives

General. We offer long-term equity incentive opportunities to our executives to promote long-term performance and tenure, through grants of stock options and restricted stock. Other types of long-term incentive compensation, including phantom equity measured based on the appreciation of the Class A Common Stock, may be considered in the future. Our equity incentive plans are designed to:

 

   

promote our long-term financial interests and growth by attracting and retaining management with the training, experience and ability to enable them to make a substantial contribution to the success of our business;

 

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motivate management by means of growth-related incentives to achieve long-range goals; and

 

   

further the alignment of interests of participants with those of our stockholders through stock-based opportunities.

Our Compensation Committee serves as the administrator of the equity incentive program, with the power and authority to administer, construe and interpret the equity plans, to make rules for carrying out the plans and to make changes in such rules, subject to such interpretations, rules and administration being consistent with the basic purpose of the plans. Subject to the general parameters of the plans, the Compensation Committee has the discretion to fix the terms and conditions of the grants. Equity is granted at fair market value as determined by the Compensation Committee after evaluation of a fair market valuation conducted by a third party expert on a periodic basis.

Our named executive officers each made a personal investment in purchasing shares of the Class A Common Stock of Holdings in connection with the Transactions with his or her own personal funds (and in the case of Mr. Bailey, including the roll-over of certain existing equity in Holdings and the investment of a bonus paid to Mr. Bailey in connection with the Transactions). In turn, the number of options granted was based on a multiple of the respective level of investment. In consideration of his services in consummating the Transactions and in connection with entering into an employment agreement with the Company, Mr. Reisch also received at the consummation of the Transactions a grant of restricted stock as a further long-term incentive opportunity. No additional equity has been awarded to the named executive officers since their original investments, other than in the case of Mr. Van Horn. Mr. Van Horn was granted restricted stock in December 2006, none of which will vest until January 2009 (subject to accelerated vesting in the event of Mr. Van Horn’s termination without cause or for good reason, upon a change in control or upon Mr. Van Horn’s disability or death), in order to recognize and incentivize Mr. Van Horn’s continued tenure, commitment and performance for us. Mr. Van Horn had not received options at the time of the Transactions in light of what was anticipated to be a more limited period of employment with us. The Compensation Committee reserves the right to issue additional equity in the form of options, restricted stock or units or phantom equity to the named executive officers upon the recommendation of Mr. Reisch or the Board in consideration of performance and for the purpose of assuring retention of executive talent aligned with the long-term growth of the Company and, in the case of equity, subject to shares remaining available for grant under the Third Amended and Restated 2004 Stock Option Plan for Key Employees of Visant Holdings Corp. and Subsidiaries (the “2004 Plan”). See “—Equity Compensation”.

We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates; however, to the extent that additional grants have been or will be made by us to other members of management, we intend to limit grants to twice per year. We may also issue equity grants to new members of management who come into our employment in connection with the consummation of acquisitions by us or upon the commencement of employment with us. For compensation decisions regarding the grant of equity compensation, our Compensation Committee typically considers the recommendations from our CEO, taking into consideration the potential impact and contributions of the individual, retention considerations and the level of equity of members of management at a similar level.

Stock Options. Stock option awards provide our executive officers with the right to purchase shares of our Class A Common Stock at a fixed exercise price for a period of up to ten years from the option grant date under the 2004 Plan and are both “time-based” and “performance-based.” Time based options vest on the passage of time and an executive’s continued tenure with us. Performance based options vest on the achievement of annual EBITDA targets. The purpose of the performance-based grant is to align management and stockholder interests as measured by EBITDA performance. Options are subject to certain change of control and post-termination of employment vesting and expiration provisions. Mr. Bailey and Mr. Reisch (who also served as a director of Jostens prior to the Transactions) also hold options under the 2003 Stock Incentive Plan (the “2003 Plan”). See “—Equity Compensation” for a discussion of the change in control and other provisions related to stock options under the 2004 Plan and the 2003 Plan.

 

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Restricted Stock. We also use restricted stock in our long-term equity incentive program as part of our management development, succession, and retention planning process. Of our executives, currently only Messrs. Reisch and Van Horn have been granted restricted stock. The restricted stock is generally subject to the same rights and restrictions set forth in the management stockholders’ agreement and sale participation agreement described under “—Equity Compensation”, provided that Mr. Reisch’s restricted stock is currently 100% vested and nonforfeitable even in the case of termination of employment.

Pension Benefits

Each of our named executive officers currently participates in the Jostens tax qualified pension plan D and a non-qualified supplemental pension plan to compensate for Internal Revenue Service limitations. These benefits are provided as part of the regular retirement program available to our eligible employees. We also maintain individual non-contributory, non-qualified, unfunded supplemental retirement plans (“SERPs”) for certain named executive officer participants. Under our employment agreement with Marc L. Reisch, he is entitled to an additional supplemental retirement benefit. For more detailed information, see the narrative accompanying the “Pension Benefits” table.

Employment Agreement and Change in Control Provisions

Employment Agreement with Marc Reisch. Except with respect to our CEO, Marc L. Reisch, and Mr. Timothy Larson, the Chief Executive Officer of Jostens, we do not have any employment agreements with any of our named executive officers. It is generally not our philosophy or practice to enter into employment agreements with our executives. Absent exigent competitive factors, we believe that our short- and long-term compensation practices and opportunities are competitively attractive and favorably motivate our executives towards performance and continuity of service.

In October 2004, we entered into an employment agreement with Mr. Reisch with an initial term extending to December 31, 2009, with automatic one-year renewal terms thereafter. We are highly dependent on the efforts, relationships and skills of Mr. Reisch, a long-tenured industry executive and, accordingly, we entered into this agreement with Mr. Reisch to help ensure Mr. Reisch’s availability to us during the term of the employment agreement. The employment agreement provides for certain post-termination payments and benefits to Mr. Reisch which are described and quantified in the section entitled “—Termination, Severance and Change of Control Arrangements”. We provided these arrangements under the agreement to attract and retain Mr. Reisch as our CEO and believe that the post-termination payments and benefits are competitively reasonable and reflective of Mr. Reisch’s value and performance to us.

Change in Control Agreements. On May 10, 2007, Holdings and the Company entered into a change in control severance agreement with each of Paul Carousso, Vice President, Finance, and Marie Hlavaty, Vice President, General Counsel. The change in control agreements are effective through December 31, 2009 unless otherwise extended, provided that the change in control agreements shall remain in effect for a period of two years following a change in control (as defined in the agreements) during the term of the agreements. The agreements allow for certain payments and benefits upon a change in control as described in “—Termination, Severance and Change of Control Arrangements—Arrangements with Paul B. Carousso and Marie D. Hlavaty”. We provided these arrangements to assure the retention of these officers and in the absence of any other contractual severance arrangements. We believe that the post-termination payments and benefits are competitively reasonable and reflective of Mr. Carousso’s and Ms. Hlavaty’s value and performance to us.

Change in Control under Equity Incentive Plans. Under the 2003 Plan, upon the occurrence of a “change in control”, the unvested portion of any time option will immediately become vested and exercisable, and the vesting and exercisability of the unvested portion of any performance option may accelerate if certain performance measures have been achieved. Under the 2004 Plan, upon the occurrence of a “change in control”, the unvested portion of any time option will immediately become vested and exercisable, and the vesting and

 

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exercisability of the unvested portion of any performance option may accelerate if relevant performance measures have been satisfied. Our equity incentive plans are discussed in “—Equity Compensation” and change in control payments under the plans are discussed and quantified in “—Termination, Severance and Change of Control Arrangements”.

Executive Benefits

We provide the opportunity for our named executive officers and other executives to receive certain general health and welfare benefits on terms consistent with other eligible employees. We also offer participation in our defined contribution 401(k) plan with a company match on terms consistent with other eligible employees. We provide certain perquisites to the named executive officers, including car allowance, medical stipend to apply to reimburse medical expenses, periodic physicals and extended coverage under long-term disability insurance, and in the case of certain of the named executive officers, financial planning, a health club stipend and availability of our aircraft for occasional personal use. We provide these benefits to offer additional incentives for our executives and to remain competitive in the general marketplace for executive talent.

Stock Ownership Guidelines

The Compensation Committee has not implemented stock ownership guidelines for our executive officers. Our stock is not publicly traded and is subject to agreements with the stockholders that limit a stockholder’s ability to transfer his or her equity for a period of time following grant.

Regulatory Considerations

We account for equity compensation paid to our employees under Statement of Financial Accounting Standards (“SFAS”) No. 123R, which we adopted effective January 1, 2006. SFAS No. 123R requires us to recognize compensation expense related to all equity awards based on the fair values of the awards at the grant date. Prior to our adoption of SFAS No. 123R, we used the minimum value method in our SFAS No. 123 pro forma disclosure and therefore applied the prospective transition method as of the effective date. Under the prospective transition method, we would recognize compensation expense for equity awards granted, modified and canceled subsequent to the date of adoption. As a result of the modification to stock options made in April 2006 in connection with the special dividend paid to all Class A common stockholders, all stock option awards previously accounted for under APB No. 25 are prospectively accounted for under SFAS No. 123R. Accordingly, no incremental compensation cost was recognized as a result of the modification. Please see Note 15, Stock-based Compensation, to our consolidated financial statements for additional information.

The compensation cost to us of awarding equity is taken into account in considering awards under our equity incentive program. We have taken steps to structure and assure that our compensation program is applied in compliance with Section 409A of the Internal Revenue Code. Bonuses paid under our annual incentive plans are taxable at the time paid to our executives.

Tax Gross-Up

Mr. Reisch’s employment agreement provides for a tax gross-up payment in the event that any amounts or benefits due to him would be subject to excise taxes under Section 280G of the Internal Revenue Code. For more detailed information on gross-ups for excise taxes payable to Mr. Reisch, see “—Termination, Severance and Change of Control Arrangements—Employment Agreement with Marc L. Reisch—Gross-Up Payments for Excise Taxes”.

 

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Compensation Committee Interlocks and Insider Participation

During 2007 and to the present our Compensation Committee has been comprised of Messrs. Burgstahler (Chairman), Navab, Olson and Pieper. For a description of the transactions between us and entities affiliated with members of the Compensation Committee, see the transactions described in “Certain Relationships and Related Transactions, and Director Independence”.

Summary Compensation Table

The following table presents compensation information for the fiscal year ended December 29, 2007 and December 30, 2006 paid to or accrued to the named executive officers.

 

Name and Principal
Position                    

  Year   Salary
($)
  Bonus
($)
  Stock
Awards

($)
  Option
Awards
($)
  Non-Equity
Incentive Plan
Compensation
($)(2)
  Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
  All Other
Compensation
($)
  Total
($)

Marc L. Reisch

Chairman, President and Chief Executive Officer, Holdings and Visant

  2007

2006

  $

$

950,000

850,000

  $

$

—  

—  

  $

$

—  

—  

  $

$

—  

—  

  $

$

950,000

1,100,000

  $

$

254,435

231,500

  $

$

93,101(4)

114,465(4)

  $

$

2,247,536

2,295,965

Paul B. Carousso

Vice President, Finance, Holdings and Visant

  2007
2006
  $

$

264,039

240,000

  $

$

—  

—  

  $

$

—  

—  

  $

$

—  

—  

  $

$

125,000

165,000

  $

$

19,060

18,870

  $

$

26,043(5)

22,000(5)

  $

$

434,142

445,870

Marie D. Hlavaty

Vice President, General Counsel, Holdings and Visant

  2007
2006
  $

$

330,000

325,673

  $

$

—  

—  

  $

$

—  

—  

  $

$

—  

—  

  $

$

200,000

275,000

  $

$

34,272

38,105

  $

$

23,525(6)

21,100(6)

  $

$

587,797

659,878

Michael L. Bailey

President and Chief Executive Officer, Jostens

  2007
2006
  $

$

548,077

500,000

  $

$

—  

—  

  $

$

—  

—  

  $

$

—  

—  

  $

$

—  

453,566

  $

$

216,029

192,589

  $

$

37,134(7)

27,525(7)

  $

$

801,240

1,173,680

John Van Horn

Group President, Arcade/Lehigh Direct and President and Chief Executive Officer, Arcade

  2007
2006
  $

$

400,000

370,000

  $

$

—  

—  

  $

$

150,149(1)

6,582(1)

  $

$

—  

—  

  $

$

—  

250,000

  $

$

51,753

61,158

  $

$

26,193(8)

25,700(8)

  $

$

628,095

713,440

 

(1)   The amount represents the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year computed in accordance with SFAS No. 123R. Please see Note 15, Stock-based Compensation, to our consolidated financial statements for a discussion of all assumptions used by us with respect to the valuation. The restricted stock award was made under our 2004 Plan, which is described under “—Equity Compensation”.
(2)   The amounts represent earnings under the annual incentive compensation plan.
(3)   Reflects the aggregate change in actuarial present value of the named executive officer’s accumulated benefit under our qualified, non-contributory pension plan, our unfunded supplemental retirement plan and our non-contributory unfunded supplemental pension plan and, in the case of Mr. Reisch, the supplemental retirement benefit provided for under his employment agreement. Please refer to the narrative descriptions of our pension plans under the Pension Benefits table. We currently have no deferred compensation plans.
(4)  

Includes for each of 2006 and 2007, respectively: $85,685 and $64,615 of premiums under a life insurance policy which are paid by us under the terms of Mr. Reisch’s employment agreement (the proceeds under the policy are payable to beneficiaries designated by Mr. Reisch); $8,800 and $9,000 representing regular employer matching contributions to our 401(k) plan; $13,680 each year representing a car allowance; and approximately $6,300 and $5,806 representing executive medical expenses reimbursed by us, a health club stipend and cash credits under the group medical plan offered to any employee who participates in our health screenings or foregoes certain disability and life insurance

 

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benefits. We make available to Mr. Reisch the company-owned aircraft for occasional personal use. In such cases, Mr. Reisch reimburses the Company for an amount equal to the Company’s incremental cost for such use. The calculation of the incremental cost for personal use of our company aircraft includes only variable costs incurred as a result of such flight activity. Incremental cost does not include fixed costs that are incurred regardless of Mr. Reisch’s use (e.g. aircraft insurance, maintenance, storage and flight crew salaries).

(5)   Includes for each of 2006 and 2007, respectively: $8,800 and $9,000 representing regular employer matching contributions to our 401(k) plan; $10,200 each year representing a car allowance; and approximately $3,000 and $6,843 representing executive medical expenses reimbursed by us, a health club stipend and cash credits under the group medical plan offered to any employee who participates in health screenings or foregoes certain disability and life insurance benefits.
(6)   Includes for each of 2006 and 2007, respectively: $8,800 and $9,000 representing regular employer matching contributions to our 401(k) plan; $10,000 each year representing a car allowance; and approximately $2,300 and $4,525 representing executive medical expenses reimbursable by us, a health club stipend and cash credits under the group medical plan offered to any employee who participates in health screenings or foregoes certain disability and life insurance benefits.
(7)   Includes for each of 2006 and 2007, respectively: $8,800 and $9,000 representing regular employer matching contributions to our 401(k) plan; $10,825 and $19,819 representing a car allowance; and approximately $7,900 and $8,315 representing reimbursed financial planning, medical expenses, a health club stipend and cash credits under the group medical plan offered to any employee who participates in health screenings or foregoes certain disability and life insurance benefits.
(8)   Includes for each of 2006 and 2007, respectively: $8,800 and $9,000 representing regular employer matching contributions to our 401(k) plan; $12,000 each year representing a car allowance; and approximately $4,900 and $5,193 of cash credits under the group medical plan offered to any employee who participates in health screenings or foregoes certain disability and life insurance benefits.

Grants of Plan-Based Awards in 2007

The following table provides information with regard to each stock and option award granted to each named executive officer during 2007.

 

Name

   Grant
Date
   Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1)
        Threshold($)    Target ($)    Maximum($)

Marc L. Reisch

   N/A    $ —      $ 950,000    $ —  

Paul B. Carousso

   N/A    $ —      $ 132,500    $ —  

Marie D. Hlavaty

   N/A    $ —      $ 181,500    $ —  

Michael L. Bailey

   N/A    $ —      $ 385,000    $ —  

John Van Horn

   N/A    $ —      $ 200,000    $ —  

 

(1)   Reflects the target award amounts under our annual incentive compensation plan for our named executive officers. The actual non-equity incentive plan compensation amount earned by each named executive officer in 2007 is shown in the Summary Compensation Table above.

Equity Compensation

The 2003 Plan was approved by the Board of Directors and was effective as of October 30, 2003. The 2003 Plan permits us to grant key employees and certain other persons stock options and stock awards and provides for a total of 288,023 shares of common stock for issuance of options and awards to employees of the Company and a total of 10,000 shares of common stock for issuance of options and awards to directors and other persons providing services to the Company. Pursuant to the 2003 Plan, the maximum grant to any one person shall not exceed in the aggregate 70,400 shares. We do not currently intend to make any additional grants under the 2003 Plan. Option grants consist of “time options”, which vest and become exercisable in annual installments over the first five years following the date of grant, and/or “performance options”, which vest and become exercisable over the first five years following the date of grant at varying levels based on the achievement of certain EBITDA targets, and in any event by the eighth anniversary of the date of grant. The performance vesting includes certain carryforward provisions if targets are not achieved in a particular fiscal year and performance in a subsequent fiscal year satisfies cumulative performance targets, subject to certain conditions. Upon the

 

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occurrence of a “change in control” (as defined in the 2003 Plan), the unvested portion of any time option will immediately become vested and exercisable, and the vesting and exercisability of the unvested portion of any performance option may accelerate depending on the timing of the change of control and return on the equity investment by DLJMBP III in the Company as provided under the 2003 Plan. A “change in control” under the 2003 Plan is defined as: (1) any person or other entity (other than any of Holdings’ subsidiaries), including any “person” as defined in Section 13(d)(3) of the Exchange Act, other than certain of the DLJMBP funds or affiliated parties thereof becoming the beneficial owner, directly or indirectly, in a single transaction or a series of related transactions, by way of merger, consolidation or other business combination, of securities of Holdings representing more than 51% of the total combined voting power of all classes of capital stock of Holdings (or its successor) normally entitled to vote for the election of directors of Holdings or (2) the sale of all or substantially all of the property or assets of Holdings to any unaffiliated person or entity other than one of Holdings’ subsidiaries is consummated. The Transactions did not constitute a change of control under the 2003 Plan. Options issued under the 2003 Plan expire on the tenth anniversary of the grant date. The shares underlying the options are subject to certain transfer and other restrictions set forth in the Stockholders Agreement, dated July 29, 2003, by and among the Company and certain holders of the capital stock of the Company. Participants under the 2003 Plan also agree to certain restrictive covenants with respect to confidential information of the Company and non-competition in connection with their receipt of options.

All outstanding options to purchase Holdings common stock continued following the closing of the Transactions. In connection with the Transactions, all outstanding options to purchase Von Hoffmann and Arcade common stock were cancelled and extinguished. Consideration paid in respect of the Von Hoffmann options was an amount equal to the difference between the per share merger consideration in the Transactions and the exercise price therefor. No consideration was paid in respect of the Arcade options.

In connection with the closing of the Transactions, we established the 2004 Stock Option Plan, which permits us to grant key employees and certain other persons of the Company and its subsidiaries various equity-based awards, including stock options and restricted stock. The plan, currently known as the 2004 Plan, provides for issuance of a total of 510,230 shares of Holdings Class A Common Stock. As of December 29, 2007, there were 58,476 shares available for grant under the 2004 Plan. Shares related to grants that are forfeited, terminated, cancelled or expire unexercised become available for new grants. Under his employment agreement, as described below, Mr. Marc L. Reisch, the Chairman of our Board of Directors and our Chief Executive Officer and President, received awards of stock options and restricted stock under the 2004 Plan. Additional members of management have also received grants under the 2004 Plan. Option grants consist of “time options”, which vest and become exercisable in annual installments through 2009, and/or “performance options”, which vest and become exercisable following the date of grant based upon the achievement of certain EBITDA and other performance targets, and in any event by the eighth anniversary of the date of grant. The performance vesting includes certain carryforward provisions if targets are not achieved in a particular fiscal year and performance in a subsequent fiscal year satisfies cumulative performance targets. Upon the occurrence of a “change in control” (as defined under the 2004 Plan), the unvested portion of any time option will immediately become vested and exercisable, and the vesting and exercisability of the unvested portion of any performance option may accelerate if certain EBITDA or other performance measures have been satisfied. A “change in control” under the 2004 Plan is defined as: (1) the sale (in one or a series of transactions) of all or substantially all of the assets of Holdings to an unaffiliated person; (2) a sale (in one transaction or a series of transactions) resulting in more than 50% of the voting stock of Holdings being held by an unaffiliated person; or (3) a merger, consolidation, recapitalization or reorganization of Holdings with or into an unaffiliated person, in each case, if and only if any such event listed in (1) through (3) above results in the inability of the Sponsors, or any member or members of the Sponsors, to designate or elect a majority of the Board (or the board of directors of the resulting entity or its parent company). The option exercise period is determined at the time of grant of the option but may not extend beyond the end of the calendar year that is ten calendar years after the date the option is granted.

 

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All options, restricted shares and any common stock for which such equity awards are exercised or with respect to which restrictions lapse are governed by a management stockholder’s agreement and a sale participation agreement, which together generally provide for the following:

 

   

transfer restrictions until the fifth anniversary of purchase/grant, subject to certain exceptions;

 

   

a right of first refusal by Holdings at any time after the fifth anniversary of purchase but prior to a registered public offering of the Class A Common Stock meeting certain specified criteria;

 

   

in the event of termination of employment for death or disability (as defined), if prior to the later of the fifth anniversary of the date of purchase/grant and a registered public offering, put rights by the stockholder with respect to Holdings stock and outstanding and exercisable options;

 

   

in the event of termination of employment other than for death or disability, if prior to the fifth anniversary of the date of purchase/grant, call rights by the Company with respect to Holdings stock and outstanding and exercisable options;

 

   

“piggyback” registration rights on behalf of the members of management;

 

   

“tag-along” rights in connection with transfers by Fusion Acquisition LLC (“Fusion”), an entity controlled by investment funds affiliated with KKR, on behalf of the members of management and “drag-along” rights for Fusion and DLJMBP III; and

 

   

a confidentiality provision and noncompetition and nonsolicitation provisions that apply for two years following termination of employment.

Employment Agreements and Arrangements

Employment agreement with Marc L. Reisch. In connection with the Transactions, Holdings entered into an employment agreement with Marc L. Reisch on the following terms, under which he serves as the Chairman of our Board of Directors and our Chief Executive Officer and President.

Mr. Reisch’s employment agreement has an initial term of five years and automatically extends for additional one-year periods at the end of the initial term and each renewal term, subject to earlier termination of his employment by either Mr. Reisch or by us pursuant to the terms of the agreement. Mr. Reisch’s agreement provides for the payment of an annual base salary of not less than $850,000, subject to annual review and increase by our Board, plus an annual cash bonus opportunity between zero and 150% of annual base salary, with a target bonus of 100% of annual base salary (of which no less than 67% is to be based on certain EBITDA targets to be achieved). For 2007, Mr. Reisch received an annual base salary of $950,000.

Pursuant to the employment agreement, Mr. Reisch was paid a cash signing bonus of $600,000, the after-tax proceeds of which were reinvested as part of his initial equity participation. Pursuant to the agreement, Mr. Reisch invested $3,500,000 in cash to purchase Holdings Class A Common Stock, and we granted him an option to purchase 3.5 shares of Holdings Class A Common Stock for every one share of the $3,500,000 in value of Holdings Class A Common Stock initially purchased by him. Under his stock option agreement, we granted Mr. Reisch options to purchase a total of 127,466 shares of Holdings stock, consisting of options to purchase 56,449 shares subject to time-based vesting (the “time options”) and options to purchase 71,017 shares subject to performance-based vesting (the “performance options”). The time options became vested and exercisable with respect to 9,104 of the shares on December 31, 2004. The time options, with respect to the remaining 47,345 shares, vest in five annual installments commencing on December 31, 2005 as to the following percentages: 25%, 25%, 25%, 15% and 10%. As of December 29, 2007 giving effect to vesting for 2007, a total of 44,613 shares were vested under the time options. The performance options will vest on a cliff basis on December 31, 2012, subject to acceleration based on the achievement of certain EBITDA targets. As of December 29, 2007 giving effect to vesting for 2007, a total of 53,263 shares were vested under the performance options. Additionally, under a restricted stock award agreement, we made a one-time grant of 10,405 shares of Holdings Class A

 

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Common Stock to Mr. Reisch, which stock is 100% vested and nonforfeitable by Mr. Reisch, subject to the same rights and restrictions set forth in the management stockholder’s agreement and the sale participation agreement described under “—Equity Compensation”, other than Holdings’ call rights in the event of termination of employment.

The employment agreement also provides for the Company’s payment of all premiums on a life insurance policy having a death benefit equal to $10.0 million that will be payable to such beneficiaries designated by Mr. Reisch. Mr. Reisch will be subject to noncompetition and nonsolicitation restrictions during the term of the employment agreement and for a period of two years following Mr. Reisch’s termination of employment. The employment agreement also includes a provision relating to non-disclosure of confidential information. In addition, the agreement provides for a retirement benefit, described in the narrative following the Pension Benefits table below. The agreement allows for certain payments and benefits upon termination, death, disability and a change in control as described in “—Termination, Severance and Change of Control Arrangements—Employment Agreement with Marc L. Reisch.”

Change in Control Agreements. On May 10, 2007, Holdings and the Company entered into a change in control severance agreement with each of Paul Carousso, Vice President, Finance, and Marie Hlavaty, Vice President, General Counsel. The change in control agreements are effective through December 31, 2009 unless otherwise extended, provided that the change in control agreements shall remain in effect for a period of two years following a change in control (as defined in the agreements) during the term. The agreements allow for certain payments and benefits upon a change in control as described in “—Termination, Severance and Change of Control Arrangements—Arrangements with Paul B. Carousso and Marie D. Hlavaty”.

Separation agreement with Michael L. Bailey. Mr. Bailey retired from Jostens on January 7, 2008, and, in connection therewith, we entered into a separation agreement with Mr. Bailey. The terms of the separation agreement and the payments to Mr. Bailey thereunder are discussed under “—Termination, Severance and Change of Control Arrangements—Separation Agreement—Michael L. Bailey”.

Employment agreement with Timothy M. Larson. We entered into an employment agreement with Timothy M. Larson, effective as of January 7, 2008, on the following terms, under which he serves as the President and Chief Executive Officer of Jostens. Mr. Larson’s employment agreement has an initial term of five years and automatically extends for additional one-year periods at the end of the initial term and each renewal term, subject to earlier termination of his employment by either Mr. Larson or by us pursuant to the terms of the agreement. Mr. Larson’s agreement provides for the payment of an annual base salary of not less than $650,000, subject to annual review and increase by our Board after June 2009, plus an annual cash bonus opportunity between zero and 127% of annual base salary, with a target bonus of 85% of annual base salary (of which no less than 67% is to be based on certain EBITDA targets to be achieved). In addition, Mr. Larson will continue to be eligible for the extraordinary bonuses set forth in, and subject to the terms of, a letter agreement entered into between Mr. Larson and us on October 2, 2006 (the “2006 letter agreement”), which provides for an additional payment of $500,000 payable on October 31, 2008 so long as Mr. Larson remains in the active employment of Jostens as of the date of payment, provided that, if Mr. Larson’s employment is terminated without cause (as defined in the 2006 letter agreement) or due to his death prior to the payment date, the amount not paid will be paid to Mr. Larson upon the date of termination or, in the case of his death, to his estate on the date the payment otherwise would have been made. Payments of $600,000 and $500,000 have already been paid under the 2006 letter agreement as of October 31, 2006 and October 31, 2007, respectively. Mr. Larson also receives executive health benefits, reimbursement for financial counseling services (including financial planning, tax preparation, estate planning, and tax and investment planning software) in an aggregate amount not to exceed $1,500 annually and a monthly car allowance of $1,800 commencing May 1, 2008 (and the use of a company-leased vehicle until such time).

Pursuant to the employment agreement, Mr. Larson will also be eligible to participate in a long-term incentive plan, with awards payable in cash based on the fair market value of the Class A Common Stock at the date of determination, subject to the achievement of performance targets to be established by the Board.

 

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Mr. Larson is subject to noncompetition and nonsolicitation restrictions during the term of the employment agreement and for a period of two years following Mr. Larson’s termination of employment. The employment agreement also includes a provision relating to non-disclosure of confidential information.

As defined in the employment agreement, termination by us for “cause” may be based on any of the following: Mr. Larson’s willful and continued failure to perform his material duties which continues beyond ten days after a written demand for substantial performance is delivered to Mr. Larson by us; the willful or intentional engaging in conduct that causes material and demonstrable injury, monetarily or otherwise, to us or KKR and DLJMBP III or their affiliates; the commission of a crime constituting a felony under the laws of the United States or any state thereof or a misdemeanor involving moral turpitude; or a material breach by Mr. Larson of the employment agreement, the management stockholder’s agreement, the sale participation agreement or the long-term incentive agreement to be entered into in connection with the employment agreement including, engaging in any action in breach of restrictive covenants contained in the employment agreement, which continues beyond ten days after a written demand to cure the breach is delivered by us to Mr. Larson (to the extent that, in our Board’s reasonable judgment, the breach can be cured).

Also as defined in the employment agreement, “good reason” means: a reduction in Mr. Larson’s rate of base salary or annual incentive compensation opportunity (other than a general reduction in base salary or annual incentive compensation that affects all members of our senior management in substantially the same proportion, provided that Mr. Larson’s base salary is not reduced by more than 10%); a substantial reduction in Mr. Larson’s duties and responsibilities, an adverse change in Mr. Larson’s titles of president and chief executive officer of Jostens or the assignment to Mr. Larson of duties or responsibilities substantially inconsistent with such titles; or a transfer of Mr. Larson’s primary workplace by more than 50 miles outside of Bloomington, Minnesota.

If Mr. Larson’s employment were terminated by us for cause or by Mr. Larson without good reason, he would be entitled to receive a lump sum payment, which includes the amount of any earned but unpaid base salary, earned but unpaid annual bonus for the previously completed fiscal year, and accrued and unpaid vacation pay as well as reimbursement for any unreimbursed business expenses, all as of the date of termination. Also, Mr. Larson would receive any employee benefits that he may be entitled to under the applicable welfare benefit plans, fringe benefit plans and qualified and nonqualified retirement plans then in effect upon termination of employment and under the 2006 letter agreement.

If Mr. Larson is terminated by us without cause (which includes our nonrenewal of the agreement for any additional one-year period, as described above but excludes death or disability) or if he resigns for good reason, he will be entitled to receive, in addition to the amounts and benefits described above in connection with a termination by us for cause or by Mr. Larson without good reason: a lump sum payment equal to the prorated portion of the annual bonus, if any, Mr. Larson would have been entitled to receive for the year of termination, had he remained employed, payable when such bonuses are paid to other executives (the “Pro-Rata Bonus”), and (2) subject to his continued compliance with the restrictive covenants and his execution of a release of claims, an amount equal to the sum of (a) 24 months’ base salary at the rate in effect immediately prior to the date of termination plus (b) two times his target bonus for the year of termination, payable in 24 equal monthly installments; and continued participation in health and welfare benefit plans until the earlier of 24 months after the date of termination or the date that Mr. Larson becomes eligible for comparable coverage by any subsequent employer.

In the event that Mr. Larson’s employment is terminated due to his death or disability (defined in the employment agreement as being unable to perform his duties due to physical or mental incapacity for six consecutive months or nine months in any consecutive 18-month period), Mr. Larson (or his estate, as the case may be) will be entitled to receive, in addition to the amounts described above in connection with a termination by us for cause or by Mr. Larson without good reason, the Pro-Rata Bonus.

 

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Outstanding Equity Awards at December 29, 2007

The following table presents the outstanding equity awards held as of December 29, 2007 (giving effect to vesting for 2007) by each named executive officer.

 

Name

  Option Awards   Stock Awards
  Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable
(1)
  Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable
(2)
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)(7)
    Option
Exercise
Price

($)(8)
  Option
Expiration

Date
  Number of
Shares or

Units of
Stock
That Have
Not
Vested

(#)
    Market
Value of
Shares or
Units of
Stock
That
Have Not

Vested
($)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested

(#)

Marc L. Reisch

  880   —       —       $ 30.09   1/17/2014   —         —       —  
  97,876   11,837 (3)   17,754     $ 39.07   10/4/2014   —         —       —  

Paul B. Carousso

  7,024   935 (4)   1,406     $ 39.07   3/15/2015   —         —       —  

Marie D. Hlavaty

  14,048   1,873 (5)   2,810     $ 39.07   3/15/2015   —         —       —  

Michael L. Bailey

  9,387   —       —       $ 30.09   1/17/2014   —         —       —  
  27,314   3,120 (6)   5,9850 (6)   $ 39.07   12/31/2015   —         —       —  

John Van Horn

  —     —       —       $ —       3,000 (9)   $ 714,600 (10)   —  

 

(1)   Represents options that are vested and exercisable but not yet exercised.
(2)   Represents options that remain unvested and unexercisable as of December 29, 2007 and which will vest based on the passage of time and the executive’s continued service or an earlier change in control.
(3)   Vests with respect to 7,102 shares after the end of fiscal year 2008 and 4,735 shares after the end of fiscal year 2009.
(4)   Vests with respect to 562 shares after the end of fiscal year 2008 and 373 shares after the end of fiscal year 2009.
(5)   Vests with respect to 1,124 shares after the end of fiscal year 2008 and 749 shares after the end of fiscal year 2009.
(6)   All unvested stock options held by Mr. Bailey as of January 7, 2008 (after giving effect to vesting based on 2007 performance) expired and were cancelled without payment in connection with his retirement. All vested options will remain exercisable through December 31, 2008 so long as Mr. Bailey remains employed by Visant (or if such employment is terminated other than due to Mr. Bailey’s breach or resignation, death or disability, prior to such date).
(7)   Represents options that remain unvested and unexercisable as of December 29, 2007 and which will vest based on certain annual performance measures being met. See “—Equity Compensation” for a discussion of “performance options”.
(8)   There is no established public trading market for the Holdings Class A Common Stock and, therefore, the exercise prices listed in this column represent the fair market value of a share of the Holdings Class A Common Stock, as determined by the Compensation Committee of the Board of Directors, based on an independent third party valuation, as of the grant date of the option (in each case the original option exercise price was adjusted in April 2006 in connection with the special dividend paid on Holdings Class A Common Stock).
(9)   The stock will vest in one installment on January 15, 2009, subject to Mr. Van Horn’s continued service. The stock is subject to accelerated vesting in the event of certain termination of employment events, namely upon Mr. Van Horn’s death or disability or upon a change in control, which is described under “—Termination, Severance and Change of Control Arrangements-Accelerated Vesting of Restricted Stock.”
(10)   There is no established public trading market for the Holdings Class A Common Stock. For purposes of this table, the market value of shares that have not vested is calculated based on the fair market value of Holdings Class A Common Stock of $238.20 per share as of December 29, 2007, as determined by the Compensation Committee of the Board of Directors under the 2004 Plan.

Option Exercises and Stock Vested in 2007

There were no stock options exercised or restricted stock awards which vested during 2007.

 

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Pension Benefits in 2007

The following table presents the present value of accumulated pension benefits as of December 29, 2007.

Pension Benefits

 

Name

  Jostens Pension Plan(1)   Jostens ERISA Excess Plan   Supplemental Executive
Retirement Plan (SERP)
  Contractual Retirement Benefit
  Number
of
Years
Credited
Service
(#)
    Present
Value
of
Accumulated
Benefits

($)(2)
  Payments
During
Last
Fiscal
Year

($)
  Number
of

Years
Credited
Service
(#)
  Present
Value

of
Accumulated
Benefits

($)(2)
  Payments
During
Last Fiscal
Year

($)
  Number
of

Years
Credited
Service
(#)
    Present
Value

of
Accumulated
Benefits

($)(2)
  Payments
During
Last
Fiscal
Year

($)
  Number
of Years
Credited
Service

(#)
  Present
Value of

Accumulated
Benefits

($)(2)
  Payments
During
Last Fiscal
Year

($)

Marc L. Reisch

  3.2     $ 34,649   $ —     3.2   $ 232,560   $ —     3.2     $ 318,302   $ —     N/A   $ 106,915   $ —  

Paul B. Carousso

  3.2     $ 14,460   $ —     3.2   $ 8,459   $ —     3.2     $ 37,523   $ —     N/A     N/A     N/A

Marie D. Hlavaty

  3.2     $ 22,270   $ —     3.2   $ 27,296   $ —     3.2     $ 69,509   $ —     N/A     N/A     N/A

Michael L. Bailey

  23 (3)   $ 267,730   $ —     23   $ 936,980   $ —     22.0 (4)   $ 1,223,858   $ —     N/A     N/A     N/A

John Van Horn

  3.2     $ 74,427   $ —     3.2   $ 122,565   $ —     N/A       N/A     N/A   N/A     N/A     N/A

 

N/A   = Not applicable
(1)   Mr. Bailey is a grandfathered participant in Plan D based on his age and years of service with Jostens as of December 29, 2007 (see the explanation of the grandfathered benefit below). Messrs. Reisch, Carousso and Van Horn and Ms. Hlavaty participate in Plan D but not as grandfathered participants.
(2)   The present value of accumulated benefits is determined using the assumptions disclosed in Note 14, Benefit Plans, to our consolidated financial statements.
(3)   Under the Jostens ERISA Excess Plan, Mr. Bailey has an additional credit under Plan D for 6.5 years of sales service to Jostens.
(4)   The accrual of credited service for Mr. Bailey ceased on January 7, 2008 upon his retirement.

Jostens maintains a tax-qualified, non-contributory pension plan, Pension Plan D (“Plan D”), which provides benefits for certain salaried employees. Jostens also maintains an unfunded supplemental retirement plan (the “Jostens ERISA Excess Plan”) that gives additional 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, calculating the benefits as if such years of service were credited under Plan D. Benefits specified in Plan D may exceed the level of benefits that may be paid from a tax-qualified plan under the Internal Revenue Code. The Jostens ERISA Excess Plan also pays benefits that would have been provided from Plan D but cannot because they exceed the level of benefits that may be paid from a tax-qualified plan under the Code.

For Plan D and the Jostens ERISA Excess Plan:

 

   

Normal retirement age is 65 with at least five years of service, while early retirement is allowed at age 55 with at least ten years of service. Employees who retire prior to age 65 are subject to an early retirement factor adjustment based on their age at benefit commencement. The reduction is 7.8% for each year between ages 62 and 65 and 4.2% for each year between 55 and 62.

 

   

The vesting period is five years or attainment of age 65.

 

   

The formula to determine retirement income benefits prior to January 1, 2006 (the grandfathered benefit), was based on a participant’s highest average annual cash compensation (W-2 earnings, excluding certain long-term incentives and certain taxable allowances such as moving allowance) during any five consecutive calendar years, years of credited service (to a maximum of 35 years) and the Social Security covered compensation table in effect as of retirement. The grandfathered benefit formula is 0.85% of average annual salary up to Social Security covered compensation plus 1.50% of average annual salary in excess of Social Security covered compensation times years of benefit service (up to 35 maximum). Only those employees age 45 and over with more than 15 years of service as of December 31, 2005 are entitled to the grandfathered benefit.

 

   

Effective January 1, 2006, the formula to determine an employee’s retirement income benefits for future service under the plan changed for employees under age 45 with less than 15 years of service as of December 31, 2005

 

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(non-grandfathered participants). Benefits earned prior to January 1, 2006 are retained and only benefits earned for future years are calculated under the revised formula. The formula for benefits earned after January 1, 2006 for the non-grandfathered participants is based on 1 percent of a participant’s cash compensation (W-2 compensation) for each year or partial year of benefit service beginning January 1, 2006.

 

   

For employees age 45 and over with 15 or more years of service as of December 31, 2005 (grandfathered participants), the formula to determine an employee’s retirement income benefit is the greater of the formula in effect prior to 2006 or the combined pre and post 2006 benefit described in the immediately preceding paragraph.

 

   

The methods of payment upon retirement include, but are not limited to, life annuity, 50%, 75% or 100% joint and survivor annuity and life annuity with ten year certain.

 

   

There is a cap on the maximum annual salary that can be used to calculate the benefit accrual allowable under Plan D. Additional salary over the cap is used to calculate the accrued benefit under the Jostens ERISA Excess Plan. No more than $225,000 of salary could be recognized in 2007 under Plan D and this limitation will increase periodically as established by the IRS.

We also maintain non-contributory unfunded supplemental pension plans (“SERPs”) for certain named executive officers. Participants who retire after age 60 with at least seven full calendar years of service as an executive officer (as defined under the SERP) are eligible for a benefit equal to 1% of final base salary in effect at age 60 for each full calendar year of service, up to a maximum of 30 years. The result of the calculation is divided by 12 to arrive at a monthly benefit payment. Only service after age 30 is recognized under the SERP. The calculation of benefits is frozen at the levels reached at age 60. If the employee’s employment is terminated for any reason other than death or total disability after reaching age 55 and completing seven years of service as an executive officer, but before reaching age 60, the employee shall be entitled to an early retirement benefit in equal monthly installments equal to 1% of the employee’s base salary in effect at termination, multiplied by the employee’s years of service. In the event of a change in control, a participant is deemed to have completed at least seven years of service as an executive officer. Also under the SERP, if an employee dies at any time before satisfying the age and service requirements for receiving a benefit under the SERP, the employee’s beneficiary will receive a lump sum payment equal to twice the employee’s base salary in effect at the time of death or earlier if there was a termination due to total disability (as defined in the SERP). If an employee has completed seven years of service and is terminated by reason of total disability prior to reaching age 55, the period of the employee’s total disability will count as years of services until that employee attains age 55 (unless the employee recovers from the disability). There are certain restrictive covenant provisions under the SERPs. Under the SERPs, “a change in control” is defined as any of the following:

 

   

the sale, lease, exchange or other transfer, directly or indirectly, of all or substantially all of the assets of the participant’s employer, in one transaction or in a series of related transactions;

 

   

the approval by the stockholders of any plan or proposal for liquidation or dissolution;

 

   

any person is or becomes the beneficial owner, directly or indirectly, of (1) 20% or more, but not more than 50%, of the combined voting power of the employer’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the continuing directors, or (2) more than 50% of the combined voting power of the employer’s outstanding securities ordinarily having the right to vote at elections of directors;

 

   

a merger or consolidation to which the employer is a party if the stockholders of the employer immediately prior to the effective date of such merger or consolidation have, solely on account of ownership of securities of the employer at such time, beneficial ownership immediately following the effective date of such merger or consolidation of securities of the surviving corporation representing (1) 50% or more, but not more than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such

 

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merger or consolidation has been approved in advance by the continuing directors, or (2) less than 50% of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors; or

 

   

the continuity directors cease for any reason to constitute at least a majority of the board of directors.

For purposes of the SERPs, the named executive officer’s “employer” is Holdings, other than Mr. Bailey, for which it is Jostens, Inc. Due to his retirement on January 7, 2008, Michael L. Bailey had a termination of employment under the SERP and ceased to accrue additional benefits under his SERP as of such date.

Under the terms of our employment agreement with Marc L. Reisch, if Mr. Reisch’s employment terminates for any reason after December 31, 2009, he is entitled to a retirement benefit supplemental to those benefits payable under our qualified and nonqualified retirement plans, which constitutes an annual lifetime retirement benefit commencing on the later of the date of his employment termination for any reason or the date he achieves age 60. The benefit is equal to, generally, 10% of the average of Mr. Reisch’s (1) base salary and (2) annual bonuses payable over the five fiscal years ended prior to his termination, plus 2% of such average compensation (prorated for any partial years) earned for each additional year of service accruing after December 31, 2009, less benefits paid under the other retirement plans. The vesting of this benefit would accelerate upon a “change in control” of the Company, upon Mr. Reisch’s death or disability, or after the third anniversary of October 4, 2004, upon termination of Mr. Reisch’s employment by us without cause, or by his resignation for good reason (including if we do not renew the employment agreement). Also, under the employment agreement, at such time as Mr. Reisch vests in the foregoing retirement benefit, Mr. Reisch and his eligible dependents will be eligible for welfare benefits which are equivalent to the then current programs offered to active salaried employees. Coverage ends after the earlier of age 65 or the date on which he becomes eligible for comparable coverage from a subsequent employer, and in the case Mr. Reisch has vested in the retirement benefit explained above or on account of his death, his then spouse is entitled to receive the post-retirement medical benefits until the date on which Mr. Reisch would, but for his death, have attained age 65.

Under the agreement, a “change in control” means:

 

   

the sale of all or substantially all of our assets other than to KKR or DLJMBP III or any of their affiliates;

 

   

a sale by KKR and DLJMBP III or their affiliates resulting in more than 50% of the voting stock of the Company being held by a “person” or “group” (as such terms are used in the Exchange Act) that does not include KKR or DLJMBP III or their affiliates, if the sale results in the inability of KKR and DLJMBP III and certain of their affiliates to elect a majority of the members of our board of directors or the board of directors of the resulting entity; or

 

   

a merger or consolidation of us into another person which is not an affiliate of either of KKR and DLJMBP III, if the merger or consolidation results in the inability of KKR or DLJMBP III and certain of their affiliates to elect a majority of the members of our board of directors or the board of directors of the resulting entity.

Nonqualified Deferred Compensation for 2007

None of the named executive officers receives any nonqualified deferred compensation.

 

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Termination, Severance and Change of Control Arrangements

Employment Agreement with Marc L. Reisch

Termination by us for cause or by Mr. Reisch without good reason. Under the employment agreement between us and Mr. Reisch, termination for “cause” requires the affirmative vote of two-thirds of the members of our Board (or such higher percentage or procedures required under the 2004 Stockholders Agreement) and may be based on any of the following:

 

   

Mr. Reisch’s willful and continued failure to perform his material duties which continues beyond ten days after a written demand for substantial performance is delivered to Mr. Reisch by us;

 

   

the willful or intentional engaging in conduct that causes material and demonstrable injury, monetarily or otherwise, to us or KKR and DLJMBP III or their affiliates;

 

   

the commission of a crime constituting a felony under the laws of the United States or any state thereof or a misdemeanor involving moral turpitude; or

 

   

a material breach by Mr. Reisch of the employment agreement, the management stockholder’s agreement, the sale participation agreement, or the stock option agreement or restricted stock award agreement entered into in connection with the employment agreement, including, engaging in any action in breach of restrictive covenants contained in the employment agreement, which continues beyond ten days after a written demand to cure the breach is delivered by us to Mr. Reisch (to the extent that, in our Board’s reasonable judgment, the breach can be cured).

Under the employment agreement between us and Mr. Reisch, Mr. Reisch is required to provide 60 days’ advance written notice of any termination of his employment by him for good reason. “Good reason” means:

 

   

a reduction in Mr. Reisch’s rate of base salary or annual incentive compensation opportunity (other than a general reduction in base salary or annual incentive compensation opportunities that affect all members of our senior management equally, which general reduction will only be implemented by our Board after consultation with Mr. Reisch);

 

   

a material reduction in Mr. Reisch’s duties and responsibilities, an adverse change in Mr. Reisch’s titles of chairman and chief executive officer or the assignment to Mr. Reisch of duties or responsibilities materially inconsistent with such titles; however, none of the foregoing will be deemed to occur by virtue of the removal of Mr. Reisch from the position of chairman of the board following the completion of a public offering of the Holdings Class A Common Stock meeting certain specified criteria; or

 

   

a transfer of Mr. Reisch’s primary workplace by more than 50 miles outside of Armonk, New York.

If Mr. Reisch’s employment were terminated by us for cause or by Mr. Reisch without good reason, he would be entitled to receive a lump sum payment, which includes the amount of any earned but unpaid base salary, earned but unpaid annual bonus for a previously completed fiscal year, and accrued and unpaid vacation pay as well as reimbursement for any unreimbursed business expenses, all as of the date of termination. In addition, Mr. Reisch would receive the supplemental retirement benefit described in the narrative following the Pension Benefits table (if termination occurs after December 31, 2009) and the transfer of the life insurance policy described under “—Employment Agreements and Arrangements—Employment Agreement with Marc L. Reisch” such that Mr. Reisch may assume the policy at his own expense. Also, Mr. Reisch would receive any employee benefits that he may be entitled to under the applicable welfare benefit plans, fringe benefit plans and qualified and nonqualified retirement plans then in effect upon termination of employment.

 

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Termination by us without Cause or by Mr. Reisch for Good Reason. The employment agreement also provides that if Mr. Reisch is terminated by us without Cause (which includes our nonrenewal of the agreement for any additional one-year period, as described above but excludes death or disability) or if he resigns for Good Reason, he will be entitled to receive, in addition to the amounts and benefits described above in connection with a termination by us for cause or by Mr. Reisch without good reason:

 

   

(1) a lump sum payment equal to the prorated bonus for the year of termination, and (2) an amount equal to two times the sum of (a) Mr. Reisch’s then annual base salary plus (b) his target bonus for the year of termination, payable in 24 equal monthly installments; and

 

   

continued participation in welfare benefit plans until the earlier of two years after the date of termination or the date that Mr. Reisch becomes covered by a similar plan maintained by any subsequent employer, or cash in an amount that allows him to purchase equivalent coverage for the same period.

Disability or Death. In the event that Mr. Reisch’s employment is terminated due to his death or disability (defined in the employment agreement as being unable to perform his duties due to physical or mental incapacity for six consecutive months or nine months in any consecutive 18-month period), Mr. Reisch (or his estate, as the case may be) will be entitled to receive, in addition to the amounts described above in connection with a termination by us for cause or by Mr. Reisch without good reason, a lump sum payment equal to the prorated portion of the annual bonus, if any, Mr. Reisch would have been entitled to receive for the year of termination, payable within 15 days after the date of termination.

Supplemental Retirement Benefit. The vesting of the supplemental retirement benefit granted to Mr. Reisch under his employment agreement upon certain change in control, termination or resignation events is described under “—Employment Agreements and Arrangements—Employment Agreement with Marc L. Reisch”.

Additional Post-Termination Medical Benefits. At the time the supplemental retirement benefit described above vests, Mr. Reisch and his dependents would be provided with medical benefits, on the same terms as would have applied had Mr. Reisch continued to be employed by us, until the earlier of (1) the date on which Mr. Reisch attains age 65 or (2) Mr. Reisch becomes eligible to receive comparable coverage from a subsequent employer. If vesting in the supplemental retirement benefit were to occur on account of death, then Mr. Reisch’s then-spouse would be entitled to receive the post-retirement medical benefits until the date on which Mr. Reisch would, but for his death, have attained age 65.

Gross-Up Payments for Excise Taxes. Under the terms of the employment agreement, if it is determined that any payment, benefit or distribution to or for the benefit of Mr. Reisch would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code by reason of being “contingent on a change in ownership or control” of his employer within the meaning of Section 280G of the Code, or any interest or penalties are incurred by Mr. Reisch with respect to the excise tax, then Mr. Reisch would be entitled to receive an additional payment or payments, or a “gross-up payment”. The gross-up payment would be equal to an amount such that after payment by Mr. Reisch of all taxes (including any interest or penalties imposed relating to such taxes), Mr. Reisch would retain an amount equal to the excise tax (including any interest and penalties) imposed.

Acceleration of Options Upon Change in Control. In the event of a change in control of the Company, the vesting of Mr. Reisch’s time options will accelerate in full, and the vesting of his performance options may accelerate if specified performance targets have been achieved.

Post-termination Payments. The information below is provided to disclose hypothetical payments to Marc L. Reisch under various termination scenarios, assuming, in each situation, that Mr. Reisch was terminated on December 29, 2007 (and excluding any amounts accrued as of the date of termination).

 

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Post-Termination Payments

Marc L. Reisch

 

    Voluntary
termination
Without Good
Reason or
Involuntary
Termination for
Cause

($)
  Voluntary
Termination
With Good
Reason or
Involuntary
Termination
Without Cause
($)
    Termination in
Connection with
a Change in
Control

($)(9)
    Disability
($)
    Death
($)
 

Severance

  $ —     $ 3,800,000 (5)   $ 3,800,0000 (5)   $ —       $ —    

Annual Incentive

  $ —     $ 950,000 (6)   $ 950,000 (6)   $ 950,000 (6)   $ 950,000 (6)

Stock Options

    (3)     (7)     $ 5,892,456 (10)     (11)       (11)  

Incremental Pension Benefits(1)

  $ —     $ —       $ —       $ —       $ 1,207,574 (12)

Continuation of Welfare Benefits

  $ —     $ 22,338 (8)   $ 22,338 (8)   $ —       $ —    

Additional Post-Termination Medical Benefits(2)

  $ 67,214   $ 67,214     $ 67,214     $ 67,214     $ 46,939  

Insurance

    (4)     (4)       (4)       (4)       (4)  

 

(1)   Represents the net increase in the actuarial present value of accumulated benefits under Plan D, the Jostens Excess ERISA Plan, the SERP and the additional supplemental retirement benefit under the employment agreement with Mr. Reisch over the aggregate actuarial present value of accumulated benefits reported in the Pension Benefits table (determined using the assumptions disclosed in Note 14, Benefit Plans, to our consolidated financial statements).
(2)   Represents the present value of the additional post-termination medical benefits under Mr. Reisch’s employment agreement, determined using the assumptions disclosed in Note 14, Benefit Plans, to our consolidated financial statements.
(3)   No additional options would be vested as of termination. Vested options will terminate without payment.
(4)   Assumes the $10 million life insurance policy is transferred to Mr. Reisch, with future premiums to be paid by Mr. Reisch.
(5)   Total amount equals two times the sum of Mr. Reisch’s annual base salary as of December 29, 2007 plus his target bonus for the year of termination, payable in 24 equal monthly installments.
(6)   Payable as a lump sum.
(7)   No additional options would be vested as of termination (other than options vested for the completed fiscal year upon determination of performance targets being met); vested options will be subject to call by us, at our option, at the excess of fair market value of Holdings Class A Common Stock over the exercise price.
(8)   Mr. Reisch’s employment agreement requires that we continue his welfare benefits for 24 months unless he becomes eligible for coverage under comparable benefit plans from any subsequent employer. The table reflects the 2008 monthly premium payable by us for medical, dental and vision benefits in which Mr. Reisch and his dependents participated at December 29, 2007, multiplied by 24 months.
(9)   Mr. Reisch would be entitled to an additional payment (a gross-up) in the event it shall be determined that any payment, benefit or distribution (or combination thereof) by us for his benefit (whether paid or payable or distributed or distributable pursuant to the terms of our employment agreement with Mr. Reisch, or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, restricted stock, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing) would be subject to the excise tax imposed by Section 4999 of the Code by reason of being “contingent on a change in ownership or control” of us, within the meaning of Section 280G of the Code or any interest or penalties are incurred by Mr. Reisch with respect to the excise tax. The payment would be in an amount such that after payment by Mr. Reisch of all taxes (including any interest or penalties imposed with respect to those taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the excise tax imposed upon the gross-up available to cause the imposition of such taxes to be avoided, Mr. Reisch retains an amount equal to the excise tax (including any interest and penalties) imposed. However, there may be certain statutory exemptions based on our being a privately held Company that would avoid the imposition of the excise tax.
(10)   Value calculated is the gain based on $238.20 per share (the fair market value of a share of Holdings Class A Common Stock, as determined by the Compensation Committee of the Board of Directors, as of December 29, 2007) net of exercise prices. Assumes accelerated vesting of all performance options.

 

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(11)   No additional options would be vested as of termination for death or disability, vested options will be subject to call by us, at our option, at the excess of fair market value of Holdings Class A Common Stock over exercise price, or at the option of Mr. Reisch or his estate, subject to put to us at the same spread.
(12)   The SERP provides a pre-retirement death benefit such that, if an employee dies at any time before satisfying the age and service requirements for receiving a pension benefit, the employee’s beneficiary will receive a lump sum payment equal to twice the employee’s base salary in effect at the time of death.

Arrangements with Paul B. Carousso and Marie D. Hlavaty

Change in Control Severance Agreements. The change in control severance agreements between us and each of Paul B. Carousso, Vice President, Finance, and Marie D. Hlavaty, Vice President, General Counsel, provide for severance payments and benefits to the executive if, during the term of the agreement, his or her employment is terminated without cause or if the executive resigns with good reason within two years following a change in control. A “change in control” is defined as: (1) the sale (in one or a series of transactions) of all or substantially all of the assets of Holdings to an unaffiliated person; (2) a sale (in one transaction or a series of transactions) resulting in more than 50% of the voting stock of Holdings being held by an unaffiliated person; or (3) a merger, consolidation, recapitalization or reorganization of Holdings with or into an unaffiliated person, in each case if and only if any such event listed in clauses (1) through (3) above results in the inability of the Sponsors, or any member of members of the Sponsors, to designate or elect a majority of the Board (or the board of directors of the resulting entity or its parent company). Each change in control agreement is effective through December 31, 2009 and automatically extends for additional year periods at the end of the initial term and each renewal term, subject to earlier termination by the executive or by us pursuant to the terms of the agreement; provided that each agreement shall remain in effect for a period of two years following a change in control during the term.

Under the change in control agreements, “cause” may be based on any of the following:

 

   

the executive’s willful and continued failure to perform his or her material duties which continues beyond ten days after a written demand for substantial performance is delivered to the executive by us;

 

   

the willful or intentional engaging in conduct that causes material and demonstrable injury, monetarily or otherwise, to us or KKR and DLJMBP III or their affiliates;

 

   

the commission of a crime constituting a felony under the laws of the United States or any state thereof or a misdemeanor involving moral turpitude; or

 

   

a material breach by the executive of the change in control agreement or any other agreement, including engaging in any action in breach of restrictive covenants which continues beyond ten days after a written demand to cure the breach is delivered by us to the executive (to the extent that, in our Board’s reasonable judgment, the breach can be cured).

Also under the change in control agreements, “good reason” means:

 

   

a reduction in the executive’s base salary or annual incentive compensation (other than a general reduction in base salary that affects all members of our senior management in substantially the same proportion, provided that the executive’s base salary is not reduced by more than 10%);

 

   

a substantial reduction or adverse change in the executive’s duties and responsibilities;

 

   

a transfer of the executive’s primary workplace by more than fifty miles outside his or her current workplace;

 

   

our failure to cause our successor to assume our obligation under the change in control severance agreement; or

 

   

our failure, or our successor’s failure, to maintain the change in control agreement for a two-year period following a change in control.

 

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The severance payments and benefits under the change in control agreements are in lieu of any other severance benefits except as required by law and include an amount equal to one times the sum of (1) the executive’s then current annual base salary and (2) the higher of (a) an amount equal to the executive’s annual cash bonus at target for the year of termination or (b) an amount equal to the average bonus rate paid to the executive for the two years prior to termination multiplied by the executive’s then current annual base salary, payable over the twelve months following the date of termination (subject to deferral for a period of time under Section 409A of the Internal Revenue Code, as amended, as may be necessary to prevent any accelerated or additional tax under Section 409A). In addition, the executive would be entitled to:

 

   

a lump sum amount equal to his or her annual target bonus for the year of termination, provided if termination is prior to September 30th, the amount shall be pro-rated for the portion of the year the executive was employed, payable at the time payments are otherwise made under the bonus plan;

 

   

continued coverage under our group health benefits for twelve months (or earlier if otherwise covered by subsequent employer comparable benefits), or if plans are terminated or coverage is not permissible under law, a cash stipend in an equivalent amount to what we would otherwise pay for such executive’s group health continuation); and

 

   

any other vested and accrued benefits under plans in which he or she participates and unreimbursed business expenses prior to the date of termination.

The severance payments and benefits to be paid under the terms of the change in control agreements are subject to the executive entering into a severance agreement, including a general waiver and release of claims against us and our affiliates, and the executive’s continued compliance with the restrictive covenants to which the executives are otherwise bound pursuant to other agreements in place with us.

Acceleration of Options Upon Change in Control. Mr. Carousso and Ms. Hlavaty each hold time options that would immediately become vested and exercisable, and performance options which may accelerate, if specified performance targets have been achieved, all upon a change in control. See “—Equity Compensation”.

Post-termination Payments—Paul Carousso. The information below is provided to disclose hypothetical payments to Paul Carousso under various termination scenarios, assuming, in each situation, that Mr. Carousso was terminated on December 29, 2007 (and excluding any amounts accrued as of the date of termination).

Post-Termination Benefits

Paul Carousso

 

     Voluntary
Termination
without
Good
Reason or
Involuntary
Termination
for Cause
($)
   Voluntary
Termination
with Good
Reason or
Involuntary
Termination
without
Cause

($)
   Termination
in
Connection
with a
Change in
Control

($)
    Disability
($)
   Death
($)

Severance

   $ —      $ —      $ 415,307 (5)   $ —      $ —  

Annual Incentive

   $ —      $ —      $ 132,500 (6)   $ —      $ —  

Stock Options

     (3)      (4)    $ 466,163 (7)     (8)      (8)

Incremental Pension Benefits(1)

   $ —      $ —      $ —       $ 21,011    $ 469,558

Continuation of Health Benefits(2)

   $ —      $ —      $ 11,714     $ —      $ —  

 

(1)   Represents the net increase in the actuarial present value of accumulated benefits under Plan D, the Jostens Excess ERISA Plan and the SERP over the aggregate actuarial present value of accumulated benefits reported in the Pension Benefits table (determined using the assumptions disclosed in Note 14, Benefit Plans, to our consolidated financial statements).

 

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(2)   The change in control agreement requires that we continue Mr. Carousso’s group health benefits for 12 months unless he becomes eligible for coverage under comparable benefit plans from any subsequent employer (or provide a cash stipend in an equivalent amount to what we would otherwise pay for Mr. Carousso’s group health continuation). The table reflects the 2008 monthly premium payable by us for group health benefits in which Mr. Carousso and his dependents participated at December 29, 2007, multiplied by 12 months less the then applicable employee contribution.
(3)   No additional options would be vested as of termination. Vested options will terminate without payment.
(4)   No additional options would be vested as of termination (other than options vested for the completed fiscal year upon determination of performance targets being met); vested options will be subject to call by us, at our option, at the excess of fair market value of Holdings Class A Common Stock over the exercise price.
(5)   Total amount equals the sum of (i) Mr. Carousso’s annual base salary as of December 29, 2007 and (ii) an amount equal to the average bonus rate paid to Mr. Carousso for the two years prior to termination multiplied by Mr. Carousso’s annual base salary as of December 29, 2007, payable over 12 months in equal installments in accordance with our normal payroll practices. For purposes of clarification, the only current written arrangement with respect to severance payments for Mr. Carousso is pursuant to his change in control severance agreement.
(6)   Payable as a lump sum.
(7)   Value calculated is the gain based on $238.20 per share (the fair market value of a share of Holdings Class A Common Stock, as determined by the Compensation Committee of the Board of Directors, as of December 29, 2007) net of exercise prices. Assumes vesting of all performance options.
(8)   No additional options would be vested as of termination for death or disability, vested options will be subject to call by us, at our option, at the excess of fair market value of Holdings Class A Common Stock over exercise price, or at the option of Mr. Carousso or his estate, subject to put to us at the same spread.

Post-termination Payments—Marie Hlavaty. The information below is provided to disclose hypothetical payments to Marie Hlavaty under various termination scenarios, assuming, in each situation, that Ms. Hlavaty was terminated on December 29, 2007 (and excluding any amounts accrued as of the date of termination).

Post-Termination Benefits

Marie Hlavaty

 

     Voluntary
Termination
without
Good Reason
or
Involuntary
Termination
for Cause

($)
   Voluntary
Termination
with Good
Reason or
Involuntary
Termination
without
Cause

($)
   Termination
in
Connection
with a
Change in
Control

($)
    Disability
($)
   Death
($)

Severance

   $ —      $ —      $ 566,247 (5)   $ —      $ —  

Annual Incentive

   $ —      $ —      $ 181,500 (6)   $ —      $ —  

Stock Options

     (3)      (4)    $ 932,526 (7)     (8)      (8)

Incremental Pension Benefits(1)

   $ —      $ —      $ —       $ 30,923    $ 540,925

Continuation of Health Benefits(2)

   $ —      $ —      $ 3,716     $ —      $ —  

 

(1)<