-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O6Erik94KPdwoYyjrLI0u6vsLxxo6AYSAXz5j7ckA3DFW2telQ8Dttajpoay7PJ8 p7Wp7oyuyQTYdKFZ0YlyBw== 0000780117-99-000018.txt : 19990810 0000780117-99-000018.hdr.sgml : 19990810 ACCESSION NUMBER: 0000780117-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990627 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD COLOR PRESS INC /DE/ CENTRAL INDEX KEY: 0000780117 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 371167902 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11802 FILM NUMBER: 99681292 BUSINESS ADDRESS: STREET 1: THE MILL STREET 2: 340 PEMBERWICK ROAD CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2035324200 MAIL ADDRESS: STREET 1: THE MILL STREET 2: 340 PEMBERWICK ROAD CITY: GREENWICH STATE: CT ZIP: 06831 10-Q 1 6/27/99 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1999 COMMISSION FILE NUMBER 1-11802 (Logo Omitted) WORLD COLOR PRESS, INC. (Exact name of registrant as specified in its charter) DELAWARE 37-1167902 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) THE MILL, 340 PEMBERWICK ROAD 06831 GREENWICH, CONNECTICUT (Zip Code) (Address of principal executive offices) 203-532-4200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] No [ ] At August 6, 1999, 38,036,302 shares of the registrant's common stock, $.01 par value, were outstanding. ================================================================================
WORLD COLOR PRESS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1999 INDEX - -------------------------------------------------------------------------------- Page ---- PART I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheets as of June 27, 1999 and December 27, 1998.......................................3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 27, 1999 and June 28, 1998.............................................4-5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 27, 1999 and June 28, 1998............6 Notes to Condensed Consolidated Financial Statements...........7-9 Management's Discussion and Analysis of Financial Condition and Results of Operations.....................10-14 PART II. OTHER INFORMATION.......................................15-16
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WORLD COLOR PRESS, INC. PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 27, 1999 AND DECEMBER 27, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- JUNE 27, DECEMBER 27, 1999 1998 (Unaudited) (Note) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 49,145 $ 199,932 Accounts receivable - net 147,607 229,209 Inventories 261,204 276,111 Deferred income taxes 13,915 16,986 Other 77,093 63,729 ---------- ---------- Total current assets 548,964 785,967 Property, plant and equipment, at cost 1,710,177 1,613,674 Accumulated depreciation and amortization (780,434) (727,675) ---------- ---------- Property, plant and equipment - net 929,743 885,999 Goodwill - net 788,119 647,085 Other 100,353 114,835 ---------- ---------- TOTAL ASSETS $2,367,179 $2,433,886 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 286,703 $ 321,208 Current maturities of long-term debt 22,631 225,331 ---------- ---------- Total current liabilities 309,334 546,539 Long-term debt 1,242,697 1,030,589 Deferred income taxes 73,351 94,793 Other long-term liabilities 136,081 93,318 ---------- ---------- Total liabilities 1,761,463 1,765,239 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value - shares authorized, 100,000,000 in 1999 and 1998; shares outstanding, 39,265,320 in 1999 and 38,639,642 in 1998 393 386 Additional paid-in capital 731,546 721,913 Accumulated deficit (87,654) (49,310) Treasury stock, at cost: 1,283,898 shares in 1999 and 20,246 shares in 1998 (31,171) (613) Unamortized restricted stock compensation (7,398) (3,729) ---------- ---------- Total stockholders' equity 605,716 668,647 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,367,179 $2,433,886 ========== ==========
Note: Derived from audited consolidated financial statements. See notes to condensed consolidated financial statements. 3
WORLD COLOR PRESS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------- THREE MONTHS SIX MONTHS 1999 1998 1999 1998 Net sales $ 566,545 $ 546,503 $1,172,388 $1,096,910 Cost of sales 466,773 452,292 974,580 915,126 ---------- ---------- ---------- ---------- Gross profit 99,772 94,211 197,808 181,784 Selling, general and administrative expenses 56,749 55,166 113,284 106,593 Restructuring and other special charges 62,410 - 62,410 - ---------- ---------- ---------- ---------- Operating income (loss) (19,387) 39,045 22,114 75,191 Interest expense and securitization fees 25,050 22,341 48,959 42,491 ---------- ---------- ---------- ---------- Income (loss) before income taxes, extraordinary items and cumulative effect of change in accounting principle (44,437) 16,704 (26,845) 32,700 Income tax provision (benefit) (18,219) 6,932 (11,006) 13,570 ---------- ---------- ---------- ---------- Income (loss) before extraordinary items and cumulative effect of change in accounting principle (26,218) 9,772 (15,839) 19,130 Extraordinary items, net of tax - - (11,992) - Cumulative effect of change in accounting principle, net of tax - - (10,513) - ---------- ---------- ----------- --------- Net income (loss) $ (26,218) $ 9,772 $ (38,344) $ 19,130 ========== ========== ========== ========= Continued on next page.
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WORLD COLOR PRESS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 (In thousands, except per share data) - -------------------------------------------------------------------------------- THREE MONTHS SIX MONTHS 1999 1998 1999 1998 Net income (loss) per common share-basic: Income (loss) before extraordinary items and cumulative effect of change in accounting principle $ (0.70) $ 0.25 $ (0.42) $ 0.50 Extraordinary items - - (0.31) - Cumulative effect of change in accounting principle - - (0.28) - -------- -------- -------- -------- Net income (loss) per common share-basic $ (0.70) $ 0.25 $ (1.01) $ 0.50 ======== ======== ======== ======== Net income (loss) per common share-diluted: Income (loss) before extraordinary items and cumulative effect of change in accounting principle $ (0.70) $ 0.25 $ (0.42) $ 0.49 Extraordinary items - - (0.31) - Cumulative effect of change in accounting principle - - (0.28) - ------- --------- -------- -------- Net income (loss) per common share - diluted $ (0.70) $ 0.25 $ (1.01) $ 0.49 ======= ========= ======== ========
See notes to condensed consolidated financial statements. 5
WORLD COLOR PRESS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------- SIX MONTHS 1999 1998 OPERATING ACTIVITIES: Net income (loss) $(38,344) $19,130 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 77,372 69,191 Restructuring and other special charges 62,410 - Extraordinary items, net of tax 11,992 - Cumulative effect of change in accounting principle, net of tax 10,513 - Deferred income tax (benefit) provision (20,609) 4,675 Changes in operating assets and liabilities: Accounts receivable - net 106,693 16,343 Inventories 23,368 (47,443) Accounts payable and accrued expenses (73,428) (63,442) Other assets and liabilities - net (34,820) (26,959) -------- -------- Net cash provided by (used in) operating activities 125,147 (28,505) -------- -------- INVESTING ACTIVITIES: Additions to property, plant and equipment - net (60,565) (117,454) Acquisitions of businesses, net of cash acquired (114,110) (190,095) -------- -------- Net cash used in investing activities (174,675) (307,549) -------- -------- FINANCING ACTIVITIES: Net (payments) borrowings on debt (69,210) 308,690 Premium paid on debt extinguishment (6,840) - Proceeds from issuance of common stock 5,349 - Repurchases of common stock (30,558) - -------- -------- Net cash (used in) provided by financing activities (101,259) 308,690 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (150,787) (27,364) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 199,932 37,676 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,145 $ 10,312 ======== ========
See notes to condensed consolidated financial statements. 6 WORLD COLOR PRESS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying condensed consolidated interim financial statements have been prepared by World Color Press, Inc. (along with its subsidiaries, the "Company" or "World Color") pursuant to the rules and regulations of the Securities and Exchange Commission and reflect normal and recurring adjustments, which are, in the opinion of the Company, considered necessary for a fair presentation. As permitted by these regulations, these statements do not include all information required by generally accepted accounting principles to be included in an annual set of financial statements, however, the Company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. During the periods ended June 27, 1999, the Company acquired certain businesses whose contributions were not significant to the Company's results of operations for the periods presented, nor are they expected to have a material effect on the Company's results on a continuing basis. 2. INVENTORIES Inventories are summarized as follows:
JUNE 27, DECEMBER 27, 1999 1998 Work-in-process $128,790 $139,259 Raw materials 132,414 136,852 -------- -------- Total $261,204 $276,111 ======== ========
3. NET INCOME (LOSS) PER COMMON SHARE The following represents the weighted average common and common equivalent shares:
THREE MONTHS SIX MONTHS 1999 1998 1999 1998 Weighted average common shares outstanding 37,672,685 38,397,053 37,929,835 38,375,118 Common equivalent shares 440,356 1,092,796 442,445 1,055,247 ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 38,113,041 39,489,849 38,372,280 39,430,365 ========== ========== ========== ==========
Common equivalent shares were not included in the diluted net loss per common share calculation for the three and six months ended June 27, 1999 since the effect was antidilutive. Options to purchase 1,242,200 and 25,000 shares of common stock were not included in the common equivalent shares for the three and six months ended June 27, 1999 and June 28, 1998, respectively, because the exercise price of the options was greater than the average market price of the common shares. The Company omitted 109,904 restricted common shares from the 1999 common equivalent shares as well as the impact of convertible debt securities from the 1999 and 1998 diluted calculations since the effects were antidilutive. 7 WORLD COLOR PRESS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 4. RESTRUCTURING AND OTHER SPECIAL CHARGES In the second quarter of 1999, the Company recorded restructuring and other special charges of $62,410, or $36,822 net of tax, to eliminate redundant and less efficient capacity resulting from its ongoing acquisition strategy. The restructuring and other special charges included the costs to exit a facility and certain sales offices, write down impaired assets, eliminate administrative positions and consolidate facilities. These charges, consisting primarily of $14,699 for the writedown of equipment and $44,566 to reserve for certain lease costs, resulted from changes in the Company's strategic growth objectives and were primarily determined based on independent appraisals. Other restructuring charges of $3,145 included additional costs to exit the facility and severance. The Company has closed the facility and sales offices and terminated affected employees. Fixed assets have been adjusted to reflect their appropriate values. Cash transactions charged against the reserve through the second quarter have been nominal. The Company expects approximately $5,000 of cash to be expended in the third and fourth quarters of 1999. The remaining costs, primarily lease payments, will extend through 2008. The aggregate effect of all restructuring and other special charges was originally estimated to be in the range of $125,000 to $175,000 for the closure of facilities, writedown of assets and elimination of administrative positions. The Company has not yet determined whether the effect of further restructuring plans will be recognized in the third quarter of 1999. 5. RESTRICTED STOCK In April 1999, the Company issued 202,500 restricted shares of common stock to certain key employees. The shares vest ratably over five years and are contingent upon continued employment. The restricted shares were issued under the Company's restricted stock plan at $21.19, the fair market value at the date of grant. 6. DEBT ISSUANCE AND EXTINGUISHMENT On December 28, 1998, the Company used proceeds from its November 1998 debt issuance to redeem all of its outstanding 9.125% Senior Subordinated Notes due 2003 in an aggregate principal amount of $150,000. The notes were redeemed for approximately $160,800, including the redemption premium of $6,840 and accrued interest. This early extinguishment of debt generated an extraordinary charge of $5,946, net of taxes of $4,132, for the redemption premium and write-off of deferred financing costs. On February 22, 1999, the Company issued Senior Subordinated Notes in the aggregate principal amount of $300,000, receiving net proceeds of approximately $294,000. Interest on the notes is payable semi-annually at the annual rate of 7.75%. The notes do not have required principal payments prior to maturity on February 15, 2009. The net proceeds from the notes issuance were used to repay certain indebtedness under the Second Amended and Restated Credit Agreement dated June 6, 1996, as amended (the "Credit Agreement"). In connection with the issuance of these notes, the Company amended the Credit Agreement resulting in, among other modifications, a $95,000 permanent reduction in borrowings and commitments under the Credit Agreement. As a result, aggregate total commitments decreased from $920,000 to $825,000. This amendment and related permanent reduction in total borrowings and commitments resulted in a substantial modification of the terms under the Credit Agreement. Accordingly, the Company recognized an extraordinary charge for the early extinguishment of debt of $6,046, net of taxes of $4,201, for the write-off of deferred financing costs. 8 WORLD COLOR PRESS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 7. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities and organization costs to be expensed as incurred. The Company adopted this SOP in the first quarter of fiscal year 1999, which resulted in a charge of $10,513, net of taxes of $7,305, as the cumulative effect of a change in accounting principle for the non-recurring write-off of deferred start-up costs. The adoption of this SOP did not have a material effect on operating income. 8. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," to delay the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. Therefore, the Company plans to adopt SFAS No. 133 in the first quarter of fiscal year 2001. Based on the Company's current portfolio of derivative financial instruments, it does not expect the adoption of SFAS No. 133 to have a material impact on its consolidated financial statements. 9. SUBSEQUENT EVENT On July 12, 1999, the Company and Quebecor Printing Inc. ("Quebecor Printing") entered into a definitive merger agreement pursuant to which Quebecor Printing will acquire all of the shares of World Color in a transaction valued at approximately $2,700,000, including assumption of debt. The new company will be known as Quebecor World Inc. and will be a wholly owned subsidiary of Quebecor Printing. The merger agreement provides for the acquisition by Printing Acquisition Inc. ("Purchaser"), a subsidiary of Quebecor Printing, pursuant to a tender offer to purchase for cash up to 23.5 million shares of common stock representing approximately 62% of the outstanding shares of World Color at a cash price of $35.69 per share. This is to be followed by a merger pursuant to which each outstanding share of World Color common stock that remained outstanding (other than shares purchased by Quebecor Printing in the tender offer) would be converted into the right to receive 1.6455 subordinate voting shares of Quebecor Printing. 9 WORLD COLOR PRESS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- GENERAL In the first five months of fiscal year 1999, we acquired four businesses serving customers in the commercial, retail and directory markets for an aggregate purchase price of approximately $195,000, including assumed indebtedness. These companies, which have been included in results of operations since their respective acquisition dates, have not had a material effect on our results of operations, nor are they expected to on a continuing basis. These acquisitions have been accounted for as purchases. In the first four months of fiscal year 1998, we acquired four businesses serving customers in the commercial, direct mail and book markets for an aggregate purchase price of approximately $200,000. These companies, which have been included in results of operations since their respective acquisition dates, have not had a material effect on our results of operations, nor are they expected to on a continuing basis. These acquisitions have been accounted for as purchases. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 27, 1999 COMPARED TO THREE MONTHS ENDED JUNE 28, 1998 Net sales increased $20,042 or 3.7% to $566,545 in 1999 from $546,503 in 1998. The increase was primarily due to the inclusion of sales from the acquisitions in 1999, partially offset by a decrease in paper prices. Gross profit increased $5,561 or 5.9% to $99,772 in 1999 from $94,211 in 1998. The gross profit margin increased to 17.6% in 1999 from 17.2% in 1998 due primarily to decreased sales resulting from lower paper prices and synergies resulting from the integration of the acquired businesses. Selling, general and administrative expenses, including restructuring and other special charges of $62,410, increased $63,993 or 116.0% to $119,159 in 1999 from $55,166 in 1998. Excluding the one-time charge, the 1999 increase of $1,583 or 2.9% to $56,749 was primarily due to the acquisitions in 1999, including the related additional amortization expense for goodwill, partially offset by benefits derived from cost saving initiatives. Interest expense and securitization fees increased $2,709 or 12.1% to $25,050 in 1999 from $22,341 in 1998. The increase was due to higher average borrowings incurred to fund acquisitions, slightly offset by a lower average cost of funds. The effective tax rate, primarily composed of the combined federal and state statutory rates, was 41.0% for the second quarter of fiscal year 1999 compared to 41.5% for the comparable period in 1998. SIX MONTHS ENDED JUNE 27, 1999 COMPARED TO SIX MONTHS ENDED JUNE 28, 1998 Net sales increased $75,478 or 6.9% to $1,172,388 in 1999 from $1,096,910 in 1998. The increase was due to the inclusion of sales from the acquisitions in 1999 and 1998 and improved sales in our base business, partially offset by a decrease in paper prices. Gross profit increased $16,024 or 8.8% to $197,808 in 1999 from $181,784 in 1998. The gross profit margin increased to 16.9% in 1999 from 16.6% in 1998 due to decreased sales resulting from lower paper prices, synergies resulting from the integration of the acquired businesses and certain cost reduction initiatives. 10 WORLD COLOR PRESS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- Selling, general and administrative expenses, including restructuring and other special charges of $62,410, increased $69,101 or 64.8% to $175,694 in 1999 from $106,593 in 1998. Excluding the one-time charge, the 1999 increase of $6,691 or 6.3% to $113,284 was primarily due to the acquisitions in 1999 and 1998, including the related additional amortization expense for goodwill, partially offset by benefits derived from cost saving initiatives. Interest expense and securitization fees increased $6,468 or 15.2% to $48,959 in 1999 from $42,491 in 1998. The increase was due to higher average borrowings incurred to fund acquisitions, slightly offset by a lower average cost of funds. The effective tax rate, primarily composed of the combined federal and state statutory rates, was 41.0% for the first six months of fiscal year 1999 compared to 41.5% for the comparable period in 1998. RESTRUCTURING AND OTHER SPECIAL CHARGES In the second quarter of 1999, we recorded restructuring and other special charges of $62,410, or $36,822 net of tax, to eliminate redundant and less efficient capacity resulting from our ongoing acquisition strategy. The restructuring and other special charges included the costs to exit a facility and certain sales offices, write down impaired assets, eliminate administrative positions and consolidate facilities. These charges, consisting primarily of $14,699 for the writedown of equipment and $44,566 to reserve for certain lease costs,resulted from changes in our strategic growth objectives and were primarily determined based on independent appraisals. Other restructuring charges of $3,145 included additional costs to exit the facility and severance. We have closed the facility and sales offices and terminated affected employees. Fixed assets have been adjusted to reflect their appropriate values. Cash transactions charged against the reserve through the second quarter have been nominal. We expect approximately $5,000 of cash to be expended in the third and fourth quarters of 1999. The remaining costs, primarily lease payments, will extend through 2008. The aggregate effect of all restructuring and other special charges was originally estimated to be in the range of $125,000 to $175,000 for the closure of facilities, writedown of assets and elimination of administrative positions. We have not yet determined whether the effect of further restructuring plans will be recognized in the third quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES On February 22, 1999, we issued Senior Subordinated Notes in the aggregate principal amount of $300,000, receiving net proceeds of approximately $294,000. Interest on the notes is payable semi-annually at the annual rate of 7.75%. The notes do not have required principal payments prior to maturity on February 15, 2009. The net proceeds from the notes issuance were used to repay certain indebtedness under our credit agreement. In connection with the issuance of these notes, we amended our credit agreement resulting in, among other modifications, a $95,000 permanent reduction in borrowings and commitments under the credit agreement. As a result, aggregate total commitments decreased from $920,000 to $825,000. This amendment and related permanent reduction in total borrowings and commitments resulted in a substantial modification of the terms under the credit agreement. Accordingly, we recognized an extraordinary charge for the early extinguishment of debt of $6,046, net of taxes of $4,201, for the write-off of deferred financing costs. 11 WORLD COLOR PRESS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- On December 28, 1998, we used proceeds from our November 1998 debt issuance to redeem all of our outstanding 9.125% Senior Subordinated Notes due 2003 in an aggregate principal amount of $150,000. The notes were redeemed for approximately $160,800, including the redemption premium of $6,840 and accrued interest. This early extinguishment of debt generated an extraordinary charge of $5,946, net of taxes of $4,132, for the redemption premium and write-off of deferred financing costs. We have historically met our liquidity and capital investment needs with internally generated funds and external borrowings. Net income before one-time charges, plus depreciation and amortization and deferred income taxes was $103,334 and $92,996 for the six months ended June 27, 1999 and June 28, 1998, respectively. Our outstanding indebtedness less cash increased $160,195 from December 27, 1998 to June 27, 1999 due primarily to borrowings incurred to fund acquisitions. Working capital was $239,630 at June 27, 1999 and $219,475 at June 28, 1998. In accordance with our ongoing program to maintain modern, efficient plants and increase productivity, we anticipate that 1999 net capital expenditures will be approximately 4 - 5% of net sales. Our capital expenditures and acquisitions have been funded in part by borrowings under our Second Amended and Restated Credit Agreement dated as of June 6, 1996, as amended, which provides for aggregate total commitments of $825,000 comprised of $85,000 in term loan commitments, $250,000 of revolving loan commitments and $490,000 in acquisition term loan commitments. The credit agreement provides for varying semi-annual reductions, and borrowings bear interest at rates that fluctuate with the prime rate and the Eurodollar rate. As of June 27, 1999, we had unused commitments of $327,020 under our credit agreement. In April 1999, we issued 202,500 restricted shares of common stock to certain key employees. The shares were awarded because, among other things, certain 1998 operational targets were achieved. The restricted shares were issued under our restricted stock plan at $21.19, the fair market value at the date of grant. The restricted shares vest ratably over five years and are contingent upon continued employment. In the first six months of 1999, we repurchased 1,263,652 shares of our common stock at a weighted average cost of $24.18 per share. From the inception of our stock repurchase plan in August 1998 through June 27, 1999, we have repurchased 1,750,153 shares at a weighted average cost of $26.02 per share and reissued 466,255 shares. Concentrations of credit risk with respect to accounts receivable are limited due to our diverse operations and large customer base. As of June 27, 1999 we had no significant concentrations of credit risk. In the normal course of business, we are exposed to changes in interest rates. However, we manage this exposure by having a balanced variety of debt maturities as well as a combination of fixed and variable rate obligations. In addition, we have entered into interest rate cap and swap agreements in order to further reduce the exposure on our variable rate obligations. Our interest rate cap agreements have a notional value of $400,000 and expire in the third quarter of fiscal year 1999. Our interest rate swap agreements have a notional value of $75,000 and exchange floating rate for fixed interest payments periodically over five years. The swap agreements are cancelable by the respective counterparties in September and December 1999. These agreements did not have a material impact on the consolidated financial statements for the periods presented. While the counterparties of these agreements expose us to credit loss in the event of nonperformance, we believe that the possibility of incurring such a loss is remote due to the creditworthiness of the counterparties. We do not hold or issue any derivative financial instruments for trading purposes. We believe that our liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and interest and principal payments for the foreseeable future. 12 WORLD COLOR PRESS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- SUBSEQUENT EVENT On July 12, 1999, World Color and Quebecor Printing Inc. ("Quebecor Printing") entered into a definitive merger agreement pursuant to which Quebecor Printing will acquire all of our shares in a transaction valued at approximately $2,700,000, including assumption of debt. The new company will be known as Quebecor World Inc. and will be a wholly owned subsidiary of Quebecor Printing. The merger agreement provides for the acquisition by Printing Acquisition Inc. ("Purchaser"), a subsidiary of Quebecor Printing, pursuant to a tender offer to purchase for cash up to 23.5 million shares of common stock representing approximately 62% of our outstanding shares at a cash price of $35.69 per share. This is to be followed by a merger pursuant to which each outstanding share of World Color common stock that remained outstanding (other than shares purchased by Quebecor Printing in the tender offer) would be converted into the right to receive 1.6455 subordinate voting shares of Quebecor Printing. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," to delay the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. Therefore, we plan to adopt SFAS No. 133 in the first quarter of fiscal year 2001. Based on our current portfolio of derivative financial instruments, we do not expect the adoption of SFAS No. 133 to have a material impact on our consolidated financial statements. YEAR 2000 The Year 2000 issue, which affects virtually all corporations, arises due to the inability of certain computer software and hardware and embedded chips found in manufacturing and other equipment to properly recognize dates beyond 1999. This inability may cause errors in information and/or system failures. We have engaged in a comprehensive effort to address the Year 2000 issue. As discussed below, we have, among other things, evaluated our present information technology and non-information technology systems (i.e. equipment with embedded chips), monitored and addressed our vendor and customer Year 2000 issues and engaged in remediative measures as necessary. In connection with our readiness program, we have inventoried and assessed the state of compliance of all information systems and non-information systems. We commenced remediation of our information systems in 1994. As a result, our information systems, including our financial, human resources and payroll functions, are substantially Year 2000 compliant. At this time, we have substantially completed our readiness efforts with respect to our information systems. With respect to our non-information systems, we have completed an inventory of facilities (HVAC, safety and security) and manufacturing (pre- press, press, bindery and finishing) systems. We have worked with the outside suppliers of such systems as well as with an outside consultant to remediate non-compliant components. We have substantially completed our readiness efforts with respect to our non-information systems. 13 WORLD COLOR PRESS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- As part of our readiness program, we have communicated with our major customers and vendors to assess such parties' respective efforts to identify and remediate their own Year 2000 issues in a timely and comprehensive manner. We have also requested our vendors to certify to the compliancy of their systems and equipment that we currently own or lease. We intend to continue to follow up with non-compliant vendors through the balance of 1999 in order to continually assess the extent of such third parties' Year 2000 exposure and to adjust our contingency plans accordingly. The costs incurred to date solely related to our Year 2000 efforts have not been material to us, and based upon current estimates, we do not believe that the total cost of our Year 2000 readiness programs will have a material adverse effect upon our operating results or financial condition. While we cannot make assurances as to the impact of the Year 2000 issue on our operations, we currently anticipate that any adverse consequences of the Year 2000 issue on our systems will not create a significant disruption to our operations. However, the failure or delay by us, our customers and/or vendors to identify and remediate each respective instance of Year 2000 non-compliance could result in a material adverse effect on our results of operations, liquidity or financial condition. Our readiness program includes the development of contingency plans addressing potential business interruptions arising from Year 2000-related disruptions. Such plans include assessing the movement of work among our facilities. In the second half of 1999, we will further hone our contingency plans, taking into account, among other things, the state of readiness of our vendors, including, without limitation, utility suppliers, as well as our major customers. The statements set forth herein concerning Year 2000 issues which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. In particular, the costs associated with our Year 2000 programs, the time-frame in which we plan to complete Year 2000 modifications and the potential impact of the Year 2000 issues on us are based upon our best estimates. These estimates were derived from internal assessments and numerous assumptions of future events. These estimates may be adversely affected by, among other things, the continued availability of personnel and system resources, the accurate identification of all relevant computer codes, the success of remediation efforts, the effectiveness of our contingency plans and by the failure of significant third parties to properly address Year 2000 issues. Therefore, we cannot guarantee that any estimates or other forward- looking statements will be achieved and actual results could differ significantly from those contemplated. SEASONALITY Results of operations for this interim period are not necessarily indicative of results for the full year. Our operations are seasonal. Historically, approximately two-thirds of our operating income has been generated in the second half of the fiscal year, primarily due to the higher number of magazine pages, new product launches and back-to-school and holiday catalog promotions. FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the statements in this document are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for our products, changes in raw material and equipment costs and availability, seasonal changes in customer orders, pricing actions by our competitors, changes in estimates of our readiness or the readiness of our vendors and customers with regard to Year 2000 issues and the significance of costs thereof, and general changes in economic condition. 14 WORLD COLOR PRESS, INC. PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on May 5, 1999. At that time, the stockholders of the Company voted to elect seven directors to serve for the ensuing year. A total of 33,663,568 and 4,468,268 shares were voted and unvoted, respectively. The following table sets forth certain information with respect to such election.
Shares Withholding Nominee Shares Voted For Authority ------- ---------------- ----------------- Gerald S. Armstrong 32,489,790 1,173,778 Robert G. Burton 32,378,790 1,284,778 Patrice M. Daniels 32,378,790 1,284,778 Mark J. Griffin 32,489,690 1,173,878 Alexander Navab, Jr. 32,378,790 1,284,778 Marc L. Reisch 32,378,890 1,284,678 Scott M. Stuart 32,378,790 1,284,778
No other matters were submitted for stockholder vote. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibits required in accordance with Item 601 of Regulation S-K are incorporated by reference herein as filed with registrant's Annual Report on Form 10-K for the fiscal year ended December 27, 1998, dated March 26, 1999. In addition, the Company has filed herewith the following exhibits: 10.1 Form of Director Stock Option Agreement. 27.0 Financial Data Schedule for the period ended June 27, 1999 (filed in electronic form only). (b) Reports on Form 8-K The registrant filed a Current Report on Form 8-K dated July 13, 1999, with respect to a merger agreement with Quebecor Printing Inc. The items reported in such Current Report were Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WORLD COLOR PRESS, INC. Date: August 6, 1999 By:/s/ ROBERT B. LEWIS -------------------------- Robert B. Lewis Executive Vice President, Chief Financial Officer 16 EX-10.1 2 FORM OF DIRECTOR STOCK OPTION AGREEMENT Exhibit 10.1 STOCK OPTION AGREEMENT This Stock Option Agreement (this "Agreement") dated as of ____________ is made by and between World Color Press, Inc., a Delaware corporation ("WCP"), and _________________, an individual with a residence at___________________________. WCP and the Optionholder are sometimes herein referred to collectively as the "Parties." RECITALS A. The Optionholder is a member of the Board of Directors (the "Board") of WCP. B. WCP has established the 1998 Senior Management Stock Option Plan of World Color Press, Inc. (the "Option Plan"), and, pursuant to the Option Plan, WCP wishes to afford the Optionholder the opportunity to purchase shares of its common stock, par value $.01 per share (the "Common Stock"). The term "Options" as used in this Agreement shall include all Options granted to the Optionholder pursuant to this Agreement. Upon exercise of Options granted hereunder in accordance with the terms hereof and issuance of Common Stock upon such exercise the Optionholder will become the holder of "Option Shares." C. The Compensation Committee (the "Committee") of the Board of Directors of WCP (the "Board") has determined that it would be to the advantage and best interest of WCP and its stockholders to grant the Options provided for herein to the Optionholder as an inducement to continue to perform services for the Company (as hereinafter defined) and as an incentive for increased efforts during such service, and has advised WCP thereof and instructed the undersigned officer to issue said Options. For the purposes of this Agreement, the "Company" shall mean WCP, together with its subsidiaries. D. This Agreement is one of several agreements ("Other Stock Option Agreements") which have been, or which in the future will be, entered into between WCP and other holders of Options granted pursuant to the Option Plan (collectively, the "Other Optionholders"). AGREEMENTS 1. GRANT OF OPTIONS. In consideration of the Optionholder's agreement to provide services to the Company and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, WCP irrevocably grants to the Optionholder on the date hereof and effective as of ___________ (the "Grant Date") an aggregate of _____ Options, each to purchase initially one share of Common Stock (shares issuable upon exercise of the Options are collectively referred to herein as the "Option Shares"), upon the terms and conditions set forth in this Agreement. This Agreement and the grant of the Options herein are subject to all of the terms and provisions of the Option Plan attached hereto as Exhibit A (which terms and provisions are incorporated herein by reference and are expressly made part of this Agreement). In the event of any conflict between the provisions of this Agreement and the Option Plan, the terms of the Option Plan shall govern. All capitalized terms used herein without definition and defined in the Option Plan have the meanings ascribed to such terms in the Option Plan. The Options granted hereby are designated non-qualified stock options (and not "Incentive Options" under Section 422 of the Internal Revenue Code ("Code")) and are nontransferable except as otherwise expressly set forth in the Option Plan. 2. EXERCISE PRICE. The purchase price of the Option Shares upon exercise of any of the Options (the "Exercise Price" or "Option Price Per Share") shall initially be ______ per share, without commission or other charge. 3. EXERCISABILITY. (a) The Options shall become exercisable as follows:
Date Options Become Exercisable Exercisable Percentage of Options - ------------------------------ ---------------------- From Grant Date until the earlier of 0% the date of the Company's __________ annual meeting and the first anniversary of the Grant Date (the "Vesting Date") On and after the Vesting Date 100%
(b) Notwithstanding the foregoing, 100% of the Options shall become exercisable (but only to the extent such Option has not otherwise then terminated or become unexercisable) immediately prior to the occurrence of a Change of Control (as herein defined); provided, however, that as a condition subsequent to the acceleration of the exercisability of the Option pursuant to this paragraph, the Change of Control shall be consummated. In the event the contemplated Change of Control is not consummated, the acceleration of exercisability and the exercise, if any, of the Option shall be void ab initio. (c) Notwithstanding the foregoing, all Options that are not exercisable at the time of the cessation of the Optionholder's position as a member of the Board for any reason other than by reason of the Optionholder's death or Permanent Disability (each as hereinafter defined) shall be automatically and immediately canceled without any payment or other action by the Company. In the event of and upon the cessation of the Optionholder's position as a member of the Board because of the Optionholder's death or Permanent Disability, all of the Optionholder's Options granted hereunder shall immediately become exercisable. (d) For purposes of this Agreement, the Optionholder shall be deemed to have a "Permanent Disability" if he or she is unable to engage in the activities required as a Director by reason of any medically determined physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, as reasonably determined by the Board in good faith and in its discretion. 4. MANNER OF EXERCISE (a) PARTIAL EXERCISE. An exercisable Option may be exercised at any time prior to the time when the Option becomes unexercisable under Section 10; provided that each exercise shall be for not less than ___ Option Shares and shall be for whole Option Shares only. (b) MANNER OF EXERCISE. An exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office: (i) A written notice complying with the applicable rules established by the Committee stating that the Option is exercised. The Optionholder or other person then entitled and authorized to exercise the Option shall sign the notice; (ii) Such representations and documents as the Committee, in its discretion, deems necessary, appropriate or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended (the "Act"), and any other federal or state securities laws, rules or regulations. The Committee may, in its discretion, also take whatever additional actions it deems necessary, appropriate or advisable to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop-transfer notices to transfer agents and registrars; (iii) In the event that the Option shall be exercised by any person or persons other than the Optionholder, appropriate proof of the right of such person or persons to exercise the Option; and (iv) Full payment (by certified or bank check or by wire transfer of immediately available funds) to the Secretary of the Company for the Option Shares with respect to which Options are exercised and any applicable withholding taxes. In its discretion, however, the Committee may (A) allow a delay in payment up to thirty (30) days from the date the Option is exercised; (B) allow payment, in whole or in part, through the delivery of shares of Common Stock owned by the Optionholder (including, subject to Section 4(c), Option Shares issuable upon such exercise), duly endorsed for transfer to WCP, having an Aggregate Market Value (as hereinafter defined) on the date of delivery equal to the aggregate Exercise Price of the Options; (C) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (D) allow payment, in whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Committee; or (E) allow payment through any combination of the consideration provided in the foregoing subparagraphs (B), (C) and (D). In the case of a promissory note, the Committee may also prescribe the form of such note and the security to be given for such note. No Option may be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law. (c) CERTAIN TIMING REQUIREMENTS. At the discretion of the Committee, shares of Common Stock issuable to the Optionholder upon exercise of the Option may be used to satisfy the Option Exercise Price or the tax withholding consequences of such exercise. (d) RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have any of the rights or privileges of, stockholders of WCP in respect of any shares purchasable upon the exercise of any Option unless and until certificates representing such shares have been issued by the Company to such holders. (e) CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. WCP may postpone the time of delivery of the certificates for Option Shares for such additional time as WCP shall deem necessary or desirable to enable it to comply with the listing requirements of any securities exchange with which the Common Stock may be listed or the requirements of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any rules and regulations of the Securities and Exchange Commission promulgated thereunder, or the requirements of applicable state laws relating to the authorization, issuance or sale of securities. 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE OPTIONHOLDER (a) (1) The Optionholder hereby represents and warrants that he or she is acquiring the Options and any Option Shares issued upon exercise thereof for investment for his or her own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Optionholder acknowledges and affirms Section 7.1 of the Option Plan. (2) The Optionholder acknowledges and agrees that no Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionholder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, that nothing in this Section 5 shall prevent transfers by will, by the applicable laws of descent and distribution or, with the consent of the Committee, the transfer of Options by gift made in compliance with the federal securities laws to a family member of the Optionholder or a family trust or for other estate planning purposes. (3) The Optionholder further agrees and acknowledges that he or she will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (any such act being referred to herein as a "transfer") any Option Shares unless such transfer complies with Section 6 of this Agreement and such transfer is pursuant to (i) an effective registration statement under the Act and the rules and regulations thereunder and in compliance with any applicable state securities or "blue sky" laws, or (ii) (A) an opinion of counsel to the Optionholder (which counsel shall be reasonably acceptable to WCP) furnished to WCP and satisfactory in form and substance to WCP that no such registration is required because of the availability of an exemption from registration under the Act and (B) if the Optionholder is a citizen or resident of any country other than the United States, or the Optionholder desires to effect any transfer in any such country, counsel for the Optionholder (which counsel shall be reasonably satisfactory to WCP) shall have furnished WCP with an opinion or other advice satisfactory in form and substance to WCP to the effect that such transfer will comply with the securities laws of such jurisdiction. (b) Notwithstanding the foregoing, WCP acknowledges and agrees that any of the following transfers of Option Shares are deemed to be in compliance with the Act and this Agreement and no opinion of counsel is required in connection therewith: (i) A transfer of Option Shares made pursuant to Sections 7 or 8 of this Agreement; (ii) A transfer of Option Shares upon the death of the Optionholder to his or her executors, administrators, testamentary trustees, legatees or beneficiaries (the "Optionholder's Estate") or a transfer to the executors, administrators, testamentary trustees, legatees or beneficiaries of a person who has become a holder of Option Shares in accordance with the terms of this Agreement; provided that such transfer is made expressly subject to this Agreement and that the transferee agrees in writing to be bound by the terms and conditions of this Agreement as if such transferee were the Optionholder; (iii) A transfer of Option Shares made in compliance with the federal securities laws to a trust or custodianship the beneficiaries of which, a partnership (general or limited) the partners of which, or a limited liability company the members of which, may include only the Optionholder, his or her spouse or his or her lineal descendants by blood or adoption (the "Optionholder's Trust") or a transfer of Option Shares made after the third anniversary of the Grant Date to such a trust, partnership or limited liability corporation by a person who has become a holder of such Option Shares in accordance with the terms of this Agreement; provided that such transfer is made expressly subject to this Agreement and that the transferee agrees in writing to be bound by the terms and conditions of this Agreement as if such transferee were the Optionholder; and (iv) A pledge or hypothecation by the Optionholder or the Optionholder's Trust of the Option Shares or his or her or its interest therein to a bank or other financial institution (a "Pledgee") reasonably satisfactory to WCP to secure a loan by such Pledgee to the Optionholder or the Optionholder's Trust, as the case may be, for the purchase of the Option Shares or the refinancing of any indebtedness incurred for the purchase of the Option Shares; provided that (A) such Pledgee agrees in writing to accept the Option Shares or interest therein subject to all of the terms and conditions of this Agreement as if such Pledgee were the Optionholder and to notify WCP upon the happening of any default or event of default under the terms of the agreement with the Optionholder or the Optionholder's Trust, as the case may be, relating to such pledge or hypothecation and (B) the Optionholder or the Optionholder's Trust, as the case may be, delivers to the Board a copy of all proposed documentation relating to such pledge or hypothecation at least ten days before the scheduled date of such pledge or hypothecation, and prior to such scheduled date WCP has confirmed that such documentation is reasonably satisfactory to it in form and substance. (c) The certificate (or certificates) representing the Option Shares shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF STOCK OPTION AGREEMENT DATED MAY 5, 1999 BETWEEN WORLD COLOR PRESS, INC. ("WCP") AND THE OPTIONHOLDER NAMED ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF WCP). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (B) (I) IF WCP HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE PROVISIONS OF STATE SECURITIES LAWS, AND (II) IF THE HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR THE HOLDER DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH COUNTRY." (d) The Optionholder acknowledges that he or she has been advised that (i) the issuance of the Option Shares upon exercise of the Options will not have been registered under the Act, (ii) the Option Shares must be held indefinitely and the Optionholder must continue to bear the economic risk of the investment in the Option Shares unless they are subsequently registered under the Act or an exemption from such registration is available, (iii) no assurance can be given that there will be any public market for the Option Shares, (iv) no assurance can be given that Rule 144 promulgated under the Act will be available with respect to the sales of any securities of WCP, and WCP has made no covenant to make such Rule available, (v) when and if any of the Option Shares may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with some other exemption under the Act, (vii) a restrictive legend in the form heretofore set forth shall be placed on the certificates representing the Option Shares and (viii) a notation shall be made in the appropriate records of WCP and/or the transfer agent for the Common Stock indicating that the Option Shares are subject to restriction on transfer and appropriate stop transfer restrictions will be issued to WCP's stock transfer agent with respect to the Option Shares. (e) If any of the Option Shares are to be disposed of in accordance with Rule 144 under the Act or otherwise, the Optionholder shall promptly notify WCP of such intended disposition and shall deliver to WCP at or prior to the time of such disposition such documentation as WCP may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to WCP an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission ("SEC"). (f) The Optionholder agrees that, if any securities of WCP are offered to the public pursuant to an effective registration statement under the Act, the Optionholder will not effect any public sale or distribution of any Option Shares not covered by such registration statement within seven days prior to, or within 180 days (or in an underwritten public offering, any such lesser period as the underwriters may agree to) after, the effective date of such registration statement, unless otherwise agreed to in writing by WCP; provided that the Optionholder shall have been notified in writing of such offering. 6. RESTRICTION ON TRANSFER OF OPTION SHARES (a) Except for transfers otherwise permitted by this Agreement, the Optionholder agrees that he or she will not transfer, sell, assign, pledge, hypothecate or otherwise dispose of any Option Shares at any time prior to the Vesting Date. The restrictions on transfer provided in this Section 6 shall not apply as of any date (the "Calculation Date") to a number of Option Shares (the "Unrestricted Shares") held in the aggregate by the Optionholder, the Optionholder's Trust, the Optionholder's Estate and all Pledgees equal to the excess, if any, of (i) the product of (A) the total number of Option Shares covered by all Options received by the Optionholder on the Grant Date and (B) the Vested Percentage as of such date over (ii) the total number of Option Shares transferred by the Optionholder, the Optionholder's Trust, the Optionholder's Estate and all Pledgees after the date hereof, other than pursuant to transfers permitted by clauses (ii), (iii) and (iv) of Section 5(b) hereof. No transfer of any such shares in violation hereof shall be made or recorded on the books of WCP (or any transfer agent or registrar therefor) and any such transfer shall be null and void and of no force or effect. (b) For purposes of this Agreement, the "Vested Percentage" with respect to Option Shares shall be determined as follows:
Calculation Date Vested Percentage - ---------------- ------------------ From Grant Date until the Vesting 0% Date On and after the Vesting Date 100%
7. OPTIONHOLDER'S RIGHT TO RESELL OPTION SHARES AND OPTIONS TO WCP UPON DEATH OR DISABILITY (a) Except as otherwise provided herein, if on or before the Vesting Date, (i) the Optionholder dies or becomes Permanently Disabled (as hereinafter defined) and (ii) at the time of his or her death or Permanent Disability, the Optionholder was still a director of the Company, then the Optionholder, the Optionholder's Estate and/or the Optionholder's Trust, as the case may be, shall have the right for six months from the date of death or Permanent Disability to elect on one occasion (x) to sell to WCP, and WCP shall be required to purchase all or any portion of the Option Shares then held by the Optionholder, the Optionholder's Estate and/or the Optionholder's Trust, as the case may be, at the Section 7 Repurchase Price, as determined in accordance with Section 9 and/or (y) to require WCP to pay to the Optionholder an amount equal to the Option Excess Price (as defined in Section 10(a)) determined on the basis of the Section 7 Repurchase Price as provided in Section 9 with respect to the termination of all or any portion of outstanding Options held by the Optionholder. (b) The Optionholder, the Optionholder's Estate and/or the Optionholder's Trust, as the case may be, shall send written notice to WCP of his, her or its election to sell such Option Shares and/or to terminate such Options in exchange for the payment referred to in the preceding subsection (a) (the "Redemption Notice") within the six-month period referred to in Section 7(a). The completion of the purchase shall take place at the principal office of WCP on the 15th business day after the receipt by WCP of a properly given Redemption Notice. The Section 7 Repurchase Price and any payment with respect to the Options as described above shall be paid by delivery to the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, of a certified or bank check or checks in the appropriate amount payable to the order of the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, against delivery of certificates or other instruments representing the Option Shares so purchased and appropriate documents canceling the Options so terminated, appropriately endorsed or executed by the Optionholder, the Optionholder's Estate or the Optionholder's Trust, or his, her or its duly authorized representative. (c) Notwithstanding any other provision of this Section 7 and subject to Section 13, if there exists and is continuing a default or any event which after a notice or lapse of time or both would cause a default under any loan, guarantee or other agreement under which WCP or any of its subsidiaries, as defined in Section 424(f) of the Code ("Subsidiaries") has borrowed money or such repurchase would result in any default or event of default on the part of the WCP or any of its Subsidiaries under any such agreement or if the capital of WCP or any of its Subsidiaries is then impaired or would be impaired as a result of such repurchase or such repurchase would otherwise violate the General Corporation Law of the State of Delaware (each such occurrence being an "Event"), WCP shall not be obligated to repurchase any of the Option Shares from, or to make any payment with respect to the Options to, the Optionholder, the Optionholder's Estate and/or the Optionholder's Trust, as the case may be until the first business day which is five business days after all of the foregoing Events have ceased to exist (the "Repurchase Eligibility Date"), provided that (i) the Section 7 Repurchase Price shall be calculated as of the time of the delivery of a Redemption Notice in accordance with Section 7(b) and (ii) the number of Option Shares subject to repurchase under this Section 7(c) and the number of Exercisable Option Shares (as defined in Section 10(a)) for purposes of calculating the Option Excess Price payable under Section 7(a), shall be that number of Option Shares and Exercisable Option Shares, respectively, held by the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, at the time of the delivery of a Redemption Notice in accordance with Section 7(b). All Options exercisable as of the date of a Redemption Notice shall continue to be exercisable until the repurchase pursuant to such Redemption Notice. (d) Notwithstanding any other provision of this Section 7 to the contrary, the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, shall have the right to withdraw any Redemption Notice which has been pending for 120 or more days and which has remained unsatisfied because of the provisions of Section 7(c). 8. WCP'S RIGHT TO REPURCHASE OPTION SHARES AND TERMINATE OPTIONS OF OPTIONHOLDER (a) If on or prior to the Vesting Date, (i) the Optionholder's position as a director of WCP (and, if applicable, its Subsidiaries) is voluntarily or involuntarily terminated for any reason whatsoever, (ii) the beneficiaries of an Optionholder's Trust shall include any person or entity other than the Optionholder, his or her spouse or his or her lineal descendants by blood or adoption, (iii) the Optionholder shall effect a transfer of any of the Option Shares other than as permitted by this Agreement or (iv) there shall occur a transfer of Option Shares then held by the Optionholder pursuant to a bankruptcy proceeding, levy, property settlement or disposition pursuant to law incident to marital separation or divorce (alternatively, a "Call Event"), then WCP shall have the right to purchase all, but not less than all, of the Option Shares then held by the Optionholder, the Optionholder's Estate, the Optionholder's Trust and all Pledgees at the Section 8 Repurchase Price determined in accordance with Section 9 hereof; provided that the Call Event described in clause (iv) of this Section 8 shall entitle WCP to repurchase only the number of Option Shares that are the subject of the transfer resulting in the Call Event; and provided, further, that if the Call Event results from the death or Permanent Disability of the Optionholder, or the cessation of the Optionholder's position as a director for any other reason, WCP shall have the right to purchase all, but not less than all, of the Option Shares held by the Optionholder, the Optionholder's Estate, the Optionholder's Trust and any Pledgee at the Section 7 Repurchase Price. WCP shall have a period of 75 days after the date of a Call Event (or the date of WCP's knowledge that a Call Event described in clause (ii) or (iii) above has occurred) in which to give notice in writing to the Optionholder of WCP's exercise of such repurchase election (the "Call Notice"). If (X) the Optionholder holds Option Shares and Options and WCP exercises its right to repurchase Option Shares pursuant to this Section 8 or (Y) the Optionholder holds only Options and WCP elects (in accordance with the requirements of the Call Notice), WCP shall also pay the Optionholder an amount equal to the Option Excess Price determined on the basis of the Section 8 Repurchase Price or Section 7 Repurchase Price, as applicable, with respect to the termination of (A) if the Call Event is described in clause (i), (ii) or (iii) above, all, but not less than all, of the then exercisable outstanding Options held by the Optionholder and (B) if the Call Event is described in clause (iv) above, a pro rata portion (based on the number of Option Shares that are the subject of the transfer) of the then exercisable outstanding Options held by the Optionholder. (b) Subject to Section 13 hereof, the completion of the purchases pursuant to Section 8 (a) shall take place at the principal office of WCP on the 15th business day after the giving of notice of the exercise by WCP of its right to purchase Option Shares and/or to terminate Options. All payments as described above shall be made by delivery to the Optionholder, the Optionholder's Estate, the Optionholder's Trust and/or the Pledgee, as the case may be, of a certified or bank check or checks in the appropriate amounts payable to the order of the Optionholder, the Optionholder's Estate, the Optionholder's Trust and/or the Pledgee, as the case may be, against delivery of certificates or other instruments representing the Option Shares so purchased and appropriate documents canceling the Options so terminated, in each case appropriately endorsed or executed by the Optionholder, the Optionholder's Estate, the Optionholder's Trust, the Pledgee or his or her or its duly authorized representatives. (c) Notwithstanding any other provision of this Section 8 to the contrary and subject to Section 13, if there exists and is continuing any Event, WCP shall delay the repurchase of any of the Option Shares or the Options (pursuant to a Call Notice timely given in accordance with Section 8(a) hereof) from the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, until the Repurchase Eligibility Date; provided that (i) the Section 8 Repurchase Price or the Section 7 Repurchase Price, as the case may be, shall be calculated as of the time of the delivery of a Call Notice in accordance with Section 8(a) and (ii) the number of Option Shares subject to repurchase under this Section 8 and the number of Exercisable Option Shares for purposes of calculating the Option Excess Price payable under this Section 8, shall be the number of Option Shares and Exercisable Option Shares, respectively, held by the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, at the time of the delivery of a Call Notice in accordance with Section 8(a). All Options exercisable as of the date of a Call Notice shall continue to be exercisable until the repurchase pursuant to such Call Notice. (d) Notwithstanding any other provision of this Section 8 to the contrary, WCP's right to purchase Option Shares and cancel Options pursuant to this Section 8 shall terminate with respect to any Option Shares and Options that have not been so repurchased or canceled on or before the 120th day after the date of the Call Notice. 9. DETERMINATION OF REPURCHASE PRICE (a) The Section 7 Repurchase Price and the Section 8 Repurchase Price are hereinafter collectively referred to as the "Repurchase Price." The Repurchase Price shall be calculated on the basis of the unaudited financial statements of the Company or the Market Price Per Share (as defined in Section 9(e)) as of the last day of the month preceding the month in which the event giving rise to the repurchase occurs (the "Repurchase Calculation Date"). The event giving rise to the repurchase shall be the transfer, death, Permanent Disability or cessation as a director of the Company for any other reason, or other event, as the case may be, not the giving of any notice required pursuant to Section 7 or 8. (b) The Section 7 Repurchase Price per Option Share shall be equal to the greater of the Market Price Per Share and the Option Price Per Share. (c) If the Call Event results from the occurrence of an event described in clauses (i), (ii), (iii) or (iv) of Section 8(a), the Section 8 Repurchase Price per Option Share shall be equal to the lesser of (x) the Market Price Per Share and (y) the Option Price Per Share plus the product of (I) the Vested Percentage (as defined in Section 6) and (II) the amount, if any, by which the Market Price Per Share exceeds the Option Price Per Share. (d) As used herein the term "Public Offering" shall mean the sale of shares of Common Stock to the public pursuant to a registration statement under the Act which has been declared effective by the Securities and Exchange Commission (other than a registration statement on Form S-8 or any other similar form) immediately after which sale an active trading market in the Common Stock exists; provided that an active trading market in the Common Stock shall be deemed to exist if the Common Stock is listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System, but the failure of the Common Stock to be so listed shall not per se be determinative as to whether an active trading market does not exist. (e) As used herein the term "Market Price Per Share" shall mean the price per share equal to the average of the last sale price of the Common Stock on each of the ten trading days prior to the Repurchase Calculation Date on each exchange on which the Common Stock may at the time be listed and on which the Common Stock traded on such date or, if there shall have been no sales on any of such exchanges on any such trading day, the average of the closing bid and asked prices on each such exchange at the end of each such trading day or, if there is no such bid and asked price on such trading day, on the next preceding date when such bid and asked price occurred or, if the Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ at the end of each of the ten trading days prior to the Repurchase Calculation Date in the over-the-counter market. If the Common Stock is not so listed or reported by NASDAQ, then the Market Price Per Share shall be the fair market value established by the Board acting in good faith. (f) As used herein the term "Aggregate Market Value" shall mean the product of (i) the number of shares of Common Stock to be applied as payment of the Exercise Price pursuant to Section 4(b)(iv)(B) and (ii) the Market Value Per Share as of the payment date. (g) In determining the Repurchase Price, appropriate adjustments shall be made for any future issuances of rights to acquire and securities convertible into Common Stock and any stock dividends, splits, combinations, recapitalizations or any other adjustment in the number of shares of outstanding shares of Common Stock. 10. SHARES ISSUED TO OPTIONHOLDER UPON EXERCISE OF OPTIONS; TERMINATION OF OPTIONS (a) All Options, whether or not then exercisable, shall be automatically terminated to the extent that, pursuant to the provisions of this Agreement, WCP shall pay the Optionholder an amount equal to the Option Excess Price with respect to such Options. If the Option Excess Price is zero or a negative number, all outstanding Options granted to the Optionholder, whether or not then exercisable, shall be automatically terminated upon the repurchase of any Option Shares pursuant to Section 7 or Section 8. For purposes hereof, "Option Excess Price" shall mean the excess, if any, of the Section 7 Repurchase Price or the Section 8 Repurchase Price, depending on which Repurchase Price is (or would be) used to repurchase the Option Shares, over the exercise price applicable to such Options multiplied by the number of Exercisable Option Shares. For purposes hereof, "Exercisable Option Shares" shall mean the shares of Common Stock which, at the time of determination, could be purchased by the Optionholder upon exercise of his or her outstanding exercisable Options. (b) Except as otherwise provided herein or in the Option Plan, the Options shall expire and cease to be exercisable to any extent after the first to occur of the following events: (i) the tenth anniversary of the Grant Date; or (ii) the date that is six months after the Optionholder's termination of employment by reason of death or Permanent Disability; or (iii) the first business day which is fifteen calendar days after the earlier of (A) 75 days after the Optionholder's cessation as a director of the Company for any reason other than death or Permanent Disability; or (B) the delivery of notice by WCP that it does not intend to exercise its call right under Section 8; provided that in any event the Options shall remain exercisable under this Section 10 until at least 45 days after termination of the Optionholder's cessation as a director of the Company for any reason other than death or Permanent Disability or (iv) upon the occurrence of a Transfer Event (as hereinafter defined) and upon payment to the Optionholder of an amount in cash equal to the difference between (i) the product of (A) the Per Share Consideration (as hereinafter defined) received in such Transfer Event by a holder of Common Stock multiplied by (B) the number of Option Shares for which the unexercised Options are then exercisable and (ii) the aggregate Option Price Per Share for such unexercised Options which are then exercisable. For the purposes of this Section 10, the term "Per Share Consideration" shall mean the quotient of (x) the aggregate consideration paid or to be paid (but only as and when received) in respect of the Transfer Event to the holders of Common Stock of WCP, as applicable, divided by (y) the number of outstanding shares of Common Stock on a fully diluted basis (after giving effect to the exercise of all outstanding options to acquire Common Stock to the extent then exercisable); and the term "Transfer Event" shall mean any of a merger or consolidation involving WCP, a sale or exchange of all or substantially all of the assets of WCP, an acquisition by another corporation or other entity of 80% or more of WCP's outstanding shares of voting stock or the liquidation or dissolution of WCP. 11. WCP'S REPRESENTATIONS AND WARRANTIES (a) WCP represents and warrants to the Optionholder that (i) this Agreement has been duly authorized, executed and delivered by WCP and (ii) the Option Shares, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable. (b) WCP shall file the reports required to be filed by it under the Act and the Exchange Act to the extent required from time to time to enable the Optionholder to sell Option Shares without registration under the Act within the limitations of the exemptions provided by (i) Rule 144 under the Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding anything contained in this Section 11(b), WCP may deregister under Section 12 of the Exchange Act if it is then permitted to do so pursuant to the Exchange Act and the rules and regulations thereunder, and, upon such deregistration, shall be relieved of its obligations to file reports pursuant to this Section 11(b). Nothing in this Section 11(b) shall be deemed to limit in any manner the restrictions on sales of Option Shares contained in this Agreement. 12. "PIGGYBACK" REGISTRATION RIGHTS (a) If WCP, in connection with any Public Offering, plans to register any shares of Common Stock held by WCP Associates, L.P., APC Associates, L.P., GR Associates, L.P., KKR Partners II, L.P. or any other KKR Affiliate (as defined below) (the "Institutional Investors") for public offering pursuant to the Act, WCP will promptly notify the Optionholder in writing (a "Registration Notice") of such proposed registration (the "Proposed Registration"). If within ten business days of the receipt by the Optionholder of such Registration Notice (and, in any event, within 15 business days after such Registration Notice is sent by WCP), WCP receives from the Optionholder, the Optionholder's Estate or the Optionholder's Trust a written request (a "Registration Request") to register Option Shares held by the Optionholder, the Optionholder's Estate or the Optionholder's Trust (which Registration Request will be irrevocable unless otherwise mutually agreed to in writing by the Optionholder and WCP), Option Shares will be so registered as provided in this Section 12; provided that for each such Proposed Registration only one Registration Request, which shall be executed by the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, may be submitted for all Registrable Securities held by the Optionholder, the Optionholder's Estate and the Optionholder's Trust, respectively. All Option Shares acquired by the Optionholder pursuant to the exercise of Options granted pursuant to this Agreement and held by the Optionholder, the Optionholder's Estate or the Optionholder's Trust, including shares purchased upon the exercise of Options, shall be deemed to be Registrable Securities. (b) The maximum number of Option Shares which will be registered pursuant to a Registration Request will be the lowest of (i) the number of Option Shares then held by the Optionholder (which for purposes of this subparagraph (b) shall include shares held by the Optionholder's Estate or a Optionholder's Trust), including all Option Shares which the Optionholder is then entitled to acquire under an unexercised Option to the extent then exercisable (the "Maximum Shares"), (ii) the Maximum Shares then held by the Optionholder multiplied by the ratio of (A) the number of shares of Common Stock to be registered by the Institutional Investors in the Proposed Registration to (B) the total number of shares of Common Stock beneficially owned by all Institutional Investors and (iii) the maximum number of shares which the Optionholder can register in the public offering pursuant to any limits set by the managing underwriter for inclusion in such public offering and agreed to in good faith by WCP. (c) Except as may otherwise be provided in this Section 12, Option Shares will be registered by WCP and offered to the public pursuant to this Section 12 on the same terms and subject to the same conditions applicable to registration in the Proposed Registration of shares held by an Institutional Investor. Such terms and conditions shall include, without limitation: the public offering price; the payment of fees, commissions and expenses; the provision of, and representation and warranty as to, information requested by WCP; and the provision of requisite indemnifications. (d) Upon delivering a Registration Request, the Optionholder will, if requested by WCP, execute and deliver a Custody Agreement and Power of Attorney in form and substance satisfactory to WCP with respect to the Option Shares to be registered pursuant to this Section 12 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, will deliver to and deposit in custody with the custodian and attorney-in-fact named therein a certificate or certificates representing such Option Shares (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as the Optionholder, the Optionholder's Estate's or the Optionholder's Trust's, as the case may be, agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on behalf of the Optionholder, the Optionholder's Estate or the Optionholder's Trust, as the case may be, with respect to the matters specified therein. The Optionholder agrees that he will execute such other agreements as WCP may reasonably request to further evidence the provisions of this Section 12. 13. CONTINUED EXERCISABILITY OF WCP'S RIGHT OR OBLIGATION TO REPURCHASE. Notwithstanding anything to the contrary contained in Sections 7 and 8 hereof, if at any time consummation of all purchases and payments to be made by the Company pursuant to this Agreement and the Other Stock Option Agreements would result in an Event, then the Company shall make purchases from, and payments to, the Optionholder and Other Optionholders pro rata (on the basis of the proportion of the number of Option Shares and the number of Options each such Optionholder and all Other Optionholders have elected or are required to sell to the Company) for the maximum number of Option Shares and shall pay the Option Excess Price for the maximum number of Options permitted without resulting in an Event (the "Maximum Repurchase Amount"). The provisions of Section 7(d) and 8(c) shall apply in their entirety to payments and repurchases with respect to Options and Option Shares which may not be made due to the limits imposed by the Maximum Repurchase Amount under this Section 13. Until all of such Options and Option Shares are purchased and paid for by the Company, the Optionholder and the Other Optionholders whose Options and Option Shares are not purchased in accordance with this Section 13 shall have priority, on a pro rata basis, over other purchases of Options and Option Shares by the Company pursuant to this Agreement and Other Stock Option Agreements. 14. RIGHT TO NEGOTIATE PURCHASE PRICE. Nothing contained in this Agreement shall be deemed to restrict or prohibit WCP from purchasing Option Shares and the Options from the Optionholder, the Optionholder's Estate or the Optionholder's Trust, at any time, for such price upon such other terms and conditions as may be mutually agreed upon between such parties, whether or not at the time of such purchase circumstances exist which specifically grant WCP the right to purchase, or the Optionholder, the Optionholder's Estate or the Optionholder's Trust to sell, Option Shares and the Options under the terms of this Agreement, and all such purchases shall be deemed to be in accordance with the terms of this Agreement. 15. COVENANT REGARDING 83(B) ELECTION. EXCEPT AS WCP MAY OTHERWISE AGREE IN WRITING, THE OPTIONHOLDER HEREBY COVENANTS AND AGREES THAT TO THE EXTENT (IF ANY) APPLICABLE TO THE GRANT OR EXERCISE OF OPTIONS HEREUNDER, HE OR SHE WILL MAKE AN ELECTION UNDER SECTION 83(B) OF THE CODE PURSUANT TO TREASURY REGULATION SECTION 1.83-2 WITH RESPECT TO ANY OPTION SHARES ISSUED UPON EXERCISE OF THE OPTIONS. THE OPTIONHOLDER FURTHER COVENANTS AND AGREES THAT HE OR SHE WILL FURNISH WCP WITH COPIES OF THE FORM OF ANY SUCH ELECTION THE OPTIONHOLDER FILES WITHIN 30 DAYS AFTER EACH EXERCISE OF ANY OF THE OPTIONS AND WITH EVIDENCE THAT EACH SUCH ELECTION (IF ANY) HAS BEEN FILED IN A TIMELY MANNER. 16. NOTICE OF CHANGE OF BENEFICIARY. Immediately prior to any transfer of Option Shares to the Optionholder's Trust, the Optionholder shall provide WCP with a copy of the instruments creating the Optionholder's Trust and with the identity of the beneficiaries of the Optionholder's Trust. The Optionholder shall notify WCP immediately prior to any change in the identity of any beneficiary of the Optionholder's Trust. 17. EXPIRATION OF CERTAIN PROVISIONS (a) The provisions contained in Sections 7 and 8 of this Agreement, and the portions of other provisions of this Agreement which incorporates the provisions of Sections 7 and 8, shall terminate and be of no further force or effect with respect to any Option Shares which are permitted to be sold by the Optionholder pursuant to this Agreement and which are sold by the Optionholder (i) pursuant to an effective registration statement filed by the Company under the Act or (ii) pursuant to Rule 144, as amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (b) The provisions contained in Sections 5(f), 6, 7, 8 and 15 of this Agreement, and the portion of any other provisions of this Agreement which incorporate the provisions of any of such Sections, shall terminate and be of no further force or effect upon the consummation of a Change of Control. For purposes of this Section, "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company taken as a whole to any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than the "KKR Affiliates" (as hereinafter defined), (ii) the adoption of a plan relating to the liquidation or dissolution of WCP, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the KKR Affiliates, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting stock of WCP, (iv) the consummation of the first transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the "beneficial owner" (as defined above), directly or indirectly, of more of the voting stock of WCP than is at the time "beneficially owned" (as defined above) by the KKR Affiliates. For purposes of this Agreement, "KKR Affiliate" shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, Kohlberg Kravis Roberts & Co., L.L.P., its successors or assigns; "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature, and "control" shall have the meaning given such term under Rule 405 of the Act. 18. RECAPITALIZATION. Except as other wise provided herein, in the event that the outstanding shares of the stock subject to Options are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionholder's proportionate interest shall be maintained as before he occurrence of such event. Such adjustment in an outstanding Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in Option price per share. Any such adjustment made by the Committee shall be final and binding upon the Optionholder, the Company and all other interested persons. 19. OPTIONHOLDER'S EMPLOYMENT BY THE COMPANY. [Intentionally omitted] 20. STATE SECURITIES LAWS. WCP hereby agrees to use all reasonable efforts to comply with all state securities or "blue sky" laws, which might be applicable to the issuance of the Option Shares to the Optionholder. 21. BINDING EFFECT. The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 5(b) hereof, such transferee shall be deemed to be the Optionholder hereunder; provided that no transferee (including, without limitation, any transferee referred to in Section 5(b) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to WCP a valid undertaking and becomes bound by the terms of this Agreement. 22. AMENDMENT. This Agreement may be amended only by a written agreement or instrument signed by the Parties hereto; provided that WCP may, in its discretion, amend this Agreement by a written agreement or instrument signed only by WCP to reduce or eliminate any restriction on the sale, transfer or other disposition of Option Shares. 23. CLOSING. Except as otherwise provided herein, the closing of each purchase and sale of Option Shares and any outstanding Options pursuant to this Agreement shall take place at the principal office of WCP on the 15th business day following delivery of the notice by either Party to the other of its exercise of the right to purchase or sell hereunder. 24. APPLICABLE LAW. The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under principles of conflicts of law. 25. ASSIGNABILITY OF CERTAIN RIGHTS BY WCP. WCP shall have the right to assign any or all of its rights or obligations to purchase Option Shares and any outstanding Options pursuant to Sections 7 and 8 hereof. 26. PAYMENT BY WCP. If at any time WCP purchases Option Shares or any outstanding Options from the Optionholder hereunder, and the Optionholder is indebted to WCP in any amount whatsoever, WCP, in its sole discretion, may apply all or any part of such indebtedness to the purchase price. 27. NOTICES. All notices and other communications necessary or contemplated under this Agreement shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed delivered when delivered in person or sent by first-class mail (certified or registered mail, return receipt requested, postage prepaid), facsimile or overnight air courier guaranteeing next day delivery, addressed as follows: (a) If to WCP, to it at the following address: World Color Press, Inc. The Mill 340 Pemberwick Road Greenwich, Connecticut 06831 Facsimile No.: (203) 532-4371 Attn: Chief Legal Officer (b) If to the Optionholder, to him or her at the following address: _________________________________ _________________________________ _________________________________ _________________________________ 28. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 29. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof. 30. REMEDIES FOR VIOLATIONS. The Parties agree that they would be irreparably damaged and that money damages would not be a sufficient remedy in the event that the Parties do not follow this Agreement. In the event of any such breach, the non-breaching Party shall be entitled, without being required to post a bond or other security, to equitable relief (including, without limitation, injunction and specific performance) as a remedy for such breach. Such remedies shall not be deemed to be the exclusive remedies for any such breach but shall be in addition to all other remedies available at law or equity to the non-breaching Party. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. World Color Press, Inc. By: ---------------------------------- Jennifer L. Adams Vice Chairman ---------------------------------- _________________ EX-27 3 6/99 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 27, 1999 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 27, 1999 OF WORLD COLOR PRESS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-26-1999 JUN-27-1999 49,145 0 147,607 0 261,204 548,964 1,710,177 780,434 2,367,179 309,334 1,242,697 0 0 393 605,323 2,367,179 1,172,388 1,172,388 974,580 974,580 0 0 48,959 (26,845) (11,006) (15,839) 0 (11,992) (10,513) (38,344) (1.01) (1.01)
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