<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997
REGISTRATION NO. 333-18017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PETERSEN PUBLISHING COMPANY, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2721 95-4597937
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
PETERSEN CAPITAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2721 95-4608878
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
PETERSEN HOLDINGS, L.L.C.
(EXACT NAME OF REGISTRANT A SPECIFIED IN ITS CHARTER)
DELAWARE 2721 95-4597939
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
6420 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90048
TELEPHONE: (213) 782-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
NEAL VITALE, PRESIDENT Copy to:
PETERSEN PUBLISHING COMPANY, L.L.C. DENNIS M. MYERS
6420 WILSHIRE BOULEVARD KIRKLAND & ELLIS
LOS ANGELES, CALIFORNIA 90048 200 EAST RANDOLPH DRIVE
TELEPHONE: (213) 782-2000 CHICAGO, ILLINOIS 60601
(NAME, ADDRESS, INCLUDING ZIP CODE, (312) 861-2000
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
---------------
THE REGISTRANTS HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT CAPTION OR
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
1.Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2.Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover
Cover Pages of Prospectus..... Page
3.Risk Factors, Ratio of Earnings
to Fixed Charges and Other Summary; The Investors; Selected Historical
Information................... Financial Data; Unaudited Pro Forma
Financial Data
4.Terms of the Transaction........ Outside Front Cover Page; Summary;
Description of the Notes; The Exchange
Offer; Certain Federal Income Tax
Consequences
5.Pro Forma Financial
Information................... Unaudited Pro Forma Financial Data
6.Material Contracts with the
Company Being Acquired........ Inapplicable
7.Additional Information
Required...................... Inapplicable
8.Interests of Named Experts and
Counsel....................... Legal Matters; Experts
9.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Inapplicable
10.Information with Respect to S-3
Registrants................... Inapplicable
11.Incorporation of Certain
Information by Reference...... Inapplicable
12.Information with Respect to S-3
or S-2 Registrants............ Inapplicable
13.Incorporation of Certain
Information by Reference...... Inapplicable
14.Information with Respect to
Registrants other than S-3 or Outside Front Cover Page; Summary; Risk
S-2 Registrants............... Factors; The Transactions; The Investors;
Use of Proceeds; Capitalization; Unaudited
Pro Forma Financial Data; Selected
Historical Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Security Ownership of
Certain Beneficial Owners and Management;
Limited Liability Company Agreement;
Description of Senior Credit Facility;
Description of the Notes
15.Information with Respect to S-3
Companies..................... Inapplicable
16.Information with Respect to S-3
or S-2 Companies.............. Inapplicable
17.Information with Respect to
Companies Other than S-3 or S-
2 Companies................... Inapplicable
18.Information if Proxies, Consents
or Authorizations are to be
Solicited..................... Inapplicable
19.Information if Proxies, Consents
or Authorizations are not to Management; Security Ownership of Certain
be Solicited or in an Exchange Beneficial Owners and Management; Certain
Offer......................... Transactions
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1997
PROSPECTUS
FEBRUARY 10, 1997
PETERSEN PUBLISHING COMPANY, L.L.C.
PETERSEN CAPITAL CORP.
OFFER TO EXCHANGE ITS 11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 FOR
ANY AND ALL OF ITS OUTSTANDING 11 1/8% SERIES A SENIOR SUBORDINATED NOTES DUE
2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 11,
1997, UNLESS EXTENDED.
Petersen Publishing Company, L.L.C., a Delaware limited liability company
(the "Company"), and Petersen Capital Corp., a Delaware corporation ("Capital"
and, together with the Company, the "Issuers"), hereby offer (the "Exchange
Offer"), upon the terms and conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of their Series B 11 1/8%
Senior Subordinated Notes due 2006 (the "New Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of their outstanding 11 1/8% Senior Subordinated Notes due
2006 (the "Old Notes"), of which $100,000,000 principal amount is outstanding.
The form and terms of the New Notes are the same as the form and term of the
Old Notes (which they replace), except that the New Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain certain provisions relating to an increase in the interest rate which
were included in the terms of the Old Notes in certain circumstances relating
to the timing of the Exchange Offer. The New Notes will evidence the same debt
as the Old Notes (which they replace) and will be issued under and be entitled
to the benefits of the Indenture, dated as of November 15, 1996 (the
"Indenture"), between the Issuers and United States Trust Company of New York,
as trustee. The Old Notes and the New Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of the
Notes."
The Issuers will be jointly and severally liable for all payments due under
the New Notes. Interest on the Notes will be paid semi-annually on November 15
and May 15 of each year, commencing on May 15, 1997. The Notes will mature on
November 15, 2006 and will not be subject to any sinking fund requirement. The
Notes will be redeemable by the Issuers, in whole or in part, at any time on or
after November 15, 2001, at the redemption prices set forth herein, plus
accrued and unpaid interest to the redemption date. Prior to November 15, 1999,
the Issuers, at their option, may redeem in the aggregate up to 25% of the
original principal amount of the Notes at 111.125% of the aggregate principal
amount so redeemed plus accrued and unpaid interest to the redemption date with
the Net Proceeds (as defined herein) of one or more Public Equity Offerings (as
defined herein), provided that at least $75.0 million of the principal amount
of the Notes originally issued remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 90
days following the closing of any such Public Equity Offering. See "Description
of the Notes--Optional Redemption."
The Notes will be general unsecured obligations of the Issuers, subordinated
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Issuers and senior in right of payment to any subordinated
indebtedness of the Issuers. The Indenture contains, among other things,
covenants restricting the Issuers' ability to incur Additional Indebtedness (as
defined herein), including additional Senior Indebtedness. See "Description of
the Notes--Certain Covenants." As of September 30, 1996, after giving effect to
the Transactions (as defined herein) and the Initial Offering (as defined
herein), the Company would have had $200.0 million aggregate principal amount
of Senior Indebtedness outstanding. In addition, the Company would have had
$60.0 million of additional borrowing availability under the Senior Credit
Facility (as defined herein). See "Capitalization" and "Description of the
Notes." The Company's pro forma earnings were insufficient to cover pro forma
fixed charges by $48.4 million for the year ended November 30, 1995 and $35.0
million for the ten
(Cover continued on following page)
-----------
SEE "RISK FACTORS," BEGINNING ON PAGE 18, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Cover page continued)
months ended September 30, 1996. See "Unaudited Pro Forma Financial Data." The
Company's equity securities are held 99.9% by Petersen Holdings, L.L.C.
("Holdings") and 0.1% by BrightView Communications Group, Inc. ("BrightView").
Capital is a wholly owned subsidiary of the Company and will not have
substantial operations or assets of any kind and will not have any revenues.
The New Notes will be unconditionally guaranteed, on an unsecured senior
subordinated basis by Holdings and certain future Restricted Subsidiaries (as
defined herein), if any, of Holdings or the Company. The Company is a limited
life entity that will continue in existence until December 31, 2016 or
dissolution prior thereto as determined under the LLC Agreement (as defined
herein). See "Limited Liability Company Agreement."
In the event of a Change of Control (as defined herein), holders of the Notes
will have the right to require the Issuers to purchase their Notes at 101% of
the aggregate principal amount thereof plus accrued and unpaid interest to the
purchase date. See "Description of the Notes--Change of Control Offer." In
addition, the Issuers are obligated in certain instances to make offers to
repurchase the Notes at a purchase price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase with
the net cash proceeds of certain asset sales. See "Description of the Notes--
Certain Covenants--Limitation on Certain Asset Sales."
The Issuers will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on March 11, 1997,
unless extended by the Issuers in their sole discretion (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on
the Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were sold by the Issuers on November 25, 1996 to
First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp. (the
"Initial Purchasers") in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act (the "Initial
Offering"). The Initial Purchasers subsequently placed the Old Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in order
to satisfy the obligations of the Issuers under the Registration Rights
Agreement (as defined herein) entered into by the Issuers in connection with
the Initial Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, the Issuers believe the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of such New Notes. See "The Exchange Offer-Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer as a result of marketmaking activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date, they will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale; provided, however,
the Issuers and the Guarantor (as defined herein) have no obligation to amend
or supplement this Prospectus unless one of them has received written notice
from a Participating Broker-Dealer of their prospectus delivery requirements
under the Securities Act within five business days following consummation of
the Exchange Offer. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
ii
<PAGE>
(Cover page continued)
There has not previously been any public market for the Old Notes or the New
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. See "Risk Factors-Absence of a Public Market Could Adversely Affect
the Value of Notes." Moreover, to the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
The New Notes will be available initially only in book-entry form and the
Issuers expect that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the New Notes will be shown on, and
transfers thereof will be effected through, records maintained by the DTC and
its participants. After the initial issuance of the Global Note, New Notes in
certified form will be issued in exchange for the Global Note only under the
limited circumstances set forth in the Indenture. See "Description of the
Notes-Book-Entry; Delivery and Form."
All of the titles of the Company's publications referenced herein are
trademarks of the Company.
iii
<PAGE>
AVAILABLE INFORMATION
The Issuers and Holdings have filed with the Commission a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Issuers and the
Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Exchange Offer Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the Commission at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers and Holdings will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Issuers and Holdings to file periodic reports and other information with
the Commission will be suspended if the Notes are held of record by fewer than
300 holders as of the beginning of any fiscal year of the Issuers and Holdings
other than the fiscal year in which the Exchange Offer Registration Statement
is declared effective. The Issuers have agreed that, whether or not they are
required to do so by the rules and regulations of the Commission, for so long
as any of the Notes remain outstanding, they will furnish to the holders of
the Notes and file with the Commission (unless the Commission will not accept
such a filing) (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Issuers were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Issuers' certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Issuers were required to file such reports. In addition, for so long as any of
the Notes remain outstanding, the Issuers have agreed to furnish to the
holders of the Notes or any prospective transferee of any such holder, upon
their request the information required to be delivered by Rule 144A(d)(4)
under the Securities Act.
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. All references to fiscal years in this Prospectus
refer to years ended November 30. On September 30, 1996, the Company acquired
substantially all of the publishing assets and assumed certain liabilities of
Petersen Publishing Company (the "Acquisition"). Unless the context otherwise
requires: (i) the term "Petersen" refers to the historical operations of the
publishing division of Petersen Publishing Company prior to the Acquisition;
(ii) the term "Company" refers to Petersen Publishing Company, L.L.C. and its
predecessors and subsidiaries; (iii) the term "Issuers" collectively refers to
Petersen Publishing Company, L.L.C. and Petersen Capital Corp., a wholly owned
subsidiary of the Company; (iv) the term "Holdings" refers to Petersen
Holdings, L.L.C., which owns 99.9% of the Company's equity securities and (v)
the term "BrightView" refers to BrightView Communications Group, Inc., which
owns 0.1% of the Company's equity securities.
THE COMPANY
The Company is a leading publisher of special-interest magazines. The
Company's diverse portfolio currently contains a total of 73 publications,
including 22 monthly publications, 9 bi-monthly publications and 42 singe issue
or annual publications. According to Media Market Research Institute, the
Company's magazines reach over 40 million readers each month. The Company's
nationally-recognized magazines include (i) Motor Trend, which is recognized as
a leading authority on new domestic and foreign automobiles and has a current
monthly circulation of approximately 1.0 million, (ii) 'TEEN, which has the
largest circulation of any of the Company's magazines with a current monthly
circulation of over 1.3 million and (iii) Hot Rod, which is one of the largest
circulation automotive magazines in the world with a current monthly
circulation of over 810,000. The Company's other core publications are well-
known in their respective markets and include Guns & Ammo, Skin Diver, 4 Wheel
& Off-Road, Car Craft, Petersen's Hunting, Motorcyclist, Sport Truck, Circle
Track & Racing Technology ("Circle Track"), Photographic and Dirt Rider. Eight
of the Company's 13 core publications ranked first in their respective markets
based on annual circulation in 1995, including two magazines that were the only
national magazines published in their respective markets.
The Company's principal sources of revenues are from advertising and
circulation. The Company had net revenues of $213.6 million and $189.1 million
for fiscal 1995 and the ten months ended September 30, 1996, respectively.
Circulation revenues are generated from both subscription and newsstand sales.
For fiscal 1995, approximately 58% of the Company's revenues were from
advertising, 38% were from circulation (including 20% from subscription sales
and 18% from newsstand sales) and 4% were from other sources.
In fiscal 1995, the Company's 13 core publications each generated a minimum
of approximately $1.0 million of profit contribution and, in the aggregate,
generated over $55.2 million of the Company's profit contribution. During the
same period, no single publication accounted for more than 15% of the Company's
net revenues or 28% of profit contribution. As a result of such
diversification, the Company believes that it is not dependent on any single
publication and is less susceptible to shifts in advertising spending across
industry sectors. The Company's core publications collectively average over 30
years in publication and have developed nationally-recognized branded titles
within each of their respective markets. By using its core publications as a
platform for launching new spin-off publications, the Company has been able to
develop a portfolio of highly-specialized publications covering a wide variety
of interests. The Company believes that its reputation as a high-quality
publisher and its significant market presence have historically enabled its new
publications to gain market share more rapidly in their respective special-
interest segments.
Substantially all of the Company's magazines target special-interest
enthusiasts. By doing so, the Company is able to deliver a solid core audience
to its advertisers on a consistent basis and create an opportunity for its
advertisers to efficiently reach their target audience. Due to the special-
interest nature of the Company's
1
<PAGE>
magazines, readers not only value their specialized editorial content but also
rely on such magazines as a catalogue of products in the relevant topic area.
This catalogue aspect makes the Company's magazines an essential advertising
medium for many of the Company's advertisers. Certain of the Company's
advertisers rely on the Company's publications as their primary source of media
advertising. As compared to general-interest magazines, the Company believes
that its advertising revenues are less susceptible to changes in general
economic conditions due to the diversity of its publications, the special-
interest nature of its editorial content and the endemic nature of its
advertiser base. The endemic nature of the Company's advertiser base refers to
the fact that a significant portion of the Company's advertising revenues are
from advertisers that are manufacturers, marketers or distributors of products
that relate directly to the editorial content of the magazines in which they
advertise. In addition, the Company has a diverse advertiser base, with its top
25 advertisers accounting for only 32.6% and 32.8% of the Company's advertising
revenues during fiscal 1995 and the ten months ended September 30, 1996,
respectively.
In addition to offering its advertisers targeted advertising within
individual magazines, the Company can offer its advertisers the ability to
reach a large audience by advertising across the Company's large portfolio of
magazines. Management believes this capability was not fully developed by
Petersen's prior management. In particular, the Company believes that many of
its publications provide its advertisers with unique access to the adult male
(ages 18 to 34) and young female (ages 12 to 19) markets. The Company believes
that, in the aggregate, its publications reach more adult males than those of
any other magazine publisher and reach over one-third of all young females in
the United States. In 1995, the Company's magazines reached an aggregate of
approximately 36.5 million of the approximately 60.1 million adult males in the
United States, or 60.7% of the market. The circulation of the Company's
magazines targeting adult males and young females is dependent to a certain
extent on the number of persons in such demographic groups in the U.S.
population at any given time. The adult male market is particularly attractive
to advertisers due to its size and overall purchasing power, while the young
female market provides advertisers with the opportunity to establish brand
recognition during the formative stages of this important consumer group's
buying patterns.
The following table sets forth certain information regarding the Company's 13
core publications for its fiscal year ended November 30, 1995:
<TABLE>
<CAPTION>
NET TOTAL CIRCULATION
MAGAZINE TITLE REVENUES(A) CIRCULATION(B) RANK(B)(C)
-------------- --------------------- --------------------- -----------
(AMOUNTS IN MILLIONS) (COPIES IN THOUSANDS)
<S> <C> <C> <C>
Motor Trend......... $31.3 950.6 2 of 4
'TEEN............... 24.1 1,311.8 3 of 3
Hot Rod............. 19.7 810.2 1 of 2
Guns & Ammo......... 13.6 570.8 1 of 2
Skin Diver.......... 13.3 229.0 1 of 2
4 Wheel & Off-Road.. 12.0 367.7 1 of 2
Car Craft........... 9.8 389.7 1 of 1
Petersen's Hunting.. 7.3 331.2 1 of 1
Motorcyclist........ 6.8 239.6 2 of 2
Sport Truck......... 6.2 192.1 1 of 2
Circle Track........ 6.0 131.6 2 of 2
Photographic........ 5.7 217.5 3 of 3
Dirt Rider.......... 5.4 160.8 1 of 3
</TABLE>
- --------
(a) Includes advertising, circulation and other revenues for the year ended
November 30, 1995.
(b) Based on the average circulation for each publication for the year ended
December 31, 1995.
(c) Includes only national publications that are tracked by industry analysts
and does not include small regional publications and newsletters
The Company completed the Acquisition on September 30, 1996. The Company's
investors pursued the Acquisition because they believed it offered an
attractive opportunity to: (i) acquire a diverse portfolio of
2
<PAGE>
profitable magazines with significant growth potential; (ii) bring together a
skilled and experienced management team, consisting of the Company's new senior
managers and Petersen's existing publishers and editorial staff; (iii) apply
professional management techniques to the Company's portfolio and improve its
operating results by increasing circulation and advertising revenues and
reducing operating costs and (iv) further develop the Company's brand-name
franchises with limited additional capital investment. Management believes that
opportunities exist to achieve each of these results both in the near term and
on a going-forward basis.
BUSINESS AND OPERATING STRATEGY
The Company's core publications collectively average over 30 years in
publication and have developed nationally-recognized branded titles in each of
their respective markets. The Company believes that the enthusiast nature of
its readership provides it with a loyal subscriber base and enables it to
deliver a solid core audience to its advertisers on a consistent basis. As a
result, management believes that the Company maintains a number of significant
competitive advantages.
Historically, Petersen expanded primarily by introducing special-interest
magazines to serve niche audiences in areas in which its founder had a personal
interest. In pursuing such expansion, Petersen maintained a consistent focus on
the high-quality editorial content of its magazines. However, Petersen was
organized into six distinct publishing groups that essentially operated
independently from one another and were focused primarily on editorial
development and advertising revenue generation rather than overall
profitability. As a result, management believes that Petersen did not fully
realize all available operating synergies.
The Company's new management team has significant experience in the magazine
publishing industry. Based upon such experience, management has developed a
detailed business and operating strategy for the Company, primarily comprising
operating policies and procedures that have proven successful in their prior
experience and are widely practiced throughout the publishing industry. The
Company's business and operating strategy is primarily designed to leverage off
of its nationally-recognized brand names and improve the profitability of the
Company. The key elements of this strategy include:
REORGANIZE OPERATING STRUCTURE. Following the Acquisition, new management
reorganized several operating areas of the Company to facilitate a more
integrated and unified approach to circulation, production and advertising
sales, while retaining independent editorial direction of its magazines. The
Company's circulation operations, which include such functions as subscription
marketing and planning, fulfillment and newsstand distribution, were previously
organized by magazine group and managed by generalists focused on each magazine
group. Circulation operations have been reorganized on a functional basis
across all of the Company's publications and will be managed by specialists
within each function. Certain of these functions are being relocated to New
York in order to take advantage of expertise not readily available elsewhere.
In addition, the Company's production activities are being centralized across
all of its publications rather than by magazine group. The Company's national
advertising sales management is being relocated from Los Angeles to New York to
be in closer proximity to national advertising accounts. Similarly, management
of the young women's titles is being moved to New York to increase the
visibility of such magazines among advertisers in the fashion and cosmetic
industries.
IMPLEMENT OPERATING IMPROVEMENTS. Management has identified and has
substantially implemented operating improvements that are expected to result in
significant cost savings. These measures include the following:
. REDUCE OPERATING COSTS. At the time of the Acquisition, management
identified certain cost reduction measures, including: (i) savings in
personnel and related net lease costs; (ii) lower utilization of
temporary employees and services; (iii) the consolidation of one or more
of the Company's regional sales offices; (iv) tighter purchasing
procedures and controls and (v) reductions in the Company's travel and
entertainment expenditures. A substantial number of these cost reduction
measures have been completed, including personnel reductions expected to
result in annualized cost savings of approximately $4.9 million.
3
<PAGE>
. RESTRUCTURE VENDOR RELATIONSHIPS. Immediately following the Acquisition,
management commenced an extensive review of the Company's significant
vendor relationships, including its printing, paper supply, fulfillment
and newsstand distribution arrangements. Based on that review and
meetings with certain of such vendors, management believes that there
are opportunities to enhance these relationships and to improve the
economic terms of such arrangements for the Company. Although no
definitive agreements have been executed, the Company believes that it
will be successful in achieving more favorable terms with many of its
vendors.
. IMPROVE PERFORMANCE OF CERTAIN PUBLICATIONS. Management believes that it
can improve the Company's profitability by implementing changes designed
to eliminate or significantly reduce the losses currently being
generated by certain of the Company's publications. The Company has five
magazines (Sassy, Sport, Petersen's Golfing, Bicycle Guide and Mountain
Biker) that collectively accounted for negative profit contribution of
$7.6 million and $6.3 million for fiscal 1995 and the ten months ended
September 30, 1996, respectively. In December 1996, the Company
completed the process of merging Sassy into 'TEEN, thereby eliminating
the losses being generated by Sassy. Sassy generated negative profit
contribution of $4.7 million and $3.2 million for fiscal 1995 and the
ten months ended September 30, 1996, respectively. While the remaining
magazines collectively are expected to break even or be marginally
profitable in fiscal 1997, in the event such magazines continue to
generate losses, management expects to take one or more of the following
actions: (i) discontinue or sell such magazines; (ii) merge such
magazines with the Company's existing magazines or (iii) enter into
strategic partnerships with third parties. Management expects that a
final decision with respect to each magazine will be made by the end of
fiscal 1997.
INCREASE CIRCULATION AND ADVERTISING REVENUES. Management believes that there
are significant opportunities to increase circulation and advertising revenues.
The Company has historically focused on the newsstand distribution channel and
has relied heavily upon agency subscription sales in managing its circulation
operations. Management believes that it can increase subscription revenues by
instituting programs designed to increase the number of readers who buy
subscriptions directly from the Company. For example, the Company has begun to
develop a database of its over 32 million current or former subscribers that
will allow it to cross-sell its other publications to such subscribers. In
addition, management intends to increase the newsstand and subscription prices
on certain of its publications in order to bring such prices in line with
competitive publications.
Management believes that it can increase the Company's advertising revenues
by adopting a more unified approach to advertising sales, which will focus on
enhancing the ability of the Company's advertisers to purchase advertising
space across all of the Company's magazines that reach their target markets. In
addition, management intends to increase the Company's advertiser base by
targeting new advertisers and advertisers in other industry categories. Such
advertisers include, among others, manufacturers of men's apparel, footwear and
accessories and alcoholic beverages. The Company has also implemented a new
commission sales policy designed to provide more effective incentives to the
Company's advertising sales force. Prior management's policy did not provide
additional incentives to sales personnel once they had reached their annual
sales target, which often occurred prior to the conclusion of Petersen's fiscal
year. In addition, by designing the database described above with the
capability of identifying specific segments within each of its markets, the
Company believes it can offer its advertisers increased value and thus generate
additional advertising revenues.
ESTABLISH PERFORMANCE-BASED INCENTIVES. The significant equity interests held
by the Company's senior management provide such executives with an incentive to
maximize the Company's overall profitability. In addition, to provide
incentives to the Company's existing management and assist management in
implementing the new business strategy, the Company plans to adopt new
compensation arrangements designed to reward managers and other participating
employees based upon the Company's operating performance.
4
<PAGE>
Develop Ancillary Revenue Sources. The Company was historically operated as a
traditional consumer magazine company deriving substantially all of its
revenues from advertising and circulation sales. On an industry-wide basis,
management estimates, based upon its experience in the industry, that consumer
magazine publishers currently derive approximately 10% to 20% of their revenues
from ancillary revenue sources while the Company currently derives only about
4% of its revenues from such sources. In recent months, the Company has begun
to explore the ancillary revenue opportunities afforded by its well-established
brand names. For example, the Company has recently entered into licensing
agreements relating to the use of its Motor Trend and Hot Rod brand names for
weekly television shows on The Nashville Network (TNN) and its Guns & Ammo
brand name for a weekly television show on ESPN. In addition, because the
editorial content of many of its magazines would also appeal to readers outside
of the United States, management believes that significant opportunities exist
to establish international licensing agreements, particularly in Asia,
Australia, Great Britain and Western Europe. The Company believes that there
are significant opportunities to increase revenues by leveraging off the
editorial content and the nationally-recognized brand names of the Company's
existing publications through licensing arrangements, strategic joint ventures,
retail alliances, subscriber list rentals, affinity group marketing and
electronic publishing.
Establish New Titles. The Company has successfully expanded its magazine
portfolio by launching new publications to serve niche audiences in related
markets and by making selective acquisitions of existing magazine titles.
Thirteen of the Company's 31 current monthly and bimonthly titles were launched
or acquired by the Company since 1990. The Company plans to continue to develop
and launch new special-interest magazines and acquire existing magazines that
will complement and enhance its existing portfolio.
THE TRANSACTIONS
The Acquisition. The Company completed the Acquisition on September 30, 1996.
The aggregate purchase price of the Acquisition, which is subject to certain
working capital adjustments, was $450.0 million, plus the assumption of certain
ongoing liabilities incurred in the ordinary course of business. The Company
expects to receive at least $2.7 million from Petersen as a result of the
working capital adjustment.
The Financing Plan. The Initial Offering was part of a plan designed to
enable the Company to finance the Acquisition and to provide additional
liquidity. In connection with the Acquisition, the Company: (i) borrowed $200.0
million under a $260.0 million senior credit facility (the "Senior Credit
Facility"); (ii) borrowed $100.0 million under a bridge financing facility (the
"Bridge Financing Facility") and (iii) received equity contributions of $165.3
million from an investor group led by Willis Stein & Partners, L.P. ("Willis
Stein"). The Acquisition, the borrowings under the Senior Credit Facility and
the Bridge Financing Facility and the equity contributions are collectively
referred to herein as the "Transactions." The Company applied the net proceeds
of the Initial Offering to repay the Bridge Financing Facility.
The following table sets forth the sources and uses of funds in the
Acquisition (dollars in thousands):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)(c).................................. $200,000
Bridge Financing Facility(b)..................................... 100,000
Equity contributions(b).......................................... 165,300
--------
Total sources.................................................. $465,300
========
USES:
Acquisition consideration(c)..................................... $450,000
Fees and expenses(d)............................................. 15,300
--------
Total uses..................................................... $465,300
========
</TABLE>
5
<PAGE>
- --------
(a) On a pro forma basis, as of September 30, 1996, the Company would have had
$60.0 million of additional borrowing availability under the Senior Credit
Facility.
(b) First Union National Bank of North Carolina ("FBNC") and Canadian Imperial
Bank of Commerce ("CIBC"), affiliates of the Initial Purchasers are the
agents and principal lenders under the Senior Credit Facility. First Union
Corporation and CIBC were the lenders under the Bridge Financing Facility.
First Union Investors, Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C.,
both affiliates of the Initial Purchasers, provided a portion of the equity
financing in connection with the Acquisition.
(c) Does not reflect the working capital adjustment of at least $2.7 million
expected to be paid to the Company by Petersen in connection with the
Acquisition. The proceeds therefrom will be used to reduce borrowings under
the Senior Credit Facility.
(d) Includes estimated fees and expenses related to the Transactions and the
Initial Offering (including the Initial Purchasers' discount). To the
extent such fees are less than estimated, the remainder will be applied to
working capital.
THE INVESTORS
The Company's investors (the "Investors") include the following: Willis
Stein; First Union Investors, Inc.; CIBC WG Argosy Merchant Fund 2, L.L.C.;
Chase Equity Associates, L.P.; BankAmerica Investment Corporation; certain
other limited partners of Willis Stein; Robert E. Petersen, Petersen's founder
and the Company's Chairman Emeritus; and certain members of the Company's
senior management, including Messrs. D. Claeys Bahrenburg, Neal Vitale, James
D. Dunning, Jr., Laurence H. Bloch and Stuart Karu (the "Management
Investors"). The Management Investors have significant experience in managing
media-related companies and in managing leveraged acquisitions. The Company's
controlling investor, Willis Stein, is a private investment fund with committed
capital of approximately $343.0 million. The principals of Willis Stein were
formerly with Continental Illinois Venture Corporation ("CIVC"), where they
managed CIVC's investments in a number of media-related companies as well as
other investments.
THE ISSUERS
Petersen Publishing Company, L.L.C. is a Delaware limited liability company.
The Company's equity securities are held 99.9% by Holdings and 0.1% by
BrightView. BrightView is the managing member of Holdings and as such controls
the policies and operations of Holdings and of the Company. The Company was
organized in September 1996 for the principal purpose of completing the
Acquisition. Petersen's origins date back to 1948, when its founder, Robert E.
Petersen, first began publishing and selling a specialized newsletter entitled
Hot Rod. The Company's principal executive offices are located at 6420 Wilshire
Boulevard, Los Angeles, California 90048 and its telephone number is (213) 782-
2000.
Petersen Capital Corp., a wholly owned subsidiary of the Company, was
incorporated in Delaware for the purpose of serving as a co-issuer of the Notes
in order to facilitate the Initial Offering. Capital will not have substantial
operations or assets of any kind and will not have any revenues. As a result,
holders of the Notes should not expect Capital to participate in servicing the
interest or principal obligations of the Notes.
6
<PAGE>
THE INITIAL OFFERING
NOTES....................... The Old Notes were sold by the Issuers on
November 25, 1996 to the Initial Purchasers
pursuant to a Purchase Agreement, dated November
20, 1996 (the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Old Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act.
REGISTRATION RIGHTS Pursuant to the Purchase Agreement, the Issuers
AGREEMENT................... and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of
November 25, 1996 (the "Registration Rights
Agreement"), which grants the holders of the Old
Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $100,000,000 aggregate principal amount of 11
1/8% Series B Senior Subordinated Notes due 2006
of the Issuers.
THE EXCHANGE OFFER.......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, $100,000,000 aggregate
principal amount of Old Notes are outstanding.
The Issuers will issue the New Notes to holders
on or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Issuers believe that New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Issuers within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
New Notes. Each holder accepting the Exchange
Offer is required to represent to the Issuers in
the Letter of Transmittal that, among other
things, the New Notes will be acquired by the
holder in the ordinary course of business and the
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating
Broker-Dealer that receives New Notes for its own
account pursuant to the
7
<PAGE>
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resale of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other
trading activities. The Issuers have agreed that,
for a period of 180 days after the Expiration
Date, they will make this Prospectus available to
any Participating Broker-Dealer for use in
connection with any such resale; provided,
however, the Issuers and the Guarantor (as
defined herein) have no obligation to amend or
supplement this Prospectus unless one of them has
received written notice from a Participating
Broker-Dealer of their prospectus delivery
requirements under the Securities Act within five
business days following consummation of the
Exchange Offer. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the New
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom,
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such instance
may result in such holder incurring liability
under the Securities Act for which the holder is
not indemnified by the Issuers.
EXPIRATION DATE.............
5:00 p.m., New York City time, on March 11, 1997
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD NOTES....
Each New Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the New Notes. Such interest
will be paid with the first interest payment on
the New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance
of the New Notes.
CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to certain
OFFER....................... customary conditions, which may be waived by the
Issuers. See "The Exchange Offer--Conditions."
PROCEDURES FOR TENDERING Each holder of Old Notes wishing to accept the
OLD NOTES................... Exchange Offer must complete, sign and date the
accompanying Letter of
8
<PAGE>
Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message in connection with a book entry
transfer, together with the Old Notes and any
other required documentation to the Exchange
Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal,
each holder will represent to the Issuers that,
among other things, the New Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, whether or not such
person is the holder, that neither the holder nor
any such other person (i) has any arrangement or
understanding with any person to participate in
the distribution of such New Notes, (ii) is
engaging or intends to engage in the distribution
of such New Notes, or (iii) is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Issuers. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures
for Tendering."
UNTENDERED OLD NOTES........ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange rights and such Old Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could
be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE...................
The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Issuers, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
SHELF REGISTRATION If any holder of the Old Notes (other than any
STATEMENT................... such holder which is an "affiliate" of the
Issuers within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Old Notes to the Issuers for use
therein, the Issuers has agreed to register the
Old Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practical on or
after the consummation of the Exchange Offer. The
Issuers has agreed to maintain the effectiveness
of the Shelf Registration Statement for, under
certain circumstances, a maximum of three years,
to cover resales of the Old Notes held by any
such holders.
9
<PAGE>
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS..........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time.
The Issuers will keep the Exchange Offer open for
not less than twenty days in order to provide for
the transfer of registered ownership.
GUARANTEED DELIVERY Holders of Old Notes who wish to tender their Old
PROCEDURES................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES......
The Issuers will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
USE OF PROCEEDS............. There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.............. United States Trust Company of New York.
THE NEW NOTES
GENERAL..................... The form and terms of the New Notes are the same
as the form and terms of the Old Notes (which
they replace) except that (i) the New Notes bear
a Series B designation, (ii) the New Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of New
Notes will not be entitled to certain rights
under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old Notes in
certain
10
<PAGE>
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The New Notes will evidence the
same debt as the Old Notes and will be entitled
to the benefits of the Indenture. See
"Description of the Notes." The Old Notes and the
New Notes are referred to herein collectively as
the "Notes."
ISSUERS..................... The New Notes will be joint and several
obligations of Petersen Publishing Company,
L.L.C. and Petersen Capital Corp.
MATURITY DATE............... November 15, 2006.
INTEREST PAYMENT DATES...... Interest will accrue on the New Notes from the
date of issuance (the "Issue Date") and will be
payable semiannually on each November 15 and
commencing May 15, 1997.
OPTIONAL REDEMPTION......... The Notes will be redeemable at the option of the
Issuers, in whole or in part, at any time on or
after November 15, 2001, at the redemption prices
set forth herein, plus accrued and unpaid
interest to the redemption date. Prior to
November 15, 1999, the Issuers, at their option,
may redeem in the aggregate up to 25% of the
original principal amount to the Notes at
111.125% of the aggregate principal amount so
redeemed plus accrued and unpaid interest to the
redemption date with the Net Proceeds of one or
more Public Equity Offerings, provided that at
least $75.0 million of the principal amount of
Notes originally issued remain outstanding
immediately after the occurrence of any
redemption and that any such redemption occurs
within 90 days following the closing of any such
Public Equity Offering.
RANKING..................... The Notes will be general unsecured obligations
of the Issuers, subordinated in right of payment
to all existing and future Senior Indebtedness of
the Issuers and senior in right of payment to any
subordinated indebtedness of the Issuers. As of
September 30, 1996, after giving effect to the
Transactions and the Initial Offering, the
Company would have had $200.0 million aggregate
principal amount of Senior Indebtedness
outstanding. In addition, the Company would have
had $60.0 million of additional borrowing
availability under the Senior Credit Facility.
GUARANTEES.................. The Notes will be unconditionally guaranteed, on
an unsecured senior subordinated basis, as to the
payment of principal, premium, if any, and
interest, jointly and severally (the
"Guarantees"), by Holdings and by all direct and
indirect domestic Restricted Subsidiaries of
Holdings and the Company having either assets or
stockholders' equity in excess of $5,000 (the
"Guarantors"). The Guarantees will be
subordinated to all Senior Indebtedness of the
11
<PAGE>
respective Guarantors. See "Description of the
Notes--Certain Covenants--Limitation on Creation
of Subsidiaries."
CHANGE OF CONTROL........... In the event of a Change of Control, holders of
the New Notes will have the right to require the
Issuers to purchase their New Notes at 101% of
the aggregate principal amount thereof plus
accrued and unpaid interest to the purchase date.
There can be no assurance that the Issuers will
have the financial resources necessary to
repurchase the Notes upon a Change of Control.
See "Risk Factors--Limitations on Change of
Control" and "Description of the Notes--Change of
Control Offer."
ASSET SALE PROCEEDS......... The Issuers will be obligated in certain
instances to make offers to repurchase the Notes
at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid
interest to the date of repurchase with the net
cash proceeds of certain asset sales. See
"Description of the Notes--Certain Covenants--
Limitation on Certain Asset Sales."
COVENANTS................... The Indenture contains covenants for the benefit
of the holders of the Notes that, among other
things, restrict the ability of the Company and
any Restricted Subsidiaries (as defined herein)
to: (i) incur additional Indebtedness; (ii) pay
dividends and make distributions; (iii) issue
stock of subsidiaries; (iv) make certain
investments; (v) repurchase stock; (vi) create
liens; (vii) enter into transactions with
affiliates; (viii) enter into sale-leaseback
transactions; (ix) merge or consolidate the
Company or any Guarantors and (x) transfer and
sell assets. The Indenture provides for
restrictions on the ability of BrightView and
Holdings to incur additional Indebtedness. These
covenants are subject to a number of important
exceptions, including the allowance of Permitted
Tax Distributions (as defined herein) as a result
of the Company's status as a limited liability
company. See "Description of the Notes-- Certain
Covenants."
RISK FACTORS
Prospective investors should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included
in this Prospectus before tendering the Old Notes in exchange for New Notes.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following tables present summary historical financial data for each of
the five years in the period ended November 30, 1995 and for the ten-month
period ended September 30, 1996 that have been derived from the audited
financial statements of Petersen. The statements of income and divisional
equity and statements of cash flows for each of the three years in the period
ended November 30, 1995 and for the ten months ended September 30, 1996 and the
notes thereto appear elsewhere in this Prospectus. The summary historical
statement of operations data for the ten months ended September 30, 1995 of
Petersen have been derived from unaudited financial statements, which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. Results for the ten months ended September 30, 1996
are not necessarily indicative of results that may be expected for the entire
year.
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ----------- ------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING
DATA:
Net revenues............ $179,357 $180,503 $186,322 $201,967 $213,615 $178,650 $189,114
Production, selling and
other direct costs..... 144,280 135,250 141,562 149,182 171,112 140,436 148,713
-------- -------- -------- -------- -------- -------- --------
Gross Profit............ 35,077 45,253 44,760 52,785 42,503 38,214 40,401
General and
administrative
expenses............... 32,089 32,328 35,604 33,267 28,145 23,537 24,650
-------- -------- -------- -------- -------- -------- --------
Operating income........ 2,988 12,925 9,156 19,518 14,358 14,677 15,751
Interest income, net.... (1,429) (856) (317) (476) (549) (428) (352)
Gain on sale of assets.. -- -- -- -- -- -- (1,554)
-------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes....... 4,417 13,781 9,473 19,994 14,907 15,105 17,657
Provision for income
taxes(a)............... 125 267 251 698 549 458 331
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 4,292 $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 14,647 $ 17,326
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
deficiency............. $ (2,791)
Total assets............ 50,541
Total debt.............. --
Total capital
deficiency............. (1,672)
OTHER DATA
Depreciation and
amortization........... $ 4,496 $ 3,381 $ 3,137 $ 3,118 $ 3,439 $ 2,704 $ 2,704
Capital expenditures.... 4,018 1,419 4,739 2,866 4,423 3,492 768
Cash provided by
operating activities... 5,254 2,479 10,680 27,059 9,593 5,530 24,719
Cash provided by (used
in) investing
activities............. 2,951 11,545 (30) (14,478) 2,254 3,185 5,421
Cash provided by (used
in) financing
activities............. 113 (14,013) (14,901) (17,382) (6,092) (5,377) (27,625)
EBITDA (b).............. 7,484 16,306 12,293 22,636 17,797 17,381 20,009
EBITDA margin........... 4.2% 9.0% 6.6% 11.2% 8.3% 9.7% 10.6%
Ratio of earnings to
fixed charges.......... 3.6x 9.2x 6.8x 12.8x 9.2x 11.9x 9.9x
Earnings available to
cover fixed
charges(c)............. $ 6,137 $ 15,457 $ 11,120 $ 21,684 $ 16,724 $ 16,548 $ 19,644
</TABLE>
- --------
(a) Consists of state and local income taxes. As a subchapter S corporation
under the Internal Revenue Code of 1986, as amended (the "Code"), Petersen
has not been subject to U.S. federal income taxes or most state income
taxes. Instead, such taxes have been paid by Petersen's stockholder.
Petersen has paid dividends to its stockholder in respect of such tax
liabilities.
(b) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). Such
items excluded from income in calculating EBITDA are significant components
in understanding and evaluating the Company's financial performance. While
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance GAAP or as a measure of profitability
or liquidity, management understands that EBITDA is customarily used in
evaluating magazine publishing companies. The EBITDA measures presented
herein may not be comparable to similarly titled measures of other
companies.
(c) Earnings used in computing the ratio of earnings to fixed charges consist
of income before provision for income taxes plus fixed charges. Fixed
charges consist of the implied interest element of rent expense for all
periods presented except for the ten months ended September 30, 1996 for
which fixed charges also included interest expense of $185,000.
13
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The following summary pro forma statement of operations data of the Company
give effect to, among other things, the Transactions and the Initial Offering,
as if they had occurred at the beginning of each of the periods presented. The
following unaudited pro forma condensed balance sheet data of the Company give
effect to, among other things, the Transactions and the Initial Offering, as if
they had occurred on September 30, 1996. Certain management assumptions and
adjustments relating to Transactions and the Initial Offering are described in
the accompanying notes hereto. The pro forma information should be read in
conjunction with the audited financial statements of Petersen and the notes
thereto, as of November 30, 1995 and September 30, 1996 and for each of the
three years in the period ended November 30, 1995, and for the ten months ended
September 30, 1996 appearing elsewhere in this Prospectus. This pro forma
information is not necessarily indicative of the results that would have
occurred had the Transactions and the Initial Offering been completed on the
dates indicated or the Company's actual or future results or financial
position. The summary pro forma statement of operations, balance sheet and
other data should be read in conjunction with the information contained in the
financial statements of Petersen and the notes thereto, "Unaudited Pro Forma
Financial Data," "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATING DATA:
Net revenues............................. $213,615 $189,114
Production, selling and other direct
costs................................... 171,040 147,782
-------- --------
Gross profit............................. 42,575 41,332
General and administrative expenses...... 24,432 21,778
Amortization of goodwill................. 31,753 26,461
-------- --------
Operating loss........................... (13,610) (6,907)
Interest expense(a)...................... 34,814 29,691
Gain on sale of assets................... -- (1,554)
-------- --------
Loss before provision for income taxes... (48,424) (35,044)
Provision for income taxes(b)............ -- --
-------- --------
Net loss................................. $(48,424) $(35,044)
======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital deficiency(c)............ $(23,030)
Total assets............................. 522,462
Total debt(d)............................ 300,000
Total equity............................. 162,082
OTHER DATA:
Depreciation and amortization............ $ 35,192 $ 29,165
Capital expenditures..................... 4,423 768
EBITDA(e)(f)............................. 21,582 23,812
EBITDA margin............................ 10.1% 12.6%
Pro forma ratio of earnings to fixed
charges................................. (g) (h)
</TABLE>
- --------
(a) Includes amortization of deferred financing costs related to the financing
of the Acquisition in the amount of $4.4 million for the year ended
November 30, 1995 and $4.1 million for the ten months ended September 30,
1996.
(footnotes continued on next page)
14
<PAGE>
(b) As a limited liability company under the Code, the Company is not subject
to U.S. federal income taxes or most state income taxes. Instead, such
taxes will be paid by the Company's equity holders. The Company is likely
to make distributions to its equity holders in respect of such tax
liabilities.
(c) The Company has a pro forma working capital deficiency of $23.0 million as
of September 30, 1996 as a result of Petersen retaining all cash and cash
equivalents pursuant to the terms of the Acquisition. Pro Forma current
liabilities used to calculate this amount include $26.4 million of unearned
subscription revenues, net.
(d) Does not give effect to the receipt by the Company of a working capital
adjustment of at least $2.7 million expected to be paid to the Company by
Petersen in connection with the Acquisition. Such proceeds will be used to
reduce borrowings under the Senior Credit Facility.
(e) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under GAAP. Such items excluded from income in calculating
EBITDA are significant components in understanding and evaluating the
Company's financial performance. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
magazine publishing companies. The EBITDA measures presented herein may not
be comparable to similarly titled measures of other companies.
(f) Pro forma EBITDA, as presented, reflects the following pro forma
adjustments and does not reflect additional anticipated cost savings
related to management's business and operating strategy, which is currently
being implemented:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical EBITDA..................... $17,797 $20,009
Pro forma adjustments:
Replacement of executive
management(1)...................... 3,713 2,872
Lease modifications(2).............. 72 358
Cost of excess space(3)............. -- 573
------- -------
Pro forma EBITDA...................... $21,582 $23,812
======= =======
</TABLE>
(footnotes continued on next page)
15
<PAGE>
The Company's management believes the following additional adjustments are
relevant to evaluating the future operating performance of Company. The
following additional adjustments, which eliminate the impact of certain
nonrecurring charges and reflect the estimated impact of management's
business and operating strategy, are based on estimates and assumptions
made and believed to be reasonable by the Company and are inherently
uncertain and subject to change. The following calculation should not be
viewed as indicative of actual or future results. The following table
reflects the effects of these items:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma EBITDA...................... $21,582 $23,812
Additional adjustments:
Consolidation of Sassy(4)........... 4,699 3,234
Reorganization of loss-producing
magazine titles(5)................. 2,947 3,085
Nonrecurring software development
costs(6)........................... 4,026 1,589
Prior personnel reductions(7)....... 3,689 1,539
Effect of increased paper
prices(8).......................... 1,417 4,226
Effect of December 1995 paper
purchases(9)....................... -- 1,098
Restructuring plan cost
savings(10)........................ 3,786 3,321
Other estimated cost savings(11).... 1,111 819
------- -------
Total pro forma adjustments....... 21,675 18,911
------- -------
Adjusted pro forma EBITDA............. $43,257 $42,723
======= =======
Ratio of total debt to adjusted
annualized pro forma EBITDA(12)...... 5.8x
Ratio of adjusted pro forma EBITDA to
pro forma cash interest expense(13).. 1.7x
</TABLE>
--------
(1) Represents: (i) compensation and benefits paid to Mr. Petersen,
Petersen's Chairman and founder, and Mr. Waingrow, Petersen's former
President, net of compensation to be paid to the Company's new
management team; (ii) travel and entertainment expenses attributable to
Messrs. Petersen and Waingrow and (iii) compensation and benefits paid
to certain support personnel and professional consultants working
primarily for Messrs. Petersen and Waingrow. See "Unaudited Pro Forma
Financial Data."
(2) Represents amounts paid in the periods presented for rent with respect
to certain properties owned by Mr. Petersen over amounts payable in
future periods pursuant to new leases negotiated in connection with the
Acquisition. See "Unaudited Pro Forma Financial Data."
(3) As a result of personnel reductions and certain other operational
consolidations, the Company will have excess space under lease. The
Company estimates that the rental costs allocable to such space were
$573,000 for the ten months ended September 30, 1996.
(4) In December 1996, the Company completed the process of merging Sassy
into 'TEEN, thereby eliminating the losses being generated by Sassy. In
addition to the cost savings related to the Sassy personnel who will be
part of the planned reduction in personnel (for which the costs are
included in Note (3) above), the Company expects that the remaining
costs of Sassy, net of related revenues, which are summarized below,
will be eliminated:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues.............................. $ 3,852 $ 5,348
Costs and expenses.................... 8,551 8,582
------- -------
Total................................. $(4,699) $(3,234)
======= =======
</TABLE>
(5) Represents losses incurred by Petersen's Golfing, Sport, Bicycle Guide
and Mountain Biker during the periods presented. While these magazines
collectively are expected to break even or be marginally profitable in
fiscal 1997, in the event such magazines continue to generate losses,
management expects to take one or more of the following actions: (i)
discontinue or sell such magazines; (ii) merge such magazines with the
Company's existing magazines or (iii) enter into strategic partnerships
with third parties. Management expects that a final decision with
respect to each magazine will be made by the end of fiscal 1997.
(6) In February 1992, Petersen engaged a consulting firm to design and
install systems and related software for use in its operations. The
systems and software principally related to an electronic magazine
layout system, an advertising rate and circulation modeling system and
an automated pre-press operating system. These systems were never fully
implemented by Petersen, were replaced by
(footnotes continued on next page)
16
<PAGE>
commercially available systems and were ultimately abandoned during
fiscal 1996. Petersen subsequently initiated litigation against the
consulting firm. Petersen incurred costs of $4.0 million during the year
ended November 30, 1995 and $1.6 million during the ten months ended
September 30, 1996 related to the consulting agreement, including an
accrual of $0.8 million during the ten months ended September 30, 1996
related to the resulting litigation, which remains the responsibility of
Petersen.
(7) Prior to the Acquisition, Petersen reduced its number of employees in
accordance with a plan to reduce costs. The costs of payroll, benefits
and severance related to these employee reductions that are estimated
to be not recurring were $3.7 million during the year ended November
30, 1995 and $1.5 million during the ten months ended September 30,
1996.
(8) The market price of the paper that Petersen uses in the production of
its magazines rose significantly during the latter part of 1995.
According to Resource Information Systems, Inc., the median price for a
comparable grade of paper to that used by Petersen was approximately
$0.50 per pound over the last 20 years (as adjusted for inflation).
Amounts shown reflect the excess of the increased paper prices in the
market over the median historical price of $0.50 per pound during the
relevant periods.
(9) In response to the increase in the market price of paper during the
latter part of 1995, in December 1995, Petersen purchased a large
supply of 32 lb. paper at prices ranging from $0.61 to $0.66 per pound
in anticipation of additional price increases and supply shortages
continuing through the remainder of 1995 and 1996. By May 1996, paper
prices had returned to their historical levels of $0.50 per pound.
Amounts shown reflect the excess of the price actually paid by Petersen
for paper used over the actual market price for such paper during the
relevant periods.
(10) In connection with the Acquisition, the Company developed and has
substantially implemented a restructuring plan, which included the
termination of certain employees in various corporate and operating
positions. The savings related to the elimination of these salaries
and related costs, as if such changes had occurred as of the beginning
of the periods presented, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Production, selling and other
direct costs...................... $3,135 $2,750
General and administrative......... 651 571
------ ------
Total.............................. $3,786 $3,321
====== ======
</TABLE>
(11) Represents the estimate of the reduced levels of travel and
entertainment expenses which will be incurred by the Company due to
fewer employees and new travel and entertainment policies to be
implemented by the Company.
(12) Reflects the receipt by the Company of an estimated working capital
adjustment of $2.7 million expected to be paid to the Company by
Petersen in connection with the Acquisition. Such proceeds will be
applied to reduce borrowings under the Senior Credit Facility.
(13) Excludes amortization of deferred financing costs related to the
financing of the Acquisition in the amount of $4.1 million for the ten
months ended September 30, 1996.
(g) Pro forma earnings were insufficient to cover pro forma fixed charges by
$48.4 million for the year ended November 30, 1995.
(h) Pro forma earnings were insufficient to cover pro forma fixed charges by
$35.0 million for the ten months ended September 30, 1996.
17
<PAGE>
RISK FACTORS
This Prospectus including the documents incorporated by reference herein,
contains certain forward-looking statements. While the Issuers believe these
statements are reasonable, prospective investors should be aware that actual
results could differ materially from those projected by such forward-looking
statements as a result of the risk factors set forth below or other factors.
Prospective investors should consider carefully the following factors as well
as the other information and data included in this Prospectus tendering Old
Notes in exchange for New Notes. The Issuers caution the reader, however, that
this list of factors may not be exhaustive and that these or other factors
could have an adverse effect on the Company's ability to service its
indebtedness, including principal and interest payments on the Notes.
SUBSTANTIAL LEVERAGE
The Company incurred significant debt in connection with the Transactions.
As of September 30, 1996, after giving pro forma effect to the Transactions
and the Initial Offering, the Company would have had outstanding indebtedness
of $300.0 million. The Company's pro forma earnings were insufficient to cover
pro forma fixed charges by $48.4 million for the year ended November 30, 1995
and $35.0 million for the ten months ended September 30, 1996. The Company's
leveraged financial position poses substantial consequences to holders of the
Notes, including the risks that: (i) a substantial portion of the Company's
cash flow from operations will be dedicated to the payment of interest on the
Notes and the payment of principal and interest under the Senior Credit
Facility and other indebtedness; (ii) the Company's leveraged position may
impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes and (iii) the Company's
highly leveraged financial position may make it more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. Based
upon the successful implementation of management's business and operating
strategy, the Company believes that it will have sufficient capital to carry
on its business and will be able to meet its scheduled debt service
requirements. However, there can be no assurance that the future cash flow of
the Company will be sufficient to meet the Company's obligations and
commitments. In addition, the Senior Credit Facility contemplates that all
borrowings thereunder will become due by 2004. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness and to meet its other commitments, the Company will be required
to adopt one or more alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable the Company to continue to satisfy its capital
requirements. In addition, the terms of existing or future debt agreements,
including the Indenture and the Senior Credit Facility, may prohibit the
Company from adopting any of these alternatives. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of Senior Credit Facility" and "Description
of the Notes."
FULL IMPLEMENTATION OF BUSINESS AND OPERATING STRATEGY
Following the Acquisition, the Company employed a new senior management team
and adopted a refined business and operating strategy. See "Business--Business
and Operating Strategy." This business and operating strategy includes the
implementation of certain operating improvements and the adoption of new
circulation and advertising strategies. There can be no assurance that the
Company will be able to fully implement this new business and operating
strategy or that the anticipated results of this strategy, including the
reduction of certain operating expenses, will be realized. In addition, after
gaining experience with the Company's operations under its new strategy, the
Company and the new senior management team may decide to alter or discontinue
certain aspects of this strategy. Implementation of this strategy could also
be affected by a number of factors beyond the Company's control, such as
operating difficulties, increased operating costs, regulatory developments,
general economic conditions or increased competition. Any such failure to
implement this strategy will have a material adverse effect on the Company's
ability to service its indebtedness, including principal and interest payments
on the Notes.
18
<PAGE>
The Company has reflected on a pro forma basis for the year ended November
30, 1995 and the ten months ended September 30, 1996 the anticipated benefits
from the operating improvements and cost reduction measures included in
management's business and operating strategy. These adjustments are based on a
number of estimates and assumptions that, while considered reasonable by the
Company, should not be viewed as indicative of the results that would have
occurred had the Company's business and operating strategy been implemented on
the dates indicated or the Company's actual or future results or financial
position. Prospective investors are cautioned not to place undue reliance on
these adjustments. See "Unaudited Pro Forma Financial Data."
SUBORDINATION OF NOTES
The Notes will be unsecured and subordinated to the prior right of payment
of all existing and future Senior Indebtedness of the Issuers, including
obligations under the Senior Credit Facility. The indebtedness under the
Senior Credit Facility will also become due prior to the time the principal
obligations under the Notes become due. Subject to certain limitations, the
Indenture will permit the Issuers to incur additional Senior Indebtedness. See
"Description of the Notes--Certain Covenants--Limitation on Additional
Indebtedness." As a result of the subordination provisions contained in the
Indenture, in the event of a liquidation or insolvency, the assets of the
Issuers will be available to pay obligations on the Notes only after all
Senior Indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then
outstanding. The holders of any indebtedness of the Company's subsidiaries
(other than Capital and Restricted Subsidiaries guaranteeing the Notes, if
any) will be entitled to payment of their indebtedness from the assets of such
subsidiaries prior to the holders of any general unsecured obligations of the
Issuers, including the New Notes. In addition, substantially all of the assets
of the Issuers and their subsidiaries will or may in the future be pledged to
secure other indebtedness of the Issuers. See "Description of Senior Credit
Facility" and "Description of the Notes."
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITY AND THE INDENTURE
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. The Senior Credit
Facility requires the Company to maintain specified financial ratios and
tests, among other obligations, including a maximum leverage ratio, a minimum
interest coverage ratio and a minimum fixed charge coverage ratio, each as
defined in the Senior Credit Facility. In addition, the Senior Credit Facility
restricts, among other things, the Company's ability to: (i) declare dividends
or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt;
(iii) incur liens and engage in sale leaseback transactions; (iv) make loans
and investments; (v) issue more debt; (vi) amend or otherwise alter debt and
other material agreements; (vii) make capital expenditures; (viii) engage in
mergers, acquisitions and asset sales; (ix) transact with affiliates and (x)
alter its lines of business. A failure to comply with the restrictions
contained in the Senior Credit Facility could lead to an event of default
thereunder which could result in an acceleration of such indebtedness. Such an
acceleration would constitute an event of default under the Indenture relating
to the Notes. In addition, the Indenture restricts, among other things, the
Company's ability to: (i) incur additional indebtedness; (ii) pay dividends
and make distributions; (iii) issue stock of subsidiaries; (iv) make certain
investments; (v) repurchase stock; (vi) create liens; (vii) enter into
transactions with affiliates; (viii) enter into sale-leaseback transactions;
(ix) merge or consolidate the Company or any Guarantors and (x) transfer and
sell assets. A failure to comply with the restrictions in the Indenture could
result in an event of default under the Indenture. See "Description of Senior
Credit Facility" and "Description of the Notes."
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS AND POSTAL RATES
The Company's principal raw material is paper. The Company used 69.6
million, 76.0 million and 84.4 million pounds of commodity grade paper in its
fiscal years ended November 30, 1993, 1994 and 1995, respectively, resulting
in a total cost of paper during such periods of $29.0 million, $30.5 million
and $39.3 million, respectively. While paper prices have increased by an
average of less than 1% annually since 1989, certain commodity grades have
shown considerable price volatility during that period, including the
commodity grade used by the Company. Paper prices rose sharply during the
latter part of 1995, and in response, Petersen
19
<PAGE>
purchased a large supply of 32 lb. paper in December 1995 at prices ranging
from $0.61 to $0.66 per pound in anticipation of additional price increases
and supply shortages continuing for the remainder of 1995 and 1996. Petersen
purchased enough paper to meet all of its production requirements through
September 1996. The price of such paper subsequently returned to historical
levels of approximately $0.50 per pound in May 1996. The increase in paper
prices in mid 1995 and Petersen's large purchase at such increased prices
materially adversely affected Petersen's production, selling and other direct
costs for year ended November 30, 1995 and the ten months ended September 30,
1996. The excess of the increased paper prices in the market during the fiscal
year ended November 30, 1995 and the ten months ended September 30, 1996 over
the median historical price of $0.50 per pound was $1.4 million and $4.2
million, respectively. The excess of the price actually paid by Petersen for
paper used during the ten months ended September 30, 1996 over the actual
market price for such paper during such periods was $1.1 million.
Following the Acquisition, the Company entered into an oral agreement with a
vendor to secure sufficient paper to meet its projected raw material needs
through the end of 1997 at or below current market prices. While there can be
no assurances, the Company expects that such agreement will be finalized by
the end of March 1997.
The profitability of the Company's magazine publishing operations is also
affected by the cost of postage and could be materially adversely affected if
there is an increase in postal rates and the increase is not passed through to
the consumer. The last postal rate increase occurred in February 1995. Future
fluctuations in paper prices or postal rates could have a material adverse
effect on the Company's ability to service its indebtedness, including
principal and interest payments on the Notes and could have an effect on
quarterly comparisons of the results of operations and financial condition of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview" and "Business--Raw Materials."
RISKS RELATING TO CONCENTRATION OF REVENUE FROM CERTAIN PUBLICATIONS
Certain of the Company's publications have historically represented a
significant portion of the Company's net revenues and profit contribution, and
the Company expects that such publications will continue to do so in the
future. In the aggregate, Motor Trend, 'TEEN and Hot Rod accounted for 35.2%
and 57.0% of the Company's net revenues and profit contribution, respectively,
for the year ended November 30, 1995 and 36.4% and 53.7%, respectively, for
the ten months ended September 30, 1996. In addition, the Company derived
approximately 17.9% and 20.6% of its advertising revenues from automotive
manufacturers of original equipment and aftermarket parts, respectively, in
fiscal 1995. As compared to industry standards, the Company believes it has a
diversified portfolio of special-interest publications and is not dependent on
any single publication; however, a significant decline in the performance of
any of these publications or in the advertising spending of the automotive
industry could have a material adverse effect on the Company's ability to
service its indebtedness, including principal and interest payments on the
Notes, and could have an effect on quarterly comparisons of the results of
operations and financial condition of the Company.
CYCLICALITY OF ADVERTISING REVENUE
The Company's principal sources of revenues from the publication of its
magazines are derived from advertising and circulation. Circulation revenues
are generated from both subscription and newsstand sales. For the year ended
November 30, 1995, approximately 58% of the Company's revenues were from
advertising, 38% were from circulation (including 20% from subscription sales
and 18% from newsstand sales) and 4% were from other sources. Advertising
revenues of the Company, as well as those of the consumer magazine industry in
general, are cyclical and dependent upon general economic conditions.
Historically, increases in advertising revenues have corresponded with
economic recoveries while decreases, as well as changes in advertising mix,
have corresponded with general economic downturns and regional and local
economic recessions. As compared to general-interest magazines, the Company
believes that its advertising revenues are less susceptible to changes in
general economic conditions due to the diversity of its publications, the
special-interest nature of its editorial content and the endemic nature of its
advertiser base. The endemic nature of the Company's advertiser base refers to
the fact that a significant portion of the Company's advertising revenues are
from advertisers that are
20
<PAGE>
manufacturers, marketers or distributors of products that relate directly to
the editorial content of the magazines in which they advertise. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Cyclicality of Advertising Revenue" and "Business--
Industry Overview."
COMPETITION
The consumer magazine publishing business is highly competitive. The Company
principally competes for advertising and circulation revenues with publishers
of other special-interest consumer magazines with similar editorial content as
those published by the Company. Certain of such competitors are larger and
have greater financial resources than the Company. In addition to other
special-interest magazines, the Company also competes for advertising revenues
with general-interest magazines and other forms of media, including broadcast
and cable television, radio, newspaper, direct marketing and electronic media.
There can be no assurance that the Company will be able to compete effectively
with such other forms of advertising in the future. See "Business--
Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. In connection with the Acquisition, the Company retained the services of
certain key employees to serve as senior executives of the Company, including
D. Claeys Bahrenburg, Neal Vitale, Richard Willis and the Company's existing
executive publishers, all of whom have significant experience in the magazine
publishing industry. Messrs. Bahrenburg, Vitale and Willis are each expected
to enter into an employment agreement with the Company, which will provide for
their continued employment for a five year term. See "Management--Employment
Contracts." Although the Company believes it could replace such key employees
in an orderly fashion should the need arise, the loss of such key personnel
could have a material adverse effect on the Company. The Company will not
maintain key person insurance for any of its officers, employees or directors.
See "Management--Directors, Executive Officers and Key Employees." Certain of
the Company's senior executives, including Messrs. Bahrenburg and Vitale,
joined the Company in connection with the Acquisition. While their tenure at
the Company to date has been successful, there can be no assurance that these
or any of the Company's other executives will continue to be successful in
managing the Company in the future.
CONTROLLING EQUITYHOLDER
The Company's equity securities are held 99.9% by Holdings and 0.1% by
BrightView. BrightView is the managing member of Holdings and as such controls
the policies and operations of Holdings and of the Company. See "Limited
Liability Company Agreement." Under the terms of a Securityholders Agreement
(as defined herein), all of the stockholders of BrightView have agreed to vote
their shares in favor of those individuals designated by Willis Stein to serve
on the Board of Directors of BrightView and granted Willis Stein the right to
vote their shares on all significant corporate changes. As a result, Willis
Stein has the ability to control the policies and operations of the Company.
Circumstances may occur in which the interests of Willis Stein, as the
principal equity holder of the Company, could be in conflict with the
interests of the holders of the Notes. In addition, the equity investors may
have an interest in pursuing acquisitions, divestitures or other transactions
that, in their judgment, could enhance their equity investment, even though
such transactions might involve risks to the holders of the Notes. See
"Security Ownership of Certain Beneficial Owners and Management."
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control (as defined) the Issuers will be
required to make an offer for cash to repurchase the Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest and Additional
Interest, if any, thereon to the repurchase date. See "Description of the
Notes--Certain Definitions." Certain events involving a Change of Control may
result in an event of default under the Senior Credit Facility or other
indebtedness of the Issuers that may be incurred in the future. Moreover, the
exercise by the holders of the Notes of their right to require the Issuers to
repurchase the Notes will cause an event of default under the Senior Credit
21
<PAGE>
Facility or such other indebtedness, even if the Change of Control does not.
The Issuers' obligations under this provision of the Indenture could delay,
deter or prevent a sale of the Company which might otherwise be advantageous
to holders of Notes. Finally, there can be no assurance that the Issuers will
have the financial resources necessary to repurchase the Notes upon a Change
of Control. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description
of the Notes--Change of Control Offer."
RISK OF FRAUDULENT TRANSFER
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if the Company, at
the time it issued the Notes: (i) incurred such indebtedness with intent to
hinder, delay or defraud creditors or (ii)(a) received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and
(b)(1) was solvent at the time of incurrence, (2) was rendered insolvent by
reason of such incurrence (and the application of the proceeds thereof), (3)
was engaged or was about to engage in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its businesses or (4) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in
each case, a court of competent jurisdiction could void, in whole or in part,
the Notes, or, in the alternative, subordinate the Notes to existing and
future indebtedness of the Company. The measure of insolvency for purposes of
the foregoing will vary depending upon the law applied in such case.
Generally, however, the Company would be considered insolvent if the sum of
its debts, including contingent liabilities, was greater than all of its
assets at fair valuation or if the present fair saleable value of its assets
was less than the amount that would be required to pay the probable liability
on its existing debts, including contingent liabilities, as they become
absolute and matured.
Management believes that, for purposes of the U.S. Bankruptcy Code and state
fraudulent transfer or conveyance laws, the Notes are being issued without the
intent to hinder, delay or defraud creditors and for proper purposes and in
good faith and that the Company, after the issuance of the Notes and the
application of the proceeds thereof, will be solvent, will have sufficient
capital for carrying on its business and will be able to pay its debts as they
mature. There can be no assurance, however, that a court passing on such
questions would agree with management's view.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF THE NOTES
The Old Notes were issued to, and the Issuers believe are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
New Notes by holders who are entitled to participate in this Exchange Offer.
The holders of Old Notes (other than any such holder that is an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Issuers are required to file a Shelf Registration
Statement with respect to such Old Notes. The New Notes will constitute a new
issue of securities with no established trading market. The Issuers do not
intend to list the New Notes on any national securities exchange or seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchasers have advised the Issuers
that they currently intend to make a market in the New Notes, but they are not
obligated to do so and may discontinue such market making at any time. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Notes or as to the liquidity of the trading market for the New Notes.
If a trading market does not develop or is not maintained, holders of the New
Notes may experience difficulty in reselling the New Notes or may be unable to
sell them at all. If a market for the New Notes develops, any such market may
be discontinued at any time.
22
<PAGE>
If a public trading market develops for the New Notes, future trading prices
of such securities will depend on many factors including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Issuers of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for New Notes should allow sufficient time
to ensure timely delivery. The Issuers are under no duty to give notification
of defects or irregularities with respect to the tenders of Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof, and, upon consummation of
the Exchange Offer, certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
New Notes may be deemed to have received restricted securities, and if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Notes could be adversely affected. See "The
Exchange Offer."
23
<PAGE>
THE TRANSACTIONS
The Acquisition. The Company completed the Acquisition on September 30,
1996. The aggregate purchase price of the Acquisition, which is subject to
certain working capital adjustments, was $450.0 million, plus the assumption
of certain ongoing liabilities incurred in the ordinary course of business.
The Company expects to receive at least $2.7 million from Petersen as a result
of the working capital adjustment.
The Financing Plan. The Initial Offering was part of a plan designed to
enable the Company to finance the Acquisition and to provide for additional
liquidity. In connection with the Acquisition, the Company: (i) borrowed
$200.0 million under the $260.0 million Senior Credit Facility; (ii) borrowed
$100.0 million under the Bridge Financing Facility and (iii) received equity
contributions of $165.3 million from an investor group led by Willis Stein.
See "Use of Proceeds."
In connection with the Acquisition, the Company entered into the Senior
Credit Facility, among FBNC and CIBC (together, the "Lenders") and the
Company, pursuant to which the Lenders will lend to the Company up to $260.0
million in senior secured credit facilities, such amount to be allocated
among: (i) a revolving credit facility of up to $60.0 million ( the "Revolving
Credit Facility"); a tranche A term loan in an aggregate principal amount of
$100.0 million (the "Tranche A Loan") and (iii) a tranche B term loan in an
aggregate principal amount of $100.0 million (the "Tranche B Loan" and,
together with the Tranche A Loan, the "Term Loans").
Commitments under the Revolving Credit Facility will not be reduced until
maturity on December 31, 2002. The Term Loans will be amortized on a quarterly
basis commencing on March 31, 1997. The Tranche A Loan amortizes gradually
prior to its maturity in 2002; the Tranche B Loan is payable primarily in two
balloon payments due in 2003 and 2004.
The interest rates per annum applicable to loans under the Senior Credit
Facility will be a fluctuating rate of interest measured, at the Company's
option, by reference either to: (i) LIBOR plus the applicable borrowing margin
or (ii) the published prime rate of the Agent Bank ("ABR") plus the applicable
borrowing margin. The applicable borrowing margin for the Revolving Credit
Facility and the Tranche A Loans will range from 1.375% to 2.750% for LIBOR
based borrowings and 0.125% to 1.500% for ABR based borrowings. The applicable
borrowing margin for the Tranche B Loan will be equal to that of the Revolving
Credit Facility and Tranche A Loan plus 0.500%; provided, however, that the
applicable margin for the Tranche B will not be less than 2.625% for LIBOR
based borrowings and 1.375% or ABR based borrowings. In addition, the Company
has agreed to pay certain fees to the Lenders with respect to the Senior
Credit Facility. See "Description of the Senior Credit Facility."
The following table sets forth the sources and uses of funds in the
Acquisition (dollars in thousands):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)(c)..................................... $200,000
Bridge Financing Facility(b)........................................ 100,000
Equity contributions(b)............................................. 165,300
--------
Total sources..................................................... $465,300
========
USES:
Acquisition consideration(c)........................................ $450,000
Fees and expenses(d)................................................ 15,300
--------
Total uses........................................................ $465,300
========
</TABLE>
- --------
(a) On a pro forma basis, as of September 30, 1996, the Company would have had
$60.0 million of additional borrowing availability under the Senior Credit
Facility.
(b) FBNC and CIBC, affiliates of the Initial Purchasers, are the agents and
principal lenders under the Senior Credit Facility. First Union
Corporation and CIBC are the lenders under the Bridge Financing Facility.
First Union Investors, Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C.,
both affiliates of the Initial Purchasers, provided a portion of the
equity financing in connection with the Acquisition.
(c) Does not reflect the working capital adjustment of at least $2.7 million
expected to be paid to the Company by Petersen in connection with the
Acquisition. The proceeds therefrom will be used to reduce borrowings
under the Senior Credit Facility.
(d) Includes estimated fees and expenses related to the Transactions and the
Initial Offering (including the Initial Purchasers' discount). To the
extent that such fees are less than estimated, the remainder will be
applied to working capital.
24
<PAGE>
THE INVESTORS
The Investors pursued the Acquisition because they believed it offered an
attractive opportunity to: (i) acquire a diverse portfolio of profitable
magazines with significant growth potential; (ii) bring together a skilled and
experienced management team, consisting of the Company's new senior managers
and Petersen's existing publishers and editorial staff; (iii) apply
professional management techniques to the Company's portfolio to improve its
operating results by increasing circulation and advertising revenues and
reducing operating costs and (iv) further develop the Company's brand-name
franchises with limited additional capital investment. Management believes
that opportunities exist to achieve each of these results both in the near
term and on a going-forward basis. The Investors include the following: Willis
Stein; First Union Investors, Inc.; CIBC WG Argosy Merchants Fund 2, L.L.C.;
Chase Equity Associates, L.P.; BankAmerica Investment Corporation, certain
other limited partners of Willis Stein; Robert E. Petersen, Petersen's founder
and the Company's Chairman Emeritus and the Management Investors. Under the
terms of a Securityholders Agreement, Willis Stein has the right to designate
each member of the Board of BrightView and thus controls the affairs and
policies of the Company. See "Security Ownership of Certain Beneficial Owners
and Management" and "Limited Liability Company Agreement."
Willis Stein is a private investment fund with committed capital of
approximately $343.0 million. The principals of Willis Stein were formerly
with CIVC, where they managed CIVC's investments in a number of media-related
companies as well as other investments. The Management Investors have
significant experience in managing media-related companies and in managing
leveraged acquisitions. Mr. Bahrenburg has served as President of the Magazine
Publishing Division of The Hearst Corporation ("Hearst") and as Publisher of
both House Beautiful and Cosmopolitan. Mr. Vitale has served in a variety of
managerial positions at Cahners Publishing Company, a division of Reed
Elsevier, Inc. Such positions included Vice President of Consumer Publishing,
Vice President/General Manager of Variety, and, most recently, Group Vice
President, Entertainment, where he was responsible for the publication of
Variety, Daily Variety, Broadcasting & Cable, Moving Pictures International,
On Production and Tradeshow Week. Mr. Dunning currently serves as the Chairman
and Chief Executive Officer of TransWestern Publishing Company, L.P.
("TransWestern"), the largest independent publisher of yellow pages in the
United States, and was formerly Chairman of SRDS Media Information, L.P.
("SRDS"), a media information and database publisher. Earlier in his career,
Mr. Dunning served as Executive Vice President of Ziff Communications and as
President of Rolling Stone Magazine. Mr. Bloch is Vice Chairman and Chief
Financial Officer of TransWestern and was formerly a director of SRDS. Mr.
Karu is a director of TransWestern and was formerly interim Chief Executive
Officer and a director of SRDS. See "Management."
USE OF PROCEEDS
The Company incurred $100.0 million of indebtedness under the Bridge
Financing Facility pending the issuance and sale of the Old Notes. The Bridge
Financing Facility provided for loans in the maximum principal amount of
$100.0 million. Such loans were to be repaid from the proceeds from the sale
of Notes, and if not paid on or prior to September 30, 1997, were to be
converted into term loans with a maturity date of September 30, 2006. The
loans under the Bridge Financing Facility bore interest at a fluctuating rate
equal to the ABR plus 4.250%. The Company applied the net proceeds of the
Initial Offering to repay the Bridge Financing Facility. Affiliates of the
Initial Purchasers were the lenders under the Bridge Financing Facility. The
Bridge Financing Facility was used to finance a portion of the Acquisition.
The Exchange Offer is intended to satisfy certain of the Issuers'
obligations under the Registration Rights Agreement. The Issuers will not
receive any cash proceeds from the issuance of the New Notes offered hereby.
In consideration for issuing the New Notes contemplated in this Prospectus,
the Issuers will receive Old Notes in like principal amount, the form and
terms of which are the same as the form and terms of the New Notes (which
replace the Old Notes), except as described herein.
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996 pro forma to give effect to the Transactions
and the Initial Offering. The Old Notes surrendered in exchange for the New
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase or decrease in the
indebtedness of the Issuers or the Guarantor. As such, no effect has been
given to the Exchange Offer in this capitalization table. The information in
this table should be read in conjunction with "Unaudited Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and accompanying notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
PRO FORMA
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Total debt:
Senior Credit Facility(a)(b)........................... $200,000
Notes.................................................. 100,000
--------
Total debt........................................... 300,000
Total equity............................................. 162,082
--------
Total capitalization..................................... $462,082
========
</TABLE>
- --------
(a) Current borrowings under the Senior Credit Facility consist of $200.0
million of term loans. The Senior Credit Facility also provides for a
Revolving Credit Facility in the maximum principal amount of $60.0
million. See "Description of Senior Credit Facility." On a pro forma
basis, as of September 30, 1996, the Company would have had $60.0 million
of additional borrowing availability under the Revolving Credit Facility.
(b) Does not reflect the working capital adjustment of at least $2.7 million
expected to be paid to the Company by Petersen in connection with the
Acquisition. The proceeds therefrom will be used to reduce borrowings
under the Senior Credit Facility.
26
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Unaudited
Pro Forma Financial Data") of the Company have been derived by the application
of pro forma adjustments to the historical financial statements of Petersen for
the periods indicated. The adjustments are described in the accompanying notes.
The Unaudited Pro Forma Financial Data give effect to the Transactions and
the Initial Offering as if the Transactions and the Initial Offering had
occurred as of September 30, 1996, for purposes of the balance sheet data, and
as of the beginning of each period presented, for purposes of the statement of
operations data. The Unaudited Pro Forma Financial Data do not give effect to
any transactions other than the Transactions and the Initial Offering and those
discussed in the accompanying notes. The Unaudited Pro Forma Financial Data are
provided for informational purposes only and do not purport to represent the
results of operations or financial position of the Company had the Transactions
and the Initial Offering in fact occurred on such dates, nor do they purport to
be indicative of the financial position or results of operations as of any
future date or for any future period.
The Acquisition was accounted for using the purchase method of accounting.
The total cost of the Acquisition will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values as of the time the Acquisition was consummated. The excess of
purchase cost over the historical basis of the net assets acquired has not been
allocated in the accompanying Unaudited Pro Forma Financial Data, but has been
reflected therein as goodwill awaiting determination of the fair value of the
specific assets to be acquired. For pro forma amortization of such goodwill,
the Company has used a 15-year period. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable. The actual allocation of purchase cost, however, and the resulting
effect on income from operations may differ significantly from the pro forma
amounts included herein.
Following the Acquisition, the Company employed a new senior management team
and adopted a refined business and operating strategy. This business and
operating strategy includes the implementation of certain operating
improvements and the adoption of new circulation and advertising strategies.
The Unaudited Pro Forma Financial Data reflects certain of the cost reduction
measures and operating improvements that are part of management's business and
operating strategy and implemented in connection with the Acquisition. The
Company's management believes that the successful implementation of its
business and operating strategy will result in further cost savings and
operating improvements. These additional adjustments are set forth in Note (i)
to the Unaudited Pro Forma Financial Data. There can be no assurance that the
Company will be able to fully implement its new business and operating strategy
or that the anticipated results of this strategy, including the reduction of
certain operating expenses, will be realized. See "Risk Factors--Full
Implementation of Business and Operating Strategy."
The Old Notes surrendered in exchange for the New Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the New Notes will
not result in any increase or decrease in the indebtedness of the Issuers or
the Guarantor. As such, no effect has been given to the Exchange Offer in the
Unaudited Pro Forma Financial Data.
The Unaudited Pro Forma Financial Data and accompanying notes should be read
in conjunction with the financial statements and accompanying notes thereto and
the other financial information included elsewhere in this Prospectus.
27
<PAGE>
PETERSEN PUBLISHING COMPANY, L.L.C.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1995
-----------------------------------
PETERSEN PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $213,615 $ -- $213,615
Production, selling and other direct
costs.................................... 171,112 (72)(a) 171,040
-------- -------- --------
Gross profit.............................. 42,503 72 42,575
General and administrative expenses....... 28,145 (3,713)(b) 24,432
Amortization of goodwill.................. -- 31,753 (c) 31,753
-------- -------- --------
Operating income (loss)................... 14,358 (27,968) (13,610)
Interest income........................... (549) 549 (d) --
Interest expense.......................... -- 34,814 (e) 34,814
-------- -------- --------
Income (loss) before provision for income
taxes.................................... 14,907 (63,331) (48,424)
Provision for income taxes................ 549 (549)(f) --
-------- -------- --------
Net income (loss)......................... $ 14,358 $(62,782) $(48,424)
======== ======== ========
OTHER DATA:
Depreciation and amortization............. $ 3,439 $ 35,192
Capital expenditures...................... 4,423 4,423
EBITDA(g)(h).............................. 17,797 21,582
EBITDA margin............................. 8.3% 10.1%
Ratio of earnings to fixed charges(i)..... 9.2x --
Earnings available to cover fixed
charges(i)............................... $ 16,724 --
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations Data.
28
<PAGE>
PETERSEN PUBLISHING COMPANY, L.L.C.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
TEN MONTHS ENDED SEPTEMBER
30, 1996
-----------------------------------
PETERSEN PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $189,114 $ -- $189,114
Production, selling and other direct
costs.................................... 148,713 (358)(a) 147,782
(573)(j)
-------- -------- --------
Gross profit.............................. 40,401 931 41,332
General and administrative expenses....... 24,650 (2,872)(b) 21,778
Amortization of goodwill.................. -- 26,461 (c) 26,461
-------- -------- --------
Operating income (loss)................... 15,751 (22,658) (6,907)
Interest income........................... (537) 537 (d) --
Interest expense.......................... 185 29,506 (e) 29,691
Gain on sale of assets.................... (1,554) -- (1,554)
-------- -------- --------
Income (loss) before provision for income
taxes.................................... 17,657 (52,701) (35,044)
Provision for income taxes................ 331 (331)(f) --
-------- -------- --------
Net income (loss)......................... $ 17,326 $(52,370) $(35,044)
======== ======== ========
OTHER DATA:
Depreciation and amortization............. $ 2,704 $ 29,165
Capital expenditures...................... 768 768
EBITDA(g)(h).............................. 20,009 23,812
EBITDA margin............................. 10.6% 12.6%
Ratio of earnings to fixed charges(i)..... 9.9x --
Earnings available to cover fixed
charges(i)............................... $ 19,644 --
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations Data.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
(a) In connection with the Acquisition, the pre-existing lease agreement
between Petersen and Mr. Petersen was assumed by the Company with certain
modifications to rental rates. This adjustment reflects the impact of the
lease modifications as if they were effective as of the beginning of the
periods presented.
(b) Reflects the net savings in payroll, benefits, and other related expenses
resulting from the replacement of Petersen's executive management by the
Company's new executive management as if such changes had occurred as of
the beginning of the periods presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Elimination of Petersen's executive
management cost...................... $6,323 $5,048
Cost of consulting contract with
former executive of Petersen......... (200) (167)
New executive management cost......... (2,410) (2,009)
------ ------
Total................................. $3,713 $2,872
====== ======
</TABLE>
The cost of new management is based on the Employment Agreements (as
defined herein) to be entered into between the Company and each of Messrs.
Bahrenburg and Vitale and other estimated expenses associated with new
management, including director fees and salaries of Holdings' officers.
(c) The Acquisition was accounted for under the purchase method of accounting.
Under the purchase method of accounting, a preliminary allocation of the
purchase price has been made to major categories of assets and liabilities
for purposes of the pro forma financial statements based upon available
information and assumptions that the Company's management believes are
reasonable. However, such amounts are subject to change and final amounts
may differ substantially. The Company is currently performing a study to
refine its preliminary allocation of the purchase price, the results of
which are not yet available. Assuming the purchase price is $476.3 million
(as adjusted to give effect to the receipt by the Company of an estimated
$2.7 million working capital adjustment) and such amount is amortized over
15 years, the resulting amortization is $31.8 million for the year ended
November 30, 1995 and $26.5 million for the ten months ended September 30,
1996.
(d) Reflects elimination of interest income attributable to cash and
investments retained by Petersen.
(e) Reflects the interest expense on the indebtedness incurred by the Company
in connection with the Transactions and the Initial Offering, as if the
Transactions and the Initial Offering had been consummated as of the
beginning of the periods presented, based on the borrowings and their
rates expected to be in effect at the offering date as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
RATE AMOUNT NOVEMBER 30, 1995 SEPTEMBER 30, 1996
------ -------- ----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior Credit Facility:
Unused revolver
commitment........... 0.500% $ 60,000 $ 300 $ 250
Tranche A Loan(1)..... 9.000 100,000 9,000 7,500
Tranche B Loan(1)..... 9.500 100,000 9,500 7,917
Notes................... 11.125 100,000 11,125 9,271
------- -------
29,925 24,938
Amortization of deferred
financing costs........ 4,368 4,134
Imputed interest on
accrued rent for excess
space.................. 521 434
------- -------
Total interest expense.. $34,814 $29,506
======= =======
</TABLE>
--------
(1) The Company has entered into a swap agreement with a bank providing for
a fixed base rate of 6.23% in lieu of a floating LIBOR rate covering
$150.0 million of the loans under the Senior Credit Facility through
October 7, 1997, after which the amount is reduced to $100.0 million
through October 7, 1999.
30
<PAGE>
(f) Eliminates the provisions for income taxes since the Company is a limited
liability company and will not be subject to the certain state income
taxes to which Petersen was subject.
(g) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under GAAP. Such items excluded from income in calculating
EBITDA are significant components in understanding and evaluating the
Company's financial performance. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
magazine publishing companies. The EBITDA measures presented herein may
not be comparable to similarly titled measures of other companies.
(h) Pro forma EBITDA, as presented, includes the effects of the pro forma
adjustments and does not reflect additional anticipated cost savings
related to management's business and operating strategy, which is
currently being implemented. The Company's management believes the
following additional adjustments are relevant to evaluating the future
operating performance of the Company. The following additional
adjustments, which eliminate the impact of certain nonrecurring charges
reflect the estimated impact of management's business and operating
strategy, are based on estimates and assumptions made and believed to be
reasonable by the Company and are inherently uncertain and subject to
change. The following calculation should not be viewed as indicative of
actual or future results. The following table reflects the effect of
certain of these items:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma EBITDA...................... $21,582 $23,812
Additional adjustments:
Consolidation of Sassy(1)........... 4,699 3,234
Reorganization of loss-producing
magazine titles(2)................. 2,947 3,085
Nonrecurring software development
costs(3)........................... 4,026 1,589
Prior personnel reductions(4)....... 3,689 1,539
Effect of increased paper
prices(5).......................... 1,417 4,226
Effect of December 1995 paper
purchase(6)........................ -- 1,098
Restructuring plan cost savings(7).. 3,786 3,321
Other estimated cost savings(8)..... 1,111 819
------- -------
Total additional adjustments...... 21,675 18,911
------- -------
Adjusted pro forma EBITDA............. $43,257 $42,723
======= =======
Ratio of total debt to adjusted
annualized pro forma EBITDA.......... 5.8x
Ratio of adjusted pro forma EBITDA to
pro forma cash interest expense(9)... 1.7x
</TABLE>
--------
(1) In December 1996, the Company completed the process of merging Sassy
into 'TEEN, thereby eliminating the losses being generated by Sassy. In
addition to the cost savings related to the Sassy personnel who were
part of the reduction in personnel (for which the costs are included in
a pro forma adjustment (see Note (b)), the Company expects that the
remaining costs of Sassy, net of related revenues, which are summarized
below, will be eliminated:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues.............................. $ 3,852 $ 5,348
Costs and expenses.................... 8,551 8,582
------- -------
Total................................. $(4,699) $(3,234)
======= =======
</TABLE>
(2) Represents losses incurred by Petersen's Golfing, Sport, Bicycle Guide
and Mountain Biker during the periods presented. While these magazines
collectively are expected to break even or be marginally profitable in
fiscal 1997, in the event such magazines continue to generate losses,
management expects to take one or more of the following actions: (i)
discontinue or sell such magazines; (ii) merge such magazines with the
Company's existing magazines or (iii) enter into strategic partnerships
with third parties. Management expects that a final decision with
respect to each magazine will be made by the end of fiscal 1997.
31
<PAGE>
(3) In February 1992, Petersen engaged a consulting firm to design and
install systems and related software for use in its operations. The
systems and software principally related to an electronic magazine
layout system, an advertising rate and circulation modeling system and
an automated pre-press operating system. These systems were never
implemented by Petersen, were replaced by commercially available
systems and were ultimately abandoned during fiscal 1996. Petersen
subsequently initiated litigation against the consulting firm. Petersen
incurred costs of $4.0 million during the year ended November 30, 1995
and $1.6 million during the ten months ended September 30, 1996 related
to the consulting agreement, including an accrual of $0.8 million
during the ten months ended September 30, 1996 related to the resulting
litigation, which remains the responsibility of Petersen.
(4) Prior to the Acquisition, Petersen reduced its number of employees in
accordance with a plan to reduce costs. The costs of payroll, benefits
and severance related to these in employee reductions that are
estimated to be not recurring were $3.7 million during the year ended
November 30, 1995 and $1.5 million during the ten months ended
September 30, 1996.
(5) The market price of the paper that Petersen uses in the production of
its magazines rose significantly during the latter part of 1995.
According to Resource Information Systems, Inc., the median price for a
comparable grade of paper to that used by Petersen was approximately
$0.50 per pound over the last 20 years (as adjusted for inflation).
Amounts shown reflect the excess of the increased paper prices in the
market over the median historical price of $0.50 per pound during the
relevant periods.
(6) In response to the increase in the market price of paper during the
latter part of 1995, in December 1995, Petersen purchased a large
supply of 32 lb. paper at prices ranging from $0.61 to $0.66 per pound
in anticipation of additional price increases and supply shortages
continuing through the remainder of 1995 and 1996. By May 1996, paper
prices had returned to their historical levels of $0.50 per pound.
Amounts shown reflect the excess of the price actually paid by Petersen
for paper used over the actual market price for such paper during the
relevant periods.
(7) In connection with the Acquisition, the Company developed and has
substantially implemented a restructuring plan, which included the
termination of certain employees in various corporate and operating
positions. The savings related to the elimination of these salaries and
related costs, as if such changes had occurred as of the beginning of
the periods presented, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Production, selling and other
direct costs...................... $3,135 $2,750
General and administrative......... 651 571
------ ------
Total.............................. $3,786 $3,321
====== ======
</TABLE>
(8) Represents the estimate of the reduced levels of travel and
entertainment expenses which will be incurred by the Company due to
fewer employees and new travel and entertainment policies to be
implemented by the Company.
(9) Excludes amortization of deferred financing costs related to the
financing of the Acquisition in the amount of $4.1 million for the ten
months ended September 30, 1996.
(i) Earnings used in computing the pro forma ratio of earnings to fixed
charges consist of pro forma income before provision for income taxes plus
pro forma fixed charges. Pro forma fixed charges consist of: (i) interest
expense, including amortization of debt issuance costs and (ii) the
implied interest element of pro forma rent expense. Pro forma earnings
were insufficient to cover pro forma fixed charges by $48.4 million for
the year ended November 30, 1995 and $35.0 million for the ten months
ended September 30, 1996.
(j) As a result of personnel reductions and certain other operational
consolidations, the Company will have excess space under lease. The amount
shown is the Company's estimate of the rental costs which would have been
charged to accrued liabilities for excess rental space recorded in the
allocation of purchase price if the consolidations had occurred at the
beginning of the periods presented.
32
<PAGE>
PETERSEN PUBLISHING COMPANY, L.L.C.
UNAUDITED PRO FORMA BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------------------
ASSETS AND
PETERSEN LIABILITIES TRANSACTION COMPANY
HISTORICAL RETAINED(A) ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS(B)
Current assets
Cash and cash equivalents..... $12,453 $(12,448) $465,300 (c) $ 5
(450,000)(d)
(15,300)(e)
Short-term investments........ 55 (55) -- --
Accounts receivable, net...... 18,777 -- -- 18,777
Inventories................... 8,518 -- (1,086)(g) 7,432
Prepaid expenses and other
current assets............... 1,431 (693) -- 738
------- -------- -------- --------
Total current assets............ 41,234 (13,196) (1,086) 26,952
Property and equipment, net..... 5,241 (382) -- 4,859
Goodwill, net(b)................ 2,924 (2,924) 450,000 (d) 478,994
1,033 (e)
14,527 (f)
13,434 (g)
Deferred financing costs........ -- -- 14,011 (e) 11,049
(2,962)(h)
Other assets.................... 1,142 (200) -- 608
(334)
------- -------- -------- --------
Total Assets.................... $50,541 $(17,036) $488,957 $522,462
======= ======== ======== ========
LIABILITIES AND EQUITY(B)
Current liabilities:
Accounts payable.............. $ 5,907 $ (965) $ -- $ 4,942
Accrued payroll and related
costs........................ 5,614 (1,274) 4,700 (g) 9,040
Customer incentive bonuses.... 5,374 -- -- 5,374
Unearned subscription
revenues, net................ 26,443 -- -- 26,443
Other accrued expenses and
current liabilities.......... 687 (448) 3,944 (g) 4,183
------- -------- -------- --------
Total current liabilities....... 44,025 (2,687) 8,644 49,982
Unearned subscription revenues,
net............................ 6,546 -- -- 6,546
Deferred state income taxes..... 1,494 (1,494) -- --
Other noncurrent liabilities.... 148 -- 3,704 (g) 3,852
Senior Credit Facility.......... -- -- 200,000 (c) 200,000
Notes........................... -- -- 100,000 (c) 100,000
------- -------- -------- --------
Total liabilities............... 52,213 (4,181) 312,348 360,380
Divisional equity (capital
deficiency).................... (1,672) (12,855) 14,527 (f) --
Stockholders' equity............ -- -- 165,300 (c) 162,082
(2,962)(h)
(256)(e)
------- -------- -------- --------
Total Liabilities and Equity.... $50,541 $(17,036) $488,957 $522,462
======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet Data.
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA
(a) Reflects the assets and liabilities to be retained by Petersen.
(b) The Acquisition was accounted for under the purchase method of accounting.
Under the purchase method of accounting, a preliminary allocation of the
purchase price has been made to major categories of assets and liabilities
for purposes of the pro forma financial statements based upon available
information and assumptions that the Company's management believes are
reasonable. However, such amounts are subject to change and final amounts
may differ substantially. The Company is currently performing a study to
refine its preliminary allocation of the purchase price, the results of
which are not yet available.
(c) Reflects the capitalization of the Company as if the Transactions and the
Initial Offering had occurred as of September 30, 1996 (dollars in
thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Senior Credit Facility (1)....................................... $200,000
Notes............................................................ 100,000
Equity contributions............................................. 165,300
--------
Total sources.................................................. $465,300
========
</TABLE>
--------
(1) Does not include the estimated payment by Petersen to the Company for a
purchase price adjustment of at least $2.7 million to reflect the
actual level of working capital on the closing date of the Acquisition.
Such proceeds therefrom will be used to reduce borrowings under the
Senior Credit Facility.
(d) Reflects the purchase price of the Acquisition.
(e) Reflects the estimated professional fees and expenses related to the
Transactions and the Initial Offering and the allocation thereof between
deferred financing costs, stockholder's equity and the purchase price of
the Acquisition.
(f) Reflects the excess of liabilities over assets acquired from Petersen
which is added to the purchase price of the Acquisition.
(g) To accrue for severance costs related to the October 1996 personnel
reductions and for the estimated net future costs of excess space under
long-term leases which the Company intends to sublease and sales taxes
related to the Acquisition and the adjustment of the book value of the
Company's inventory.
(h)Reflects the write-off of deferred financing costs upon repayment of the
Bridge Financing Facility.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables present selected historical financial data for each of
the five years in the period ended November 30, 1995 and for the ten-month
period ended September 30, 1996 that have been derived from the audited
financial statements of Petersen. The statements of income and divisional
equity and statements of cash flows for each of the three years in the period
ended November 30, 1995 and for the ten months ended September 30, 1996 and
the notes thereto appear elsewhere in this Prospectus. The selected historical
statement of operations and balance sheet data of Petersen for the ten months
ended September 30, 1995 have been derived from unaudited financial
statements, which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the unaudited interim periods. Results for the
ten months ended September 30, 1996 are not necessarily indicative of results
that may be expected for the entire year.
<TABLE>
<CAPTION>
TEN MONTHS
YEARS ENDED NOVEMBER 30, ENDED SEPTEMBER 30,
------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ----------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Advertising............ $101,208 $102,399 $105,101 $116,608 $123,410 $102,672 $112,025
Newsstand.............. 35,191 34,499 37,507 40,048 39,889 33,326 34,318
Subscriptions.......... 39,508 39,300 39,820 40,710 41,963 35,113 35,177
Other.................. 3,450 4,305 3,894 4,601 8,353 7,539 7,594
-------- -------- -------- -------- -------- -------- --------
Net revenues......... 179,357 180,503 186,322 201,967 213,615 178,650 189,114
Production, selling and
other direct costs..... 144,280 135,250 141,562 149,182 171,112 140,436 148,713
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 35,077 45,253 44,760 52,785 42,503 38,214 40,401
General and
administrative
expenses............... 32,089 32,328 35,604 33,267 28,145 23,537 24,650
-------- -------- -------- -------- -------- -------- --------
Operating income........ 2,988 12,925 9,156 19,518 14,358 14,677 15,751
Interest income, net.... (1,429) (856) (317) (476) (549) (428) (352)
Gain on sale of assets.. -- -- -- -- -- -- (1,554)
-------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes....... 4,417 13,781 9,473 19,994 14,907 15,105 17,657
Provision for income
taxes(a)............... 125 267 251 698 549 458 331
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 4,292 $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 14,647 $ 17,326
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficiency)........... $(10,588) $ 1,591 $ (3,629) $(11,027) $ 5,760 $ (2,791)
Total assets............ 56,396 50,973 46,792 55,264 66,808 50,541
Total debt.............. -- -- -- -- -- --
Total equity (capital
deficiency)............ 4,626 4,126 (1,553) 361 8,627 (1,672)
OTHER DATA:
Depreciation and
amortization........... $ 4,496 $ 3,381 $ 3,137 $ 3,118 $ 3,439 $ 2,704 $ 2,704
Capital expenditures.... 4,018 1,419 4,739 2,866 4,423 3,492 768
Cash provided by
operating activities... 5,254 2,479 10,680 27,059 9,593 5,530 24,719
Cash provided by (used
in) investing
activities............. 2,951 11,545 (30) (14,478) 2,254 3,185 5,421
Cash provided by (used
in) financing
activities............. 113 (14,013) (14,901) (17,382) (6,092) (5,377) (27,625)
EBITDA(b)............... 7,484 16,306 12,293 22,636 17,797 17,381 20,009
EBITDA margin........... 4.2% 9.0% 6.6% 11.2% 8.3% 9.7% 10.6%
Pro forma ratio of
earnings to fixed
charges................ (d) (e)
Ratio of earnings to
fixed charges.......... 3.6x 9.2x 6.8x 12.8x 9.2x 11.2x 9.9x
Earnings available to
cover fixed
charges(c)............. $ 6,137 $ 15,457 $ 11,120 $ 21,684 $ 16,724 $ 16,548 $ 19,644
</TABLE>
- --------
(a) Consists of state and local income taxes. As a subchapter S corporation
under the Code, Petersen has not been subject to U.S. federal income taxes
or most state income taxes. Instead, such taxes have been paid by
Petersen's stockholder. Petersen has periodically paid dividends to its
stockholder in respect of such tax liabilities.
(b) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under GAAP. Such items excluded from income in calculating
EBITDA are significant components in understanding and evaluating the
Company's financial performance. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance GAAP, or as a measure of profitability or liquidity, management
understands that EBITDA is customarily used in evaluating magazine
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
(c) Earnings used in computing the ratio of earnings to fixed charges consist
of income before provision for income taxes plus fixed charges. Fixed
charges consist of the implied interest element of rent expense for all
periods presented except for the ten months ended September 30, 1996 for
which fixed charges also included interest expense of $185,000.
(d) Pro forma earnings were insufficient to cover pro forma fixed charges by
$48.4 million for the year ended November 30, 1995.
(e) Pro forma earnings were insufficient to cover pro forma fixed charges by
$35.0 million for the ten months ended September 30, 1996.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company. The Company is a leading publisher of special-interest
magazines. The Company's diverse portfolio currently contains a total of 73
publications, including 22 monthly publications, 9 bi-monthly publications and
42 single issue or annual publications. The Company operates primarily within
the expanding special-interest segment of the consumer magazine publishing
market. Over the last decade, special-interest publications targeted to niche
audiences have enjoyed significant growth and are now estimated to account for
approximately one quarter of the overall consumer magazine market in terms of
total advertising and circulation spending. The Company had net revenues of
$213.6 million and $189.1 million for the year ended November 30, 1995 and the
ten months ended September 30, 1996, respectively.
Sources of Revenue. The Company's principal sources of revenues from the
publication of its magazines are derived from advertising and circulation.
Circulation revenues are generated from both subscription and newsstand sales.
For fiscal 1995, approximately 58% of the Company's revenues were from
advertising, 38% were from circulation (including 20% from subscription sales
and 18% from newsstand sales) and 4% were from other sources. Advertising
revenues of the Company, as well as those of the consumer magazine industry in
general, are cyclical and dependent upon general economic conditions.
Historically, increases in advertising revenues have corresponded with
economic recoveries while decreases, as well as changes in advertising mix,
have corresponded with general economic downturns and regional and local
economic recessions. As compared to general-interest magazines, the Company
believes that its advertising revenues are less susceptible to changes in
general economic conditions due to the diversity of its publications, the
special-interest nature of its editorial content and the endemic nature of its
advertiser base. The endemic nature of the Company's advertiser base refers to
the fact that % of the Company's advertisers are manufacturers, marketers
or distributors of products which relate directly to the editorial content of
the magazines in which they advertise. See "Business--Industry Overview" and
"Risk Factors--Cyclicality of Revenues."
Potential Operating Improvements. As part of its business and operating
strategy, the Company has identified and is in the process of implementing
certain cost reduction measures and operating improvements that are expected
to result in annual cost savings when compared to Petersen's recent operating
history. The following table sets forth certain expenses incurred by Petersen
in each of the past three fiscal years and the ten-month periods ended
September 30, 1995 and 1996, which the Company believes will not recur in
future periods as a result of such cost reduction measures and operating
improvements. See "Business--Business and Operating Strategy." Certain of
these adjustments are reflected in the Company's unaudited pro forma financial
data. See "Unaudited Pro Forma Financial Data." Unless otherwise noted,
amounts shown have not been adjusted to reflect additional expenses which the
Company expects to incur in future periods, including additional professional
fees, interest expense, depreciation and amortization and other expenses. In
addition, while the Company believes the following expenses will not recur in
future periods, there can be no assurance that the Company will not incur
other expenses similar to the expenses described below in future periods. The
following calculation should not be viewed as indicative of future results.
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Compensation of senior
management(a)................... $ 12,273 $ 9,450 $ 3,713 $ 1,844 $ 2,872
Personnel reductions(b).......... 5,927 6,192 7,181 5,693 4,860
Excess travel and entertainment
expenses(c)..................... 917 1,036 1,111 890 819
Renegotiation of lease with
stockholder and sublease
revenues to be realized(d)...... 52 65 72 60 1,007
Effect of increased paper
prices(e)....................... -- -- 1,417 344 4,226
Effect of December 1995 paper
purchases(f).................... -- -- -- -- 1,098
Reduced software development
costs(g)........................ 2,475 3,507 4,026 3,281 1,589
Reorganization of loss-producing
magazine titles(h).............. (170) 1,707 7,646 5,600 6,319
Reduced retirement plan
contributions(i)................ 2,001 2,271 294 -- --
-------- -------- -------- -------- --------
Total nonrecurring expenses.... $ 23,475 $ 24,228 $ 25,460 $ 17,712 $ 22,790
======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
(footnotes from previous page)
- --------
(a) Represents: (i) compensation and benefits paid to Mr. Petersen, Petersen's
Chairman and founder, and Mr. Waingrow, Petersen's former President, net
of compensation to be paid to the Company's new management team; (ii)
travel and entertainment expenses attributable to Messrs. Petersen and
Waingrow and (iii) compensation and benefits paid to certain support
personnel and professional consultants working primarily for Messrs.
Petersen and Waingrow. See "Unaudited Pro Forma Financial Data."
(b) Represents compensation, related benefits and severance paid to certain
former Petersen personnel who were terminated as part of cost reduction
programs by Petersen and to employees terminated in October 1996 as part
of the Company's personnel reduction program, net of the Company's
estimate of a normal level of severance costs after the personnel
reduction program is complete. See "Unaudited Pro Forma Financial Data."
(c) Represents the Company's estimate of travel and entertainment expenses
incurred by Petersen (excluding expenses included under "compensation of
senior management") in excess of such expenses to be incurred by the
Company after implementation of new travel and expense policies and
personnel reduction.
(d) Represents amounts paid in the periods presented for rent with respect to
certain properties owned by Mr. Petersen over amounts payable in future
periods pursuant to new leases negotiated in connection with the
Acquisition and the Company's estimate of the rental costs which would
have been charged to accrued liabilities for excess rental space recorded
in the allocation of purchase price if the consolidations had occurred at
the beginning of the periods presented. See "Unaudited Pro Forma Financial
Data."
(e) Amounts shown reflect the excess of the increased paper prices in the
market over the median historical price of $0.50 per pound during the
relevant periods. See "--Paper Prices."
(f) Amounts shown reflect the excess of the price actually paid by Petersen
for paper used over the actual market price for such paper during the
relevant periods. See "--Paper Prices."
(g) See "--Software Consulting Expenses" and "Unaudited Pro Forma Financial
Data."
(h) Represents losses incurred by Sassy, Petersen's Golfing, Sport, Bicycle
Guide and Mountain Biker during the periods presented. In December 1996,
the Company completed the process of merging Sassy into 'TEEN, thereby
eliminating the losses being generated by Sassy. While the remaining
magazines collectively are expected to break even or be marginally
profitable in fiscal 1997, in the event such magazines continue to
generate losses, management expects to take one or more of the following
actions: (i) discontinue or sell such magazines; (ii) merge such magazines
with the Company's existing magazines or (iii) enter into strategic
partnerships with third parties. Management expects that a final decision
with respect to each magazine will be made by the end of fiscal 1997.
(i) The Company will not continue making contributions to Petersen's
retirement plan and intends to establish a new defined contribution plan
for which the estimated annual cost is $1.0 million annually.
Paper Prices. The Company's principal raw material is paper. The Company
used 69.6 million, 76.0 million and 84.4 million pounds of commodity grade
paper in its fiscal years ended November 30, 1993, 1994 and 1995,
respectively, resulting in a total cost of paper during such periods of $29.0
million, $30.5 million and $39.3 million, respectively. While paper prices
have increased by an average of less than 1% annually since 1989, certain
commodity grades have shown considerable price volatility during that period,
including the commodity grade used by the Company. Paper prices rose sharply
during the latter part of 1995, and in response, Petersen purchased a large
supply of 32 lb. paper in December 1995 at prices ranging from $0.61 to $0.66
per pound in anticipation of additional price increases and supply shortages
continuing for the remainder of 1995 and 1996. Petersen purchased enough paper
to meet all of its production requirements through September 1996. The price
of such paper subsequently returned to historical levels of approximately
$0.50 per pound in May 1996. The increase in paper prices in late 1995 and
Petersen's large purchase at such increased prices materially adversely
affected Petersen's production, selling and other direct costs for year ended
November 30, 1995 and the ten months ended September 30, 1996, respectively.
Following the Acquisition, the Company entered into an oral agreement with a
vendor to secure sufficient paper to meet its projected raw material needs
through the end of fiscal 1997 at or below current market prices. While there
can be no assurances, the Company expects that such agreement will be
finalized by the end of March 1997. No assurance can be given, however, that
future fluctuations in paper prices after 1997 will not have a material
adverse effect on the results of operations and financial condition of the
Company. See "Risk Factors--Risks Associated with Fluctuations in Paper Costs
and Postal Rates" and "Business--Raw Materials."
Software Consulting Expenses. During the three year period ended November
30, 1995, Petersen engaged a consulting firm to design and install systems and
related software for use in its operations. The systems and software
principally related to an electronic magazine layout system, an advertising
rate and circulation modeling system and an automated pre-press operating
system. Petersen incurred total expenses of $2.5 million, $3.5 million and
$4.0 million in each of the three years in the period ended November 30, 1995,
respectively, with
37
<PAGE>
respect to this project. These systems were never completed satisfactorily.
Petersen subsequently purchased and installed commercially available systems
to perform such functions at a cost of less than $175,000. Petersen is
currently engaged in litigation over the matter with the consulting firm and
accrued $0.8 million in the ten months ended September 30, 1996 related to
such litigation, which remains the responsibility of Petersen.
Purchase Accounting Effects. The Acquisition was accounted for using the
purchase method of accounting. As a result, the Acquisition will prospectively
effect the Company's results of operations in certain significant respects.
The aggregate pro forma acquisition cost (including the assumption of ongoing
liabilities incurred in the ordinary course of business and estimated
transaction expenses of $15.3 million) of approximately $479.0 million has
been allocated to the tangible and intangible assets acquired and liabilities
assumed by the Company based upon their respective fair values as of the
acquisition date based upon valuations and other studies that are not yet
available. The preliminary allocation of the purchase price of the assets
acquired in the Acquisition is estimated to result in annual depreciation and
amortization expense of approximately $31.7 million per year. The Company's
historical annual depreciation and amortization expense over the past five
years has been less than $4.5 million per year. In addition, due to the
effects of the increased borrowing of the Company to finance the Acquisition,
the Company's interest expense will increase significantly in the periods
following the Acquisition.
Provision for Income Taxes. Prior to the Acquisition, Petersen was operated
as a subchapter S corporation under the Code. As a result, it did not incur
federal and state income taxes (except with respect to certain states) and,
accordingly, no discussion of income taxes is included in "Results of
Operations" below. Federal and state income taxes (except with respect to
certain states) with respect to Petersen's income during such periods were
incurred and paid directly by Petersen's stockholder. Petersen made periodic
distributions to its stockholder in respect of such tax liability. As a
limited liability company, the Company will also not incur federal and state
income taxes (except with respect to certain states). Federal and state income
taxes (except with respect to certain states) with respect to the Company's
income during future periods will be incurred and paid directly by the
Company's equity holders. Pursuant to the terms of its limited liability
company agreement, the Company will make distributions to its equity holders
in respect of such tax liabilities in future periods.
RESULTS OF OPERATIONS
The following table summarizes Petersen's historical results of operations
as a percentage of revenue for the years ended November 30, 1993, 1994 and
1995 and for the ten month periods ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Net revenues:
Advertising............... 56.4% 57.7% 57.8% 57.6% 59.2%
Newsstand................. 20.1 19.9 18.7 18.6 18.1
Subscriptions............. 21.4 20.1 19.6 19.6 18.6
Other..................... 2.1 2.3 3.9 4.2 4.1
-------- -------- -------- -------- --------
Total net revenues...... 100.0 100.0 100.0 100.0 100.0
Production, selling and
other direct costs......... 76.0 73.9 80.1 78.6 78.6
-------- -------- -------- -------- --------
Gross profit................ 24.0 26.1 19.9 21.4 21.4
General and administrative
expenses................... 19.1 16.4 13.2 13.2 13.0
-------- -------- -------- -------- --------
Operating income............ 4.9% 9.7% 6.7% 8.2% 8.4%
======== ======== ======== ======== ========
OTHER DATA:
EBITDA...................... 6.6% 11.2% 8.3% 9.7% 10.6%
</TABLE>
38
<PAGE>
Ten Months Ended September 30, 1996 Compared to Ten Months Ended September
30, 1995
Total revenues for the ten months ended September 30, 1996 increased by
$10.5 million, or 5.9%, to $189.1 million from $178.6 million for the ten
months ended September 30, 1995. Of this increase, advertising revenue
accounted for $9.4 million, supplemented by a $1.0 million increase in
newsstand revenue. The increase in advertising revenues was due principally to
an overall increase in the Company's advertising rates and higher advertising
revenues generated by Motor Trend, 'TEEN and All About You! The increase in
newsstand revenue was due principally to increased sales of 'TEEN and All
About You!
Production, selling and other direct costs for the ten months ended
September 30, 1996 increased by $8.3 million, or 5.9%, to $148.7 million from
$140.4 million for the ten months ended September 30, 1995, primarily as a
result of increased paper costs and incremental production costs. Production,
selling and other direct costs, as a percent of revenues, remained constant at
78.6% of revenues for the 1995 and 1996 periods. See""--Overview--Paper
Prices."
General and administrative expenses for the ten months ended September 30,
1996 increased by $1.1 million, or 4.7%, to $24.6 million from $23.5 million
for the ten months ended September 30, 1995, primarily as a result of an
accrual of $0.8 million for expenses relating to litigation against the
software consultant described in "--Overview--Software Consulting Expenses."
General and administrative expenses decreased as a percent of revenues over
the same period to 13.0% of revenues for the 1996 period from 13.2% of
revenues for the 1995 period.
Operating income for the ten months ended September 30, 1996 increased by
$1.1 million, or 7.3%, to $15.8 million from $14.7 million for the ten months
ended September 30, 1995, for the reasons stated above.
Year Ended November 30, 1995 Compared to Year Ended November 30, 1994
Total revenues for the year ended November 30, 1995 increased by $11.6
million, or 5.8%, to $213.6 million from $202.0 million for the year ended
November 30, 1994. Of this increase, advertising revenue accounted for $6.8
million, partially offset by a $0.2 million decrease in newsstand revenue and
supplemented by a $1.3 million increase in subscription revenue. The increase
in advertising revenue was principally due to the Company's acquisition of
Sassy in December 1994.
Production, selling and other direct costs for the year ended November 30,
1995 increased by $21.9 million, or 14.7%, to $171.1 million from $149.2
million for the year ended November 30, 1994, primarily as a result of the
cost of launching new magazine titles, additional costs associated with the
publication of Sassy and increases in paper prices and postal rates.
Production, selling and other direct costs increased as a percent of revenues
over the same period to 80.1% of revenues for the 1995 period from 73.9% of
revenues for the 1994 period due principally to the same causes. See "--
Overview--Paper Prices."
General and administrative expenses for the year ended November 30, 1995
decreased by $5.2 million, or 15.4%, to $28.1 million from $33.3 million for
the year ended November 30, 1994, primarily as a result of lower compensation
expense for Mr. Petersen. General and administrative expenses decreased as a
percent of revenues over the same period to 13.2% of revenues for the 1995
period from 16.4% of revenues for the 1994 period.
Operating income for the year ended November 30, 1995 decreased by $5.1
million, or 26.4%, to $14.4 million from $19.5 million for the year ended
November 30, 1994, for the reasons stated above.
Year Ended November 30, 1994 Compared to Year Ended November 30, 1993
Total revenues for the year ended November 30, 1994 increased by $15.7
million, or 8.4%, to $202.0 million from $186.3 million for the year ended
November 30, 1993. Of this increase, advertising revenue accounted for $11.5
million, supplemented by a $2.5 million increase in newsstand revenue and a
$0.9 million increase in subscription revenue. The increase in advertising
revenue was due primarily to the launch of
39
<PAGE>
Mountain Biker, 5.0 Liter Mustang, Hot Rod Bikes, Mustang & Fords and Custom
Classic Trucks and the acquisition of Bicycle Guide.
Production, selling and other direct costs for the year ended November 30,
1994 increased by $7.6 million, or 5.4%, to $149.2 million from $141.6 million
for the year ended November 30, 1993, primarily as a result of incremental
production costs from the launch of new magazines. Production, selling and
other direct costs decreased as a percent of revenues over the same period to
73.9% of revenues for the 1994 period from 76.0% of revenues for the 1993
period principally due to a new printing contract with more favorable terms.
General and administrative expenses for the year ended November 30, 1994
decreased by $2.3 million. or 6.6%, to $33.3 million from $35.6 million for
the year ended November 30, 1993, primarily as a result of the completion of
start-up activities for new magazine titles, partially offset by increased
compensation expense for Mr. Petersen. General and administrative expenses
decreased as a percent of revenues over the same period to 16.4% of revenues
for the 1994 period from 19.1% of revenues for the 1993 period.
Operating income for the year ended November 30, 1994 increased by $10.3
million, or 113.2%, to $19.5 million from $9.2 million for the year ended
November 30, 1993, for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
Historical Cash Flows from Operating Activities. Net cash provided by
operations was $24.7 million for the ten months ended September 30, 1996
compared to $5.5 million for the ten months ended September 30, 1995. Of this
difference, $19.9 million relates to changes in inventory levels and $2.7
million relates to increased net income. Net cash provided by operations
decreased to $9.6 million for the year ended November 30, 1995 from $27.1
million for the year ended November 30, 1994. This decrease resulted
principally from a $10.6 million increase in inventories and a $4.9 million
decrease in net income. The increase in net cash provided by operations to
$27.1 million for the year ended November 30, 1994 from $10.7 million for the
year ended November 30, 1993 was primarily due to a $10.1 million increase in
net income and a $6.9 million change in balance in accounts payable.
Historical Cash Flows from Investing Activities. Net cash provided by
investing activities was $5.4 million for the ten months ended September 30,
1996, including $2.5 million in proceeds from the sale of its Viking Color
pre-press operations, compared to $3.3 million for the ten months ended
September 30, 1995. Net cash provided by (used in) investing activities was
$2.3 million, $(14.5) million and $(30,000) in the years ended November 30,
1995, 1994 and 1993, respectively. The changes were primarily due to the
purchase and sale of marketable securities with cash. See "Capital
Expenditures" below for the level of capital expenditures.
Historical Cash Flow from Financing Activities. Net cash used in financing
activities, which was comprised solely of distributions of Petersen's S
corporation earnings to its stockholder and changes in advances to other
divisions of Petersen, were $27.6 million, $5.4 million, $6.1 million, $17.4
million and $14.9 million for the ten months ended September 30, 1996 and 1995
and the years ended November 30, 1995, 1994 and 1993, respectively.
Financing Activities Relating to the Acquisition. The Initial Offering was
part of a plan designed to enable the Company to finance the Acquisition and
to provide for additional liquidity. In connection with the Acquisition, the
Company: (i) borrowed $200.0 million under the $260.0 million Senior Credit
Facility; (ii) borrowed $100.0 million under the Bridge Financing Facility and
(iii) received equity contributions of $165.3 million from an investor group
led by Willis Stein. The Company used the proceeds from the Initial Offering
to repay the Bridge Financing Facility. See "The Transactions."
The borrowings under the Senior Credit Facility consist of a $100.0 million
Tranche A Loan and a $100.0 million Tranche B Loan, maturing on December 31,
2002 and September 30, 2004, respectively. The Revolving Credit Facility
provides for borrowings in the maximum principal amount of $60.0 million. The
Tranche A Loan
40
<PAGE>
amortizes gradually prior to maturity; the Tranche B Loan is payable primarily
in two balloon payments due in 2003 and 2004. The Revolving Credit Facility
becomes due in full on December 31, 2002. The Senior Credit Facility contains
customary provisions with respect to security, covenants (including financial
covenants) and events of default. See "Description of Senior Credit Facility."
Capital Expenditures. The Company's operations are not capital intensive.
Capital expenditures were $0.8 million and $3.5 million in the ten months
ended September 30, 1996 and 1995, respectively, and $4.4 million, $2.9
million and $4.7 million in the fiscal years ended November 30, 1995, 1994 and
1993, respectively.
Liquidity. The Company's principal sources of funds following the
Acquisition are anticipated to be cash flows from operating activities and
borrowings under the Senior Credit Facility. Based upon the successful
implementation of management's business and operating strategy, the Company
believes that these funds will provide the Company with sufficient liquidity
and capital resources for the Company to meet its current and future financial
obligations, including the payment of principal and interest on the Notes, as
well as to provide funds for the Company's working capital, capital
expenditures and other needs. No assurance can be given, however, that this
will be the case. The Company's future operating performance and ability to
service or refinance the Notes and to repay, extend or refinance the Senior
Credit Facility will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. See "Risk Factors."
In the event of a Change of Control, the Company will be required to make an
offer for cash to repurchase the Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest and Additional Interest, if any,
thereon to the repurchase date. Certain events involving a Change of Control
will result in an event of default under the Senior Credit Facility or other
indebtedness of the Company that may be incurred in the future. Moreover, the
exercise by the holders of the Notes of their right to require the Company to
repurchase the Notes may cause an event of default under the Senior Credit
Facility or such other indebtedness, even if the Change of Control does not.
Finally, there can be no assurance that the Company will have the financial
resources necessary to repurchase the Notes upon a Change of Control. See
"Risk Factors--Change of Control" and "Description of the Notes--Change of
Control Offer."
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for three years ended November 30, 1995.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"), which is effective for the Company in fiscal 1997. The Company does not
expect the adoption of SFAS No. 121 to have a material impact on the Company's
financial position or results of operations.
41
<PAGE>
BUSINESS
The Company is a leading publisher of special-interest magazines. The
Company's diverse portfolio currently contains a total of 73 publications,
including 22 monthly publications, 9 bimonthly publications and 42 single
issue or annual publications. According to Media Market Research Institute,
the Company's magazines reach over 40 million readers each month. The
Company's nationally-recognized magazines include: (i) Motor Trend, which is
recognized as a leading authority on new domestic and foreign automobiles and
has a current monthly circulation of approximately 1.0 million; (ii) 'TEEN,
which has the largest circulation of any of the Company's magazines with a
current monthly circulation of over 1.3 million and (iii) Hot Rod, which is
one of the largest circulation automotive magazines in the world with a
current monthly circulation of over 810,000. The Company's other core
publications are well-known in their respective markets and include Guns &
Ammo, Skin Diver, 4 Wheel & Off-Road, Car Craft, Petersen's Hunting,
Motorcyclist, Sport Truck, Circle Track, Photographic and Dirt Rider. Eight of
the Company's 13 core publications ranked first in their respective markets
base on annual circulation in 1995, including two magazines that were the only
national magazines published in their respective markets.
The Company's principal sources of revenues are from advertising and
circulation. The Company had net revenues of $213.6 million and $189.1 million
for fiscal 1995 and the ten months ended September 30, 1996, respectively.
Circulation revenues are generated from both subscription and newsstand sales.
For fiscal 1995, approximately 58% of the Company's revenues were from
advertising, 38% were from circulation (including 20% from subscription sales
and 18% from newsstand sales) and 4% were from other sources.
In fiscal 1995, the Company's 13 core publications each generated a minimum
of approximately $1.0 million of profit contributions and, in the aggregate,
generated over $55.2 million of the Company's profit contribution. During the
same period, no single publication accounted for more than 15% of the
Company's net revenues or 28% of profit contribution. As a result of such
diversification, the Company believes that it is not dependent on any single
publication and is less susceptible to shifts in advertising spending across
industry sectors. The Company's core publications collectively average over 30
years in publication and have developed nationally-recognized branded titles
within each of their respective markets. By using its core publications as a
platform for launching new "spin-off" publications, the Company has been able
to develop a portfolio of highly-specialized publications covering a wide
variety of interests. The Company believes that its reputation as a high-
quality publisher and its significant market presence has historically enabled
its new publications to gain market share more rapidly in their respective
special-interest segments.
Substantially all of the Company's magazines target special-interest
enthusiasts. By doing so, the Company is able to deliver a solid core audience
to its advertisers on a consistent basis and create an opportunity for its
advertisers to efficiently reach their target audience. Due to the special-
interest nature of the Company's magazines, readers not only value their
specialized editorial content but also rely on such magazines as a catalogue
of products in the relevant topic area. This catalogue aspect makes the
Company's magazines an essential advertising medium for many of the Company's
advertisers. Certain of the Company's advertisers rely on the Company's
publications as their primary source of media advertising. As compared to
general-interest magazines, the Company believes that its advertising revenues
are less susceptible to changes in general economic conditions due to the
diversity of its publications, the special-interest nature of its editorial
content and the endemic nature of its advertiser base. The endemic nature of
the Company's advertiser base refers to the fact that a significant portion of
the Company's advertising revenues are from advertisers that are
manufacturers, marketers or distributors of products that relate directly to
the editorial content of the magazines in which they advertise. In addition,
the Company has a diverse advertiser base, with its top 25 advertisers
accounting for only 32.6% and 32.8% of the Company's advertising revenues
during fiscal 1995 and the ten months ended September 30, 1996, respectively.
In addition to offering its advertisers targeted advertising within
individual magazines, the Company can offer its advertisers the ability to
reach a large audience by advertising across the Company's large portfolio of
magazines. Management believes this capability was not fully developed by
Petersen's prior management. In particular, the Company believes that many of
its publications provide its advertisers with unique access to the
42
<PAGE>
adult male (ages 18 to 34) and young female (ages 12 to 19) markets. The
Company believes that, in the aggregate, its publications reach more adult
males than those of any other magazine publisher and reach over one-third of
all young females in the United States. In 1995, the Company's magazines
reached an aggregate of approximately 36.5 million of the approximately 60.1
million adult males in the United States, or 60.7% of the market. The
circulation of the Company's magazines targeting adult males and young females
is dependent to a certain extent on the number of persons in such demographic
groups in the U.S. population at any given time. The adult male market is
particularly attractive to advertisers due to its size and overall purchasing
power, while the young female market provides advertisers with the opportunity
to establish brand recognition during the formative stages of this important
consumer group's buying patterns.
The following table sets forth certain information regarding the Company's
13 core publications for its fiscal year ended November 30, 1995:
<TABLE>
<CAPTION>
NET TOTAL CIRCULATION
MAGAZINE TITLE REVENUES(A) CIRCULATION(B) RANK(B)(C)
-------------- --------------------- --------------------- -----------
(AMOUNTS IN MILLIONS) (COPIES IN THOUSANDS)
<S> <C> <C> <C>
Motor Trend......... $31.3 950.6 2 of 4
'TEEN............... 24.1 1,311.8 3 of 3
Hot Rod............. 19.7 810.2 1 of 2
Guns & Ammo......... 13.6 570.8 1 of 2
Skin Diver.......... 13.3 229.0 1 of 2
4 Wheel & Off-Road.. 12.0 367.7 1 of 2
Car Craft........... 9.8 389.7 1 of 1
Petersen's Hunting.. 7.3 331.2 1 of 1
Motorcyclist........ 6.8 239.6 2 of 2
Sport Truck......... 6.2 192.1 1 of 2
Circle Track........ 6.0 131.6 2 of 3
Photographic........ 5.7 217.5 3 of 3
Dirt Rider.......... 5.4 160.8 1 of 3
</TABLE>
- --------
(a) Includes advertising, circulation and other revenues for the year ended
November 30, 1995.
(b)Based on the average circulation for each publication for the year ended
December 31, 1995.
(c) Includes only national publications, that are tracked by industry analysts
and does not include small regional publications and newsletters.
The Company completed the Acquisition on September 30, 1996. The Investors
pursued the Acquisition because they believed it offered an attractive
opportunity to: (i) acquire a diverse portfolio of profitable magazines with
significant growth potential; (ii) bring together a skilled and experienced
management team, consisting of the Company's new senior managers and
Petersen's existing publishers and editorial staff; (iii) apply professional
management techniques to the Company's portfolio and improve its operating
results by increasing circulation and advertising revenues and reducing
operating costs and (iv) further develop the Company's brand-name franchises
with limited additional capital investment. Management believes that
opportunities exist to achieve each of these results both in the near term and
on a going-forward basis.
INDUSTRY OVERVIEW
The consumer magazine market includes both general-interest and special-
interest publications. General-interest magazines are characterized by broad-
based editorial content and readership, while special-interest magazines have
a more narrow editorial focus and subject-selective readership. The Company
operates primarily within the expanding special-interest segment of the
consumer magazine publishing market. The Company typically derives
approximately 80% of its publication revenues from special-interest magazines
with the balance coming from its general-interest publications, which include
'TEEN, All About You! and Sport. Over the last decade, special-interest
publications targeted to niche audiences have enjoyed significant growth and
are now estimated to account for approximately one quarter of the overall
consumer magazine market in terms of total advertising and circulation
spending. In recent years, special-interest magazines have generally exhibited
stronger growth in both advertising and circulation spending as compared to
general-interest magazines. For example,
43
<PAGE>
based on a representative survey of 111 general-interest and 115 special-
interest magazines compiled by Veronis, Suhler & Associates, advertising and
circulation spending on special-interest publications have grown at compound
annual rates of 8.1% and 2.7%, respectively, as compared to 5.6% and 1.3%,
respectively, for general-interest publications during the period from 1990 to
1995. In addition, because special-interest magazines target enthusiasts,
publishers are generally able to charge a higher cover price as compared to
general-interest magazines. Based on the survey noted above, the average price
of a special-interest magazine was $2.08 in 1995, nearly 50% higher than the
$1.41 average price of a general-interest magazine. For much the same reason,
the Company believes that readers of special-interest magazines are less
price-sensitive than readers of general-interest magazines.
Circulation revenues are generated from subscription and newsstand sales. On
an industry-wide basis, approximately 18% of consumer magazines are currently
distributed through newsstand sales and 82% are distributed through
subscription sales. Over the last fifteen years, the aggregate number of
consumer magazines distributed through newsstand sales has declined in
relation to the number distributed through subscription sales. The Company
believes that this decline is primarily the result of decreased newsstand
sales of general-interest magazines while newsstand sales of special-interest
magazines have remained relatively constant. Due to increases in newsstand
cover prices, the amount of circulation revenue generated from newsstand sales
by special-interest magazines has grown over the last decade. According to the
survey noted above, the average price per copy for special-interest magazines
increased at a compound annual growth rate of 2.6% for the period from 1990 to
1995. In addition, the Company believes that newsstand sales offer an
economically attractive vehicle for launching new magazines, attracting more
affluent subscribers and generating timely feedback about its editorial
content. For both the year ended November 30, 1995 and the ten months ended
September 30, 1996, approximately 49% of the Company's circulation revenues
were derived from newsstand sales and 51% were derived from subscription
sales. See "--Sources of Revenue."
In general, magazine publishers generate the majority of their revenues from
the sale of advertising. Advertising revenues, however, tend to be cyclical
and dependent upon general economic conditions. Historically, increases in
advertising revenues have corresponded with economic recoveries while
decreases have corresponded with general economic downturns. As compared to
general-interest magazines, the Company believes that its advertising revenues
are less susceptible to changes in general economic conditions due to the
diversity of its publications, the special-interest nature of its editorial
content and the endemic nature of its advertiser base. The endemic nature of
the Company's advertiser base refers to the fact that a significant portion of
the Company's advertising revenues are from advertisers that are
manufacturers, marketers or distributors of products that relate directly to
the editorial content of the magazines in which they advertise.
Industry sources estimate that total advertising spending for special-
interest publications increased by approximately 13% in 1995. According to the
Publishers Information Bureau, the top ten categories of industries ranked by
consumer magazine advertising expenditures in 1995 were automotive and
automotive accessories (15%), mail order and direct response (11%), toiletries
and cosmetics (10%), computers, office equipment and stationery (10%),
business and consumer services (9%), food and food products (8%), apparel,
footwear and accessories (7%), drugs and remedies (6%), travel, hotels and
resorts (5%) and cigarettes, tobacco and accessories (4%). The automotive
industry has traditionally accounted for the largest percentage of total
advertising expenditures in the consumer magazine industry. During the period
from 1990 to 1995, advertising spending by the automotive industry increased
at a compound annual growth rate of 8.2%.
In recent years, consumer magazine publishers have increasingly sought to
diversify their earnings and more effectively utilize their existing
publications by developing non-traditional revenue streams. In general,
magazine publishers have sought to expand the use of their magazines'
editorial content across different media formats and to capitalize on their
existing brand names. On an industry-wide basis, the Company estimates that
consumer magazine publishers currently derive approximately 10% to 20% of
their net revenues from ancillary revenue sources, such as licensing
arrangements, subscriber list rentals, joint ventures and new forms of media.
The Company believes that its portfolio of special-interest magazines provides
unique opportunities to develop ancillary revenues due to the special-interest
nature of such magazines' editorial content and the enthusiast nature of their
readership.
44
<PAGE>
BUSINESS AND OPERATING STRATEGY
The Company's core publications collectively average over 30 years in
publication and have developed nationally-recognized branded titles in each of
their respective markets. The Company believes that the enthusiast nature of
its readership provides it with a loyal subscriber base and enables it to
deliver a solid core audience to its advertisers on a consistent basis. As a
result, management believes that the Company maintains a number of significant
competitive advantages.
Historically, Petersen expanded primarily by introducing special-interest
magazines to serve niche audiences in areas in which its founder had a
personal interest. In pursuing such expansion, Petersen maintained a
consistent focus on the high-quality editorial content of its magazines.
However, Petersen was organized into six distinct publishing groups that
essentially operated independently from one another and were focused primarily
on editorial development and advertising revenue generation rather than
overall profitability. As a result, management believes that Petersen did not
fully realize all available operating synergies.
The Company's new management team has significant experience in the magazine
publishing industry, Based upon such experience, management has developed a
detailed business and operating strategy for the Company, primarily comprising
operating policies and procedures that have proven successful in their prior
experience and are widely practiced throughout the publishing industry. The
Company's business and operating strategy is primarily designed to leverage
off of its nationally-recognized brand names and improve the profitability of
the Company. The key elements of this strategy include:
REORGANIZE OPERATING STRUCTURE. Following the Acquisition, new management
reorganized several operating areas of the Company to facilitate a more
integrated and unified approach to circulation, production and advertising
sales, while retaining independent editorial direction of its magazines. The
Company's circulation operations, which include such functions as subscription
marketing and planning, fulfillment and newsstand distribution, were
previously organized by magazine group and managed by generalists focused on
each magazine group. Circulation operations have been reorganized on a
functional basis across all of the Company's publications and will be managed
by specialists within each function. Certain of these functions are being
relocated to New York in order to take advantage of expertise not readily
available elsewhere. In addition, the Company's production activities are
being centralized across all of its publications rather than by magazine
group. The Company's national advertising sales management is being relocated
from Los Angeles to New York to be in closer proximity to national advertising
accounts. Similarly, management of the young women's titles is being moved to
New York to increase the visibility of such magazines among advertisers in the
fashion and cosmetic industries.
IMPLEMENT OPERATING IMPROVEMENTS. Management has identified and has
substantially implemented operating improvements that are expected to result
in significant cost savings. These measures include the following:
. REDUCE OPERATING COSTS. At the time of the Acquisition, management
identified certain cost reduction measures including: (i) savings in
personnel and related net lease costs; (ii) lower utilization of
temporary employees and services; (iii) the consolidation of one or more
of the Company's regional sales offices; (iv) tighter purchasing
procedures and controls and (v) reductions in the Company's travel and
entertainment expenditures. A substantial number of these cost reduction
measures have been completed, including personnel reductions expected to
result in annualized cost savings of approximately $4.9 million.
. RESTRUCTURE VENDOR RELATIONSHIPS. Immediately following the Acquisition,
management commenced an extensive review of the Company's significant
vendor relationships, including its printing, paper supply, fulfillment
and newsstand distribution arrangements. Based on that review and
meetings with certain of such vendors, management believes that there are
opportunities to enhance these relationships and to improve the economic
terms of such arrangements for the Company. Although no definitive
agreements have been executed, the Company believes that it will be
successful in achieving more favorable terms with many of its vendors.
45
<PAGE>
. IMPROVE PERFORMANCE OF CERTAIN PUBLICATIONS. Management believes that it
can improve the Company's profitability by implementing changes designed
to eliminate or significantly reduce the losses currently being generated
by certain of the Company's publications. The Company has five magazines
(Sassy, Sport, Petersen's Golfing, Bicycle Guide and Mountain Biker) that
collectively accounted for a negative profit contribution of $7.6 million
and $6.3 million for fiscal 1995 and the ten months ended September 30,
1996, respectively. In December 1996, the Company completed the process
of merging Sassy into 'TEEN, thereby eliminating the losses being
generated by Sassy. Sassy generated negative profit contribution of $4.7
million and $3.2 million for fiscal 1995 and the ten months ended
September 30, 1996, respectively. While the remaining magazines
collectively are expected to break even or be marginally profitable in
fiscal 1997, in the event such magazines continue to generate losses,
management expects to take one or more of the following actions: (i)
discontinue or sell such magazines; (ii) merge such magazines with the
Company's existing magazines or (iii) enter into strategic partnerships
with third parties. Management expects that a final decision with respect
to each magazine will be made by the end of fiscal 1997.
INCREASE CIRCULATION AND ADVERTISING REVENUES. Management believes that
there are significant opportunities to increase circulation and advertising
revenues. The Company has historically focused on the newsstand distribution
channel and has relied heavily upon agency subscription sales in managing its
circulation operations. Management believes that it can increase subscription
revenues by instituting programs designed to increase the number of readers
who buy subscriptions directly from the Company. For example, the Company has
begun to develop a database of its over 32 million current or former
subscribers that will allow it to cross-sell its other publications to such
subscribers. In addition, management intends to increase the newsstand and
subscription prices on certain of its publications in order to bring such
prices in line with competitive publications.
Management believes that it can increase the Company's advertising revenues
by adopting a more unified approach to advertising sales, which will focus on
enhancing the ability of the Company's advertisers to purchase advertising
space across all of the Company's magazines that reach their target markets.
In addition, management intends to increase the Company's advertiser base by
targeting new advertisers and advertisers in other industry categories. Such
advertisers include, among others, manufacturers of men's apparel, footwear
and accessories and alcoholic beverages. The Company has also implemented a
new commission sales policy designed to provide more effective incentives to
the Company's advertising sales force. Prior management's policy did not
provide additional incentives to sales personnel once they had reached their
annual sales target, which often occurred prior to the conclusion of
Petersen's fiscal year. In addition, by designing the database described above
with the capability of identifying specific segments within each of its
markets, the Company believes it can offer its advertisers increased value and
thus generate additional advertising revenues.
ESTABLISH PERFORMANCE-BASED INCENTIVES. The significant equity interests
held by the Company's new senior management provide such executives with an
incentive to maximize the Company's overall profitability. In addition, to
provide incentives to the Company's existing management and assist new
management in implementing the new business strategy, the Company plans to
adopt new compensation arrangements designed to reward managers and other
participating employees based upon the Company's operating performance.
DEVELOP ANCILLARY REVENUE SOURCES. The Company was historically operated as
a traditional consumer magazine company deriving substantially all of its
revenues from advertising and circulation sales. On an industry-wide basis,
management estimates, based upon its experience in the industry, that consumer
magazine publishers currently derive approximately 10% to 20% of their
revenues from ancillary revenue sources while the Company currently derives
only about 4% of its revenues from such sources. In recent months, the Company
has begun to explore the ancillary revenue opportunities afforded by its well-
established brand names. For example, the Company has recently entered into
licensing agreements relating to the use of its Motor Trend and Hot Rod brand
names for weekly television shows on The Nashville Network (TNN) and its Guns
& Ammo brand name for a weekly television show on ESPN. In addition, because
the editorial content of many of its magazines would also appeal to readers
outside of the United States, management believes that significant
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<PAGE>
opportunities exist to establish international licensing agreements,
particularly in Asia, Australia, Great Britain and Western Europe. The Company
believes that there are significant opportunities to increase revenues by
leveraging off the editorial content and the nationally-recognized brand names
of the Company's existing publications through licensing arrangements,
strategic joint ventures, retail alliances, subscriber list rentals, affinity
group marketing and electronic publishing.
ESTABLISH NEW TITLES. The Company has successfully expanded its magazine
portfolio by launching new publications to serve niche audiences in related
markets and by making selective acquisitions of existing magazine titles.
Thirteen of the Company's 31 current monthly and bimonthly titles were
launched or acquired by the Company since 1990. The Company plans to continue
to develop and launch new special-interest magazines and acquire existing
magazines that will complement and enhance its existing portfolio.
SOURCES OF REVENUE
Substantially all of the Company's revenues are derived from advertising and
circulation sales, with lesser amounts derived from other sources such as
subscriber list rentals. Circulation revenues are generated from both
subscription and newsstand sales. The following table sets forth the sources
and amounts of the Company's revenues for the fiscal years ended November 30,
1993, 1994 and 1995 and the ten months ended September 30, 1996 (dollars in
millions):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, TEN MONTHS
---------------------------------------- ENDED
1993 1994 1995 SEPTEMBER 30, 1996
------------ ------------ ------------ ------------------
SOURCES OF REVENUE AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------------ ------ ----- ------ ----- ------ ----- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising............. $105.1 56.4% $116.6 57.7% $123.4 57.8% $ 112.0 59.2%
Newsstand............... 37.5 20.1 40.1 19.9 39.9 18.7 34.3 18.1
Subscriptions........... 39.8 21.4 40.7 20.1 42.0 19.6 35.2 18.6
Other................... 3.9 2.1 4.6 2.3 8.3 3.9 7.6 4.1
------ ----- ------ ----- ------ ----- --------- --------
Total................. $186.3 100.0% $202.0 100.0% $213.6 100.0% $ 189.1 100.0%
====== ===== ====== ===== ====== ===== ========= ========
</TABLE>
Advertising. Advertising sales accounted for approximately 58% and
approximately 59% of the Company's net revenues for fiscal 1995 and the ten
months ended September 30, 1996, respectively. The Company's advertising rates
and rate structures vary among the Company's publications and are based, among
other things, on the circulation of the particular publication and the size
and location of the advertisement in the publication. The Company's
advertising rates for a full-page advertisement ranged from $1,390 to $24,295
in fiscal 1995. The Company's top 25 advertisers accounted for only 32.6% and
32.8% of the Company's advertising revenues during fiscal 1995 and the ten
months ended September 30, 1996, respectively. As compared to general interest
magazines, the Company believes that its advertising revenues are less
susceptible to changes in general economic conditions due to the diversity of
its publications, the special-interest nature of its editorial content and the
endemic nature of the Company's advertiser base. The endemic nature of the
Company's advertiser base refers to the fact that a significant portion of the
Company's advertising revenues are from advertisers that are manufacturers,
marketers or distributors of products that relate directly to the editorial
content of the magazines in which they advertise.
The Company's advertising revenues are principally derived from large and
small manufacturers of products endemic to the editorial content of the
Company's magazines, such as aftermarket automotive parts, hunting equipment,
recreational firearms, bicycles and bicycle accessories, diving equipment and
photographic equipment and supplies. Such manufacturers utilize the Company's
magazines to efficiently advertise their specialized products to the Company's
enthusiast readership. In addition to revenues from endemic advertising, the
Company also derives a portion of its advertising revenues from well-known
national manufacturers of consumer products that do not directly relate to the
editorial content of the Company's magazines, such as liquor, cosmetics,
financial products and apparel. The Company derives the largest portion of its
advertising revenues from the automotive industry, which has traditionally
accounted for the largest percentage of total advertising expenditures in the
consumer magazine industry. For fiscal 1995, the Company derived approximately
17.9% and 20.6% of its advertising revenues from automotive manufacturers of
original equipment and aftermarket parts, respectively.
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Newsstand. Newsstand distribution accounted for approximately 19% and
approximately 18% of the Company's net revenues for fiscal 1995 and the ten
months ended September 30, 1996, respectively. As compared to the industry
average, the Company typically has a greater percentage of revenues derived
from newsstand sales due to the Company's historic focus on the newsstand
distribution channel and the significant number of single issue or annual
publications, which are sold exclusively through newsstands. The Company
generally receives between 40% and 50% of the cover price from an individual
magazine sold through a newsstand with the balance of such cover price going
to such magazine's distributor, wholesaler and retailer.
Subscriptions. Subscription sales accounted for approximately 20% and
approximately 19% of the Company's net revenues for fiscal 1995 and the ten
months ended September 30, 1996, respectively. Subscriptions to the Company's
magazines are generally sold either directly by the Company or by an
independent subscription agent, such as Publishers' Clearinghouse. Such agents
remit a percentage of the subscription price to the Company, ranging from 0%
to 75%. In certain instances, the subscription agent receives a fee from the
Company in addition to retaining the entire subscription price. Magazine
publishers are occasionally willing to pay brokers for subscribers in order to
expand their advertising base. In the aggregate, the Company receives
approximately 10% to 15% of the total price of subscriptions sold through
agents. The Company has historically sold its subscriptions using a variety of
techniques including direct reply subscription cards, direct mail and
television advertisements.
Other Revenue Sources. The Company was historically operated as a
traditional consumer magazine company deriving substantially all of its
revenues from advertising and circulation sales. On an industry-wide basis,
management estimates that consumer magazine publishers currently derive
approximately 10% to 20% of their revenues from ancillary revenue sources
while the Company currently derives only about 4% of its revenues from
ancillary sources. These additional revenues are derived primarily from
subscriber list rentals and sponsorship of special events, such trade shows
and outdoor festivals that relate to the editorial content of the Company's
magazines. In recent months, the Company has begun to explore the ancillary
revenue opportunities afforded to it as a result of its well-established brand
names. For example, the Company has recently entered into licensing agreements
relating to the use of its Motor Trend and Hot Rod brand names for weekly
television shows on The Nashville Network (TNN) and its Guns & Ammo brand name
for a weekly television show on ESPN.
The Company believes that there are significant opportunities to increase
revenues by leveraging off the editorial content and the nationally-recognized
brand names of the Company's existing publications. With the growth of
electronic publishing, the Company believes that there will be increased
opportunities to utilize the editorial content of the Company's publications
across different formats. The Company has already established a web-site on
the Internet for Motor Trend and Bicycle Guide, and expects to establish a
'TEEN web-site in the next twelve to twenty-four months. The Company believes
that electronic publishing offers opportunities to generate additional
revenues through increased advertising sales, access fees and additional
subscription sales.
The Company also believes that significant opportunities exist to generate
additional revenues through affinity group marketing programs pursuant to
which the Company would attempt to sell complementary products or services
directly to its subscribers. Through such programs, the Company will seek to
increase its sales to a typical subscriber from a single magazine subscription
to a variety of related products and services. The Company believes that its
special-interest publications will provide an attractive platform through
which to pursue such programs. The Company also intends to enter into
licensing arrangements with manufacturers for the use of the Company's
nationally-recognized brand names.
Because the editorial content of many of its magazines would also appeal to
readers outside the United States, management believes that significant
opportunities exist to establish international licensing agreements,
particularly in Asia, Australia, Great Britain and Western Europe. Other areas
that the Company believes it can develop additional revenue streams include
developing business-to-business publications, sponsoring trade shows,
generating additional subscriber list rentals and entering into strategic
joint ventures. As a result of its large number of publications, the Company
has a subscriber list that includes over 32 million names of current
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<PAGE>
or former subscribers. The Company is currently developing a database that
includes such names and believes that it can increase list rental income by
marketing such subscriber list database to a broad group of potential users.
PUBLICATIONS
For fiscal 1995, the Company's portfolio included 22 monthly, 7 bimonthly
and 44 single issue or annual publications. The following table sets forth
certain information relating to the Company's current portfolio of monthly and
bimonthly publications:
<TABLE>
<CAPTION>
AVERAGE CIRCULATION FOR THE YEAR
ENDED DECEMBER 31, 1995 YEAR OF
---------------------------------------- FREQUENCY OF INTRODUCTION
NEWSSTAND SUBSCRIPTION TOTAL PUBLICATION OR ACQUISITION
----------- -------------- ------------ ------------ --------------
(COPIES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Motor Trend............. 163.8 786.8 950.6 Monthly 1949
'TEEN................... 386.6 925.2 1,311.8 Monthly 1957
Sassy................... 98.7 623.4 722.1 Monthly 1994
All About You!.......... 251.4 13.7 265.1 Bi-Monthly 1995
Hot Rod................. 141.3 668.9 810.2 Monthly 1948
Car Craft............... 297.2 92.5 389.7 Monthly 1953
4 Wheel & Off-Road...... 129.9 237.8 367.7 Monthly 1978
Sport Truck............. 81.7 110.4 192.1 Monthly 1991
Chevy High Performance.. 71.6 69.3 140.9 Monthly 1987
Circle Track............ 41.9 89.7 131.6 Monthly 1982
Rod & Custom............ 41.4 64.8 106.2 Monthly 1955
5.0 Liter Mustang....... 43.6 18.8 62.4 Monthly(b) 1994
Mustang & Fords......... 50.7 54.9 105.6 Bi-Monthly 1994
Custom Classic Trucks... 43.0 33.8 76.8 Bi-Monthly 1994
Hot Rod Bikes........... 39.0 34.9 73.9 Bi-Monthly(c) 1994
Kit Car................. 37.9 19.1 57.0 Bi-Monthly 1983
Skin Diver.............. 27.9 201.1 229.0 Monthly 1951
Photographic............ 43.9 173.6 217.5 Monthly 1972
Motorcyclist............ 77.4 162.2 239.6 Monthly 1971
Dirt Rider.............. 48.4 112.4 160.8 Monthly 1982
Bicycle Guide........... 19.3 87.8 107.1 10 Issues Per Year 1993
Sport Rider............. 69.0 32.2 101.2 Bi-Monthly 1993
Mountain Biker.......... 33.7 43.5 77.2 10 Issues Per Year 1994
Guns & Ammo............. 134.8 436.0 570.8 Monthly 1958
Handguns................ 63.3 106.0 169.3 Monthly 1987
Petersen's Hunting...... 40.3 290.9 331.2 Monthly 1973
Petersen's Bowhunting... 39.0 99.9 138.9 8 Issues Per Year 1988
Sport................... 105.4 648.8 754.2 Monthly 1988
Petersen's Golfing...... 36.7 121.3 158.0 Monthly 1994
</TABLE>
- --------
(a) The Company has scheduled the launch of Super Street and 4x4 Power as
monthly publications in fiscal 1996. These publications have no
significant operating history and therefore have not been included in the
table.
(b) This publication was converted to a monthly publication from a bimonthly
publication in October 1996.
(c) Scheduled to become a monthly publication in January 1997.
The Company also publishes a wide variety of single issue publications,
annuals, hard cover books and technical volumes. These publications generally
provide more in-depth coverage of topics addressed in the Company's monthly
and bimonthly magazines. Examples of such single issue publications include
Motor Trend New Car Buyer's Guide, Hot Rod Annual, Car Craft Drag Racing,
Chevy High Performance Special, Guns & Ammo Annual, Firearms for Law
Enforcement, Photo Buyer's Guide and Motorcycle Buyer's Guide. By utilizing
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<PAGE>
portions of the editorial content previously appearing in its monthly and
bimonthly publications, the Company is able to generate additional revenues in
a cost-effective manner through such publications. In addition, the Company
utilizes single issue publications as a means of developing and testing new
publications. Many of the Company's current monthly and bimonthly publications
were first introduced as single issue publications. The Company published 42
single issue publications in fiscal 1996.
The following sets forth a brief description of each of the Company's 13
core publications:
Motor Trend is the Company's flagship publication and is recognized as a
leading authority on new domestic and foreign automobiles. Founded by the
Company in 1949, Motor Trend provides comprehensive information and guidance
to new car buyers as well as car and truck enthusiasts. Motor Trend typically
tests more than 200 new cars, trucks, minivans and sport utility vehicles
annually, which the Company believes is more than any other competitive
publication. Many of these tests are conducted in the context of multi-vehicle
comparison tests, which provide the reader with detailed technical and driving
analysis in an easy-to-understand format. Motor Trend's annual automotive
industry awards (Car of the Year, Import Car of the Year and Truck of the
Year) are widely regarded as the most prestigious in the industry.
For fiscal 1995, Motor Trend generated approximately 15% of the Company's
net revenues. In July 1996, the Company established a Motor Trend web-site on
the Internet, which currently contains approximately 30% of the editorial
content of the monthly edition. The Company believes that the Internet offers
the Company additional opportunities to generate revenues through increased
advertising sales, access fees and additional subscription sales. The Company
has also licensed the use of the Motor Trend brand name in connection with a
weekly television show for The Nashville Network (TNN). For fiscal 1996, the
Company expects to publish six Motor Trend buyer's guides. Motor Trend
competes for circulation on the basis of the nature and quality of its
editorial content. Motor Trend's principal competitors are Car and Driver,
Road & Track and Automobile.
'TEEN has the largest circulation of any of the Company's magazines. 'TEEN's
editorial content covers a broad range of topics relevant to girls aged 12 to
19, including fashion, beauty, entertainment and a wide variety of
contemporary issues. 'TEEN places a strong emphasis on the development of
self-esteem and self-confidence among its readers. 'TEEN principally competes
with Seventeen and YM (Young & Modern). For fiscal 1995, 'TEEN generated
approximately 11% of the Company's net revenues.
As part of its business strategy, management intends to make a number of
changes to 'TEEN designed to increase its appeal to both readers and
advertisers, including a refocusing of the editorial content of 'TEEN to
attract more readers in their late teens in an effort to increase advertising
revenues from the cosmetic and fashion apparel industries. In addition,
management intends to improve 'TEEN's cover layout and artwork and upgrade the
paper grade used for its production. 'TEEN's management is being moved to New
York to increase its visibility among advertisers in the fashion and cosmetic
industries. The Company does not expect to incur significant expense in
connection with such relocation.
Hot Rod was the first magazine launched by the Company's founder in 1948.
Hot Rod is dedicated to the sport of "hot rodding" and primarily focuses on
high performance and personalized vehicles. Hot Rod's editorial content covers
all aspects of the performance industry and features the latest trends,
performance cars and trucks, custom built street rods as well as racing
vehicles of all types. Hot Rod's comprehensive coverage includes in-depth
product testing, technical articles, editorial commentary, road tests, engine
buildups and photo stories on project cars. Hot Rod is the dominant
publication in its targeted market. The Company has licensed the use of the
Hot Rod brand name in connection with a weekly television show for The
Nashville Network (TNN). For fiscal 1995, Hot Rod generated approximately 9%
of the Company's net revenues.
Guns & Ammo is edited for the sportsman with a keen interest in the
practical applications of sporting firearms, with an emphasis on their safe
and proper use. Guns & Ammo features information on current production of
sporting arms and their use, as well as technical and semi-technical articles
on all facets of sport shooting. As active participants, the editors of Guns &
Ammo share the interests of their readers, and each issue
50
<PAGE>
of the magazine delivers a well-balanced editorial mix that includes hunting,
shooting, reloading, antique and modem arms, ballistics and arms legislation.
Natural resource protection and environmental preservation as well as in-depth
reviews of new products and new trends represent other major editorial issues
covered by internationally renowned experts. Guns & Ammo principally competes
with Shooting Times. The Company has licensed the use of the Guns & Ammo brand
name in connection with a weekly television show for ESPN. For fiscal 1995,
Guns & Ammo generated approximately 6% of the Company's net revenues.
Skin Diver was introduced by the Company in 1951 and is the largest diving
magazine in the world in terms of annual circulation. The magazine's editorial
focus involves three basic categories: (i) diving news and diving safety and
educational issues; (ii) dive product performance reviews and (iii) local and
overseas dive travel. Skin Diver provides information on scuba diving
equipment, snorkeling, underwater photography, shipwreck exploration, marine
life, organized diving events, scuba education and dive travel. With global
coverage of dive travel activities, Skin Diver features in every issue dive
resorts, live-aboard dive boats and attractions in over 70 countries and
islands around the world. All topics are covered by an internal staff and
contributing editors who are among the most experienced and well trained
divers in the world. Skin Diver is the only national publication that focuses
primarily on skin diving and competes on a limited basis with Rodale's Scuba
Diving. For fiscal 1995, Skin Diver generated approximately 6% of the
Company's net revenues.
4 Wheel & Off-Road is widely considered the leading magazine among truck
enthusiasts. Established in 1978, 4 Wheel & Off-Road is dedicated to the four-
wheel drive enthusiast and industry. 4 Wheel & Off-Road is aimed at people
who: (i) are considering the purchase of a new four-wheel drive vehicle; (ii)
want to accessorize and improve their vehicle or (iii) frequently utilize
their four-wheel drives for enjoyment, many times in a competitive setting. 4
Wheel & Off-Road is regarded as a prominent source of the latest and most
accurate technical articles, including tests of new products and step-by-step
installation of popular accessories such as suspension lifts and engine
modifications. In addition to a strong technical base, 4 Wheel & Off-Road also
features monthly articles which cover the nation's most unique truck and off-
road events. 4 Wheel & Off-Road principally competes with Four Wheeler. For
fiscal 1995, 4 Wheel & Off-Road generated approximately 6% of the Company's
net revenues.
Car Craft is the most comprehensive do-it-yourself street performance
magazine currently in production in the United States. Established in 1953,
Car Craft is devoted to knowledgeable enthusiasts interested in obtaining
maximum legal performance from modified street machines and racing vehicles.
Car Craft features informative monthly articles, including technical how-to-
articles, in-depth testing of new performance cars and information regarding
new performance technology. Car Craft does not currently face competition from
any other national publication. For fiscal 1995, Car Craft generated
approximately 5% of the Company's net revenues.
Petersen's Hunting ("Hunting") is the only U.S. publication devoted entirely
to the sport of recreational hunting. Every issue contains instructional and
entertaining articles for the true hunting enthusiast. Hunting presents in-
depth coverage of the various hunting disciplines: big and small game,
waterfowl, upland game, guns and loads and foreign hunting. Monthly
departments focus on the more specialized aspects of the sport and its
equipment, including game management, vehicles, gun dogs, optics, handloading,
bowhunting and firearms. Editorial coverage also includes conservation and
ecological issues, the critical roles played in these areas by the hunter and
the manufacturer, and basic where-to and how-to information for all types of
recreational hunting. Hunting competes indirectly with American Hunter and, to
a lesser extent, with North American Hunter and Sports Afield. For fiscal
1995, Hunting generated approximately 3% of the Company's net revenues.
Motorcyclist is the only U.S. publication that is dedicated exclusively to
street motorcycles. The magazine's editorial focus is on the practical aspects
of owning, maintaining and riding a street motorcycle. Motorcyclist is written
for the serious enthusiast, offering the most authoritative road tests in the
industry along with information on how to improve and modify the reader's
current motorcycles. Regular features include maintenance and performance-
improvement articles and safety information such as helmet comparisons and
riding-techniques. Motorcyclist principally competes with Cycle World. For
fiscal 1995, Motorcyclist generated approximately 3% of the Company's net
revenues.
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Sport Truck is a full-service magazine that strives to keep its readers
informed of every aspect concerning the street truck marketplace, covering the
entire range of pickup and sport utility vehicles. Sport Truck provides both
step-by-step and technical articles, which detail the customizing process and
provide complete coverage of the product. Sport Truck's editorial focus is on
the latest trucks on the market as well as prototypes, including both domestic
and import models. Sport Truck's principal competition is from Truckin'
magazine. For fiscal 1995, Sport Truck generated approximately 3% of the
Company's net revenues.
Circle Track is the leading technical magazine for oval-track racers, fans
and enthusiasts. Circle Track provides a special emphasis on how-to technical
articles, in-depth discussions of engine, chassis and racing technology,
descriptive car features, behind-the-scenes event coverage and action
photography. Circle Track was introduced in 1982 and currently competes with
Stock Car Racing. For fiscal 1995, Circle Track generated approximately 3% of
the Company's net revenues.
Photographic magazine is a how-to guide dedicated to increasing photographic
knowledge, skill and enjoyment for both amateurs and professionals.
Photographic is edited for all levels of photography, blends equipment
coverage with reports on photography techniques, workshops, schools, photo
travel and contests. Each issue includes exciting travel features that
encourage readers to test and improve their photography skills. Each issue
also includes segments on outdoor and action photography as well as
information on travel destinations and helpful information on how to best take
advantage of the photographic opportunities travel brings. Photographic was
introduced in 1972 and principally competes with American Photo and Popular
Photography. For fiscal 1995, Photographic generated approximately 3% of the
Company's net revenues.
Dirt Rider is the world's largest dirt riding publication in terms of
circulation and covers all aspects of off-road motorcycling. Dirt Rider offers
readers full coverage of off-road motorcycling including new motorcycle
evaluations, technical information, riding tips and the latest in riding
accessories in an easy-to-read format. The editorial content focuses on
accurate and insightful reviews of the latest machinery and aftermarket
products from the off-road riding industry. Dirt Rider principally competes
with Dirt Bike and Motocross Action. For fiscal 1995, Dirt Rider generated
approximately 3% of the Company's net revenues.
PRODUCTION AND DISTRIBUTION
The Company employs a staff of professionals that oversees the production,
printing, distribution and fulfillment of its magazines. Through the use of
state-of-the-art production equipment, economies of scale in printing
contracts and efficiencies in subscription solicitation and fulfillment, the
Company is able to effectively produce and distribute all of its publications.
The Company's production system for both graphics and editing is state-of-the
art. Approximately 60 employees of the Company are engaged in the production
and distribution of the Company's publications.
In an effort to reduce production costs, the Company sold all of its assets
relating to its pre-press operations to World Color Press, Inc. ("World
Color") for approximately $2.5 million in February 1996. At the same time, the
Company entered into an agreement with World Color pursuant to which World
Color agreed to provide the Company's color separation, pre-press and related
service requirements with respect to most of the Company's publications for
the term of the agreement. Under the agreement, the Company is generally
required to use World Color for at least 85% of its pre-press and related
service requirements. This agreement with World Color expires on February 28,
2001.
A majority of the Company's magazines, including Motor Trend, Hot Rod,
'TEEN, 4 Wheel & Off-Road, Car Craft, Circle Track, Skin Diver, Guns & Ammo
and Hunting, are printed by World Color pursuant to an agreement that expires
on December 31, 1998. The Company's remaining magazines including All About
You! and Sport Rider, are printed by Johnson & Hardin Printing ("J&H"),
pursuant to an agreement that expires on December 31, 1997. The Company
believes that its relationships with its printers are good. However, should
the Company need to change printers, it is confident that other printers of
similar quality could be engaged on the
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<PAGE>
same or better terms. The Company believes that its high volume of printing
with World Color and J&H enables it to receive favorable printing rates.
The newsstand distribution of the Company's magazines is handled exclusively
by Warner Publisher Services, Inc. ("Warner") pursuant to a distribution
agreement. Such agreement will remain in effect until December 31, 1997,
subject to automatic 90-day extensions thereafter unless either party delivers
a termination notice. Warner distributes the Company's publications through a
network of marketing representatives to domestic independent wholesalers as
well as to other channels of distribution. Warner also provides the Company
with other services, including management information and promotional and
specialty marketing services. Warner's marketing representatives solicit
national, regional and local retailers in an effort to expand the number of
retail outlets for the Company titles.
The Company's subscriptions are serviced by Neodata Services, Inc.
("Neodata"), which performs the following services for the Company: receiving,
verifying, balancing and depositing payments from subscribers; maintaining
master files on all subscribers by magazine; issuing bills and renewal notices
to subscribers; issuing labels, packaging and mailing magazines as directed by
the Company and furnishing various reports to monitor all aspects of the
subscription operations.
Immediately following the Acquisition, management commenced an extensive
review of the Company's significant vendor relationships, including its
printing, paper supply, fulfillment and newsstand distribution arrangements.
Based on that review and subsequent meetings with certain of such vendors,
management believes that there are opportunities to enhance these
relationships and to improve the economic terms of such arrangements for the
Company. Although no definitive agreements have been executed, the Company
believes that it will be successful in either amending its existing agreements
or entering into new agreements on more favorable terms with many of its
vendors.
RAW MATERIALS
The Company's principal raw material is paper. The Company used 69.6
million, 76.0 million and 84.4 million pounds of commodity grade paper in its
fiscal years ended November 30, 1993, 1994 and 1995, respectively, resulting
in a total cost of paper during such periods of $29.0 million, $30.5 million
and $39.3 million, respectively. While paper prices have increased by an
average of less than 1% annually since 1989, certain commodity grades have
shown considerable price volatility during that period, including the
commodity grade used by the Company. Paper prices rose sharply during the
later part of 1995, and in response, Petersen purchased a large supply of 32
lb. paper in December 1995 at prices ranging from $0.61 to $0.66 per pound in
anticipation of additional price increases and supply shortages continuing for
the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of
its production requirements through September 1996. The price of such paper
subsequently returned to historical levels of approximately $0.50 per pound in
May 1996. The increase in paper prices in late 1995 and Petersen's large
purchase at such increased prices materially adversely affected Petersen's
production, selling and other direct costs for year ended November 30, 1995
and the ten months ended September 30, 1996. The excess of the increased paper
prices in the market during the fiscal year ended November 30, 1995 and the
ten months ended September 30, 1996 over the median historical price of $0.50
per pound was $1.4 million and $4.2 million, respectively. The excess of the
price actually paid by Petersen for paper used during the ten months ended
September 30, 1996 over the actual market price for such paper during such
period was $1.1 million.
Following the Acquisition, the Company entered into an oral agreement with a
vendor to secure sufficient paper to meet its projected raw material needs
through the end of 1997 at or below current market prices. While there can be
no assurances, the Company expects that such agreement will be finalized by
the end of March 1997.
No assurance can be given, however, that future fluctuations in paper prices
after 1997 will not have a material adverse effect on the results of
operations and financial condition of the Company. See "Risk Factors--Paper
Price Volatility and Postal Prices" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
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COMPETITION
The magazine publishing business is highly competitive. The Company
principally competes for advertising and circulation revenues with publishers
of other special-interest consumer magazines with similar editorial content
with those published by the Company. Such competitors include: K-III
Communications Company, which publishes Seventeen, Automobile and Truckin';
Hachette Filipacchi Magazines, Inc., which publishes Road and Track, Car &
Driver, Popular Photography and Cycle World; Gruner & Jahr Printing and
Publishing Company, which publishes YM (Young & Modern); Rodale Press Inc.,
which publishes Bicycling and Rodale's Scuba Diving and The Times Mirror
Company, which publishes Outdoor Life, Field & Stream and Golf Magazine.
Certain of the Company's competitors are larger and have greater financial
resources than the Company. Most of the Company's magazines face competition
within each of their respective markets from one to three other publications.
The Company believes that it competes with other special-interest publications
based on the nature and quality of its magazines' editorial content. Eight of
the Company's 13 core publications ranked first in their respective markets
based on annual circulation in 1995.
In addition to other special-interest magazines, the Company also competes
for advertising revenues with general-interest magazines and other forms of
media, including broadcast and cable television, radio, newspaper, direct
marketing and electronic media. In competing with general-interest magazines
and other forms of media, the Company relies on its ability to reach a
targeted segment of the population in a cost-effective manner.
INTELLECTUAL PROPERTY
The Company believes that it has developed strong brand name awareness
within each of its magazines' targeted markets. As a result, the Company
regards its branded magazine titles and logos to be valuable assets. The
Company has registered numerous trademarks, service marks and logos used in
its publishing business in the United States and foreign countries in which
the Company conducts business. In addition, each one of the Company's
publications is protected under Federal copyright laws. In connection with the
Acquisition, the Company entered into a license agreement with Mr. Petersen
pursuant to which it was granted an exclusive license to use the Petersen name
in perpetuity. The Company believes that it owns or licenses all the
intellectual property rights necessary to conduct its business.
PROPERTIES
The Company publishes its magazines and houses its corporate and
administrative staff at its headquarters located at 6420 Wilshire Boulevard,
Los Angeles, California. Information relating to the Company's corporate
headquarters and other regional sales offices is set forth in the following
table:
<TABLE>
<CAPTION>
LOCATION ADDRESS SQUARE FOOTAGE TERM EXPIRATION DESCRIPTION OF USE
-------- ------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Los Angeles............. 6420 Wilshire Boulevard 209,475 11/30/09 Headquarters
Los Angeles............. 8480 Sunset Boulevard 2,300 month-to-month Photo Studio
New York................ 437 Madison Avenue 25,000 8/31/04 Sales Office
Chicago................. 815 North LaSalle Street 10,000 9/30/05 Sales Office
Detroit................. 333 Fort Street 9,346 6/30/97 Sales Office
Atlanta................. Five Concourse Parkway 3,524 4/30/98 Sales Office
Dallas(a)............... 800 West Airport Freeway 2,929 12/31/97 Sales Office
</TABLE>
- --------
(a) Such sales office was closed pursuant to management's business and
operating strategy. The Company intends to sublease the property to a
suitable tenant at its earliest opportunity.
The Company intends to consolidate one or more of the regional sales offices
listed above as part of its business and operating strategy. The Company does
not have any specific plans at this time to close any regional sales offices.
The Company leases space used for its corporate headquarters, photo studio and
Chicago regional sales office from Mr. Petersen. See "Certain Transactions."
54
<PAGE>
EMPLOYEES
As of December 31, 1996, the Company employed approximately 554 full-time
employees, none of whom are members of a union. After the Acquisition, the
Company initiated a restructuring plan which included the termination of
certain employees in various corporate and operating positions. The Company
believes that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any
of the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
55
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information (ages as of December 1,
1996) with respect to the persons who are members of the Board of Directors
(the "Board") of BrightView or executive officers or key employees of the
Company or Holdings. BrightView controls the policies and operations of the
Company. See "Limited Liability Company Agreement." Willis Stein has the
ability to designate all of the members of the Board of BrightView pursuant to
the Securityholders Agreement. See "Security Ownership of Certain Beneficial
Owners and Management--Securityholders Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
---- --- --------------------
<S> <C> <C>
D. Claeys Bahrenburg.... 49 Chief Executive Officer and Director
Neal Vitale............. 43 President, Chief Operating Officer and Director
Richard S. Willis....... 36 Executive Vice President--Chief Financial Officer
Michael Borchetta....... 31 Vice President--Circulation
Jay N. Cole............. 56 Executive Publisher
John Dianna............. 54 Executive Publisher
Ken Elliott............. 56 Executive Publisher
Lee Kelley.............. 54 Executive Publisher
Richard P. Lague........ 52 Executive Publisher
Paul J. Tzimoulis....... 58 Executive Publisher
James D. Dunning, Jr. .. 49 Chairman and Chief Executive Officer of BrightView and Holdings
Laurence H. Bloch....... 42 Vice Chairman of BrightView and Holdings
Avy H. Stein............ 42 Director
Daniel H. Blumenthal.... 33 Director
Stuart Karu............. 49 Director
Robert E. Petersen...... 70 Chairman Emeritus
</TABLE>
D. Claeys Bahrenburg has served as the Chief Executive Officer of the
Company and a Director of BrightView and Capital since the Acquisition. From
1989 to 1995, Mr. Bahrenburg served as President of Hearst's Magazine
Publishing Division, the largest publisher of monthly magazines in the world.
Prior to that time, he served as Executive Vice President and Group Publishing
Director at Hearst from 1986 to 1989, where his responsibilities included
overseeing 12 publications, new magazine development and brand development.
From 1981 to 1986, Mr. Bahrenburg held the position of Publisher of both House
Beautiful and Cosmopolitan.
Neal Vitale has served as the President and Chief Operating Officer of the
Company and a Director of BrightView and Capital since the Acquisition. From
1989 to 1996, Mr. Vitale was employed by Cahners Publishing Company
("Cahners"), a division of Reed Elsevier, Inc. and a leading business-to-
business publisher, in a variety of managerial capacities, including Vice
President of Consumer Publishing; Vice President/General Manager of Variety
and, most recently, as Group Vice President, Entertainment, where he was
responsible for the publication of Variety, Daily Variety, Broadcasting &
Cable, Moving Pictures International, On Production and Tradeshow Week. From
1984 to 1989, Mr. Vitale was a partner at McNamee Consulting Company, Inc., a
management consulting firm specializing in publishing and direct marketing.
Richard S. Willis has served as Executive Vice President--Chief Financial
Officer of the Company and Capital since the Acquisition. Prior to the end of
1996, Mr. Willis is expected to be elected as a director of BrightView. Prior
to the Acquisition, Mr. Willis served as the Vice President, Finance of
Petersen since October
56
<PAGE>
1995. From 1993 to 1995, Mr. Willis served as the Executive Vice President and
Chief Financial Officer of two divisions of World Color and from 1990 to 1993
as the Chief Financial Officer and Secretary of Aster Publishing Company. From
1987 to 1990, Mr. Willis served as the Chief Financial Officer and Vice
President of Finance and Administration of the consumer magazine group of
Cowles Media Company. Prior thereto, Mr. Willis held various financial and
managerial positions with Capital Cities/ABC, including the Chief Financial
Officer of its consumer magazine division. Mr. Willis is not affiliated with
Willis Stein.
Michael Borchetta has served as Vice President--Circulation of the Company
since the Acquisition. Prior to joining the Company, Mr. Borchetta served as
Circulation Director of Cahners since 1989. Mr. Borchetta has also held
positions with Act III Communications and Cowles Media Company.
Jay N. Cole currently serves as an Executive Publisher of the Company. Mr.
Cole served with Petersen for over nine years, most recently as Vice
President--Executive Publisher. Mr. Cole has primary responsibility for the
publication of 'TEEN and All About You!
John Dianna currently serves as an Executive Publisher of the Company. Mr.
Dianna served with Petersen for over 27 years, most recently as Vice
President--Executive Publisher. Mr. Dianna is primarily responsible for the
publication of Hot Rod, 4 Wheel & Off-Road, Car Craft, Sport Truck, Circle
Track and related publications.
Ken Elliott currently serves as an Executive Publisher of the Company. Mr.
Elliott served with Petersen for over 22 years, most recently as Vice
President--Executive Publisher. Mr. Elliott is primarily responsible for the
publications of Guns & Ammo, Hunting, Bowhunting and related publications.
Lee Kelley currently serves as an Executive Publisher of the Company. Mr.
Kelley served with Petersen for over 20 years, most recently as Vice
President--Executive Publisher. Mr. Kelley is primarily responsible for the
publication of Motor Trend, Sport and related publications.
Richard P. Lague currently serves as an Executive Publisher of the Company.
Mr. Lague served with Petersen for approximately 20 years, most recently as
Vice President--Executive Publisher. Mr. Lague is primarily responsible for
the publications of Motorcyclist and motorcycle related publications, Bicycle
Guide and Mountain Biker.
Paul J. Tzimoulis currently serves as an Executive Publisher of the Company.
Mr. Tzimoulis served with Petersen for over 25 years, most recently as Vice
President--Executive Publisher. Mr. Tzimoulis is responsible for the
publication of Skin Diver and Photographic.
James D. Dunning, Jr. has served as the Chairman and Chief Executive Officer
of Holdings and BrightView and a Director of Capital since the Acquisition.
Since 1992, Mr. Dunning has been Chairman and Chief Executive Officer of
TransWestern, the largest independent publisher of yellow pages in the United
States and is currently Chairman and Chief Executive Officer of The Dunning
Group. Mr. Dunning was formerly Chairman of SRDS, a media information and
database publisher. From 1987 to 1992, Mr. Dunning was Chairman, Chief
Executive Officer and President of Multi-Local Media Information Group, Inc.
("MLM"), a yellow pages and database company. From 1985 to 1986, he served as
Executive Vice President of Ziff Communications, a consumer and trade
publisher. From 1982 to 1984, he was Senior Vice President and Director of
Corporate Finance at Thomson McKinnon Securities, Inc. ("Thomson McKinnon"),
an investment banking firm. Mr. Dunning served as President of Rolling Stone
Magazine from 1977 to 1982.
Laurence H. Bloch has served as the Vice Chairman of Holdings and BrightView
and a Director of Capital since the Acquisition. Mr. Bloch also serves as Vice
Chairman and Chief Financial Officer TransWestern, which he joined in 1993.
From 1990 to 1992, Mr. Bloch was Senior Vice President and Chief Financial
Officer of Lanxide Corporation, a materials technology company. Between 1980
and 1990, Mr. Bloch was an investment banker, initially with Thomson McKinnon
and later as a Managing Director of Smith Barney. Mr. Bloch is a director of
TransWestern and was formerly a director of SRDS and MLM.
57
<PAGE>
Avy H. Stein has served as a Director of BrightView and Capital since the
Acquisition. Mr. Stein has been a Managing Director of Willis Stein since its
inception in 1994. Prior to that time, he served as a Managing Director of
CIVC, a venture capital investment firm, from 1989 to 1994. Prior to his
tenure at CIVC, Mr. Stein served as a special consultant for mergers and
acquisitions to the Chief Executive Officer of NL Industries, Inc.; as the
Chief Executive Officer and principal shareholder of Regent Corporation; as
President of Cook Energy Corporation and as an attorney with Kirkland & Ellis,
a national law firm. Mr. Stein also serves as a director of TransWestern and
Tremont Corporation.
Daniel H. Blumenthal has served as a Director of BrightView and Capital
since the Acquisition. Mr. Blumenthal has been a Managing Director of Willis
Stein since its inception in 1994. Prior to that time, he served as Vice
President of CIVC from 1993 to 1994, and as a corporate tax attorney with
Latham & Watkins, a national law firm, from 1988 to 1993.
Stuart Karu has served as a Director of BrightView and Capital since the
Acquisition. Mr. Karu currently is a private investor. During 1995, Mr. Karu
served as the interim Chief Executive Officer of SRDS. Mr. Karu was formerly
Chief Executive Officer and principal shareholder of Henry S. Kaufman, Inc., a
national advertising agency. Mr. Karu serves as a director of TransWestern and
was formerly a director of SRDS and MLM.
Robert E. Petersen has served as the Chairman Emeritus of the Company since
the Acquisition. Mr. Petersen founded Petersen in 1948 and served as its
Chairman and Chief Executive Officer prior to the Acquisition.
Directors of BrightView are currently elected by its stockholders to serve
during the ensuing year or until a successor is duly elected and qualified.
Executive officers of the Company are designated by the Managing Member to
serve until their respective successors shall be duly designated and
qualified. Executive officers of Capital are designated by its board of
directors to serve until their respective successors shall be duly designated
and qualified. There are no family relationships among the executive officers
of the Issuers or the directors of BrightView or Capital.
COMPENSATION OF DIRECTORS
The Company is a limited liability company that is indirectly controlled by
BrightView. See "Limited Liability Company Agreement." Each of the Directors
of BrightView (other than Messrs. Bahrenburg and Vitale) will be paid annual
compensation of $35,000, plus reimbursement for out-of-pocket expenses
incurred in connection with attending Board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company will be determined by
the Board of BrightView. The following Summary Compensation Table includes
individual compensation information for the Chief Executive Officer and each
of the four other most highly compensated executive officers of Petersen for
the fiscal year ended November 30, 1995 (collectively, the "Named Executive
Officers") for services rendered in all capacities to Petersen during the
fiscal year ended November 30, 1995. There were no stock options exercised
during Petersen's last fiscal year nor were there any options outstanding at
the end of Petersen's last fiscal year.
58
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION AT PETERSEN SALARY BONUS COMPENSATION(A)
- --------------------------------------- ---------- ---------- ---------------
<S> <C> <C> <C>
Robert E. Petersen(b).................... $1,500,000 $1,450,000 $4,052
Chairman of the Board
Frederick R. Waingrow(c)................. 922,900 600,000 5,731
President
John Dianna.............................. 212,000 42,500 5,731
Vice President, Executive Publisher
Peter F. Clancy(d)....................... 195,750 40,000 5,731
Senior Vice President, Marketing & Sales
Nigel P. Heaton(d)....................... 178,250 35,000 5,731
Vice President, Circulation Marketing
Development
</TABLE>
- --------
(a)Reflects contribution by Petersen on behalf of such person under Petersen's
retirement plan.
(b)Mr. Petersen resigned as Chairman of Petersen upon consummation of the
Acquisition.
(c)Mr. Waingrow resigned as President of Petersen upon consummation of the
Acquisition.
(d)No longer employed by the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board intends to establish two standing committees: (i) an Audit
Committee and (ii) a Compensation Committee. The Board may also establish
other committees to assist in the discharge of its responsibilities.
The Audit Committee shall review and, as it shall deem appropriate,
recommend to the Board internal accounting and financial controls for the
Company and accounting principles and auditing practices and procedures to be
employed in the preparation and review of financial statements of the Company.
The Audit Committee shall make recommendations to the board concerning the
engagement of independent public accountants to audit the annual financial
statements of the Company and the scope of the audit to be undertaken by such
accountants. Ernst & Young LLP presently serves as the independent auditors of
the Company. The Company expects that three or four Directors will be
appointed to the Audit Committee.
The Compensation Committee shall review and, as it deems appropriate,
recommend to the Board policies, practices and procedures relating to the
compensation of managerial employees and the establishment and administration
of employee benefit plans. The Compensation Committee shall have and exercise
all authority under any employee stock option plans of the Company as the
committee therein specified (unless the Board resolution appoints any other
committee to exercise such authority), and shall otherwise advise and consult
with the officers of the Company as may be requested regarding managerial
personnel policies. The Company expects that three or four Directors will be
appointed to the Compensation Committee.
EMPLOYMENT AGREEMENTS
The Company expects that Messrs. Bahrenburg, Vitale and Willis will each
enter into an Executive Securities Purchase and Employment Agreement (the
"Employment Agreements") with BrightView, Holdings and the Company. The
Employment Agreements will provide for the continued employment of Mr.
Bahrenburg as the Chief Executive Officer of the Company, Mr. Vitale as the
President of the Company and Mr. Willis as the Chief Financial Officer of the
Company until December 31, 2001 unless terminated earlier as provided in the
respective Employment Agreement. The Employment Agreements of Messrs.
Bahrenburg, Vitale and Willis will provide for: (i) an annual base salary of
$500,000, $300,000, and $200,000 respectively (subject to annual increases
based on the consumer price index); (ii) annual bonuses based on the
achievement of certain EBITDA targets of up to half their base salary and
(iii) a deferred bonus payable upon the first to occur of: (a) a sale of
59
<PAGE>
the Company or (b) the fifth anniversary of the date of such agreements. Each
executive's employment may be terminated by the Company at any time with cause
or without cause. If such executive is terminated by the Company with cause or
resigns other than for good reason, the executive will be entitled to his base
salary and fringe benefits until the date of termination, but will not be
entitled to any unpaid bonus. Messrs. Bahrenburg, Vitale and Willis will be
entitled to their base salary and fringe benefits and any accrued bonus for a
period of twelve months following their in the event such executive is
terminated without cause or resigns with good reason. The Employment
Agreements will also provide each executive with customary fringe benefits and
vacation periods. "Cause" will be generally defined in the Employment
Agreements to mean: (i) the commission of a felony or a crime involving moral
turpitude; (ii) the commission of any other act or omission involving
dishonesty, disloyalty or fraud; (iii) the substantial and repeated failure to
perform duties as reasonably directed by the Board or Chairman of Holdings;
(iv) gross negligence or willful misconduct with respect to the Company or any
subsidiary; (v) any other material breach of the Employment Agreement or
Company policy established by the Board, which breach, if curable, is not
cured within 15 days after written notice thereof to the executive or (vi) the
failure by the Company to generate a minimum level of EBITDA in any fiscal
year. "Good Reason" will be defined to mean the occurrence, without such
executive's consent, of any of the following: (i) the assignment to the
executive of any significant duties materially inconsistent with the
executive's status as a senior executive officer of the Company or a
substantial adverse alteration in the nature or status of the executive's
responsibilities; (ii) a reduction by the Company in the executive's annual
base salary as in effect on the date hereof, except for across-the-board
salary reductions similarly affecting all senior executives of the Company or
(iii) the Board requires the executive to relocate from the New York area in
the case of Mr. Bahrenburg and the Los Angeles area in the case of Messrs.
Vitale and Willis. The Employment Agreements will also provide for the
purchase by Messrs. Bahrenburg, Vitale and Willis of preferred equity
securities of Holdings ("Preferred Units"), common equity securities of
Holdings ("Common Units") and common stock of BrightView ("Common Stock") for
a combination of cash and notes. See "Certain Transactions." The Company
expects such Employment Agreements to be finalized over the next 30 days.
Messrs. Dunning and Bloch will each receive an annual salary of $100,000 per
annum for serving as Chairman and Vice Chairman of Holdings, respectively.
Beginning in 1998, each will also be entitled, subject to approval of the
Board to receive an annual bonus upon the Company achieving certain financial
targets.
In connection with the Acquisition, the Company entered into an employment
agreement with Robert E. Petersen pursuant to which Mr. Petersen agreed to
serve as Chairman Emeritus of the Company for a five-year period in exchange
for annual compensation of $200,000 per annum. Under such agreement, Mr.
Petersen has agreed to, among other things, act as a public spokesperson and
representative of the Company at public functions and participate in
significant meetings of the key executives of the Company concerning marketing
and sales strategies, important personnel decisions and similar activities so
required by the Chairman of the Board. The employment agreement entitles Mr.
Petersen to certain fringe benefits and perquisites and severance payments
equal to his annual salary for the remaining unexpired term of the agreement
in the event he is terminated by the Company without cause or suffers a
"constructive termination," which is defined to include (i) the relocation of
Mr. Petersen from the Company's current principal executive office; (ii) any
material breach of the employment agreement by the Company or (iii) the
assignment of Mr. Petersen to a significantly lower position in the Company in
terms of his responsibility, authority and status.
60
<PAGE>
CERTAIN TRANSACTIONS
The Company is party to a lease with a trust controlled by Mr. Petersen and
his wife pursuant to which the Company leases office space for its corporate
headquarters. The lease expires on November 30, 2009. In connection with the
Acquisition, the lease was amended to provide for lease payments of $341,951
for each monthly period ending before November 30, 1996. For each fiscal year
thereafter, the monthly lease payments will be increased at an annual rate of
approximately 1.75%. The Company believes such lease provides for lease
payments at a market rate and for terms as favorable to the Company as could
have been negotiated with a third party at arm's length.
On October 1, 1996, the Company entered into a lease with Mr. Petersen with
respect to the Company's office space located at 815 North LaSalle Street in
Chicago, Illinois. The lease expires on September 30, 2005 and provides for
monthly lease payments of: (i) $16,500 for the period from October 1, 1996 to
September 30, 1999; (ii) $17,500 for the period from October 1, 1999 to
September 30, 2002 and (iii) $18,500 from October 1, 2002 through the end of
the term of the lease. The Company believes such lease provides for lease
payments at a market rate and for terms as favorable to the Company as could
have been negotiated with a third party at arm's length.
Pursuant to his Employment Agreement, Mr. Bahrenburg will purchase 20 shares
of Common Stock at a price of $500.00 per share, 2,200 Class A Units at a
price of $4.50 per unit and 2,200 Preferred Units at a price of $445.50 per
unit. Mr. Bahrenburg will pay for these securities with promissory notes in
the aggregate amount of $1,000,000. Of this amount, $200,000 will become due
and payable on March 1, 1997 and $800,000 will become due and payable on the
earlier to occur of: (i) December 31, 2001; (ii) the termination of
Mr. Bahrenburg's employment with the Company or (iii) a sale of the Company.
Such promissory notes will bear interest at a rate equal to the Company's
weighted average cost of borrowing as determined by the Board. Mr.
Bahrenburg's obligations under such notes will be secured by a pledge of the
securities purchased therewith. In addition, pursuant to the Employment
Agreement, the Company and Holdings will issue to Mr. Bahrenburg 5,150.708
Class A Units, 625 Class B Units and 625 Class C Units for no additional
consideration. The securities issued to Mr. Bahrenburg without consideration
will vest ratably over a period of five years.
Pursuant to his Employment Agreement, Mr. Vitale will purchase 15 shares of
Common Stock at a price of $500.00 per share, 1,650 Class A Units at a price
of $4.50 per unit and 1,650 Preferred Units at a price of $445.50 per unit.
Mr. Vitale will pay for these securities with promissory notes in the
aggregate amount of $750,000. Such promissory notes will bear interest at a
rate equal to the Company's weighted average cost of borrowing as determined
by the Board and will become due and payable on the earlier to occur of:
(i) December 31, 2001; (ii) the termination of Mr. Vitale's employment with
the Company or (iii) a sale of the Company. Mr. Vitale's obligations under
such notes will be secured by a pledge of the securities purchased therewith.
In addition, pursuant to the Employment Agreement, the Company and Holdings
will issue to Mr. Vitale 5,150.708 Class A Units, 625 Class B Units and 625
Class C Units for no additional consideration. The securities to be issued to
Mr. Vitale without consideration will vest ratably over a period of five
years.
Pursuant to his Employment Agreement, Mr. Willis will purchase 4 shares of
Common Stock at a price of $500.00 per share, 440 Class A Units at a price of
$4.50 per unit and 440 Preferred Units at a price of $445.50 per unit. Mr.
Willis will pay for these securities with promissory notes in the aggregate
amount of $200,000. Such promissory notes will bear interest at a rate equal
to the Company's weighted average cost of borrowing as determined by the Board
and will become due and payable on the earlier to occur of: (i) December 31,
2001; (ii) the termination of Mr. Willis' employment with the Company or (iii)
a sale of the Company. Mr. Willis' obligations under such notes will be
secured by a pledge of the securities purchased therewith. In addition,
pursuant to the Employment Agreement, the Company and Holdings will issue to
Mr. Willis 1,030.142 Class A Units, 125 Class B Units and 125 Class C Units
for no additional consideration. The securities to be issued to Mr. Willis
without consideration will vest ratably over a period of five years.
The securities to be issued to Messrs. Bahrenburg, Vitale and Willis
pursuant to the Employment Agreements will be subject to repurchase by
Holdings or BrightView in the event such executive leaves the
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<PAGE>
Company's employ under certain circumstances. If such executive is terminated
by the Company with cause or resigns without good reason (each as defined in
their respective employment agreements), the purchase price for any unvested
securities will be the lesser of their original cost or their fair market
value and the purchase price for any vested securities will be the fair market
value of such securities. If such executive is terminated by the Company
without cause or resigns with good reason, the Company can only repurchase
such executive's unvested securities, at a price equal to the lesser of their
original cost or their fair market value.
In connection with the Acquisition, Messrs. Bahrenburg, Dunning, Bloch and
Karu, Willis Stein, Petersen Properties Company, BankAmerica Investment
Corporation and others entered into a securities purchase agreement (the
"Securities Purchase Agreement") with Holdings and BrightView pursuant to
which they purchased Preferred Units and Common Units of Holdings and Common
Stock of BrightView for cash. The following table sets forth the securities
purchased by such persons and the aggregate consideration paid for such
securities:
<TABLE>
<CAPTION>
HOLDINGS
----------------- BRIGHTVIEW
DIRECTOR, EXECUTIVE OFFICER OR CLASS A PREFERRED COMMON AGGREGATE
10% OWNER UNITS UNITS STOCK CONSIDERATION
------------------------------ ------- --------- ---------- -------------
<S> <C> <C> <C> <C>
D. Claeys Bahrenburg........... 1,100 1,100 10 $ 500,000
James D. Dunning, Jr.(a)....... 4,620 4,620 42 2,100,000
Laurence H. Bloch(a)........... 2,200 2,200 20 1,000,000
Stuart Karu(a)................. 2,200 2,200 20 1,000,000
Willis Stein & Partners,
L.P. ......................... 110,000 110,000 1,000 50,000,000
Petersen Properties Company.... 55,000 55,000 500 25,000,000
BankAmerica Investment Corpora-
tion.......................... 44,000 44,000 400 20,000,000
</TABLE>
- --------
(a) Pursuant to the Securities Purchase Agreement, Holdings and BrightView
also issued to Messrs. Dunning, Bloch and Karu the following securities:
Mr. Dunning--8,241.133 Class A Units, 1,000 Class B Units and 1,000 Class
C Units; Mr. Bloch--6,180.850 Class A Units, 750 Class B Units and 750
Class C Units and Mr. Karu--4,120.567 Class A Units, 500 Class B Units and
500 Class C Units.
As part of its business strategy, the Company plans to adopt new
compensation arrangements designed to reward managers and other participating
employees based on the Company's operating performance. In connection with
such compensation arrangements, the Company expects to issue up to 11,331
Class A Units, 1,375 Class B Units and 1,375 Class C Units to certain members
of management of other key employees of the Company. The Company has made no
final determination with respect to when such equity securities will be issued
or to whom, if at all.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's equity securities are held 99.9% by Holdings and 0.1% by
BrightView. The following table sets forth certain information as of December
1, 1996 regarding the beneficial ownership of the equity securities of
Holdings and BrightView by: (i) each of the Directors of BrightView and the
executive officers of the Company; (ii) all Directors and executive officers
as a group and (iii) each owner of more than 5% of any class of equity
securities of Holdings or BrightView ("5% Owners"). The following table
includes the securities to be issued to certain executive officers of the
Company under the Employment Agreements. The equity ownership of Holdings for
the persons listed below includes those interests owned indirectly through
BrightView. Unless otherwise noted, the address for each executive officer of
the Company and the Directors of BrightView is c/o the Company, 6420 Wilshire
Boulevard, Los Angeles, California 90048. All of Capital's issued and
outstanding capital stock is owned by the Company.
<TABLE>
<CAPTION>
HOLDINGS BRIGHTVIEW
------------------------------------ --------------------
SHARES OF PERCENT OF
COMMON PERCENT PREFERRED PERCENT COMMON VOTING
UNITS(A) OF CLASS UNITS OF CLASS STOCK(B) POWER(C)
-------- -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
D. Claeys
Bahrenburg(d).......... 8,481 2.1% 3,300 * 30 1.4%
Neal Vitale(e).......... 6,816 1.7 1,655 * 15 *
Richard S. Willis(f).... 1,474 * 444 * 4 *
James D. Dunning,
Jr.(g)................. 12,903 3.1 4,662 1.2% 42 2.0
Laurence H. Bloch(h).... 8,401 2.0 2,220 * 20 *
Avy H. Stein(i)......... 111,000 26.9 111,000 29.7 1,000 46.6(c)
Daniel H.
Blumenthal(i).......... 111,000 26.9 111,000 29.7 1,000 46.6(c)
Stuart Karu (j)......... 6,341 1.5 2,220 * 20 *
All Directors and
executive officers as a
group (8 persons)...... 155,415 37.7 125,541 33.5 1,131 52.7
5% OWNERS:
Willis Stein & Partners,
L.P.(k)................ 111,000 26.9 111,000 29.7 1,000 46.6(c)
Robert E. Petersen(l)... 55,500 13.5 55,500 14.8 500 23.3
BankAmerica Investment
Corporation(m)......... 44,400 10.7 44,400 11.9 400 --
Chase Equity Associates,
L.P.(n)................ 33,300 8.1 33,300 8.9 300 --
Allstate Insurance
Company(o)............. 33,300 8.1 33,300 8.9 300 14.0
First Union Investors,
Inc.(p)................ 27,750 6.7 27,750 7.4 250 --
CIBC WG Argosy Merchant
Fund 2, L.L.C.(q)...... 27,750 6.7 27,750 7.4 250 --
</TABLE>
- --------
*Represents less than one percent.
(a) The Common Units represent the common equity of Holdings and consist of
Class A Units, Class B Units and Class C Units. Holders of Class B Units
and Class C Units are entitled to share in any distribution on a pro rata
basis with the holders of Class A Units, but only if the holders of the
Preferred Units and the Class A Units have achieved an internal rate of
return on their total investment of 30% in the case of Class B Units and
35% in the case of Class C Units. All Common Units listed in the table
represent Class A Units unless otherwise noted. See "Limited Liability
Company Agreement."
(b) BrightView has two classes of outstanding common stock, the Class A Common
Stock and the Class B Common Stock, which are identical in all respects
except that the Class B Common Stock is nonvoting and is convertible to
Class A Common Stock upon the occurrence of certain events. The Class B
Common Stock was issued in order to comply with certain regulatory
requirements imposed upon the holders, which are affiliates of bank
holding companies. All shares listed in the table represent Class A Common
Stock unless otherwise noted.
(c) Under the terms of the Securityholders Agreement, all of the stockholders
of BrightView have agreed to vote their shares in favor of those
individuals designated by Willis Stein to serve on the Board of BrightView
until such time as BrightView consummates a Qualified IPO (as defined
below). Willis Stein also has the right to vote such stockholders shares
on all significant corporate changes, such as a merger, consolidation or
sale of the Company. As a result, Willis Stein has the ability to control
the policies and operations of the Company.
(d) Includes 5,151 Class A Units, which are subject to vesting in equal
installments over a five-year period. Does not include 625 Class B Units
and 625 Class C Units owned by Mr. Bahrenburg.
(e) Includes 5,151 Class A Units, which are subject to vesting in equal
installments over a five-year period. Does not include 625 Class B Units
and 625 Class C Units owned by Mr. Vitale.
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<PAGE>
(f) Includes 1,030 Class A Units, which are subject to vesting in equal
installments over a five-year period. Does not include 125 Class B Units
and 125 Class C Units owned by Mr. Willis.
(g) Does not include 1,000 Class B Units and 1,000 Class C Units owned by Mr.
Dunning.
(h) Does not include 750 Class B Units and 750 Class C Units owned by Mr.
Bloch.
(i) Includes 110,000 Common Units and 110,000 Preferred Units of Holdings and
1,000 shares of the Class A Common Stock of BrightView beneficially owned
by Willis Stein. Such persons disclaim beneficial ownership of all such
interests beneficially owned by Willis Stein. Such person's address is c/o
Willis Stein, 227 West Monroe Street, Suite 4300, Chicago, Illinois 60606.
(j) Does not include 500 Class B Units and 500 Class C Units owned by Mr.
Karu.
(k) Willis Stein's interest in Holdings and BrightView are owned through
Petersen Investment Corp. The address of Willis Stein and Petersen
Investment Corp. is 227 West Monroe Street, Suite 4300, Chicago, Illinois
60606.
(l) Mr. Petersen's interest in Holdings and BrightView are owned through
Petersen Properties Company.
(m) Such person's address is c/o BankAmerica Investment Corporation ("BIC"),
231 S. LaSalle Street, Chicago, Illinois 60697. Such person holds Class B
Common Stock of BrightView. Also includes securities held by an affiliate
of BIC.
(n) Such person's address is 380 Madison Avenue, 12th Floor, New York, New
York 10017-2951. Such person holds Class B Common Stock of BrightView.
(o) Such person's address is 3075 Sanders Road, Suite G5D, Northbrook,
Illinois 60062-7127.
(p) Such person's address is c/o First Union Capital Partners, Inc., One First
Union Center, 301 S. College Street, 5th Floor, Charlotte, North Carolina
28288. Such person holds Class B Common Stock of BrightView.
(q) Such person's address is 425 Lexington Avenue, 3rd Floor, New York, New
York 10017. Such person holds Class B Common Stock of BrightView.
SECURITYHOLDERS AGREEMENT
At the time of the Acquisition, BrightView, Holdings, Petersen Investment
Corp. and the Investors entered into a securityholders agreement (the
"Securityholders Agreement"), providing for: (i) the composition of the Board
of BrightView; (ii) restrictions on the transfer of equity securities of
Holdings, BrightView and Petersen Investment Corp. (the "Equity Securities");
(iii) registration rights relating to the Equity Securities, (iv) obligations
of the Investors upon a sale of the Company and (v) preemptive rights in favor
of the non-Willis Stein Investors in connection with issuances of equity to
Willis Stein. Under the terms of the Securityholders Agreement, all of the
stockholders of BrightView have agreed to vote their shares in favor of those
individuals designated by Willis Stein to serve on the Board of Directors of
BrightView until such time as BrightView consummates an initial public
offering of its equity securities resulting in the receipt by BrightView of at
least $75.0 million of gross proceeds and which indicates a market
capitalization of BrightView without giving effect to any issuances of equity
securities following its initial capitalization of at least $330.0 million (a
"Qualified IPO"). Willis Stein also has the right to control the vote on any
significant corporate changes, such as a merger, consolidation or sale of the
Company until the occurrence of a Qualified IPO. The Securityholders Agreement
generally restricts the transfer of Equity Securities, other than in a public
sale. Any proposed transfer of Equity Securities is subject to a right of
first refusal in favor of BrightView or the other Investors and "tag-along"
rights in favor of the other Investors. All of the Investors have agreed that
Willis Stein (through BrightView) may control the circumstances under which a
sale of the Company may take place, and that each Investor will consent to
such transaction on the terms negotiated by Willis Stein. Willis Stein may
also control the circumstances under which a public offering of Holdings' or
BrightView's equity securities may take place. The Securityholders Agreement
provides for up to four demand registrations in favor of Willis Stein, two
demand registrations in favor of a majority of the non-Willis Stein Investors
at such time as BrightView is eligible to use a short-form registration
statement and unlimited "piggyback" registrations in favor of the Investors.
LIMITED LIABILITY COMPANY AGREEMENT
The Company and Holdings are each limited liability companies organized
under the Delaware Limited Liability Company Act (the "LLC Act"). The Company
is governed by a limited liability company agreement between Holdings and
BrightView. The Company's equity securities are held 99.9% by Holdings and
0.1% by BrightView. Holdings is the Company's managing member and as such
controls the policies and operations of the Company. Holdings is governed by a
limited liability company agreement (the "LLC Agreement") among Willis Stein
(through Petersen Investment Corp.), Mr. Petersen, certain members of the
Company's management and the Investors (collectively the "Members"). The LLC
Agreement governs the relative rights and duties of the Members.
64
<PAGE>
BrightView is Holdings' managing member and as such controls the policies
and operations of Holdings and of the Company through Holdings. BrightView was
appointed as managing member pursuant to the LLC Agreement and may not be
removed. In the event of BrightView's resignation as managing member, a new
managing member will be appointed by Willis Stein (through Petersen Investment
Corp.).
The ownership interests of the Members in Holdings consist of Preferred
Units and Common Units. The Preferred Units are entitled to a preferred yield
of 12.0% per annum, compounded quarterly, and an aggregate liquidation
preference of $163.5 million (net of any prior repayments of Preferred Units)
plus any accrued and unpaid preferred yield (collectively, the "Preference
Amount") on any liquidation or other distribution by Holdings. The Common
Units represent the common equity of Holdings and consist of Class A Units,
Class B Units and Class C Units. After payment of the Preference Amount,
holders of Class A Units are entitled to share in any remaining proceeds of
any liquidation or other distribution by Holdings pro rata according to the
number of Class A Units held. After the holders of the Preferred Units and
Class A Units have received an internal rate of return of 30% on their total
investment, holders of Class B Units will be entitled to participate with the
holders of Class A Units in any subsequent distributions. Similarly, after the
holders of the Preferred Units and Class A Units have received an internal
rate of return of 35% on their total investment, holders of Class C Units will
be entitled to participate with the holders of Class A Units and the holders
of Class B Units in any subsequent distributions. The Class B Units and Class
C Units were issued to members of management to provide them with equity
incentives. The LLC Agreement grants BrightView broad authority in
establishing the magnitude and terms of management's equity participation in
the Company.
Both the Senior Credit Facility and the Indenture generally limit the
Company's ability to pay cash distributions to Holdings and BrightView other
than distributions in amounts approximately equal to the income tax liability
of such members of the Company (or, in the case of Holdings, the income tax
liability it would have had if it were required to pay income taxes) resulting
from the taxable income of the Company ("Tax Distributions"). Tax
Distributions will be based on the approximate highest combined tax rate that
applies to any one of the members of the Company.
The LLC Agreement, and therefore Holdings' existence, will continue in
effect until the earlier to occur of: (i) December 3, 2026; (ii) a unanimous
vote to that effect of its Members; (iii) a resolution to that effect of the
managing member; (iv) the incapacity or expulsion of the managing member or
any other event under the LLC Act which terminates Holdings unless the Members
vote within 90 days to continue Holdings' existence or (v) the entry of a
decree of judicial dissolution under the LLC Act. Other than as described in
(iv) above, the death, retirement, resignation, expulsion, incapacity,
bankruptcy or dissolution of a Member will not cause a dissolution of
Holdings. The Company's limited liability company agreement contains similar
terms governing the Company's continued existence.
65
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the Acquisition, the Company entered into the Senior
Credit Facility, among the Lenders and the Company, pursuant to which the
Lenders will lend to the Company up to $260.0 million in senior secured credit
facilities, such amount to be allocated among: (i) a Revolving Credit Facility
of up to $60.0 million; (ii) a Tranche A Loan in an aggregate principal amount
of $100.0 million and (iii) a Tranche B Loan in an aggregate principal amount
of $100.0 million.
Repayment. Commitments under the Revolving Credit Facility will not be
reduced until maturity on December 31, 2002 and the Term Loans will be
amortized on a quarterly basis commencing on March 31, 1997 based on the
following schedule:
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B
LOAN LOAN
DATE AMORTIZATION AMORTIZATION
---- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1997............................................... $ 0 $ 1,000
1998............................................... 10,000 1,000
1999............................................... 15,000 1,000
2000............................................... 20,000 1,000
2001............................................... 25,000 1,000
2002............................................... 30,000 1,000
2003............................................... 0 40,000
2004............................................... 0 54,000
-------- --------
Total............................................ $100,000 $100,000
======== ========
</TABLE>
Security; Guaranty. The Revolving Credit Facility and Term Loans will be
secured by a first priority lien on substantially all of the properties and
assets of the Company and its respective domestic subsidiaries, owned now or
acquired later, including a pledge of all of the shares of the Company's
respective existing and future domestic subsidiaries and 65% of the shares of
their respective existing and future foreign subsidiaries. The Revolving
Credit Facility and Term Loans are guaranteed by BrightView, Holdings and all
of the Company's future domestic subsidiaries.
Interest. At the Company's option, the interest rates per annum applicable
to the Revolving Credit Facility and the Tranche A Loan will be a fluctuating
rate of interest measured by reference either to: (i) LIBOR plus the
applicable borrowing margin or (ii) the ABR plus the applicable borrowing
margin. The applicable borrowing margin for the Revolving Credit Facility and
the Tranche A Loan will range from 1.375% to 2.750% for LIBOR based borrowings
and 0.125% to 1.500% for ABR based borrowings. The applicable borrowing margin
for the Tranche B Loan will be equal to that of the Revolving Credit Facility
and Tranche A Loan plus 0.50%; provided, however, that the applicable margin
for the Tranche B Loan will not be less than 2.625% for LIBOR based borrowings
and 1.375% for ABR based borrowings.
Fees. The Company has agreed to pay certain fees with respect to the Senior
Credit Facility including: (i) upfront facility fees; (ii) agent and
arrangement fees and (iii) commitment fees of 0.50% per annum on the unused
portion of the Revolving Credit Facility until the Company's Leverage Ratio
(as defined in the Senior Credit Facility) is less than or equal to 4:1 and
0.375% per annum thereafter.
Use of Proceeds. The entire amount of the Term Loans were made available to
the Company at the time of the Acquisition. The Revolving Credit Facility will
be made available to finance certain permitted acquisitions, working capital
requirements and general corporate purposes of the Company.
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<PAGE>
Prepayments; Reduction of Commitments. Term Loans are required to be prepaid
and commitments under the Revolving Credit Facility are required to be
permanently reduced with: (i) 75% of excess cash flow, which percentage may be
reduced under certain circumstances; (ii) 100% of the net cash proceeds of all
non-ordinary-course asset sales or other dispositions of the property by the
Company and its subsidiaries (including insurance and condemnation proceeds),
subject to limited exceptions, (iii) 100% of the net proceeds of issuances of
debt obligations of the Company and its subsidiaries, subject to limited
exceptions and (iv) 75% of the net proceeds of issuances of equity securities
of the Company. Such mandatory prepayments and commitment reductions will
first be allocated pro rata among the Term Loan and second to commitments
under the Revolving Credit Facility. Within the Term Loans prepayments with
proceeds from asset sales will be applied pro rata to the remaining
amortization payments under each such Term Loan and proceeds from debtor
equity issuances will be applied to amortization payments in inverse order at
maturity. Voluntary prepayments will be permitted in whole or in part, at the
option of the Company, in minimum principal amounts of $3.0 million or any
greater multiple of $1.0 million, without premium or penalty.
Covenants. The Senior Credit Facility contains covenants restricting the
ability of the Company and its subsidiaries to, among other things: (i)
declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem
or purchase debt; (iii) incur liens and engage in sale-leaseback transactions;
(iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise
alter debt and other material agreements; (vii) make capital expenditures;
(viii) engage in mergers, acquisitions and asset sales; (ix) transact with
affiliates and (x) alter its lines of the business. The Company must also make
certain customary indemnifications of the Lenders and their agents and will
also be required to comply with financial covenants with respect to: (i) a
maximum leverage ratio; (ii) a minimum interest coverage ratio and (iii) a
minimum fixed charge coverage ratio. The Senior Credit Facility also contains
certain customary affirmative covenants.
Events of Default. Events of default under the Senior Credit Facility
include: (i) the Company's failure to pay principal or interest when due; (ii)
the Company's material breach of any covenant, representation or warranty
contained in the loan documents; (iii) customary cross-default provisions;
(iv) events of bankruptcy, insolvency or dissolution of the Company or its
subsidiaries; (v) the levy of certain judgments against the Company, its
subsidiaries, or their assets; (vi) certain adverse events under ERISA plans
of the Company or its subsidiaries; (vii) the actual or asserted invalidity of
security documents or guarantees of the Company or its subsidiaries and (viii)
a change of control of the Company.
67
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Issuers on November 25, 1996 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase Agreement, the Issuers entered into the Registration Rights Agreement
with the Initial Purchaser pursuant to which the Issuers have agreed, for the
benefit of the holders of the Old Notes, at the Issuers' cost, to use their
best efforts to (i) file the Exchange Offer Registration Statement within 45
days after the date of the original issue of the Old Notes with the Commission
with respect to the Exchange Offer for the New Notes; (ii) use their best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 135 days after the date of the
original issuance of the Old Notes and (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, commence the Exchange
Offer and use their best efforts to issue on or prior to 45 days after the
date on which the Exchange Offer Registration Statement was declared effective
by the Commission (the "Exchange Offer Effectiveness Date"). Upon the Exchange
Offer Registration Statement being declared effective, the Issuers will offer
the New Notes in exchange for surrender of the Old Notes. The Issuers will
keep the Exchange Offer open for not less than 20 days (or longer if required
by applicable law) after the date on which notice of the Exchange Offer is
mailed to the holders of the Old Notes. For each Old Note surrendered to the
Issuers pursuant to the Exchange Offer, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Interest on each Old Note will accrue from the last interest payment
date on which interest was paid on the Old Note surrendered in exchange
therefor or, if no interest has been paid on such Old Note, from the date of
its original issue. Interest on each New Note will accrue from the date of its
original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will in general be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate"
of the Issuers or who intends to participate in the Exchange Offer for the
purpose of distributing the New Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Issuers in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or any
other person participates in the Exchange Offer for the purpose of
distributing the New Notes it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of
the New Notes and cannot rely on those no-action letters. As indicated above,
each Participating Broker-Dealer that receives a New Note for its own account
in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes
for its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with
the Issuers or any "affiliate" of the Issuers (within the meaning of Rule 405
under the Securities Act) to distribute the New Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for resales by Participating Broker-Dealers, see
"Plan of Distribution."
68
<PAGE>
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Issuers to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 195 days of the date of the original issuance of the Old
Notes, the Issuers will (i) file the Shelf Registration Statement Registration
Statement covering resales of the Old Notes; (ii) use their reasonable best
efforts to cause the Shelf Registration Statement Registration Statement to be
declared effective under the Securities Act and (iii) use their reasonable
best efforts to keep effective the Shelf Registration Statement until the
earlier of three years after its effective date. The Issuers will, in the
event of the filing of the Shelf Registration Statement, provide to each
applicable holder of the Old Notes copies of the prospectus which is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resale of the Old Notes. A holder of the
Old Notes that sells such Old Notes pursuant to the Shelf Registration
Statement permit generally will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each
holder of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Notes included in the
Shelf Registration Statement and to benefit from the provisions set forth in
the following paragraph.
The Registration Rights Agreement provides that (i) the Issuers will file an
Exchange Offer Registration Statement with the Commission on or prior to 45
days after the date of the original issue of the Old Notes with the
Commission, (ii) the Issuers will use their best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior
to 135 days after the after the date of the original issue of the Old Notes,
(iii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuers will commence the Exchange Offer and use their
best efforts to issue on or prior to 45 days after the Exchange Offer
Effectiveness Date, New Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuers will use their best efforts to file the
Shelf Registration Statement with the Commission in a timely fashion. If (a)
the Issuers fail to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness, or (c)
the Issuers fail to consummate the Exchange Offer within 45 days of the
effectiveness of the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the period
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), the sole remedy
available to holders of the Old Notes will be the immediate assessment of
Additional Interest as follows: the per annum interest rate on the Old Notes
will increase by 0.5% and the per annum interest rate will increase by an
additional 0.25% for each subsequent 90-day period during which the
Registration Default remains uncured, up to a maximum additional interest rate
of 2.0% per annum in excess of 11 1/8% per annum. All Additional Interest will
be payable to holders of the Old Notes in cash on each November 15 and May 15,
commencing with the first such date occurring after any such Additional
Interest commences to accrue, until such Registration Default is cured. After
the date on which such Registration Default is cured, the interest rate on the
Old Notes will revert to 11 1/8% per annum.
Holders of Old Notes will be required to make certain representations to the
Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Investors set forth above.
69
<PAGE>
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Issuers will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the New Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is
terminated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Issuers have fixed the close of business on
February 10, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, the Limited Liability Company Act of
Delaware or the Indenture in connection with the Exchange Offer. The Issuers
intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Issuers.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Fees and Expenses.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 11, 1997, unless the Issuers, in their sole discretion, extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
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<PAGE>
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Issuers reserve the right, in their sole discretion, prior to the
Expiration Date (i) to delay accepting any Old Notes, to extend the Exchange
Offer or to terminate the Exchange Offer if any of the conditions set forth
below under "Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of Old
Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the New Notes. Such
interest will be paid with the first interest payment on the New Notes on May
15, 1997. Interest on the Old Notes accepted for exchange will cease to accrue
upon issuance of the New Notes.
Interest on the New Notes is payable semi-annually on each May 15 and
November 15, commencing on May 15, 1997.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message in connection with
a book-entry transfer and other required documents must be completed and
received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date.
Delivery of the Old Notes may be made by book-entry transfer in accordance
with the procedures described below. Confirmation of such bookentry transfer
must be received by the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry transfer, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility tendering the Notes that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make to the Issuers
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
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COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Issuers in their sole discretion, which
determination will be final and binding. The Issuers reserve the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Issuers' interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Although the Issuers
intend to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Issuer, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be
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<PAGE>
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution,
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited); (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuers,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Issuers, might materially impair
the ability of the Issuers to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Issuers or any of their subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Issuers, might materially impair the ability of the Issuers
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their reasonable discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Mail: By Overnight Courier:
United States Trust Company of New United States Trust Company of New
York York
P.O. Box 844 Cooper Station 770 Broadway
New York, New York 10276-0844 New York, New York 10003
Attention: Corporate Trust Attention: Corporate Trust
Operations Operations
(registered or certified mail
recommended)
By Hand:
Facsimile Transmission: (212)
United States Trust Company of New 420-6152
York
111 Broadway Confirm by Telephone: (800) 548-6565
New York, New York 10006
Attention: Lower Level Corporate
Trust Window
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
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The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Issuers (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuers), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate"
of the Issuers within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New
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<PAGE>
Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. As indicated above, each
Participating Broker-Dealer that receives a New Note for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
DESCRIPTION OF THE NOTES
The New Notes will be issued under an Indenture, dated as of November 15,
1996 among the Issuers, the Guarantors stated therein and United States Trust
Company of New York, as trustee (the "Trustee"). The terms of the New Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act") as in effect on the date of the Indenture. The form and terms of the New
Notes are the same as the form and terms of the Old Notes (which they replace)
except that (i) the New Notes bear a Series B designation, (ii) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of New Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The New Notes are subject to all such terms, and holders of the
New Notes are referred to the Indenture and the Trust Indenture Act for a
statement of them. The following is a summary of the material terms and
provisions of the New Notes. This summary does not purport to be a complete
description of the New Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the New Notes and the Indenture
(including the definitions contained therein). A copy of the Indenture has
been filed as an exhibit to the Exchange Offer Registration Statement of which
this Prospectus forms a part. See "Available Information." Definitions
relating to certain capitalized terms are set forth under "-- Certain
Definitions" and throughout this description. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Indenture and such definitions are incorporated herein by reference. The Old
Notes and the New Notes are sometimes referred to herein collectively as the
"Notes."
GENERAL
The Notes will be limited in aggregate principal amount to $100,000,000. The
Notes will be general unsecured obligations of the Issuers, subordinated in
right of payment to Senior Indebtedness of the Issuers and senior in right of
payment to any current or future subordinated indebtedness of the Issuers. The
Notes will be joint and several obligations of the Issuers.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors (including each Restricted Subsidiary which
guarantees payment of the Notes pursuant to the covenant described under
"Limitation on Creation of Subsidiaries").
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2006. The Notes will bear interest at
a rate of 11 1/8% per annum from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on each May 15 and November 15,
commencing May 15, 1997, to holders of record of the Notes at the close of
business on the immediately preceding May 1 and November 1, respectively.
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<PAGE>
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuers, in whole or in
part, at any time on or after November 15, 2001 at the following redemption
prices (expressed as a percentage of principal amount), together, in each
case, with accrued interest to the redemption date, if redeemed during the
twelve-month period beginning on November 15, of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... 105.563%
2002........................................................... 103.708%
2003........................................................... 101.854%
2004 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to
25% of the original principal amount of Notes at any time and from time to
time prior to November 15, 1999 at a redemption price equal to 111.125% of the
aggregate principal amount so redeemed plus accrued interest to the redemption
date out of the Net Proceeds of one or more Public Equity Offerings; provided
that at least $75.0 million of the principal amount of Notes originally issued
remain outstanding immediately after the occurrence of any such redemption and
that any such redemption occurs within 90 days following the closing of any
such Public Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee shall
select, if the Notes are listed on a national securities exchange, in
accordance with the rules of such exchange or, if the Notes are not so listed,
either on a pro rata basis or by lot or in such other manner as it shall deem
fair and equitable the Notes to be redeemed; provided, that if a partial
redemption is made with the proceeds of a Public Equity Offering, selection of
the Notes or portion thereof for redemption will be made by the Trustee on a
pro rata basis, unless such method is prohibited. The Notes will be redeemable
in whole or in part upon not less than 30 nor more than 60 days' prior written
notice, mailed by first class mail to a holder's last address as it shall
appear on the register maintained by the Registrar of the Notes. On and after
any redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption unless the Issuers shall fail to redeem any such
Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the
prior indefeasible payment and satisfaction in full in cash of all existing
and future Senior Indebtedness of the Issuers. As of August 31, 1996, after
giving pro forma effect to the Transactions and the Initial Offering, the
principal amount of outstanding Senior Indebtedness of the Issuers, on a
consolidated basis, would have been $200.0 million. In addition, the Issuers
would have had $60.0 million of undrawn commitments available under the
Revolving Credit Facility.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation. arrangement, reorganization or other similar case
or proceeding in connection therewith, relative to the Issuers or to their
creditors, as such, or to their assets, whether voluntary or involuntary, or
any liquidation, dissolution or other winding-up of the Issuers, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or any general assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Issuers (except in connection with
the merger or consolidation of the Issuers or its liquidation or dissolution
following the transfer of substantially all of their assets, upon the terms
and conditions permitted under the circumstances described under "--Mergers,
Consolidations or Sale of Assets") (all of the foregoing referred to herein
individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of the Issuers will be
entitled to receive payment and satisfaction in full in cash of all amounts
due on or in respect of all Senior Indebtedness of the Issuers before the
holders of the Notes are entitled to receive or retain any payment or
distribution of any kind on account of the Notes. In the event that,
notwithstanding the foregoing, the Trustee or any holder of Notes receives any
payment or distribution of assets of the Issuers of any kind, whether in cash,
property or securities, including, without limitation, by way of set-off
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or otherwise, in respect of the Notes before all Senior Indebtedness of the
Issuers is paid and satisfied in full in cash, then such payment or
distribution will be held by the recipient in trust for the benefit of holders
of Senior Indebtedness and will be immediately paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives to
the extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness. By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Issuers who are holders of Senior Indebtedness
may recover more, ratably, than other creditors of the Issuers, and creditors
of the Issuers who are not holders of Senior Indebtedness or of the Notes may
recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets or securities of the Issuers or any
Restricted Subsidiary of any kind or character (including, without limitation.
cash, property and any payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Issuers
being subordinated to the payment of the Notes by the Issuers) may be made by
or on behalf of the Issuers or any Restricted Subsidiary, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption or other acquisition of the
Notes, and neither the Trustee nor any holder or owner of any Notes shall take
or receive from the Issuers or any Restricted Subsidiary, directly or
indirectly in any manner, payment in respect of all or any portion of Notes
following the delivery by the representative of the holders of Designated
Senior Indebtedness (the "Representative") to the Trustee of written notice of
the occurrence of a Payment Default, and in any such event, such prohibition
shall continue until such Payment Default is cured, waived in writing or
ceases to exist. At such time as the prohibition set forth in the preceding
sentence shall no longer be in effect, subject to the provisions of the
following paragraph, the Issuers shall resume making any and all required
payments in respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets of the Issuers of any
kind may be made by the Issuers, including, without limitation, by way of set-
off or otherwise, on account of the Notes, or for on account of the purchase,
redemption, defeasance or other acquisition of Notes, and neither the Trustee
nor any holder or owner of Notes shall take or receive from the Issuers or any
Restricted Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of the Notes for a period (a "Payment Blockage
Period") commencing on the date of receipt by the Trustee of written notice
from the Representative of such Non-Payment Event of Default unless and until
(subject to any blockage of payments that may then be in effect under the
preceding paragraph) the earliest of (x) more than 179 days shall have elapsed
since receipt of such written notice by the Trustee, (y) such NonPayment Event
of Default shall have been cured or waived in writing or shall have ceased to
exist or such Designated Senior Indebtedness shall have been paid in full or
(z) such Payment Blockage Period shall have been terminated by written notice
to the Issuers or the Trustee from such Representative, after which, in the
case of clause (x), (y) or (z), the Issuers shall resume making any and all
required payments in respect of the Notes, including any missed payments.
Notwithstanding any other provision of the Indenture, in no event shall a
Payment Blockage Period commenced in accordance with the provisions of the
Indenture described in this paragraph extend beyond 179 days from the date of
the receipt by the Trustee of the notice referred to above (the "Initial
Blockage Period"). Any number of additional Payment Blockage Periods may be
commenced during the Initial Blockage Period; provided, however, that no such
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment
Blockage Period may be commenced until at least 180 consecutive days have
elapsed from the last day of the Initial Blockage Period. Notwithstanding any
other provision of the Indenture, no event of default with respect to
Designated Senior Indebtedness (other than a Payment Default) which existed or
was continuing on the date of the commencement of any Payment Blockage Period
initiated by the Representative shall be, or be made, the basis for the
commencement of a second Payment Blockage Period initiated by the
Representative, whether or not within the Initial Blockage Period, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in fight of payment to the prior payment in full of all Senior
Indebtedness of the respective Guarantor, including obligations of such
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Guarantor with respect to the Senior Credit Facility (including any guarantee
thereof), and will be subject to the fights of holders of Designated Senior
Indebtedness of such Guarantor to initiate blockage periods, upon terms
substantially comparable to the subordination of the Notes to all Senior
Indebtedness of the Issuers.
If the Issuers or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be, when due or within any applicable grace
period, whether or not on account of payment blockage provisions. such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf. to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Indenture will contain, among other things, the following covenants.
Except as otherwise specified, all of the covenants described below will
appear in the Indenture.
Limitation on Additional Indebtedness
The Issuers will not, and will not permit any Restricted Subsidiary of the
Issuers to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness) unless (a) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, the ratio of the total Indebtedness of the Issuers and their
Restricted Subsidiaries (excluding any Indebtedness owed to a Restricted
Subsidiary by any other Restricted Subsidiary or the Issuers and any
Indebtedness owed to the Issuers by any Restricted Subsidiary) to the Issuers'
EBITDA (determined on a pro forma basis for the last four fiscal quarters of
the Issuers for which financial statements are available at the date of
determination) is less than 6.0 to 1; provided, however, that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then
such ratio shall be determined by giving effect to (on a pro forma basis, as
if the transaction had occurred at the beginning of the four-quarter period)
both the incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Issuers and the inclusion in the Issuers' EBITDA of the
EBITDA of the acquired Person, business, property or assets and any pro forma
expense and cost reductions calculated on a basis consistent with Regulation
S-X under the Securities Act as in effect and as applied as of the date
hereof, and (b) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Neither BrightView nor Holdings will, directly or indirectly, incur or
remain or become directly or indirectly liable with respect to any
Indebtedness except that BrightView and Holdings (a) may guarantee (i) the
Notes hereunder, (ii) the indebtedness of the Company under the Senior Credit
Facility and the other Credit Documents (as defined in the Senior Credit
Facility) and (iii) any Indebtedness of the Company or any Restricted
Subsidiary permitted to be incurred under the immediately preceding paragraph
and (b) may incur Indebtedness in an aggregate principal amount not exceeding
$5,000,000 outstanding at any time issued to repurchase their Capital Stock
from former management employees in connection with their termination or
departure (provided that such Indebtedness is subordinated in right and time
of payment to (i) and (ii) of (a) above).
Notwithstanding the foregoing, the Issuers and their Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Issuers will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
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(b) immediately after giving pro forma effect to such Restricted Payment,
the Issuers could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the cumulative Consolidated Net
Income of the Company subsequent to the Issue Date (or minus 100% of any
cumulative deficit in Consolidated Net Income during such period) plus (2)
100% of the aggregate Net Proceeds and the fair market value of securities
or other property received by the Company from the issue or sale, after the
Issue Date, of Capital Stock (other than Disqualified Capital Stock or
Capital Stock of the Company issued to any Subsidiary of the Company) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which has been so converted
or exercised or exchanged, as the case may be, plus (3) without duplication
of any amounts included in clause (1) and (2) above, 100% of the aggregate
net proceeds of any equity contribution received by the Company from a
holder of the Company's Capital Stock. For purposes of determining under
this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company
or subordinated Indebtedness by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock), or out of,
the Net Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of Capital Stock of the Company
(other than Disqualified Capital Stock), (iii) the redemption or retirement of
Indebtedness of the Issuers subordinated to the Notes in exchange for, by
conversion into, or out of the Net Proceeds of, a substantially concurrent
sale or incurrence of Indebtedness (other than any Indebtedness owed to a
Subsidiary) of the Issuers that is contractually subordinated in right of
payment to the Notes to at least the same extent as the subordinated
Indebtedness being redeemed or retired, (iv) the retirement of any shares of
Disqualified Capital Stock by conversion into, or by exchange for, shares of
Disqualified Capital Stock, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock, (v) if no Event of Default listed in clauses (i),
(ii) or (vi) under "Events of Default" shall have occurred and be continuing,
or would result from any such distribution, Permitted Tax Distributions or
(vi) dividend payments or other distributions of cash by the Company in an
amount not in excess of (y) $1,000,000 per fiscal year solely for the purpose
of paying fees and expenses of BrightView and Holdings, including directors'
fees, less (z) the amount of any management, advisory, consulting and similar
fees, paid by the Company to Willis Stein and its Affiliates during such
fiscal year.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Issuer's latest available financial
statements, and that no Default or Event of Default exists and is continuing
and no Default or Event of Default will occur immediately after giving effect
to any Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any
Indebtedness (other than the Notes and the Guarantees, as the case may be)
that is both (i) subordinate in right of payment to any Senior Indebtedness of
the Issuers or their Restricted Subsidiaries, as the case may be, and (ii)
senior in right of payment to the Notes and the Guarantees, as the case may
be. For purposes of this covenant, Indebtedness is deemed to be senior in
right of payment to the Notes and the Guarantees, as the case may be, if it is
not explicitly subordinate in right of payment to Senior Indebtedness
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at least to the same extent as the Notes and the Guarantees, as the case may
be, are subordinate to Senior Indebtedness.
Limitations on Investments
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitations on Liens
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or assets of the Issuers or any Restricted Subsidiary or any shares of stock
or debt of any Restricted Subsidiary which owns property or assets, now owned
or hereafter acquired, unless (i) if such Lien secures Indebtedness which is
pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to the Lien
granted to the Holders of the Notes to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate (including entities in which the Issuers or any of its
Restricted Subsidiaries own a minority interest) or holder of 10% or more of
the Issuers' Common Stock (an "Affiliate Transaction"), other than
transactions existing on the date hereof and described elsewhere in this
Prospectus, or extend, renew, waive or otherwise modify the terms of any
Affiliate Transaction entered into prior to the Issue Date if such extension,
renewal, waiver or other modification is more disadvantageous to the Holders
in any material respect than the original agreement as in effect on the Issue
Date unless (i) such Affiliate Transaction is between or among the Issuers and
their Wholly-Owned Subsidiaries or (ii) the terms of such Affiliate
Transaction are fair and reasonable to the Issuers or such Restricted
Subsidiary, as the case may be, and the terms of such Affiliate Transaction
are at least as favorable as the terms which could be obtained by the Issuers
or such Restricted Subsidiary, as the case may be, in a comparable transaction
made on an arm's-length basis between unaffiliated parties. In any Affiliate
Transaction involving an amount or having a value in excess of $1.0 million
which is not permitted under clause (i) above, the Issuers must obtain a
resolution of the Board of Directors certifying that such Affiliate
Transaction complies with clause (ii) above. In transactions with a value in
excess of $3.0 million which are not permitted under clause (i) above, the
Issuers must obtain a written opinion as to the fairness of such a transaction
from an independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein (ii) any transaction, approved by the Board of
Directors of the Issuers, with an officer or director of the Issuers or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business (iii) transactions permitted by the Indenture
under the provision "Merger, Consolidation or Sale of Assets" or (iv)
transactions after the date of the Indenture that are expressly contemplated
by the Securities Purchase Agreement and the Securityholders Agreement
(including any registration rights described therein) and are not prohibited
by any other provision of this Indenture or the Notes; provided, that the
aggregate management, advisory, consulting and similar fees paid by the
Company to Willis Stein and its Affiliates pursuant to the Securities Purchase
Agreement or otherwise shall not exceed (y) $1,000,000 during any fiscal year
less (z) the amount of any distributions made by the Company during such
fiscal year pursuant to clause (vi) of the second paragraph under "--
Limitation on Restricted Payments," and provided further, that any such fees
may accrue but shall not be paid by the Company at any time after the
occurrence and during the continuance of a Default or Event of Default.
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Limitation on Creation of Subsidiaries
The Issuers shall not create or acquire, nor permit any of their Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary that is acquired or created in connection with the acquisition by
the Company of a media related business or asset or (ii) an Unrestricted
Subsidiary; provided, however, that each Restricted Subsidiary acquired or
created pursuant to clause (i) shall at the time it has either assets or
stockholders' equity in excess of $5,000 have evidenced its guarantee with
such documentation satisfactory in form and substance to the Trustee relating
thereto as the Trustee shall require, including, without limitation, a
supplement or amendment to the Indenture and opinions of counsel as to the
enforceability of such guarantee, pursuant to which such Restricted Subsidiary
shall become a Guarantor. As of the Issue Date, the Company will have no
Subsidiaries, other than Capital, and Capital will have no Subsidiaries. See
"--General."
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Issuers or such
Restricted Subsidiary, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the fair market value
thereof (as determined in good faith by the Company's Board of Directors, and
evidenced by a board resolution); (ii) not less than 85% of the consideration
received by the Company or its Subsidiaries, as the case may be, is in the
form of cash or Temporary Cash Investments and (iii) the Asset Sale Proceeds
received by the Company or such Restricted Subsidiary are applied (a) first,
to the extent the Company elects, or is required, to prepay, repay or purchase
debt under any then existing Senior Indebtedness of the Company or any
Restricted Subsidiary within 180 days following the receipt of the Asset Sale
Proceeds from any Asset Sale, provided that any such repayment shall result in
a permanent reduction of the commitments thereunder in an amount equal to the
principal amount so repaid; (b) second, to the extent of the balance of Asset
Sale Proceeds after application as described above, to the extent the Company
elects, to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another person) used or useful in businesses similar or ancillary
to the business of the Company or such Restricted Subsidiary as conducted at
the time of such Asset Sale, provided that such investment occurs or the
Company or a Restricted Subsidiary enters into contractual commitments to make
such investment, subject only to customary conditions (other than the
obtaining of financing), on or prior to the 181st day following receipt of
such Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds
contractually committed are so applied within 270 days following the receipt
of such Asset Sale Proceeds: and (c) third, if on the Reinvestment Date with
respect to any Asset Sale, the Available Asset Sale Proceeds exceed $5.0
million, the Issuers shall apply an amount equal to such Available Asset Sale
Proceeds to an offer to repurchase the Notes, at a purchase price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). If
an Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Issuers to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than
60 days from the date such notice is mailed; (3) the instructions, determined
by the Issuers, that each Holder must follow in order to have such Notes
repurchased and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Preferred Stock of Subsidiaries
The Issuers will not permit any Restricted Subsidiary to issue any Preferred
Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or
permit any Person (other than the Company or a Subsidiary) to hold any such
Preferred Stock unless the Company or such Restricted Subsidiary would be
entitled to incur or
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assume Indebtedness under the first paragraph of the covenant described under
"Limitation on Additional Indebtedness" in the aggregate principal amount
equal to the aggregate liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary (other than under the Senior
Credit Facility or a successor facility or under the terms of any Designated
Senior Indebtedness) or (ii) permit any of their Subsidiaries to issue any
Capital Stock, other than to the Issuers or a wholly-owned Subsidiary of the
Issuers. The foregoing restrictions shall not apply to an Asset Sale made in
compliance with "Limitation on Certain Asset Sales" or the issuance of
Preferred Stock in compliance with the covenant described under "Limitation on
Preferred Stock of Subsidiaries." In no event will the Company sell, pledge,
hypothecate or otherwise convey or dispose of any Capital Stock of Capital or
will Capital issue any of its Capital Stock.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined by a board resolution of the
Company and (ii) the Issuers could incur the Attributable Indebtedness in
respect of such Sale and Lease-Back Transaction in compliance with the
covenant described under "Limitation on Additional Indebtedness."
Payments for Consent
Neither the Issuers nor any of their Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to
such consent. waiver or agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and
unpaid interest to the Change of Control Payment Date (as hereinafter defined)
(such applicable purchase price being hereinafter referred to as the "Change
of Control Purchase Price") in accordance with the procedures set forth in
this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least
once to the Dow Jones News Service or similar business news service in the
United States and (ii) send by first-class mail, postage prepaid, to the
Trustee and to each holder of the Notes, at the address appearing in the
register maintained by the Registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
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(v) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date.
(vi) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(vii) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(viii) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Issuers. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price
for such Notes, and the Issuers shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to
holders described in the preceding paragraph, but in any event within 20 days
following any Change of Control, the Issuers on a joint and several basis
covenant to (i) repay in full all obligations under or in respect of the
Senior Credit Facility or offer to repay in full all obligations under or in
respect of the Senior Credit Facility and repay the obligations under or in
respect of the Senior Credit Facility of each lender who has accepted such
offer or (ii) obtain the requisite consent under the Senior Credit Facility to
permit the repurchase of the Notes as described above. The Issuers must first
comply with the covenant described in the preceding sentence before they shall
be required to purchase Notes in the event of a Change of Control; provided
that the Issuers' failure to comply with the covenant described in the
preceding sentence constitutes an Event of Default described in clause (iii)
under "Events of Default" below if not cured within 60 days after the notice
required by such clause. As a result of the foregoing, a holder of the Notes
may not be able to compel the Issuers to purchase the Notes unless the Issuers
are able at the time to refinance all of the obligations under or in respect
of the Senior Credit Facility or obtain requisite consents under the Senior
Credit Facility. Failure by the Issuers to make a Change of Control Offer when
required by the Indenture constitutes a default under the Indenture and, if
not cured within 60 days after notice, constitutes an Event of Default.
The Indenture provides that, (A) if either Issuer or any Subsidiary thereof
has issued any outstanding (i) Indebtedness that is subordinated in right of
payment to the Notes or (ii) Preferred Stock, and such Issuer or Subsidiary is
required to make a change of control offer or to make a distribution with
respect to such subordinated Indebtedness or Preferred Stock in the event of a
change of control, the Issuers shall not consummate any such offer or
distribution with respect to such subordinated Indebtedness or Preferred Stock
until such time as the Issuers shall have paid the Change of Control Purchase
Price in full to the holders of Notes that have accepted the Issuers' Change
of Control Offer and shall otherwise have consummated the Change of Control
Offer made to holders of the Notes and (B) the Issuers will not issue
Indebtedness that is subordinated
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in right of payment to the Notes or Preferred Stock with change of control
provisions requiring the payment of such Indebtedness or Preferred Stock prior
to the payment of the Notes in the event of a Change in Control under the
Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Issuers to purchase Notes, if such
purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the
Exchange Act at that time, the Issuers will comply with the requirements of
Rule 14e-1 as then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers nor any Guarantor will, consolidate with, merge with
or into. or transfer all or substantially all of its assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions), to any Person unless (in the case of the Company or any
Guarantor): (i) the Company or such Guarantor, as the case may be, shall be
the continuing Person, or the Person (if other than the Company or such
Guarantors) formed by such consolidation or into which the Company or such
Guarantors, as the case may be, is merged or to which the properties and
assets of the Company or such Guarantor, as the case may be, are transferred
shall be a corporation (or, in the case of the Company or Holdings, a
corporation or a limited liability company) organized and existing under the
laws of the United States or any State thereof or the District of Columbia and
shall expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company or such Guarantor, as the case may be, under the Notes and the
Indenture, and the obligations under the Indenture shall remain in full force
and effect; provided, that at any time the Company or its successor is a
limited liability company, there shall be a co-issuer of the Notes that is a
corporation; (ii) immediately before and immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction or
series of transactions on a pro forma basis the Consolidated Net Worth of the
Company or the surviving entity as the case may be is at least equal to the
Consolidated Net Worth of the Company immediately before such transaction or
series of transactions and (iv) immediately after giving effect to such
transaction on a pro forma basis the Company or such Person could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the covenant set forth under "Limitation on Additional Indebtedness,"
provided that Holdings may merge into the Company, the Company may merge into
Holdings and Holdings or the Company may merge into BrightView without
complying with this clause (iv).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this provision and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
GUARANTEES
The Notes are guaranteed on a senior subordinated basis by the Guarantors.
All payments pursuant to the Guarantees by the Guarantors are subordinated in
right of payment to the prior payment in full of all Senior Indebtedness of
the Guarantor, to the same extent and in the same manner that all payments
pursuant to the Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of the Issuers.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior
Indebtedness) and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a payment
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or distribution under a Guarantee shall be entitled to a contribution from
each other Guarantor in a pro rata amount based on the Adjusted Net Assets of
each Subsidiary Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Certain Asset Sales," or the Guarantor
merges with or into or consolidates with, or transfers all or substantially
all of its assets to, the Company or another Guarantor in a transaction in
compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent herein provided for
relating to such transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by either of the Issuers or any Guarantor in the observance
or performance of any other covenant in the Notes or the Indenture for 60
days after written notice from the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding;
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $1,000,000 or more with respect to any Indebtedness of
the Issuers or any Restricted Subsidiary thereof, or the acceleration of
any such Indebtedness aggregating $1,000,000 or more which default shall
not be cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $1,000,000 shall be rendered against
either of the Issuers or any Restricted Subsidiary thereof, and shall not
be discharged for any period of 60 consecutive days during which a stay of
enforcement shall not be in effect; and
(vi) certain events involving bankruptcy, insolvency or reorganization of
either of the Issuers or any Restricted Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if
any, or interest on the Notes) if the Trustee considers it to be in the best
interest of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and such amounts shall become immediately due and payable or if
there are any amounts outstanding under or in respect of the Senior Credit
Facility, such amounts shall become due and payable upon the first to occur of
an acceleration of amounts outstanding under or in respect of the Senior
Credit Facility or five business days after receipt by the Company and the
representative of the holders of Senior Indebtedness under or in respect of
the Senior Credit Facility, of notice of the acceleration of the Notes;
provided, however, that after such acceleration but before a judgment or
decree based on acceleration is obtained by the Trustee, the holders of a
majority in aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than nonpayment of accelerated principal, premium or interest, have been
cured or waived as provided in the Indenture. In case an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization
shall occur, the principal,
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premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as a
trustee, and unless the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except
for the obligations to register the transfer or exchange of such Notes, to
replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold monies for payment in
trust) ("defeasance") or (b) to be released from their obligations with
respect to the Notes under certain covenants contained in the Indenture and
described above under "Certain Covenants" ("covenant defeasance"), upon the
deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money,
in an amount sufficient to pay the principal of, premium, if any, and interest
on the Notes, on the scheduled due dates therefor or on a selected date of
redemption in accordance with the terms of the Indenture. Such a trust may
only be established if, among other things, the Issuers have delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) (i) to the
effect that neither the trust nor the Trustee will be required to register as
an investment company under the Investment Company Act of 1940, as amended,
and (ii) describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect that holders
of the Notes or persons in their positions will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to federal income tax on the same amount and
in the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Issuers, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing
for uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
adversely affect the rights of any holder. The Indenture contains provisions
permitting the Issuers, the Guarantors and the Trustee, with the consent of
holders of at least a majority in principal amount of the outstanding Notes,
to modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes; (ii) reduce the rate of
or change the time for payment of interest on any Note; (iii) reduce the
principal of or premium on or change the stated maturity of any Note; (iv)
make any Note payable in money other than that stated in the Note or change
the place of payment from New York, New York; (v) change the amount or time of
any payment required by the Notes or reduce the premium payable upon any
redemption of Notes, or change the time before which no such redemption may be
made; (vi) waive a default in the payment of the principal of, interest on, or
redemption payment with respect to any Note; (vii) take any other action
otherwise prohibited by
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the Indenture to be taken without the consent of each holder affected thereby
or (viii) affect the ranking of the Notes or the Guarantee in a manner adverse
to the Holders.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements of
the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture
provides that even if the Company is entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, it
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 100 days after the end
of the Issuers' fiscal year and on or before 50 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default
that has occurred. If they do, the certificate will describe the Default or
Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. During the existence of an
Event of Default, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange the Notes in accordance with
the Indenture. The Registrar under such Indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indentures. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any
Note for a period of 15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee, of such Guarantor
at such date and (y) the present fair salable value of the assets of such
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any
collection from any Subsidiary of such Guarantor in respect of the obligations
of such Subsidiary under the Guarantee), excluding Indebtedness in respect of
the Guarantee, as they become absolute and matured.
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"Affiliate" of any specified Person means any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction
or series of related transactions of (a) any Capital Stock of or other equity
interest in any Restricted Subsidiary of the Issuers, (b) all or substantially
all of the assets of the Issuers or of any Restricted, Subsidiary thereof, (c)
real property or (d) all or substantially all of the assets of any magazine or
publishing property, or part thereof, owned by the Issuers or any Restricted
Subsidiary thereof, or a division, line of business or comparable business
segment of the Issuers or any Restricted Subsidiary thereof; provided that
Asset Sales shall not include (i) sales, leases, conveyances, transfers or
other dispositions to the Company or to a Restricted Subsidiary or to any
other Person if after giving effect to such sale, lease, conveyance, transfer
or other disposition such other Person becomes a Restricted Subsidiary or (ii)
the sale or other disposition of any or all right, title and interest of the
Company and its Subsidiaries in and to the assets and properties (other than
cash) directly associated with the Scheduled Titles, and the sale or other
disposition of any Investments made by the contribution of any of the
Scheduled Titles to a joint venture, partnership or other Person (which may be
a Subsidiary) as permitted by clause (xii) of the definition of Permitted
Investments.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Issuers or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such
Asset Sale, (b) payment of all brokerage commissions, underwriting and other
fees and expenses related to such Asset Sale, (c) provision for minority
interest holders in any Restricted Subsidiary as a result of such Asset Sale
and (d) deduction of appropriate amounts to be provided by the Issuers or a
Restricted Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by the Issuers or a Restricted Subsidiary after such Asset Sale,
including, without limitation, pension and other post employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with the assets sold or disposed of in
such Asset Sale, and (ii) promissory notes and other non-cash consideration
received by the Issuers or any Restricted Subsidiary from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or non-cash
consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of
the property subject to such arrangement (as determined by the Board of
Directors) and (ii) the present value of the notes (discounted at a rate of
10%, compounded annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and which has not yet been
the basis for an Excess Proceeds Offer in accordance with clause (iii)(c), of
the first paragraph of "Certain Covenants--Limitation on Certain Asset Sales".
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Debt shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
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A "Change of Control" means the occurrence of one or more of the following
events: (i) Holdings and BrightView collectively shall cease to own all of the
outstanding Capital Stock of the Company; (ii) prior to a Qualified IPO, (x)
Holdings shall cease to be the managing member of the Company or shall
otherwise cease to have the sole right and authority to exercise control over
the management of the Company, (y) BrightView shall cease to be the managing
member of Holdings or shall otherwise cease to have the sole right and
authority to exercise control over the management of Holdings; or (z) Willis
Stein shall cease to have the power (regardless of whether such power is
exercised) to elect a majority of the Board of Directors of BrightView and
(iii) in connection with or subsequent to a Qualified IPO, any Person or group
of Persons acting in concert as a partnership or other group (other than the
Permitted Holders) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become,
after the date hereof, the "beneficial owner" (within the meaning of such term
under Rule 13d-3 under the Exchange Act) of securities of Holdings or
BrightView or such successor entity representing 20% or more of the combined
voting power of the then outstanding securities of Holdings or BrightView or
such successor entity, as the case may be, ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors, managers or other members of its governing body.
"Commodity Hedge Agreement" shall mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.
"Common Stock" of any Person means all Capital Stock of such Person that s
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will
control the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, Redeemable Dividends, whether paid or accrued,
on Preferred Stock of Subsidiaries of such Person, imputed interest included
in Capitalized Lease Obligations, all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, amortization of
other financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount or premium, if any, and all other
non-cash interest expense (other than interest amortized to cost of sales))
plus, without duplication, all net capitalized interest for such period and
all interest incurred or paid under any guarantee of Indebtedness (including a
guarantee of principal, interest or any combination thereof) of any Person,
plus the amount of all dividends or distributions paid on Disqualified Stock
(other than dividends paid or payable in shares of Capital Stock of the
Company).
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP minus
Permitted Tax Distributions (to the extent such Permitted Tax Distributions
are made)" provided, however, that (a) the Net Income of any Person (the
"other Person") in which the Person in question or any of its Subsidiaries has
less than a 100% interest (which interest does not cause the net income of
such other Person to be consolidated into the net income of the Person in
question in accordance with GAAP) shall be included only to the extent of the
amount of dividends or distributions paid to the Person in question or the
Subsidiary, (b) the Net Income of any Subsidiary of the Person in question
that is subject to any restriction or limitation on the payment of dividends
or the making of other distributions (other than pursuant to the Notes or the
Indenture) shall be excluded to the extent of such restriction or limitation,
(c)(i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (ii) any
net gain (but not loss) resulting from an Asset Sale by the Person in question
or any of its Subsidiaries other than in the ordinary course of business shall
be excluded and (d) extraordinary gains and losses (including any related tax
effects on the Issuers) shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Designated Senior Indebtedness" as to the Company or any Guarantor, as the
case may be, means any Senior Indebtedness (a) under the Senior Credit
Facility, or (b) which at the time of determination exceeds $25 million in
aggregate principal amount (or accreted value in the case of Indebtedness
issued at a discount) outstanding or available under a committed facility, and
(i) which is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness" by such Person and (ii) as to
which the Trustee has been given written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its term (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary
of the Company and (ii) any Preferred Stock of the Company, with respect to
either of which, under the terms of such Preferred Stock, by agreement or
otherwise, such Restricted Subsidiary or the Company is obligated to pay
current dividends or distributions in cash during the period prior to the
maturity date of the Notes; provided, however, that Preferred Stock of the
Company or any Restricted Subsidiary thereof that is issued with the benefit
of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Company or
Restricted Subsidiary, which provisions have substantially the same effect as
the provisions of the Indenture described under "Change of Control," shall not
be deemed to be Disqualified Capital Stock solely by virtue of such
provisions.
"EBITDA " means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such income
or profits were included in computing Consolidated Net Income and any
provision for taxes utilized in computing net loss under clause (i) hereof,
plus (iii) Consolidated Interest Expense for such period (but only including
Redeemable Dividends in the calculation of such Consolidated Interest Expense
to the extent that such Redeemable Dividends have not been excluded in the
calculation of Consolidated Net Income), Plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
Consolidated Net Income for such period, plus (vii) to the extent not already
included in Consolidated Net Income, all special management compensation
earned or accrued prior to the Issue Date to the extent paid or accrued in
such Period, plus (viii) Permitted Tax Distributions minus (b) all non-cash
items increasing Consolidated Net Income for such period, all for such Person
and its Subsidiaries determined in accordance with GAAP, except that with
respect to the Issuers each of the foregoing items shall be determined on a
consolidated basis with respect to the Issuers and their Restricted
Subsidiaries only; provided, however, that, for purposes of calculating EBITDA
during any fiscal quarter, cash income from a particular Investment of such
Person shall be included only (x) if cash income has been received by such
Person with respect to such Investment during each of the previous four fiscal
quarters, or (y) if the cash income derived from such Investment is
attributable to Temporary Cash Investments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles consistently applied
as in effect on the date of the Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such person (and "incurrence," "incurred,"
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"incurrable," and "incurring" shall have meanings correlative to the
foregoing); provided that a change in GAAP that results in an obligation of
such Person that exists at such time becoming Indebtedness shall not be deemed
an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and shall also include, to the extent not
otherwise included (i) any Capitalized Lease Obligations, (ii) obligations
secured by a lien to which the property or assets owned or held by such Person
is subject, whether or not the obligation or obligations secured thereby shall
have been assumed (provided, however, that if such obligation or obligations
shall not have been assumed, the amount of such indebtedness shall be deemed
to be the lesser of the principal amount of the obligation or the fair market
value of the pledged property or assets), (iii) guarantees of items of other
Persons which would be included within this definition for such other Persons
(whether or not such items would appear upon the balance sheet of the
guarantor), (iv) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction (provided
that in the case of any such letters of credit, the items for which such
letters of credit provide credit support are those of other Persons which
would be included within this definition for such other Persons), (v) in the
case of the Issuers, Disqualified Capital Stock of the Issuers or any
Restricted Subsidiary thereof, and (vi) obligations of any such Person under
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such Interest Rate Agreement obligations would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP). The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at
such time as determined in conformity with GAAP and (ii) that Indebtedness
shall not include any liability for federal, state, local or other taxes.
Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Interest Rate Agreement" shall mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Investments" means, directly or indirectly, any advance, account receivable
(other than an account receivable arising in the ordinary course of business
or acquired as part of the assets acquired by the Issuers in connection with
an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others
or otherwise), the purchase of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities of, the
acquisition, by purchase or otherwise, of all or substantially all of the
business or assets or stock or other evidence of beneficial ownership of, any
Person or the making of any investment in any Person. Investments shall
exclude (i) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices and (ii) the repurchase of securities
of any Person by such Person.
"Issue Date" means the date the Notes are first issued by the Issuers and
authenticated by the Trustee under the Indenture.
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"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company or BrightView, the aggregate net proceeds received by the Company or
BrightView, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the fair market value thereof, as determined in good faith by the board of
directors, at the time of receipt) and (b) in the case of any exchange,
exercise, conversion or surrender of outstanding securities of any kind for or
into shares of Capital Stock of the Company which is not Disqualified Stock,
the net book value of such outstanding securities on the date of such
exchange, exercise, conversion or surrender (plus any additional amount
required to be paid by the holder to the Company upon such exchange, exercise,
conversion or surrender, less any and all payments made to the holders, e.g.,
on account of fractional shares and less all expenses incurred by the Company
in connection therewith).
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entities one or more Persons to accelerate
the maturity of any Designated Senior Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in
connection with Designated Senior Indebtedness.
"Permitted Holders" means, collectively, Neal Vitale and each Person who
purchased Capital Stock of Holdings, BrightView or Petersen Investment Corp.
pursuant to the Securities Purchase Agreement.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Senior Credit Facility in an amount not to
exceed $260 million less any mandatory prepayments actually made thereunder
(to the extent, in the case of payments of revolving credit indebtedness,
that the corresponding commitments have been permanently reduced) or
scheduled payments actually made thereunder;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Interest Rate Agreements;
(vi) Refinancing Indebtedness;
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(vii) Indebtedness under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(viii) Indebtedness of the type described in, and secured by Liens of the
type described in, clauses (ix) and (xix) of the definition of Permitted
Liens;
(ix) Indebtedness consisting of guarantees made in the ordinary course of
business by the Company or any of its Subsidiaries of obligations of the
Issuers or any of their Subsidiaries, which obligations are otherwise
permitted under this Agreement;
(x) Contingent Obligations of the Company or its Subsidiaries in respect
of customary indemnification and purchase price adjustment obligations
incurred in connection with an Asset Sale; provided that the maximum
assumable liability in respect of all such obligations shall at no time
exceed the gross proceeds actually received by the Company and its
Subsidiaries in connection with such Asset Sale; and
(xi) Purchase Money Indebtedness of the Company and its Subsidiaries and
any refinancings, renewals or replacements of any such Purchase Money
Indebtedness (subject to the limitations on the principal amount thereof
set forth in this clause (iv)), and other Indebtedness that is unsecured
(other than Indebtedness specified in clauses (i) through (x) above), which
Purchase Money Indebtedness and other unsecured Indebtedness shall not
exceed $10 million in the aggregate at any time.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof, in
the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary thereof,
in a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof or (c) such businesses or assets are owned by
the Company or a Restricted Subsidiary;
(iv) an Investment that is made by the Company or a Restricted Subsidiary
thereof in the form of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities that are issued by a third
party to the Issuers or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Limitation on Sale of
Assets";
(v) Investments consisting of (a) purchases and acquisitions of
inventory, supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets, in each case in the ordinary course
of business;
(vi) Investments consisting of loans and advances to employees for
reasonable travel, relocation and business expenses in the ordinary course
of business, extensions of trade credit in the ordinary course of business,
and prepaid expenses incurred in the ordinary course of business;
(vii) without duplication, Investments consisting of Indebtedness
permitted pursuant to clause (iv) under the definition of Permitted
Indebtedness;
(viii) Investments existing on the date of this Indenture;
(ix) Investments of the Company under Interest Rate Agreements;
(x) Investments under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(xi) Investments consisting of endorsements for collection or deposit in
the ordinary course of business;
(xii) Investments consisting of the contribution by the Company to
partnerships, joint ventures or other Persons (including Subsidiaries) of
the Scheduled Titles in exchange for equity interests in such Persons,
provided that all such Investments are made within 365 days after the date
hereof,
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(xiii) Investments consisting of the licensing of publication titles and
other assets pursuant to joint marketing arrangements with other Persons;
and
(xiv) Investments (other than Investments specified in clauses (i)
through (xiii) above) in an aggregate amount, as valued at the time each
such Investment is made, not exceeding $5 million for all such Investments
from and after the date hereof.
"Permitted Liens" means (i) Liens on property or assets of, or any shares of
stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries,
(ii) Liens securing Refinancing Indebtedness; provided that any such Lien does
not extend to or cover any Property, shares or debt other than the Property,
shares or debt securing the Indebtedness so refunded, refinanced or extended,
(iii) Liens in favor of the Issuers or any of their Restricted Subsidiaries,
(iv) Liens securing industrial revenue bonds, (v) Liens to secure Purchase
Money Indebtedness that is otherwise permitted under the Indenture, provided
that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including sales and excise taxes, installation and delivery charges and
other direct costs of, and other direct expenses paid or charged in connection
with, such purchase or construction) of such Property, (b) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of such
costs, and (c) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such item, (vi) statutory liens
or landlords', carriers', warehouseman's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business which do not secure any Indebtedness and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor, (vii) other
Liens securing obligations incurred in the ordinary course of business which
obligations do not exceed $5 million in the aggregate at any one time
outstanding, (viii) any extensions, substitutions, replacements or renewals of
the foregoing, (ix) Liens for taxes, assessments or governmental charges that
are being contested in good faith by appropriate proceedings, (x) Liens
securing Capital Lease Obligations permitted to be incurred under clause (v)
of the definition of "Permitted Indebtedness," provided that such Lien does
not extend to any property other than that subject to the underlying lease,
(xi) Liens securing Designated Senior Indebtedness, (xii) Liens existing on
the date of this Indenture, (xiii) Liens imposed by law, such as Liens of
carriers, warehousemen, mechanics, materialmen and landlords, and other
similar Liens incurred in the ordinary course of business for sums not
constituting borrowed money that are not overdue for a period of more than
thirty (30) days or that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with GAAP (if so required), (xiv) Liens incurred in the ordinary
course of business in connection with worker's compensation, unemployment
insurance or other forms of government insurance or benefits, or to secure the
performance of letters of credit, bids, tenders, statutory obligations, surety
and appeal bonds, leases, government contracts and other similar obligations
(other than obligations for borrowed money) entered into in the ordinary
course of business, (xv) any attachment or judgment Lien not constituting an
Event of Default under the Indenture that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
in accordance with GAAP (if so required), (xvi) Liens arising from the filing,
for notice purposes only, of financing statements in respect of operating
leases, (xvii) Liens arising by operation of law in favor of depositary banks
and collecting banks, incurred in the ordinary course of business, (xviii)
Liens consisting of restrictions on the transfer of securities pursuant to
applicable federal and state securities laws (xix) interests of lessors and
licensors under leases and licenses to which the Issuers or any of their
Restricted Subsidiaries is a party and (xx) with respect to any real property
occupied by the Company or any of their Restricted Subsidiaries, all
easements, rights or way, licenses and similar encumbrances on title that do
not materially impair the use of such property of its intended purposes.
"Permitted Tax Distributions" means, subject to the limitations set forth in
clause (v) of the second paragraph under "Certain Covenants-Limitation on
Restricted Payments," distributions by the Company to Holdings and BrightView
from time to time in an amount approximately equal to the income tax liability
of
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such member of the Company (but in the case of Holdings and for so long as
Holdings is treated as a passthrough entity for taxation purposes, to the
income tax liability that Holdings would have if it were required to pay
income taxes) resulting from the taxable income of the Company (after taking
into account all of the Company's prior tax losses, to the extent such losses
have not previously been deemed to reduce the taxable income of the Company
and thereby reduce distributions for taxes in accordance herewith), such
distribution for taxes shall be based on the approximate highest combined tax
rate that applies to any one of the members of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Public Equity Offering" means a public offering by BrightView of shares of
its Common Stock (however designated and whether voting or non-voting) and any
and all rights, warrants or options to acquire such Common Stock; provided,
however, that in connection with any such Public Equity Offering the net
proceeds of such Public Equity Offering are contributed to the Company as
common equity.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of Property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified IPO " shall have the meaning given to such term in the
Securityholders Agreement.
"Redeemable Dividend" means, for any dividend or distribution with regard to
Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to
the issuer of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent
that (i) the Refinancing Indebtedness is subordinated to the Notes to at least
the same extent as the Indebtedness being refunded, refinanced or extended, if
at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or (b)
after the maturity date of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the
maturity date of the Notes has a weighted average life to maturity at the time
such Refinancing Indebtedness is incurred that is equal to or greater than the
weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to
the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid
interest, if any, and premiums owed, if any, not in excess of preexisting
prepayment provisions on such Indebtedness being refunded, refinanced or
extended and (c) the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness, and (v) such Refinancing
Indebtedness is incurred by the same Person that initially incurred the
Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly-Owned Subsidiary of the Company.
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"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock
of the Company or any Restricted Subsidiary of the Company or any payment made
to the direct or indirect holders (in their capacities as such) of Capital
Stock of the Company or any Restricted Subsidiary of the Company (other than
(x) dividends or distributions payable solely in Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Stock), and (y) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the
purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Restricted Subsidiaries (other than
Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the
Company, excluding Disqualified Stock), (iii) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness
which is subordinated in right of payment to the Notes other than subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition, (iv) the making of any Investment or
guarantee of any Investment in any Person other than a Permitted Investment,
(v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
on the basis of the Investment by the Issuers therein and (vi) forgiveness of
any Indebtedness of an Affiliate of the Issuers (other than a Restricted
Subsidiary) to the Issuers or a Restricted Subsidiary. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than
cash shall be valued at its fair market value.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to
such action (and treating any Acquired Indebtedness as having been incurred at
the time of such action), the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or
is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"Scheduled Titles" shall refer to the following publications: Sassy, Sport,
Petersen's Golfing, Mountain Biker, Bicycle Guide, Custom Classic Trucks, Pro
Basketball, Pro Baseball, Pro Football, Pro Hockey, College Basketball,
College Football, Super Street, VW Custom & Classic, Event Scene, Hot Rod
Bikes, 4x4 Power and Family Photo.
"Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as of September 30, 1996, among Holdings, Petersen Investment Corp.,
BrightView, Petersen, Willis Stein and the Purchasers named therein.
"Senior Credit Facility" means the Credit Agreement, dated as of September
30, 1996, among the Company, the lenders listed therein and FBNC, as
administrative agent, and CIBC, as documentation agent, together with the
documents related thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
adding Subsidiaries of the Issuers as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
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"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations
and other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise
entered into in connection with (a) a Indebtedness of the Company owed to
lenders under the Senior Credit Facility, (b) all obligations of the Company
with respect to any Interest Rate Agreement, (c) all obligations of the
Company to reimburse any bank or other person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (d) all other
Indebtedness of the Company which does not provide that it is to rank pari
passu with or subordinate to the Notes and (e) all deferrals, renewals,
extensions and refundings of, and amendments, modifications and supplements
to, any of the Senior Indebtedness described above. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness will not include (i)
Indebtedness of the Company to any of its Subsidiaries, (ii) Indebtedness
represented by the Notes, (iii) any Indebtedness which by the express terms of
the agreement or instrument creating, evidencing or governing the same is
junior or subordinate in right of payment to any item of Senior Indebtedness,
(iv) any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business and (v) Indebtedness
(other than that described in clause (a) above) incurred in violation of the
Indenture.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise or if in accordance with generally accepted accounting principles
such entity is consolidated with the first-named Person for financial
statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by
a bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500,000,000 and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the
Company; provided that a Subsidiary organized or acquired after the Issue Date
may be so classified as an Unrestricted Subsidiary only if such classification
is in compliance with the covenant set forth under "Limitation on Restricted
Payments." The Trustee shall be given prompt notice by the Company of each
resolution adopted by the managing member of the Company under this provision,
together with a copy of each such resolution adopted.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
BOOK ENTRY, DELIVERY AND FORM
The New Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Global
Note"). The Global Note will be deposited upon issuance with the Trustee, as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case
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for credit to an account of a direct or indirect participant as described
below. Notes sold to Accredited Investors may be represented by the Global
Note or, if such an investor may not hold an interest in the Global Note, a
certificated Note.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial Interests in the Global Note may not be exchanged for
Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes."
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the Global Note and (ii) ownership of such interests in the Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or
by the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of
a person having beneficial interests in a Global Note to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Notes, see "--Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respects of the principal of (and premium, if any) and interest
on the Global Note registered in the name of DTC or its nominee will be
payable to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or
will have any responsibility or liability for (i) any aspect or accuracy of
DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global
Note, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Note, or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants.
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DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Note as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
Interests in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants
to whose account with DTC interests in the Global Notes are credited and only
in respect of such portion of the aggregate principal amount of the Notes as
to which such Participant or Participants has or have given such direction.
However, if any of the events described under "--Exchange of Book Entry Notes
for Certificated Notes" occur, DTC reserves the right to exchange the Global
Notes for Notes in certificated form, and to distribute such Notes to its
Participants.
The information in this section concerning DTC, and its book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among accountholders in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company, the Trustee
nor any agent of the Company or Trustee will have any responsibility for the
performance by DTC, or its respective accountholders, indirect participants or
accountholders of their respective obligations under the rules and procedures
governing their operations.
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act; (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Notes. In all
cases, certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules
100
<PAGE>
not discussed below. The Issuers recommend that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for New Notes, including the applicability and effect
of any state, local or foreign tax laws.
The Issuers believe that the exchange of Old Notes for New Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuers have agreed
that for a period of 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale; provided, however, the
Issuers and the Guarantor have no obligation to amend or supplement this
Prospectus unless one of them has received written notice from a Participating
Broker-Dealer of their prospectus delivery requirements under the Exchange Act
within five business days following consummation of the Exchange Offer. In
addition, until , 1997 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the New Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the New Notes by
Participating Broker Dealers. New Notes received by Participating Broker-
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such New Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Issuers have agreed that, for a period of 180 days after the Expiration
Date, they will make copies of this Prospectus available to any Participating
Broker-Dealer for use in connection with resales of the New Notes; provided,
however, that the Issuers have no obligation to amend or supplement this
Prospectus unless they have received written notice from a Participating
Broker-Dealer of its prospectus delivery requirements under the Securities Act
within five days following consummation of the Exchange Offer.
LEGAL MATTERS
The validity of the issuance of the New Notes will be passed upon for the
Issuers by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations). Certain partners of Kirkland & Ellis are limited
partners of Willis Stein.
101
<PAGE>
INDEPENDENT AUDITORS
The financial statements of the publishing division of Petersen Publishing
Company at November 30, 1995 and September 30, 1996 and for each of the three
years in the period ended November 30, 1995 and for the ten months ended
September 30, 1996 appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
The Issuers and Holdings were formed in September 1996 to effect the
Acquisition and, prior thereto, did not have any assets or liabilities or
conduct any operations. The latest period for which financial information is
included herein is as of and for the ten months ended September 30, 1996. As a
result, separate financial statements of the Issuers and Holdings have not
been included herein.
102
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION
Report of Ernst & Young LLP, Independent Auditors................... F-2
Balance Sheets at November 30, 1995 and September 30, 1996.......... F-3
Statements of Income and Divisional Equity (Capital Deficiency) for
the years ended November 30, 1993, 1994 and 1995 and ten months
ended September 30, 1995 (unaudited) and 1996...................... F-4
Statements of Cash Flows for the years ended November 30, 1993, 1994
and 1995 and ten months ended September 30, 1995 (unaudited) and
1996............................................................... F-5
Notes to Financial Statements....................................... F-6
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Petersen Publishing Company
We have audited the accompanying balance sheets of Petersen Publishing
Company, Publishing Division, as of November 30, 1995 and September 30, 1996,
and the related statements of income and divisional equity, and cash flows for
each of the three years in the period ended November 30, 1995 and for the ten
months ended September 30, 1996. Our audits also included the financial
statement schedule listed in Item 21(b) of this Registration Statement. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Petersen Publishing
Company, Publishing Division, at November 30, 1995 and September 30, 1996, and
the results of its operations and its cash flows for each of the three years
in the period ended November 30, 1995 and the ten months ended September 30,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
December 16, 1996
F-2
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,938 $12,453
Short-term investments............................ 3,744 55
Accounts receivable, less allowance for doubtful
accounts of $2,220 in 1995 and $1,871 in 1996.... 18,535 18,777
Inventories....................................... 21,347 8,518
Other prepaid expenses and current assets......... 1,213 1,431
------- -------
Total current assets............................ 54,777 41,234
Property and equipment, net......................... 7,784 5,241
Goodwill, net of accumulated amortization of $1,127
in 1995 and $1,442 in 1996......................... 3,210 2,924
Other assets........................................ 1,037 1,142
------- -------
Total assets.................................... $66,808 $50,541
======= =======
LIABILITIES AND DIVISIONAL EQUITY (CAPITAL DEFICIEN-
CY)
Current liabilities:
Accounts payable.................................. $10,436 $ 5,907
Accrued payroll and related costs................. 6,116 5,614
Customer incentives payable....................... 5,204 5,374
Current portion of unearned subscription revenues,
net of deferred subscription acquisition costs of
$38,161 in 1995 and $40,313 in 1996.............. 26,669 26,443
Other accrued expenses and current liabilities.... 592 687
------- -------
Total current liabilities....................... 49,017 44,025
Unearned subscription revenues, net of deferred
subscription acquisition costs of $31,834 in 1995
and $33,629 in 1996................................ 7,183 6,546
Deferred state income taxes......................... 1,321 1,494
Other noncurrent liabilities........................ 660 148
------- -------
Total liabilities............................... 58,181 52,213
Commitments and contingencies
Divisional equity (capital deficiency).............. 8,627 (1,672)
------- -------
Total liabilities and divisional equity (capital
deficiency).................................... $66,808 $50,541
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
STATEMENTS OF INCOME AND DIVISIONAL EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
---------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Advertising.............. $105,101 $116,608 $123,410 $102,672 $112,025
Newsstand................ 37,507 40,048 39,889 33,326 34,318
Subscriptions............ 39,820 40,710 41,963 35,113 35,177
Other.................... 3,894 4,601 8,353 7,539 7,594
-------- -------- -------- -------- --------
Total net revenues..... 186,322 201,967 213,615 178,650 189,114
Production, selling and
other direct costs
(including rent paid to a
related party of $3,651,
$3,939, $3,875, $3,185 and
$3,778 in 1993, 1994, 1995
and the ten months ended
September 30, 1995 and
1996)..................... 141,562 149,182 171,112 140,436 148,713
-------- -------- -------- -------- --------
Gross profit............... 44,760 52,785 42,503 38,214 40,401
General and administrative
expenses.................. 35,604 33,267 28,145 23,537 24,650
-------- -------- -------- -------- --------
Income from operations..... 9,156 19,518 14,358 14,677 15,751
Interest income............ (317) (476) (549) (428) (537)
Interest expense........... -- -- -- -- 185
Gain on sale of assets..... -- -- -- -- (1,554)
-------- -------- -------- -------- --------
Income before provision for
income taxes.............. 9,473 19,994 14,907 15,105 17,657
Provision for state income
taxes..................... 251 698 549 458 331
-------- -------- -------- -------- --------
Net income................. 9,222 19,296 14,358 14,647 17,326
Divisional equity (capital
deficiency) at beginning
of period................. 4,126 (1,553) 361 361 8,627
Distribution of S
corporation earnings...... -- (26,400) (3,391) (3,300) (21,470)
Net change in advances to
other divisions of the
Company................... (14,901) 9,018 (2,701) (2,077) (6,155)
-------- -------- -------- -------- --------
Divisional equity (capital
deficiency) at end of
period.................... $ (1,553) $ 361 $ 8,627 $ 9,631 $ (1,672)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
---------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 9,222 $ 19,296 $ 14,358 $14,647 $17,326
Adjustments to reconcile
net cash provided by
operating activities:
Depreciation and
amortization............ 3,137 3,118 3,439 2,704 2,704
Allowance for doubtful
accounts................ 740 825 900 750 45
Gain on sale of assets... -- -- -- -- (1,554)
Deferred state income
taxes................... -- 416 406 339 173
Changes in operating assets
and liabilities:
Accounts receivable...... (2,711) (1,758) (197) 2,110 (287)
Inventories.............. (796) (1,204) (11,846) (7,028) 12,829
Other prepaid expenses
and current assets...... (389) (162) (84) 12 (217)
Other assets............. (22) 385 (255) (363) (158)
Accounts payable......... (4,828) 2,116 2,205 (2,443) (4,529)
Accrued payable and
related costs........... 3,123 842 (602) (526) (502)
Customer incentives
payable................. 25 830 355 (13) 170
Unearned subscription
revenues, net........... 1,964 1,542 2,910 (2,485) (863)
Other accrued expenses
and current
liabilities............. 959 1,111 (2,294) (2,337) 95
Other noncurrent
liabilities............. 256 (298) 298 163 (513)
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 10,680 27,059 9,593 5,530 24,719
INVESTING ACTIVITIES
Purchases of property and
equipment................. (4,739) (2,866) (4,423) (3,492) (768)
Purchases of magazines..... (1,850) (1,300) -- -- --
Sales of investments....... 23,963 7,000 6,677 6,677 3,689
Purchases of investments... (17,404) (17,312) -- -- --
Proceeds from sale of
assets.................... -- -- -- -- 2,500
-------- -------- -------- ------- -------
Net cash (used in) provided
by investing activities... (30) (14,478) 2,254 3,185 5,421
FINANCING ACTIVITIES
Proceeds from bank
borrowing................. -- -- -- -- 10,000
Repayment of bank
borrowing................. -- -- -- -- (10,000)
Distribution of S
corporation earnings...... -- (26,400) (3,391) (3,300) (21,470)
Net change in advances to
other divisions of the
Company................... (14,901) 9,018 (2,701) (2,077) (6,155)
-------- -------- -------- ------- -------
Net cash used in financing
activities................ (14,901) (17,382) (6,092) (5,377) (27,625)
-------- -------- -------- ------- -------
Increase (decrease) in cash
and cash equivalents...... (4,251) (4,801) 5,755 3,338 2,515
Cash and cash equivalents
at beginning period....... 13,235 8,984 4,183 4,183 9,938
-------- -------- -------- ------- -------
Cash and cash equivalents
at end of period.......... $ 8,984 $ 4,183 $ 9,938 $ 7,521 $12,453
======== ======== ======== ======= =======
Supplemental information:
Income taxes paid........ $ 563 $ 342 $ 263 $ 120 $ 40
Interest received........ 364 350 741 393 538
Interest paid............ -- -- -- -- 185
</TABLE>
See accompanying notes.
F-5
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE TEN MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Petersen Publishing Company (the "Petersen Company") is a California
corporation which is wholly-owned by the R.E. & M.M. Petersen Living Trust.
The Publishing Division of the Petersen Company ("Petersen") is engaged in the
publishing business with revenues generated primarily from the publication of
various special interest magazines and the sale of related advertising,
principally within the United States. The Petersen Company's other major
division, which is excluded from these financial statements, rents and manages
commercial real estate properties and operates ranch properties.
The Petersen Company has elected to be taxed as an S corporation for federal
and state income tax purposes.
Basis of Presentation
On August 15, 1996, the Company entered into an asset purchase agreement to
sell substantially all of the assets of the Publishing Division to BrightView
Communications Group, Inc. ("BrightView") for approximately $450,000,000, plus
the assumption of certain liabilities. The acquisition was consummated on
September 30, 1996.
Although these financial statements present the Publishing Division's
balance sheet as of the time of the sale, these financial statements have been
prepared as if the Publishing Division will continue as a going concern and as
a division of the Company. No adjustments have been made to reflect the
purchase of assets, the assumption of liabilities by BrightView or the
expenses incurred by Petersen Company related to the sale of Petersen.
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
Cash Equivalents and Short-Term Investments
Cash equivalents consist primarily of debt instruments with maturities of
three months or less at the acquisition date. Short-term investments consist
of state and local government debt securities (considered available-for-sale
securities) with maturities greater than 90 days; however, none of Petersen's
investments have maturities greater than one year. Petersen has no investments
in equity securities. Short-term investments are carried at fair value which
approximates cost.
Inventories
Inventories consist of paper held at a printing company and are stated at
the lower of cost, which approximates the first-in, first-out method, or
market.
Deferred Subscription Acquisition Costs
Deferred subscription acquisition costs consist primarily of agency
commissions paid to obtain subscriptions and are amortized over the life of
the related subscriptions.
Depreciation and Amortization
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 5 years except for leasehold
improvements which are amortized over the lesser of 10 years or the life of
the lease.
F-6
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE TEN MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Goodwill
Goodwill is amortized using the straight-line method over its useful life of
15 years and resulted from the acquisitions of Sport, Bicycle Guide, and Sassy
during fiscal years 1988, 1993, and 1994, respectively.
Income Taxes
The Petersen Company has elected to be taxed as an S corporation for federal
and state income tax purposes. As such, the Petersen Company is not subject to
U.S. federal income taxes or most state income taxes. Petersen reports the
state income taxes to which it is subject under the liability method as
required by Statement No. 109, "Accounting for Income Taxes," issued by the
Financial Accounting Standards Board ("FASB"). Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Revenue Recognition
Advertising revenue, net of provisions for related rebates and discounts, is
recognized at the "on sale" date of the publication containing the
advertisement. Subscription revenue is deferred and recognized pro rata as
fulfilled over the terms of such subscriptions and is recorded net of related
agency commissions. Sales of magazines intended for retail distribution on
newsstands are recorded at the time such publications are available for sale
by distributors to the public and are reduced by an estimated provision for
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
No customer accounted for over 10% of Petersen's revenues. Petersen's
activities occur principally in the United States and revenues from outside
the United States are less than 10% of Petersen's revenues.
Advertising Expenses
Petersen expenses the costs of advertising as incurred. Advertising expense
(in thousands) for the years ended November 30, 1993, 1994 and 1995 and for
the ten months ended September 30, 1995 and 1996, were $437, $495, $732, $718
and $700, respectively.
General and Administrative Expenses
General and administrative expenses incurred by the Petersen Company were
allocated between Petersen and the Real Estate Division with the Real Estate
Division's portion equal to 3% of that Division's revenue which, in the
opinion of Petersen's management, approximates the portion of such expenses
which apply to the Real Estate Division.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
the following methods and assumptions were used by Petersen in estimating its
fair value disclosures for financial instruments:
F-7
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE TEN MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Cash and Cash equivalents: The carrying amounts reported in the balance
sheets approximate its fair value.
Short-term investments: The carrying amounts reported in the balance sheets
approximate their fair value based upon quoted market prices.
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Paper........................................... $16,330 $3,933
Magazines in process............................ 5,017 4,585
------- ------
$21,347 $8,518
======= ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Buildings..................................... $ 518 $ 436
Machinery and equipment....................... 14,164 12,057
Office furniture and fixtures................. 6,447 6,189
------- -------
21,129 18,682
Less accumulated depreciation and
amortization................................. 13,345 13,441
------- -------
$ 7,784 $ 5,241
======= =======
</TABLE>
In February 1996, Petersen sold all of its assets relating to its pre-press
operations for approximately $2,500,000 in cash, resulting in a gain of
$1,554,000.
In March 1995, the Financing Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"), which is effective for the Company in fiscal 1997. The Company does not
expect the adoption of SFAS No. 121 to have a material impact on the Company's
financial position or results of operations.
5. NOTES PAYABLE
As of November 30, 1995, the Petersen Company had $3,000,000 available under
an unsecured revolving line of credit (the "Agreement"). During the ten months
ended September 30, 1996, the Company renegotiated the terms of the Agreement
increasing the amount available under the line to $10,000,000 and borrowed
$10,000,000. The Agreement expires on December 27, 1996 and provides for
interest at a fluctuating rate equal to the London Inter-bank Offered Rate
plus 1.0% and is payable quarterly. The Agreement contains certain financial
and nonfinancial covenants. The borrowings were repaid in full in March 1996.
6. INCOME TAXES
The liability for federal income taxes of an S corporation is the obligation
of the Petersen Company's stockholder. Therefore, no provision or liability
for federal income taxes is included in the accompanying financial statements.
The provision for income taxes is comprised of California franchise taxes at a
rate of 1.5%, which is the rate applicable to taxable income of S
corporations, and provisions for income taxes in certain other states in which
Petersen has operations.
F-8
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE TEN MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
State:
Current..................... $ 251 $ 282 $ 143 $ 119 $ 158
Deferred.................... -- 416 406 339 173
-------- -------- -------- -------- --------
$ 251 $ 698 $ 549 $ 458 $ 331
======== ======== ======== ======== ========
</TABLE>
A reconciliation of the provision for income taxes computed by applying the
federal statutory rate of 34% to income before income taxes and the reported
provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
YEARS ENDED NOVEMBER 30, SEPTEMBER 30,
---------------------------- -------------- -----------
1993 1994 1996 1995 1996
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax provision
computed at statutory
federal income tax rate.. $ 3,221 $ 6,798 $ 5,068 $5,136 $6,003
State income taxes........ 251 698 549 458 331
Effect of S Corporation
election................. (3,221) (6,798) (5,068) (5,136) (6,003)
-------- -------- -------- ------ ------
Total provision......... $ 251 $ 698 $ 549 $ 458 $ 331
======== ======== ======== ====== ======
</TABLE>
Petersen had deferred tax assets and liabilities as follows (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax asset:
Accrued liabilities........................... $ 220 $ 205
Deferred tax liabilities:
Subscription acquisition costs................ (1,541) (1,699)
------- --------
Total deferred income tax liability......... $(1,321) $ (1,494)
======= ========
</TABLE>
7. PROFIT-SHARING RETIREMENT PLAN
The Petersen Company has a profit-sharing retirement plan (the "Plan") for
employees, which has been qualified for tax exempt status by the Internal
Revenue Service. Under the Plan, the Petersen Company may, at its discretion,
make annual contributions for all eligible employees not to exceed 15% of
their aggregate annual compensation. Petersen's contributions (in thousands)
to the Plan for the years ended November 30, 1993, 1994 and 1995 and for the
ten months ended September 30, 1995 and 1996 were $3,001, $3,271, $1,294,
$1,080 and $1,083, respectively.
8. COMMITMENTS AND CONTINGENCIES
Leases
Rent expense through November 30, 1994 includes amounts charged by the
Petersen Company's Real Estate Division to Petersen for the use of various
office facilities owned by the Petersen Company which were used by
F-9
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE TEN MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Petersen for its principal operating and corporate headquarters. As of that
date, the Petersen Company sold its corporate headquarters building, which was
first occupied by Petersen in March 1993, to its stockholder and subsequent
thereto Petersen's rent for this facility has been paid to the Petersen
Company's stockholder in accordance with a lease which had an initial term of
15 years and expires November 30, 2009.
In addition to the annual rentals, certain of the leases include renewal
options and require payments of real estate taxes, insurance and other
expenses.
Rent expense is as follows (in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
DIVISION OR
SHAREHOLDER OTHERS TOTAL
----------- ------ ------
<S> <C> <C> <C>
Year ended November 30:
1993........................................... $3,651 $1,290 $4,941
1994........................................... 3,939 1,130 5,069
1995........................................... 3,875 1,575 5,450
Ten months ended:
1995........................................... $3,185 $1,251 $4,436
1996........................................... 3,778 1,627 5,405
</TABLE>
At September 30, 1996, minimum future annual rentals under long-term leases
are as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER OTHERS TOTAL
----------- ------ -------
<S> <C> <C> <C>
1996 (Two months ended November 30).......... $ 766 $ 195 $ 961
1997......................................... 4,676 1,101 5,777
1998......................................... 4,758 906 5,664
1999......................................... 4,841 850 5,691
2000......................................... 4,926 850 5,776
2001......................................... 5,012 850 5,862
Thereafter to 2009........................... 43,387 2,337 45,724
------- ------ -------
$68,366 $7,089 $75,455
======= ====== =======
</TABLE>
Contingencies
Petersen is a party to various legal actions and disputes arising in the
ordinary course of business. Management believes, based on the advice of
counsel, that any resulting liabilities from these actions will not have a
material adverse effect on the financial position of Petersen.
F-10
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... iv
Summary.................................................................. 1
Risk Factors............................................................. 18
The Transactions......................................................... 24
The Investors............................................................ 25
Use of Proceeds.......................................................... 25
Capitalization........................................................... 26
Unaudited Pro Forma Financial Data....................................... 27
Selected Historical Financial Data....................................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 36
Business................................................................. 42
Management............................................................... 56
Certain Transactions..................................................... 61
Security Ownership of Certain Beneficial Owners and Management........... 63
Limited Liability Company Agreement...................................... 64
Description of Senior Credit Facility.................................... 66
The Exchange Offer....................................................... 68
Description of the Notes................................................. 76
Certain Federal Income Tax Consequences.................................. 100
Plan of Distribution..................................................... 101
Legal Matters............................................................ 101
Index to Financial Statements............................................ F-1
Independent Auditors..................................................... F-2
</TABLE>
UNTIL MAY 12, 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------
PROSPECTUS
----------------
$100,000,000
PETERSEN PUBLISHING
COMPANY, L.L.C.
PETERSEN CAPITAL CORP.
OFFER TO EXCHANGE THEIR
11 1/8% SERIES B SENIOR
SUBORDINATED NOTES
DUE 2006
FOR ANY AND ALL OF THEIR
OUTSTANDING 11 1/8%
SENIOR SUBORDINATED NOTES
DUE 2006
FEBRUARY 10, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company. The Company is a limited liability company organized under the
laws of the State of Delaware. Section 18-108 of the Delaware Limited
Liability Company Act provides that, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
Article V of the Company's Limited Liability Company Agreement ("Article V")
provides, among other things, that each natural person, partnership (whether
general or limited), limited liability company, trust, estate, association,
corporation, custodian, nominee or any entity in its own or any representative
capacity ("Person"), who was or is made a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or arbitrative (a
"Proceeding"), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding, by reason of the fact that
such Person, or a Person of which he is the legal representative, is or was a
Member, Managing Member or Officer shall be indemnified by the Company to the
fullest extent permitted by applicable law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar
taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, reasonable attorneys' fees) actually incurred
by such Person in connection with such Proceeding, appeal, inquiry or
investigation, and indemnification under Article V shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder.
Article V also provides that the right to indemnification conferred in
Article V shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Person of the type entitled to be
indemnified under Article V who was, is or is threatened to be, made a named
defendant or respondent in a Proceeding in advance of the final disposition of
the Proceeding and without any determination as to the Person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of the final disposition of a
Proceeding shall be made only upon delivery to the Company of a written
affirmation by such Person of his or her good faith belief that he has met the
standard of conduct necessary for indemnification under Article V and a
written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified Person is
not to be indemnified under Article V or otherwise.
Article V also provides that the Company may purchase and maintain
insurance, at its expense, to protect itself and any Member, Officer or agent
of the Company who is or was serving at the request of the Company as a
manager, director, officer, partner, venturer, proprietor, trustee, employee,
agent or similar functionary of a foreign or domestic limited liability
company, corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any expense, liability or
loss, whether or not the Company would have the power to indemnify such Person
against such expense, liability or loss under Article V.
The Company intents to obtain insurance policies covering all of its
Directors and officers against certain liabilities for actions taken in such
capacities, including liabilities under the Securities Act of 1933.
Capital. Capital is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter
alia, ("Section 145") provides that a Delaware corporation may indemnify any
persons who were, are or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action
II-1
<PAGE>
by or in the right of such corporation), by reason of the fact that such
person is or was an officer, director, employee or agent of such corporation,
or is or was serving at the request of such corporation as a director, officer
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened
to be made, a party to any threatened, pending or completed action or suit by
or in the right of the corporation by reasons of the fact that such person was
a director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
Capital's Certificate of Incorporation provides that, to the fullest extent
permitted by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended, a director of Capital shall not be liable
to Capital or its stockholders for monetary damages for a breach of fiduciary
duty as a director.
Article V of the By-laws of Capital ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he, or a person of whom he is the legal representative, is or was a director
or officer, of the corporation or is or was serving at the request of Capital
as a director, officer, employee, fiduciary, or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by Capital to the fullest extent which it is
empowered to do so by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits Capital to provide
broader indemnification rights than said law permitted the corporation to
provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees actually and reasonably incurred by such person in
connection with such proceeding) and such indemnification shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, Capital shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of Capital.
Article V also provides that persons who are not covered by the foregoing
provisions of Article V and who are or were employees or agents of Capital, or
who are or were serving at the request of Capital as employees or agents of
another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified to the extent authorized at any time or from time to time
by the board of directors.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Article V further provides that Capital may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director,
officer, employee, fiduciary, or agent of Capital or was serving at the
request of Capital as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
II-2
<PAGE>
capacity, whether or not Capital would have the power to indemnify such person
against such liability under Article V.
All of Capital's directors and officers will be covered by insurance policies
intended to be obtained by Capital against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement, dated as of August 15, 1996, by and
between BrightView Communications Group, Inc. ("BrightView") and
Petersen Publishing Company (the "Seller"), as amended by the
Letter Agreement, dated as of September 30, 1996, by and among the
Seller, BrightView, the Company and the Guarantor.**+
3.1.1 Limited Liability Company Agreement, dated as of September 30,
1996, by and among the Company and the Investors.+
3.1.2 Form of Amended and Restated Limited Liability Company Agreement by
and among the Company and the Investors.+
3.2 Certificate of Formation of the Company.**
3.3 Certificate of Incorporation of Capital.**
3.4 By-Laws of Capital.**
3.5 Certificate of Formation of Holdings**
4.1 Indenture, dated as of November 15, 1996, by and among the Company,
Capital, Holdings and certain restricted subsidiaries, as
guarantors and United States Trust Company of New York, as
trustee.**
4.2 Forms of 11 1/8% Senior Subordinated Notes and Series B 11 1/8%
Senior Subordinated Notes.**
4.3 Securities Purchase Agreement, dated November 20, 1996, by and
among the Company, Capital, the guarantor named therein and the
Initial Purchasers.**
4.4 Credit Agreement, dated as of September 30, 1996, by and among the
Company, the Lenders named therein, First Union National Bank of
North Carolina ("First Union"), as Administrative Agent and
Syndication Agent and CIBC, Inc., as Documentation Agent.**+
4.5 Pledge and Security Agreement, dated as of September 30, 1996, by
and between the Company and First Union, as Administrative
Agent.**
4.6 Pledge and Security Agreement, dated as of September 30, 1996, by
and among BrightView, the Guarantor and First Union, as
Administrative Agent.**
4.7 Guaranty, dated as of September 30, 1996, by and among BrightView,
the Guarantor and First Union, as Administrative Agent.**
4.8 Senior Subordinated Credit Agreement, dated as of September 30,
1996, among the Company, the guarantors named therein, the Lenders
named therein and First Union, as Agent.**+
4.9 Registration Rights Agreement, dated as of November 25, 1996, by
and among the Company, the guarantor named therein and First Union
and CIBC Wood Gundy Securities Corp., as Initial Purchasers.**
5.1 Opinion of Kirkland & Ellis.
10.1 License Agreement, dated as of August 15, 1996, by and between
Robert E. Petersen, BrightView and the Seller.**
10.2 Employment Agreement, dated as of August 15, 1996, by and between
BrightView and Robert E. Petersen.**
10.3 Form of Executive Securities Purchase and Employment Agreement by
and among BrightView, the Guarantor, the Company and D. Claeys
Bahrenburg.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.4 Form of Executive Securities Purchase and Employment Agreement by
and among BrightView, the Guarantor, the Company and Neal Vitale.
10.5 Form of Executive Securities Purchase and Employment Agreement by
and among BrightView, the Guarantor, the Company and Richard S.
Willis.
10.6 Securities Purchase Agreement, dated as of September 30, 1996, made
by and among the Guarantor, Petersen Investment Corp., BrightView,
the Seller, Willis Stein & Partners, L.P., and the other Persons
set forth on Schedule A thereto.+
10.7 Securityholders Agreement, dated as of September 30, 1996, among
Petersen Investment Corp., the Guarantor, BrightView and the other
parties thereto.
10.8 Form of Promissory Note from D. Claeys Bahrenburg in favor of
BrightView in the amount of $8,000.
10.9 Form of Promissory Note from D. Claeys Bahrenburg in favor of
BrightView in the amount of $2,000.
10.10 Form of Promissory Note from D. Claeys Bahrenburg in favor of
Holdings in the amount of $198,000.
10.11 Form of Promissory Note from D. Claeys Bahrenburg in favor of
Holdings in the amount of $792,000.
10.12 Form of Promissory Note from Neal Vitale in favor of BrightView in
the amount of $7,500.
10.13 Form of Promissory Note from Neal Vitale in favor of Holdings in the
amount of $742,500.
10.14 Form of Promissory Note from Richard Willis in favor of BrightView
in the amount of $2,000.
10.15 Form of Promissory Note from Richard Willis in favor of Holdings in
the amount of $198,000.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.**
12.2 Statement Regarding Computation of Ratio of Pro Forma Earnings to
Fixed Charges.**
21.1 Subsidiaries of the Company and Capital.**
23.1 Consent of Ernst & Young L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney.**
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- --------
** Previously filed.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II--Petersen Publishing Company, L.L.C.--Valuation and Qualifying
Accounts.
II-4
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bonafide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(5) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
(6) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(8) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(9) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN
PUBLISHING COMPANY, L.L.C. HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA ON FEBRUARY 6, 1997.
PETERSEN PUBLISHING COMPANY, L.L.C.
/s/ Richard S. Willis
By: _________________________________
Richard S. Willis
Executive Vice President and
Chief Financial Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATES
** Chief Executive
- ------------------------------------- Officer and February 6,
D. CLAEYS BAHRENBURG Director of 1997
BrightView*
(Principal
Executive Officer)
** Executive Vice
- ------------------------------------- President--Chief February 6,
RICHARD S. WILLIS Financial Officer 1997
(Principal
Financial and
Accounting Officer)
** Director of
- ------------------------------------- BrightView* February 6,
NEAL VITALE 1997
** Director of
- ------------------------------------- BrightView* February 6,
JAMES D. DUNNING, JR. 1997
** Director of
- ------------------------------------- BrightView* February 6,
LAURENCE H. BLOCH 1997
II-7
<PAGE>
SIGNATURE CAPACITY DATES
** Director of
- ------------------------------------- BrightView* February 6,
AVY H. STEIN 1997
** Director of
- ------------------------------------- BrightView* February 6,
DANIEL H. BLUMENTHAL 1997
** Director of
- ------------------------------------- BrightView* February 6,
STUART KARU 1997
- --------
* BrightView is the Managing Member of Petersen Holdings, L.L.C., which is in
turn the Managing Member of Petersen Publishing Company, L.L.C.
**The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Richard S. Willis
_____________________________________
Richard S. Willis
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN CAPITAL
CORP. HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT ON
FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON FEBRUARY 6,
1997.
Petersen Capital Corp.
/s/ Richard S. Willis
By: _________________________________
Richard S. Willis
Chief Financial Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATES
* Chairman and
- ------------------------------------- Director (Principal February 6,
JAMES D. DUNNING, JR. Executive Officer) 1997
* Chief Financial
- ------------------------------------- Officer (Principal February 6,
RICHARD S. WILLIS Financial and 1997
Accounting Officer)
* Director
- ------------------------------------- February 6,
NEAL VITALE 1997
* Director
- ------------------------------------- February 6,
D. CLAEYS BAHRENBURG 1997
* Director
- ------------------------------------- February 6,
LAURENCE H. BLOCH 1997
* Director
- ------------------------------------- February 6,
AVY H. STEIN 1997
II-9
<PAGE>
SIGNATURE CAPACITY DATES
* Director
- ------------------------------------- February 6,
DANIEL H. BLUMENTHAL 1997
* Director
- ------------------------------------- February 6,
STUART KARU 1997
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Richard S. Willis
- -------------------------------------
Richard S. Willis
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN
HOLDINGS, L.L.C. HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION
STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON FEBRUARY 6,
1997.
Petersen Holdings, L.L.C.
/s/ Richard. S. Willis
By: _________________________________
Richard S. Willis
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATES
** Chairman and
- ------------------------------------- Director of February 6,
JAMES D. DUNNING, JR. BrightView* 1997
(Principal
Executive Officer)
** Chief Financial
- ------------------------------------- Officer and February 6,
LAURENCE H. BLOCH Director of 1997
BrightView*
(Principal
Financial and
Accounting Officer)
** Director of
- ------------------------------------- BrightView* February 6,
NEAL VITALE 1997
** Director of
- ------------------------------------- BrightView* February 6,
D. CLAEYS BAHRENBURG 1997
** Director of
- ------------------------------------- BrightView* February 6,
AVY H. STEIN 1997
** Director of
- ------------------------------------- BrightView* February 6,
DANIEL H. BLUMENTHAL 1997
II-11
<PAGE>
SIGNATURE CAPACITY DATES
** Director of
- ------------------------------------- BrightView* February 6,
STUART KARU 1997
- --------
* BrightView is the Managing Member of Petersen Holdings, L.L.C.
**The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Richard S. Willis
- -------------------------------
Richard S. Willis
Attorney-in-fact
II-12
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ------------------ ----------- --------
ADDITIONS
------------------
(1) (2)
BALANCE CHARGED CHARGED BALANCE
AT TO COSTS TO OTHER AT END
BEGINNING AND ACCOUNTS- DEDUCTIONS- OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- --------- -------- --------- ----------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
November 30, 1994:
Allowance for doubtful
accounts............. $2,340 $825 $(1,033)(a) $2,132
November 30, 1995:
Allowance for doubtful
accounts............. $2,132 $900 $ (812)(a) $2,220
September 30, 1996:
Allowance for doubtful
accounts............. $2,220 $500 $ (849)(b) $1,871
</TABLE>
- --------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries.
(b) Represents a deduction in the allowance for doubtful accounts based on
management's estimate of collectibility as well as amounts written-off
against the allowance for doubtful accounts, net of recoveries.
<PAGE>
Exhibit 3.1.1
================================================================================
________________________________________________
PETERSEN HOLDINGS, L.L.C.
A Delaware Limited Liability Company
________________________________________________
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 30, 1996
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR UNDER
ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION
UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER
RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS..................................................... 1
1.1 Definitions.............................................. 1
1.2 Construction............................................. 7
1.3 Including................................................ 7
ARTICLE II
ORGANIZATION.................................................... 7
2.1 Formation................................................ 7
2.2 Name..................................................... 7
2.3 Registered Office; Registered Agent; Principal Office;
Other Offices............................................ 7
2.4 Purposes................................................. 8
2.5 Powers of the Company.................................... 8
2.6 Foreign Qualification.................................... 10
2.7 Term..................................................... 10
2.8 No State-Law Partnership................................. 10
ARTICLE III
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS......... 10
3.1 Members.................................................. 10
3.2 No Liability of Members.................................. 11
3.3 Initial Capital Contributions............................ 12
3.4 Issuance of Additional Interests; Additional Members..... 12
3.5 Certification of Units................................... 13
3.6 Termination of Class B Common Units and Class C Common
Units.................................................... 13
ARTICLE IV
CAPITAL ACCOUNTS................................................ 13
4.1 Establishment and Determination of Capital Accounts...... 13
4.2 Computation of Amounts................................... 13
4.3 Negative Capital Accounts................................ 14
4.4 Company Capital.......................................... 14
ARTICLE V
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES................ 14
5.1 Generally................................................ 14
5.2 Distributions............................................ 14
5.3 Allocation of Profits and Losses......................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.4 Regulatory and Special Allocations....................... 15
5.5 Tax Distributions........................................ 16
5.6 Tax Allocations: Code Section 704(c)..................... 18
5.7 Securityholders Agreement Provision...................... 18
ARTICLE VI
MANAGEMENT...................................................... 19
6.1 The Managing Member; Delegation of Authority and Duties.. 19
6.2 Officers................................................. 20
ARTICLE VII
EXCULPATION AND INDEMNIFICATION................................. 21
7.1 Performance of Duties; No Liability of Member and
Officers................................................. 21
7.2 Competing Activities..................................... 21
7.3 Transactions Between the Company and the Members......... 22
7.4 Right to Indemnification................................. 22
7.5 Advance Payment.......................................... 22
7.6 Indemnification of Employees and Agents.................. 23
7.7 Appearance as a Witness.................................. 23
7.8 Nonexclusivity of Rights................................. 23
7.9 Insurance................................................ 23
7.10 Savings Clause........................................... 23
ARTICLE VIII
TAXES........................................................... 24
8.1 Tax Returns.............................................. 24
8.2 Tax Matters Partner...................................... 24
ARTICLE IX
BOOKS, REPORTS AND COMPANY FUNDS................................ 24
9.1 Maintenance of Books..................................... 24
9.2 Member Tax Information................................... 24
9.3 Company Funds............................................ 24
ARTICLE X
TRANSFERS AND OTHER EVENTS...................................... 25
10.1 Assignment by Members.................................... 25
10.2 Void Assignment.......................................... 25
10.3 Substituted Member....................................... 25
10.4 Effect of Assignment..................................... 26
10.5 Legend................................................... 26
10.6 Transfer Fees and Expenses............................... 26
10.7 Other Limitations........................................ 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
10.8 Effective Date........................................... 26
10.9 Effect of Incapacity..................................... 27
ARTICLE XI
DISSOLUTION, LIQUIDATION AND TERMINATION........................ 27
11.1 Dissolution.............................................. 27
11.2 Liquidation and Termination.............................. 27
11.3 Cancellation of Certificate.............................. 28
ARTICLE XII
GENERAL/MISCELLANEOUS PROVISIONS................................ 28
12.1 Offset................................................... 28
12.2 Notices.................................................. 28
12.3 Entire Agreement......................................... 29
12.4 Effect of Waiver or Consent.............................. 29
12.5 Amendment or Modification................................ 29
12.6 Binding Effect........................................... 30
12.7 Governing Law; Severability.............................. 30
12.8 Further Assurances....................................... 30
12.9 Waiver of Certain Rights................................. 30
12.10 Indemnification and Reimbursement for Payments on
Behalf of a Member....................................... 30
12.11 Notice to Members of Provisions.......................... 31
12.12 Counterparts............................................. 31
12.13 Consent to Jurisdiction.................................. 31
12.14 Headings................................................. 31
12.15 Remedies................................................. 31
12.16 Severability............................................. 32
</TABLE>
-iii-
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
PETERSEN HOLDINGS, L.L.C.
A DELAWARE LIMITED LABILITY COMPANY
THIS LIMITED LIABILITY COMPANY AGREEMENT of Petersen Holdings, L.L.C.,
dated and effective as of September 30, 1996, is adopted by, and executed and
agreed to, for good and valuable consideration, by BrightView Communications
Group, Inc., a Delaware corporation ("BrightView"), Petersen Investment Corp., a
----------
Delaware corporation ("PIC"), Petersen Publishing Company, a California
---
corporation ("PPC") and the Persons listed as investors on Schedule A hereto as
--- ----------
of the date hereof upon their execution of this Agreement or a counterpart
hereto and each other Person who becomes a Member in accordance with the terms
of this Agreement.
WHEREAS, the Members wish to form a limited liability company pursuant
to the Act by filing a Certificate of Formation of the Company (the
"Certificate") with the Secretary of State of the State of Delaware and by
-----------
entering into this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein made and intending to be legally bound, the Members hereby agree as
follows:
ARTICLE
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms have
-----------
the following meanings:
"Act" means the Delaware Limited Liability Company Act, Title 6,
---
(S)(S)18-101, et seq., and any successor statute, as amended from time to
-- ---
time.
"Additional Interests" has the meaning given that term in Section 3.4.
-------------------- -----------
"Affiliate" of, or a Person "Affiliated" with, a specified Person
--------- ----------
means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
"Agreement" means this Limited Liability Company Agreement, as
---------
executed and as it may be amended, modified, supplemented or restated from
time to time, as the context requires.
"Agent" has the meaning given such term in the Credit Agreement.
-----
<PAGE>
"Book Value" means, with respect to any Company property, the
----------
Company's adjusted basis for federal income tax purposes, adjusted from
time to time to reflect the adjustments required or permitted by Treasury
Regulation Section 1.704-1(b)(2)(iv)(d)--(g); provided that the Book Value
--------
of each asset of the Company shall be adjusted as of the Closing Date (as
such term is defined in the Purchase Agreement) pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(f) in a manner determined by the
Managing Member such that the aggregate Book Value of the Company's assets
(net of the Company's liabilities) as of such date is equal to the
aggregate initial Capital Account balances of the members (immediately
after the Members' actual or deemed Capital Contributions pursuant to
Section 3.3).
-----------
"Capital Account" has the meaning given that term in Section 4.1.
--------------- -----------
"Capital Contribution" means the aggregate contributions made by a
--------------------
Member to the Company pursuant to Article III as of the date in question,
-----------
as shown opposite such Member's name on Schedule A, as the same may be
----------
amended from time to time.
"Cash Inflows" means, with respect to the Investor Members, all cash
------------
payments received by such Investor Members with respect to or in exchange
for the Class A Common Units and Preferred Units purchased by the Investor
Members pursuant to the Securities Purchase Agreement or the Executive
Agreements, but excluding the Executive Securities (whether such payments
are received from the Company or any third party and whether such payments
are received directly for the securities or are received indirectly from
other securities or property received with respect to or in exchange for
the securities). For example, if a security is sold on January 1, 1998 for
a combination of $2,000 in cash and $1,000 in promissory notes, and such
promissory notes pay $1,100 in cash on January 1, 1999, then a Cash Inflow
of $2,000 would have occurred on January 1, 1998 and another Cash Inflow of
$1,100 would have occurred on January 1, 1999.
"Cash Outflows" means, with respect to the Investor Members, all
-------------
payments of cash or property made by such Investor Members (and in the case
of assets contributed by PPC in connection with the Acquisition, the value
thereof as agreed upon by BrightView and PPC at the time of such
contribution) to purchase the Class A Common Units and Preferred Units
purchased by the Investor Members pursuant to the Securityholders Agreement
or the Executive Agreements (but excluding the Executive Securities).
"Certificate" has the meaning given that term in the Preamble.
-----------
"Certificated Interests" has the meaning given that term in Section
---------------------- -------
10.5.
----
"Class A Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class A Common Units in this
Agreement.
-2-
<PAGE>
"Class B Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class B Common Units in this
Agreement.
"Class B IRR Target" means that Investor Members have achieved an IRR
------------------
of 30%.
"Class C Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class C Common Units in this
Agreement.
"Class C IRR Target" means that the Investor Members have achieved an
------------------
IRR of 35%.
"Code" means the Internal Revenue Code of 1986 and any successor
----
statute, as amended from time to time.
"Common Units" means the Class A Common Units, the Class B Common
------------
Units and the Class C Common Units.
"Company" means the Delaware limited liability company formed pursuant
-------
to the Certificate and this Agreement.
"Company Minimum Gain" has the meaning set forth for "partnership
--------------------
minimum gain" in Treasury Regulation Section 1.704-2(d).
"Credit Agreement" means the Credit Agreement, dated as of September
----------------
30, 1996, among Operating LLC, First Union National Bank of North Carolina,
as Administrative Agent (as defined in such Agreement) and Syndication
Agent (as defined in such Agreement), CIBC, Inc., as Documentation Agent
(as defined in such Agreement) and certain banks and other financial
institutions, as amended, modified, supplemented or restated, and including
any agreement pursuant to which indebtedness thereunder is refinanced, as
in effect from time to time.
"Economic Interest" means a Member's or Economic Owner's share of the
-----------------
Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in
the management or affairs of the Company, including the right to vote on,
consent to or otherwise participate in any decision of the Members, or any
right to receive information concerning the business and affairs of the
Company, in each case to the extent provided for herein or otherwise
required by the Act.
"Economic Owner" means any owner of an Economic Interest who is not a
--------------
Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
-3-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Executive Agreement" means each of those certain Executive Securities
-------------------
Purchase and Employment Agreements between BrightView, the Company,
Operating LLC and each of Claeys Bahrenburg and Neil Vitale, as each such
agreement may be amended, modified, supplemented or restated from time to
time.
"Executive Member" means each of the Members identified on Schedule A
---------------- ----------
hereto as an "Executive," so long as such Person is a Member.
"Executive Securities" has the meaning given such term in the
--------------------
Securityholders Agreement.
"Fiscal Year" of the Company means the calendar year.
-----------
"Fiscal Quarter" of the Company means each calendar quarter ending
--------------
March 31, June 30, September 30 and December 31.
"Incapacity" or "Incapacitated" means (a) with respect to a natural
---------- -------------
person, the bankruptcy, death, incompetency or insanity of such individual
and (b) with respect to any other Person, the bankruptcy, liquidation,
dissolution or termination of such Person.
"Indemnifying Member" has the meaning given that term in Section
------------------- -------
12.10.
-----
"Initial Member" means each Person identified on Schedule A hereto as
-------------- ----------
of the date hereof who has executed this Agreement or a counterpart hereof.
"Investor Members" means each of the Members identified on Schedule A
---------------- ----------
hereto as an "Investor," so long as such Person is a Member.
"IPO" means an underwritten initial public offering of the Company's
---
or any successor's equity securities under the Securities Act.
"IRR" means the annual interest rate (compounded annually) which, when
---
used to calculate the net present value as of September 30, 1996, of all
(i) Cash Inflows received by the Investor Members through the date of
determination and (ii) Cash Outflows made by the Investor Members through
the date of determination, causes such entire amount to equal zero. The
IRR shall be determined by the Company's regular outside accounting firm.
For purposes of the net present value calculation, each Cash Inflow and
each Cash Outflow specified above shall be deemed to have been received or
made on the first day of the month nearest to the actual date of such
payment.
-4-
<PAGE>
"Losses" means items of Company loss and deduction determined
------
according to Section 4.2.
"Member" means the Initial Members and each Person who is hereafter
------
admitted as a Member in accordance with the terms of this Agreement and the
Act. The Members shall constitute the "members" (as that term is defined
in the Act) of the Company. Notwithstanding any provision of this
Agreement to the contrary, the Members shall constitute a single class or
group of members of the Company for all purposes of the Act and this
Agreement.
"Member Minimum Gain" has the meaning set forth for "partner
-------------------
nonrecourse debt minimum gain" in Treasury Regulation Section 1.704-2(i).
"Member Nonrecourse Deductions" has the meaning set forth for "partner
-----------------------------
nonrecourse deductions" in Treasury Regulation Section 1.704-2(i).
"Membership Interest" means a Member's interest in the Company,
-------------------
including such Member's Economic Interest and the right, if any, to
participate in the management of the business and affairs of the Company,
including the right, if any, to vote on, consent to or otherwise
participate in any decision or action of or by the Members and the right to
receive information concerning the business and affairs of the Company, in
each case to the extent expressly provided in this Agreement or otherwise
required by the Act.
"Officer" means each Person designated as an officer of the Company
-------
pursuant to Section 6.2 for so long as such Person remains an officer
-----------
pursuant to the provisions of Section 6.2.
-----------
"Operating LLC" means Petersen Publishing Company, L.L.C., a Delaware
-------------
limited liability company.
"Percentage Interest" means, at any time with respect to a Member, a
-------------------
percentage equal to a fraction, (a) the numerator of which is the number of
Common Units held by such Member at such time and (b) the denominator of
which is the aggregate number of Common Units held by all Members at such
time, in each case as reflected in the books and records of the Company.
"Person" means a natural person, partnership (whether general or
------
limited), limited liability company, trust, estate, association,
corporation, custodian, nominee or any other individual or entity in its
own or any representative capacity.
"PPC" has the meaning given that term in the introductory paragraph.
---
-5-
<PAGE>
"Preferred Unit" means a Unit representing a fractional part of the
--------------
Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in
this Agreement.
"Prime Rate" shall have the meaning given to the term "Alternate Base
----------
Rate" in the Credit Agreement.
"Proceeding" has the meaning given that term in Section 7.4.
---------- -----------
"Profits" means items of Company income and gain determined according
-------
to Section 4.2.
"Purchase Agreement" means the Asset Purchase Agreement, dated as of
------------------
August 15, 1996, by and among BrightView and PPC, as such agreement may be
amended, modified, supplemented or restated from time to time in accordance
with its terms.
"Public Sale" means any sale of equity securities to the public
-----------
pursuant to an effective registration statement under the Securities Act or
to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar
rule than in force).
"SEC" means the Securities and Exchange Commission or any successor
---
agency thereto that administers the Securities Act and the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"Securityholders Agreement" means the Securityholders Agreement, dated
-------------------------
as of the date hereof, among BrightView, PIC, the Company, and the other
Persons signatory thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Tax Matters Member" has the meaning given to that term in Section
------------------ -------
8.2.
---
"Taxable Year" means the Company's taxable year ending December 31 (or
------------
part thereof, in the case of the Company's last taxable year), or such
other year as is (i) required by Section 706 of the Code or (ii) determined
by the Managing Manager.
"Transfer" has the meaning given that term in Section 10.1.
-------- ------------
"Unit" means a Membership Interest of a Member in the Company
----
representing a fractional part of the Membership Interests of all Members
and shall include Common Units and Preferred Units; provided that any class
--------
of Units issued shall have designations, preferences or special rights set
forth in this Agreement and the Membership Interest represented by such
class of Units shall be determined in accordance with such designations,
preferences or special rights.
-6-
<PAGE>
"Unit Equivalents" means (without duplication with any Units or other
----------------
Unit Equivalents) rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case
exercisable for or convertible or exchangeable into, directly or
indirectly, Units or securities exercisable for or convertible or
exchangeable into Units, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.
"Unpaid Preferred Yield" means at any time an amount equal to the
----------------------
excess, if any, of (a) the aggregate Yield accrued through such date, over
(b) all prior distributions made by the Company to the holders of Preferred
Units pursuant to Section 5.2(a).
--------------
"Unreturned Preferred Capital" means at any time the aggregate Capital
----------------------------
Contributions with respect to the Preferred Units reduced by all prior
distributions made to the holders of Preferred Units by the Company
pursuant to Section 5.2(b).
--------------
"Yield" means at any time an amount calculated on a daily basis
-----
(without daily compounding) at the rate of 12% per annum on (a) the
Unreturned Preferred Capital plus (b) all Unpaid Preferred Yield thereon
determined as of the date thereof if such date is as of the end of a Fiscal
Quarter and otherwise as of the end of the Fiscal Quarter most recently
ended.
Other terms defined in this Agreement have the meanings so given them.
1.2 CONSTRUCTION. Whenever the context requires, the gender of all
------------
words used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
1.3 INCLUDING. Reference in this Agreement to "including,"
---------
"includes" and "include" shall be deemed to be followed by "without limitation."
ARTICLE II
ORGANIZATION
2.1 FORMATION. The Company has been organized as a Delaware limited
---------
liability company by the execution and filing of the Certificate by an
authorized person (within the meaning of the Act), under and pursuant to the
Act. The rights, powers, duties, obligations and liabilities of the Members
shall be determined pursuant to the Act and this Agreement. To the extent that
the rights, powers, duties, obligations and liabilities of any Member are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
-7-
<PAGE>
2.2 NAME. The name of the Company is "Petersen Holdings, L.L.C.," and
----
all Company business shall be conducted in that name or in such other names that
comply with applicable law as the Managing Member may select from time to time.
2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER
------------------------------------------------------------
OFFICES. The registered office of the Company required by the Act to be
- -------
maintained in the State of Delaware shall be the office of the initial
registered agent named in the Certificate or such other office (which need not
be a place of business of the Company) as the Managing Member may designate from
time to time in the manner provided by law. The registered agent of the Company
in the State of Delaware shall be the initial registered agent named in the
Certificate or such other Person or Persons as the Managing Member may designate
from time to time in the manner provided by law. The principal office of the
Company shall be at such place as the Managing Member may designate from time to
time, which need not be in the State of Delaware, and the Company shall maintain
records there. The Company may have such other offices as the Managing Member
may designate from time to time.
2.4 PURPOSES. The nature of the business or purposes to be conducted
--------
or promoted by the Company is to engage in any lawful act or activity for which
limited liability companies may be organized under the Act. The Company may
engage in any and all activities necessary, desirable or incidental to the
accomplishment of the foregoing. Notwithstanding anything herein to the
contrary, nothing set forth herein shall be construed as authorizing the Company
to possess any purpose or power, or to do any act or thing, forbidden by law to
a limited liability company organized under the laws of the State of Delaware.
2.5 POWERS OF THE COMPANY.
---------------------
(a) Power and Authority. Subject to the provisions of this
-------------------
Agreement, the Company shall have the power and authority to take any and all
actions necessary, appropriate, proper, advisable, convenient or incidental to
or for the furtherance of the purposes set forth in Section 2.4, including the
-----------
power:
(1) to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by the
Act in any state, territory, district or possession of the United
States, or in any foreign country that may be necessary, convenient or
incidental to the accomplishment of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, refinance, improve,
lease, sell, convey, mortgage, transfer, demolish or dispose of any
real or personal property that may be necessary, convenient or
incidental to the accomplishment of the purpose of the Company;
-8-
<PAGE>
(iii) to enter into, perform and carry out contracts of any
kind, including contracts with any Member or any Affiliate thereof, or
any agent of the Company necessary to, in connection with, convenient
to or incidental to the accomplishment of the purpose of the Company;
(iv) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge,
or otherwise dispose of, and otherwise use and deal in and with,
shares or other interests in or obligations of domestic or foreign
corporations, associations, general or limited partnerships (including
the power to be admitted as a partner thereof and to exercise the
rights and perform the duties created thereby), trusts, limited
liability companies (including the power to be admitted as a member or
appointed as a manager thereof and to exercise the rights and perform
the duties created thereby) or individuals or direct or indirect
obligations of the United States or of any government, state,
territory, governmental district or municipality or of any
instrumentality of any of them;
(v) to lend money for any proper purpose, to invest and
reinvest its funds and to take and hold real and personal property for
the payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
(vii) to appoint employees and agents of the Company and define
their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the Act and to
obtain any and all types of insurance;
(ix) to cease its activities and cancel its Certificate;
(x) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any lease, contract or security agreement
in respect of any assets of the Company;
(xi) to borrow money and issue evidences of indebtedness and
guaranty indebtedness (whether of the Company or any of its
subsidiaries), and to secure the same by a mortgage, pledge or other
lien on the assets of the Company;
(xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or
against the Company or to hold such proceeds against the payment of
contingent liabilities; and
-9-
<PAGE>
(xiii) to make, execute, acknowledge and file any and all documents
or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
(b) Managing Member. Subject to the provisions of this Agreement, (i)
the Company, and the Managing Member on behalf of the Company, may enter into
and perform any and all documents, agreements and instruments contemplated
hereby, all without any further act, vote or approval of any Member and (ii) the
Managing Member may authorize any Person (including any Member or Officer) to
enter into and perform any document on behalf of the Company.
(c) Merger. Subject to the provisions of this Agreement and the
------
Securityholders Agreement, the Company may, with approval of the Managing Member
and without the need for any further act, vote or approval of any Member, merge
with, or consolidate into, another limited liability company (organized under
the laws of Delaware or any other state), a corporation (organized under the
laws of Delaware or any other state) or other business entity (as defined in
Section 18-209(a) of the Act), regardless of whether the Company is the survivor
of such merger or consolidation.
2.6 FOREIGN QUALIFICATION. The Managing Member shall cause the Company to
---------------------
comply with all requirements necessary to qualify the Company as a foreign
limited liability company in any jurisdiction in which the Company owns property
or transacts business to the extent, in the reasonable judgment of the Managing
Member, such qualification or registration is necessary or advisable for the
protection of the limited liability of the Members or to permit the Company
lawfully to own property or transact business. The Managing Member may and, at
the request of the Managing Member or any officer, each Member shall, execute,
acknowledge, swear to and deliver any or all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue or terminate the Company as a foreign limited liability company in all
such jurisdictions in which the Company may conduct business.
2.7 TERM. The term of the Company commenced on the date the Certificate
----
was filed with the office of the Secretary of State of Delaware and shall
continue in existence until December 31, 2026 or dissolution prior thereto as
determined under Section 11.1.
------------
2.8 NO STATE-LAW PARTNERSHIP. The Members intend that the Company shall
------------------------
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Member, Economic Owner or Officer shall be a partner
or joint venturer of any other Member, Economic Owner or Officer, for any
purposes other than federal and, if applicable, state tax purposes, and this
Agreement shall not be construed to the contrary. The Members intend that the
Company shall be treated as a partnership for federal and, if applicable, state
income tax purposes, and each Member and the Company shall file all tax returns
and shall otherwise take all tax and financial reporting positions in a manner
consistent with such treatment.
-10-
<PAGE>
ARTICLE III
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 MEMBERS.
-------
(a) Names, etc. Subject to the following sentence, the
----------
names, residence, business or mailing addresses, Capital Contributions and the
Units of the Members are set forth on Schedule A, as such Schedule shall be
----------
amended from time to time in accordance with the terms of this Agreement. Any
reference in this Agreement to Schedule A shall be deemed to be a reference to
----------
Schedule A as amended and in effect from time to time. Each Person listed on
- ----------
Schedule A, upon (i) his or its execution of this Agreement or counterpart
thereof and (ii) receipt (or deemed receipt) of such Person's Capital
Contribution as set forth on Schedule A, is hereby admitted to the Company as a
Member of the Company.
(b) Loans by Members. No Member, as such, shall be required
----------------
to lend any funds to the Company or to make any additional contribution of
capital to the Company, except as otherwise required by applicable law or by
this Agreement. Any Member may, with the approval of the Managing Member, make
loans to the Company, and any loan by a Member to the Company shall not be
considered to be a Capital Contribution.
(c) Representations and Warranties of Members. Each Member
-----------------------------------------
hereby represents and warrants to and acknowledges with the Company that: (i)
such Member has such knowledge and experience in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Company and making an informed investment decision with respect thereto; (ii)
such Member is able to bear the economic and financial risk of an investment in
the Company for an indefinite period of time; (iii) such Member is acquiring
interests in the Company for investment only and not with a view to, or for
resale in connection with, any distribution to the public or public offering
thereof; (iv) the interests in the Company have not been registered under the
securities laws of any jurisdiction and cannot be disposed of unless they are
subsequently registered and/or qualified under applicable securities laws and
the provisions of this Agreement have been complied with; (v) the execution,
delivery and performance of this Agreement have been duly authorized by such
Member and do not require such Member to obtain any consent or approval that has
not been obtained and do not contravene or result in a default under any
provision of any law or regulation applicable to such Member or other governing
documents or any agreement or instrument to which such Member is a party or by
which such Member is bound and (vi) this Agreement is valid, binding and
enforceable against such Member in accordance with its terms.
3.2 NO LIABILITY OF MEMBERS.
-----------------------
(a) No Liability. Except as otherwise required by
applicable law and as expressly set forth in this Agreement, no Member shall
have any personal liability whatever in such Member's capacity as a Member,
whether to the Company, to any of the other Members, to the creditors of the
Company or to any other third party, for the debts, liabilities, commitments or
any other obligations of the Company or for any losses of the Company. Each
Member shall be liable
-11-
<PAGE>
only to make such Member's Capital Contribution to the Company and the other
payments provided expressly herein.
(b) Distribution. In accordance with the Act and the laws of the
State of Delaware, a member of a limited liability company may, under certain
circumstances, be required to return amounts previously distributed to such
member. It is the intent of the Members that no distribution to any Member
pursuant to Article V hereof shall be deemed a return of money or other property
---------
paid or distributed in violation of the Act. The payment of any such money or
distribution of any such property to a Member shall be deemed to be a compromise
within the meaning of the Act, and the Member receiving any such money or
property shall not be required to return to any Person any such money or
property. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to
make any such payment, such obligation shall be the obligation of such Member
and not of any other Member.
3.3 INITIAL CAPITAL CONTRIBUTIONS. Each Member shall make a Capital
-----------------------------
Contribution to the Company in cash or assets or evidence of indebtedness in the
amount set forth opposite such Member's name on Schedule A hereto. Upon receipt
----------
of the Capital Contribution set forth opposite such Member's name on Schedule A,
----------
each Member shall be deemed to own the number of Preferred Units and Common
Units set forth opposite such Member's name on Schedule A.
----------
3.4 ISSUANCE OF ADDITIONAL INTERESTS; ADDITIONAL MEMBERS.
----------------------------------------------------
(a) Additional Interests. Subject to Section 10.7 and Article VI
-------------------- ------------ ----------
of the Securityholders Agreement, the Managing Member shall have the right to
cause the Company to issue or sell to any Person (including Members and
Affiliates of Members) any of the following (which for purposes of this
Agreement shall be "Additional Interests"): (i) additional Membership Interests
--------------------
or other interest-in the Company (including new classes or series thereof having
different rights); (ii) obligations, evidences of indebtedness or other
securities orinterests convertible into or exchangeable for Membership Interests
or other interests in the Company; and (iii) warrants, options or other rights
to purchase or otherwise acquire Membership Interests or other interests in the
Company. The Managing Member shall determine the terms and conditions governing
the issuance of such Additional Interests, including the number and designation
of such Additional Interests, the preference (with respect to distributions, in
liquidation or otherwise) over any other Membership Interests and any required
contributions in connection therewith.
(b) Additional Members and Interests. In order for a Person to be
--------------------------------
admitted as a Member of the Company with respect to an Additional Interest: (i)
such Person shall have delivered to the Company a written undertaking to be
bound by the terms and conditions of this Agreement and shall have delivered
such documents and instruments as the Managing Member determines to be necessary
or appropriate in connection with the issuance of such Additional Interest to
such Person or to effect such Person's admission as a Member; and (ii) the
Managing Member or the Secretary of the Company shall amend Schedule A without
----------
the further vote, act or consent of any other Person to reflect such new Person
as a Member. Upon the amendment of Schedule A, such
----------
-12-
<PAGE>
Person shall be deemed to have been admitted as a Member and shall be listed as
such on the books and records of the Company and thereupon shall be issued his
or its Membership Interest, including any Economic Interest that corresponds to
and is part of such Membership Interest. If an Additional Interest is issued to
an existing Member, the Managing Member or the Secretary of the Company shall
amend Schedule A without the further vote, act or consent or any other Person to
----------
reflect the-issuance of such Additional Interest and, upon the amendment of such
Schedule A, such Member shall be issued his or its Additional Interest,
- ----------
including any Economic Interest that corresponds to and is part of such
Additional Interest.
3.5 CERTIFICATION OF UNITS. The Company may in its discretion issue
----------------------
certificates to the Members representing the Membership Interest held by each
Member.
3.6 TERMINATION OF CLASS B COMMON UNITS AND CLASS C COMMON UNITS. If
------------------------------------------------------------
an employee of the Company or any of its Subsidiaries ceases to be employed by
the Company and its Subsidiaries for any reason, each Class B Common Unit and
Class C Common Unit issued to such employee shall automatically terminate upon
such termination of employment regardless of the reason therefor.
ARTICLE IV
CAPITAL ACCOUNTS
4.1 ESTABLISHMENT AND DETERMINATION OF CAPITAL ACCOUNTS. A capital
---------------------------------------------------
account ("Capital Account") shall be established for each Member on the books of
---------------
the Company initially reflecting an amount equal to such Member's initial
Capital Contribution pursuant to Section 3.3. Each Member's Capital Account
-----------
shall be (a) increased by any additional Capital Contributions made by such
Member pursuant to the terms of this Agreement and such Member's share of items
of income and gain allocated to such Member pursuant to Article V, (b) decreased
---------
by such Member's share of items of loss, deduction and expense allocated to such
Member pursuant to Article V and any distributions to such Member of cash or the
---------
fair market value of any other property (net of liabilities assumed by such
Member and liabilities to which such property is subject) distributed to such
Member and (c) adjusted as otherwise required by the Code and the regulations
thereunder, including but not limited to, the rules of Treasury Regulation
Section 1.704-1(b)(2)(iv). Any references in this Agreement to the Capital
Account of a Member shall be deemed to refer to such Capital Account as the same
may be increased or decreased from time to time as set forth above.
4.2 COMPUTATION OF AMOUNTS. For purposes of computing the amount of
----------------------
any item of Company income, gain, loss or deduction to be allocated pursuant to
Article IV and to be reflected in the Capital Accounts, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes
(including any method of depreciation, cost recovery or amortization used for
this purpose), provided that:
--------
-13-
<PAGE>
(a) The computation of all items of income, gain, loss and deduction
shall include tax-exempt income and those items described in Treasury Regulation
Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are
-
not-includable in gross income or are not deductible for federal income tax
purposes.
(b) If the Book Value of any Company property is adjusted pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f), the amount of such
- -
adjustment shall be taken into account as gain or loss from the disposition of
such property.
(c) Items of income, gain, loss or deduction attributable to the
disposition of Company property having a Book Value that differs from its
adjusted basis for tax purposes shall be computed by reference to the Book Value
of such property.
(d) Items of depreciation, amortization and other cost recovery
deductions with respect to Company property having a Book Value that differs
from its adjusted basis for tax purposes shall be computed by reference to the
property's Book Value in accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(g).
-
(e) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
-
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis).
4.3 NEGATIVE CAPITAL ACCOUNTS. No Member shall be required to pay to the
-------------------------
Company or any other Member any deficit or negative balance which may exist from
time to time in such Member's Capital Account.
4.4 COMPANY CAPITAL. No Member shall be paid interest on any Capital
---------------
Contribution to the Company or on such Member's Capital Account, and no Member
shall have any right (a) to demand the return of such Member's Capital
Contribution or any other distribution from the Company (whether upon
resignation, withdrawal or otherwise), except upon dissolution of the Company
pursuant to Article XI hereof or (b) to cause a partition of the Company's
----------
assets.
ARTICLE V
DISTRIBUTIONS; ALLOCATIONS OF
PROFITS AND LOSSES
5.1 GENERALLY. Subject to the provisions of Section 18-607 of the Act and
---------
Section 5.5, the Managing Member shall have sole discretion regarding the
- -----------
amounts and timing of distributions to Members, in each case subject to the
retention and establishment of reserves of, or payment to third parties of, such
funds as it deems necessary with respect to the reasonable business needs of the
Company which shall include the payment or the making of provision for the
payment
-14-
<PAGE>
when due of the Company's obligations, including the payment of any management
or administrative fees and expenses or any other obligations.
5.2 DISTRIBUTIONS. Subject to Section 5.5, distributions to be made on
------------- -----------
any date shall be made in the following order and priority:
(a) First, if any Preferred Units are outstanding, to the holders of
-----
Preferred Units pro rata according to their ownership of Preferred Units until
the aggregate distributions with respect to the Preferred Units made pursuant to
this Section 5.2(a) reduces the aggregate Unpaid Preferred Yield to zero; and
--------------
(b) Second, if any Preferred Units are outstanding, to the holders of
------
Preferred Units pro rata according to their ownership of Preferred Units until
the aggregate distributions with respect to the Preferred Units made pursuant to
this Section 5.2(b) reduces the aggregate Unreturned Preferred Capital to zero;
--------------
and
(c) Third, if the Class B IRR Target has not been achieved, to the
-----
holders of Class A Common Units in proportion to their ownership of Class A
Common Units; and
(d) Fourth, if the Class B IRR Target has been achieved but the Class
------
C IRR Target has not been achieved, to the holders of Class A Common Units and
Class B Common Units in proportion to their ownership of Class A Common Units
and Class B Common Units; and
(e) Fifth, if the Class C IRR Target has been achieved, to the
-----
holders of Class A Common Units, Class B Common Units and Class C Common Units
in proportion to their ownership of Class A Common Units, Class B Common Units
and Class C Common Units.
5.3 ALLOCATION OF PROFITS AND LOSSES. For each Fiscal Year of the
--------------------------------
Company, after adjusting each Member's Capital Account for all Capital
Contributions and distributions during such Fiscal Year and all special
allocations pursuant to Section 5.4 with respect to such Fiscal Year, all
-----------
Profits and Losses (other than Profits and Losses specially allocated pursuant
to Section 5.4) shall be allocated to the Members' Capital Accounts in a manner
-----------
such that, as of the end of such Fiscal Year, the Capital Account of each Member
(which may be either a positive or negative balance) shall be equal to (a) the
amount which would be distributed to such Member, determined as if the Company
were to liquidate all of its assets for the Book Value thereof and distribute
the proceeds thereof pursuant to Section 11.2 hereof, minus (b) the sum of (i)
------------ -----
such Member's share of Company Minimum Gain (as determined according to Treasury
Regulation Sections 1.704-2(d) and (g)(3)) and Member Minimum Gain (as
determined according to Treasury Regulation Section 1.704-2(i)) and (ii) the
amount, if any, which such Member is obligated to contribute to the capital of
the Company as of the last day of such Fiscal Year. Notwithstanding anything to
the contrary contained herein, during the entire term of the Company, the
Managing Member (i) shall be allocated not less than one percent (1%) of each
material item of income, gain, loss and deduction of the Company and (ii) shall
maintain a Capital Account balance of not less than one percent (1%) of the
total Capital Account balances of the Members.
-15-
<PAGE>
5.4 REGULATORY AND SPECIAL ALLOCATIONS. Notwithstanding the
----------------------------------
provisions of Section 5.3:
-----------
(a) If there is a net decrease in Company Minimum Gain during
any Taxable Year, each Member shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-
2(g). The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2). This paragraph is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Deductions shall be allocated in the
manner required by Treasury Regulation Section 1.704-2(i). Except as otherwise
provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net
decrease in Member Minimum Gain during any Taxable Year, each Member that has a
share of such Member Minimum Gain shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to that Member's share of the net decrease in Member
Minimum Gain. Items to be allocated pursuant to this paragraph shall be
determined in accordance with Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2). This paragraph is intended to comply with the minimum gain
chargeback requirements in Treasury Regulation Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.
(c) If any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of taxable income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the adjusted capital account deficit (determined according to Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)) created by such adjustments,
allocations or distributions as quickly as possible. This paragraph is intended
to comply with the qualified income offset requirement in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) The allocations set forth in paragraphs (a), (b) and (c)
above (the "Regulatory Allocations") are intended to comply with certain
----------------------
requirements of the Treasury Regulations under Code Section 704. Notwithstanding
any other provisions of this Article V (other than the Regulatory Allocations),
---------
the Regulatory Allocations shall be taken into account in allocating Profits and
Losses among Members so that, to the extent possible, the net amount of such
allocations of Profits and Losses and other items and the Regulatory Allocations
(including Regulatory Allocations that, although not yet made, are expected to
be made in the future) to each Member shall be equal to the net amount that
would have been allocated to such Member if the Regulatory Allocations had not
occurred.
-16-
<PAGE>
5.5 TAX DISTRIBUTIONS.
-----------------
(a) Notwithstanding Sections 5.1 and 5.2 above, so long as the
------------ ---
Managing Member has not determined in good faith that such distribution would be
prohibited or create a default or event of default under the Act or any
financing agreement to which the Company is subject, then (i) at least ten
business days before each date prescribed by the Code for calendar year
corporations to pay quarterly installments of estimated tax, the Company shall
distribute to the Members an amount of cash equal to the excess of (x) the
Quarterly Estimated Tax Amount for the quarter of the Taxable Year with respect
to which such distribution is being made over (y) the amount of Distributions
(if any) previously made pursuant to Section 5.2 during such quarter; (ii) if
-----------
the aggregate amount of such distributions with respect to any Taxable Year is
less than the Company's Tax Amount for such Taxable Year, the Company shall
distribute an amount of cash equal to the balance of such Tax Amount ("Shortfall
---------
Distributions"); and (iii) the Company shall use its best efforts to make such
- -------------
Shortfall Distributions at, on or before the date prescribed by the Code
(without extensions) for calendar year corporations to file federal income tax
returns. If the aggregate amount of such distributions under this Section 5.5
-----------
with respect to any Taxable Year exceeds the Company's Tax Amount for such
Taxable Year, the Company's obligations to make future distributions to such
Member pursuant to this Section 5.5 shall be reduced by the amount of such
-----------
excess until such excess has been fully deducted from such distributions.
(b) The Company's "Tax Amount" for a Taxable Year shall be the
----------
federal, state, and local income taxes which would be payable by the Company if
the Company were taxed for such Taxable Year at the highest marginal federal,
state and local income tax rate applicable to any Member on the Company's
taxable income for the Taxable Year (treating Yield as an item which is not
deductible in computing such taxable income) (computed as if the Company had
elected to carry forward all loss and credit carryovers, taking into account the
character of any loss and credit carry forward as a capital or ordinary loss).
The amounts in respect of tax withholding on payments to or from the Company for
which Members (or owners directly or indirectly of such Members) are credited
under applicable tax law shall be credited against payments of the Tax Amount to
such Members. The Company's Tax Amount shall be determined initially by the
Managing Member on the basis of figures set forth on IRS Form 1065 filed by the
Company and the similar state or local forms filed by the Company but shall be
subject to subsequent adjustment pursuant to audit, litigation, settlement,
amended return, or the like.
(c) The Company's "Estimated Tax Amount" for a Taxable Year (or
--------------------
Fiscal Period) shall be the Company's Tax Amount for such Taxable Year (or
Fiscal Period) as estimated from time to time by the Manager. In making such
estimate, the Manager shall take into account amounts shown on IRS Form 1065
filed by the Company and similar state or local forms filed by the Company for
the preceding taxable year and other adjustments as in the reasonable business
judgment of the Manager are necessary or appropriate to reflect the estimated
operations of the Company for the Taxable Year (or Fiscal Period). The Company's
"Quarterly Estimated Tax Amount" for any quarter of a Taxable Year shall be the
------------------------------
excess of (x) the product of (I) 1/4 in the case of the first quarter of the
Taxable Year, 1/2 in the case of the second quarter of the Taxable Year, 3/4 in
the case of the third quarter of the Taxable Year and 1 in the case of the
fourth quarter of the
-17-
<PAGE>
Taxable Year and (II) the Company's Estimated Tax Amount for such Taxable Year
over (y) all prior distributions of Quarterly Estimated Tax Amounts for such
Taxable Year.
(d) Such portion of the distributions pursuant to Section 5.5(a)
--------------
as is determined in good faith by the Managing Member to be appropriate, based
on the share of the Company's taxable income allocated to Members on account of
their ownership of each class of Common Units, shall be distributed to Members
holding Common Units of such Class, in proportion to their Common Units of such
class and such distribution shall be considered a distribution to Members under
Section 5.2(c), 5.2(d) or 5.2(e), as appropriate. Any remaining portion of the
distributions pursuant to Section 5.5(a) shall be treated as a distribution
--------------
pursuant to, and shall be made in accordance with, Section 5.2(a).
--------------
(e) Each distribution pursuant to Section 5.5(a) shall be made
--------------
to the Persons shown on the Company's books and records as Members as of the
date of such distribution.
5.6 TAX ALLOCATIONS: CODE SECTION 704(C).
------------------------------------
(a) The income, gains, losses, deductions and expenses of the
Company shall be allocated, for federal, state and local income tax purposes,
among the Members in accordance with the allocation of such income, gains,
losses, deductions and expenses among the Members for computing their Capital
Accounts, except that if any such allocation is not permitted by the Code or
other applicable law, the Company's subsequent income, gains, losses, deductions
and expenses shall be allocated among the Members for tax purposes to the extent
permitted by the Code and other applicable law, so as to reflect as nearly as
possible the allocation set forth herein in computing their Capital Accounts.
(b) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, deduction and expense with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its fair market value at the time of contribution under the
remedial allocation method described in Treas. Reg. (S)1.704-3(d).
(c) If the Book Value of any Company asset is adjusted pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) as provided in the
definition of Book Value, subsequent allocations of items of taxable income,
gain, loss, deduction and expense with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credit, tax credit recapture, and any
items related thereto shall be allocated to the Members according to their
interests in such items as determined by the Managing Member taking into account
the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
-18-
<PAGE>
(e) Any elections or other decisions relating to such
allocations shall be made by the Managing Member in any manner that reasonably
reflects the purpose and intent of this Agreement. Allocations pursuant to this
Section 5.6 are solely for purposes of federal, state and local taxes and shall
- -----------
not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of profits, losses, other items or distributions
pursuant to any provisions of this Agreement.
5.7 SECURITYHOLDERS AGREEMENT PROVISION. Notwithstanding anything to
-----------------------------------
the contrary contained in this Agreement, the provisions of Section 4.1(a)(iii)
-------------------
and Section 4.1(b) of the Securityholders Agreement shall be considered to be
--------------
modifications of the provisions related to distributions set forth in this
Article V.
- ---------
ARTICLE VI
MANAGEMENT
6.1 THE MANAGING MEMBER; DELEGATION OF AUTHORITY AND DUTIES.
-------------------------------------------------------
(a) Members and Managing Member. Except as otherwise required by
---------------------------
the Act, the business and affairs of the Company shall be managed by or under
the direction of a "manager"(as that term is defined in the Act) who shall be a
-------
Member (the "Managing Member"). The initial Managing Member shall be BrightView.
----------------
Except as otherwise expressly provided for in this Agreement, the Members hereby
consent to the exercise by the Managing Member of all such powers and rights
conferred on them by the Act with respect to the management and control of the
Company. Notwithstanding the foregoing and except as explicitly set forth in
this Agreement, if a vote, consent or approval of the Members is required by the
Act or other applicable law with respect to any act to be taken by the Company
or matter considered by the Managing Member, the Members agree that they shall
be deemed to have consented to or approved such act or voted on such matter in
accordance with the determination of the Managing Member on such act or matter.
No Member, in his or its capacity as a Member, shall have any power to act for,
sign for or do any act that would bind the Company. The Managing Member shall
devote such time and effort to the affairs of the Company as he or it may deem
appropriate for the oversight of the management and affairs of the Company.
(b) Delegation by Managing Member. The Managing Member shall
have the power and authority to delegate to one or more other Persons the
Managing Member's rights and powers to manage and control the business and
affairs of the Company, including to delegate to agents and employees of a
Member or the Company (including Officers), and to delegate by a written
agreement with, or otherwise to, other Persons. The Managing Member may
authorize any Person (including, without limitation, any Member or Officer) to
enter into and perform under any document on behalf of the Company.
-19-
<PAGE>
(c) Resignation. The Managing Member may resign by delivering his or
-----------
its written resignation to the Company. Such resignation shall be effective
fourteen (14) business days following receipt of such resignation by the Company
unless some later time is specified in such resignation.
(d) Removal. The initial Managing Member may not be removed. Any
-------
subsequent Managing Member may be removed only by PIC.
(e) Vacancy. If a vacancy in the position of Managing Member should
-------
for any reason occur, a replacement Managing Member shall be appointed by PIC.
Any subsequent Managing Member may be removed only by PIC.
(f) Compensation. The Managing Member shall not be entitled to
------------
compensation from the Company in connection with its activities as Managing
Member; provided that the foregoing shall not prevent the Managing Member from
--------
receiving reimbursement for out-of-pocket expenses incurred by the Managing
Member on behalf of the Company, receiving distributions as a Member pursuant to
this Agreement or otherwise receiving compensation from the Company for actions
unrelated to its activities as Managing Member.
(g) Committees. The Managing Member may, from time to time, designate
----------
one or more committees. Any such committee, to the extent provided in the
enabling resolution and until dissolved by the Managing Member, shall have and
may exercise any or all of the authority of the Managing Member. At every
meeting of any such committee, the presence of a majority of all the
representatives thereof shall constitute a quorum, and the affirmative vote of a
majority of the representatives present shall be necessary for the adoption of
any resolution. The Managing Member may dissolve any committee at any time.
6.2 OFFICERS.
--------
(a) Designation and Appointment. The Managing Member may, from
---------------------------
time to time, employ and retain Persons as may be necessary or appropriate for
the conduct of the Company's business, including employees, agents and other
Persons (any of whom may be a Member) who may be designated as Officers of the
Company, with titles including but not limited to "chief executive officer,"
"chairman," "president," vice president," "treasurer," "secretary," "general
manager," "director" and "chief financial officer," as and to the extent
authorized by the Managing Member. Any number of offices may be held by the same
person. In its discretion, the Managing Member may choose not to fill any office
for any period as it may deem advisable. Officers need not be residents of the
State of Delaware or Members. Any Officers so designated shall have such
authority and perform such duties as the Managing Member may, from time to time,
delegate to them. The Managing Member may assign titles to particular Officers.
Each Officer shall hold office until his successor shall be duly designated and
shall qualify or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. The salaries or other compensation,
if any, of the Officers of the Company shall be fixed from time to time by the
Managing Member.
-20-
<PAGE>
(b) Resignation/Removal. Any Officer may resign as such at any time.
-------------------
Such resignation shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its receipt by the
Company. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation. Any Officer may be
removed as such, either with or without cause at any time by the Managing
Member. Designation of an Officer shall not of itself create any contractual
or employment rights.
(c) Duties of Officers Generally. The Officers, in the performance of
----------------------------
their duties as such, shall owe to the Company duties of loyalty and due care of
the type owed by the officers of a corporation to such corporation and its
stockholders under the laws of the State of Delaware.
(d) Chairman. Subject to the powers of the Managing Member, the
--------
Chairman of the Company shall be in general and active charge of the entire
business and affairs of the Company, and shall be its Chief Executive Officer
and chief policy making Officer.
(e) Chief Financial Officer. The chief financial officer shall keep
-----------------------
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the Company,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital and Units. The chief financial officer shall have the custody of
the funds and securities of the Company, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Managing
Member. The chief financial officer shall have such other powers and perform
such other duties as may from time to time be prescribed by the chief executive
officer or the Managing Member.
ARTICLE VII
EXCULPATION AND INDEMNIFICATION
7.1 PERFORMANCE OF DUTIES; NO LIABILITY OF MEMBER AND OFFICERS.
----------------------------------------------------------
No Member (including the Managing Member) shall have any duty to the Company or
any Member of the Company except as expressly set forth herein or in other
written agreements. No Member (including the Managing Member) or Officer of the
Company shall be liable to the Company or to any Member for any loss or damage
sustained by the Company or to any Member, unless the loss or damage shall have
been the result of gross negligence, fraud or intentional misconduct by the
Member (including the Managing Member) or Officer in question or, in the case of
an Officer, breach of such Person's duties pursuant to Section 6.2(c). In
performing such Person's duties, each such Person shall be entitled to rely in
good faith on the provisions of this Agreement and on information, opinions,
reports or statements (including financial statements and information, opinions,
reports or statements as to the value or amount of the assets, liabilities,
profits or losses of the Company or any facts pertinent to the existence and
amount of assets from which distributions to Members might properly be paid) of
the following other Persons or groups: one or more Officers or employees of the
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Company; any attorney, independent accountant, appraiser or other expert or
professional employed or engaged by or on behalf of the Company, the Managing
Member or any committee of the Managing Member; or any other Person who has
been selected with reasonable care by or on behalf of the Company, the Managing
Member or any committee of the Managing Member in each case as to matters which
such relying Person reasonably believes to be within such other Person's
competence. The preceding sentence shall in no way limit any Person's right to
rely on information to the extent provided in Section 18-406 of the Act. No
Member (including the Managing Member) or Officer of the Company shall be
personally liable under any judgment of a court, or in any other manner, for any
debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort or otherwise, solely by reason of being a
Member or Officer of the Company or any combination of the foregoing.
7.2 COMPETING ACTIVITIES. Except as may otherwise be agreed in
--------------------
writing and subject to the duties and obligations of the Managing Member and
Officers to the Company: (a) the Members and the officers, directors, security
holders, partners, members, managers, agents, employees and Affiliates of each
of them, may engage or invest in, own and/or manage, independently or with
others, any business activity of any type or description, including without
limitation those that might be in direct or indirect competition with the
Company; (b) neither the Company nor any other Member shall have any right in or
to any of such other ventures or activities or to the income or proceeds derived
therefrom; (c) neither the Members nor the officers, directors, securityholders,
partners, members, managers, agents, employees or Affiliates of any of them
shall be obligated to present any investment opportunity or prospective economic
advantage to the Company, even if the opportunity is of the character that, if
presented to the Company, could be taken advantage of by the Company; and (d)
the Members and the officers, directors, securityholders, partners, members,
managers, agents, employees and Affiliates of each of them shall have the right
to hold any investment opportunity or prospective economic advantage for their
own account or to recommend such opportunity to Persons other than the Company.
7.3 TRANSACTIONS BETWEEN THE COMPANY AND THE MEMBERS. Notwithstanding
------------------------------------------------
that it may constitute a conflict of interest, the Members or their Affiliates
may engage in any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service or the
establishment of any salary, other compensation or other terms of employment)
with the Company so long as such transaction is approved by the Managing
Member, or if such transaction is with the Managing Member or one of its
Affiliates, a majority of the votes of the disinterested Members. No Member
shall be deemed by reason of Section 6.1 to have approved any such transaction.
-----------
7.4 RIGHT TO INDEMNIFICATION. Subject to the limitations and
------------------------
conditions as provided in this Article VII, each Person who was or is made a
-----------
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or arbitrative (hereinafter a "Proceeding"), or any appeal in
----------
such a Proceeding or any inquiry or investigation that could lead to such a
Proceeding, by reason of the fact that such Person, or a Person of which such
Person is the legal representative, is or was a Member or Officer shall be
indemnified by the Company to the fullest extent permitted by applicable law,
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<PAGE>
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said law permitted the Company to provide
prior to such amendment) against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, reasonable attorneys' fees) actually incurred by
such Person in connection with such Proceeding, appeal, inquiry or investigation
(each a "Loss"), unless and to the extent that such Loss shall have been the
----
result of gross negligence, fraud or intentional misconduct by such Person, and
indemnification under this Article VII shall continue as to a Person who has
-----------
ceased to serve in the capacity which initially entitled such Person to
indemnity hereunder. The rights granted pursuant to this Article VII shall be
-----------
deemed contract rights, and no amendment, modification or repeal of this Article
-------
VII shall have the effect of limiting or denying any such rights with respect to
- ---
actions taken or Proceedings, appeals, inquiries or investigations arising prior
to any amendment, modification or repeal.
7.5 ADVANCE PAYMENT. The right to indemnification conferred in this
---------------
Article VII shall include the right to be paid or reimbursed by the Company the
- -----------
reasonable expenses incurred by a Person (other than an officer of the Company
or a Subsidiary thereof in respect of claims by the Company or a Subsidiary
thereof against such officer in such officer's capacity as such) of the type
entitled to be indemnified under Section 7.4 who was, is or is threatened to be,
----------
made a named defendant or respondent in a Proceeding in advance of the final
disposition of the Proceeding and without any determination as to the Person's
ultimate entitlement to indemnification; provided, however, that the payment of
such expenses incurred by any such Person in advance of the final disposition of
a Proceeding shall be made only upon delivery to the Company of a written
affirmation by such Person of his or her good faith belief that he has met the
standard of conduct necessary for indemnification under Article VII and a
-----------
written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article VII or otherwise.
-----------
7.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company, at the
---------------------------------------
direction of the Managing Member, may indemnify and advance expenses to an
employee or agent of the Company to the same extent and subject to the same
conditions under which it may indemnify and advance expenses under Sections 7.4
------------
and 7.5.
- -------
7.7 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
-----------------------
this Article VII, the Company may pay or reimburse reasonable out-of-pocket
expenses incurred by a Officer, employee or agent in connection with his
appearance as a witness or other participation in a Proceeding at a time when he
is not a named defendant or respondent in the Proceeding.
7.8 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
------------------------
advancement and payment of expenses conferred in this Article VII shall not be
-----------
exclusive of any other right that a Member, Officer or other Person indemnified
pursuant to this Article VII may have or hereafter acquire under any law (common
-----------
or statutory) or provision of this Agreement.
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<PAGE>
7.9 INSURANCE. The Company may, but is not obligated to, purchase and
---------
maintain insurance, at its expense, to protect itself and any Member, Officer or
agent of the Company who is or was serving at the request of the Company as a
manager, director, officer, partner, venturer, proprietor, trustee, employee,
agent or similar functionary of a foreign or domestic limited liability company,
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any expense, liability or loss, whether
or not the Company would have the power to indemnify such Person against such
expense, liability or loss under this Article VII.
-----------
7.10 SAVINGS CLAUSE. If this Article VII or any portion hereof shall
-------------- -----------
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless each Person indemnified
pursuant to this Article VII as to costs, charges and expenses (including
-----------
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any such Proceeding, appeal, inquiry or investigation to the
full extent permitted by any applicable portion of this Article VII that shall
-----------
not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE VIII
TAXES
8.1 TAX RETURNS. The Company shall cause to be prepared and filed all
-----------
necessary federal and state income tax returns for the Company, and shall make
any elections the Managing Member may deem appropriate and in the best interests
of the Members. Each Member shall furnish to the Company all pertinent
information in its possession relating to Company operations that is necessary
to enable the Company's income tax returns to be prepared and filed.
8.2 TAX MATTERS PARTNER. The Managing Member shall be the "tax
-------------------
matters partner" of the Company pursuant to section 6231(a)(7) of the Code (the
"Tax Matters Member"). The Tax Matters Member shall take such action as may be
------------------
necessary to cause each of the Investor Members and PPC to become a "notice
partner" within the meaning of section 6223 of the Code. The Tax Matters Member
is authorized to represent the Company before the Internal Revenue Service and
any other governmental agency with jurisdiction, and to sign such consents and
to enter into settlements and other agreements with such agencies as the
Managing Member deems necessary or advisable.
ARTICLE IX
BOOKS, REPORTS AND COMPANY FUNDS
9.1 MAINTENANCE OF BOOKS. The Company shall keep books and records of
--------------------
accounts in accordance with U.S. generally accepted accounting principles and
shall keep minutes of the proceedings of its Members and each committee. The
Fiscal Year shall be the accounting year of the Company for financial reporting
purposes.
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<PAGE>
9.2 MEMBER TAX INFORMATION. Within ninety (90) days after the end of
----------------------
each Taxable Year, the Managing Member or Officers will cause to be delivered to
each Person who was a Member or Economic Owner at any time during such Taxable
Year a Form K-1 and such other information, if any, with respect to the Company
as may be necessary for the preparation of such Member's or Economic Owner's
federal, state and local income tax returns, including a statement showing such
Member's or Economic Owner's share of income, gain or loss, expense and credits
for such Taxable Year for federal income tax purposes. Any deficiency for taxes
imposed on any Member or Economic Owner (including penalties, additions to tax
or interest imposed with respect to such taxes) shall be paid by such Member or
Economic Owner, and if paid by the Company, shall be recoverable from such
Member or Economic Owner pursuant to Section 12.10; provided, however, that this
------------- --------
sentence shall not be construed to prevent the operation of Sections 5.5 or
---------------
5.2(c).
- ------
9.3 COMPANY FUNDS. The Company may not commingle the Company's funds
-------------
with the funds of any Member or the funds of any Affiliate of any Member.
ARTICLE X
TRANSFERS AND OTHER EVENTS
10.1 ASSIGNMENT BY MEMBERS. Each Member may sell, assign, transfer,
---------------------
exchange, mortgage, pledge, grant a security interest in, or otherwise dispose
of or encumber (including by operation of law) all or any part of such Member's
Membership Interest (including any Units or other Economic Interest) (each such
event, a "Transfer"), provided that no such Transfer will be effective unless
--------
and until the transferee shall have executed and delivered to the Company an
agreement in form and substance satisfactory to the Managing Member to be bound
by the provisions of this Agreement applicable to the Membership Interest
Transferred, and no such assignment shall relieve the assignor of its
obligations hereunder unless such assignee is admitted as a substitute Member
pursuant to Section 10.3.
------------
10.2 VOID ASSIGNMENT. Any Transfer by any Member in contravention of
---------------
this Agreement shall be void and ineffectual and shall not bind or be recognized
by the Company or any other party. In the event of any Transfer in contravention
of this Agreement, the purported transferee shall have no right to any profits,
losses or distributions of the Company or any other rights of a Member.
10.3 SUBSTITUTED MEMBER.
------------------
(a) An assignee of any Units or other interests in the Company
(or any portion thereof), in accordance with the provisions of this Article X,
---------
shall become a substituted Member entitled to all the rights of a Member with
respect to such assigned interest if and only if (i) the assignor gives the
assignee such right, (ii) the Managing Member has granted its prior written
consent to such assignment and substitution, which consent may be withheld in
the sole discretion of the Managing Member; provided, however, that such consent
-------- -------
by the Managing Member shall not be required after (i) Treasury Regulations are
issued in final form that would authorize the Managing
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<PAGE>
Member to elect alternatively partnership or corporate status for the Company
for federal income tax purposes (the "Check The Box Regulations"); (ii) the
-------------------------
Managing Member has taken such action, if any, as may be necessary or required
by the Check the Box Regulations to maintain the status of the Company as a
partnership for federal income tax purposes; and (iii) the assignee has agreed
in writing to be bound by the provisions of this Agreement.
(b) The Company shall be entitled to treat the record owner of
any Units or other interest in the Company as the absolute owner thereof and
shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as a written assignment of such Units
or other interest in the Company, which assignment is consented to by the
Managing Member (which consent may be withheld in the Managing Member's sole
discretion), is permitted pursuant to the terms and conditions of Section 10.1
------------
and this Section 10.3, has been received and accepted by the Managing Member and
------------
has been recorded on the books of the Company.
(c) Upon the admission of a substituted Member, Schedule A
----------
attached hereto shall be amended to reflect the name, address and Units and
other interests in the Company of such substituted Member and to eliminate the
name and address of and other information relating to the assigning Member with
regard to the assigned Units and other interests in the Company.
10.4 EFFECT OF ASSIGNMENT. Following an assignment of an interest that
--------------------
is permitted under this Article X, the transferee of such interest shall be
---------
treated as having made all of the Capital Contributions in respect of, and
received all of the distributions received in respect of, such interest, shall
succeed to the Capital Account associated with such interest and shall receive
allocations and distributions under Articles V and XI in respect of such
-----------------
interest as if such transferee were a Member.
10.5 LEGEND. In the event that certificates representing Membership
------
Interests are issued ("Certificated Interests"), such certificates will bear the
----------------------
following legend:
"THE INTEREST REPRESENTED BY THIS CERTIFICATE WAS ORIGINALLY
ISSUED AS OF _______ __, 19__, HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE TRANSFER OF THE INTEREST
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS
SPECIFIED IN A LIMITED LIABILITY COMPANY AGREEMENT, AS
AMENDED, GOVERNING THE ISSUER (THE "COMPANY"), BY AND AMONG
CERTAIN INVESTORS. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED BY THE COMPANY TO
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<PAGE>
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
10.6 TRANSFER FEES AND EXPENSES. The transferor and transferee of
--------------------------
any Membership Interest shall be jointly and severally obligated to reimburse
the Company for all reasonable expenses (including attorneys' fees and expenses)
of any Transfer or proposed Transfer of such interest, whether or not
consummated.
10.7 OTHER LIMITATIONS. In order to permit the Company to qualify
-----------------
for the benefit of a "safe harbor" under Code Section 7704, notwithstanding
anything to the contrary in this Agreement, no Transfer shall be permitted or
recognized (within the meaning of Treasury Regulation Section 1.7704-1(d)) by
the Company or the Members if and to the extent that such Transfer would cause
the Company to have more than 100 partners (within the meaning of Treasury
Regulation Section 1.7704-1(h), including the look-through rule in Treasury
Regulation Section 1.7704-1(h)(3)).
10.8 EFFECTIVE DATE. Any Transfer and any related admission of a
--------------
Person as a Member in compliance with this Article X shall be deemed effective
---------
on such date that the transferee or successor in interest complies with the
requirements of this Agreement.
10.9 EFFECT OF INCAPACITY. Except as otherwise provided herein, the
--------------------
Incapacity of a Member shall not dissolve or terminate the Company. In the
event of such Incapacity, the executor, administrator, guardian, trustee or
other personal representative of the Incapacitated Member shall be deemed to be
the assignee of such Member's Economic Interest and may, subject to the terms
and conditions set forth in Section 10.3, become a substituted Member.
------------
ARTICLE
DISSOLUTION, LIQUIDATION AND TERMINATION
11.1 DISSOLUTION. The Company shall be dissolved and its affairs
-----------
shall be wound up on the first to occur of the following:
(a) the expiration of its term pursuant to Section 2.7;
-----------
(b) the unanimous vote of the Investor Members;
(c) resolutions by the Managing Member to dissolve the
Company;
(d) the Incapacity or expulsion of the Managing Member, or the
occurrence of any other event under the Act that terminates the continued
membership of the Managing Member in the Company, unless a majority in
interest of the remaining Members (within the meaning of Revenue Procedure
95-10, as supplemented by Revenue Procedure 94-46, or any successor
thereto) agree in writing to continue the Company within 90 days
thereafter; and
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<PAGE>
(e) the entry of a decree of judicial dissolution of the
Company under Section 18-802 of the Act.
Except as provided in Section 11.1(d), the death, retirement, resignation,
---------------
expulsion, incapacity, bankruptcy or dissolution of a Member, or the occurrence
of any other event that terminates the continued membership of a Member in the
Company, shall not cause a dissolution of the Company, and the Company shall
continue in existence subject to the terms and conditions of this Agreement.
11.2 LIQUIDATION AND TERMINATION. On dissolution of the Company,
---------------------------
the Managing Member or such other or additional Member or Members as designated
by the Managing Member shall act as liquidator(s). The liquidator(s) shall
proceed diligently to wind up the affairs of the Company and make final
distributions as provided herein and in the Act. The costs of liquidation shall
be borne as a Company expense. Until final distribution, the liquidator(s) shall
continue to operate the Company properties with all of the power and authority
of Managing Member and Members, subject to the power of the Managing Member to
remove and replace such liquidator(s). The steps to be accomplished by the
liquidator(s) are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the Company's
assets, liabilities and operations through the last day of the calendar
month in which the dissolution occurs or the final liquidation is
completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the Company
(including, without limitation, all expenses incurred in liquidation) or
otherwise make adequate provision for payment and discharge thereof
(including, without limitation, the establishment of a cash fund for contin
gent liabilities in such amount and for such term as the liquidator may
reasonably determine).
(c) All remaining assets of the Company shall be distributed
to the Members in accordance with Section 5.2 hereof by the end of the
-----------
taxable year of the Company during which the liquidation of the Company
occurs (or, if later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash, evidences of indebtedness and other
securities to be distributed in any liquidation. The distribution of cash
and/or property to a Member in accordance with the provisions of this Section
-------
11.2 constitutes a complete return to the Member of its Capital Contributions
- ----
and a complete distribution to the Member of its interest in the Company and all
the Company's property and constitutes a compromise to which all Members have
consented within the meaning of the Act. To the extent that a Member returns
funds to the Company, it has no claim against any other Member for those funds.
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<PAGE>
11.3 CANCELLATION OF CERTIFICATE. On completion of the distribution
---------------------------
of Company assets as provided herein, the Company is terminated, and shall file
a certificate of cancellation with the Secretary of State of the State of
Delaware, cancel any other filings made pursuant to Section 2.1 and take such
-----------
other actions as may be necessary to terminate the Company.
ARTICLE XII
GENERAL/MISCELLANEOUS PROVISIONS
12.1 OFFSET. Whenever the Company is to pay any sum to any Member,
------
any amounts that Member owes to the Company may be deducted from that sum before
payment; provided that the full amount that would otherwise be distributed shall
be debited from the Member's Capital Account pursuant to Section 4.1.
-----------
12.2 NOTICES. Except as expressly set forth to the contrary in this
-------
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on Schedule A, or such other address (or
----------
facsimile number) as that Member may specify by notice to the other Members.
Any notice, request or consent to the Company or the Managing Member must be
given to the Managing Member or, if appointed, the Secretary of the Company at
the Company's chief executive offices. Whenever any notice is required to be
given by law or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
12.3 ENTIRE AGREEMENT. This Agreement and other written agreements
----------------
among the Members of even date herewith constitute the entire agreement among
the Members relating to the Company and supersedes all prior contracts or
agreements with respect to the Company, whether oral or written.
12.4 EFFECT OF WAIVER OR CONSENT. A waiver or consent, express or
---------------------------
implied, to or of any breach or default by any Person in the performance by
that Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irrespec tive of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
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<PAGE>
12.5 AMENDMENT OR MODIFICATION. This Agreement and any provision
-------------------------
hereof may be amended or modified from time to time only by a written instrument
adopted by the Managing Member and may be amended only with the written consent
of the Managing Member; provided, however, that (a) except as otherwise
expressly provided herein, an amendment or modification (subject to Article VI
----------
of the Securityholders Agreement, other than amendments or modifications adding
new classes of interests or issuing Additional Interests) (x) reducing
disproportionately a Member's Units or other interest in profits or losses or in
distributions, (y) increasing a Member's Capital Contribution or (z) increasing
any other obligation of a Member to the Company in respect of any Membership
Interest in a manner which is disproportionately adverse to such Member relative
to such obligations of other Members in respect of Membership Interests of the
same class or type, shall in each case be effective only with that Member's
consent or (b) an amendment or modification reducing the required interest for
any consent or vote in this Agreement shall be effective only with the consent
or vote of Members having the interest theretofore required. Notwithstanding
the preceding sentence, (i) the Managing Member may amend and modify the
provisions of this Agreement (including Article V) and Schedule A hereto to the
--------- ----------
extent necessary to reflect the issuance of interests (including new classes of
interests, and including the issuance or exercise of Common Unit Equivalents) in
the Company, and admission or substitution of any Member, permitted under this
Agreement and (ii) notwithstanding anything to the contrary in this Agreement,
this Agreement may be amended or modified to the extent necessary to effectuate
the issuance of Additional Interests pursuant to Section 3.4 at the direction of
-----------
the Managing Member.
12.6 BINDING EFFECT. Subject to the restrictions on Transfers set
--------------
forth in this Agreement, this Agreement is binding on and shall inure to the
benefit of the Members and their respective heirs, legal representatives,
successors and permitted assigns.
12.7 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
---------------------------
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE EXCLUDING
ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE
CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event
of a direct conflict between the provisions of this Agreement and any provision
of the Certificate or any mandatory provision of the Act, the applicable
provision of the Certificate or the Act shall control. If any provision of this
Agreement or the application thereof to any Person or circumstance is held
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances is not affected
thereby and that provision shall be enforced to the greatest extent permitted by
law.
12.8 FURTHER ASSURANCES. In connection with this Agreement and the
------------------
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
12.9 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
------------------------
right it may have to demand any distributions or withdrawal of property from the
Company or to maintain
-30-
<PAGE>
any action for dissolution (except pursuant to Section 18-802 of the Act) of the
Company or for partition of the property of the Company.
12.10 INDEMNIFICATION AND REIMBURSEMENT FOR PAYMENTS ON BEHALF OF A
-------------------------------------------------------------
MEMBER. If the Company is obligated to pay any amount to a governmental agency
- ------
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to an Executive Member or any payments to an Executive
Member, federal withholding taxes with respect to foreign Persons, state
personal property taxes, state unincorporated business taxes, etc.), then such
Member (the "Indemnifying Member") shall indemnify the Company in full for the
-------------------
entire amount paid (including, without limitation, any interest, penalties and
expenses associated with such payments). The amount to be indemnified shall be
charged against the Capital Account of the Indemnifying Member, and, at the
option of the Managing Member, either:
------
(a) promptly upon notification of an obligation to indemnify the
Company, the Indemnifying Member shall make a cash payment to the Company
equal to the full amount to be indemnified (and the amount paid shall be
added to the Indemnifying Member's Capital Account but shall not be treated
as a Capital Contribution), or
--
(b) the Company shall reduce distributions that would otherwise be
made to the Indemnifying Member, until the Company has recovered the amount
to be indemnified (provided that the amount of such reduction shall be
deemed to have been distributed for all purposes of this Agreement, but
such deemed distribution shall not further reduce the Indemnifying Member's
Capital Account).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 12.10 shall survive the termination, dissolution, liquidation and
-------------
winding up of the Company and, for purposes of this Section 12.10, the Company
-------------
shall be treated as continuing in existence. The Company may pursue and enforce
all rights and remedies it may have against each Indemnifying Member under this
Section 12.10, including instituting a lawsuit to collect such contribution with
- -------------
interest calculated at Prime Rate plus five percentage points per annum (but not
in excess of the highest rate per annum permitted by law).
12.11 NOTICE TO MEMBERS OF PROVISIONS. By executing this Agreement,
-------------------------------
each Member acknowledges that it has actual notice of (a) all of the provisions
hereof (including, without limitation, the restrictions on the transfer set
forth in Article X and the Securityholders Agreement) and (b) all of the
---------
provisions of the Certificate.
12.12 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
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<PAGE>
12.3 CONSENT TO JURISDICTION. Each Member irrevocably submits to the
-----------------------
non-exclusive jurisdiction of the United States District Court for the Northern
District of Illinois and the state courts of the State of Illinois, sitting in
Chicago, for the purposes of any suit, action or other proceeding arising out of
this Agreement or any transaction contemplated hereby. Each Member further
agrees that service of any process, summons, notice or document by U.S.
certified or registered mail to such Member's respective address set forth above
shall be effective service of process in any action, suit or proceeding in
Illinois with respect to any matters to which it has submitted to jurisdiction
as set forth above in the immediately preceding sentence. Each Member
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in the United States District Court for the Northern
District of Illinois or the state courts of the State of Illinois, sitting in
Chicago, and hereby irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in such court has been brought in an inconvenient forum.
12.4 HEADINGS. The headings used in this Agreement are for the
--------
purpose of reference only and will not otherwise affect the meaning or
interpretation of any provision of this Agreement.
12.15 REMEDIES. The Company and the Members shall be entitled to
--------
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement (including costs of
enforcement) and to exercise any and all other rights existing in their favor.
The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
Company or any Member may in its or his sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation or threatened violation of the provisions of this Agreement.
12.16 SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
* * * * * *
-32-
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement as of the date
first set forth above.
MANAGING MEMBER:
BRIGHTVIEW COMMUNICATIONS GROUP, INC.,
in its capacity as Managing Member and
as a Member
By: /s/ Daniel H. Blumenthal
--------------------------------
Name: Daniel H. Blumenthal
Title: Vice President
MEMBERS:
PETERSEN INVESTMENT CORP.
By: /s/ Daniel H. Blumenthal
--------------------------------
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN PUBLISHING COMPANY
By: /s/ Robert E. Petersen
--------------------------------
Name: Robert E. Petersen
Title: Chairman of the Board
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its: General Partner
By: /s/ Brian J. Richmond
--------------------------------
Name: Brian J. Richmond
Title: General Partner
BANK AMERICA INVESTMENT CORPORATION
By: /s/ Christopher J. Perry
--------------------------------
Name: Christopher J. Perry
Title: Managing Director
<PAGE>
CIVC PARTNERS II
/s/ Christopher J. Perry
By: ___________________________________
Name: Christopher J. Perry
Title: A General Partner
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
/s/ Jay Bloom
By: ___________________________________
Name: Jay Bloom
Title: Managing Director
ALLSTATE INSURANCE COMPANY
/s/ ????
By: ___________________________________
Name: ????
Title: ????
/s/ ?????
By: ___________________________________
Name: ????
Title: ????
FUI, INC.
/s/ L. Watts Hamrich, III
By: ___________________________________
Name: L. Watts Hamrich, III
Title: Senior Vice President
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
/s/ John E. Lindahl
By: ___________________________________
Name: John E. Lindahl
Title: ????
/s/ James D. Dunning, Jr.
________________________________________
James D. Dunning, Jr.
/s/ Laurence H. Bloch
________________________________________
Laurence H. Bloch
<PAGE>
/s/ Stuart Karu
________________________________________
Stuart Karu
/s/ Thomas J. Strauss
________________________________________
Thomas J. Strauss
/s/ Irwin Bard
________________________________________
Irwin Bard
/s/ Bernard Shavitz
________________________________________
Bernard Shavitz
/s/ D. Claeys Bahrenburg
________________________________________
D. Claeys Bahrenburg
/s/ Neal Vitale
________________________________________
Neal Vitale
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Total
Capital Manner of Preferred Preferred Common
Members Notice Address Contribution Contribution Capital Units Units
- ----------- ------------------- ----------------- --------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 3.1.2
================================================================================
________________________________________
PETERSEN HOLDINGS, L.L.C.
A Delaware Limited Liability Company
________________________________________
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 30, 1996
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR UNDER
ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION
UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER
RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS.......................................................................... 1
1.1 Definitions................................................................... 1
1.2 Construction.................................................................. 7
1.3 Including..................................................................... 7
ARTICLE II
ORGANIZATION......................................................................... 7
2.1 Formation..................................................................... 7
2.2 Name.......................................................................... 8
2.3 Registered Office; Registered Agent; Principal Office; Other Offices.......... 8
2.4 Purposes...................................................................... 8
2.5 Powers of the Company......................................................... 8
2.6 Foreign Qualification......................................................... 10
2.7 Term.......................................................................... 10
2.8 No State-Law Partnership...................................................... 10
ARTICLE III
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS.............................. 11
3.1 Members....................................................................... 11
3.2 No Liability of Members....................................................... 12
3.3 Initial Capital Contributions................................................. 12
3.4 Issuance of Additional Interests; Additional Members.......................... 12
3.5 Certification of Units........................................................ 13
3.6 Termination of Class B Common Units and Class C Common Units.................. 13
ARTICLE IV
CAPITAL ACCOUNTS..................................................................... 13
4.1 Establishment and Determination of Capital Accounts........................... 13
4.2 Computation of Amounts........................................................ 13
4.3 Negative Capital Accounts..................................................... 14
4.4 Company Capital............................................................... 14
ARTICLE V
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES..................................... 14
5.1 Generally..................................................................... 14
5.2 Distributions................................................................. 15
5.3 Allocation of Profits and Losses.............................................. 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.4 Regulatory and Special Allocations............................................ 16
5.5 Tax Distributions............................................................. 17
5.6 Tax Allocations: Code Section 704(c).......................................... 18
5.7 Securityholders Agreement Provision........................................... 19
ARTICLE VI
MANAGEMENT........................................................................... 19
6.1 The Managing Member; Delegation of Authority and Duties....................... 19
6.2 Officers...................................................................... 20
ARTICLE VII
EXCULPATION AND INDEMNIFICATION...................................................... 21
7.1 Performance of Duties; No Liability of Member and Officers.................... 21
7.2 Competing Activities.......................................................... 22
7.3 Transactions Between the Company and the Members.............................. 22
7.4 Right to Indemnification...................................................... 22
7.5 Advance Payment............................................................... 23
7.6 Indemnification of Employees and Agents....................................... 23
7.7 Appearance as a Witness....................................................... 23
7.8 Nonexclusivity of Rights...................................................... 23
7.9 Insurance..................................................................... 24
7.10 Savings Clause................................................................ 24
ARTICLE VIII
TAXES................................................................................ 24
8.1 Tax Returns................................................................... 24
8.2 Tax Matters Partner........................................................... 24
ARTICLE IX
BOOKS, REPORTS AND COMPANY FUNDS..................................................... 24
9.1 Maintenance of Books.......................................................... 24
9.2 Member Tax Information........................................................ 25
9.3 Company Funds................................................................. 25
ARTICLE X
TRANSFERS AND OTHER EVENTS........................................................... 25
10.1 Assignment by Members......................................................... 25
10.2 Void Assignment............................................................... 25
10.3 Substituted Member............................................................ 25
10.4 Effect of Assignment.......................................................... 26
10.5 Legend........................................................................ 26
10.6 Transfer Fees and Expenses.................................................... 27
10.7 Other Limitations............................................................. 27
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
10.8 Effective Date................................................................ 27
10.9 Effect of Incapacity.......................................................... 27
ARTICLE XI
DISSOLUTION, LIQUIDATION AND TERMINATION............................................. 27
11.1 Dissolution................................................................... 27
11.2 Liquidation and Termination................................................... 28
11.3 Cancellation of Certificate................................................... 28
ARTICLE XII
GENERAL/MISCELLANEOUS PROVISIONS..................................................... 29
12.1 Offset........................................................................ 29
12.2 Notices....................................................................... 29
12.3 Entire Agreement.............................................................. 29
12.4 Effect of Waiver or Consent................................................... 29
12.5 Amendment or Modification..................................................... 29
12.6 Binding Effect................................................................ 30
12.7 Governing Law; Severability................................................... 30
12.8 Further Assurances............................................................ 30
12.9 Waiver of Certain Rights...................................................... 30
12.10 Indemnification and Reimbursement for Payments on Behalf of a Member.......... 30
12.11 Notice to Members of Provisions............................................... 31
12.12 Counterparts.................................................................. 31
12.13 Consent to Jurisdiction....................................................... 31
12.14 Headings...................................................................... 32
12.15 Remedies...................................................................... 32
12.16 Severability.................................................................. 32
</TABLE>
-iii-
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
PETERSEN HOLDINGS, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
THIS LIMITED LIABILITY COMPANY AGREEMENT of Petersen Holdings, L.L.C.,
dated and effective as of September 30, 1996, is adopted by, and executed and
agreed to, for good and valuable consideration, by BrightView Communications
Group, Inc., a Delaware corporation ("BrightView"), Petersen Investment Corp., a
----------
Delaware corporation ("PIC"), Petersen Publishing Company, a California
---
corporation ("PPC") and the Persons listed as investors on Schedule A hereto as
--- ----------
of the date hereof upon their execution of this Agreement or a counterpart
hereto and each other Person who becomes a Member in accordance with the terms
of this Agreement.
WHEREAS, the Members wish to form a limited liability company pursuant
to the Act by filing a Certificate of Formation of the Company (the
"Certificate") with the Secretary of State of the State of Delaware and by
-----------
entering into this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein made and intending to be legally bound, the Members hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
-----------
have the following meanings:
"30% IRR Executive Percentage" means, at any time, 0.5 times the
----------------------------
quotient obtained by dividing (a) the number of Executive Carry Securities
which are Class A Common Units by (b) the total number of Class A Common
Units outstanding which are not Executive Carry Securities.
"30% IRR Investor Percentage" means, at any time, one minus the 30%
---------------------------
IRR Executive Percentage.
"35% IRR Executive Percentage" means, at any time, the quotient
----------------------------
obtained by dividing (a) the number of Executive Carry Securities which are
Class A Common Units by (b) the total number of Class A Common Units
outstanding which are not Executive Carry Securities.
"35% IRR Investor Percentage" means, at any time, one minus the 35%
---------------------------
IRR Executive Percentage.
<PAGE>
"Act" means the Delaware Limited Liability Company Act, Title 6,
---
(S)(S)18-101, et seq., and any successor statute, as amended from time to
-- ---
time.
"Additional Interests" has the meaning given that term in Section 3.4.
-------------------- -----------
"Affiliate" of, or a Person "Affiliated" with, a specified Person
--------- ----------
means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
"Agreement" means this Limited Liability Company Agreement, as
---------
executed and as it may be amended, modified, supplemented or restated from
time to time, as the context requires.
"Agent" has the meaning given such term in the Credit Agreement.
-----
"Book Value" means, with respect to any Company property, the
----------
Company's adjusted basis for federal income tax purposes, adjusted from
time to time to reflect the adjustments required or permitted by Treasury
Regulation Section 1.704-1(b)(2)(iv)(d)--(g); provided that the Book Value
--------
of each asset of the Company shall be adjusted as of the Closing Date (as
such term is defined in the Purchase Agreement) pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(f) in a manner determined by the
Managing Member such that the aggregate Book Value of the Company's assets
(net of the Company's liabilities) as of such date is equal to the
aggregate initial Capital Account balances of the members (immediately
after the Members' actual or deemed Capital Contributions pursuant to
Section 3.3).
-----------
"Capital Account" has the meaning given that term in Section 4.1.
--------------- -----------
"Capital Contribution" means the aggregate contributions made by a
--------------------
Member to the Company pursuant to Article III as of the date in question,
-----------
as shown opposite such Member's name on Schedule A, as the same may be
----------
amended from time to time.
"Cash Inflows" means, with respect to the Investor Members, all cash
------------
payments received by such Investor Members with respect to or in exchange
for the Class A Common Units and Preferred Units purchased by the Investor
Members pursuant to the Securities Purchase Agreement or the Executive
Agreements, but excluding the Executive Carry Securities (whether such
payments are received from the Company or any third party and whether such
payments are received directly for the securities or are received
indirectly from other securities or property received with respect to or in
exchange for the securities). For example, if a security is sold on
January 1, 1998 for a combination of $2,000 in cash and $1,000 in
promissory notes, and such promissory notes pay $1,100 in cash on January
1, 1999, then a Cash Inflow of $2,000 would have occurred on January 1,
1998 and another Cash Inflow of $1,100 would have occurred on January 1,
1999.
-2-
<PAGE>
"Cash Outflows" means, with respect to the Investor Members, all
-------------
payments of cash or property made by such Investor Members (and in the case
of assets contributed by PPC in connection with the Acquisition, the value
thereof as agreed upon by BrightView and PPC at the time of such
contribution) to purchase the Class A Common Units and Preferred Units
purchased by the Investor Members pursuant to the Securityholders Agreement
or the Executive Agreements (but excluding the Executive Carry Securities).
"Certificate" has the meaning given that term in the Preamble.
-----------
"Certificated Interests" has the meaning given that term in Section
---------------------- -------
10.5.
----
"Class A Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class A Common Units in this
Agreement.
"Class B Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class B Common Units in this
Agreement.
"Class B IRR Target" means that Investor Members have achieved an IRR
------------------
of 30%.
"Class C Common Unit" means a Common Unit representing a fractional
-------------------
part of the Membership Interests of the Members and having the rights and
obligations specified with respect to Class C Common Units in this
Agreement.
"Class C IRR Target" means that the Investor Members have achieved an
------------------
IRR of 35%.
"Code" means the Internal Revenue Code of 1986 and any successor
----
statute, as amended from time to time.
"Common Units" means the Class A Common Units, the Class B Common
------------
Units and the Class C Common Units.
"Company" means the Delaware limited liability company formed pursuant
-------
to the Certificate and this Agreement.
"Company Minimum Gain" has the meaning set forth for "partnership
--------------------
minimum gain" in Treasury Regulation Section 1.704-2(d).
"Credit Agreement" means the Credit Agreement, dated as of September
----------------
30, 1996, among Operating LLC, First Union National Bank of North Carolina,
as Administrative Agent (as defined in such Agreement) and Syndication
Agent (as defined in such Agreement), CIBC, Inc., as Documentation Agent
(as defined in such Agreement) and
-3-
<PAGE>
certain banks and other financial institutions, as amended, modified,
supplemented or restated, and including any agreement pursuant to which
indebtedness thereunder is refinanced, as in effect from time to time.
"Economic Interest" means a Member's or Economic Owner's share of the
-----------------
Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in
the management or affairs of the Company, including the right to vote on,
consent to or otherwise participate in any decision of the Members, or any
right to receive information concerning the business and affairs of the
Company, in each case to the extent provided for herein or otherwise
required by the Act.
"Economic Owner" means any owner of an Economic Interest who is not a
--------------
Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Executive Agreement" means each of those certain Executive Securities
-------------------
Purchase and Employment Agreements between BrightView, the Company,
Operating LLC and each of Claeys Bahrenburg and Neil Vitale, as each such
agreement may be amended, modified, supplemented or restated from time to
time.
"Executive Carry Securities" means (a) the Manager Common Stock and
--------------------------
Common Units acquired by D. Claeys Bahrenburg and Neal Vitale pursuant to
their respective Executive Agreements (other than pursuant to Section 1(a)
of each such agreement) and by certain other Executives pursuant to Section
2D of the Securities Purchase Agreement, (b) any other Common Equity
Securities hereafter issued to employees of or consultants to any of the
Manager, the LLC and Operating LLC which are designated by the Willis Stein
Majority Holders as "Executive Carry Securities," and (c) any Securities of
any of the Issuers issued with respect to Securities referred to in either
clause (a) or (b) above by way of a payment-in-kind, stock dividend or
stock split or in connection with a combination of shares, exchange,
conversion, recapitalization, merger, consolidation or other
reorganization.
"Executive Member" means each of the Members identified on Schedule A
---------------- ----------
hereto as an "Executive," so long as such Person is a Member.
"Fiscal Year" of the Company means the calendar year.
-----------
"Fiscal Quarter" of the Company means each calendar quarter ending
--------------
March 31, June 30, September 30 and December 31.
-4-
<PAGE>
"Incapacity" or "Incapacitated" means (a) with respect to a natural
---------- -------------
person, the bankruptcy, death, incompetency or insanity of such individual
and (b) with respect to any other Person, the bankruptcy, liquidation,
dissolution or termination of such Person.
"Indemnifying Member" has the meaning given that term in Section
------------------- -------
12.10.
"Initial Member" means each Person identified on Schedule A hereto as
-------------- ----------
of the date hereof who has executed this Agreement or a counterpart hereof.
"Investor Members" means each of the Members identified on Schedule A
---------------- ----------
hereto as an "Investor," so long as such Person is a Member.
"IPO" means an underwritten initial public offering of the Company's
---
or any successor's equity securities under the Securities Act.
"IRR" means the annual interest rate (compounded annually) which, when
---
used to calculate the net present value as of September 30, 1996, of all
(i) Cash Inflows received by the Investor Members through the date of
determination and (ii) Cash Outflows made by the Investor Members through
the date of determination, causes such entire amount to equal zero. The
IRR shall be determined by the Company's regular outside accounting firm.
For purposes of the net present value calculation, each Cash Inflow and
each Cash Outflow specified above shall be deemed to have been received or
made on the first day of the month nearest to the actual date of such
payment.
"Losses" means items of Company loss and deduction determined
------
according to Section 4.2.
"Member" means the Initial Members and each Person who is hereafter
------
admitted as a Member in accordance with the terms of this Agreement and the
Act. The Members shall constitute the "members" (as that term is defined
in the Act) of the Company. Notwithstanding any provision of this Agreement
to the contrary, the Members shall constitute a single class or group of
members of the Company for all purposes of the Act and this Agreement.
"Member Minimum Gain" has the meaning set forth for "partner
-------------------
nonrecourse debt minimum gain" in Treasury Regulation Section 1.704-2(i).
"Member Nonrecourse Deductions" has the meaning set forth for "partner
-----------------------------
nonrecourse deductions" in Treasury Regulation Section 1.704-2(i).
"Membership Interest" means a Member's interest in the Company,
-------------------
including such Member's Economic Interest and the right, if any, to
participate in the management of the business and affairs of the Company,
including the right, if any, to vote on, consent to or otherwise
participate in any decision or action of or by the Members and the right to
receive
-5-
<PAGE>
information concerning the business and affairs of the Company, in each
case to the extent expressly provided in this Agreement or otherwise
required by the Act.
"Officer" means each Person designated as an officer of the Company
-------
pursuant to Section 6.2 for so long as such Person remains an officer
-----------
pursuant to the provisions of Section 6.2.
-----------
"Operating LLC" means Petersen Publishing Company, L.L.C., a Delaware
-------------
limited liability company.
"Percentage Interest" means, at any time with respect to a Member, a
-------------------
percentage equal to a fraction, (a) the numerator of which is the number of
Common Units held by such Member at such time and (b) the denominator of
which is the aggregate number of Common Units held by all Members at such
time, in each case as reflected in the books and records of the Company.
"Person" means a natural person, partnership (whether general or
------
limited), limited liability company, trust, estate, association,
corporation, custodian, nominee or any other individual or entity in its
own or any representative capacity.
"PPC" has the meaning given that term in the introductory paragraph.
---
"Preferred Unit" means a Unit representing a fractional part of the
--------------
Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in
this Agreement.
"Prime Rate" shall have the meaning given to the term "Alternate Base
----------
Rate" in the Credit Agreement.
"Proceeding" has the meaning given that term in Section 7.4.
---------- -----------
"Profits" means items of Company income and gain determined according
-------
to Section 4.2.
"Purchase Agreement" means the Asset Purchase Agreement, dated as of
------------------
August 15, 1996, by and among BrightView and PPC, as such agreement may be
amended, modified, supplemented or restated from time to time in accordance
with its terms.
"Public Sale" means any sale of equity securities to the public
-----------
pursuant to an effective registration statement under the Securities Act or
to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar
rule than in force).
<PAGE>
"SEC" means the Securities and Exchange Commission or any successor agency
---
thereto that administers the Securities Act and the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"Securityholders Agreement" means the Securityholders Agreement, dated as
-------------------------
of the date hereof, among BrightView, PIC, the Company, and the other Persons
signatory thereto, as such agreement is amended, modified, supplemented or
restated from time to time.
"Tax Matters Member" has the meaning given to that term in Section 8.2.
------------------ -----------
"Taxable Year" means the Company's taxable year ending December 31 (or part
------------
thereof, in the case of the Company's last taxable year), or such other year as
is (i) required by Section 706 of the Code or (ii) determined by the Managing
Manager.
"Transfer" has the meaning given that term in Section 10.1.
-------- ------------
"Unit" means a Membership Interest of a Member in the Company representing
----
a fractional part of the Membership Interests of all Members and shall include
Common Units and Preferred Units; provided that any class of Units issued shall
--------
have designations, preferences or special rights set forth in this Agreement and
the Membership Interest represented by such class of Units shall be determined
in accordance with such designations, preferences or special rights.
"Unit Equivalents" means (without duplication with any Units or other Unit
----------------
Equivalents) rights, warrants, options, convertible securities, exchangeable
securities, indebtedness or other rights, in each case exercisable for or
convertible or exchangeable into, directly or indirectly, Units or securities
exercisable for or convertible or exchangeable into Units, whether at the time
of issuance or upon the passage of time or the occurrence of some future event.
"Unpaid Preferred Yield" means at any time an amount equal to the excess,
----------------------
if any, of (a) the aggregate Yield accrued through such date, over (b) all prior
distributions made by the Company to the holders of Preferred Units pursuant to
Section 5.2(a).
- --------------
"Unreturned Preferred Capital" means at any time the aggregate Capital
----------------------------
Contributions with respect to the Preferred Units reduced by all prior
distributions made to the holders of Preferred Units by the Company pursuant to
Section 5.2(b).
- --------------
"Yield" means at any time an amount calculated on a daily basis (without
-----
daily compounding) at the rate of 12% per annum on (a) the Unreturned Preferred
Capital plus (b) all Unpaid Preferred Yield thereon determined as of the date
thereof if such date is as of the end of a Fiscal Quarter and otherwise as of
the end of the Fiscal Quarter most recently ended.
-7-
<PAGE>
Other terms defined in this Agreement have the meanings so given them.
1.2 CONSTRUCTION. Whenever the context requires, the gender of all
------------
words used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
1.3 INCLUDING. Reference in this Agreement to "including,"
---------
"includes" and "include" shall be deemed to be followed by "without limitation."
ARTICLE II
ORGANIZATION
2.1 FORMATION. The Company has been organized as a Delaware
---------
limited liability company by the execution and filing of the Certificate by an
authorized person (within the meaning of the Act), under and pursuant to the
Act. The rights, powers, duties, obligations and liabilities of the Members
shall be determined pursuant to the Act and this Agreement. To the extent that
the rights, powers, duties, obligations and liabilities of any Member are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
2.2 NAME. The name of the Company is "Petersen Holdings, L.L.C.,"
----
and all Company business shall be conducted in that name or in such other names
that comply with applicable law as the Managing Member may select from time to
time.
2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER
------------------------------------------------------------
OFFICES. The registered office of the Company required by the Act to be
- -------
maintained in the State of Delaware shall be the office of the initial
registered agent named in the Certificate or such other office (which need not
be a place of business of the Company) as the Managing Member may designate from
time to time in the manner provided by law. The registered agent of the Company
in the State of Delaware shall be the initial registered agent named in the
Certificate or such other Person or Persons as the Managing Member may designate
from time to time in the manner provided by law. The principal office of the
Company shall be at such place as the Managing Member may designate from time to
time, which need not be in the State of Delaware, and the Company shall maintain
records there. The Company may have such other offices as the Managing Member
may designate from time to time.
2.4 PURPOSES. The nature of the business or purposes to be conducted
--------
or promoted by the Company is to engage in any lawful act or activity for which
limited liability companies may be organized under the Act. The Company may
engage in any and all activities necessary, desirable or incidental to the
accomplishment of the foregoing. Notwithstanding anything herein to the
contrary, nothing set forth herein shall be construed as authorizing the Company
to
-8-
<PAGE>
possess any purpose or power, or to do any act or thing, forbidden by law to a
limited liability company organized under the laws of the State of Delaware.
2.5 POWERS OF THE COMPANY.
---------------------
(a) Power and Authority. Subject to the provisions of this
-------------------
Agreement, the Company shall have the power and authority to take any and all
actions necessary, appropriate, proper, advisable, convenient or incidental to
or for the furtherance of the purposes set forth in Section 2.4, including the
-----------
power:
(i) to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by the
Act in any state, territory, district or possession of the United
States, or in any foreign country that may be necessary, convenient or
incidental to the accomplishment of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of property
or otherwise, own, hold, operate, maintain, finance, refinance,
improve, lease, sell, convey, mortgage, transfer, demolish or dispose
of any real or personal property that may be necessary, convenient or
incidental to the accomplishment of the purpose of the Company;
(iii) to enter into, perform and carry out contracts of any
kind, including contracts with any Member or any Affiliate thereof, or
any agent of the Company necessary to, in connection with, convenient
to or incidental to the accomplishment of the purpose of the Company;
(iv) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge,
or otherwise dispose of, and otherwise use and deal in and with,
shares or other interests in or obligations of domestic or foreign
corporations, associations, general or limited partnerships (including
the power to be admitted as a partner thereof and to exercise the
rights and perform the duties created thereby), trusts, limited
liability companies (including the power to be admitted as a member or
appointed as a manager thereof and to exercise the rights and perform
the duties created thereby) or individuals or direct or indirect
obligations of the United States or of any government, state,
territory, governmental district or municipality or of any
instrumentality of any of them;
(v) to lend money for any proper purpose, to invest and
reinvest its funds and to take and hold real and personal property for
the payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
-9-
<PAGE>
(vii) to appoint employees and agents of the Company and define
their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the Act and to
obtain any and all types of insurance;
(ix) to cease its activities and cancel its Certificate;
(x) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any lease, contract or security agreement
in respect of any assets of the Company;
(xi) to borrow money and issue evidences of indebtedness and
guaranty indebtedness (whether of the Company or any of its
subsidiaries), and to secure the same by a mortgage, pledge or other
lien on the assets of the Company;
(xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or
against the Company or to hold such proceeds against the payment of
contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
(b) Managing Member. Subject to the provisions of this
---------------
Agreement, (i) the Company, and the Managing Member on behalf of the Company,
may enter into and perform any and all documents, agreements and instruments
contemplated hereby, all without any further act, vote or approval of any Member
and (ii) the Managing Member may authorize any Person (including any Member or
Officer) to enter into and perform any document on behalf of the Company.
(c) Merger. Subject to the provisions of this Agreement and the
------
Securityholders Agreement, the Company may, with approval of the Managing Member
and without the need for any further act, vote or approval of any Member, merge
with, or consolidate into, another limited liability company (organized under
the laws of Delaware or any other state), a corporation (organized under the
laws of Delaware or any other state) or other business entity (as defined in
Section 18-209(a) of the Act), regardless of whether the Company is the survivor
of such merger or consolidation.
2.6 FOREIGN QUALIFICATION. The Managing Member shall cause the
---------------------
Company to comply with all requirements necessary to qualify the Company as a
foreign limited liability company in any jurisdiction in which the Company owns
property or transacts business to the extent, in the reasonable judgment of the
Managing Member, such qualification or registration is necessary or advisable
for the protection of the limited liability of the Members or to permit the
Company lawfully to own property or transact business. The Managing Member may
and, at the request of
-10-
<PAGE>
the Managing Member or any officer, each Member shall, execute, acknowledge,
swear to and deliver any or all certificates and other instruments conforming
with this Agreement that are necessary or appropriate to qualify, continue or
terminate the Company as a foreign limited liability company in all such
jurisdictions in which the Company may conduct business.
2.7 TERM. The term of the Company commenced on the date the
----
Certificate was filed with the office of the Secretary of State of Delaware and
shall continue in existence until December 31, 2026 or dissolution prior thereto
as determined under Section 11.1.
------------
2.8 NO STATE-LAW PARTNERSHIP. The Members intend that the Company
------------------------
shall not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Member, Economic Owner or Officer
shall be a partner or joint venturer of any other Member, Economic Owner or
Officer, for any purposes other than federal and, if applicable, state tax
purposes, and this Agreement shall not be construed to the contrary. The
Members intend that the Company shall be treated as a partnership for federal
and, if applicable, state income tax purposes, and each Member and the Company
shall file all tax returns and shall otherwise take all tax and financial
reporting positions in a manner consistent with such treatment.
ARTICLE III
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 MEMBERS.
-------
(a) Names, etc. Subject to the following sentence, the names,
-----------
residence, business or mailing addresses, Capital Contributions and the Units of
the Members are set forth on Schedule A, as such Schedule shall be amended from
----------
time to time in accordance with the terms of this Agreement. Any reference in
this Agreement to Schedule A shall be deemed to be a reference to Schedule A as
---------- ----------
amended and in effect from time to time. Each Person listed on Schedule A, upon
----------
(i) his or its execution of this Agreement or counterpart thereof and (ii)
receipt (or deemed receipt) of such Person's Capital Contribution as set forth
on Schedule A, is hereby admitted to the Company as a Member of the Company.
----------
(b) Loans by Members. No Member, as such, shall be required to
----------------
lend any funds to the Company or to make any additional contribution of capital
to the Company, except as otherwise required by applicable law or by this
Agreement. Any Member may, with the approval of the Managing Member, make loans
to the Company, and any loan by a Member to the Company shall not be considered
to be a Capital Contribution.
(c) Representations and Warranties of Members. Each Member
-----------------------------------------
hereby represents and warrants to and acknowledges with the Company that: (i)
such Member has such knowledge and experience in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Company and making an informed investment decision with respect thereto; (ii)
such Member is able to bear the economic and financial risk of an investment in
the
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<PAGE>
Company for an indefinite period of time; (iii) such Member is acquiring
interests in the Company for investment only and not with a view to, or for
resale in connection with, any distribution to the public or public offering
thereof; (iv) the interests in the Company have not been registered under the
securities laws of any jurisdiction and cannot be disposed of unless they are
subsequently registered and/or qualified under applicable securities laws and
the provisions of this Agreement have been complied with; (v) the execution,
delivery and performance of this Agreement have been duly authorized by such
Member and do not require such Member to obtain any consent or approval that has
not been obtained and do not contravene or result in a default under any
provision of any law or regulation applicable to such Member or other governing
documents or any agreement or instrument to which such Member is a party or by
which such Member is bound and (vi) this Agreement is valid, binding and
enforceable against such Member in accordance with its terms.
3.2 NO LIABILITY OF MEMBERS.
-----------------------
(a) No Liability. Except as otherwise required by applicable
------------
law and as expressly set forth in this Agreement, no Member shall have any
personal liability whatever in such Member's capacity as a Member, whether to
the Company, to any of the other Members, to the creditors of the Company or to
any other third party, for the debts, liabilities, commitments or any other
obligations of the Company or for any losses of the Company. Each Member shall
be liable only to make such Member's Capital Contribution to the Company and the
other payments provided expressly herein.
(b) Distribution. In accordance with the Act and the laws of
------------
the State of Delaware, a member of a limited liability company may, under
certain circumstances, be required to return amounts previously distributed to
such member. It is the intent of the Members that no distribution to any Member
pursuant to Article V hereof shall be deemed a return of money or other property
---------
paid or distributed in violation of the Act. The payment of any such money or
distribution of any such property to a Member shall be deemed to be a compromise
within the meaning of the Act, and the Member receiving any such money or
property shall not be required to return to any Person any such money or
property. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to
make any such payment, such obligation shall be the obligation of such Member
and not of any other Member.
3.3 INITIAL CAPITAL CONTRIBUTIONS. Each Member shall make a Capital
-----------------------------
Contribution to the Company in cash or assets or evidence of indebtedness in the
amount set forth opposite such Member's name on Schedule A hereto. Upon receipt
----------
of the Capital Contribution set forth opposite such Member's name on Schedule A,
----------
each Member shall be deemed to own the number of Preferred Units and Common
Units set forth opposite such Member's name on Schedule A.
----------
3.4 ISSUANCE OF ADDITIONAL INTERESTS; ADDITIONAL MEMBERS.
----------------------------------------------------
(a) Additional Interests. Subject to Section 10.7 and Article
-------------------- ------------ -------
VI of the Securityholders Agreement, the Managing Member shall have the right to
- --
cause the Company to
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<PAGE>
issue or sell to any Person (including Members and Affiliates of Members) any of
the following (which for purposes of this Agreement shall be "Additional
----------
Interests"): (i) additional Membership Interests or other interests in the
- ---------
Company (including new classes or series thereof having different rights); (ii)
obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for Membership Interests or other interests in
the Company; and (iii) warrants, options or other rights to purchase or
otherwise acquire Membership Interests or other interests in the Company. The
Managing Member shall determine the terms and conditions governing the issuance
of such Additional Interests, including the number and designation of such
Additional Interests, the preference (with respect to distributions, in
liquidation or otherwise) over any other Membership Interests and any required
contributions in connection therewith.
(b) Additional Members and Interests. In order for a Person to
--------------------------------
be admitted as a Member of the Company with respect to an Additional Interest:
(i) such Person shall have delivered to the Company a written undertaking to be
bound by the terms and conditions of this Agreement and shall have delivered
such documents and instruments as the Managing Member determines to be necessary
or appropriate in connection with the issuance of such Additional Interest to
such Person or to effect such Person's admission as a Member; and (ii) the
Managing Member or the Secretary of the Company shall amend Schedule A without
----------
the further vote, act or consent of any other Person to reflect such new Person
as a Member. Upon the amendment of Schedule A, such Person shall be deemed to
----------
have been admitted as a Member and shall be listed as such on the books and
records of the Company and thereupon shall be issued his or its Membership
Interest, including any Economic Interest that corresponds to and is part of
such Membership Interest. If an Additional Interest is issued to an existing
Member, the Managing Member or the Secretary of the Company shall amend Schedule
--------
A without the further vote, act or consent or any other Person to reflect the
- -
issuance of such Additional Interest and, upon the amendment of such Schedule A,
----------
such Member shall be issued his or its Additional Interest, including any
Economic Interest that corresponds to and is part of such Additional Interest.
3.5 CERTIFICATION OF UNITS. The Company may in its discretion issue
----------------------
certificates to the Members representing the Membership Interest held by each
Member.
3.6 TERMINATION OF CLASS B COMMON UNITS AND CLASS C COMMON UNITS. If
------------------------------------------------------------
an employee of the Company or any of its Subsidiaries ceases to be employed by
the Company and its Subsidiaries for any reason, each Class B Common Unit and
Class C Common Unit issued to such employee shall automatically terminate upon
such termination of employment regardless of the reason therefor.
ARTICLE IV
CAPITAL ACCOUNTS
4.1 ESTABLISHMENT AND DETERMINATION OF CAPITAL ACCOUNTS. A capital
---------------------------------------------------
account ("Capital Account") shall be established for each Member on the books of
---------------
the Company initially reflecting an amount equal to such Member's initial
Capital Contribution pursuant to Section 3.3.
-----------
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<PAGE>
Each Member's Capital Account shall be (a) increased by any additional Capital
Contributions made by such Member pursuant to the terms of this Agreement and
such Member's share of items of income and gain allocated to such Member
pursuant to Article V, (b) decreased by such Member's share of items of loss,
---------
deduction and expense allocated to such Member pursuant to Article V and any
---------
distributions to such Member of cash or the fair market value of any other
property (net of liabilities assumed by such Member and liabilities to which
such property is subject) distributed to such Member and (c) adjusted as
otherwise required by the Code and the regulations thereunder, including but not
limited to, the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Any
references in this Agreement to the Capital Account of a Member shall be deemed
to refer to such Capital Account as the same may be increased or decreased from
time to time as set forth above.
4.2 COMPUTATION OF AMOUNTS. For purposes of computing the amount of
----------------------
any item of Company income, gain, loss or deduction to be allocated pursuant to
Article IV and to be reflected in the Capital Accounts, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes
(including any method of depreciation, cost recovery or amortization used for
this purpose), provided that:
--------
(a) The computation of all items of income, gain, loss and
deduction shall include tax-exempt income and those items described in Treasury
Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such
-
items are not includable in gross income or are not deductible for federal
income tax purposes.
(b) If the Book Value of any Company property is adjusted
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f), the amount
- -
of such adjustment shall be taken into account as gain or loss from the
disposition of such property.
(c) Items of income, gain, loss or deduction attributable to the
disposition of Company property having a Book Value that differs from its
adjusted basis for tax purposes shall be computed by reference to the Book Value
of such property.
(d) Items of depreciation, amortization and other cost recovery
deductions with respect to Company property having a Book Value that differs
from its adjusted basis for tax purposes shall be computed by reference to the
property's Book Value in accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(g).
-
(e) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
-
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis).
-14-
<PAGE>
4.3 NEGATIVE CAPITAL ACCOUNTS. No Member shall be required to pay to
-------------------------
the Company or any other Member any deficit or negative balance which may exist
from time to time in such Member's Capital Account.
4.4 COMPANY CAPITAL. No Member shall be paid interest on any Capital
---------------
Contribution to the Company or on such Member's Capital Account, and no Member
shall have any right (a) to demand the return of such Member's Capital
Contribution or any other distribution from the Company (whether upon
resignation, withdrawal or otherwise), except upon dissolution of the Company
pursuant to Article XI hereof or (b) to cause a partition of the Company's
----------
assets.
ARTICLE V
DISTRIBUTIONS; ALLOCATIONS OF
PROFITS AND LOSSES
5.1 GENERALLY. Subject to the provisions of Section 18-607 of the
---------
Act and Section 5.5, the Managing Member shall have sole discretion regarding
-----------
the amounts and timing of distributions to Members, in each case subject to the
retention and establishment of reserves of, or payment to third parties of, such
funds as it deems necessary with respect to the reasonable business needs of the
Company which shall include the payment or the making of provision for the
payment when due of the Company's obligations, including the payment of any
management or administrative fees and expenses or any other obligations.
5.2 DISTRIBUTIONS. Subject to Section 5.5, distributions to be made
------------- -----------
at any time shall be made in the following order and priority:
(a) First, if any Preferred Units are outstanding, to the
-----
holders of Preferred Units pro rata according to their ownership of Preferred
Units until the aggregate distributions with respect to the Preferred Units made
pursuant to this Section 5.2(a) reduces the aggregate Unpaid Preferred Yield to
-----------
zero; and
(b) Second, if any Preferred Units are outstanding, to the
------
holders of Preferred Units pro rata according to their ownership of Preferred
Units until the aggregate distributions with respect to the Preferred Units made
pursuant to this Section 5.2(b) reduces the aggregate Unreturned Preferred
-----------
Capital to zero; and
(c) Third, if the Class B IRR Target has not been achieved, to
-----
the holders of Class A Common Units in proportion to their ownership of Class A
Common Units; and
(d) Fourth, if the Class B IRR Target has been achieved but the
------
Class C IRR Target has not been achieved, the 30% IRR Investor Percentage of
such distributions to the holders of Class A Common Units in proportion to their
ownership of Class A Common Units and the 30% IRR Executive Percentage of such
distributions to the holders of Class B Common Units in proportion to their
ownership of Class B Common Units; and
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<PAGE>
(e) Fifth, if the Class C IRR Target has been achieved, the 35%
-----
IRR Investor Percentage of such distributions to the holders of Class A Common
Units in proportion to their ownership of Class A Common Units and the 35% IRR
Executive Percentage of such distributions to the holders of Class C Common
Units in proportion to their ownership of Class C Common Units.
5.3 ALLOCATION OF PROFITS AND LOSSES. For each Fiscal Year of the
--------------------------------
Company, after adjusting each Member's Capital Account for all Capital
Contributions and distributions during such Fiscal Year and all special
allocations pursuant to Section 5.4 with respect to such Fiscal Year, all
-----------
Profits and Losses (other than Profits and Losses specially allocated pursuant
to Section 5.4) shall be allocated to the Members' Capital Accounts in a manner
-----------
such that, as of the end of such Fiscal Year, the Capital Account of each Member
(which may be either a positive or negative balance) shall be equal to (a) the
amount which would be distributed to such Member, determined as if the Company
were to liquidate all of its assets for the Book Value thereof and distribute
the proceeds thereof pursuant to Section 11.2 hereof, minus (b) the sum of (i)
------------ -----
such Member's share of Company Minimum Gain (as determined according to Treasury
Regulation Sections 1.704-2(d) and (g)(3)) and Member Minimum Gain (as
determined according to Treasury Regulation Section 1.704-2(i)) and (ii) the
amount, if any, which such Member is obligated to contribute to the capital of
the Company as of the last day of such Fiscal Year. Notwithstanding anything to
the contrary contained herein, during the entire term of the Company, the
Managing Member (i) shall be allocated not less than one percent (1%) of each
material item of income, gain, loss and deduction of the Company and (ii) shall
maintain a Capital Account balance of not less than one percent (1%) of the
total Capital Account balances of the Members.
5.4 REGULATORY AND SPECIAL ALLOCATIONS. Notwithstanding the
----------------------------------
provisions of Section 5.3:
-----------
(a) If there is a net decrease in Company Minimum Gain during
any Taxable Year, each Member shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-
2(g). The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2). This paragraph is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Deductions shall be allocated in the
manner required by Treasury Regulation Section 1.704-2(i). Except as otherwise
provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net
decrease in Member Minimum Gain during any Taxable Year, each Member that has a
share of such Member Minimum Gain shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to that Member's share of the net decrease in Member
Minimum Gain. Items to be allocated pursuant to this paragraph shall be
determined in accordance with
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<PAGE>
Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This paragraph is
intended to comply with the minimum gain chargeback requirements in Treasury
Regulation Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(c) If any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of taxable income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the adjusted capital account deficit (determined according to Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)) created by such adjustments,
allocations or distributions as quickly as possible. This paragraph is intended
to comply with the qualified income offset requirement in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) The allocations set forth in paragraphs (a), (b) and (c)
above (the "Regulatory Allocations") are intended to comply with certain
----------------------
requirements of the Treasury Regulations under Code Section 704. Notwithstanding
any other provisions of this Article V (other than the Regulatory Allocations),
---------
the Regulatory Allocations shall be taken into account in allocating Profits and
Losses among Members so that, to the extent possible, the net amount of such
allocations of Profits and Losses and other items and the Regulatory Allocations
(including Regulatory Allocations that, although not yet made, are expected to
be made in the future) to each Member shall be equal to the net amount that
would have been allocated to such Member if the Regulatory Allocations had not
occurred.
5.5 TAX DISTRIBUTIONS.
-----------------
(a) Notwithstanding Sections 5.1 and 5.2 above, so long as the
------------ ---
Managing Member has not determined in good faith that such distribution would be
prohibited or create a default or event of default under the Act or any
financing agreement to which the Company is subject, then (i) at least ten
business days before each date prescribed by the Code for calendar year
corporations to pay quarterly installments of estimated tax, the Company shall
distribute to the Members an amount of cash equal to the excess of (x) the
Quarterly Estimated Tax Amount for the quarter of the Taxable Year with respect
to which such distribution is being made over (y) the amount of Distributions
(if any) previously made pursuant to Section 5.2 during such quarter; (ii) if
-----------
the aggregate amount of such distributions with respect to any Taxable Year is
less than the Company's Tax Amount for such Taxable Year, the Company shall
distribute an amount of cash equal to the balance of such Tax Amount ("Shortfall
---------
Distributions"); and (iii) the Company shall use its best efforts to make such
- -------------
Shortfall Distributions at, on or before the date prescribed by the Code
(without extensions) for calendar year corporations to file federal income tax
returns. If the aggregate amount of such distributions under this Section 5.5
-----------
with respect to any Taxable Year exceeds the Company's Tax Amount for such
Taxable Year, the Company's obligations to make future distributions to such
Member pursuant to this Section 5.5 shall be reduced by the amount of such
-----------
excess until such excess has been fully deducted from such distributions.
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<PAGE>
(b) The Company's "Tax Amount" for a Taxable Year shall be the
----------
federal, state, and local income taxes which would be payable by the Company if
the Company were taxed for such Taxable Year at the highest marginal federal,
state and local income tax rate applicable to any Member on the Company's
taxable income for the Taxable Year (treating Yield as an item which is not
deductible in computing such taxable income) (computed as if the Company had
elected to carry forward all loss and credit carryovers, taking into account the
character of any loss and credit carry forward as a capital or ordinary loss).
The amounts in respect of tax withholding on payments to or from the Company for
which Members (or owners directly or indirectly of such Members) are credited
under applicable tax law shall be credited against payments of the Tax Amount to
such Members. The Company's Tax Amount shall be determined initially by the
Managing Member on the basis of figures set forth on IRS Form 1065 filed by the
Company and the similar state or local forms filed by the Company but shall be
subject to subsequent adjustment pursuant to audit, litigation, settlement,
amended return, or the like.
(c) The Company's "Estimated Tax Amount" for a Taxable Year (or
--------------------
Fiscal Period) shall be the Company's Tax Amount for such Taxable Year (or
Fiscal Period) as estimated from time to time by the Manager. In making such
estimate, the Manager shall take into account amounts shown on IRS Form 1065
filed by the Company and similar state or local forms filed by the Company for
the preceding taxable year and other adjustments as in the reasonable business
judgment of the Manager are necessary or appropriate to reflect the estimated
operations of the Company for the Taxable Year (or Fiscal Period). The Company's
"Quarterly Estimated Tax Amount" for any quarter of a Taxable Year shall be the
------------------------------
excess of (x) the product of (I) 1/4 in the case of the first quarter of the
Taxable Year, 1/2 in the case of the second quarter of the Taxable Year, 3/4 in
the case of the third quarter of the Taxable Year and 1 in the case of the
fourth quarter of the Taxable Year and (II) the Company's Estimated Tax Amount
for such Taxable Year over (y) all prior distributions of Quarterly Estimated
Tax Amounts for such Taxable Year.
(d) Such portion of the distributions pursuant to Section 5.5(a)
--------------
as is determined in good faith by the Managing Member to be appropriate, based
on the share of the Company's taxable income allocated to Members on account of
their ownership of each class of Common Units, shall be distributed to Members
holding Common Units of such Class, in proportion to their Common Units of such
class and such distribution shall be considered a distribution to Members under
Section 5.2(c), 5.2(d) or 5.2(e), as appropriate. Any remaining portion of the
distributions pursuant to Section 5.5(a) shall be treated as a distribution
--------------
pursuant to, and shall be made in accordance with, Section 5.2(a).
--------------
(e) Each distribution pursuant to Section 5.5(a) shall be made to
--------------
the Persons shown on the Company's books and records as Members as of the date
of such distribution.
5.6 TAX ALLOCATIONS: CODE SECTION 704(C).
------------------------------------
(a) The income, gains, losses, deductions and expenses of the
Company shall be allocated, for federal, state and local income tax purposes,
among the Members in accordance with the allocation of such income, gains,
losses, deductions and expenses among the
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<PAGE>
Members for computing their Capital Accounts, except that if any such allocation
is not permitted by the Code or other applicable law, the Company's subsequent
income, gains, losses, deductions and expenses shall be allocated among the
Members for tax purposes to the extent permitted by the Code and other
applicable law, so as to reflect as nearly as possible the allocation set forth
herein in computing their Capital Accounts.
(b) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, deduction and expense with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its fair market value at the time of contribution under the
remedial allocation method described in Treas. Reg. (S)1.704-3(d).
(c) If the Book Value of any Company asset is adjusted pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) as provided in the
definition of Book Value, subsequent allocations of items of taxable income,
gain, loss, deduction and expense with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credit, tax credit recapture, and any
items related thereto shall be allocated to the Members according to their
interests in such items as determined by the Managing Member taking into account
the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Any elections or other decisions relating to such allocations
shall be made by the Managing Member in any manner that reasonably reflects the
purpose and intent of this Agreement. Allocations pursuant to this Section 5.6
-----------
are solely for purposes of federal, state and local taxes and shall not affect,
or in any way be taken into account in computing, any Member's Capital Account
or share of profits, losses, other items or distributions pursuant to any
provisions of this Agreement.
5.7 SECURITYHOLDERS AGREEMENT PROVISION. Notwithstanding anything to
-----------------------------------
the contrary contained in this Agreement, the provisions of Section 4.1(a)(iii)
-------------------
and Section 4.1(b) of the Securityholders Agreement shall be considered to be
--------------
modifications of the provisions related to distributions set forth in this
Article V.
- ---------
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<PAGE>
ARTICLE VI
MANAGEMENT
6.1 THE MANAGING MEMBER; DELEGATION OF AUTHORITY AND DUTIES.
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(a) Members and Managing Member. Except as otherwise required
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by the Act, the business and affairs of the Company shall be managed by or under
the direction of a "manager"(as that term is defined in the Act) who shall be a
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Member (the "Managing Member"). The initial Managing Member shall be BrightView.
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Except as otherwise expressly provided for in this Agreement, the Members hereby
consent to the exercise by the Managing Member of all such powers and rights
conferred on them by the Act with respect to the management and control of the
Company. Notwithstanding the foregoing and except as explicitly set forth in
this Agreement, if a vote, consent or approval of the Members is required by the
Act or other applicable law with respect to any act to be taken by the Company
or matter considered by the Managing Member, the Members agree that they shall
be deemed to have consented to or approved such act or voted on such matter in
accordance with the determination of the Managing Member on such act or matter.
No Member, in his or its capacity as a Member, shall have any power to act for,
sign for or do any act that would bind the Company. The Managing Member shall
devote such time and effort to the affairs of the Company as he or it may deem
appropriate for the oversight of the management and affairs of the Company.
(b) Delegation by Managing Member. The Managing Member shall
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have the power and authority to delegate to one or more other Persons the
Managing Member's rights and powers to manage and control the business and
affairs of the Company, including to delegate to agents and employees of a
Member or the Company (including Officers), and to delegate by a written
agreement with, or otherwise to, other Persons. The Managing Member may
authorize any Person (including, without limitation, any Member or Officer) to
enter into and perform under any document on behalf of the Company.
(c) Resignation. The Managing Member may resign by delivering his
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or its written resignation to the Company. Such resignation shall be effective
fourteen (14) business days following receipt of such resignation by the Company
unless some later time is specified in such resignation.
(d) Removal. The initial Managing Member may not be removed. Any
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subsequent Managing Member may be removed only by PIC.
(e) Vacancy. If a vacancy in the position of Managing Member
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should for any reason occur, a replacement Managing Member shall be appointed by
PIC. Any subsequent Managing Member may be removed only by PIC.
(f) Compensation. The Managing Member shall not be entitled to
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compensation from the Company in connection with its activities as Managing
Member; provided that the foregoing shall not prevent the Managing Member from
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receiving reimbursement for out-of-pocket
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expenses incurred by the Managing Member on behalf of the Company, receiving
distributions as a Member pursuant to this Agreement or otherwise receiving
compensation from the Company for actions unrelated to its activities as
Managing Member.
(g) Committees. The Managing Member may, from time to time,
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designate one or more committees. Any such committee, to the extent provided in
the enabling resolution and until dissolved by the Managing Member, shall have
and may exercise any or all of the authority of the Managing Member. At every
meeting of any such committee, the presence of a majority of all the
representatives thereof shall constitute a quorum, and the affirmative vote of a
majority of the representatives present shall be necessary for the adoption of
any resolution. The Managing Member may dissolve any committee at any time.
6.2 OFFICERS.
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(a) Designation and Appointment. The Managing Member may, from
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time to time, employ and retain Persons as may be necessary or appropriate for
the conduct of the Company's business, including employees, agents and other
Persons (any of whom may be a Member) who may be designated as Officers of the
Company, with titles including but not limited to "chief executive officer,"
"chairman," "president," vice president," "treasurer," "secretary," "general
manager," "director" and "chief financial officer," as and to the extent
authorized by the Managing Member. Any number of offices may be held by the same
person. In its discretion, the Managing Member may choose not to fill any office
for any period as it may deem advisable. Officers need not be residents of the
State of Delaware or Members. Any Officers so designated shall have such
authority and perform such duties as the Managing Member may, from time to time,
delegate to them. The Managing Member may assign titles to particular Officers.
Each Officer shall hold office until his successor shall be duly designated and
shall qualify or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. The salaries or other compensation,
if any, of the Officers of the Company shall be fixed from time to time by the
Managing Member.
(b) Resignation/Removal. Any Officer may resign as such at any
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time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or if no time be specified, at the time of its receipt
by the Company. The acceptance of a resignation shall not be necessary to make
it effective, unless expressly so provided in the resignation. Any Officer may
be removed as such, either with or without cause at any time by the Managing
Member. Designation of an Officer shall not of itself create any contractual or
employment rights.
(c) Duties of Officers Generally. The Officers, in the
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performance of their duties as such, shall owe to the Company duties of loyalty
and due care of the type owed by the officers of a corporation to such
corporation and its stockholders under the laws of the State of Delaware.
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(d) Chairman. Subject to the powers of the Managing Member, the
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Chairman of the Company shall be in general and active charge of the entire
business and affairs of the Company, and shall be its Chief Executive Officer
and chief policy making Officer.
(e) Chief Financial Officer. The chief financial officer shall
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keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital and Units. The chief financial officer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Managing Member. The chief financial officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the chief
executive officer or the Managing Member.
ARTICLE VII
EXCULPATION AND INDEMNIFICATION
7.1 PERFORMANCE OF DUTIES; NO LIABILITY OF MEMBER AND OFFICERS. No
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Member (including the Managing Member) shall have any duty to the Company or any
Member of the Company except as expressly set forth herein or in other written
agreements. No Member (including the Managing Member) or Officer of the Company
shall be liable to the Company or to any Member for any loss or damage sustained
by the Company or to any Member, unless the loss or damage shall have been the
result of gross negligence, fraud or intentional misconduct by the Member
(including the Managing Member) or Officer in question or, in the case of an
Officer, breach of such Person's duties pursuant to Section 6.2(c). In
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performing such Person's duties, each such Person shall be entitled to rely in
good faith on the provisions of this Agreement and on information, opinions,
reports or statements (including financial statements and information, opinions,
reports or statements as to the value or amount of the assets, liabilities,
profits or losses of the Company or any facts pertinent to the existence and
amount of assets from which distributions to Members might properly be paid) of
the following other Persons or groups: one or more Officers or employees of the
Company; any attorney, independent accountant, appraiser or other expert or
professional employed or engaged by or on behalf of the Company, the Managing
Member or any committee of the Managing Member; or any other Person who has
been selected with reasonable care by or on behalf of the Company, the Managing
Member or any committee of the Managing Member in each case as to matters which
such relying Person reasonably believes to be within such other Person's
competence. The preceding sentence shall in no way limit any Person's right to
rely on information to the extent provided in Section 18-406 of the Act. No
Member (including the Managing Member) or Officer of the Company shall be
personally liable under any judgment of a court, or in any other manner, for any
debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort or otherwise, solely by reason of being a
Member or Officer of the Company or any combination of the foregoing.
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7.2 COMPETING ACTIVITIES. Except as may otherwise be agreed in
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writing and subject to the duties and obligations of the Managing Member and
Officers to the Company: (a) the Members and the officers, directors, security
holders, partners, members, managers, agents, employees and Affiliates of each
of them, may engage or invest in, own and/or manage, independently or with
others, any business activity of any type or description, including without
limitation those that might be in direct or indirect competition with the
Company; (b) neither the Company nor any other Member shall have any right in or
to any of such other ventures or activities or to the income or proceeds derived
therefrom; (c) neither the Members nor the officers, directors, securityholders,
partners, members, managers, agents, employees or Affiliates of any of them
shall be obligated to present any investment opportunity or prospective economic
advantage to the Company, even if the opportunity is of the character that, if
presented to the Company, could be taken advantage of by the Company; and (d)
the Members and the officers, directors, securityholders, partners, members,
managers, agents, employees and Affiliates of each of them shall have the right
to hold any investment opportunity or prospective economic advantage for their
own account or to recommend such opportunity to Persons other than the Company.
7.3 TRANSACTIONS BETWEEN THE COMPANY AND THE MEMBERS.
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Notwithstanding that it may constitute a conflict of interest, the Members or
their Affiliates may engage in any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service or the establishment of any salary, other compensation or other terms of
employment) with the Company so long as such transaction is approved by the
Managing Member, or if such transaction is with the Managing Member or one of
its Affiliates, a majority of the votes of the disinterested Members. No Member
shall be deemed by reason of Section 6.1 to have approved any such transaction.
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7.4 RIGHT TO INDEMNIFICATION. Subject to the limitations and
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conditions as provided in this Article VII, each Person who was or is made a
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party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or arbitrative (hereinafter a "Proceeding"), or any appeal in
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such a Proceeding or any inquiry or investigation that could lead to such a
Proceeding, by reason of the fact that such Person, or a Person of which such
Person is the legal representative, is or was a Member or Officer shall be
indemnified by the Company to the fullest extent permitted by applicable law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said law permitted the Company to provide
prior to such amendment) against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, reasonable attorneys' fees) actually incurred by
such Person in connection with such Proceeding, appeal, inquiry or investigation
(each a "Loss"), unless and to the extent that such Loss shall have been the
----
result of gross negligence, fraud or intentional misconduct by such Person, and
indemnification under this Article VII shall continue as to a Person who has
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ceased to serve in the capacity which initially entitled such Person to
indemnity hereunder. The rights granted pursuant to this Article VII shall be
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deemed contract rights, and no amendment, modification or repeal of this Article
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VII shall have the effect of limiting or denying any such rights
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with respect to actions taken or Proceedings, appeals, inquiries or
investigations arising prior to any amendment, modification or repeal.
7.5 ADVANCE PAYMENT. The right to indemnification conferred in this
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Article VII shall include the right to be paid or reimbursed by the Company the
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reasonable expenses incurred by a Person (other than an officer of the Company
or a Subsidiary thereof in respect of claims by the Company or a Subsidiary
thereof against such officer in such officer's capacity as such) of the type
entitled to be indemnified under Section 7.4 who was, is or is threatened to be,
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made a named defendant or respondent in a Proceeding in advance of the final
disposition of the Proceeding and without any determination as to the Person's
ultimate entitlement to indemnification; provided, however, that the payment of
such expenses incurred by any such Person in advance of the final disposition of
a Proceeding shall be made only upon delivery to the Company of a written
affirmation by such Person of his or her good faith belief that he has met the
standard of conduct necessary for indemnification under Article VII and a
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written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article VII or otherwise.
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7.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company, at the
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direction of the Managing Member, may indemnify and advance expenses to an
employee or agent of the Company to the same extent and subject to the same
conditions under which it may indemnify and advance expenses under Sections 7.4
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and 7.5.
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7.7 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
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this Article VII, the Company may pay or reimburse reasonable out-of-pocket
-----------
expenses incurred by a Officer, employee or agent in connection with his
appearance as a witness or other participation in a Proceeding at a time when he
is not a named defendant or respondent in the Proceeding.
7.8 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
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advancement and payment of expenses conferred in this Article VII shall not be
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exclusive of any other right that a Member, Officer or other Person indemnified
pursuant to this Article VII may have or hereafter acquire under any law (common
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or statutory) or provision of this Agreement.
7.9 INSURANCE. The Company may, but is not obligated to, purchase
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and maintain insurance, at its expense, to protect itself and any Member,
Officer or agent of the Company who is or was serving at the request of the
Company as a manager, director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of a foreign or domestic limited
liability company, corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise against any expense, liability
or loss, whether or not the Company would have the power to indemnify such
Person against such expense, liability or loss under this Article VII.
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7.10 SAVINGS CLAUSE. If this Article VII or any portion hereof shall
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be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless each Person indemnified
pursuant to this Article VII as to costs, charges and expenses (including
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reasonable attorneys' fees), judgments, fines and amounts paid in
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settlement with respect to any such Proceeding, appeal, inquiry or investigation
to the full extent permitted by any applicable portion of this Article VII that
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shall not have been invalidated and to the fullest extent permitted by
applicable law.
ARTICLE VII
TAXES
8.1 TAX RETURNS. The Company shall cause to be prepared and filed
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all necessary federal and state income tax returns for the Company, and shall
make any elections the Managing Member may deem appropriate and in the best
interests of the Members. Each Member shall furnish to the Company all
pertinent information in its possession relating to Company operations that is
necessary to enable the Company's income tax returns to be prepared and filed.
8.2 TAX MATTERS PARTNER. The Managing Member shall be the "tax
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matters partner" of the Company pursuant to section 6231(a)(7) of the Code (the
"Tax Matters Member"). The Tax Matters Member shall take such action as may be
------------------
necessary to cause each of the Investor Members and PPC to become a "notice
partner" within the meaning of section 6223 of the Code. The Tax Matters Member
is authorized to represent the Company before the Internal Revenue Service and
any other governmental agency with jurisdiction, and to sign such consents and
to enter into settlements and other agreements with such agencies as the
Managing Member deems necessary or advisable.
ARTICLE IX
BOOKS, REPORTS AND COMPANY FUNDS
9.1 MAINTENANCE OF BOOKS. The Company shall keep books and records
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of accounts in accordance with U.S. generally accepted accounting principles and
shall keep minutes of the proceedings of its Members and each committee. The
Fiscal Year shall be the accounting year of the Company for financial reporting
purposes.
9.2 MEMBER TAX INFORMATION. Within ninety (90) days after the end of
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each Taxable Year, the Managing Member or Officers will cause to be delivered to
each Person who was a Member or Economic Owner at any time during such Taxable
Year a Form K-1 and such other information, if any, with respect to the Company
as may be necessary for the preparation of such Member's or Economic Owner's
federal, state and local income tax returns, including a statement showing such
Member's or Economic Owner's share of income, gain or loss, expense and credits
for such Taxable Year for federal income tax purposes. Any deficiency for taxes
imposed on any Member or Economic Owner (including penalties, additions to tax
or interest imposed with respect to such taxes) shall be paid by such Member or
Economic Owner, and if paid by the Company, shall be recoverable from such
Member or Economic Owner pursuant to Section 12.10; provided, however, that this
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sentence shall not be construed to prevent the operation of Sections 5.5 or
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5.2(c).
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9.3 COMPANY FUNDS. The Company may not commingle the Company's funds
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with the funds of any Member or the funds of any Affiliate of any Member.
ARTICLE X
TRANSFERS AND OTHER EVENTS
10.1 ASSIGNMENT BY MEMBERS. Each Member may sell, assign, transfer,
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exchange, mortgage, pledge, grant a security interest in, or otherwise dispose
of or encumber (including by operation of law) all or any part of such Member's
Membership Interest (including any Units or other Economic Interest) (each such
event, a "Transfer"), provided that no such Transfer will be effective unless
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and until the transferee shall have executed and delivered to the Company an
agreement in form and substance satisfactory to the Managing Member to be bound
by the provisions of this Agreement applicable to the Membership Interest
Transferred, and no such assignment shall relieve the assignor of its
obligations hereunder unless such assignee is admitted as a substitute Member
pursuant to Section 10.3.
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10.2 VOID ASSIGNMENT. Any Transfer by any Member in contravention of
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this Agreement shall be void and ineffectual and shall not bind or be recognized
by the Company or any other party. In the event of any Transfer in
contravention of this Agreement, the purported transferee shall have no right to
any profits, losses or distributions of the Company or any other rights of a
Member.
10.3 SUBSTITUTED MEMBER.
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(a) An assignee of any Units or other interests in the Company
(or any portion thereof), in accordance with the provisions of this Article X,
shall become a substituted Member entitled to all the rights of a Member with
respect to such assigned interest if and only if (i) the assignor gives the
assignee such right, (ii) the Managing Member has granted its prior written
consent to such assignment and substitution, which consent may be withheld in
the sole discretion of the Managing Member; provided, however, that such consent
by the Managing Member shall not be required after (i) Treasury Regulations are
issued in final form that would authorize the Managing Member to elect
alternatively partnership or corporate status for the Company for federal income
tax purposes (the "Check The Box Regulations"); (ii) the Managing Member has
taken such action, if any, as may be necessary or required by the Check the Box
Regulations to maintain the status of the Company as a partnership for federal
income tax purposes; and (iii) the assignee has agreed in writing to be bound by
the provisions of this Agreement.
(b) The Company shall be entitled to treat the record owner of
any Units or other interest in the Company as the absolute owner thereof and
shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as a written assignment of such Units
or other interest in the Company, which assignment is consented to by the
Managing Member (which consent may be withheld in the Managing Member's sole
discretion), is permitted pursuant to the terms and conditions of Section 10.1
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and this Section 10.3, has been received and accepted by the Managing Member and
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has been
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received and accepted by the Managing Member and has been recorded on the books
of the Company.
(c) Upon the admission of a substituted Member, Schedule A
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attached hereto shall be amended to reflect the name, address and Units and
other interests in the Company of such substituted Member and to eliminate the
name and address of and other information relating to the assigning Member with
regard to the assigned Units and other interests in the Company.
10.4 EFFECT OF ASSIGNMENT. Following an assignment of an interest
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that is permitted under this Article X, the transferee of such interest shall be
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treated as having made all of the Capital Contributions in respect of, and
received all of the distributions received in respect of, such interest, shall
succeed to the Capital Account associated with such interest and shall receive
allocations and distributions under Articles V and XI in respect of such
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interest as if such transferee were a Member.
10.5 LEGEND. In the event that certificates representing Membership
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Interests are issued ("Certificated Interests"), such certificates will bear the
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following legend:
"THE INTEREST REPRESENTED BY THIS CERTIFICATE WAS ORIGINALLY ISSUED AS
OF _______ __, 19__, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE TRANSFER OF THE INTEREST
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED
IN A LIMITED LIABILITY COMPANY AGREEMENT, AS AMENDED, GOVERNING THE
ISSUER (THE "COMPANY"), BY AND AMONG CERTAIN INVESTORS. A COPY OF
SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE."
10.6 TRANSFER FEES AND EXPENSES. The transferor and transferee of any
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Membership Interest shall be jointly and severally obligated to reimburse the
Company for all reasonable expenses (including attorneys' fees and expenses) of
any Transfer or proposed Transfer of such interest, whether or not consummated.
10.7 OTHER LIMITATIONS. In order to permit the Company to qualify
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for the benefit of a "safe harbor" under Code Section 7704, notwithstanding
anything to the contrary in this Agreement, no Transfer shall be permitted or
recognized (within the meaning of Treasury Regulation Section 1.7704-1(d)) by
the Company or the Members if and to the extent that such Transfer would
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cause the Company to have more than 100 partners (within the meaning of Treasury
Regulation Section 1.7704-1(h), including the look-through rule in Treasury
Regulation Section 1.7704-1(h)(3)).
10.8 EFFECTIVE DATE. Any Transfer and any related admission of a
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Person as a Member in compliance with this Article X shall be deemed effective
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on such date that the transferee or successor in interest complies with the
requirements of this Agreement.
10.9 EFFECT OF INCAPACITY. Except as otherwise provided herein, the
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Incapacity of a Member shall not dissolve or terminate the Company. In the
event of such Incapacity, the executor, administrator, guardian, trustee or
other personal representative of the Incapacitated Member shall be deemed to be
the assignee of such Member's Economic Interest and may, subject to the terms
and conditions set forth in Section 10.3, become a substituted Member.
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ARTICLE XI
DISSOLUTION, LIQUIDATION AND TERMINATION
11.1 DISSOLUTION. The Company shall be dissolved and its affairs
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shall be wound up on the first to occur of the following:
(a) the expiration of its term pursuant to Section 2.7;
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(b) the unanimous vote of the Investor Members;
(c) resolutions by the Managing Member to dissolve the Company;
(d) the Incapacity or expulsion of the Managing Member, or the
occurrence of any other event under the Act that terminates the continued
membership of the Managing Member in the Company, unless a majority in
interest of the remaining Members (within the meaning of Revenue Procedure
95-10, as supplemented by Revenue Procedure 94-46, or any successor
thereto) agree in writing to continue the Company within 90 days
thereafter; and
(e) the entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Act.
Except as provided in Section 11.1(d), the death, retirement, resignation,
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expulsion, incapacity, bankruptcy or dissolution of a Member, or the occurrence
of any other event that terminates the continued membership of a Member in the
Company, shall not cause a dissolution of the Company, and the Company shall
continue in existence subject to the terms and conditions of this Agreement.
11.2 LIQUIDATION AND TERMINATION. On dissolution of the Company, the
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Managing Member or such other or additional Member or Members as designated by
the Managing
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Member shall act as liquidator(s). The liquidator(s) shall proceed diligently to
wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liqui dation shall be borne as a Company
expense. Until final distribution, the liquidator(s) shall continue to operate
the Company properties with all of the power and authority of Managing Member
and Members, subject to the power of the Managing Member to remove and replace
such liquidator(s). The steps to be accomplished by the liquidator(s) are as
follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the Company's
assets, liabilities and operations through the last day of the calendar
month in which the dissolution occurs or the final liquidation is
completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the Company
(including, without limitation, all expenses incurred in liquidation) or
otherwise make adequate provision for payment and discharge thereof
(including, without limitation, the establishment of a cash fund for contin
gent liabilities in such amount and for such term as the liquidator may
reasonably determine).
(c) All remaining assets of the Company shall be distributed to
the Members in accordance with Section 5.2 hereof by the end of the taxable
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year of the Company during which the liquidation of the Company occurs (or,
if later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash, evidences of indebtedness and other
securities to be distributed in any liquidation. The distribution of cash
and/or property to a Member in accordance with the provisions of this Section
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11.2 constitutes a complete return to the Member of its Capital Contributions
- ----
and a complete distribution to the Member of its interest in the Company and all
the Company's property and constitutes a compromise to which all Members have
consented within the meaning of the Act. To the extent that a Member returns
funds to the Company, it has no claim against any other Member for those funds.
11.3 CANCELLATION OF CERTIFICATE. On completion of the distribution
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of Company assets as provided herein, the Company is terminated, and shall file
a certificate of cancellation with the Secretary of State of the State of
Delaware, cancel any other filings made pursuant to Section 2.1 and take such
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other actions as may be necessary to terminate the Company.
ARTICLE XII
GENERAL/MISCELLANEOUS PROVISIONS
12.1 OFFSET. Whenever the Company is to pay any sum to any Member,
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any amounts that Member owes to the Company may be deducted from that sum before
payment;
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provided that the full amount that would otherwise be distributed shall be
debited from the Member's Capital Account pursuant to Section 4.1.
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12.2 NOTICES. Except as expressly set forth to the contrary in this
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Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on Schedule A, or such other address (or
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facsimile number) as that Member may specify by notice to the other Members.
Any notice, request or consent to the Company or the Managing Member must be
given to the Managing Member or, if appointed, the Secretary of the Company at
the Company's chief executive offices. Whenever any notice is required to be
given by law or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
12.3 ENTIRE AGREEMENT. This Agreement and other written agreements
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among the Members of even date herewith constitute the entire agreement among
the Members relating to the Company and supersedes all prior contracts or
agreements with respect to the Company, whether oral or written.
12.4 EFFECT OF WAIVER OR CONSENT. A waiver or consent, express or
---------------------------
implied, to or of any breach or default by any Person in the performance by that
Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irre spective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
12.5 AMENDMENT OR MODIFICATION. This Agreement and any provision
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hereof may be amended or modified from time to time only by a written instrument
adopted by the Managing Member and may be amended only with the written consent
of the Managing Member; provided, however, that (a) except as otherwise
expressly provided herein, an amendment or modification (subject to Article VI
of the Securityholders Agreement, other than amendments or modifications adding
new classes of interests or issuing Additional Interests) (x) reducing a
Member's Units or other interest in profits or losses or in distributions in a
manner which is disproportionately adverse to such Member relative to such
obligations of other Members in respect of Membership Interests of the same
class or type, (y) increasing a Member's Capital Contribution or (z) increasing
any other obligation of a Member to the Company in respect of any Membership
Interest in a manner which is disproportionately adverse to such Member relative
to such obligations of other Members in respect of Membership Interests of the
same class or type, shall in each case
-30-
<PAGE>
be effective only with that Member's consent or (b) an amendment or modification
reducing the required interest for any consent or vote in this Agreement shall
be effective only with the consent or vote of Members having the interest
theretofore required. Notwithstanding the preceding sentence, (i) the Managing
Member may amend and modify the provisions of this Agreement (including Article
-------
V) and Schedule A hereto to the extent necessary to reflect the issuance of
- - ----------
interests (including new classes of interests, and including the issuance or
exercise of Common Unit Equivalents) in the Company, and admission or
substitution of any Member, permitted under this Agreement and (ii)
notwithstanding anything to the contrary in this Agreement, this Agreement may
be amended or modified to the extent necessary to effectuate the issuance of
Additional Interests pursuant to Section 3.4 at the direction of the Managing
Member.
12.6 BINDING EFFECT. Subject to the restrictions on Transfers set
--------------
forth in this Agreement, this Agreement is binding on and shall inure to the
benefit of the Members and their respective heirs, legal representatives,
successors and permitted assigns.
12.7 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
---------------------------
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE EXCLUDING
ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE
CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event
of a direct conflict between the provisions of this Agreement and any provision
of the Certificate or any mandatory provision of the Act, the applicable
provision of the Certificate or the Act shall control. If any provision of this
Agreement or the application thereof to any Person or circumstance is held
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances is not affected
thereby and that provision shall be enforced to the greatest extent permitted by
law.
12.8 FURTHER ASSURANCES. In connection with this Agreement and the
------------------
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
12.9 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
------------------------
right it may have to demand any distributions or withdrawal of property from the
Company or to maintain any action for dissolution (except pursuant to Section
18-802 of the Act) of the Company or for partition of the property of the
Company.
12.10 INDEMNIFICATION AND REIMBURSEMENT FOR PAYMENTS ON BEHALF OF A
-------------------------------------------------------------
MEMBER. If the Company is obligated to pay any amount to a governmental agency
- ------
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to an Executive Member or any payments to an Executive
Member, federal withholding taxes with respect to foreign Persons, state
personal property taxes, state unincorporated business taxes, etc.), then such
Member (the "Indemnifying Member") shall
-------------------
-31
<PAGE>
indemnify the Company in full for the entire amount paid (including, without
limitation, any interest, penalties and expenses associated with such payments).
The amount to be indemnified shall be charged against the Capital Account of the
Indemnifying Member, and, at the option of the Managing Member, either:
------
(a) promptly upon notification of an obligation to indemnify the
Company, the Indemnifying Member shall make a cash payment to the Company
equal to the full amount to be indemnified (and the amount paid shall be
added to the Indemnifying Member's Capital Account but shall not be treated
as a Capital Contribution), or
--
(b) the Company shall reduce distributions that would otherwise be
made to the Indemnifying Member, until the Company has recovered the amount
to be indemnified (provided that the amount of such reduction shall be
deemed to have been distributed for all purposes of this Agreement, but
such deemed distribution shall not further reduce the Indemnifying Member's
Capital Account).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 12.10 shall survive the termination, dissolution, liquidation and
-------------
winding up of the Company and, for purposes of this Section 12.10, the Company
-------------
shall be treated as continuing in existence. The Company may pursue and enforce
all rights and remedies it may have against each Indemnifying Member under this
Section 12.10, including instituting a lawsuit to collect such contribution with
- -------------
interest calculated at Prime Rate plus five percentage points per annum (but not
in excess of the highest rate per annum permitted by law).
12.11 NOTICE TO MEMBERS OF PROVISIONS. By executing this Agreement,
-------------------------------
each Member acknowledges that it has actual notice of (a) all of the provisions
hereof (including, without limitation, the restrictions on the transfer set
forth in Article X and the Securityholders Agreement) and (b) all of the
---------
provisions of the Certificate.
12.12 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
12.13 CONSENT TO JURISDICTION. Each Member irrevocably submits to
-----------------------
the non-exclusive jurisdiction of the United States District Court for the
Northern District of Illinois and the state courts of the State of Illinois,
sitting in Chicago, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each
Member further agrees that service of any process, summons, notice or document
by U.S. certified or registered mail to such Member's respective address set
forth above shall be effective service of process in any action, suit or
proceeding in Illinois with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. Each
Member irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in the United States District Court for the
Northern District of Illinois or the state courts of the State of Illinois,
-32-
<PAGE>
sitting in Chicago, and hereby irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in such court has been brought in an inconvenient forum.
12.14 HEADINGS. The headings used in this Agreement are for the
--------
purpose of reference only and will not otherwise affect the meaning or
interpretation of any provision of this Agreement.
12.15 REMEDIES. The Company and the Members shall be entitled to
--------
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement (including costs of
enforcement) and to exercise any and all other rights existing in their favor.
The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
Company or any Member may in its or his sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation or threatened violation of the provisions of this Agreement.
12.16 SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
* * * * * *
-33-
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth above.
MANAGING MEMBER:
BRIGHTVIEW COMMUNICATIONS GROUP,
INC., in its capacity as Managing
Member and as a Member
By: _________________________________
Name: Daniel H. Blumenthal
Title: Vice President
MEMBERS:
PETERSEN INVESTMENT CORP.
By: _________________________________
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN PUBLISHING COMPANY
By: _________________________________
Name: Robert E. Petersen
Title: Chairman of the Board
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its: General Partner
By: _________________________________
Name: Brian J. Richmond
Title: General Partner
BANK AMERICA INVESTMENT CORPORATION
By: _________________________________
Name:
Title:
<PAGE>
CIVC PARTNERS II
By: _________________________________
Name:
Title: A General Partner
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: _________________________________
Name:
Title:
ALLSTATE INSURANCE COMPANY
By: _________________________________
Name:
Title:
FUI, INC.
By: _________________________________
Name:
Title:
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
By: _________________________________
Name:
Title:
______________________________________
James D. Dunning, Jr.
______________________________________
Laurence H. Bloch
<PAGE>
______________________________________
Stuart Karu
______________________________________
Thomas J. Strauss
______________________________________
Irwin Bard
______________________________________
Bernard Shavitz
______________________________________
D. Claeys Bahrenburg
______________________________________
Neal Vitale
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
TOTAL
CAPITAL MANNER OF PREFERRED PREFERRED COMMON
MEMBERS NOTICE ADDRESS CONTRIBUTION CONTRIBUTION CAPITAL UNITS UNITS
- ----------------- ---------------------- ------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
February 6, 1997
Petersen Publishing Company, L.L.C.
6420 Wilshire Boulevard
Los Angeles, CA 90048
Re: Petersen Publishing Company, L.L.C.,
Petersen Capital Corp. and
Petersen Holdings, L.L.C.
Registration Statement on Form S-4
Registration No. 333-18017
------------------------------------------
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel
to Petersen Publishing Company, L.L.C., a Delaware limited liability company,
Petersen Capital Corp., a Delaware corporation (together, the "Issuers") and
Petersen Holdings, L.L.C., a Delaware limited liability company (the "Guarantor"
and, together with the Issuers, the "Registrants"), in connection with the
proposed registration by the Issuers of up to $100,000,000 in aggregate
principal amount of the Issuers' 11-1/8% Series B Senior Subordinated Notes due
2006 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4
(Registration No. 333-18017) filed with the Securities and Exchange Commission
(the "Commission") on December 17, 1996 under the Securities Act of 1933, as
amended (the "Act") (such Registration Statement, as amended or supplemented, is
hereinafter referred to as the "Registration Statement"). The obligations of the
Issuers under the Exchange Notes will be guaranteed by the Guarantor (the
"Guarantee"). The Exchange Notes and the Guarantees are to be issued pursuant to
the Indenture (the "Indenture"), dated as of November, 15, 1996, among the
Issuers, the Guarantor and United States Trust Company of New York, as Trustee,
in exchange for and in replacement of the Issuers' outstanding 11-1/8% Senior
Subordinated Notes due 2006 (the "Notes"), of which $100,000,000 in aggregate
principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments
[LETTERHEAD OF KIRKLAND & ELLIS]
<PAGE>
KIRKLAND & ELLIS
Petersen Publishing Company, L.L.C.
February 6, 1997
Page 2
as we have deemed necessary for the purposes of this opinion, including (i) the
Certificate of Incorporation, as amended, the Certificate of Formation and By-
Laws of the Registrants (as the case may be), (ii) minutes and records of the
corporate proceedings of the Registrants with respect to the issuance of the
Exchange Notes and the Guarantee, respectively, (iii) the Registration
Statement, and (iv) Registration Rights Agreement, dated November 25, 1996,
among the Issuers, the Guarantor and First Union Capital Markets Corp. and CIBC
Wood Gundy Securities Corp.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Registrants. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Issuers and others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
Based upon and subject to the assumptions, qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Board of
Directors and the Managing Member (as the case may be) and the appropriate
officers of the Registrants have taken all necessary action to fix and approve
the terms of the Exchange Notes and the Guarantee, respectively, (iii) the
Indenture has been duly qualified under the Trust
<PAGE>
KIRKLAND & ELLIS
Petersen Publishing Company, L.L.C.
February 6, 1997
Page 3
Indenture Act of 1939, as amended and (iv) the Exchange Notes and the Guarantee
have been duly executed and authenticated in accordance with the provisions of
the Indenture and duly delivered to the purchasers thereof in exchange for the
Notes, the Exchange Notes and the Guarantee will be validly issued obligations
of the Registrants.
We hereby consent to the filing of this opinion with the commission as
Exhibit 5 to the Registration Statement. We also consent to the reference to our
firm under the heading "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Sincerely,
Kirkland & Ellis
<PAGE>
EXHIBIT 10.3
EXECUTIVE SECURITIES PURCHASE
AND EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE SECURITIES PURCHASE AND EMPLOYMENT AGREEMENT (this
"Agreement") is made as of September 30, 1996, among BrightView Communications
Group, Inc., a Delaware corporation ("BrightView"), Petersen Holdings, L.L.C., a
Delaware limited liability company ("Holding LLC"), and Petersen Publishing
Company, L.L.C., a Delaware limited liability company ("Operating LLC"), and D.
Claeys Bahrenburg ("Executive"). BrightView, Holding LLC and Operating LLC are
sometimes referred to collectively herein as the "Companies".
BrightView is the sole managing member of Holding LLC, and Holding LLC
and BrightView own all of the membership interests of Operating LLC.
The Companies and Executive desire to enter into an agreement pursuant
to which Executive shall purchase (i) 20 shares of BrightView's Class A Common
Stock, par value $.01 per share (the "Common Stock"), (ii) 7,350.708 of Holding
LLC's Class A Common Units (the "Class A Common Units"), 625 of Holding LLC's
Class B Common Units (the "Class B Common Units") and 625 of Holding LLC's Class
C Common Units (the "Class C Common Units") (in each case as defined in the
Holding LLC Agreement) (collectively, the "Common Units") and (iii) 2,200 of
Holding LLC's Preferred Units (as defined in the Holding LLC Agreement) (the
"Preferred Units"). Executive separately purchased pursuant to a Securities
Purchase Agreement, dated as of the date hereof (the "Securities Purchase
Agreement"), by and among BrightView, Holding LLC, Executive and certain other
Persons, (i) 10 shares of BrightView's Common Stock, (ii) 1,100 of Holding LLC's
Class A Common Units and (iii) 1,100 of Holding LLC's Preferred Units. All of
such shares of Common Stock, Common Units and Preferred Units and all shares of
stock and all other equity interests in BrightView or Holding LLC hereafter
acquired by Executive are referred to herein as "Executive Securities." Certain
definitions are set forth in Section 17 of this Agreement.
The execution and delivery of this Agreement by the Companies and
Executive is a condition under a Securities Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), by and among BrightView, Holding LLC,
Petersen Investment Corp., a Delaware corporation ("PIC"), and certain other
Persons (the "Investors") to the purchase by the Investors of certain securities
of BrightView, Holding LLC and/or PIC.
<PAGE>
The parties hereto agree as follows:
PART I. PURCHASE OF EXECUTIVE SECURITIES
1. Purchase and Sale of Executive Securities.
(a) Upon execution of this Agreement, (i) Executive shall purchase
from BrightView, and BrightView shall sell to Executive, 20 shares of Common
Stock at a price of $500 per share (ii) Executive shall purchase from Holding
LLC, and Holding LLC shall sell to Executive, 2,200 Class A Common Units at a
price of $4.50 per Class A Common Unit and 2,200 Preferred Units at a price of
$445.50 per Preferred Unit. BrightView and Holding LLC, as applicable, shall
deliver to Executive a copy of, and a receipt for, the certificate representing
such shares of Common Stock, and Executive shall deliver (i) to BrightView, (A)
a promissory note in the form of Annex A attached hereto in an aggregate
principal amount of $8,000.00 and (B) a promissory note in the form of Annex B
attached hereto in an aggregate principal amount of $2,000.00, and (ii) to
Holding LLC, (A) a promissory note in the form of Annex A attached hereto in an
aggregate principal amount of $792,000.00 and (B) a promissory note in the form
of Annex B attached hereto in an aggregate principal amount of $198,000 (such
promissory notes, together with the promissory notes referred to in clause (i),
the "Executive Notes"). The Executive Securities purchased pursuant to this
Section 1(a), and any Executive Securities issued in respect of such Executive
Securities, whether by way of a stock split, stock dividend, other
recapitalization or similar transaction, or in exchange for such Securities
pursuant to Article IV of the Securityholders Agreement, are referred to
collectively herein as "Nonvesting Executive Securities."
(b) Upon execution of this Agreement, Executive shall purchase from
Holding LLC, and Holding LLC shall sell to Executive, for no additional
consideration 5,150.708 Class A Common Units, 625 Class B Common Units and 625
Class C Common Units. BrightView shall deliver to Executive a copy of, and a
receipt for, the certificate representing such shares of Common Stock. The
Executive Securities purchased pursuant to this Section 1(b), and any Executive
Securities issued in respect of such Executive Securities, whether by way of a
stock split, stock dividend, other recapitalization or similar transaction, or
in exchange for such Securities pursuant to Article IV of the Securityholders
Agreement, are referred to collectively herein as "Vesting Executive
Securities."
(c) Executive's obligations under the Executive Notes shall be secured
by a pledge of all of the Executive Securities. In connection therewith,
Executive shall enter into a pledge agreement with BrightView and Holding LLC in
the form of Annex C attached hereto. BrightView, individually and in its
capacity as managing member of Holding LLC, shall hold each certificate
representing the Executive Securities until the Executive Securities represented
by such certificate are released from the pledge to BrightView and Holding LLC
shall hold each certificate, if any, representing the Common Units and Preferred
Units purchased hereunder until the Executive Securities represented by such
certificate, if any, are released from the pledge to BrightView and Holding LLC.
-2-
<PAGE>
(d) Within 30 days after Executive purchases the Vesting Executive
Securities, Executive shall make an effective election with respect to such
Executive Securities with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code and the regulations promulgated thereunder in the form
of Annex D attached hereto.
(e) In connection with the purchase and sale of the Executive
Securities hereunder, Executive represents and warrants to BrightView and
Holding LLC that:
(i) The Executive Securities to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Executive
Securities shall not be disposed of in contravention of the Securities Act
or any applicable state securities laws.
(ii) Executive is an executive officer of BrightView, Holding LLC
or one of their Subsidiaries, is sophisticated in financial matters and is
able to evaluate the risks and benefits of the investment in the Executive
Securities.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Securities for an indefinite period of time
because the Executive Securities have not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration
is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Securities and has had full access to such other information
concerning the Companies as he has requested. Executive has reviewed, or
has had an opportunity to review, a copy of the Asset Purchase Agreement,
dated as of August 15, 1996, between BrightView and Petersen Publishing
Company ("Seller"), as amended (which agreement in part has been assigned
to and assumed by Operating LLC and Holding LLC), pursuant to which
Operating LLC acquired substantially all of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) BrightView's Certificate of Incorporation and Bylaws, (B)
the Limited Liability Company Agreement of Holding LLC dated as of
September 30, 1996, (C) the Limited Liability Company Agreement of
Operating LLC, (D) the loan agreements, notes and related documents with
BrightView's senior and subordinated lender; and (E) Holding LLC's
consolidated pro forma balance sheet dated as of August 31, 1996. Except as
expressly set forth herein, none of the Companies makes any representations
or warranties regarding the Executive Securities, Executive's investment in
the Companies or otherwise as to the financial condition, assets,
liabilities, business or prospects of any of the Companies and all of such
representations and warranties are hereby disclaimed.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive do not
and shall not conflict with, violate or
-3-
<PAGE>
cause a breach of any agreement, contract or instrument to which Executive
is a party or any judgment, order or decree to which Executive is subject.
(f) As an inducement to BrightView and Holding LLC to issue the
Executive Securities to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) neither the issuance of the Executive Securities to Executive
nor any provision contained herein shall entitle Executive to remain in the
employment of Holding LLC and its Subsidiaries or affect the right of
Holding LLC or any of its Subsidiaries to terminate Executive's employment
at any time subject to the terms of this Agreement; and
(ii) neither BrightView, Holding LLC nor Operating LLC shall have
any duty or obligation to disclose to Executive, and Executive shall have
no right to be advised of, any material information regarding BrightView,
Holding LLC, Operating LLC or any of their respective Subsidiaries at any
time prior to, upon or in connection with the repurchase of Unvested
Securities.
(g) The Companies and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Securities have
been issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Companies and Executive.
2. Vesting of Executive Securities.
(a) Except as otherwise provided in Section 2(b) below, the Vesting
Executive Securities shall become vested in accordance with the following
schedule, if as of each such anniversary date Executive is employed by
BrightView or any of its Subsidiaries:
Cumulative
Percentage of Vesting Executive
Anniversary Date Securities Vested
---------------- -------------------------------
September 30, 1997 20%
September 30, 1998 40%
September 30, 1999 60%
September 30, 2000 80%
September 30, 2001 100%
(b) If Executive ceases to be employed by the Operating LLC and its
Subsidiaries on any date other than any anniversary date prior to September 30,
2001, the cumulative percentage of Vesting Executive Securities to become vested
shall be determined on a pro rata basis according to the number of days elapsed
since the prior anniversary date. If Executive is employed by the Operating LLC
upon the occurrence of a Sale of the Company or a Qualified IPO, all shares of
Vesting Executive Securities which have not yet become vested shall become
vested at the time of such event. The Vesting Executive Securities which have
become vested and the Executive
-4-
<PAGE>
Securities which are not Vesting Executive Securities are collectively referred
to herein as the "Vested Securities," and Vesting Executive Securities which
have not become vested are referred to herein as the "Unvested Securities."
3. Repurchase Option.
(a) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries for Cause or by Executive without Good Reason, the
Companies or any of their Subsidiaries may repurchase all or any portion of the
Executive Securities (whether held by Executive or one or more of Executive's
direct or indirect transferees) pursuant to the terms and conditions set forth
in this Section 3 (the "Repurchase Option") by delivering written notice thereof
(a "Repurchase Notice") to Executive not later than 90 days after the date of
such termination. Each of the Companies and their respective Subsidiaries which
elects to purchase Executive Securities pursuant to the Repurchase Option is
referred to as a "Repurchasing Company" and all such persons are referred to
collectively as the "Repurchasing Companies". The Repurchasing Companies may
elect (i) to purchase all or any portion of the Unvested Securities without or
before purchasing any Vested Securities and (ii) to purchase all or any portion
of the Vesting Executive Securities without or before purchasing any Nonvesting
Executive Securities. If the Repurchasing Companies elect to purchase Nonvesting
Executive Securities, the Repurchasing Companies shall purchase a proportionate
amount of each class and type of Nonvesting Executive Securities. The purchase
price for each of the Unvested Securities shall be the lesser of (i) its Fair
Market Value and (b) its Original Cost. The purchase price for each Vested
Security shall be its Fair Market Value.
(b) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries without Cause or by Executive with Good Reason, the
Companies and any of their respective Subsidiaries may elect to purchase all or
any portion of the Unvested Securities by delivering a Repurchase Notice to
Executive not later than 90 days after the date of such termination. The
purchase price for each of the Unvested Securities shall be the lesser of (i)
its Fair Market Value, and (ii) its Original Cost.
(c) The Repurchase Notice shall set forth the Unvested Securities to
be acquired from each holder of Executive Securities, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of Executive Securities of any class or
type to be repurchased by the Repurchasing Companies shall first be satisfied to
the extent possible from the Executive Securities held by Executive at the time
of delivery of the Repurchase Notice. If the number of Executive Securities of
any class or type then held by Executive is less than the total number of
Executive Securities of such class or type the Repurchasing Companies have
elected to purchase, the Repurchasing Companies shall purchase the remaining
amount elected to be purchased from the other holder(s) of Executive Securities
under this Agreement, pro rata according to the amount of Executive Securities
of such class or type held by such other holder(s) at the time of delivery of
such Repurchase Notice (determined as close as practicable to the nearest whole
share or unit).
(d) The closing of the purchase of the Executive Securities pursuant
to the Repurchase Option shall take place on the date designated by the
Repurchasing Companies in the
-5-
<PAGE>
Repurchase Notice, which date shall not be more than 90 days nor less than five
days after the delivery of such notice. The Repurchasing Companies shall pay the
purchase price for the Executive Securities to be purchased pursuant to the
Repurchase Option by (i) offsetting all or any portion of the amounts, if any,
then owing under the Executive Notes under any other bona fide debts owed by
Executive to any of the Companies, (ii) delivery of a check or wire transfer of
funds, (iii) if any of the Companies is restricted at such time from paying cash
to repurchase equity securities, delivery of a subordinated note or notes of
BrightView and/or Holding LLC payable in three equal annual installments
beginning on the first anniversary of the closing of such purchase and bearing
interest (payable quarterly) at a rate per annum equal to the "applicable
federal rate" (as defined in Treasury Regulation Section 1.1274-4(b)), or (iv)
solely at the option of the Repurchasing Companies, any combination of clause
(i), clause (ii) and, subject to the conditions set forth in clause (iii),
clause (iii); provided that if any Repurchasing Company is restricted from
paying cash for any Executive Securities it elects to repurchase pursuant to the
Repurchase Option, such Repurchasing Company will pay for such Executive
Securities first by offsetting amounts then owing under the Executive Notes
pursuant to clause (iii) if such Repurchasing Company is not restricted from
paying for such Executive Securities in such manner under its debt and equity
financing agreements. Any notes issued by the Companies pursuant to this Section
3(d) shall be subject to such subordination and other terms specified therefor
in any restrictive covenants to which any of the Companies is subject at the
time of such purchase. The Repurchasing Companies shall be entitled to receive
customary representations and warranties from the sellers regarding such sale of
Executive Securities (including representations and warranties regarding good
title to such shares, free and clear of any liens or encumbrances) and to
require that all sellers' signatures be guaranteed by a national bank or
reputable securities broker.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Securities by any of the Companies shall
be subject to applicable restrictions contained in the Delaware General
Corporation Law, the Delaware Limited Liability Company Act and in the Companies
and their Subsidiaries debt and equity financing agreements. If any such
restrictions prohibit the repurchase of Executive Securities hereunder which the
Companies are otherwise entitled to make, the time periods provided in this
Section 3 shall be suspended, and the Companies may make such repurchases as
soon as they are permitted to do so under such restrictions.
4. Restrictions on Transfer. Contemporaneously with the execution of
this Agreement Executive shall enter into the Securityholders Agreement.
Executive shall not sell, transfer, assign, pledge or otherwise dispose of
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law) any Executive Securities (a "Transfer"), except pursuant
to the provisions of the Securityholders Agreement and unless the transferee
executes a joinder agreement in form acceptable to BrightView pursuant to which
such transferee agrees to be bound by the provisions of this Agreement and the
Securityholders Agreement. Any Transfer or attempted Transfer of any Executive
Securities in violation of any provision of this Agreement shall be void, and
none of the Companies shall record such Transfer on its books or treat any
purported transferee of such Executive Securities as the owner of such
securities for any purpose.
5. Additional Restrictions on Transfer.
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(a) Each certificate which represents Executive Securities shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON SEPTEMBER 30, 1996, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE SECURITIES
PURCHASE AND EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND D. CLAEYS
BAHRENBURG DATED AS OF SEPTEMBER 30, 1996 AS AMENDED AND MODIFIED
FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(b) No holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to BrightView an opinion
(acceptable in form and substance to BrightView) of counsel experienced in
securities laws matters that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection
with such transfer.
PART II. EMPLOYMENT TERMS
6. Employment. Operating LLC shall employ Executive, and Executive
hereby accepts employment with Operating LLC, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 11 hereof (the "Employment Period").
7. Position and Duties.
(a) During the Employment Period, Executive shall render such
administrative, sales, marketing and other executive and managerial services to
BrightView and its Subsidiaries as the Board or the Chairman of Holding LLC may
from time to time direct. During the Employment Period, Executive (i) shall
serve as the Chief Executive Officer of Operating LLC and in such capacity shall
have the duties, responsibilities and authority of the Chief Executive Officer
as set forth in the Operating LLC Agreement, subject to the power of the Board
to expand or limit such duties, responsibilities and authority and to override
actions of the Chief Executive Officer and (ii) shall serve as the President of
Holding LLC and in such capacity shall have the duties, responsibilities and
authority of the President as set forth in the Holding LLC Agreement, subject to
the power of the Board or the Chairman of Holding LLC to expand or limit such
duties, responsibilities and authority and to override actions of the President.
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(b) Executive, in his capacity as President of Holding LLC and in his
capacity as Chief Executive Officer of Operating LLC, shall report to the
Chairman of Holding LLC and the Board. Executive shall devote his best efforts
and his full business time and attention (except for permitted vacation periods
and reasonable periods of illness or other incapacity) to the business and
affairs of Holding LLC, Operating LLC and the Subsidiaries of Operating LLC.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
8. Base Amount and Benefits.
(a) During the Employment Period, Operating LLC shall pay to Executive
a base salary at the rate of $400,000 per annum and shall pay compensation to
White Wave Media at the rate of $100,000 per annum (such amounts collectively,
the "Base Amount"). On each anniversary of the date of this Agreement during the
Employment Period, the Base Amount shall be increased by the percentage increase
in the Consumer Price Index, if any, from the beginning to the end of the
immediately preceding calendar year. The Base Amount shall be paid by Operating
LLC and shall be payable in regular installments in accordance with Operating
LLC's general payroll practices and shall be subject to customary withholding.
In addition, during the Employment Period, Operating LLC will maintain a term
life insurance policy (the "Term Life Insurance Policy") on the life of
Executive in an amount equal to $1,500,000 for the benefit of a Person or
Persons designated by Executive and shall be entitled to participate in all of
the employee benefit programs for which senior executive employees of Operating
LLC are generally eligible. Executive shall be entitled to four weeks of paid
vacation each year, which if not taken may not be carried forward to any
subsequent year.
(b) Operating LLC shall reimburse Executive for reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Companies' written policies in effect from time to
time with respect to travel, entertainment and other business expenses, subject
to the requirements with respect to reporting and documentation of such expenses
which have been established by the Board.
9. Bonus.
(a) General. In addition to the Base Amount, Executive shall have the
opportunity to accrue a bonus (with respect to each Bonus Year, the "Annual
Bonus Accrual") for each Fiscal Year set forth on Schedule A attached hereto
which ends during the Employment Period (each such Fiscal Year, a "Bonus Year")
in an amount (excluding interest accruing as contemplated in this Section 9(a))
up to the Maximum Annual Bonus Accrual. Such Annual Bonuses shall accrue as
provided in Section 9(b), but shall be payable only as provided in Sections 9(c)
and 9(d), and in such event shall be payable only by Operating LLC. The amount
of the Annual Bonus Accrual with respect to each Bonus Year shall accrue
interest, commencing on the date on which the audited, consolidated financial
statements for BrightView and Holding LLC with respect to such Bonus Year are
released and until such amount is paid, at a rate equal to the lesser of (i) the
Weighted Average Rate, or (ii) the highest rate permitted by applicable law. The
"Maximum Annual Bonus Accrual" for 1997 shall be $250,000 and for each
subsequent Fiscal Year during the Employment Period shall
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be increased from the Maximum Bonus Accrual for the preceding Fiscal Year by the
percentage increase in the Consumer Price Index, if any, from the beginning to
the end of the immediately preceding calendar year.
(b) Determination of Annual Bonus. Executive's Annual Bonus Accrual
for each Bonus Year shall be calculated as follows and, subject only to Section
11(b) below, shall accrue until termination of the Employment Period for any
reason:
(i) if EBITDA for such Bonus Year is equal to or greater than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the
Maximum Annual Bonus Accrual for such Bonus Year;
(ii) if EBITDA for such Bonus Year is equal to the "Threshold EBITDA"
set forth opposite such Bonus Year on Schedule A, Executive's Annual Bonus
Accrual for such Bonus Year shall equal to 50.0% of the Maximum Annual
Bonus Accrual for such Bonus Year (the "Threshold Bonus Accrual");
(iii) if EBITDA for such Bonus Year is greater than the "Threshold
EBITDA" set forth opposite such Bonus Year on Schedule A and less than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the sum of
(A) the Threshold Bonus Accrual plus (B) the Threshold Bonus Accrual for
such Bonus Year multiplied by a fraction, (x) the numerator of which is
EBITDA for such Bonus Year minus the Threshold EBITDA for such Bonus Year,
and (y) the denominator of which is the Target EBITDA for such Fiscal Year
minus the Threshold EBITDA for such Bonus Year; and
(iv) if EBITDA for such Bonus Year is less than the "Threshold EBITDA"
set forth opposite such Fiscal Year on Schedule A, Executive's Annual Bonus
Accrual for such Bonus Year shall be zero;
provided that, notwithstanding anything to the contrary set forth in this
Agreement, Executive's Annual Bonus Accrual for a Bonus Year shall equal zero if
Operating LLC breaches any financial or other performance covenant included in a
financing agreement with respect to any of the Companies (including, without
limitation, the Senior Credit Agreement and the Subordinated Credit Agreement)
during such Fiscal Year.
(c) Payment of Bonus Accrual Prior to Payout Event. Notwithstanding
any other provision of this Agreement, prior to a Payout Event (as defined
below) Operating LLC shall not be obligated to pay any Annual Bonus Accrual,
except to the extent that the aggregate of all Annual Bonus Accruals which have
accrued pursuant to Section 9(b) and have not been paid (the "Deferred Bonus
Accrual") exceeds the Maximum Deferred Bonus Accrual (as defined below). If the
amount of any Annual Bonus Accrual with respect to a Bonus Year, plus the
Deferred Bonus Accrual calculated immediately prior to such Annual Bonus
Accrual, exceeds the Maximum Deferred Bonus Accrual, the Operating Company shall
pay to Executive, within 30 days following the release of
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audited, consolidated financial statements for BrightView and Holding LLC with
respect to such Bonus Year, the amount by which the Deferred Bonus Accrual as of
the end of such Bonus Year exceeds the Maximum Deferred Bonus Accrual. "Maximum
Deferred Bonus Accrual" means, as of any date, Executive's aggregate unpaid
obligations under the Executive Notes as of such date (including interest
accrued through such date).
(d) Payment of Deferred Bonus Accrual Upon Payout Event. On the
earlier to occur of a Sale of the Company and December 31, 2001 (the "Payout
Event") the Deferred Bonus Accrual shall be payable by Operating LLC if and only
if (i) Executive has been continuously employed by Operating LLC as its Chief
Executive Officer through such date or (ii) the Employment Period was terminated
by Operating LLC prior to such date without Cause or by Executive for Good
Reason (in which event the Deferred Bonus Accrual shall be calculated in
accordance with Section 11 (b)).
10. Board Membership. With respect to all regular elections of
directors during the Employment Period, BrightView shall nominate Executive to
serve as a member of the Board. Upon the termination of the Employment Period,
Executive shall resign as a director of BrightView and its Subsidiaries, as the
case may be.
11. Term.
(a) The Employment Period shall begin on the date of this Agreement
and end on the first to occur of (i) December 31, 2001, (ii) Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgment) and (iii) termination of Executive's
employment by Operating LLC at any time for Cause or without Cause.
(b) If the Employment Period is terminated by Operating LLC without
Cause or by Executive for Good Reason (the date of any such termination
constituting the "Termination Date"), Executive shall be entitled (i) (A) to
continue to receive his Base Amount, (B) to continue to accrue an Annual Bonus
Accrual (if any) in accordance with the terms and limitations of Section 9 and
(C) to receive continuing health and welfare benefits at the levels in effect on
the Termination Date (provided that the Companies' obligation to continue such
health and welfare benefits shall cease at such time as Executive secures other
employment) from the Termination Date to the first anniversary of the
Termination Date as if he were still employed by the Operating LLC during such
period and (ii) to receive payment of the Deferred Bonus Accrual (if any) if
payable in accordance with Section 9 hereof to the first anniversary of the
Termination Date as if he were still employed by the Operating LLC to such date;
provided that Executive shall not be entitled to any rights under this Section
11(b) if he breaches any of the provisions of Sections 12, 13 or 14.
(c) Except as provided in paragraph (b) above, if the Employment
Period is terminated for any reason or on account of any event prior to December
31, 2001, Executive shall be entitled to receive Base Amount through the
Termination Date but not payment of any Deferred Bonus Accrual.
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(d) All of Executive's rights (if any) to receive benefits and to
accrue and receive bonuses hereunder shall cease upon the Termination Date
except for Executive's right to accrue and receive bonus payments and to receive
continuing insurance coverage pursuant to paragraph (b) above. The Companies may
offset any amounts Executive owes them or their Subsidiaries (pursuant to the
Executive Notes or otherwise) against any amounts it owes Executive pursuant to
this Section 11.
(e) In the event the Employment Period is terminated for any reason
other than the death of Executive, Executive shall be entitled to continue the
Term Life Insurance Policy by making payments of premium and any other payment
required thereunder and Operating LLC shall use all reasonable efforts (other
than making any payments) to transfer to Executive ownership of such Term Life
Insurance Policy.
12. Confidential Information. Executive acknowledges that the
information, observations and data now or hereafter obtained by him while
employed by the Companies or their predecessors or their respective Subsidiaries
concerning the business or affairs of the Companies or any Subsidiary
("Confidential Information") are the property of the Companies or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Companies at the termination of the Employment Period, or
at any other time the Companies may request, all memoranda, notes, plans,
records, reports, computer tapes, printouts and software and other documents and
data (and copies thereof in any media whatsoever) relating to the Confidential
Information, Work Product (as defined below) or the business of the Companies or
any Subsidiary which he may then possess or have under his control.
13. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Companies or any of their Subsidiaries' actual
or anticipated business, research and development or existing or future products
or services and which are now or hereafter conceived, developed or made by
Executive while employed by the Companies or their predecessors or their
respective Subsidiaries ("Work Product") belong to BrightView or such
Subsidiary. Executive shall promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
14. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Companies and their Subsidiaries he shall become familiar with the
trade secrets of the Companies and their Subsidiaries and with other
Confidential Information concerning the Companies and their Subsidiaries and
that his services shall be of special, unique and extraordinary value to the
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Companies and their Subsidiaries. Therefore, Executive agrees that, during the
Employment Period and for one year thereafter (the "Noncompete Period"), he
shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any of the businesses of BrightView or its
Subsidiaries, as such businesses exist or are in process on the date of the
termination of Executive's employment, within any geographical area in which the
Companies or their Subsidiaries engage or plan to engage in such businesses.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded, so long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any person
employed by any of the Companies or any Subsidiary during the two years
immediately preceding the Termination Date (each such person, a "Recent
Employee," and collectively, the "Recent Employees") to leave the employ of the
Companies or such Subsidiary, or in any way interfere with the relationship
between the Companies or any Subsidiary and any Recent Employee (other than in
the course of discharging his duties hereunder (including, without limitation,
terminating the employment of a Recent Employee) while employed by Operating
LLC) or (ii) except in the course of discharging his duties hereunder while
employed by Operating LLC, induce or attempt to induce any customer, supplier,
licensee, licensor, lender, franchisee or other business relation of or to the
Companies or their Subsidiary to cease doing business with any of the Companies
or such Subsidiary, or in any way interfere with the relationship between any
such customer, supplier, licensee or business relation and the Companies or any
of its Subsidiaries (including, without limitation, making any disparaging
statements or communications about the Companies or their Subsidiaries).
15. Enforcement. If, at the time of enforcement of Section 12, 13 or
14 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reason able under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Companies or their
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific perform
ance and/or injunctive or other relief in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security).
In addition, in the event of an alleged breach or violation by Executive of
Section 14, the Noncompete Period shall be tolled until such breach or violation
has been duly cured. Executive agrees that the restrictions contained in Section
14 are reasonable.
16. Executive's Representations. Executive hereby represents and
warrants to the Companies that (i) the execution, delivery and performance of
this Agreement by Executive do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
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confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Companies, this Agreement shall
be the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
17. Definitions.
"Acquisition" means consummation of the transactions contemplated by
the Asset Purchase Agreement, dated as of August 15, 1996, between BrightView
and Petersen Publishing Corporation, a California corporation, to occur at the
"Closing" described therein.
"Board" means the board of directors of BrightView. Actions taken or
approvals given by the Board hereunder may be on behalf of BrightView acting as
managing member of Holding LLC, either in its capacity as such or as managing
member of the Operating LLC.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude, (ii) the commission of any other act or omission involving
dishonesty, disloyalty or fraud (A) with respect to any of the Companies and
their respective Subsidiaries or any of their employees, customers or suppliers,
or (B) adversely affecting the reputation or standing of any of the Companies or
their respective Subsidiaries, (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board or by the Chairman of Holding LLC,
(iv) gross negligence or willful misconduct with respect to the Companies and
their Subsidiaries, (v) any other material breach of this Agreement or any
company policy established by the Board, which breach, if curable, is not cured
within 15 days after written notice thereof to Executive, or (vi) if EBITDA in
any Fiscal Year is less than the "Minimum EBITDA" set forth for such Fiscal Year
on Schedule A hereto.
"Consumer Price Index" means the Consumer Price Index for All Urban
Consumers, U.S. City Average, for all items, or if the government ceases to
publish such index, such index which in the Board's good faith judgment is most
similar to such index.
"EBITDA" means, with respect to any Fiscal Year, the consolidated net
income of BrightView, Holding LLC and its Subsidiaries for such Fiscal Year
plus, to the extent deducted in determining such net income, interest expense,
provisions for taxes, depreciation and amortization, net of the bonuses
contemplated hereby and under similar arrangements (whether paid in cash or
otherwise payable) and before extraordinary gains and losses, calculated in
accordance with generally accepted accounting principles and determined by the
Board from the audited consolidated annual financial statements of BrightView
and Holding LLC for such Fiscal Year.
"Fiscal Year" means the calendar year/fiscal year of Holding LLC.
"Executive Securities" shall continue to be Executive Securities in
the hands of any holder other than Executive (except for the Companies and the
Investors and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Securities shall succeed to
all rights and obligations attributable to Executive as a holder of
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Executive Securities hereunder. Executive Securities shall also include any
equity securities issued by any of the Companies with respect to Executive
Securities by way of a stock split, stock dividend, other recapitalization or
similar transaction. Notwithstanding the foregoing, all of the Unvested
Securities shall remain Executive Securities after any Transfer thereof, even if
such Transfer is approved in accordance with the Securityholders Agreement.
"Fair Market Value" of each share or unit of any class or type of
Executive Securities means the average of the closing prices of the sales of any
such securities on all securities exchanges on which such security may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
the Fair Market Value is being determined and the 20 consecutive business days
prior to such day, and with respect to any share or unit of any class or type of
Executive Security which is not, as of the date of determination, listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market Value thereof shall be the fair value of such shares or
units or such class or type of Executive Securities determined in good faith by
the Board.
"Good Reason" means the occurrence, without Executive's consent, of
any of the following: (i) unless corrected within 30 days written notice by
Executive to the Board of Executive's objection thereto, the assignment to the
Executive of any significant duties materially inconsistent with the Executive's
status as a senior executive officer of Operating LLC or a substantial
diminution in the nature or status of the Executive's responsibilities; (ii) a
reduction by Operating LLC in the Executive's Annual Base Amount as in effect on
the date hereof, except for across-the-board salary reductions similarly
affecting all senior executives of Operating LLC; or (ii) the Board requires
Executive to relocate from New York (it being understood that Executive may be
required to spend up to approximately 50% of business days during the Employment
Period in Operating LLC's Los Angeles office and additional time in Operating
LLC's other offices throughout the U.S.).
"Investor" has the meaning given such term in the preamble.
"Original Cost" means, with respect to each share of Common Stock
purchased pursuant to the Securities Purchase Agreement or hereunder, $500.00;
with respect to each Class A Common Unit purchased pursuant to the Securities
Purchase Agreement or hereunder, $4.50; and, with respect to each Preferred Unit
purchased pursuant to the Securities Purchase Agreement or hereunder, $445.50
(in each case, as proportionately adjusted for all subsequent stock splits,
stock dividends and other recapitalizations).
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"Public Sale" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker.
"Qualified IPO" means receipt by BrightView of at least $75,000,000
cash proceeds upon consummation of an underwritten sale of Common Stock by
BrightView pursuant to a registration statement filed under the Securities Act,
provided that the sum of (a) the product of the net price per share of such
offering multiplied by the aggregate number of shares of Common Stock issued to
Investors at the closing of the Acquisition (as adjusted for stock splits,
combinations of shares and other recapitalizations), plus (b) the aggregate
amount of all cash paid as distributions or dividends on the equity securities
of Holding LLC which were issued to the Investors at the closing of the
Acquisition, plus (c) the fair market value of such Holding LLC equity
securities, and of any other property received by the Investors at any time in
respect of such securities in connection with any Sale of the Company prior
thereto, in each case as determined by the Board, equals or exceeds
$330,000,000.
"Sale of the Company" means a sale of all the assets or equity
securities of one of the Companies to an unaffiliated third-party.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Securityholders Agreement" means the Securityholders Agreement, dated
as of the date hereof, by and among the Companies, Executive and the other
Investors, as such agreement may be amended, restated, supplemented or modified
from time to time hereafter.
"Senior Credit Agreement" means the Credit Agreement, dated as of the
date hereof, among Operating LLC, First Union National Bank of North Carolina,
as Administrative Agent (as defined in such Agreement) and Syndication Agent (as
defined in such Agreement), CIBC, Inc., as Documentation Agent (as defined in
such Agreement) and certain banks and other financial institutions, as amended,
modified, supplemented or restated, and including any agreement pursuant to
which indebtedness thereunder is refinanced, as in effect from time to time.
"Subsidiary" of a Person means any entity of which such Person (i)
owns equity securities having a majority of the ordinary voting power in
electing the board of directors directly or through one or more subsidiaries or
(ii) serves as a general partner or managing member or otherwise has the power
and authority to direct the day to day management of such entity. For purposes
of this Agreement, Holding LLC is deemed to be as Subsidiary of BrightView.
"Weighted Average Rate" means the weighted average cost of borrowing
by Operating LLC as in effect from time to time, as determined in good faith by
the Board.
18. Survival. The provisions of this Agreement shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
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19. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To any of the Companies:
c/o Willis Stein & Partners, L.P.
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Attention: Avy H. Stein
Daniel H. Blumenthal
With a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: John A. Weissenbach, Esq.
To Executive:
D. Claeys Bahrenburg
Chief Executive Officer
Petersen Publishing Company, L.L.C.
437 Madison Avenue
New York, NY 10022
With a copy to:
Fulbright & Jaworski
666 Fifth Avenue
New York, New York 10103
Attention: Alan Aronson
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when personally
delivered, five days after deposit in the U.S. mail, or the business day next
following deposit with such an overnight courier service in such a manner, with
instructions for next-day delivery.
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20. General Provisions.
(a) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(c) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Companies, the Investors and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of Executive under this Agreement shall not be
assignable except in connection with a transfer of Executive Securities in
accordance with this Agreement and the Securityholders Agreement.
(f) Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
(g) Remedies. Each of the parties to this Agreement (including the
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and
-17-
<PAGE>
to exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Arbitration. Each of the parties hereto agrees that in the event
of any dispute arising between or among the parties arising out of or relating
to this Agreement or its breach, such dispute shall be settled by arbitration to
be conducted in the Borough of Manhattan, New York, New York in accordance with
the Commercial Arbitration Rules (except as modified below) of the American
Arbitration Association and with the Expedited Procedures thereof (collectively,
the "Rules"). Each of the parties hereto agrees that such arbitration shall be
conducted by a single arbitrator selected in accordance with the Rules; provided
that such arbitrator shall be a retired judge who is experienced in deciding
cases concerning the matter which is the subject of the dispute. Each of the
parties agrees that in any such arbitration that pre-arbitration discovery shall
be limited to the greatest extent provided by the Rules, that the award shall be
made in writing no more than 30 days following the end of the proceeding, that
the arbitration shall not be conducted as a class action, that the arbitration
award shall not include factual findings or conclusions of law, and that no
punitive damages shall be awarded. Any award rendered by the arbitrator shall be
final and binding and judgment may be entered on it in any court of competent
jurisdiction. Each of the parties hereto agrees to treat as confidential the
results of any arbitration (including, without limitation, any findings of fact
and/or law made by the arbitrator) and not to disclose such results to any
unauthorized person. The prevailing party (as determined by the arbitrator)
shall in addition be awarded by the arbitrator such party's own attorneys' fees
and expenses in connection with such proceeding. The non-prevailing party (as
determined by the arbitrator) shall pay the fees and expenses of the
arbitration.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of BrightView and
Executive.
(j) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
* * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
--------------------------------------
D. Claeys Bahrenburg
BRIGHTVIEW COMMUNICATIONS GROUP, INC.
By:
---------------------------------
Its:
---------------------------------
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:
-----------------------------------
Its:
-----------------------------------
PETERSEN PUBLISHING
COMPANY, L.L.C.
By Petersen Holdings, L.L.C.
Its Managing Member
By BrightView Communications Group, Inc.
Its Managing Member
By:
----------------------------------
Its:
----------------------------------
-19-
<PAGE>
SCHEDULE A
----------
All amounts in $millions
<TABLE>
<CAPTION>
- -------------------------------------------------------
FISCAL YEAR TARGET EBITDA THRESHOLD MINIMUM EBITDA
EBITDA
- -------------------------------------------------------
<S> <C> <C> <C>
1997 55 50 42.5
- -------------------------------------------------------
1998 70 60 55
- -------------------------------------------------------
1999 82 67 60
- -------------------------------------------------------
2000 93 75 65
- -------------------------------------------------------
2001 100 80 70
- -------------------------------------------------------
</TABLE>
Each of the amounts set forth in the above chart will be adjusted by the Board,
in its good faith judgment, in connection with acquisitions or divestitures
(whether by merger, purchase or sale of assets or otherwise) consummated by any
of the Companies at any time after the Closing. Such amounts, as so adjusted by
the Board, will be deemed to be the amount set forth on the above chart for all
purposes of the Agreement to which this Schedule A is attached.
-20-
<PAGE>
[Provision for Community Property Jurisdictions]
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have
read the foregoing Executive Securities Purchase and Employment Agreement and
that I understand its contents. I am aware that the Agreement provides for the
repurchase of my spouse's Executive Securities under certain circumstances and
imposes other restrictions on the transfer of such Executive Securities. I agree
that my spouse's interest in the Executive Securities is subject to this
Agreement and any interest I may have in such Executive Securities shall be
irrevocably bound by this Agreement and further that the my community property
interest, if any, shall be similarly bound by this Agreement.
I am aware that the legal, financial and other matters contained in
this Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Agreement that I will waive such right.
Date: September 30, 1996
Name of Executive: D. Claeys Bahrenburg
Name of Spouse:
----------------------------------
Signature of Spouse:
-----------------------------
Name of Witness:
--------------------------------
Signature of Witness:
---------------------------
-21-
<PAGE>
ANNEX A
PROMISSORY NOTE
---------------
$________________ September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay
to the order of _______________, a _______________ corporation [limited
liability company] (the "Company"), at its offices in _____________________, or
such other place as designated in writing by the holder hereof, the aggregate
principal sum of $____________ together with interest earned thereon when due.
The principal amount of the Note and all interest accrued thereon shall be due
and payable on March 1, 1997. This Note was issued pursuant to and is subject to
the terms of the Executive Securities Purchase and Employment Agreement (the
"Executive Agreement"), dated as of September 30, 1996, between the Company and
Executive. Capitalized terms used herein and not otherwise defined shall have
the meanings given such terms in the Executive Agreement
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView Communications Group, Inc.
The amounts due under this Note are secured by a pledge of the
Executive Securities, including all of Executive's membership interest in
Petersen Holdings, L.L.C., and the payment of the principal amount and accrued
interest under this Note is subject to certain offset rights under the Executive
Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of ________________________.
------------------------------------
D. Claeys Bahrenburg
<PAGE>
ANNEX B
PROMISSORY NOTE
---------------
$________________ September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay
to the order of _______________, a _______________ corporation [limited
liability company] (the "Company"), at its offices in _____________________, or
such other place as designated in writing by the holder hereof, the aggregate
principal sum of $____________ together with interest earned thereon when due.
The principal amount of the Note and all interest accrued thereon shall be due
and payable on the earlier to occur of (i) December 31, 2001, (ii) termination
of Executive as an employee of Operating LLC, and (iii) a Sale of the Company.
This Note was issued pursuant to and is subject to the terms of the Executive
Securities Purchase and Employment Agreement (the "Executive Agreement"), dated
as of September 30, 1996, between the Company and Executive. Capitalized terms
used herein and not otherwise defined shall have the meanings given such terms
in the Executive Agreement
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView Communications Group, Inc.
The amounts due under this Note are secured by a pledge of the
Executive Securities, including all of Executive's membership interest in
Petersen Holdings, L.L.C., and the payment of the principal amount and accrued
interest under this Note is subject to certain offset rights under the Executive
Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of New York.
---------------------------------
D. Claeys Bahrenburg
-2-
<PAGE>
-3-
<PAGE>
ANNEX C
EXECUTIVE SECURITIES PLEDGE AGREEMENT
-------------------------------------
THIS PLEDGE AGREEMENT is made as of September 30, 1996, between D.
Claeys Bahrenburg ("Pledgor"), BrightView Communications Group, Inc., a Delaware
corporation (the "Company") and Petersen Holdings, L.L.C., a Delaware limited
liability company ("Holdings").
The Company, Holdings, Petersen Publishing Company, L.L.C. (the
"Operating LLC") and Pledgor are parties to an Executive Securities Purchase and
Employment Agreement, dated as of the date hereof, (the "Executive Securities
Agreement"), and to Securities Purchase Agreement, dated as of the date hereof,
pursuant to which Pledgor purchased an aggregate of 30 shares of the Company's
Class A Common Stock, $.01 par value, and 8,450.808 Class A Common Units, 625
Class B Common Units, 625 Class C Common Units and 3,300 Preferred Units of
Holdings (collectively, the "Pledged Securities"). The Company and Holdings have
allowed Pledgor to purchase a portion of the Pledged Securities under the
Executive Securities Agreement by delivery to the Company and Holdings of
promissory notes (the "Notes") in the aggregate principal amount of $1,000,000.
This Pledge Agreement provides the terms and conditions upon which the Notes are
secured by a pledge to the Company of the Pledged Securities.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company and Holdings to accept
the Notes as partial payment for the Pledged Securities, Pledgor, the Company
and Holdings hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company and Holdings, and
grants to the Company and Holdings a security interest in, the Pledged
Securities as security for the prompt and complete payment when due of the
unpaid principal of and interest on the Notes and full payment and performance
of the obligations and liabilities of Pledgor hereunder.
2. Delivery of Pledged Securities. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Securities, if certificated, together with duly executed forms of
assignment sufficient to transfer title thereto to the Company. The Company
shall hold such Pledged Securities for itself and as agent for Holdings (the
Company acting in such capacities, the "Agent").
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on either
of the Notes or any other default under either of the Notes or hereunder,
Pledgor shall be entitled to all voting rights with respect to the Pledged
Securities and shall be entitled to receive all cash dividends paid in respect
of the Pledged Securities. Upon the occurrence of and during the continuance of
any such default, Pledgor shall no longer be
<PAGE>
able to vote the Pledged Securities and the Agent shall retain all such cash
dividends payable on the Pledged Securities as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Securities (whether as a distribution in connection with
any recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Agent as additional security for Pledgor's
obligations under the Notes and shall promptly deliver such additional security
to the Agent together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Securities
hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under either of the Notes when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under either of the
Notes or this Pledge Agreement occurs (including the bankruptcy or insolvency of
Pledgor), the Agent may exercise any and all the rights, powers and remedies of
any owner of the Pledged Securities (including the right to vote the shares and
receive dividends and distributions with respect to such shares) and shall have
and may exercise without demand any and all the rights and remedies granted to a
secured party upon default under the Uniform Commercial Code of Illinois or
otherwise available to the Company under applicable law. Without limiting the
foregoing, the Agent is authorized to sell, assign and deliver at its
discretion, from time to time, all or any part of the Pledged Securities at any
private sale or public auction, on not less than ten days written notice to
Pledgor, at such price or prices and upon such terms as the Agent may deem
advisable. Pledgor shall have no right to redeem the Pledged Securities after
any such sale or assignment. At any such sale or auction, the Agent, the Company
and/or Holdings may bid for, and become the purchaser of, the whole or any part
of the Pledged Securities offered for sale. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses of sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Notes; provided that after payment in full of the
indebtedness evidenced by the Notes, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Securities remaining in the hands of the Agent. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Notes in full, including the fees of any
attorneys employed by the Agent to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Securities hereunder.
7. Payment of Indebtedness and Release of Pledged Securities. Upon
payment in full of the indebtedness evidenced by the Notes, the Agent shall
surrender the Pledged Securities to Pledgor together with all forms of
assignment.
-2-
<PAGE>
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on each of the Notes has been repaid, Pledgor shall not (i) create,
incur, assume or suffer to exist any pledge, security interest, encumbrance,
lien or charge of any kind against the Pledged Securities or Pledgor's rights or
a holder thereof, other than pursuant to this Agreement and the Executive
Agreement, or (ii) sell or otherwise transfer any Pledged Securities or any
interest therein.
9. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Agent, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Agent may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. Neither the Company, Holdings or
the Agent shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by the Company and Holding, and then only to the
extent therein set forth. A waiver by the Company, Holdings or the Agent of
Holdings of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company, Holdings or the
Agent would otherwise have on any future occasion. No failure to exercise nor
any delay in exercising on the part of the Company, Holdings or the Agent, any
right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company, Holdings or the Agent hereunder, inure to
the benefit of the Company, Holdings or the Agent and its respective successors
and assigns. This Pledge Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of Illinois.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
BRIGHTVIEW COMMUNICATIONS
GROUP, INC.
By:_________________________________
Its:________________________________
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:_________________________________
Its:________________________________
____________________________________
D. Claeys Bahrenburg
-4-
<PAGE>
ANNEX D
October __, 1996
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased 20 shares of Class A Common Stock, par value
$.01 per share (the "Shares"), of BrightView Communications Group, Inc., a
Delaware corporation (the "Company") and an interest consisting of 8,450.708
Class A Common Units, 625 Class B Common Units, 625 Class C Common Units and
3,300 Preferred Units (the "Units" and, together with the Shares, the
"Securities") in Petersen Holdings, L.L.C., a Delaware limited liability company
("Holding LLC"). Under certain circumstances, the Company has the right to
repurchase the Securities at cost from the undersigned (or from the holder of
the Securities, if different from the undersigned) should the undersigned cease
to be employed by the Company and its subsidiaries. Hence, the Securities are
subject to a substantial risk of forfeiture and are nontransferable. The
undersigned desires to make an election to have the Securities taxed under the
provision of Code (S)83(b) at the time he purchased the Securities.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Securities (described below), to report as taxable income for calendar
year 1996 the excess (if any) of the Securities' fair market value on September
30, 1996 over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
(i) The name, address and social security number of the undersigned:
D. Claeys Bahrenburg
Address:
______________________________
______________________________
______________________________
SSN: _________________________
2. A description of the property with respect to which the election
is being made: 20 shares of the Company's Common Stock, par value $.01 per
share, and a membership interest in Holding LLC consisting of 8,450.708 Class A
Common Units, 625 Class B Common Units, 625 Class C Common Units and 3,300
Preferred Units, entitling the undersigned to an interest in Holding LLC's
capital and an interest in Holding LLC's profits.
-1-
<PAGE>
3. The date on which the property was transferred: September 30,
1996. The taxable year for which such election is made: calendar 1996.
4. The restrictions to which the property is subject: If during the
first five years after the purchase of the Securities the undersigned ceases to
be employed by Petersen Publishing Company, L.L.C. ("Operating LLC") or any of
its subsidiaries, the unvested portion of the Securities shall be subject to
repurchase by the Company at the lower of fair market value or original cost.
The Securities shall become vested ratably, on a daily basis, over the five year
period commencing upon issuance as long as Executive remains employed by
Operating L.L.C., or any of its subsidiaries and shall be deemed to be unvested
to the extent not vested as of termination of such employment; provided that all
Securities shall become Vested Securities if Executive remains employed by
Operating LLC or any of its Subsidiaries through the time of certain public
offerings of the Company's Common Stock or certain sales of the Company,
Holdings LLC or Operating LLC.
5. The fair market value on September 30, 1996 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $1,500,000.
6. The amount paid for such property: $1,500,000.
A copy of this election has been furnished to the Secretary of the
Company and Holding LLC pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated: _________________ ______________________________
D. Claeys Bahrenburg
-2-
<PAGE>
EXHIBIT 10.4
EXECUTIVE SECURITIES PURCHASE
AND EMPLOYMENT AGREEMENT
-----------------------------
THIS EXECUTIVE SECURITIES PURCHASE AND EMPLOYMENT AGREEMENT (this
"Agreement") is made as of September 30, 1996, among BrightView Communications
Group, Inc., a Delaware corporation ("BrightView"), Petersen Holdings, L.L.C., a
Delaware limited liability company ("Holding LLC"), and Petersen Publishing
Company, L.L.C., a Delaware limited liability company ("Operating LLC"), and
Neal Vitale ("Executive"). BrightView, Holding LLC and Operating LLC are
sometimes referred to collectively herein as the "Companies".
BrightView is the sole managing member of Holding LLC, and Holding LLC
and BrightView own all of the membership interests of Operating LLC.
The Companies and Executive desire to enter into an agreement pursuant
to which Executive shall purchase (i) 15 shares of BrightView's Class A Common
Stock, par value $.01 per share (the "Common Stock"), (ii) 6,800.708 of Holding
LLC's Class A Common Units (the "Class A Common Units"), 625 of Holding LLC's
Class B Common Units (the "Class B Common Units") and 625 of Holding LLC's Class
C Common Units (the "Class C Common Units") (in each case as defined in the
Holding LLC Agreement) (collectively, the "Common Units") and (iii) 1,650 of
Holding LLC's Preferred Units (as defined in the Holding LLC Agreement) (the
"Preferred Units"). All of such shares of Common Stock, Common Units and
Preferred Units and all shares of stock and all other equity interests in
BrightView or Holding LLC hereafter acquired by Executive are referred to herein
as "Executive Securities." Certain definitions are set forth in Section 17 of
this Agreement.
The execution and delivery of this Agreement by the Companies and
Executive is a condition under a Securities Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), by and among BrightView, Holding LLC,
Petersen Investment Corp., a Delaware corporation ("PIC"), and certain other
Persons (the "Investors") to the purchase by the Investors of certain securities
of BrightView, Holding LLC and/or PIC.
The parties hereto agree as follows:
PART I. PURCHASE OF EXECUTIVE SECURITIES
--------------------------------
1. Purchase and Sale of Executive Securities.
(a) Upon execution of this Agreement, (i) Executive shall purchase
from BrightView, and BrightView shall sell to Executive, 15 shares of Common
Stock at a price of $500.00 per share (ii) Executive shall purchase from
Holding LLC, and Holding LLC shall sell to Executive, 1,650 Class A Common Units
at a price of $4.50 per Class A Common Unit and 1,650
<PAGE>
Preferred Units at a price of $445.50 per Preferred Unit. BrightView and Holding
LLC, as applicable, shall deliver to Executive a copy of, and a receipt for, the
certificate representing such shares of Common Stock, and Executive shall
deliver (i) to BrightView a promissory note in the form of Annex A attached
hereto in an aggregate principal amount of $7,500.00 and (ii) to Holding LLC a
promissory note in the form of Annex A attached hereto in an aggregate principal
amount of $742,500.00 (such promissory note, together with the promissory note
referred to in clause (i), the "Executive Notes"). The Executive Securities
purchased pursuant to this Section 1(a), and any Executive Securities issued in
respect of such Executive Securities, whether by way of a stock split, stock
dividend, other recapitalization or similar transaction, or in exchange for such
Securities pursuant to Article IV of the Securityholders Agreement, are referred
to collectively herein as "Nonvesting Executive Securities."
(b) Upon execution of this Agreement, Executive shall purchase from
Holding LLC, and Holding LLC shall sell to Executive, for no additional
consideration 5,150.708 Class A Common Units, 625 Class B Common Units and 625
Class C Common Units. BrightView shall deliver to Executive a copy of, and a
receipt for, the certificate representing such shares of Common Stock. The
Executive Securities purchased pursuant to this Section 1(b), and any Executive
Securities issued in respect of such Executive Securities, whether by way of a
stock split, stock dividend, other recapitalization or similar transaction, or
in exchange for such Securities pursuant to Article IV of the Securityholders
Agreement, are referred to collectively herein as "Vesting Executive
Securities."
(c) Executive's obligations under the Executive Notes shall be secured
by a pledge of all of the Executive Securities. In connection therewith,
Executive shall enter into a pledge agreement with BrightView and Holding LLC in
the form of Annex B attached hereto. BrightView, individually and in its
capacity as managing member of Holding LLC, shall hold each certificate
representing the Executive Securities until the Executive Securities represented
by such certificate are released from the pledge to BrightView and Holding LLC
shall hold each certificate, if any, representing the Common Units and Preferred
Units purchased hereunder until the Executive Securities represented by such
certificate, if any, are released from the pledge to BrightView and Holding LLC.
(d) Within 30 days after Executive purchases the Vesting Executive
Securities, Executive shall make an effective election with respect to such
Executive Securities with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code and the regulations promulgated thereunder in the form
of Annex C attached hereto.
(e) In connection with the purchase and sale of the Executive
Securities hereunder, Executive represents and warrants to BrightView and
Holding LLC that:
(i) The Executive Securities to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Executive
Securities shall not be disposed of in contravention of the Securities Act
or any applicable state securities laws.
-2-
<PAGE>
(ii) Executive is an executive officer of BrightView, Holding
LLC or one of their Subsidiaries, is sophisticated in financial matters and
is able to evaluate the risks and benefits of the investment in the
Executive Securities.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Securities for an indefinite period of time
because the Executive Securities have not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration
is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Securities and has had full access to such other information
concerning the Companies as he has requested. Executive has reviewed, or
has had an opportunity to review, a copy of the Asset Purchase Agreement,
dated as of August 15, 1996, between BrightView and Petersen Publishing
Company ("Seller"), as amended (which agreement in part has been assigned
to and assumed by Operating LLC and Holding LLC), pursuant to which
Operating LLC acquired substantially all of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) BrightView's Certificate of Incorporation and Bylaws, (B)
the Limited Liability Company Agreement of Holding LLC dated as of
September 30, 1996, (C) the Limited Liability Company Agreement of
Operating LLC, (D) the loan agreements, notes and related documents with
BrightView's senior and subordinated lender; and (E) Holding LLC's
consolidated pro forma balance sheet dated as of August 31, 1996. Except as
expressly set forth herein, none of the Companies makes any representations
or warranties regarding the Executive Securities, Executive's investment in
the Companies or otherwise as to the financial condition, assets,
liabilities, business or prospects of any of the Companies and all of such
representations and warranties are hereby disclaimed.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive do not
and shall not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(f) As an inducement to BrightView and Holding LLC to issue the
Executive Securities to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) neither the issuance of the Executive Securities to
Executive nor any provision contained herein shall entitle Executive to
remain in the employment of Holding LLC and its Subsidiaries or affect the
right of Holding LLC or any of its Subsidiaries to terminate Executive's
employment at any time subject to the terms of this Agreement; and
(ii) neither BrightView, Holding LLC nor Operating LLC shall have
any duty or obligation to disclose to Executive, and Executive shall have
no right to be advised of, any material information regarding BrightView,
Holding LLC, Operating LLC or any of
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their respective Subsidiaries at any time prior to, upon or in connection
with the repurchase of Unvested Securities.
(g) The Companies and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Securities have
been issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Companies and Executive.
2. Vesting of Executive Securities.
(a) Except as otherwise provided in Section 2(b) below, the Vesting
Executive Securities shall become vested in accordance with the following
schedule, if as of each such anniversary date Executive is employed by
BrightView or any of its Subsidiaries:
Cumulative
Percentage of Vesting Executive
Anniversary Date Securities Vested
------------------------ -------------------------------
September 30, 1997 20%
September 30, 1998 40%
September 30, 1999 60%
September 30, 2000 80%
September 30, 2001 100%
(b) If Executive ceases to be employed by the Operating LLC and its
Subsidiaries on any date other than any anniversary date prior to September 30,
2001, the cumulative percentage of Vesting Executive Securities to become vested
shall be determined on a pro rata basis according to the number of days elapsed
since the prior anniversary date. If Executive is employed by the Operating LLC
upon the occurrence of a Sale of the Company or a Qualified IPO, all shares of
Vesting Executive Securities which have not yet become vested shall become
vested at the time of such event. The Vesting Executive Securities which have
become vested and the Executive Securities which are not Vesting Executive
Securities are collectively referred to herein as the "Vested Securities," and
Vesting Executive Securities which have not become vested are referred to herein
as the "Unvested Securities."
3. Repurchase Option.
(a) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries for Cause or by Executive without Good Reason, the
Companies or any of their Subsidiaries may repurchase all or any portion of the
Executive Securities (whether held by Executive or one or more of Executive's
direct or indirect transferees) pursuant to the terms and conditions set forth
in this Section 3 (the "Repurchase Option") by delivering written notice thereof
(a "Repurchase Notice") to Executive not later than 90 days after the date of
such termination. Each of the Companies and their respective Subsidiaries which
elects to purchase Executive Securities pursuant to the Repurchase Option is
referred to as a "Repurchasing Company" and all such persons
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are referred to collectively as the "Repurchasing Companies". The Repurchasing
Companies may elect (i) to purchase all or any portion of the Unvested
Securities without or before purchasing any Vested Securities and (ii) to
purchase all or any portion of the Vesting Executive Securities without or
before purchasing any Nonvesting Executive Securities. If the Repurchasing
Companies elect to purchase Nonvesting Executive Securities, the Repurchasing
Companies shall purchase a proportionate amount of each class and type of
Nonvesting Executive Securities. The purchase price for each of the Unvested
Securities shall be the lesser of (i) its Fair Market Value and (b) its Original
Cost. The purchase price for each Vested Security shall be its Fair Market
Value.
(b) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries without Cause or by Executive with Good Reason, the
Companies and any of their respective Subsidiaries may elect to purchase all or
any portion of the Unvested Securities by delivering a Repurchase Notice to
Executive not later than 90 days after the date of such termination. The
purchase price for each of the Unvested Securities shall be the lesser of (i)
its Fair Market Value, and (ii) its Original Cost.
(c) The Repurchase Notice shall set forth the Unvested Securities to
be acquired from each holder of Executive Securities, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of Executive Securities of any class or
type to be repurchased by the Repurchasing Companies shall first be satisfied to
the extent possible from the Executive Securities held by Executive at the time
of delivery of the Repurchase Notice. If the number of Executive Securities of
any class or type then held by Executive is less than the total number of
Executive Securities of such class or type the Repurchasing Companies have
elected to purchase, the Repurchasing Companies shall purchase the remaining
amount elected to be purchased from the other holder(s) of Executive Securities
under this Agreement, pro rata according to the amount of Executive Securities
of such class or type held by such other holder(s) at the time of delivery of
such Repurchase Notice (determined as close as practicable to the nearest whole
share or unit).
(d) The closing of the purchase of the Executive Securities pursuant
to the Repurchase Option shall take place on the date designated by the
Repurchasing Companies in the Repurchase Notice, which date shall not be more
than 90 days nor less than five days after the delivery of such notice. The
Repurchasing Companies shall pay the purchase price for the Executive Securities
to be purchased pursuant to the Repurchase Option by (i) offsetting all or any
portion of the amounts, if any, then owing under the Executive Notes under any
other bona fide debts owed by Executive to any of the Companies, (ii) delivery
of a check or wire transfer of funds, (iii) if any of the Companies is
restricted at such time from paying cash to repurchase equity securities,
delivery of a subordinated note or notes of BrightView and/or Holding LLC
payable in three equal annual installments beginning on the first anniversary of
the closing of such purchase and bearing interest (payable quarterly) at a rate
per annum equal to the "applicable federal rate" (as defined in Treasury
Regulation Section 1.1274-4(b)), or (iv) solely at the option of the
Repurchasing Companies, any combination of clause (i), clause (ii) and, subject
to the conditions set forth in clause (iii), clause (iii); provided that if any
Repurchasing Company is restricted from paying cash for any Executive Securities
it elects to repurchase pursuant to the Repurchase Option, such Repurchasing
Company will pay for such Executive Securities first by offsetting amounts then
owing under the Executive
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Notes pursuant to clause (iii) if such Repurchasing Company is not restricted
from paying for such Executive Securities in such manner under its debt and
equity financing agreements. Any notes issued by the Companies pursuant to this
Section 3(d) shall be subject to such subordination and other terms specified
therefor in any restrictive covenants to which any of the Companies is subject
at the time of such purchase. The Repurchasing Companies shall be entitled to
receive customary representations and warranties from the sellers regarding such
sale of Executive Securities (including representations and warranties regarding
good title to such shares, free and clear of any liens or encumbrances) and to
require that all sellers' signatures be guaranteed by a national bank or
reputable securities broker.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Securities by any of the Companies shall
be subject to applicable restrictions contained in the Delaware General
Corporation Law, the Delaware Limited Liability Company Act and in the Companies
and their Subsidiaries debt and equity financing agreements. If any such
restrictions prohibit the repurchase of Executive Securities hereunder which the
Companies are otherwise entitled to make, the time periods provided in this
Section 3 shall be suspended, and the Companies may make such repurchases as
soon as they are permitted to do so under such restrictions.
4. Restrictions on Transfer. Contemporaneously with the execution of
this Agreement Executive shall enter into the Securityholders Agreement.
Executive shall not sell, transfer, assign, pledge or otherwise dispose of
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law) any Executive Securities (a "Transfer"), except pursuant
to the provisions of the Securityholders Agreement and unless the transferee
executes a joinder agreement in form acceptable to BrightView pursuant to which
such transferee agrees to be bound by the provisions of this Agreement and the
Securityholders Agreement. Any Transfer or attempted Transfer of any Executive
Securities in violation of any provision of this Agreement shall be void, and
none of the Companies shall record such Transfer on its books or treat any
purported transferee of such Executive Securities as the owner of such
securities for any purpose.
5. Additional Restrictions on Transfer.
(a) Each certificate which represents Executive Securities shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
SEPTEMBER 30, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EXECUTIVE SECURITIES PURCHASE AND EMPLOYMENT AGREEMENT
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BETWEEN THE COMPANY AND NEAL VITALE DATED AS OF SEPTEMBER 30, 1996 AS
AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to BrightView an opinion
(acceptable in form and substance to BrightView) of counsel experienced in
securities laws matters that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection
with such transfer.
PART II. EMPLOYMENT TERMS
----------------
6. Employment. Operating LLC shall employ Executive, and Executive
hereby accepts employment with Operating LLC, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 11 hereof (the "Employment Period").
7. Position and Duties.
(a) During the Employment Period, Executive shall render such
administrative, sales, marketing and other executive and managerial services to
BrightView and its Subsidiaries as the Board, the Chairman of Holding LLC or the
Chief Executive Officer of Operating LLC may from time to time direct. During
the Employment Period, Executive shall serve as the President and Chief
Operating Officer of Operating LLC and in such capacities shall have the duties,
responsibilities and authority that are normally associated with the offices of
president and chief operating officer, subject to the power of the Board, the
Chairman of Holding LLC and the Chief Executive Officer of Operating LLC to
expand or limit such duties, responsibilities and authority and to override
actions of the President and Chief Operating Officer.
(b) Executive, in his capacities as President and Chief Operating
Officer of Operating LLC, shall report to the Chief Executive Officer of
Operating LLC, the Chairman of Holding LLC and the Board. Executive shall devote
his best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of Operating LLC and the Subsidiaries of Operating LLC.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
8. Base Amount and Benefits.
(a) During the Employment Period, Operating LLC shall pay to Executive
a base salary at the rate of $325,000 per annum (the "Base Amount"). On each
anniversary of the date of this Agreement during the Employment Period, the Base
Amount shall be increased by the percentage increase in the Consumer Price
Index, if any, from the beginning to the end of the immediately preceding
calendar year. The Base Amount shall be paid by Operating LLC and shall
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be payable in regular installments in accordance with Operating LLC's general
payroll practices and shall be subject to customary withholding. In addition,
during the Employment Period, Operating LLC will maintain a term life insurance
policy (the "Term Life Insurance Policy") on the life of Executive in an amount
equal to $1,500,000 for the benefit of a Person or Persons designated by
Executive and shall be entitled to participate in all of the employee benefit
programs for which senior executive employees of Operating LLC are generally
eligible. Executive shall be entitled to four weeks of paid vacation each year,
which if not taken may not be carried forward to any subsequent year.
(b) Operating LLC shall reimburse Executive for reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Companies' written policies in effect from time to
time with respect to travel, entertainment and other business expenses, subject
to the requirements with respect to reporting and documentation of such expenses
which have been established by the Board.
9. Bonus.
(a) General. In addition to the Base Amount, Executive shall have the
opportunity to accrue a bonus (with respect to each Bonus Year, the "Annual
Bonus Accrual") for each Fiscal Year set forth on Schedule A attached hereto
which ends during the Employment Period (each such Fiscal Year, a "Bonus Year")
in an amount (excluding interest accruing as contemplated in this Section 9(a))
up to the Maximum Annual Bonus Accrual. Such Annual Bonuses shall accrue as
provided in Section 9(b), but shall be payable only as provided in Sections 9(c)
and 9(d), and in such event shall be payable only by Operating LLC. The amount
of the Annual Bonus Accrual with respect to each Bonus Year shall accrue
interest, commencing on the date on which the audited, consolidated financial
statements for BrightView and Holding LLC with respect to such Bonus Year are
released and until such amount is paid, at a rate equal to the lesser of (i) the
Weighted Average Rate, or (ii) the highest rate permitted by applicable law. The
"Maximum Annual Bonus Accrual" for 1997 shall be $175,000 and for each
subsequent Fiscal Year during the Employment Period shall be increased from the
Maximum Bonus Accrual for the preceding Fiscal Year by the percentage increase
in the Consumer Price Index, if any, from the beginning to the end of the
immediately preceding calendar year.
(b) Determination of Annual Bonus. Executive's Annual Bonus Accrual
for each Bonus Year shall be calculated as follows and, subject only to Section
11(b) below, shall accrue until termination of the Employment Period for any
reason:
(i) if EBITDA for such Bonus Year is equal to or greater than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the
Maximum Annual Bonus Accrual for such Bonus Year;
(ii) if EBITDA for such Bonus Year is equal to the "Threshold EBITDA"
set forth opposite such Bonus Year on Schedule A, Executive's Annual Bonus
Accrual for such
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Bonus Year shall equal to 50.0% of the Maximum Annual Bonus Accrual for
such Bonus Year (the "Threshold Bonus Accrual");
(iii) if EBITDA for such Bonus Year is greater than the "Threshold
EBITDA" set forth opposite such Bonus Year on Schedule A and less than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the sum of
(A) the Threshold Bonus Accrual plus (B) the Threshold Bonus Accrual for
such Bonus Year multiplied by a fraction, (x) the numerator of which is
EBITDA for such Bonus Year minus the Threshold EBITDA for such Bonus Year,
and (y) the denominator of which is the Target EBITDA for such Fiscal Year
minus the Threshold EBITDA for such Bonus Year; and
(iv) if EBITDA for such Bonus Year is less than the "Threshold EBITDA"
set forth opposite such Fiscal Year on Schedule A, Executive's Annual Bonus
Accrual for such Bonus Year shall be zero;
provided that, notwithstanding anything to the contrary set forth in this
Agreement, Executive's Annual Bonus Accrual for a Bonus Year shall equal zero if
Operating LLC breaches any financial or other performance covenant included in a
financing agreement with respect to any of the Companies (including, without
limitation, the Senior Credit Agreement and the Subordinated Credit Agreement)
during such Fiscal Year.
(c) Payment of Bonus Accrual Prior to Payout Event. Notwithstanding
any other provision of this Agreement, prior to a Payout Event (as defined
below) Operating LLC shall not be obligated to pay any Annual Bonus Accrual,
except to the extent that the aggregate of all Annual Bonus Accruals which have
accrued pursuant to Section 9(b) and have not been paid (the "Deferred Bonus
Accrual") exceeds the Maximum Deferred Bonus Accrual (as defined below). If the
amount of any Annual Bonus Accrual with respect to a Bonus Year, plus the
Deferred Bonus Accrual calculated immediately prior to such Annual Bonus
Accrual, exceeds the Maximum Deferred Bonus Accrual, the Operating Company shall
pay to Executive, within 30 days following the release of audited, consolidated
financial statements for BrightView and Holding LLC with respect to such Bonus
Year, the amount by which the Deferred Bonus Accrual as of the end of such Bonus
Year exceeds the Maximum Deferred Bonus Accrual. "Maximum Deferred Bonus
Accrual" means, as of any date, Executive's aggregate unpaid obligations under
the Executive Notes as of such date (including interest accrued through such
date).
(d) Payment of Bonus Accrual Upon Payout Event. On the earlier to
occur of a Sale of the Company and December 31, 2001 (the "Payout Event") the
Deferred Bonus Accrual shall be payable by Operating LLC if and only if (i)
Executive has been continuously employed by Operating LLC as its President
through such date or (ii) the Employment Period was terminated by Operating LLC
prior to such date without Cause or by Executive for Good Reason (in which event
the Deferred Bonus Accrual shall be calculated in accordance with Section 11
(b)).
10. Board Membership. With respect to all regular elections of
directors during the Employment Period, BrightView shall nominate Executive to
serve as a member of the Board.
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Upon the termination of the Employment Period, Executive shall resign as a
director of BrightView and its Subsidiaries, as the case may be.
11. Term.
(a) The Employment Period shall begin on the date of this Agreement
and end on the first to occur of (i) December 31, 2001, (ii) Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgment) and (iii) termination of Executive's
employment by Operating LLC at any time for Cause or without Cause.
Notwithstanding anything to the contrary set forth herein, Executive's
employment by Operating LLC may not be terminated without the consent of the
Board.
(b) If the Employment Period is terminated by Operating LLC without
Cause or by Executive for Good Reason (the date of any such termination
constituting the "Termination Date"), Executive shall be entitled (i) (A) to
continue to receive his Base Amount, (B) to continue to accrue an Annual Bonus
Accrual (if any) in accordance with the terms and limitations of Section 9 and
(C) to receive continuing health and welfare benefits at the levels in effect on
the Termination Date (provided that the Companies' obligation to continue such
health and welfare benefits shall cease at such time as Executive secures other
employment) from the Termination Date to the first anniversary of the
Termination Date as if he were still employed by the Operating LLC during such
period and (ii) to receive payment of the Deferred Bonus Accrual (if any) if
payable in accordance with Section 9 hereof to the first anniversary of the
Termination Date as if he were still employed by the Operating LLC to such date;
provided that Executive shall not be entitled to any rights under this Section
11(b) if he breaches any of the provisions of Sections 12, 13 or 14.
(c) Except as provided in paragraph (b) above, if the Employment
Period is terminated for any reason or on account of any event prior to December
31, 2001, Executive shall be entitled to receive Base Amount through the
Termination Date but not payment of any Deferred Bonus Accrual.
(d) All of Executive's rights (if any) to receive benefits and to
accrue and receive bonuses hereunder shall cease upon the Termination Date
except for Executive's right to accrue and receive bonus payments and to receive
continuing insurance coverage pursuant to paragraph (b) above. The Companies may
offset any amounts Executive owes them or their Subsidiaries (pursuant to the
Executive Notes or otherwise) against any amounts it owes Executive pursuant to
this Section 11.
(e) In the event the Employment Period is terminated for any reason
other than the death of Executive, Executive shall be entitled to continue the
Term Life Insurance Policy by making payments of premium and any other payment
required thereunder and Operating LLC shall use all reasonable efforts (other
than making any payments) to transfer to Executive ownership of such Term Life
Insurance Policy.
12. Confidential Information. Executive acknowledges that the
information, observations and data now or hereafter obtained by him while
employed by the Companies or their
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predecessors or their respective Subsidiaries concerning the business or affairs
of the Companies or any Subsidiary ("Confidential Information") are the property
of the Companies or such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions. Executive shall deliver to the Companies at the termination of the
Employment Period, or at any other time the Companies may request, all
memoranda, notes, plans, records, reports, computer tapes, printouts and
software and other documents and data (and copies thereof in any media
whatsoever) relating to the Confidential Information, Work Product (as defined
below) or the business of the Companies or any Subsidiary which he may then
possess or have under his control.
13. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Companies or any of their Subsidiaries' actual
or anticipated business, research and development or existing or future products
or services and which are now or hereafter conceived, developed or made by
Executive while employed by the Companies or their predecessors or their
respective Subsidiaries ("Work Product") belong to BrightView or such
Subsidiary. Executive shall promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
14. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Companies and their Subsidiaries he may become familiar with the trade
secrets of the Companies and their Subsidiaries and with other Confidential
Information concerning the Companies and their Subsidiaries and that his
services shall be of special, unique and extraordinary value to the Companies
and their Subsidiaries. Therefore, Executive agrees that, during the Employment
Period and for one year thereafter (the "Noncompete Period"), he shall not
directly or indirectly own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with any of the businesses of BrightView or its Subsidiaries, as such
businesses exist on the date of the termination of Executive's employment,
within any geographical area in which the Companies or their Subsidiaries engage
or plan to engage in such businesses. Nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any person
employed by any of the Companies or any Subsidiary during the one year
immediately preceding the Termination Date (each such person, a "Recent
Employee," and collectively, the "Recent Employees") to leave the employ of the
Companies or such Subsidiary, or in any way interfere with the relationship
between the Companies
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or any Subsidiary and any Recent Employee (other than in the course of
discharging his duties hereunder (including, without limitation, terminating the
employment of a Recent Employee) while employed by Operating LLC) or (ii) except
in the course of discharging his duties hereunder while employed by Operating
LLC, induce or attempt to induce any customer, supplier, licensee, licensor,
lender, franchisee or other business relation of or to the Companies or their
Subsidiary to cease doing business with any of the Companies or such Subsidiary,
or in any way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Companies or any of its
Subsidiaries (including, without limitation, making any disparaging statements
or communications about the Companies or their Subsidiaries).
15. Enforcement. If, at the time of enforcement of Section 12, 13 or
14 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reason able under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Companies or their
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific perform-
ance and/or injunctive or other relief in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security).
In addition, in the event of an alleged breach or violation by Executive of
Section 14, the Noncompete Period shall be tolled until such breach or violation
has been duly cured. Executive agrees that the restrictions contained in Section
14 are reasonable.
16. Executive's Representations. Executive hereby represents and
warrants to the Companies that (i) the execution, delivery and performance of
this Agreement by Executive do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Companies, this Agreement shall
be the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
17. Definitions.
"Acquisition" means consummation of the transactions contemplated by
the Asset Purchase Agreement, dated as of August 15, 1996, between BrightView
and Petersen Publishing Corporation, a California corporation, to occur at the
"Closing" described therein.
"Board" means the board of directors of BrightView. Actions taken or
approvals given by the Board hereunder may be on behalf of BrightView acting as
managing member of Holding LLC, either in its capacity as such or as managing
member of the Operating LLC.
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"Cause" means (i) the commission of a felony or a crime involving
moral turpitude, (ii) the commission of any other act or omission involving
dishonesty, disloyalty or fraud (A) with respect to any of the Companies and
their respective Subsidiaries or any of their employees, customers or suppliers,
or (B) adversely affecting the reputation or standing of any of the Companies or
their respective Subsidiaries, (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board, by the Chairman of Holding LLC or by
the Chief Executive Officer of Operating LLC, (iv) gross negligence or willful
misconduct with respect to the Companies and their Subsidiaries, (v) any other
material breach of this Agreement or any company policy established by the
Board, which breach, if curable, is not cured within 15 days after written
notice thereof to Executive, or (vi) if EBITDA in any Fiscal Year is less than
the "Minimum EBITDA" set forth for such Fiscal Year on Schedule A hereto.
"Consumer Price Index" means the Consumer Price Index for All Urban
Consumers, U.S. City Average, for all items, or if the government ceases to
publish such index, such index which in the Board's good faith judgment is most
similar to such index.
"EBITDA" means, with respect to any Fiscal Year, the consolidated net
income of BrightView, Holding LLC and its Subsidiaries for such Fiscal Year
plus, to the extent deducted in determining such net income, interest expense,
provisions for taxes, depreciation and amortization, net of the bonuses
contemplated hereby and under similar arrangements (whether paid in cash or
otherwise payable) and before extraordinary gains and losses, calculated in
accordance with generally accepted accounting principles and determined by the
Board from the audited consolidated annual financial statements of BrightView
and Holding LLC for such Fiscal Year.
"Fiscal Year" means the calendar year/fiscal year of Holding LLC.
"Executive Securities" shall continue to be Executive Securities in
the hands of any holder other than Executive (except for the Companies and the
Investors and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Securities shall succeed to
all rights and obligations attributable to Executive as a holder of Executive
Securities hereunder. Executive Securities shall also include any equity
securities issued by any of the Companies with respect to Executive Securities
by way of a stock split, stock dividend, other recapitalization or similar
transaction. Notwithstanding the foregoing, all of the Unvested Securities shall
remain Executive Securities after any Transfer thereof, even if such Transfer is
approved in accordance with the Securityholders Agreement.
"Fair Market Value" of each share or unit of any class or type of
Executive Securities means the average of the closing prices of the sales of any
such securities on all securities exchanges on which such security may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization, in each
such case
-13-
<PAGE>
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day, and with respect to any share or unit of any class or type of
Executive Security which is not, as of the date of determination, listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market Value thereof shall be the fair value of such shares or
units or such class or type of Executive Securities determined in good faith by
the Board.
"Good Reason" means the occurrence, without Executive's consent, of
any of the following: (i) unless corrected within 30 days written notice by
Executive to the Board of Executive's objection thereto, the assignment to the
Executive of any significant duties materially inconsistent with the Executive's
status as a senior executive officer of Operating LLC or a substantial
diminution in the nature or status of the Executive's responsibilities; (ii) a
reduction by Operating LLC in the Executive's Annual Base Amount as in effect on
the date hereof, except for across-the-board salary reductions similarly
affecting all senior executives of Operating LLC; or (ii) the Board requires
Executive to relocate from the Los Angeles area (it being understood that
Executive will be required to spend time in Operating LLC's other offices
throughout the U.S.).
"Investor" has the meaning given such term in the preamble.
"Original Cost" means, with respect to each share of Common Stock
purchased hereunder, $500.00; with respect to each Class A Common Unit purchased
hereunder, $4.50; and, with respect to each Preferred Unit purchased hereunder,
$445.50 (in each case, as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Public Sale" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker.
"Qualified IPO" means receipt by BrightView of at least $75,000,000
cash proceeds upon consummation of an underwritten sale of Common Stock by
BrightView pursuant to a registration statement filed under the Securities Act,
provided that the sum of (a) the product of the net price per share of such
offering multiplied by the aggregate number of shares of Common Stock issued to
Investors at the closing of the Acquisition (as adjusted for stock splits,
combinations of shares and other recapitalizations), plus (b) the aggregate
amount of all cash paid as distributions or dividends on the equity securities
of Holding LLC which were issued to the Investors at the closing of the
Acquisition, plus (c) the fair market value of such Holding LLC equity
securities, and of any other property received by the Investors at any time in
respect of such securities in connection with any Sale of the Company prior
thereto, in each case as determined by the Board, equals or exceeds
$330,000,000.
"Sale of the Company" means a sale of all the assets or equity
securities of one of the Companies to an unaffiliated third-party.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
-14-
<PAGE>
"Securityholders Agreement" means the Securityholders Agreement, dated
as of the date hereof, by and among the Companies, Executive and the other
Investors, as such agreement may be amended, restated, supplemented or modified
from time to time hereafter.
"Senior Credit Agreement" means the Credit Agreement, dated as of the
date hereof, among Operating LLC, First Union National Bank of North Carolina,
as Administrative Agent (as defined in such Agreement) and Syndication Agent (as
defined in such Agreement), CIBC, Inc., as Documentation Agent (as defined in
such Agreement) and certain banks and other financial institutions, as amended,
modified, supplemented or restated, and including any agreement pursuant to
which indebtedness thereunder is refinanced, as in effect from time to time.
"Subsidiary" of a Person means any entity of which such Person (i)
owns equity securities having a majority of the ordinary voting power in
electing the board of directors directly or through one or more subsidiaries or
(ii) serves as a general partner or managing member or otherwise has the power
and authority to direct the day to day management of such entity. For purposes
of this Agreement, Holding LLC is deemed to be as Subsidiary of BrightView.
"Weighted Average Rate" means the weighted average cost of borrowing
by Operating LLC as in effect from time to time, as determined in good faith by
the Board.
18. Survival. The provisions of this Agreement shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
19. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To any of the Companies:
c/o Willis Stein & Partners, L.P.
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Attention: Avy H. Stein
Daniel H. Blumenthal
With a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: John A. Weissenbach, Esq.
-15-
<PAGE>
To Executive:
Neal Vitale
President
Petersen Publishing Company, L.L.C.
6420 Wilshire Boulevard
Los Angeles, CA 90048
With a copy to:
Epstein Becker & Green
1875 Century Park East
Suite 500
Los Angeles, CA 90067
Attention: David Jacobs, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when personally
delivered, five days after deposit in the U.S. mail, or the business day next
following deposit with such an overnight courier service in such a manner, with
instructions for next-day delivery.
20. General Provisions.
(a) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(c) No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
-16-
<PAGE>
(e) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Companies, the Investors and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of Executive under this Agreement shall not be
assignable except in connection with a transfer of Executive Securities in
accordance with this Agreement and the Securityholders Agreement.
(f) Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(g) Remedies. Each of the parties to this Agreement (including
the Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Arbitration. Each of the parties hereto agrees that in the
event of any dispute arising between or among the parties arising out of or
relating to this Agreement or its breach, such dispute shall be settled by
arbitration to be conducted in the Borough of Manhattan, New York, New York in
accordance with the Commercial Arbitration Rules (except as modified below) of
the American Arbitration Association and with the Expedited Procedures thereof
(collectively, the "Rules"). Each of the parties hereto agrees that such
arbitration shall be conducted by a single arbitrator selected in accordance
with the Rules; provided that such arbitrator shall be a retired judge who is
experienced in deciding cases concerning the matter which is the subject of the
dispute. Each of the parties agrees that in any such arbitration that pre-
arbitration discovery shall be limited to the greatest extent provided by the
Rules, that the award shall be made in writing no more than 30 days following
the end of the proceeding, that the arbitration shall not be conducted as a
class action and that no punitive damages shall be awarded. Any award rendered
by the arbitrator shall be final and binding and judgment may be entered on it
in any court of competent jurisdiction. Each of the parties hereto agrees to
treat as confidential the results of any arbitration (including, without
limitation, any findings of fact and/or law made by the arbitrator) and not to
disclose such results to any unauthorized person. The prevailing party (as
determined by the arbitrator) shall in addition be awarded by the arbitrator
such party's own attorneys' fees and expenses in connection with such
-17-
<PAGE>
proceeding. The non-prevailing party (as determined by the arbitrator) shall pay
the fees and expenses of the arbitration.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of BrightView and
Executive.
(j) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
* * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
--------------------------------------------
Neal Vitale
BRIGHTVIEW COMMUNICATIONS
GROUP, INC.
By:
----------------------------------------
Its:
---------------------------------------
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:
----------------------------------------
Its:
----------------------------------------
PETERSEN PUBLISHING
COMPANY, L.L.C.
By Petersen Holdings, L.L.C.
Its Managing Member
By BrightView Communications Group, Inc.
Its Managing Member
By:
----------------------------------------
Its:
----------------------------------------
-19-
<PAGE>
SCHEDULE A
----------
All amounts in $millions
<TABLE>
<CAPTION>
- -------------------------------------------------------
FISCAL YEAR TARGET EBITDA THRESHOLD MINIMUM EBITDA
EBITDA
- -------------------------------------------------------
<S> <C> <C> <C>
1997 55 50 42.5
- -------------------------------------------------------
1998 70 60 55
- -------------------------------------------------------
1999 82 67 60
- -------------------------------------------------------
2000 93 75 65
- -------------------------------------------------------
2001 100 80 70
- -------------------------------------------------------
</TABLE>
Each of the amounts set forth in the above chart will be adjusted by the Board,
in its good faith judgment after good faith consultation with Executive, in
connection with acquisitions or divestitures (whether by merger, purchase or
sale of assets or otherwise) consummated by any of the Companies at any time
after the Closing. Such amounts, as so adjusted by the Board, will be deemed to
be the amount set forth on the above chart for all purposes of the Agreement to
which this Schedule A is attached.
-20-
<PAGE>
[Provision for Community Property Jurisdictions]
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have
read the foregoing Executive Securities Purchase and Employment Agreement and
that I understand its contents. I am aware that the Agreement provides for the
repurchase of my spouse's Executive Securities under certain circumstances and
imposes other restrictions on the transfer of such Executive Securities. I agree
that my spouse's interest in the Executive Securities is subject to this
Agreement and any interest I may have in such Executive Securities shall be
irrevocably bound by this Agreement and further that the my community property
interest, if any, shall be similarly bound by this Agreement.
I am aware that the legal, financial and other matters contained in
this Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Agreement that I will waive such right.
Date: September 30, 1996
Name of Executive: Neal Vitale
Name of Spouse:
----------------------------
Signature of Spouse:
------------------------
Name of Witness:
--------------------------------
Signature of Witness:
---------------------------
-21-
<PAGE>
ANNEX A
PROMISSORY NOTE
---------------
$________________ September 30, 1996
For value received, Neal Vitale ("Executive") promises to pay to the
order of _______________, a _______________ corporation [limited liability
company] (the "Company"), at its offices in _____________________, or such other
place as designated in writing by the holder hereof, the aggregate principal sum
of $____________ together with interest earned thereon when due. The principal
amount of the Note and all interest accrued thereon shall be due and payable on
the earlier to occur of (i) December 31, 2001, (ii) termination of Executive as
an employee of Operating LLC, and (iii) a Sale of the Company. This Note was
issued pursuant to and is subject to the terms of the Executive Securities
Purchase and Employment Agreement (the "Executive Agreement"), dated as of
September 30, 1996, by and among the Company, Executive an certain other
parties. Capitalized terms used herein and not otherwise defined shall have the
meanings given such terms in the Executive Agreement
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView Communications Group, Inc.
The amounts due under this Note are secured by a pledge of the
Executive Securities, including all of Executive's membership interest in
Petersen Holdings, L.L.C., and the payment of the principal amount and accrued
interest under this Note is subject to certain offset rights under the Executive
Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of ________________________.
_____________________________
<PAGE>
Neal Vitale
-2-
<PAGE>
ANNEX B
EXECUTIVE SECURITIES PLEDGE AGREEMENT
-------------------------------------
THIS PLEDGE AGREEMENT is made as of September 30, 1996, between Neal
Vitale ("Pledgor"), and BrightView Communications Group, Inc., a Delaware
corporation (the "Company"), and Petersen Holdings, L.L.C., a Delaware limited
liability company ("Holdings").
The Company, Holdings, Petersen Publishing Company, L.L.C. (the
"Operating LLC") and Pledgor are parties to an Executive Securities Purchase and
Employment Agreement, dated as of the date hereof, pursuant to which Pledgor
purchased 15 shares of the Company's Class A Common Stock, $.01 par value, and
6,800.708 Class A Common Units, 625 Class B Common Units, 625 Class C Common
Units and 1,650 Preferred Units of Holdings (collectively, the "Pledged
Securities"). The Company and Holdings have allowed Pledgor to purchase a
portion of the Pledged Securities by delivery to the Company and Holdings of
promissory notes (the "Notes") in the aggregate principal amount of $750,000.
This Pledge Agreement provides the terms and conditions upon which the Notes are
secured by a pledge to the Company of the Pledged Securities.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company and Holdings to accept
the Notes as partial payment for the Pledged Securities, Pledgor, the Company
and Holdings hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company and Holdings, and
grants to the Company and Holdings a security interest in, the Pledged
Securities as security for the prompt and complete payment when due of the
unpaid principal of and interest on the Notes and full payment and performance
of the obligations and liabilities of Pledgor hereunder.
2. Delivery of Pledged Securities. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Securities, if certificated, together with duly executed forms of
assignment sufficient to transfer title thereto to the Company. The Company
shall hold such Pledged Securities for itself and as agent for Holdings (the
Company acting in such capacities, the "Agent").
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on either
of the Notes or any other default under either of the Notes or hereunder,
Pledgor shall be entitled to all voting rights with respect to the Pledged
Securities and shall be entitled to receive all cash dividends paid in respect
of the Pledged Securities. Upon the occurrence of and during the continuance of
any such default, Pledgor shall no longer be able to vote the Pledged Securities
and the Agent shall retain all such cash dividends payable on the Pledged
Securities as additional security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Securities (whether as a distribution in connection with
any recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Agent as additional security for Pledgor's
obligations under the Notes and shall promptly deliver such additional security
to the Agent together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Securities
hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under either of the Notes when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under either of the
Notes or this Pledge Agreement occurs (including the bankruptcy or insolvency of
Pledgor), the Agent may exercise any and all the rights, powers and remedies of
any owner of the Pledged Securities (including the right to vote the shares and
receive dividends and distributions with respect to such shares) and shall have
and may exercise without demand any and all the rights and remedies granted to a
secured party upon default under the Uniform Commercial Code of Illinois or
otherwise available to the Company under applicable law. Without limiting the
foregoing, the Agent is authorized to sell, assign and deliver at its
discretion, from time to time, all or any part of the Pledged Securities at any
private sale or public auction, on not less than ten days written notice to
Pledgor, at such price or prices and upon such terms as the Agent may deem
advisable. Pledgor shall have no right to redeem the Pledged Securities after
any such sale or assignment. At any such sale or auction, the Agent, the Company
and/or Holdings may bid for, and become the purchaser of, the whole or any part
of the Pledged Securities offered for sale. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses of sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Notes; provided that after payment in full of the
indebtedness evidenced by the Notes, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Securities remaining in the hands of the Agent. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Notes in full, including the fees of any
attorneys employed by the Agent to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Securities hereunder.
7. Payment of Indebtedness and Release of Pledged Securities. Upon
payment in full of the indebtedness evidenced by the Notes, the Agent shall
surrender the Pledged Securities to Pledgor together with all forms of
assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on each of the Notes has been repaid, Pledgor shall not
-2-
<PAGE>
(i) create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge
of any kind against the Pledged Securities or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement and the Executive Agreement, or
(ii) sell or otherwise transfer any Pledged Securities or any interest therein.
9. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Agent, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Agent may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. Neither the Company, Holdings or
the Agent shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by the Company and Holding, and then only to the
extent therein set forth. A waiver by the Company, Holdings or the Agent of
Holdings of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company, Holdings or the
Agent would otherwise have on any future occasion. No failure to exercise nor
any delay in exercising on the part of the Company, Holdings or the Agent, any
right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company, Holdings or the Agent hereunder, inure to
the benefit of the Company, Holdings or the Agent and its respective successors
and assigns. This Pledge Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of Illinois.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
BRIGHTVIEW COMMUNICATIONS
GROUP, INC.
By:
------------------------------------
Its:
------------------------------------
-----------------------------------------
Neal Vitale
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:
-------------------------------------
Its:
-------------------------------------
-4-
<PAGE>
ANNEX C
October __, 1996
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased 15 shares of Class A Common Stock, par value
$.01 per share (the "Shares"), of BrightView Communications Group, Inc., a
Delaware corporation (the "Company") and an interest consisting of 6,800.708
Class A Common Units, 625 Class B Common Units, 625 Class C Common Units and
1,650 Preferred Units (the "Units" and, together with the Shares, the
"Securities") in Petersen Holdings, L.L.C., a Delaware limited liability company
("Holding LLC"). Under certain circumstances, the Company has the right to
repurchase the Securities at cost from the undersigned (or from the holder of
the Securities, if different from the undersigned) should the undersigned cease
to be employed by the Company and its subsidiaries. Hence, the Securities are
subject to a substantial risk of forfeiture and are nontransferable. The
undersigned desires to make an election to have the Securities taxed under the
provision of Code (S)83(b) at the time he purchased the Securities.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Securities (described below), to report as taxable income for calendar
year 1996 the excess (if any) of the Securities' fair market value on October
__, 1996 over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
Neal Vitale
Address:
------------------------------
------------------------------
------------------------------
SSN:
-------------------------
2. A description of the property with respect to which the election is
being made: 15 shares of the Company's Common Stock, par value $.01 per share,
and a membership interest in Holding LLC consisting of 6,800.708 Class A Common
Units, 625 Class B Common Units, 625 Class C Common Units and 1,650 Preferred
Units, entitling the undersigned to an interest in Holding LLC's capital and an
interest in Holding LLC's profits.
-1-
<PAGE>
3. The date on which the property was transferred: September 30, 1996.
The taxable year for which such election is made: calendar 1996.
4. The restrictions to which the property is subject: If during the
first five years after the purchase of the Securities the undersigned ceases to
be employed by Petersen Publishing Company, L.L.C. ("Operating LLC") or any of
its subsidiaries, the unvested portion of the Securities shall be subject to
repurchase by the Company at the lower of fair market value or original cost.
The Securities shall become vested ratably, on a daily basis, over the five year
period commencing upon issuance as long as Executive remains employed by
Operating L.L.C., and shall be deemed to be unvested to the extent not vested as
of termination of such employment; provided that all Securities shall become
Vested Securities if Executive remains employed by Operating LLC through the
time of certain public offerings of the Company's Common Stock or certain sales
of the Company, Holdings LLC or Operating LLC.
5. The fair market value on September 30, 1996 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $750,000.
6. The amount paid for such property: $750,000.
A copy of this election has been furnished to the Secretary of the
Company and Holding LLC pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated:
----------------------- ------------------------------
Neal Vitale
-2-
<PAGE>
EXHIBIT 10.5
EXECUTIVE SECURITIES PURCHASE
AND EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE SECURITIES PURCHASE AND EMPLOYMENT AGREEMENT (this
"Agreement") is made as of January 27, 1997, among BrightView Communications
Group, Inc., a Delaware corporation ("BrightView"), Petersen Holdings, L.L.C., a
Delaware limited liability company ("Holding LLC"), and Petersen Publishing
Company, L.L.C., a Delaware limited liability company ("Operating LLC"), and
Richard Willis ("Executive"). BrightView, Holding LLC and Operating LLC are
sometimes referred to collectively herein as the "Companies".
BrightView is the sole managing member of Holding LLC, and Holding LLC
and BrightView own all of the membership interests of Operating LLC.
The Companies and Executive desire to enter into an agreement pursuant
to which Executive shall purchase (i) 6 shares of BrightView's Class A Common
Stock, par value $.01 per share (the "Common Stock"), (ii) 1,690.14 of Holding
LLC's Class A Common Units (the "Class A Common Units"), 125 of Holding LLC's
Class B Common Units (the "Class B Common Units") and 125 of Holding LLC's Class
C Common Units (the "Class C Common Units") (in each case as defined in the
Holding LLC Agreement) (collectively, the "Common Units") and (iii) 660 of
Holding LLC's Preferred Units (as defined in the Holding LLC Agreement) (the
"Preferred Units"). All of such shares of Common Stock, Common Units and
Preferred Units and all shares of stock and all other equity interests in
BrightView or Holding LLC hereafter acquired by Executive are referred to herein
as "Executive Securities." Certain definitions are set forth in Section 17 of
this Agreement.
The execution and delivery of this Agreement by the Companies and
Executive is a condition under a Securities Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), by and among BrightView, Holding LLC,
Petersen Investment Corp., a Delaware corporation ("PIC"), and certain other
Persons (the "Investors") to the purchase by the Investors of certain securities
of BrightView, Holding LLC and/or PIC.
The parties hereto agree as follows:
PART I. PURCHASE OF EXECUTIVE SECURITIES
1. Purchase and Sale of Executive Securities.
(a) Upon execution of this Agreement, (i) Executive shall purchase
from BrightView, and BrightView shall sell to Executive, 6 shares of Common
Stock at a price of $500.00 per share (ii) Executive shall purchase from Holding
LLC, and Holding LLC shall sell to Executive, 660 Class A Common Units at a
price of $4.50 per Class A Common Unit and 660 Preferred Units at a price of
$445.50 per Preferred Unit. BrightView and Holding LLC, as applicable, shall
deliver
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to Executive a copy of, and a receipt for, the certificate representing such
shares of Common Stock, and Executive shall deliver (i) to BrightView (A) a
promissory note in the form of Annex A attached hereto in an aggregate principal
amount of $2,000.00 and (B) $1,000 in cash (ii) to Holding LLC (A) a promissory
note in the form of Annex A attached hereto in an aggregate principal amount of
$198,000.00 (such promissory note, together with the promissory note referred to
in clause (i), the "Executive Notes") and (B) $99,000 in cash. All cash payments
shall be made by certified or cashier's check or by wire transfer of immediately
available funds to a bank account designated by BrightView or Holding LLC, as
the case may be, for such purpose. The Executive Securities purchased pursuant
to this Section 1(a), and any Executive Securities issued in respect of such
Executive Securities, whether by way of a stock split, stock dividend, other
recapitalization or similar transaction, or in exchange for such Securities
pursuant to Article IV of the Securityholders Agreement, are referred to
collectively herein as "Nonvesting Executive Securities."
(b) Upon execution of this Agreement, Executive shall purchase from
Holding LLC, and Holding LLC shall sell to Executive, for no additional
consideration 1,030.14 Class A Common Units, 125 Class B Common Units and 125
Class C Common Units. BrightView shall deliver to Executive a copy of, and a
receipt for, the certificate representing such shares of Common Stock. The
Executive Securities purchased pursuant to this Section 1(b), and any Executive
Securities issued in respect of such Executive Securities, whether by way of a
stock split, stock dividend, other recapitalization or similar transaction, or
in exchange for such Securities pursuant to Article IV of the Securityholders
Agreement, are referred to collectively herein as "Vesting Executive
Securities."
(c) Executive's obligations under the Executive Notes shall be secured
by a pledge of all of the Executive Securities. In connection therewith,
Executive shall enter into a pledge agreement with BrightView and Holding LLC in
the form of Annex B attached hereto. BrightView, individually and in its
capacity as managing member of Holding LLC, shall hold each certificate
representing the Executive Securities until the Executive Securities represented
by such certificate are released from the pledge to BrightView and Holding LLC
shall hold each certificate, if any, representing the Common Units and Preferred
Units purchased hereunder until the Executive Securities represented by such
certificate, if any, are released from the pledge to BrightView and Holding LLC.
(d) Within 30 days after Executive purchases the Vesting Executive
Securities, Executive shall make an effective election with respect to such
Executive Securities with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code and the regulations promulgated thereunder in the form
of Annex C attached hereto.
(e) In connection with the purchase and sale of the Executive
Securities hereunder, Executive represents and warrants to BrightView and
Holding LLC that:
(i) The Executive Securities to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities
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laws, and the Executive Securities shall not be disposed of in
contravention of the Securities Act or any applicable state securities
laws.
(ii) Executive is an executive officer of BrightView, Holding LLC
or one of their Subsidiaries, is sophisticated in financial matters and is
able to evaluate the risks and benefits of the investment in the Executive
Securities.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Securities for an indefinite period of time
because the Executive Securities have not been registered under the
Securities Act and, therefore, cannot be sold unless subsequent ly
registered under the Securities Act or an exemption from such registration
is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Securities and has had full access to such other information
concerning the Companies as he has requested. Executive has reviewed, or
has had an opportunity to review, a copy of the Asset Purchase Agreement,
dated as of August 15, 1996, between BrightView and Petersen Publishing
Company ("Seller"), as amended (which agreement in part has been assigned
to and assumed by Operating LLC and Holding LLC), pursuant to which
Operating LLC acquired substantially all of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) BrightView's Certificate of Incorporation and Bylaws, (B)
the Limited Liability Company Agreement of Holding LLC dated as of
September 30, 1996, (C) the Limited Liability Company Agreement of
Operating LLC, (D) the loan agreements, notes and related documents with
BrightView's senior and subordinated lender; and (E) Holding LLC's
consolidated pro forma balance sheet dated as of August 31, 1996. Except as
expressly set forth herein, none of the Companies makes any representations
or warranties regarding the Executive Securities, Executive's investment in
the Companies or otherwise as to the financial condition, assets,
liabilities, business or prospects of any of the Companies and all of such
representations and warranties are hereby disclaimed.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive do not
and shall not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(f) As an inducement to BrightView and Holding LLC to issue the
Executive Securities to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) neither the issuance of the Executive Securities to Executive
nor any provision contained herein shall entitle Executive to remain in the
employment of Holding LLC and its Subsidiaries or affect the right of
Holding LLC or any of its Subsidiaries to terminate Executive's employment
at any time subject to the terms of this Agreement; and
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(ii) neither BrightView, Holding LLC nor Operating LLC shall have
any duty or obligation to disclose to Executive, and Executive shall have
no right to be advised of, any material information regarding BrightView,
Holding LLC, Operating LLC or any of their respective Subsidiaries at any
time prior to, upon or in connection with the repurchase of Unvested
Securities.
(g) The Companies and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Securities have
been issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Companies and Executive.
2. Vesting of Executive Securities.
(a) Except as otherwise provided in Section 2(b) below, the Vesting
Executive Securities shall become vested in accordance with the following
schedule, if as of each such anniversary date Executive is employed by
BrightView or any of its Subsidiaries:
Cumulative
Percentage of Vesting Executive
Anniversary Date Securities Vested
------------------------ -------------------------------
September 30, 1997 20%
September 30, 1998 40%
September 30, 1999 60%
September 30, 2000 80%
September 30, 2001 100%
(b) If Executive ceases to be employed by the Operating LLC and its
Subsidiaries on any date other than any anniversary date prior to September 30,
2001, the cumulative percentage of Vesting Executive Securities to become vested
shall be determined on a pro rata basis according to the number of days elapsed
since the prior anniversary date. If Executive is employed by the Operating LLC
upon the occurrence of a Sale of the Company or a Qualified IPO, all shares of
Vesting Executive Securities which have not yet become vested shall become
vested at the time of such event. The Vesting Executive Securities which have
become vested and the Executive Securities which are not Vesting Executive
Securities are collectively referred to herein as the "Vested Securities," and
Vesting Executive Securities which have not become vested are referred to herein
as the "Unvested Securities."
3. Repurchase Option.
(a) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries for Cause or by Executive without Good Reason, the
Companies or any of their Subsidiaries may repurchase all or any portion of the
Executive Securities (whether held by Executive or one or more of Executive's
direct or indirect transferees) pursuant to the terms and conditions set forth
in this Section 3 (a "Repurchase Option") by delivering written notice thereof
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(a "Repurchase Notice") to Executive not later than 90 days after the date of
such termination. Each of the Companies and their Subsidiaries which elects to
purchase Executive Securities pursuant to the Repurchase Option is referred to
as a "Repurchasing Company" and all such persons are referred to collectively as
the "Repurchasing Companies". The Repurchasing Companies may elect (i) to
purchase all or any portion of the Unvested Securities without or before
purchasing any Vested Securities and (ii) to purchase all or any portion of the
Vesting Executive Securities without or before purchasing any Nonvesting
Executive Securities. If the Repurchasing Companies elect to purchase Nonvesting
Executive Securities, the Repurchasing Companies shall purchase a proportionate
amount of each class and type of Nonvesting Executive Securities. The purchase
price for each of the Unvested Securities shall be the lesser of (i) its Fair
Market Value and (b) its Original Cost. The purchase price for each Vested
Security shall be its Fair Market Value.
(b) In the event Executive's employment is terminated by Holding LLC
and its Subsidiaries without Cause or by Executive with Good Reason, the
Companies and any of their respective Subsidiaries may elect to purchase all or
any portion of the Unvested Securities by delivering a Repurchase Notice to
Executive not later than 90 days after the date of such termination. The
purchase price for each of the Unvested Securities shall be the lesser of (i)
its Fair Market Value, and (ii) its Original Cost.
(c) The Repurchase Notice shall set forth the Unvested Securities to
be acquired from each holder of Executive Securities, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of Executive Securities of any class or
type to be repurchased by the Repurchasing Companies shall first be satisfied to
the extent possible from the Executive Securities held by Executive at the time
of delivery of the Repurchase Notice. If the number of Executive Securities of
any class or type then held by Executive is less than the total number of
Executive Securities of such class or type the Repurchasing Companies have
elected to purchase, the Repurchasing Companies shall purchase the remaining
amount elected to be purchased from the other holder(s) of Executive Securities
under this Agreement, pro rata according to the amount of Executive Securities
of such class or type held by such other holder(s) at the time of delivery of
such Repurchase Notice (determined as close as practicable to the nearest whole
share or unit).
(d) The closing of the purchase of the Executive Securities pursuant
to the Repurchase Option shall take place on the date designated by the
Repurchasing Companies in the Repurchase Notice, which date shall not be more
than 90 days nor less than five days after the delivery of such notice. The
Repurchasing Companies shall pay the purchase price for the Executive Securities
to be purchased pursuant to the Repurchase Option by (i) offsetting all or any
portion of the amounts, if any, then owing under the Executive Notes under any
other bona fide debts owed by Executive to any of the Companies, (ii) delivery
of a check or wire transfer of funds, (iii) if any of the Companies is
restricted at such time from paying cash to repurchase equity securities,
delivery of a subordinated note or notes of BrightView and/or Holding LLC
payable in three equal annual installments beginning on the first anniversary of
the closing of such purchase and bearing interest (payable quarterly) at a rate
per annum equal to the "applicable federal rate" (as defined in Treasury
Regulation Section 1.1274-4(b)), or (iv) solely at the option of the
Repurchasing Companies, any combination of clause (i), clause (ii) and, subject
to the conditions set forth in clause (iii), clause (iii);
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provided that if any Repurchasing Company is restricted from paying cash for any
Executive Securities it elects to repurchase pursuant to the Repurchase Option,
such Repurchasing Company will pay for such Executive Securities first by
offsetting amounts then owing under the Executive Notes pursuant to clause (iii)
if such Repurchasing Company is not restricted from paying for such Executive
Securities in such manner under its debt and equity financing agreements. Any
notes issued by the Companies pursuant to this Section 3(d) shall be subject to
such subordination and other terms specified therefor in any restrictive
covenants to which any of the Companies is subject at the time of such purchase.
The Repurchasing Companies shall be entitled to receive customary
representations and warranties from the sellers regarding such sale of Executive
Securities (including representations and warranties regarding good title to
such shares, free and clear of any liens or encumbrances) and to require that
all sellers' signatures be guaranteed by a national bank or reputable securities
broker.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Securities by any of the Companies shall
be subject to applicable restrictions contained in the Delaware General
Corporation Law, the Delaware Limited Liability Company Act and in the Companies
and their Subsidiaries debt and equity financing agreements. If any such
restrictions prohibit the repurchase of Executive Securities hereunder which the
Companies are otherwise entitled to make, the time periods provided in this
Section 3 shall be suspended, and the Companies may make such repurchases as
soon as they are permitted to do so under such restrictions.
4. Restrictions on Transfer. Contemporaneously with the execution of
this Agreement Executive shall enter into the Securityholders Agreement.
Executive shall not sell, transfer, assign, pledge or otherwise dispose of
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law) any Executive Securities (a "Transfer"), except pursuant
to the provisions of the Securityholders Agreement and unless the transferee
executes a joinder agreement in form acceptable to BrightView pursuant to which
such transferee agrees to be bound by the provisions of this Agreement and the
Securityholders Agreement. Any Transfer or attempted Transfer of any Executive
Securities in violation of any provision of this Agreement shall be void, and
none of the Companies shall record such Transfer on its books or treat any
purported transferee of such Executive Securities as the owner of such
securities for any purpose.
5. Additional Restrictions on Transfer.
(a) Each certificate which represents Executive Securities shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
JANUARY 27, 1997, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO
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ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE SECURITIES PURCHASE AND
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND D. RICHARD WILLIS DATED AS OF
JANUARY 27, 1997 AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL
PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to BrightView an opinion
(acceptable in form and substance to BrightView) of counsel experienced in
securities laws matters that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection
with such transfer.
PART II. EMPLOYMENT TERMS
6. Employment. Operating LLC shall employ Executive, and Executive
hereby accepts employment with Operating LLC, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 11 hereof (the "Employment Period").
7. Position and Duties.
(a) During the Employment Period, Executive shall render such
administrative, financial and other executive and managerial services to
BrightView and its Subsidiaries as the Board or the President of Operating LLC
may from time to time direct. During the Employment Period, Executive shall
serve as the Chief Financial Officer and Executive Vice President of Operating
LLC and in such capacity shall have the duties, responsibilities and authority
that are normally associated with the office of chief financial officer, subject
to the power of the Board and the President of Operating LLC to expand or limit
such duties, responsibilities and authority and to override actions of the Chief
Financial Officer and Executive Vice President.
(b) Executive, in his capacities as Chief Financial Officer and
Executive Vice President of Operating LLC, shall report to the President of
Operating LLC and the Board. Executive shall devote his best efforts and his
full business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of Operating LLC and the Subsidiaries of Operating LLC. Executive shall perform
his duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
8. Base Amount and Benefits.
(a) During the Employment Period, Operating LLC shall pay to Executive
a base salary at the rate of $200,000 per annum (the "Base Amount"). On each
anniversary of the date of
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this Agreement during the Employment Period, the Base Amount shall be increased
by the percentage increase in the Consumer Price Index, if any, from the
beginning to the end of the immediately preceding calendar year. The Base Amount
shall be paid by Operating LLC and shall be payable in regular installments in
accordance with Operating LLC's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Operating
LLC will maintain a term life insurance policy (the "Term Life Insurance
Policy") on the life of Executive in an amount equal to $1,000,000 for the
benefit of a Person or Persons designated by Executive and shall be entitled to
participate in all of the employee benefit programs for which senior executive
employees of Operating LLC are generally eligible. Executive shall be entitled
to four weeks of paid vacation each year, which if not taken may not be carried
forward to any subsequent year.
(b) Operating LLC shall reimburse Executive for reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Companies' written policies in effect from time to
time with respect to travel, entertainment and other business expenses, subject
to the requirements with respect to reporting and documentation of such expenses
which have been established by the Board.
(c) Operating LLC shall reimburse Executive for the loss (the
"Realized Loss") realized by Executive on the sale of Executive's house and
property at 1699 Lorain Road, San Marino, California (the "Residence") as
follows: (i) Operating LLC shall make a payment to Executive of $100,000 prior
to December 31, 1996; (ii) to the extent that the actual Realized Loss exceeds
$100,000, Operating LLC shall make a payment to Executive of the amount of such
excess no later than March 31, 1997; and (iii) to the extent that the actual
Realized Loss is less than $100,000, Executive shall make a payment to Operating
LLC of the amount of such difference no later than March 31, 1997. In addition,
Operating LLC shall reimburse Executive for (i) the reasonable expenses not to
exceed an aggregate of $3,000 incurred by Executive in connection with moving
the furnishings and personal effects of Executive and Executive's wife from the
Residence to Executive's new residence at 2168 Adair Street, San Marino,
California (ii) other reasonable expenses (such as utility transfer fees) not to
exceed an aggregate of $1,000 incurred by Executive in connection with such
relocation and (iii) reasonable travel expenses not to exceed an aggregate of
$2,150 incurred by Executive and Executive's wife in connection with travel by
Executive and Executive's wife to Augusta, Georgia on August 21, 1996.
Notwithstanding the foregoing, Operating LLC will not be obligated to reimburse
any of the foregoing expenses pursuant to this paragraph (c) unless and until
Operating LLC receives from Executive documentation thereof which is reasonably
satisfactory to Operating LLC (other than with respect to the expenses described
in clause (ii) of the previous sentence).
9. Bonus.
(a) General. In addition to the Base Amount, Executive shall have the
opportunity to accrue a bonus (with respect to each Bonus Year, the "Annual
Bonus Accrual") for each Fiscal Year set forth on Schedule A attached hereto
which ends during the Employment Period (each such Fiscal Year, a "Bonus Year")
in an amount (excluding interest accruing as contemplated in this Section 9(a))
up to the Maximum Annual Bonus Accrual. Such Annual Bonuses shall accrue
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as provided in Section 9(b), but shall be payable only as provided in Sections
9(c) and 9(d), and in such event shall be payable only by Operating LLC. The
amount of the Annual Bonus Accrual with respect to each Bonus Year shall accrue
interest, commencing on the date on which the audited, consolidated financial
statements for BrightView and Holding LLC with respect to such Bonus Year are
released and until such amount is paid, at a rate equal to the lesser of (i) the
Weighted Average Rate, or (ii) the highest rate permitted by applicable law. The
"Maximum Annual Bonus Accrual" for 1997 shall be $100,000 and for each
subsequent Fiscal Year during the Employment Period shall be increased from the
Maximum Bonus Accrual for the preceding Fiscal Year by the percentage increase
in the Consumer Price Index, if any, from the beginning to the end of the
immediately preceding calendar year.
(b) Determination of Annual Bonus. Executive's Annual Bonus Accrual
for each Bonus Year shall be calculated as follows and, subject only to Section
11(b) below, shall accrue until termination of the Employment Period for any
reason:
(i) if EBITDA for such Bonus Year is equal to or greater than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the
Maximum Annual Bonus Accrual for such Bonus Year; (ii) if EBITDA for such
Bonus Year is equal to the "Threshold EBITDA" set forth opposite such Bonus
Year on Schedule A, Executive's Annual Bonus Accrual for such Bonus Year
shall equal to 50.0% of the Maximum Annual Bonus Accrual for such Bonus
Year (the "Threshold Bonus Accrual");
(iii)if EBITDA for such Bonus Year is greater than the "Threshold
EBITDA" set forth opposite such Bonus Year on Schedule A and less than the
"Target EBITDA" set forth opposite such Fiscal Year on Schedule A,
Executive's Annual Bonus Accrual for such Bonus Year shall equal the sum of
(A) the Threshold Bonus Accrual plus (B) the Threshold Bonus Accrual for
such Bonus Year multiplied by a fraction, (x) the numerator of which is
EBITDA for such Bonus Year minus the Threshold EBITDA for such Bonus Year,
and (y) the denominator of which is the Target EBITDA for such Fiscal Year
minus the Threshold EBITDA for such Bonus Year; and
(iv) if EBITDA for such Bonus Year is less than the "Threshold EBITDA"
set forth opposite such Fiscal Year on Schedule A, Executive's Annual Bonus
Accrual for such Bonus Year shall be zero;
provided that, notwithstanding anything to the contrary set forth in this
Agreement, Executive's Annual Bonus Accrual for a Bonus Year shall equal zero if
Operating LLC breaches any financial or other performance covenant included in a
financing agreement with respect to any of the Companies (including, without
limitation, the Senior Credit Agreement and the Subordinated Credit Agreement)
during such Fiscal Year.
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(c) Payment of Bonus Accrual Prior to Payout Event. Notwithstanding
any other provision of this Agreement, prior to a Payout Event (as defined
below) Operating LLC shall not be obligated to pay any Annual Bonus Accrual,
except to the extent that the aggregate of all Annual Bonus Accruals which have
accrued pursuant to Section 9(b) and have not been paid (the "Deferred Bonus
Accrual") exceeds the Maximum Deferred Bonus Accrual (as defined below). If the
amount of any Annual Bonus Accrual with respect to a Bonus Year, plus the
Deferred Bonus Accrual calculated immediately prior to such Annual Bonus
Accrual, exceeds the Maximum Deferred Bonus Accrual, the Operating Company shall
pay to Executive, within 30 days following the release of audited, consolidated
financial statements for BrightView and Holding LLC with respect to such Bonus
Year, the amount by which the Deferred Bonus Accrual as of the end of such Bonus
Year exceeds the Maximum Deferred Bonus Accrual. "Maximum Deferred Bonus
Accrual" means, as of any date, Executive's aggregate unpaid obligations under
the Executive Notes as of such date (including interest accrued through such
date).
(d) Payment of Bonus Accrual Upon Payout Event. On the earlier to
occur of a Sale of the Company and December 31, 2001 (the "Payout Event") the
Deferred Bonus Accrual shall be payable by Operating LLC if and only if (i)
Executive has been continuously employed by Operating LLC as its Chief Financial
Officer through such date or (ii) the Employment Period was terminated by
Operating LLC prior to such date without Cause or by Executive for Good Reason
(in which event the Deferred Bonus Accrual shall be calculated in accordance
with Section 11 (b)).
10. 1996 Special Bonuses. On or prior to December 20, 1996, so long as
Executive is employed by Operating LLC as of such date, Operating LLC shall pay
Executive a bonus of $25,000. Such bonus will be in satisfaction of all
obligations of Petersen Publishing Company, including all of such obligations
assumed by the Companies, for the payment to Executive of any bonus for any
period prior to October 1, 1996. In addition, Executive shall be eligible for a
bonus of up to $25,000 with respect to the period from October 1, 1996 through
December 31, 1996.
11. Term.
(a) The Employment Period shall begin on the date of this Agreement
and end on the first to occur of (i) December 31, 2001 (ii) Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgment) and (iii) termination of Executive's
employment by Operating LLC at any time for Cause or without Cause.
(b) If the Employment Period is terminated by Operating LLC without
Cause or by Executive for Good Reason (the date of any such termination
constituting the "Termination Date"), Executive shall be entitled (i) (A) to
continue to receive his Base Amount, (B) to continue to accrue an Annual Bonus
Accrual (if any) in accordance with the terms and limitations of Section 9 and
(C) to receive continuing health and welfare benefits at the levels in effect on
the Termination Date (provided that the Companies' obligation to continue such
health and welfare benefits shall cease at such time as Executive secures other
employment) from the Termination Date to the first anniversary of the
Termination Date as if he were still employed by the Operating LLC during such
period and (ii) to receive payment of the Deferred Bonus Accrual (if any) if
payable in accordance
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with Section 9 hereof to the first anniversary of the Termination Date as if he
were still employed by the Operating LLC to such date; provided that Executive
shall not be entitled to any rights under this Section 11(b) if he breaches any
of the provisions of Sections 12, 13 or 14.
(c) Except as provided in paragraph (b) above, if the Employment
Period is terminated for any reason or on account of any event prior to December
31, 2001, Executive shall be entitled to receive Base Amount through the
Termination Date but not payment of any Deferred Bonus Accrual.
(d) All of Executive's rights (if any) to receive benefits and to
accrue and receive bonuses hereunder shall cease upon the Termination Date
except for Executive's right to accrue and receive bonus payments and to receive
continuing insurance coverage pursuant to paragraph (b) above. The Companies may
offset any amounts Executive owes them or their Subsidiaries (pursuant to the
Executive Notes or otherwise) against any amounts it owes Executive pursuant to
this Section 11.
(e) In the event the Employment Period is terminated for any reason
other than the death of Executive, Executive shall be entitled to continue the
Term Life Insurance Policy by making payments of premium and any other payment
required thereunder and Operating LLC shall use all reasonable efforts (other
than making any payments) to transfer to Executive ownership of such Term Life
Insurance Policy.
(f) If the Employment Period of Executive is terminated, Operating LLC
shall make a lump sum severance payment to Executive in the amount of $300,000
within 30 days of the Termination Date; provided, however, that Operating LLC
shall not be obligated to make any such payments to Executive if the Employment
Period of Executive is (i) terminated by Executive (except in the case of
Constructive Termination Without Cause (as defined below) by the Executive) or
(ii) terminated by Operating LLC on account of a material breach of Executive's
duties hereunder. For purposes of this Section 11(f), "Constructive Termination
Without Cause" means the occurrence of any of the following events without the
express written consent of Executive: (i) relocation of the principal office
Executive from his principal office as of the date hereof (other than to an
office in the same metropolitan area), (ii) any material breach by any of the
Companies of the terms of this Agreement or (iii) the assignment to Executive of
a significantly lower position in the organization of Operating LLC in terms of
his responsibility, authority and status than Chief Financial Officer, in any
such case other than as a result of disability or retirement. The parties agree
that this Section 11(f) amends and restates in its entirety, and is in
substitution for Section 6.7(e) of the Acquisition Agreement as such section
pertains to Executive. Further, Executive acknowledges that the payment required
under this Section 11(f) is in lieu of, and Executive shall not participate in,
any other severance or similar payment for which Executive may otherwise be
eligible pursuant to any policy or other arrangement applicable to any of the
Companies and their respective emplo yees.
12. Confidential Information. Executive acknowledges that the
information, observations and data now or hereafter obtained by him while
employed by the Companies or their predecessors or their respective Subsidiaries
concerning the business or affairs of the Companies or any Subsidiary
("Confidential Information") are the property of the Companies or such
Subsidiary.
-11-
<PAGE>
Therefore, Executive agrees that he shall not disclose to any unauthorized
person or use for his own purposes any Confidential Information without the
prior written consent of the Board, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Executive's acts or omissions. Executive shall
deliver to the Companies at the termination of the Employment Period, or at any
other time the Companies may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof in any media whatsoever) relating to the Confidential
Information, Work Product (as defined below) or the business of the Companies or
any Subsidiary which he may then possess or have under his control.
13. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Companies or any of their Subsidiaries' actual
or anticipated business, research and development or existing or future products
or services and which are now or hereafter conceived, developed or made by
Executive while employed by the Companies or their predecessors or their
respective Subsidiaries ("Work Product") belong to BrightView or such
Subsidiary. Executive shall promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
14. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Companies and their Subsidiaries he may become familiar with the trade
secrets of the Companies and their Subsidiaries and with other Confidential
Information concerning the Companies and their Subsidiaries and that his
services shall be of special, unique and extraordinary value to the Companies
and their Subsidiaries. Therefore, Executive agrees that, during the Employment
Period and for one year thereafter (the "Noncompete Period"), he shall not
directly or indirectly own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with any of the businesses of BrightView or its Subsidiaries, as such
businesses exist on the date of the termination of Executive's employment,
within any geographical area in which the Companies or their Subsidiaries engage
or plan to engage in such businesses. Nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any person
employed by any of the Companies or any Subsidiary during the one year
immediately preceding the Termination Date (each such person, a "Recent
Employee," and collectively, the "Recent Employees") to leave the employ of the
Companies or such Subsidiary, or in any way interfere with the relationship
between the Companies or any Subsidiary and any Recent Employee (other than in
the course of discharging his duties hereunder (including, without limitation,
terminating the employment of a Recent Employee) while
-12-
<PAGE>
employed by Operating LLC) or (iii) except in the course of discharging his
duties hereunder while employed by Operating LLC, induce or attempt to induce
any customer, supplier, licensee, licensor, lender, franchisee or other business
relation of or to the Companies or their Subsidiary to cease doing business with
any of the Companies or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Companies or any of its Subsidiaries (including, without limitation,
making any disparaging statements or communications about the Companies or their
Subsidiaries).
15. Enforcement. If, at the time of enforcement of Section 12, 13 or
14 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reason able under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Companies or their
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific perform
ance and/or injunctive or other relief in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security).
In addition, in the event of an alleged breach or violation by Executive of
Section 14, the Noncompete Period shall be tolled until such breach or violation
has been duly cured. Executive agrees that the restrictions contained in Section
14 are reasonable.
16. Executive's Representations. Executive hereby represents and
warrants to the Companies that (i) the execution, delivery and performance of
this Agreement by Executive do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Companies, this Agreement shall
be the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
17. Definitions.
"Acquisition" means consummation of the transactions contemplated by
the Acquisition Agreement to occur at the "Closing" described therein.
"Acquisition Agreement" means the Asset Purchase Agreement, dated as
of August 15, 1996, between BrightView and Petersen Publishing Company, a
California corporation.
"Board" means the board of directors of BrightView. Actions taken or
approvals given by the Board hereunder may be on behalf of BrightView acting as
managing member of Holding LLC, either in its capacity as such or as managing
member of the Operating LLC.
-13-
<PAGE>
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude, (ii) the commission of any other act or omission involving
dishonesty, disloyalty or fraud (A) with respect to any of the Companies and
their respective Subsidiaries or any of their employees, customers or suppliers,
or (B) adversely affecting the reputation or standing of any of the Companies or
their respective Subsidiaries, (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board, the Chief Executive Officer or the
President of Operating LLC, (iv) gross negligence or willful misconduct with
respect to the Companies and their Subsidiaries, (v) any other material breach
of this Agreement or any company policy established by the Board, which breach,
if curable, is not cured within 15 days after written notice thereof to
Executive, or (vi) if EBITDA in any Fiscal Year is less than the "Minimum
EBITDA" set forth for such Fiscal Year on Schedule A hereto.
"Consumer Price Index" means the Consumer Price Index for All Urban
Consumers, U.S. City Average, for all items, or if the government ceases to
publish such index, such index which in the Board's good faith judgment is most
similar to such index.
"EBITDA" means, with respect to any Fiscal Year, the consolidated net
income of BrightView, Holding LLC and its Subsidiaries for such Fiscal Year
plus, to the extent deducted in determining such net income, interest expense,
provisions for taxes, depreciation and amortization, net of the bonuses
contemplated hereby and under similar arrangements (whether paid in cash or
otherwise payable) and before extraordinary gains and losses, calculated in
accordance with generally accepted accounting principles and determined by the
Board from the audited consolidated annual financial statements of BrightView
and Holding LLC for such Fiscal Year.
"Fiscal Year" means the calendar year/fiscal year of Holding LLC.
"Executive Securities" shall continue to be Executive Securities in
the hands of any holder other than Executive (except for the Companies and the
Investors and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Securities shall succeed to
all rights and obligations attributable to Executive as a holder of Executive
Securities hereunder. Executive Securities shall also include any equity
securities issued by any of the Companies with respect to Executive Securities
by way of a stock split, stock dividend, other recapitalization or similar
transaction. Notwithstanding the foregoing, all of the Unvested Securities shall
remain Executive Securities after any Transfer thereof, even if such Transfer is
approved in accordance with the Securityholders Agreement.
"Fair Market Value" of each share or unit of any class or type of
Executive Securities means the average of the closing prices of the sales of any
such securities on all securities exchanges on which such security may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization, in each
such case
-14-
<PAGE>
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day, and with respect to any share or unit of any class or type of
Executive Security which is not, as of the date of determination, listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market Value thereof shall be the fair value of such shares or
units or such class or type of Executive Securities determined in good faith by
the Board.
"Good Reason" means the occurrence, without Executive's consent, of
any of the following: (i) unless corrected within 30 days written notice by
Executive to the Board of Executive's objection thereto, the assignment to the
Executive of any significant duties materially inconsistent with the Executive's
status as a senior executive officer of Operating LLC or a substantial
diminution in the nature or status of the Executive's responsibilities; (ii) a
reduction by Operating LLC in the Executive's Annual Base Amount as in effect on
the date hereof, except for across-the-board salary reductions similarly
affecting all senior executives of Operating LLC; or (ii) the Board requires
Executive to relocate from the Los Angeles area (it being understood that
Executive may be required to spend time in Operating LLC's other offices
throughout the U.S.).
"Investor" has the meaning given such term in the preamble.
"Original Cost" means, with respect to each share of Common Stock
purchased hereunder, $500.00, with respect to each Class A Common Unit purchased
hereunder, $4.50 and, with respect to each Preferred Unit purchased hereunder,
$445.50 (in each case, as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Public Sale" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker.
"Qualified IPO" means receipt by BrightView of at least $75,000,000
cash proceeds upon consummation of an underwritten sale of Common Stock by
BrightView pursuant to a registration statement filed under the Securities Act,
provided that the sum of (a) the product of the net price per share of such
offering multiplied by the aggregate number of shares of Common Stock issued to
Investors at the closing of the Acquisition (as adjusted for stock splits,
combinations of shares and other recapitalizations), plus (b) the aggregate
amount of all cash paid as distributions or dividends on the equity securities
of Holding LLC which were issued to the Investors at the closing of the
Acquisition, plus (c) the fair market value of such Holding LLC equity
securities, and of any other property received by the Investors at any time in
respect of such securities in connection with any Sale of the Company prior
thereto, in each case as determined by the Board, equals or exceeds
$330,000,000.
"Sale of the Company" means a sale of all the assets or equity
securities of one of the Companies to an unaffiliated third-party.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
-15-
<PAGE>
"Securityholders Agreement" means the Securityholders Agreement, dated
as of the date hereof, by and among the Companies, Executive and the other
Investors, as such agreement may be amended, restated, supplemented or modified
from time to time hereafter.
"Senior Credit Agreement" means the Credit Agreement, dated as of the
date hereof, among Operating LLC, First Union National Bank of North Carolina,
as Administrative Agent (as defined in such Agreement) and Syndication Agent (as
defined in such Agreement), CIBC, Inc., as Documentation Agent (as defined in
such Agreement) and certain banks and other financial institutions, as amended,
modified, supplemented or restated, and including any agreement pursuant to
which indebtedness thereunder is refinanced, as in effect from time to time.
"Subsidiary" of a Person means any entity of which such Person (i)
owns equity securities having a majority of the ordinary voting power in
electing the board of directors directly or through one or more subsidiaries or
(ii) serves as a general partner or managing member or otherwise has the power
and authority to direct the day to day management of such entity. For purposes
of this Agreement, Holding LLC is deemed to be as Subsidiary of BrightView.
"Weighted Average Rate" means the weighted average cost of borrowing
by Operating LLC as in effect from time to time, as determined in good faith by
the Board.
18. Survival. The provisions of this Agreement shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
19. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To any of the Companies:
c/o Willis Stein & Partners, L.P.
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Attention: Avy H. Stein
Daniel H. Blumenthal
With copies to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: John A. Weissenbach, Esq.
-16-
<PAGE>
To Executive:
Richard Willis
Chief Financial Officer
Petersen Publishing Company, L.L.C.
6420 Wilshire Boulevard
Los Angeles, CA 90048
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when personally
delivered, five days after deposit in the U.S. mail, or the business day next
following deposit with such an overnight courier service in such a manner, with
instructions for next-day delivery.
20. General Provisions.
(a) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(c) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Companies, the Investors and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of Executive under this Agreement shall not be
assignable except in connection with a transfer of Executive Securities in
accordance with this Agreement and the Securityholders Agreement.
-17-
<PAGE>
(f) Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(g) Remedies. Each of the parties to this Agreement (including the
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Arbitration. Each of the parties hereto agrees that in the event
of any dispute arising between or among the parties arising out of or relating
to this Agreement or its breach, such dispute shall be settled by arbitration to
be conducted in the Borough of Manhattan, New York, New York in accordance with
the Commercial Arbitration Rules (except as modified below) of the American
Arbitration Association and with the Expedited Procedures thereof (collectively,
the "Rules"). Each of the parties hereto agrees that such arbitration shall be
conducted by a single arbitrator selected in accordance with the Rules; provided
that such arbitrator shall be a retired judge who is experienced in deciding
cases concerning the matter which is the subject of the dispute. Each of the
parties agrees that in any such arbitration that pre-arbitration discovery shall
be limited to the greatest extent provided by the Rules, that the award shall be
made in writing no more than 30 days following the end of the proceeding, that
the arbitration shall not be conducted as a class action and that no punitive
damages shall be awarded. Any award rendered by the arbitrator shall be final
and binding and judgment may be entered on it in any court of competent
jurisdiction. Each of the parties hereto agrees to treat as confidential the
results of any arbitration (including, without limitation, any findings of fact
and/or law made by the arbitrator) and not to disclose such results to any
unauthorized person. The prevailing party (as determined by the arbitrator)
shall in addition be awarded by the arbitrator such party's own attorneys' fees
and expenses in connection with such proceeding. The non-prevailing party (as
determined by the arbitrator) shall pay the fees and expenses of the
arbitration.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of BrightView and
Executive.
(j) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Illinois, the time period
-18-
<PAGE>
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
* * *
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
-----------------------------------------
Richard Willis
BRIGHTVIEW COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
Its:
-------------------------------------
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:
-----------------------------------
Its:
-----------------------------------
PETERSEN PUBLISHING
COMPANY, L.L.C.
By Petersen Holdings, L.L.C.
Its Managing Member
By BrightView Communications Group, Inc.
Its Managing Member
By:
------------------------------------
Its:
------------------------------------
-20-
<PAGE>
SCHEDULE A
----------
All amounts in $millions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FISCAL YEAR TARGET EBITDA THRESHOLD MINIMUM EBITDA
EBITDA
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 55 50 42.5
- --------------------------------------------------------------------------------
1998 70 60 55
- --------------------------------------------------------------------------------
1999 82 67 60
- --------------------------------------------------------------------------------
2000 93 75 65
- --------------------------------------------------------------------------------
2001 100 80 70
- --------------------------------------------------------------------------------
</TABLE>
Each of the amounts set forth in the above chart will be adjusted by the Board,
in its good faith judgment after good faith consultation with Executive, in
connection with acquisitions or divestitures (whether by merger, purchase or
sale of assets or otherwise) consummated by any of the Companies at any time
after the Closing. Such amounts, as so adjusted by the Board, will be deemed to
be the amount set forth on the above chart for all purposes of the Agreement to
which this Schedule A is attached.
-21-
<PAGE>
[Provision for Community Property Jurisdictions]
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have
read the foregoing Executive Securities Purchase and Employment Agreement and
that I understand its contents. I am aware that the Agreement provides for the
repurchase of my spouse's Executive Securities under certain circumstances and
imposes other restrictions on the transfer of such Executive Securities. I agree
that my spouse's interest in the Executive Securities is subject to this
Agreement and any interest I may have in such Executive Securities shall be
irrevocably bound by this Agreement and further that the my community property
interest, if any, shall be similarly bound by this Agreement.
I am aware that the legal, financial and other matters contained in
this Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Agreement that I will waive such right.
Date: January 27, 1997
Name of Executive: Richard Willis
Name of Spouse:
---------------------------------
Signature of Spouse:
-----------------------------
Name of Witness:
------------------------------
Signature of Witness:
-------------------------
-22-
<PAGE>
ANNEX A
PROMISSORY NOTE
---------------
$________________ January 27, 1997
For value received, Richard Willis ("Executive") promises to pay to
the order of _______________, a _______________ corporation [limited liability
company] (the "Company"), at its offices in _____________________, or such other
place as designated in writing by the holder hereof, the aggregate principal sum
of $____________ together with interest earned thereon when due. The principal
amount of the Note and all interest accrued thereon shall be due and payable on
the earlier to occur of (i) December 31, 2001, (ii) termination of Executive as
an employee of Operating LLC, and (iii) a Sale of the Company. This Note was
issued pursuant to and is subject to the terms of the Executive Securities
Purchase and Employment Agreement (the "Executive Agreement"), dated as of
January 27, 1997, between the Company and Executive. Capitalized terms used
herein and not otherwise defined shall have the meanings given such terms in the
Executive Agreement
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView Communications Group, Inc.
The amounts due under this Note are secured by a pledge of the
Executive Securities, including all of Executive's membership interest in
Petersen Holdings, L.L.C., and the payment of the principal amount and accrued
interest under this Note is subject to certain offset rights under the Executive
Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of ________________________.
---------------------------------
Richard Willis
<PAGE>
-2-
<PAGE>
ANNEX B
EXECUTIVE SECURITIES PLEDGE AGREEMENT
-------------------------------------
THIS PLEDGE AGREEMENT is made as of January 27, 1997, between Richard
Willis ("Pledgor"), and BrightView Communications Group, Inc., a Delaware
corporation (the "Company"), and Petersen Holdings, L.L.C., a Delaware limited
liability company ("Holdings").
The Company, Holdings, Petersen Publishing Company, L.L.C. (the
"Operating LLC") and Pledgor are parties to an Executive Securities Purchase and
Employment Agreement, dated as of the date hereof, pursuant to which Pledgor
purchased 6 shares of the Company's Class A Common Stock, $.01 par value, and
1,690.14 Class A Common Units, 125 Class B Common Units, 125 Class C Common
Units and 660 Preferred Units of Holdings (collectively, the "Pledged
Securities"). The Company and Holdings have allowed Pledgor to purchase a
portion of the Pledged Securities by delivery to the Company and Holdings of
promissory notes (the "Notes") in the aggregate principal amount of $200,000.
This Pledge Agreement provides the terms and conditions upon which the Notes are
secured by a pledge to the Company of the Pledged Securities.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company and Holdings to accept
the Notes as partial payment for the Pledged Securities, Pledgor, the Company
and Holdings hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company and Holdings, and
grants to the Company and Holdings a security interest in, the Pledged
Securities as security for the prompt and complete payment when due of the
unpaid principal of and interest on the Notes and full payment and performance
of the obligations and liabilities of Pledgor hereunder.
2. Delivery of Pledged Securities. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Securities, if certificated, together with duly executed forms of
assignment sufficient to transfer title thereto to the Company. The Company
shall hold such Pledged Securities for itself and as agent for Holdings (the
Company acting in such capacities, the "Agent").
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on either
of the Notes or any other default under either of the Notes or hereunder,
Pledgor shall be entitled to all voting rights with respect to the Pledged
Securities and shall be entitled to receive all cash dividends paid in respect
of the Pledged Securities. Upon the occurrence of and during the continuance of
any such default, Pledgor shall no longer be able to vote the Pledged Securities
and the Agent shall retain all such cash dividends payable on the Pledged
Securities as additional security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Securities (whether as a distribution in connection with
any recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Agent as additional security for Pledgor's
obligations under the Notes and shall promptly deliver such additional security
to the Agent together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Securities
hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under either of the Notes when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under either of the
Notes or this Pledge Agreement occurs (including the bankruptcy or insolvency of
Pledgor), the Agent may exercise any and all the rights, powers and remedies of
any owner of the Pledged Securities (including the right to vote the shares and
receive dividends and distributions with respect to such shares) and shall have
and may exercise without demand any and all the rights and remedies granted to a
secured party upon default under the Uniform Commercial Code of Illinois or
otherwise available to the Company under applicable law. Without limiting the
foregoing, the Agent is authorized to sell, assign and deliver at its
discretion, from time to time, all or any part of the Pledged Securities at any
private sale or public auction, on not less than ten days written notice to
Pledgor, at such price or prices and upon such terms as the Agent may deem
advisable. Pledgor shall have no right to redeem the Pledged Securities after
any such sale or assignment. At any such sale or auction, the Agent, the Company
and/or Holdings may bid for, and become the purchaser of, the whole or any part
of the Pledged Securities offered for sale. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses of sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Notes; provided that after payment in full of the
indebtedness evidenced by the Notes, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Securities remaining in the hands of the Agent. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Notes in full, including the fees of any
attorneys employed by the Agent to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Securities hereunder.
7. Payment of Indebtedness and Release of Pledged Securities. Upon
payment in full of the indebtedness evidenced by the Notes, the Agent shall
surrender the Pledged Securities to Pledgor together with all forms of
assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on each of the Notes has been repaid, Pledgor shall not
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<PAGE>
(i) create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Securities or
Pledgor's rights or a holder thereof, other than pursuant to this Agreement and
the Executive Agreement, or (ii) sell or otherwise transfer any Pledged
Securities or any interest therein.
9. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Agent, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Agent may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. Neither the Company, Holdings or
the Agent shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by the Company and Holding, and then only to the
extent therein set forth. A waiver by the Company, Holdings or the Agent of
Holdings of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company, Holdings or the
Agent would otherwise have on any future occasion. No failure to exercise nor
any delay in exercising on the part of the Company, Holdings or the Agent, any
right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company, Holdings or the Agent hereunder, inure to
the benefit of the Company, Holdings or the Agent and its respective successors
and assigns. This Pledge Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of Illinois.
* * * *
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<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
BRIGHTVIEW COMMUNICATIONS
GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
------------------------------------
Richard Willis
PETERSEN HOLDINGS, L.L.C.
By BrightView Communications Group, Inc.
Its Managing Member
By:
---------------------------------
Its:
--------------------------------
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<PAGE>
ANNEX C
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased 6 shares of Class A Common Stock, par value
$.01 per share (the "Shares"), of BrightView Communications Group, Inc., a
Delaware corporation (the "Company") and an interest consisting of 1,690.14
Class A Common Units, 125 Class B Common Units, 125 Class C Common Units and 660
Preferred Units (the "Units" and, together with the Shares, the "Securities") in
Petersen Holdings, L.L.C., a Delaware limited liability company ("Holding LLC").
Under certain circumstances, the Company has the right to repurchase the
Securities at cost from the undersigned (or from the holder of the Securities,
if different from the undersigned) should the undersigned cease to be employed
by the Company and its subsidiaries. Hence, the Securities are subject to a
substantial risk of forfeiture and are nontransferable. The undersigned desires
to make an election to have the Securities taxed under the provision of Code
(S)83(b) at the time he purchased the Securities.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Securities (described below), to report as taxable income for calendar
year 1997 the excess (if any) of the Securities' fair market value on January
27, 1997 over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
Richard Willis
Address:
2168 Adair Street
San Marino, California __________
SSN: ____________________________
2. A description of the property with respect to which the election
is being made: 6 shares of the Company's Common Stock, par value $.01 per share,
and a membership interest in Holding LLC consisting of 1,690.14 Class A Common
Units, 125 Class B Common Units, 125 Class C Common Units and 660 Preferred
Units, entitling the undersigned to an interest in Holding LLC's capital and an
interest in Holding LLC's profits.
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<PAGE>
3. The date on which the property was transferred: January 27, 1997.
The taxable year for which such election is made: calendar 1997.
4. The restrictions to which the property is subject: If during the
first five years after the purchase of the Securities the undersigned ceases to
be employed by Petersen Publishing Company, L.L.C. ("Operating LLC") or any of
its subsidiaries, the unvested portion of the Securities shall be subject to
repurchase by the Company at the lower of fair market value or original cost.
The Securities shall become vested ratably, on a daily basis, over the five year
period commencing upon issuance as long as Executive remains employed by
Operating L.L.C. or any of its subsidiaries, and shall be deemed to be unvested
to the extent not vested as of termination of such employment; provided that all
Securities shall become Vested Securities if Executive remains employed by
Operating LLC or any of its subsidiaries through the time of certain public
offerings of the Company's Common Stock or certain sales of the Company,
Holdings LLC or Operating LLC.
5. The fair market value on January 27, 1997 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $300,000.
6. The amount paid for such property: $300,000.
A copy of this election has been furnished to the Secretary of the
Company and Holding LLC pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated:
-------------------- -----------------------------
Richard Willis
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<PAGE>
EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
September 30, 1996 (this "Agreement"), is made by and among Petersen Holdings,
L.L.C., a Delaware limited liability company ("Holdings"), Petersen Investment
Corp., a Delaware corporation ("PIC"), BrightView Communications Group, Inc., a
Delaware corporation ("Manager"), Petersen Publishing Company, a California
corporation ("PPC"), Willis Stein & Partners, L.P. ("Willis Stein"), and the
other Persons set forth on Schedule A hereto. The Persons identified as
Purchasers of Holdings Units on Schedule A hereto are referred to (in their
capacities as Purchasers of Holdings Units) collectively as the "Holdings
Purchasers" and each individually as a "Holdings Purchaser." The Persons
identified as Purchasers of PIC Stock (as defined herein) on Schedule A hereto
are referred to (in their capacities as Purchasers of PIC Stock) collectively as
the "PIC Purchasers" and each individually as a "PIC Purchaser." The Persons
identified as Purchasers of Manager Common Stock (as defined herein) on Schedule
A hereto are referred to (in their capacities as Purchasers of Manager Common
Stock) collectively as the "Manager Purchasers" and each individually as a
"Manager Purchaser." The Holdings Purchasers, the PIC Purchasers and the
Manager Purchasers are sometimes referred to collectively as the "Purchasers,"
and each individually as a "Purchaser." Holdings, PIC and Manager are sometimes
referred to collectively as the "Issuers" and each individually as an "Issuer."
Contemporaneously with the execution of this Agreement, pursuant to and in
accordance with the Asset Purchase Agreement, dated as of August 15, 1996 (as
amended from time to time in accordance with its terms, the "Asset Purchase
Agreement") between Manager and PPC, after assignment by Manager to Holdings and
to Petersen Publishing Company, L.L.C., a Delaware limited liability company and
a Subsidiary of Holdings ("Operating LLC"), of certain of its rights under the
Asset Purchase Agreement to purchase publishing assets from PPC, Manager,
Holdings and Operating LLC shall purchase substantially all of the assets of
PPC. Contemporaneously with the execution of this Agreement, (i) the parties to
this Agreement will enter into a Securityholders Agreement (as amended from time
to time in accordance with its terms, the "Securityholders Agreement") and (ii)
the parties hereto (other than the PIC Purchasers) will enter into the Limited
Liability Company Agreement of Petersen Holdings, L.L.C. (as amended from time
to time in accordance with its terms, the "Holdings LLC Agreement"). Certain
capitalized terms used herein are defined in Section 11 hereof.
The parties hereto agree as follows:
Section 1. Authorization of Issuance and Sale of Securities.
1A. Holdings will authorize the issuance and sale to the Holdings
Purchasers of an aggregate of 385,508.55 its Class A Common Units (the
"Holdings Class A Common Units"), an aggregate of 2,250 of its Class B Common
Units (the "Holdings Class B Common Units"), an aggregate of 2,250 of its Class
C Common Units (the "Holdings Class C Common Units," and collectively with the
Holdings Class A Common Units and the Holdings Class B Common Units, the
"Holdings Common Units") and an aggregate of 366,966 of its Preferred Units
(the "Holdings
<PAGE>
Preferred Units," and collectively with the Holdings Common Units, the "Holdings
Units"), each having the rights and preferences set forth in the Holdings LLC
Agreement.
1B. PIC will authorize the issuance and sale to the PIC Purchasers of
an aggregate of 121,000 shares of its Common Stock, par value $.01 per share
("PIC Common Stock") and an aggregate of 121,000 shares of its Preferred Stock,
par value $.01 per share (the "PIC Preferred Stock," and collectively with the
PIC Common Stock, the "PIC Stock"), each having the rights and preferences set
forth in the Certificate of Incorporation of PIC (the "PIC Certificate") in the
form set forth in Exhibit A attached hereto.
1C. Manager will authorize the issuance and sale to the Manager
Purchasers of an aggregate of 2,106 shares of its Class A Common Stock, par
value $.01 per share (the "Manager Class A Common Stock") and an aggregate of
1,200 shares of its Class B Common Stock (the "Manager Class B Common Stock" and
collectively with the Manager Class A Common Stock, the "Manager Common Stock"),
each having the rights and preferences set forth in the Certificate of
Incorporation of Manager (the "Manager Certificate") in the form set forth in
Exhibit B attached hereto.
Section 2. Purchase and Sale of Securities.
2A. Purchase and Sale of Holdings Interests. Subject to the terms and
conditions set forth herein, Holdings will sell to each Holdings Purchaser, and
each Holdings Purchaser will purchase from Holdings, the number of Holdings
Class A Common Units and the number of Holdings Preferred Units set forth
opposite such Holdings Purchaser's name where it appears under the designation
of "Investor" on Schedule A hereto for the aggregate purchase price in cash (or,
in the case of PPC, in value of assets) set forth opposite such Holdings
Purchaser's name where it appears under the designation of "Investor" on
Schedule A hereto.
2B. Purchase and Sale of PIC Stock. Subject to the terms and
conditions set forth herein, PIC will sell to each PIC Purchaser and each PIC
Purchaser will purchase from PIC the number of shares of PIC Common Stock and
PIC Preferred Stock set forth opposite such PIC Purchaser's name on Schedule A
hereto for the aggregate purchase price in cash set forth opposite such PIC
Purchaser's name on Schedule A hereto.
2C. Purchase and Sale of Manager Common Stock. Subject to the terms
and conditions set forth herein, Manager will sell to each Manager Purchaser and
each Manager Purchaser will purchase from Manager the number of shares of
Manager Class A Common Stock and the number of shares of Manager Class B Common
Stock set forth opposite such Manager Purchaser's name on Schedule A hereto for
the aggregate purchase price in cash (or, in the case of PPC, in value of
assets) set forth opposite such Manager Purchaser's name on Schedule A hereto.
2D. Purchase and Sale of Executive Securities. Subject to the terms
and conditions set forth herein, Holdings will sell to each Holdings Purchaser
designated as an "Executive" on Schedule A hereto (an "Executive"), and each
Executive will purchase from Holdings, the number of Holdings Class A Common
Units, Holdings Class B Common Units and Holdings Class C Common Units set forth
opposite such Executive's name where it appears under the designation of
"Executive" on Schedule A hereto for the aggregate purchase price in cash set
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<PAGE>
forth opposite such Executive's name where it appears under the designation of
"Executive" on Schedule A hereto.
2E. The Closing. The closing of the sale and purchase of Holdings
Units, the PIC Stock and Manager Common Stock (the "Closing") will take place at
the offices of O'Melveny & Myers, LLP, 400 South Hope Street, Los Angeles,
California on September 30, 1996 at 9:00 A.M., or at such other place and/or
time as the parties shall mutually agree. At the Closing: (i) Holdings shall
issue and sell to each Holdings Purchaser the Holdings Units to be purchased by
such Holdings Purchaser in accordance with the Holdings LLC Agreement and
subject to the terms and conditions set forth herein, (a) such Holdings
Purchaser (other than PPC and Manager) shall pay to Holdings the purchase price
therefor by wire transfer of immediately available funds to a bank account
designated by Holdings, (b) and PPC shall contribute to Holdings assets with an
agreed value of $24,750,000, and (c) Manager shall pay to Holdings $1,237,700 by
wire transfer of immediately available funds to a bank account designated by
Holdings and shall contribute to Holdings assets with an agreed value of
$250,000, (ii) PIC will deliver to each PIC Purchaser a certificate (or
certificates) evidencing the shares of PIC Stock to be purchased by such PIC
Purchaser, registered in the name of such PIC Purchaser or such other name as
such PIC Purchaser shall designate, and, subject to the terms and conditions set
forth herein, such PIC Purchaser shall pay to PIC the purchase price therefor by
wire transfer of immediately available funds to a bank account designated by PIC
and (iii) Manager will deliver to each Manager Purchaser a certificate (or
certificates) evidencing the shares of Manager Common Stock to be purchased by
such Manager Purchaser, registered in the name of such Manager Purchaser or such
other name as such Manager Purchaser shall designate, and, subject to the terms
and conditions set forth herein, such Manager Purchaser (other than PPC) shall
pay to Manager the purchase price therefor by wire transfer of immediately
available funds to a bank account designated by Manager and PPC shall contribute
to Manager assets with an agreed value of $250,000.
Section 3. Conditions of each Purchaser's Obligation at the Closing.
The obligation of each Purchaser to purchase and pay for the Securities to be
purchased by such Purchaser at the Closing is subject to the satisfaction as of
the Closing of the following conditions:
3A. Representations and Warranties. The representations and
warranties made in this Agreement by each Issuer of Securities to be issued to
such Purchaser shall be true and correct at and as of the Closing.
3B. Sale of Securities; Consummation of each Other Transaction. Each
Issuer from which such Purchaser is to purchase Securities hereunder shall have
sold to such Purchaser such Securities and each other purchase and sale to each
other Purchaser of Securities contemplated to occur at the Closing shall have
been consummated in accordance with the terms of this Agreement.
3C. Securities Law Compliance. Each Issuer shall have made all
filings under all applicable federal and state securities laws necessary to
consummate each purchase and sale of Securities by such Issuer contemplated to
occur at the Closing in compliance with such laws.
3D. Securityholders Agreement and Limited Liability Company
Agreement. The Issuers and the Purchasers shall have entered into the
Securityholders Agreement in the form set
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<PAGE>
forth in Exhibit C attached hereto and the Securityholders Agreement shall be in
full force and effect as of the Closing and the Holdings Purchasers and the
other members of Holdings shall have entered into the Holdings LLC Agreement.
3E. Closing Documents. Each Issuer shall have delivered to each
Purchaser purchasing Securities from such Purchaser each of the following
documents:
(i) an Officer's Certificate, dated the date of the Closing, stating
that the conditions specified in Section 1 and Sections 3A through 3C,
inclusive, with respect to such Issuer have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by each Issuer,
authorizing the execution, delivery and performance of this Agreement, the
Securityholders Agreement and each of the other agreements contemplated
hereby, and the issuance and sale of the Securities to be issued by such
Issuer hereunder;
(iii) with respect to Holdings, certified copies of its Certificate of
Formation and the Holdings LLC Agreement, and with respect to each of PIC
and Manager, certified copies of its Certificate of Incorporation and
bylaws, each as in effect at the Closing; and
(iv) such other documents relating to the transactions contemplated by
this Agreement as any Purchaser or its counsel may reasonably request.
3F. Consummation of Acquisition and Financing Transactions. The
transactions contemplated by the Asset Purchase Agreement, the Credit Agreement
and the Subordinated Credit Agreement shall be consummated contemporaneously
with the consummation of the transactions contemplated by this Agreement or all
conditions to the obligations of the parties thereto shall have been either
satisfied or waived.
3G. Legal Opinion. Each Purchaser shall have received from Kirkland
& Ellis, in its capacity as special counsel to the Issuers, an opinion
substantially in the form set forth in Exhibit A hereto.
3H. Proceedings. All proceedings taken or required to be taken by
the Issuers in connection with the transactions contemplated hereby to be
consummated at or prior to the Closing and all documents incident thereto shall
be satisfactory in form and substance to such Purchaser and its counsel.
3I. Waiver. Any condition specified in this Section 3 may be waived
as to any Purchaser if consented to by such Purchaser; provided that no such
waiver shall be effective against any such Purchaser unless it is set forth in a
writing executed by such Purchaser.
Section 4. Conditions to the Obligations of Holdings and Manager to
Issue Securities to PPC. The obligation of each of Holdings and Manager to issue
Securities to PPC pursuant to this Agreement is subject to the consummation of
the closing of the transactions contemplated by the Asset Purchase Agreement.
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<PAGE>
Section 5. Representations and Warranties of Holdings. Holdings
hereby represents and warrants to each Holdings Purchaser that as of the Closing
and immediately thereafter:
5A. Organization, etc. Holdings is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Holdings has the power and authority to carry on its business as now
conducted and presently proposed to be con ducted and to carry out the
transactions contemplated by this Agreement.
5B. Capitalization and Related Matters. The issued and outstanding
Equity Securities of Holdings shall consist of (a) 366,966 Holdings Preferred
Units, (b) 385,508.55 Holdings Class A Common Units, (c) 2,250 Holdings Class B
Common Units, (d) 2,250 Holdings Class C Common Units and (e) the obligation of
Holdings to issue warrants to purchase Holdings Class B Common Units and
Holdings Preferred Units on the terms and subject to the conditions set forth in
the letter dated September 30, 1996 to First Union Corp. and CIBC Inc. from
Holdings and the Manager attached as Exhibit D hereto. Except as contemplated
by the Holdings LLC Agreement or the Securityholders Agreement, Holdings shall
not be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of its Equity Securities. There are no statutory
or contractual preemptive rights or rights of refusal with respect to the
issuance of Holdings Units hereunder. Holdings has not violated any applicable
federal or state securities laws in connection with the offer, sale or issuance
of any of its Equity Securities, and the offer, sale and issuance of Holdings
Units hereunder do not require registration under the Securities Act or any
applicable state securities laws. To the best of Holdings's knowledge, there
are no agreements between the holders of Holdings's Equity Securities with
respect to the voting or transfer of Holdings's Equity Securities or with
respect to any other aspect of Holdings's affairs, except for the Holdings LLC
Agreement and the Securityholders Agreement.
5C. Subsidiaries; Investments. As of the date hereof, Holdings
neither owns nor holds the right to acquire any Equity Securities or any other
security or interest in any other Person other than Operating LLC.
5D. Authorization; No Breach. The execution, delivery and
performance by Holdings of this Agreement, the Holdings LLC Agreement, the
Securityholders Agreement and all other agreements and instruments contemplated
hereby to which Holdings is a party (collectively, the "Holdings Transaction
Documents"), have been duly authorized by Holdings. Each of the Holdings
Transaction Documents constitutes a valid and binding obligation of Holdings,
enforceable in accordance with its terms, subject to the effects of (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity. The execution and delivery by Holdings
of Holdings Transaction Documents, the offering, sale and issuance of Holdings
Units and the fulfillment of and compliance with the respective terms hereof and
thereof by Holdings, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon Holdings's Equity Securities or assets pursuant to, (iv) give
any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization,
consent, approval, exemption or other action by or notice or declaration to, or
filing with, any court or administrative or governmental body or agency pursuant
to the Holdings LLC Agreement,
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<PAGE>
or any law, statute, rule or regulation to which Holdings is subject, or any
agreement, instrument, order, judgment or decree to which Holdings is subject.
Section 6. Representations and Warranties of PIC. PIC hereby
represents and warrants to each PIC Purchaser that as of the Closing and
immediately thereafter:
6A. Organization, etc. PIC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. PIC has
the corporate power and authority to carry on its business as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement.
6B. Capital Stock and Related Matters. The authorized capital stock
of PIC shall consist of (a) 200,000 shares of PIC Preferred Stock, of which
121,000 shares shall be issued and outstanding and (b) 200,000 shares of PIC
Common Stock, of which 121,000 shares shall be issued and outstanding. Except
as contemplated by the Securityholders Agreement, PIC shall not be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its Equity Securities. All of the outstanding shares of PIC Stock
shall be authorized, validly issued and nonassessable. There are no statutory
or contractual preemptive rights or rights of refusal with respect to the
issuance of the PIC Stock hereunder. PIC has not violated any applicable
federal or state securities laws in connection with the offer, sale or issuance
of any of its Equity Securities, and the offer, sale and issuance of the PIC
Stock hereunder do not require registration under the Securities Act or any
applicable state securities laws. To the best of PIC's knowledge, there are no
agreements between PIC's stockholders with respect to the voting or transfer of
the PIC Stock or with respect to any other aspect of PIC's affairs, except for
the PIC Certificate and the Securityholders Agreement.
6C. Subsidiaries; Investments. Except as contemplated in this
Agreement, PIC neither owns nor holds the right to acquire any Equity Securities
or any other security or interest in any other Person.
6D. Authorization; No Breach. The execution, delivery and
performance by PIC of this Agreement, the Securityholders Agreement and all
other agreements and instruments contemplated hereby to which PIC is a party
(collectively, the "PIC Transaction Documents"), have been duly authorized by
PIC. Each of the PIC Transaction Documents constitutes a valid and binding
obligation of PIC, enforceable in accordance with its terms, subject to the
effects of (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity. The execution and
delivery by PIC of the PIC Transaction Documents, the offering, sale and
issuance of the PIC Stock and the fulfillment of and compliance with the
respective terms hereof and thereof by PIC, do not and shall not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) result in the creation of any lien, security
interest, charge or encumbrance upon PIC's Equity Securities or assets pursuant
to, (iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to the PIC Certificate, or any law, statute, rule or
regulation to which PIC is subject, or any agreement, instrument, order,
judgment or decree to which PIC is subject.
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<PAGE>
Section 7. Representations and Warranties of Manager. Manager hereby
represents and warrants to each Manager Purchaser that as of the Closing and
immediately thereafter:
7A. Organization, etc. Manager is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Manager has the corporate power and authority to carry on its business as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement.
7B. Capital Stock and Related Matters. The authorized capital stock
of Manager shall consist of (a) 10,000 shares of Manager Class A Common Stock,
of which 2,106 shares shall be issued and outstanding, (b) 10,000 shares of
Manager Class B Common Stock, of which 1,200 shares shall be issued and
outstanding and (c) the obligations of the Manager to issue warrants to purchase
Manager Common Stock on the terms and subject to the conditions set forth in the
letter dated September 30, 1996 to First Union Corp. and CIBC Inc. from Holdings
and the Manager attached as Exhibit D hereto. Manager shall not be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its Equity Securities. All of the outstanding Equity Securities of
Manager shall be authorized, validly issued and nonassessable. There are no
statutory or contractual preemptive rights or rights of refusal with respect to
the issuance of the Manager Common Stock hereunder. Manager has not violated
any applicable federal or state securities laws in connection with the offer,
sale or issuance of any of its Equity Securities, and the offer, sale and
issuance of the Manager Common Stock hereunder do not require registration under
the Securities Act or any applicable state securities laws. To the best of
Manager's knowledge, there are no agreements between Manager's stockholders with
respect to the voting or transfer of the Manager Common Stock or with respect to
any other aspect of Manager's affairs, except for the Manager Certificate and
the Securityholders Agreement.
7C. Subsidiaries; Investments. Except as contemplated in this
Agreement, Manager neither owns nor holds the right to acquire any Equity
Securities or any other security or interest in any other Person.
7D. Authorization; No Breach. The execution, delivery and
performance by Manager of this Agreement and the Securityholders Agreement and
all other agreements and instruments contemplated hereby to which Manager is a
party (collectively, the "Manager Transaction Documents"), have been duly
authorized by Manager. Each of the Manager Transaction Documents constitutes a
valid and binding obligation of Manager, enforceable in accordance with its
terms, subject to the effects of (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity.
The execution and delivery by Manager of the Manager Transaction Documents, the
offering, sale and issuance of the Manager Common Stock and the fulfillment of
and compliance with the respective terms hereof and thereof by Manager, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon Manager's Equity
Securities or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice or declaration to, or filing with, any court or administrative or
governmental body or agency pursuant to the Manager Certificate, or any law,
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<PAGE>
statute, rule or regulation to which Manager is subject, or any agreement,
instrument, order, judgment or decree to which Manager is subject.
Section 8. Purchasers' Investment Representations and Warranties.
Each Purchaser hereby represents and warrants to each Issuer from which such
Purchaser is purchasing Securities hereunder that:
8A. Investment Intent. Such Purchaser is acquiring the Restricted
Securities purchased hereunder for its own account with the present intention of
holding such securities for investment purposes and it has no intention of
selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
contained herein will prevent such Purchaser and the subsequent holders of
Restricted Securities from transferring such securities in compliance with the
provisions of Section 9 hereof, the Holdings LLC Agreement and the
Securityholders Agreement.
8B. Access to Information. Such Purchaser (i) has carefully reviewed
the materials furnished to it in connection with the transaction contemplated
hereby (including, without limitation, the Offering Memorandum prepared by
Goldman, Sachs of May, 1996), (ii) has been granted the opportunity to ask
questions of, and receive answers from, representatives of each Issuer from
which it is purchasing Securities hereunder concerning the terms and conditions
of the purchase of such Securities and to obtain any additional information that
it deems necessary to verify the accuracy of the information contained in such
materials and (iii) possesses knowledge and experience in financial and business
matters such that it is capable of evaluating the risks of the investment in
such Securities.
8C. Accredited Investor. Such Purchaser is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
Section 9. Restrictions on Transfers.
9A. Restrictions. Restricted Securities of an Issuer are only
transferable (i) pursuant to public offerings registered under the Securities
Act, (ii) pursuant to Rule 144 or Rule 144A if such rules are available and
(iii) subject to the conditions specified in Section 9B below, any other legally
available means of transfer pursuant to the Securities Act.
9B. Procedure for Transfer. In connection with the transfer of any
Restricted Securities of an Issuer (other than a transfer referred to in clauses
(i) or (ii) of Section 9A above), the holder thereof will deliver written notice
to such Issuer describing in reasonable detail the transfer or proposed
transfer, together with an opinion of Kirkland & Ellis or other counsel which
(to such Issuer's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such transfer of Restricted Securities may be
effected without registration of such Restricted Securities under the Securities
Act. In addition, if the holder of such Restricted Securities delivers to such
Issuer an opinion of such counsel that no subsequent transfer of such Restricted
Securities will require registration under the Securities Act, such Issuer will,
with respect to those Restricted Securities which are represented by
certificates, promptly upon such contemplated transfer deliver new certificates
for such Restricted Securities which do not bear the Securities Act Legend set
forth in Section 9C below. If such Issuer is not required to deliver new
certificates for such Restricted
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<PAGE>
Securities not bearing such legend, the holder thereof will not transfer the
same until the prospective transferee has confirmed to such Issuer in writing
its agreement to be bound by the agreements related to transfer of Restricted
Securities contained in this Agreement.
9C. Securities Act Legend. Each certificate representing Restricted
Securities of an Issuer will be imprinted with a legend in substantially the
following form (the "Securities Act Legend"):
"The securities represented by this certificate were originally issued on
September 30, 1996 and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Securities
Purchase Agreement, dated as of September 30, 1996, as amended and modified
from time to time, by and among the issuer (the "Company") and certain
investors, and the Company reserves the right to refuse the transfer of
such securities until such conditions have been fulfilled with respect to
such transfer. A copy of such conditions shall be furnished by the Company
to the holder hereof upon written request and without charge."
Whenever any of the certificated Restricted Securities of an Issuer cease to be
Restricted Securities, the holder thereof will be entitled to receive from such
Issuer, without expense, upon surrender to the Issuer of the certificate
representing such securities, a new certificate representing such securities of
like tenor but not bearing a legend of the character set forth above.
Section 10. Financial Statements. Manager shall deliver to each
Purchaser:
(a) As soon as available and in any event within thirty (30) days
after the end of each month ending after the Closing, (i) unaudited consolidated
balance sheets of Holdings and Manager and their Subsidiaries as of the end of
such month and unaudited consolidated statements of income and cash flows for
Holdings and Manager and their Subsidiaries for the month then ended and for
that portion of the fiscal year then ended, in each case setting forth
comparative consolidated figures as of the end of and for the corresponding
period in the preceding fiscal year, all in reasonable detail and prepared in
accordance with generally accepted accounting principles (subject to the absence
of notes required by generally accepted accounting principles and subject to
normal year-end adjustments) applied on a basis consistent with that of the
preceding month or containing disclosure of the effect on the financial
condition or results of operations of any change in the application of
accounting principles and practices during such month and (ii) any financial
reports of a type which Manager regularly prepares and delivers to directors of
the Board in connection with regularly scheduled Board meetings, which reports
have theretofore been prepared but not delivered to such Purchaser;
(b) As soon as available and in any event within forty-five (45)
days after the end of each of the first three fiscal quarters of each fiscal
year, beginning with the fiscal quarter ended September 30, 1996, (i) unaudited
consolidated balance sheets of Holdings and Manager and their Subsidiaries as of
the end of such fiscal quarter and unaudited consolidated statements of income
and cash flows for Holdings and Manager and their Subsidiaries for the fiscal
quarter then ended and for that portion of the fiscal year then ended, in each
case setting forth comparative consolidated figures as of the end of and for the
corresponding period in the preceding fiscal year, all in
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<PAGE>
reasonable detail and prepared in accordance with generally accepted accounting
principles (subject to the absence of notes required by generally accepted
accounting principles and subject to normal year-end adjustments) applied on a
basis consistent with that of the preceding quarter or containing disclosure of
the effect on the financial condition or results of operations of any change in
the application of accounting principles and practices during such quarter and
(ii) if applicable, Manager's quarterly report on Form 10-Q for such quarterly
period; and
(c) As soon as available and in any event within 100 days after
the end of each fiscal year, beginning with the fiscal year ending December 31,
1996, (i) an audited consolidated balance sheet of Holdings and Manager and
their Subsidiaries as of the end of such fiscal year and audited consolidated
statements of income and cash flows for Holdings and Manager and their
Subsidiaries for the fiscal year then ended, in each case setting forth
comparative figures as of the end of and for the preceding fiscal year, all in
reasonable detail, together with a report thereon by a certified public
accounting firm of recognized national standing that is not qualified as to
scope of audit and to the effect that (A) such financial statements present
fairly the consolidated financial condition and results of operations of
Holdings and Manager and their Subsidiaries as of the dates and for the periods
indicated in accordance with generally accepted accounting principles applied on
a basis consistent with that of the preceding year or containing disclosure of
the effect on the financial position or results of operations of any change in
the application of accounting principles and practices during such year and (B)
the examination by such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and (ii)
if applicable, Manager's annual report on Form 10-K for such year; and
(d) As soon as available and in any event within sixty (60) days
after the end of each fiscal quarter of each fiscal year, beginning with the
fiscal quarter ended September 30, 1996, unaudited statements of profit and loss
(listing revenues, contribution profit and circulation figures) for each of the
top twenty publications (ranked by revenues) of Holdings and Manager and their
Subsidiaries for such fiscal quarter.
Section 11. Definitions.
"Asset Purchase Agreement" means the Asset Purchase Agreement, dated
as of August 15, 1996, between Manager and Petersen Publishing Corporation, a
California corporation.
"Commission" shall mean the Securities and Exchange Commission and any
successor thereto.
"Credit Agreement" means the Credit Agreement, dated as of September
30, 1996, among Operating LLC, First Union National Bank of North Carolina, as
Administrative Agent (as defined in such Agreement) and Syndication Agent (as
defined in such Agreement) CIBC, Inc., as Documentation Agent (as defined in
such Agreement) and certain banks and other financial institutions, as amended,
modified, supplemented, waived or restated, and including any agreement pursuant
to which indebtedness thereunder is refinanced, as in effect from time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
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<PAGE>
"Equity Securities" means, with respect to a Person, any capital stock
(if such Person is a corporation), partnership interests (if such Person is a
partnership), limited liability company interests (if such Person is a limited
liability company) and any other interest in, or securities of, such Person with
profit participation features and any rights, warrants, options or other
securities convertible into or exercisable or exchangeable for any such
interests or securities.
"Initial Public Offering" means, with respect to any Person, the sale
of common equity securities of such Person (or any successor entity of such
Person) in an underwritten public offering registered under the Securities Act.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"Person" means any individual, general partnership, limited
partnership, corporation, association, cooperative, joint stock company, trust,
limited liability company, business trust, joint venture, unincorporated
organization and governmental entity (or any department, agency or political
subdivision thereof).
"Restricted Securities" means the Securities issued hereunder and any
securities issued with respect to such Securities by way of any stock dividend
or stock split, or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular Restricted
Securities of an Issuer, such securities will cease to be Restricted Securities
when (a) they have been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
they have become eligible for sale pursuant to Rule 144 or Rule 144A or (c) an
opinion of Kirkland & Ellis or other counsel which (to such Issuer's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that the
transfer of such Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act and that no subsequent
transfer of such Restricted Securities will require registration under the
Securities Act has been delivered to such Issuer.
"Rule 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Rule 144A" means Rule 144A promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Securities" means, collectively, Holdings Units, the PIC Stock and
the Manager Common Stock issued pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
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<PAGE>
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securityholders Agreement" means the Securityholders Agreement, dated
as of the date hereof, by and among the Issuers, the Purchasers and certain
other Persons.
"Subordinated Credit Agreement" means the Senior Subordinated Credit
Agreement, dated as of September 30, 1996, among Operating LLC, First Union
Corporation, as Agent (as such term is defined in such Agreement), the
Guarantors named therein and the lenders named therein as amended, modified,
supplemented, waived or restated, and including any agreement pursuant to which
indebtedness thereunder is refinanced, as in effect from time to time.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
Section 12. Escrow Arrangement. In order to facilitate the
consummation of the transaction contemplated by this Agreement, prior to the
Closing, each Purchaser other than PPC, Manager and PIC (collectively, the
"Escrow Purchasers") has delivered funds in an amount equal to the purchase
price to be paid by such Purchaser hereunder to an account designated by Manager
(the "Escrow Account") pursuant to the terms of an escrow arrangement set forth
on a letter signed by such Escrow Purchaser and Manager. Each party to this
Agreement acknowledges and agrees that Manager is acting solely as an agent of
each such Escrow Purchaser with respect to such funds and that the funds
delivered into the Escrow Account are not an investment in Manager, PIC or
Holdings until the transactions contemplated by this Agreement have been
consummated.
Section 13. Miscellaneous.
13A. Amendments and Waivers. Except as otherwise provided herein, (i)
no modification, amendment or waiver of any provision hereof shall be effective
unless such modification, amendment or waiver is approved in writing by Willis
Stein, (ii) no modification, amendment or waiver of any provision hereof shall
be effective against an Issuer unless such modification, amendment or waiver is
approved in writing by such Issuer, (iii) no modification, amendment or waiver
of any provision hereof which has a material adverse effect on any Purchaser's
rights hereunder or which alters the amount of securities to be purchased by
such Purchaser or the consideration to be paid therefor by such Purchaser shall
be effective against such Purchaser unless
-12-
<PAGE>
such modification, amendment or waiver is approved in writing by such Purchaser
and (iv) no amendment, modification or waiver of any provision of this
Agreement which materially adversely affects the relative rights of a holder of
Restricted Securities, if such effect would be borne disproportionately by such
holder relative to other holders of Restricted Securities of the same class,
shall be effective against such holder unless such modification, amendment or
waiver is approved in writing by such holder. The failure of any party to
enforce any provision of this Agreement shall in no way be construed as a waiver
of such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
13B. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement, regardless
of any investigation made by any Purchaser or any Issuer or on behalf of any
such party.
13C. Successors and Assigns.
(i) Except as otherwise expressly provided herein, all covenants
and agreements contained in this Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not.
(ii) If a sale, transfer, assignment or other disposition of any
Securities is made in accordance with the provisions of this Agreement and the
Securityholders Agreement to any Person and such Securities remain Restricted
Securities immediately after such disposition, such Person shall, at or prior to
the time such Securities are acquired, execute a counterpart of this Agreement
with such modifications thereto as may be necessary to reflect such acquisition,
and such other documents as are necessary to confirm such Person's agreement to
become a party to, and to be bound by, all covenants, terms and conditions of
this Agreement and the Securityholders Agreement, each as theretofore amended.
13D. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule in any jurisdiction,
such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision hereof in any
other jurisdiction.
13E. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
13F. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
13G. Governing Law. The law of the State of Delaware shall govern
all issues and questions concerning the relative rights and obligations of each
Issuer and the holders of the Securities issued by such Issuer hereunder. All
other issues and questions concerning the construction, validity, enforcement
and interpretation of this Agreement and the exhibits and schedules hereto
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<PAGE>
shall be governed by, and construed in accordance with, the laws of the State of
Illinois, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Illinois or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Illinois.
13H. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent by confirmed telecopy if received during normal business
hours on a business day and otherwise on the first business day thereafter, one
business day after being sent to the recipient by reputable overnight courier
service (charges prepaid for overnight delivery) or five days after being mailed
to the recipient by certified or registered mail, return receipt requested and
postage prepaid. Such notices, demands and other communications shall be sent
to each party at the address indicated for such party below or on Schedule of
Notice Addresses or to such other address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party.
If to Holdings, PIC or Manager:
c/o Willis Stein & Partners, L.P.
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Attention: Avy H. Stein
Daniel H. Blumenthal
and to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: John A. Weissenbach, Esq.
13I. Understanding Among the Purchasers. The determination of each
Purchaser to purchase Securities pursuant to this Agreement has been made by
such Purchaser independent of any other Purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser. In addition, it
is acknowledged by each of the other Purchasers that neither Willis Stein nor
any of its affiliates has acted as an agent of such Purchaser in connection with
making its investment hereunder and that neither Willis Stein nor any of its
affiliates shall be acting as an agent of such Purchaser in connection with
monitoring its investment hereunder.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
BRIGHTVIEW COMMUNICATIONS GROUP, INC., in its
capacity as an Issuer of Securities and as a
Purchaser
By: _________________________________
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN INVESTMENT CORP., in its capacity as an
Issuer of Securities and as a Purchaser
By: ________________________________
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN HOLDINGS, L.L.C.
By: BrightView Communications Group, Inc.
Its: Managing Member
By: _________________________________
Name: Daniel H. Blumenthal
Title: Vice President
WILLIS STEIN & PARTNERS, L.P.
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: ________________________________
Its: Managing Director
PETERSEN PUBLISHING COMPANY
By: ___________________________________
Name: Robert E. Petersen
Title: Chairman of the Board
<PAGE>
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its: General Partner
By: ___________________________________
Name: Brian Richmond
Title: General Partner
BANK AMERICA INVESTMENT CORPORATION
By: ____________________________________
Name:
Title:
CIVC PARTNERS II
By: ___________________________________
Name:
Title: A General Partner
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: ___________________________________
Name:
Title:
ALLSTATE INSURANCE COMPANY
By: ___________________________________
Name:
Title:
FUI, INC.
By: ___________________________________
Name:
Title:
<PAGE>
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
By: ___________________________________
Name:
Title:
NASSAU CAPITAL PARTNERS II, L.P.
By: Nassua Capital, L.L.C.
Its: General Partner
By: ___________________________________
Name:
Title:
NAS PARTNERS I, L.L.C.
By: ___________________________________
Name:
Title:
________________________________________
James D. Dunning, Jr.
________________________________________
Laurence H. Bloch
________________________________________
Stuart Karu
________________________________________
Thomas J. Strauss
________________________________________
Irwin Bard
<PAGE>
________________________________________
Bernard Shavitz
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_______________________________________
D. Claeys Bahrenburg
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EXHIBIT A
---------
<PAGE>
EXHIBIT B
---------
<PAGE>
SCHEDULE OF NOTICE ADDRESSES
----------------------------
PAGE 1 OF 2
<TABLE>
<CAPTION>
SECURITYHOLDER NOTICE ADDRESS
<S> <C>
Willis Stein & Partners, L.P. 227 W. Monroe St., Suite 4300
Chicago, IL 60606
Attn: Avy H. Stein and Daniel H. Blumenthal
Petersen Publishing Company 6420 Wilshire Blvd.
Los Angeles, CA 90048
Attn: Robert E. Petersen
Chase Equity Associates, L.P. 380 Madison Ave., 12th Floor
New York, NY 10017-2951
Attn: Brian J. Richmond
Bank America Investment Corporation c/o Continental Illinois Venture
231 S. LaSalle St.
Chicago, IL 60697
Attn: Marcus D. Wedner
CIVC Partners II Continental Illinois Venture
231 S. LaSalle St.
Chicago, IL 60697
Attn: Marcus D. Wedner
Allstate Insurance Company 3075 Sanders Rd., Suite G5D
Northbrook, IL 60062-7127
Attn: John M. Goense
FUI, Inc. First Union Capital Partners
Investment Bank Division
One First Union Center
301 S. College St., 5th Flr.
Charlotte, NC 28288-0604
Attn: Scott B. Perper
CIBC WG Agosy Merchant Fund 2, L.L.C. 425 Lexington Ave., 3rd Floor
Securities Corp. New York, NY 10017
Attn: Jay R. Bloom
Norwest Equity Capital, L.L.C. 2800 Piper Jaffray Tower
222 S. Ninth St.
Minneapolis, MN 55402-3388
Attn: John E. Lindahl
Nassau Capital Partners II, L.P. 22 Chambers St.
Princeton, NJ 08542
Attn: John G. Quigley
NAS Partners I, L.L.C. 22 Chambers St.
Princeton, NJ 08542
Attn: John G. Quigley
James D. Dunning, Jr. The Dunning Group
333 Ludlow St., 5th Floor
Stamford, CT 06902
Laurence H. Bloch TransWestern Publishing
8344 Clairemont Mesa
San Diego, CA 92111
</TABLE>
<PAGE>
SCHEDULE OF NOTICE ADDRESSES
----------------------------
PAGE 2 OF 2 CONT'D.
<TABLE>
<CAPTION>
SECURITYHOLDER NOTICE ADDRESS
<S> <C>
Thomas J. Strauss 241 Central Park West
Apt. 16F
New York, NY 10024
Stuart Karu 200 Ocean Ave.
Kennebunkport, ME 04046
Bernard Shavitz 7777 Afton Court
Boca Raton, FL 33433
Irwin Bard 1 Huckleberry Lane
Oyster Bay, NY 11771
</TABLE>
<PAGE>
EXHIBIT 10.7
SECURITYHOLDERS AGREEMENT
DATED AS OF SEPTEMBER 30, 1996
AMONG
PETERSEN INVESTMENT CORP.,
PETERSEN HOLDINGS, L.L.C.,
BRIGHTVIEW COMMUNICATIONS GROUP, INC.,
AND
THE OTHER PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE SECURITYHOLDERS............. 2
1.1 Representations and Warranties of the Securityholders........ 2
ARTICLE II
VOTING AGREEMENTS................................................. 3
2.1 Election of Directors........................................ 3
2.2 Other Voting Matters......................................... 3
2.3 Irrevocable Proxy............................................ 4
2.4 Attendance and Inspection.................................... 4
ARTICLE III
TRANSFERS OF SECURITIES........................................... 4
3.1 Restrictions on Transfer of Executive Securities............. 4
3.2 Restrictions on Transfers of Securities...................... 5
(a) Transfer Restrictions................................... 5
(b) Right of First Refusal.................................. 5
(c) Tag-Along Rights........................................ 7
(d) Permitted Transfers..................................... 9
Termination of Restrictions.................................. 10
3.3 Transfers in Violation of Agreement.......................... 11
ARTICLE IV
EXIT TRANSACTIONS................................................. 11
4.1 Sale of the Company.......................................... 11
4.2 Initial Public Offering...................................... 14
ARTICLE V
REGISTRATION RIGHTS............................................... 15
5.1 Demand Registrations......................................... 15
(a) Requests for Registration............................... 15
(b) Long-Form Registrations................................. 15
(d) Priority on Demand Registrations........................ 16
(e) Restrictions on Demand Registrations.................... 16
(f) Selection of Underwriters............................... 17
5.2 Piggyback Registrations...................................... 17
(a) Right to Piggyback...................................... 17
(b) Piggyback Expenses...................................... 17
(c) Priority on Primary Registrations....................... 17
(d) Priority on Secondary Registrations..................... 17
(e) Selection of Underwriters............................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(f) Other Registrations..................................... 18
5.3 Holdback Agreements.......................................... 18
5.4 Registration Procedures...................................... 18
5.5 Registration Expenses........................................ 21
5.6 Indemnification.............................................. 21
5.7 Participation in Underwritten Registrations.................. 22
5.8 Other Registration Rights.................................... 23
ARTICLE VI
PREEMPTIVE RIGHTS.................................................. 23
6.1 Issuance of New Securities to Willis Stein................... 23
ARTICLE VII
MISCELLANEOUS...................................................... 24
7.1 Certain Defined Terms........................................ 24
7.2 Legends...................................................... 31
(a) Securityholders Agreement.............................. 31
(b) Removal of Legends..................................... 31
7.3 Expenses of Directors, etc................................... 31
7.4 Amendment and Waiver......................................... 31
7.5 Severability................................................. 32
7.6 Entire Agreement............................................. 32
7.7 Successors and Assigns....................................... 32
7.8 Counterparts................................................. 32
7.9 Remedies..................................................... 32
7.10 Notices...................................................... 33
7.11 Governing Law................................................ 33
7.12 Descriptive Headings......................................... 34
7.13 Further Assurance............................................ 34
</TABLE>
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SECURITYHOLDERS AGREEMENT
-------------------------
This Securityholders Agreement (this "Agreement") is entered into
as of September 30, 1996 by and among BrightView Communications Group,
Inc., a Delaware corporation (the "Manager"), in its capacities as a
Securityholder (as defined herein) and as an issuer of Securities (as
defined herein), Petersen Holdings, L.L.C., a Delaware limited liability
company (the "LLC"), Petersen Investment Corp., a Delaware corporation
("PIC"), in its capacities as a Securityholder and as an issuer of
Securities (as defined herein), Petersen Publishing Company, a California
corporation ("PPC"), Willis Stein & Partners, L.P., a Delaware limited
partnership ("Willis Stein") and each other Person identified on Schedule
A. Willis Stein, PIC, PPC, the other Persons identified as
"Securityholders" and the Executives, and each other Person who becomes a
holder of Securities in accordance with this Agreement (in each case in
such Person's capacity as a holder of Securities) are sometimes referred to
herein collectively as the "Securityholders" and individually as a
"Securityholder." Certain capitalized terms used herein are defined in
Section 7.1.
RECITALS
--------
A. PIC, the Manager, PPC and certain of the other
Securityholders and the Executives are, or shall become, the members of the
LLC pursuant to a Limited Liability Company Agreement (the "LLC
Agreement"), dated as of September 30, 1996. The Manager is the Managing
Member (as defined in the LLC Agreement) of the LLC. Manager and the LLC
are the only members of Petersen Publishing Company, L.L.C., a Delaware
limited liability company ("Operating LLC").
B. Contemporaneously with the execution of this Agreement, LLC,
the Manager, PIC and certain of the other Securityholders will enter into a
Securities Purchase Agreement, dated as of September 30, 1996 (the
"Securities Purchase Agreement"), pursuant to which certain of such
Securityholders will purchase certain Securities of LLC, the Manager and
PIC.
C. Certain of the Securityholders hold Preferred Units, Class A
Common Units, Class B Common Units and/or Class C Common Units of the LLC
as set forth on Schedule A hereto.
D. Certain of the Securityholders hold shares of Class A Common
Stock $.01 par value per share (the "PIC Common Stock"), and Class A
Preferred Stock, $.01 par value per share ("PIC Preferred Stock," and
collectively with the PIC Common Stock, the "PIC Stock,") of PIC as set
forth on Schedule A hereto.
E. Each of the Securityholders (other than PIC) holds shares of
Class A Common Stock, $.01 per value per share (the "Class A Common
Stock"), or Class B Common Stock, $.01 par value per share (the "Class B
Common Stock", and collectively
<PAGE>
with the Class A Common Stock, the "Manager Common Stock"), of the Manager
as set forth on Schedule A hereto.
F. The parties hereto desire to provide in advance for, among
other things, (i) the establishment of the composition of the Manager's
board of directors (the "Board"), (ii) continuity in the management,
ownership and control of the Manager, (iii) certain restrictions on
transfers of Securities and (iv) certain rights with respect to the
registration of Securities issued by the Manager.
The parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE SECURITYHOLDERS
1.1 REPRESENTATIONS AND WARRANTIES OF THE SECURITYHOLDERS. Each
Securityholder (as to himself or itself only) represents and warrants to
PIC, the Manager, the LLC and the other Securityholders that, as of the
time such Securityholder becomes a party to this Agreement:
(a) this Agreement (or the separate joinder agreement executed
by such Securityholder) has been duly and validly executed and delivered by
such Securityholder, and constitutes a legal and binding obligation of such
Securityholder, enforceable against such Securityholder in accordance with
its terms;
(b) the execution, delivery and performance by such
Securityholder of this Agreement and the consummation by such
Securityholder of the transactions contemplated hereby will not, with or
without the giving of notice or lapse of time, or both (i) violate any
provision of law, statute, rule or regulation to which such Securityholder
is subject, (ii) violate any order, judgment or decree applicable to such
Securityholder, or (iii) conflict with, or result in a breach or default
under, any term or condition of any agreement or other instrument to which
such Securityholder is a party or by which such Securityholder is bound;
(c) such Securityholder is the beneficial owner of the
Securities set forth opposite such Person's name on Schedule A hereto, free
and clear of all liens, charges and other encumbrances; and
(d) such Securityholder has not granted and is not party to any
proxy, voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
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ARTICLE II
VOTING AGREEMENTS
2.1 ELECTION OF DIRECTORS. (a) Each Person that is a party to
this Agreement hereby agrees that such Person will vote, or cause to be
voted, all voting Securities of the Manager over which such Person has the
power to vote or direct the voting, and will take all other necessary or
desirable actions within such Person's control (whether in his or its
capacity as a stockholder, director, member of a board committee or officer
of the Manager or otherwise and including without limitation attendance at
meetings in person or by proxy for purposes of obtaining a quorum and
execution of consents in lieu of meetings; provided that nothing in this
Section 2.1 shall require a director, in his or her capacity as such, to
violate such director's fiduciary duties to holders of Manager's Capital
Stock), and the Manager will take all necessary and desirable actions
within its control (including without limitation calling special board and
stockholder meetings), so that:
(i) the authorized number of directors for the board of
directors of the Manager is established and maintained at the number of
directors as from time to time may be designated by the Majority Willis
Stein Holders, which number shall initially be 11;
(ii) only individuals (the "Willis Stein Directors")
designated by the Majority Willis Stein Holders shall be elected to the
Board;
(iii) the removal from the Board (with or without cause) of
any representative designated hereunder by the Majority Willis Stein
Holders shall be at the written request of the Majority Willis Stein
Holders, but only upon such written request and under no other
circumstances; and
(iv) in the event that any representative designated
hereunder by the Majority Willis Stein Holders ceases to serve as a member
of the Board during his term of office, the resulting vacancy on the Board
shall be filled by a representative designated by the Majority Willis Stein
Holders as provided hereunder.
(b) The provisions of this Section 2.1 shall terminate
automatically and be of no further force or effect upon a Qualified IPO.
2.2 OTHER VOTING MATTERS. Each party to this Agreement hereby
agrees that such party will vote, or cause to be voted, all voting
Securities of the Manager and its Subsidiaries over which such party has
the power to vote or direct the voting, either in person or by proxy,
whether at a stockholders meeting, or by written consent, in the manner in
which the Majority Willis Stein Holders directs in connection with the
approval of any amendment or amendments to the Manager's Certificate of
Incorporation, the merger, share exchange, combination or consolidation of
the Manager with any other Person or Persons, the sale, lease or exchange
of all or substantially all of the property and assets of the Manager
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and its Subsidiaries on a consolidated basis, and the reorganization,
recapitalization, liquidation, dissolution or winding-up of the Manager;
provided however that no such action shall (a) be inconsistent with the
terms of this Agreement, or (b) have a material adverse effect on any
Securityholder's rights or interests in respect of any Securities, if such
effect would be borne disproportionately by such Securityholder relative to
the effect on the rights or interests of other Securityholders in respect
of holdings of Securities of the same class.
2.3 IRREVOCABLE PROXY. In order to secure the obligations of
each Securityholder who now or hereafter holds any voting securities to
vote such Person's voting Securities in accordance with the provisions of
Section 2.1 and Article IV hereof, each Securityholder hereby appoints
Willis Stein as his or its true and lawful proxy and attorney-in-fact, with
full power of substitution, to vote all of his or its voting Securities for
the election and/or removal of directors and all such other matters as
expressly provided for in Section 2.1 and Article IV. Willis Stein may
exercise the irrevocable proxy granted to it hereunder at any time any such
Securityholder fails to comply with the provisions of this Agreement. The
proxies and powers granted by each such Securityholder pursuant to this
Section 2.3 are coupled with an interest and are given to secure the
performance of such Securityholder's obligations to the Majority Willis
Stein Holders under this Agreement. Such proxies and powers shall be
irrevocable until after the occurrence of a Qualified IPO and shall survive
the death, incompetency, disability, bankruptcy or dissolution of such
Securityholder and the subsequent holders of his or its Securities. No
Securityholder shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement.
2.4 ATTENDANCE AND INSPECTION. The Majority Non-Willis Stein
Holders shall be entitled to designate one person (by providing written
notice to the Company of the identity of the person so designated) who
shall be entitled to participate as an observer at all meetings of the
Board (the "Board Visitor"). The Majority Non-Willis Stein Holders shall
be entitled to replace the person designated as the Board Visitor (by
providing written notice to the Company of such replacement and of the
identity of the new designee). The Company shall provide the same notice
of meetings of the Board to the Board Visitor as the Company provides to
the members of the Board. The Company shall permit the Board Visitor, upon
reasonable notice and during normal business hours, to visit and inspect
any of the properties (including, without limitation, the books and
records) of the Company and its Subsidiaries.
ARTICLE III
TRANSFERS OF SECURITIES
3.1 RESTRICTIONS ON TRANSFER OF EXECUTIVE SECURITIES.
Notwithstanding anything to the contrary contained in this Agreement, no
holder of Executive Securities may Transfer any Executive Securities,
except with the prior written consent of the Manager, which consent the
Manager may withhold at its sole discretion.
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3.2 RESTRICTIONS ON TRANSFERS OF SECURITIES.
(a) Transfer Restrictions. Notwithstanding any other provision
of this Agreement, except in a Transfer pursuant to Article IV below, no
holder of Securities may Transfer any Securities except in accordance with
this Article III or pursuant to a Public Sale. Notwithstanding any other
provision of this Agreement, no holder of Common Units, PIC Common Stock or
Manager Common Stock may Transfer any of such Securities, unless such
holder Transfers contemporaneously, in the same manner of Transfer and to
the same transferee (i) in the case of a Transfer of Common Units or PIC
Common Stock, the same relative portion of Manager Common Stock or (ii) in
the case of a Transfer of Manager Common Stock, the same relative portion
of Common Units or PIC Common Stock, in each case based upon the
transferor's Ownership Percentage of each such type or class of Securities
held by such holder immediately prior to such Transfer. Also
notwithstanding any other provision of this Agreement, no holder of Common
Units, Preferred Units, PIC Common Stock or PIC Preferred Stock which are
Investor Securities may Transfer any of such Securities, unless such holder
Transfers contemporaneously (i) in the case of a Transfer of Common Units,
the same relative portion of Preferred Units, (ii) in the case of a
Transfer of Preferred Units, the same relative portion of Common Units,
(iii) in the case of a Transfer of PIC Common Stock, the same relative
portion of PIC Preferred Stock, or (iv) in the case of a Transfer of PIC
Preferred Stock, the same relative portion of PIC Common Stock, in each
case based upon the transferor's Investor Ownership Percentage of each such
type or class of Securities held by such holder immediately prior to such
Transfer.
(b) Right of First Refusal.
(i) Each holder of Investor Securities who proposes to
Transfer Securities other than pursuant to a Public Sale (for purposes of
this Section 3.2(b), a "Selling Holder") will give written notice of such
proposed Transfer (the "Transfer Notice") to the Manager and the holders of
Investor Securities (the "Other Holders") at least forty-five (45) days
prior to making such proposed Transfer. The Transfer Notice will disclose
in reasonable detail the identity of the prospective transferee, the
Securities to be transferred (for purposes of this Section 3.2(b), the
"Offered Securities") and the price, terms and conditions of the proposed
Transfer. The Other Holders and the Manager shall be entitled to ask
questions and receive such information as they shall reasonably request
concerning such proposed Transfer and, if requested by the Manager, the
Selling Holder shall be required to supplement the Transfer Notice to
reflect such additional information. The Selling Holder will not consummate
any such Transfer until forty-five (45) days after the Transfer Notice has
been given to the Other Holders and the Manager unless each of the Other
Holders and the Manager elect not to purchase Offered Securities pursuant
to this Section 3.2(b) or each of the Other Holders and the Manager waive
their rights under this Section 3.2(b) prior to the expiration of such
forty-five (45) day period. (The date of the first to occur of such events
is referred to as the "Authorization Date.")
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<PAGE>
(ii) First, the Manager or LLC (or any assignee of any of
the foregoing other than Willis Stein or PIC or any Persons controlled
by either Willis Stein or PIC), as designated by the Manager (each
such Person, a "Purchaser", and all such Persons collectively, the
"Purchasers"), may elect to purchase all or any portion of the Offered
Securities upon the same price, terms and conditions as those set
forth in the Transfer Notice by delivering written notice (the
"Repurchase Notice") to the Selling Holder and the Other Holders
within thirty (30) days after the Transfer Notice is given. The
Repurchase Notice will set forth the number of Offered Securities to
be acquired by each such Purchaser.
(iii) Subject to subparagraph (v) below, if the Purchasers
have elected to purchase less than all of the Offered Securities, each
of the Other Holders shall be entitled to purchase upon the same terms
and conditions as those set forth in the Transfer Notice all or any
portion of the Offered Securities that the Purchasers have not elected
to purchase (the "Available Securities"); provided that if Other
Holders elect to purchase in the aggregate an amount of such
Securities which exceeds the amount of Available Securities, such
Available Securities will be allocated among each Other Holder who so
elects to purchase Securities, as determined by the Willis Stein
Majority Holders based upon the portion of the aggregate Ownership
Percentage of all Other Holders electing to exercise purchase rights
hereunder represented by such Other Holder's Ownership Percentage.
Each of the Other Holders may elect to purchase Available Securities
by giving written notice (an "Election Notice") to the Manager within
ten (10) days after the earlier to occur of the latest date on which a
Repurchase Notice may be delivered in accordance with subparagraph
(ii) above or delivery of a Repurchase Notice.
(iv) If the Manager delivers a Repurchase Notice or
receives one or more Election Notices, then on or prior to the
Authorization Date, the Manager shall notify the Selling Holder (the
"Supplemental Repurchase Notice") as to the number of shares being
purchased from such holder by the Other Holders delivering the
Election Notice, if any (the "Electing Holders"), and the time and
place for the closing of all purchases described in the Repurchase
Notice and the Election Notice, if any, which shall not be later than
thirty (30) days after the Authorization Date. Upon receipt of a
Supplemental Repurchase Notice from the Manager, the Selling Holder
will be obligated to sell, and the Purchasers and the Other Holders
delivering an Election Notice shall be obligated to purchase, the
Offered Securities on the terms described in the Transfer Notice and
to the Persons described in the Supplemental Repurchase Notice, and
shall not Transfer any Offered Securities to any other Person, or take
any action inconsistent therewith. At the time the Manager delivers
the Supplemental Repurchase Notice to the Selling Holder, the Manager
shall also deliver written notice to each Electing Holder setting
forth the number of shares each Electing Holder is entitled to
purchase, the aggregate purchase price and the time and place of the
closing of the transaction.
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(v) Notwithstanding anything in this Section 3.2(b) to the
contrary, if the Purchasers and the Other Holders do not, in the
aggregate, elect to purchase all of the Offered Securities specified
in the Transfer Notice, the Selling Holder may (subject to compliance
with Sections 3.1 and 3.2(c) hereof) Transfer all, but not less than
all, of the Offered Securities specified in the Transfer Notice to the
transferees specified in the Transfer Notice at a price and on terms
no more favorable to the transferee(s) thereof than those specified in
the Transfer Notice during the 90-day period immediately following the
Authorization Date. Any such Offered Securities which are not
Transferred in compliance with the preceding sentence within such 90-
day period will again be subject to the provisions of this Section
3.2(b) in connection with any subsequent Transfer or proposed
Transfer.
(c) Tag-Along Rights. Prior to making any Transfer of Securities
(other than a Public Sale or a Transfer to one or more of the Issuers (or
their assignees) or any Transfer pursuant to Section 3.2(b)), (i) prior to
the fourth anniversary of the date of this Agreement, each holder of
Securities proposing to make such a Transfer and (ii) after the fourth
anniversary of the date of this Agreement, the Controlling Holder (any such
Person proposing to make a Transfer who at such time is subject to this
Section 3.2(c), a "Selling Holder") shall give at least forty-five (45)
days' prior written notice to other holders of Securities (for purposes of
this Section 3.2(c) each, an "Other Holder") and the Manager, which notice
(for purposes of this Section 3.2(c), the "Sale Notice") shall describe in
reasonable detail the type and amount of Securities to be sold (for
purposes of this Section 3.2(c), the "Offered Securities"), the price,
terms and conditions of such proposed Transfer, and the identity of the
prospective transferee and which notice may be the same notice as the
Transfer Notice. For purposes hereof, the "Controlling Holder" means Willis
Stein and other Persons under its control, so long as Willis Stein is the
Majority Willis Stein Holder, and otherwise means each holder who, when
included with its Affiliates, is the Majority Willis Stein Holder. Any of
the Other Holders may, within fifteen (15) days of the delivery of the Sale
Notice, give written notice (each, a "Tag-Along Notice") to the Selling
Holder that such Other Holder wishes to participate in such proposed
Transfer upon the terms and conditions set forth in the Sale Notice, which
Tag-Along Notice shall specify the Securities such Other Holder desires to
include in such proposed Transfer; provided, however, that (1) each Other
Holder shall be required, as a condition to being permitted to sell
Securities pursuant to this Section 3.2(c) in connection with a Transfer of
Offered Securities, to sell Securities of the same type and class and in
the same relative proportions as the Securities (except that, subject to
the restrictions on Transfer in Section 3.1, an Executive will be permitted
to include Manager Common Stock and Class A Common Units without including
Preferred Units in any such sale if such Executive and its Permitted
Transferees hold no Preferred Units or have agreed to include in such sale
all Preferred Units held by such Persons prior to inclusion therein of
Manager Common Stock and Class A Common Units, and, if any Executive
Securities are included in any such sale, the purchase price shall be
allocated between each class of Executive Securities and each other class
of securities included therein so that Preferred Securities are valued at
the Liquidation Value thereof or at such other value as shall be determined
in good faith by the Manager) which comprise the Offered Securities; and
(2) to exercise its tag-along rights hereunder, each Other
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Holder must agree to provide for the benefit of the transferee the same
representations, warranties, covenants, indemnities and agreements as the
Selling Holder agrees to provide in connection with the Transfer of the
Offered Securities (except that in the case of representations and
warranties, or covenants pertaining to the Selling Holder of the Offered
Securities, each of the Other Holders shall, to the extent applicable, make
comparable representations and warranties and covenants with respect to
such Other Holder and the Securities it Transfers in such transaction) and
must agree to bear his or its ratable share (which may be joint and several
but shall be based on the value of Securities that are Transferred) of all
liabilities to the transferees arising out of representations, warranties
and covenants (other than those representations, warranties and covenants
that pertain to a given Securityholder or its Securities, who shall bear
all of the liability related thereto), indemnities or other agreements made
in connection with the Transfer. Each Securityholder will bear (x) its or
his own costs of any sale of Securities pursuant to this Section 3.2(c) and
(y) its or his pro-rata share (based upon the relative amount of Securities
sold) of the reasonable costs of any sale of Securities pursuant to this
Section 3.2(c) (excluding all amounts paid to any Securityholder or his or
its Affiliates as a transaction fee, broker's fee, finder's fee, advisory
fee, success fee, or other similar fee or charge related to the
consummation of such sale) to the extent such costs are incurred for the
benefit of all Securityholders and are not otherwise paid by the acquiring
party.
If none of the Other Holders gives the Selling Holder a timely
Tag-Along Notice with respect to the Transfer proposed in the Sale Notice,
then, subject to satisfying the provisions contained in Section 3.2(b), the
Selling Holder may Transfer such Offered Securities on the terms and
conditions set forth in, and to the transferee identified in, the Sale
Notice at any time within ninety (90) days after the later to occur of (i)
expiration of the fifteen-day period for giving Tag-Along Notices with
respect to such Transfer and (ii) the Authorization Date. Any such Offered
Securities not Transferred by the Selling Holder during such ninety-day
period will again be subject to the provisions of this Section 3.2(c) upon
subsequent Transfer. If one or more Other Holders gives the Selling Holder
a timely Tag-Along Notice (each, an "Electing Holder"), then the Selling
Holder shall use all reasonable efforts to obtain the agreement of the
prospective transferee to the participation of the Electing Holders in any
contemplated Transfer, on the same terms and conditions as are applicable
to the Offered Securities, and no Selling Holder shall transfer any of the
Offered Securities to the prospective transferee if such prospective
transferee declines to allow the participation of the Electing Holders. If
the prospective transferee is unwilling or unable to acquire all of the
Offered Securities and all of the Securities specified in each timely Tag-
Along Notice upon such terms, then the Selling Holder may elect either to
cancel such proposed Transfer or to allocate the maximum number or amount
of each type or class of Offered Securities that the prospective transferee
is willing to purchase (the "Allocable Securities") among the Selling
Holder and the Electing Holders as follows (it being understood that the
prospective transferees shall be required to purchase Offered Securities of
the same type or class on the same terms and conditions and to consummate
such Transfer on those terms and conditions):
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<PAGE>
(i) each participating Securityholder (including the
Selling Holder) shall be entitled to sell a number of shares or amount
of each type or class of Offered Securities (not to exceed, for any
Electing Holder, the number of shares or amount of such type or class
of Offered Securities identified in such Electing Holder's Tag-Along
Notice) equal to the product of (A) the number or amount of Allocable
Securities of such type or class of Securities and (B) a fraction, the
numerator of which is such Securityholder's Ownership Percentage of
such type or class of Offered Securities and the denominator of which
is the aggregate Ownership Percentage for all participating
Securityholders of such type or class of Offered Securities; and
(ii) if after allocating the Allocable Securities of any
type or class of Offered Securities to such Securityholders in
accordance with clause (i) above, there are any Allocable Securities
of such type or class that remain unallocated, then they shall be
allocated (in one or more successive allocations on the basis of the
allocation method specified in clause (i) above) among the Selling
Holder and each such Electing Holder that has elected in its Tag-Along
Notice to sell a greater number of shares or amount of such type or
class of Offered Securities than previously has been allocated to it
pursuant to clause (i) and this clause (ii) (all of whom (but no
others) shall, for purposes of clause (i) above, be deemed to be the
participating Securityholders) until all such Allocable Securities
have been allocated in accordance with this clause (ii).
No Allocable Securities in excess of the number or amount of Offered
Securities may be transferred pursuant to this Section 3.2(c) unless the
provisions of Section 3.2(b) are complied with for such excess Securities.
(d) Permitted Transfers. The rights and restrictions contained
in Sections 3.1, 3.2(a). 3.2(b) and 3.2(c) shall not apply with respect to
any of the following Transfers of Securities:
(i) any Transfer of Securities in accordance with Section
4.1;
(ii) any Transfer of Securities incidental to the
exercise, conversion or exchange of other Securities to the holder of
such other Securities in accordance with the terms of such other
Securities, any combination of shares (including any reverse stock
split) or any recapitalization, reorganization or reclassification of,
or any merger or consolidation involving any of the Issuers, including
without limitation the transactions described in Sections 4.1 and 4.2;
and
(iii) any Transfer to a Permitted Transferee so long as
prior to such Transfer such Permitted Transferee has executed and
delivered to the Manager an agreement in form and substance
satisfactory to the Manager to be bound by the terms herein in the
same manner and to the same extent as the transferor thereof, and
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assuming the obligations of the transferor hereunder with respect to
the Securities so transferred.
Notwithstanding the foregoing, no party hereto shall avoid the provisions
of this Agreement by making one or more Transfers to one or more Permitted
Transferees and then disposing of all or a portion of such party's interest
in any such Permitted Transferee.
(e) Notwithstanding any other provision hereof, for all purposes
of Article III and Article IV, (i) Class A Common Stock and Class B Common
Stock shall be deemed to be Securities of the same class and type; (ii) PIC
Preferred Stock and Preferred Units shall be deemed to be Securities of the
same class and type, and (iii) PIC Common Stock and Common Units shall be
deemed to be Securities of the same class and type, so that, e.g., an
Electing Holder pursuant to Section 3.2(c) holding PIC Preferred Stock will
be permitted to Transfer shares of such stock in a Transfer of Preferred
Units proposed by a Selling Holder, on the terms and subject to the same
conditions as the terms and conditions on which such Electing Holder would
be permitted to include Preferred Units in such Transfer. Without limiting
the foregoing, if a Securityholder holds PIC Preferred Stock, such
Securityholder's "Ownership Percentage" of Preferred Units shall be
calculated by attributing to such Securityholder the portion of the
Preferred Units held by PIC equal to the percentage of outstanding shares
of PIC Preferred Stock held by such Securityholder, and if such
Securityholder holds PIC Common Stock, such Securityholder's "Ownership
Percentage" of Common Units shall be calculated by attributing to such
Securityholder the portion of the Common Units held by PIC equal to the
percentage of outstanding shares of PIC Common Stock held by such
Securityholder. Similarly, if a Securityholder holds Preferred Units, such
Securityholder's "Ownership Percentage" of PIC Preferred Stock shall be
calculated by attributing to such Securityholder ownership of a number of
shares of PIC Preferred Stock equal to the product of (x) the number of
shares of PIC Preferred Stock which are actually outstanding, multiplied by
(y) a fraction, the numerator of which is the amount of Preferred Units
held by such Securityholder, and the denominator of which is the amount of
Preferred Units held by PIC; and if a Securityholder holds Common Units,
such Securityholder's "Ownership Percentage" of PIC Common Stock shall be
calculated by attributing to such Securityholder ownership of a number of
shares of PIC Common Stock equal to the product of (x) the number of shares
of PIC Common Stock which are actually outstanding, multiplied by (y) a
fraction, the numerator of which is the amount of Common Units held by such
Securityholder, and the denominator of which is the amount of Common Units
held by PIC. In no event will any holder of PIC Common Stock or PIC
Preferred Stock be permitted to Transfer any of such stock pursuant to
Section 3.2(c) if PIC is an "Electing Holder" with respect to such
transaction and Transfers Common Units or Preferred Units, respectively,
therein.
(f) Termination of Restrictions. The restrictions set forth in
this Section 3.2 shall continue with respect to each Security until the
earlier of (i) the date on which such Security has been transferred in a
Public Sale or pursuant to Article IV hereof, or (ii) the consummation of a
Qualified IPO. Notwithstanding any other provision of this Agreement,
except as set forth in the preceding sentence, the restrictions contained
in Article III shall
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continue to be applicable to all Securities after any Transfer and no
Transfer shall be consummated, or be deemed consummated, for any purpose
unless each transferee of such Securities shall have agreed in a writing,
in form and substance satisfactory to the Manager delivered to the Manager
prior to such Transfer, to be bound by the provisions of this Agreement
affecting the securities so Transferred. Notwithstanding any of the
provisions of this Agreement, no holder of Securities may Transfer any
Securities to any Person who, in the good faith judgement of the Willis
Stein Majority Holders, is directly or indirectly, involved or has any
equity investment, in any business which is competitive with the business
of Operating LLC, without the prior written consent of the Willis Stein
Majority Holders.
3.3 TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or
attempted Transfer of any Securities in violation of any provision of this
Agreement shall be void; no Issuer of such Securities shall record such
Transfer on its books or treat any purported transferee of such Securities
as the owner of such Securities for any purpose; and the transferor of such
Securities shall not be relieved of any of its obligations as a
Securityholder under this Agreement.
ARTICLE IV
EXIT TRANSACTIONS
4.1 SALE OF THE COMPANY.
(a) If the Manager elects to consummate, or to cause the LLC to
consummate, a transaction constituting a Sale of the Company, the Manager
shall notify the other Securityholders in writing of that election, each of
the other Securityholders will consent to and raise no objections to the
proposed transaction, and each of the Securityholders and the Issuers will
take all other actions reasonably necessary or desirable to cause the
consummation of such Sale of the Company on the terms proposed by the
Manager; provided that: (i) if the proposed Sale of the Company is
structured as or involves a sale or redemption (i.e., a purchase by the LLC
of Common Units and PIC Common Stock) of Securities, the Securityholders
will agree to sell their pro-rata share of the Securities being sold in
such Sale of the Company on the terms and conditions approved by the
Manager (it being the understanding and intent of the Securityholders that
any such Sale of the Company would be effected as a sale of PIC Stock,
Manager Common Stock and Units (excluding the Units held by PIC or the
Manager), and that the holders of PIC Common Stock and the holders of Class
A Common Units other than PIC or the Manager would be paid consideration of
the same type and in the same amount, treating each share of PIC Common
Stock as equivalent to a Class A Common Unit, and that the holders of PIC
Preferred Stock and the holders of Preferred Units other than PIC would
receive consideration of the same type and in the same amount, in
proportion to the Preference Amount of such Preferred Securities), and each
of the Securityholders will execute any merger or sale agreement approved
by the Manager in connection with such Sale of the Company, (ii) each
Securityholder shall be severally obligated to join (on a basis reflecting
the manner in which
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loss and expenses would be allocated or borne pursuant to the Holdings LLC
Agreement and the Company's certificate of incorporation upon liquidation of the
LLC and Manager) in any indemnification or other obligations that the Manager
agrees to in connection with such Sale of the Company (other than any such
obligations that relate specifically to a particular Securityholder such as
indemnification with respect to representations and warranties given by a
Securityholder regarding such Securityholder's title to and ownership of a
Security, as to which obligations each such Securityholder shall be solely
liable); provided that no Securityholder shall be obligated in connection with a
Sale of the Company to agree to indemnify or hold harmless the prospective
transferee(s) with respect to an amount in excess of the net cash proceeds to be
paid to such Securityholder in connection with such Sale of the Company and
(iii) the holders of Common Units and the holders of Preferred Units (other than
holders of the Common Units and Preferred Units originally issued to PPC or
issued in respect of such units, and other than PIC and Manager) (collectively
the "LLC Sharing Parties") shall make a payment (or cause a payment to be made)
to PIC five (5) days prior to the due date of the federal, state, local or
foreign corporate income tax return of PIC (or earlier due date for any
estimated tax return if applicable) in an aggregate amount equal to the PIC Tax
Make-Whole Amount. (At the request of PIC, such amounts may be withheld from the
proceeds of any Sale of the Company otherwise payable to any of the LLC Sharing
Parties). The PIC Tax Make-Whole Amount shall be equal to the product of (i) the
sum of (A) the PIC Tax Amount, plus (B) the PIC Shareholder Tax Detriment
Amount, plus (C) the Tax Gross-Up Amount, multiplied by (ii) a fraction, the
numerator of which is the aggregate gains to be realized (with respect to or in
exchange for their equity interests in the LLC and the Manager) in connection
with the Sale of the Company by the LLC Sharing Parties, and the denominator of
which is the aggregate gains to be realized (with respect to or in exchange for
their equity interests in the LLC and the Manager) in connection with the Sale
of the Company by the LLC Sharing Parties, PIC and the Manager. Each LLC Sharing
Party shall be severally (and not jointly) obligated to pay a portion of the PIC
Tax Make-Whole Amount equal to a fraction, the numerator of which is the
aggregate gains to be realized (with respect to or in exchange for its equity
interests in the LLC and the Manager) in connection with the Sale of the Company
by such LLC Sharing Party, and the denominator of which is the aggregate gains
to be realized (with respect to or in exchange for their equity interests in the
LLC and the Manager) in connection with the Sale of the Company by all LLC
Sharing Parties. For purposes of this Agreement, the PIC Tax Amount shall mean
the amount of any federal, state, local and foreign income tax liability of PIC
attributable to the taxable income recognized by PIC as a result of the Sale of
the Company, including any receipt of assets from the LLC or distribution of
assets by PIC to its shareholders or creditors in connection with the Sale of
the Company. For purposes of this Agreement, the PIC Shareholder Tax Detriment
Amount shall mean an amount equal to the sum of (i) the excess of (A) the income
tax liability incurred by the PIC shareholders as a result of the Sale of the
Company, including any receipt of assets from PIC in connection with the Sale of
the Company, over (B) the income tax liability that would have been incurred by
the PIC shareholders as a result of the Sale of the Company if such shareholders
had, from the inception of the LLC, owned the equity interests in the LLC owned
by PIC (taking into account, without limitation, any increase in tax basis the
PIC shareholders would have received on account of the undistributed income of
the LLC), plus (ii) an amount sufficient to cause the sum of the
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amounts described in clauses (i) and (ii) of this sentence, net of any income
taxes payable by the PIC shareholders as a result of receiving with respect to
their investment in PIC a payment to equal such amounts, to equal the amount
described in clause (i) of this sentence. For purposes of this Agreement, the
Tax Gross-Up Amount shall mean an amount sufficient to cause the sum of the PIC
Tax Amount, the PIC Shareholder Tax Detriment Amount and the Tax Gross-Up
Amount, net of any income taxes payable by PIC as a result of receiving such
payments, to equal the sum of the PIC Tax Amount and the PIC Shareholder Tax
Detriment Amount. All determinations necessary in applying this section shall be
made in good faith by the LLC's accountants and shall assume that all of the PIC
shareholders are subject to tax at the maximum federal, state and local income
tax rate applicable to an individual resident in Chicago, Illinois on income of
the relevant character.
(b) During each of the taxable years in which PIC owns an equity
interest in the LLC, if the LLC makes a distribution to the holders of the LLC
interests and the distribution is (i) not in connection with a Sale of the
Company and (ii) is in excess of the amount required to be distributed pursuant
to Section 5.5 of the LLC Agreement (the "Excess Distribution"), then the LLC
Sharing Parties shall make a payment (or cause a payment to be made) to PIC five
(5) days prior to the due date of the federal, state, local or foreign corporate
income tax return of PIC (or earlier due date for any estimated tax return if
applicable) in an amount calculated in the same manner as the PIC Tax Make-Whole
Amount, as appropriately adjusted to substitute the Excess Distribution
(including any events by which the LLC generated funds enabling the LLC to make
the Excess Distribution) for a Sale of the Company. Each LLC Sharing Party shall
be obligated to pay a portion of the amount described in the preceding sentence
equal to a fraction, the numerator of which is the portion of the Excess
Distribution to be received by such LLC Sharing Party, and the denominator of
which is the aggregate portion of the Excess Distribution to be received by all
LLC Sharing Parties.
(c) The intent of Section 4.1(a)(iii) and Section 4.1(b), above, are
to cause a person subject to income tax as an individual who invests in LLC
equity interests through PIC to achieve the same after-tax return from such
investment as an LLC Sharing Party who is subject to income tax as an individual
achieves from such LLC Sharing Party's direct investment in equivalent LLC
equity interests (in both cases, after taking into account the payments
described in Section 4.1(a)(iii) and Section 4.1(b)). Section 4.1(a)(iii) and
Section 4.1(b) shall be interpreted in a manner consistent with the intent
described in the preceding sentence and in no event shall Section 4.1(a)(iii)
and Section 4.1(b) be applied to produce a higher after-tax return to the
shareholders of PIC (deeming all such shareholders to be taxable as individuals)
than the return achieved by an LLC Sharing Party holding an equivalent interest
(provided that any LLC Sharing Party that is subject to New York City
Unincorporated Business Tax will have its after-tax return calculated as if all
LLC Sharing Parties are subject to New York City Unincorporated Business Tax).
(d) The obligations of the Securityholders with respect to a Sale of
the Company are subject to a satisfaction of the following conditions: (i) upon
the consummation of the Sale of the Company, including any related redemptions
(e.g., a
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purchase by the LLC of Common Units and PIC Common Stock), prior to taking into
account any payments pursuant to Section 4.1(a)(iii) and Section 4.1(b), all of
the holders of a particular class or series of Securities shall receive the same
form and amount of consideration per share, unit or amount of Securities
(provided that, in the case of PIC equity holders, the consideration received
shall be deemed to include the amount of corporate taxes actually paid by PIC),
or if any holders of a particular type, class or series of Securities are given
an option as to the form and amount of consideration to be received, all holders
of such type, class or series will be given the same option (treating PIC Common
Stock and Common Units as being of the same type, class and series of Securities
for all purposes of this clause (i), excluding for such purposes the Units held
by PIC or the Manager), (ii) all holders of then currently exercisable rights to
acquire a particular type, class or series of Securities will be given an
opportunity to either (A) exercise such rights prior to the consummation of the
Sale of the Company and participate in such sale as holders of such Securities
or (B) upon the consummation of the Sale of the Company, receive in exchange for
such rights consideration equal to the amount determined by multiplying (1) the
same amount of consideration per share, unit or amount of Securities received by
the holders of such type and class of Securities in connection with the Sale of
the Company less the exercise price per share, unit or amount of such rights to
acquire such Securities by (2) the number of shares, units or aggregate amount
of Securities represented by such rights, and (iii) the holders of Preferred
Securities, shall receive in respect of all of the issued and outstanding
Preferred Securities in such Sale of the Company consideration having a fair
market value equal to the aggregate Preference Amount with respect thereto
before any consideration is paid in respect of any of the Common Equity
Securities in such Sale of the Company; provided however, that if less than all
of the outstanding Preferred Securities are acquired in such Sale of the Company
or if the value of the consideration in such Sale of the Company is less than
the aggregate Preference Amount with respect to all outstanding Preferred
Securities then the consideration in such Sale of the Company shall be allocated
among the holders of the Preferred Securities, ratably based on the aggregate
Preference Amount of Preferred Securities held by each such holder.
(e) If PIC, the Manager or the LLC enters into any negotiation or
transaction for which Rule 506 under the Securities Act (or any similar rule
then in effect) may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), each Securityholder
that is not an "accredited investor" (within the meaning of Rule 501(a) of the
Securities Act) will, at the request of the Manager, appoint a purchaser
representative (as such term is defined in Rule 501 under the Securities Act)
approved by the Manager and the Manager will pay the fees of such purchaser
representative. If any such Securityholder declines to appoint the purchaser
representative approved by the Manager such Securityholder will appoint another
purchaser representative, and such Securityholder will be responsible for the
fees of the purchaser representative so appointed.
(f) Each Securityholder will bear its or his pro-rata share (based
upon the relative amount of proceeds received with respect to Securities sold)
of the reasonable costs of any sale of Securities pursuant to a Sale of the
Company (but only if such Sale of the
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Company is actually consummated) to the extent such costs are incurred for the
benefit of all Securityholders and are not otherwise paid by the Manager or the
acquiring party. Costs incurred by or on behalf of a Securityholder for its or
his sole benefit will not be considered costs of the transaction hereunder.
4.2 INITIAL PUBLIC OFFERING. Subject to Article V, the Manager shall
control all aspects of any initial Public Offering, including any initial Public
Offering of Manager Common Stock (an "IPO"), including without limitation the
timing and pricing thereof. In connection with an IPO, the Manager may formulate
a reorganization or restructuring plan (the "Reorganization Plan") to
restructure or reorganize one or more of the Issuers. Each holder of Securities
shall take whatever action is required under such Reorganization Plan to effect
the transactions contemplated therein so long as such plan does not affect such
holding in a manner which is materially adverse and disproportionate to the
manner in which such plan affects other holders of securities of the same class.
Any Reorganization Plan may, without limitation, provide that: (i) all Common
Units (other than Common Units held by PIC) and PIC Common Stock be contributed
to the Manager without consideration therefor on a tax-deferred basis pursuant
to Section 351 of the Code, (ii) all shares or amounts of Preferred Securities
be exchanged for or converted into stock of the Manager or a successor
corporation (whether of a series with similar or different economic terms
(including Manager Common Stock) but provided that the fair market value (as
determined in the good faith judgement of the Board of Directors of the Manager)
of such stock shall not be less than the Preference Amount of such Preferred
Securities at the time of such transaction) and/or (iii) PIC and/or the LLC
merge with and into the Manager or sell all of its assets to the Manager;
provided that if in connection with any Reorganization Plan voting Equity
Securities of the Manager are exchanged for Units, at the request of any holder
of Class B Common Stock, the Company shall offer to such holder of Class B
Common Stock non-voting Equity Securities of the Manager which possess the same
rights (other than with respect to voting) and preferences as such voting Equity
Securities.
ARTICLE V
REGISTRATION RIGHTS
5.1 DEMAND REGISTRATIONS.
(a) Requests for Registration. The Majority Willis Stein Holders may
request by written notice to the Manager at any time or from time to time the
registration under the Securities Act of all or any portion of their Registrable
Securities on Form S-1 or any similar long-form registration ("Long-Form
Registrations") or on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") if available. The Majority Non-Willis Stein Holders
may request by written notice to the Manager on not more than two occasions a
short-form Registration of all or any portion of their Registrable Securities so
long as the Manager has become eligible to use any applicable short form. All
registrations requested pursuant to this Section 5.1(a) are referred to herein
as "Demand Registrations".
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Each request for a Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. Within ten days after receipt of any such
request, the Manager shall give written notice of such requested registration to
all other holders of Registrable Securities, which notice shall offer such
holders the opportunity to participate in the registration on the terms hereof,
and shall include, subject to Section 5.1(d) in such registration all
Registrable Securities with respect to which the Manager has received written
requests for inclusion therein within 15 days after the receipt of the Manager's
notice. Notwithstanding anything to the contrary herein, unless the Manager
agrees otherwise, the Manager shall not be required to effect a "shelf"
registration under this Section 5.1(a).
(b) Long-Form Registrations. The Majority Willis Stein Holders shall
be entitled to request four Demand Registrations that are Long-Form
Registrations in which the Manager shall pay all Registration Expenses. If
Willis Stein distributes to its partners a majority of its Registrable
Securities, the Majority Non-Willis Stein Holders shall thereafter be entitled
on one occasion to request a Demand Registration that is a Long-Form
Registration. A registration shall not count as one of the permitted Long-Form
Demand Registrations if it does not become effective or if the Person requesting
such registration is not able to register and sell at least 85% of the
Registrable Securities requested to be included in such registration because of
the exercise of Piggyback Registration rights provided hereunder; provided that
in any event the Manager shall pay all Registration Expenses in connection with
any registration initiated as a Demand Registration whether or not it has become
effective and whether or not such registration has counted as one of the
permitted Demand Registrations.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 5.1(b), the Majority Willis Stein
Holders shall be entitled to request an unlimited number of Short-Form
Registrations in which the Manager shall pay all Registration Expenses and the
Majority Non-Willis Stein Investors shall be entitled to request two Short-Form
Registrations in which the Manager shall pay all Registration Expenses; provided
that the aggregate offering value of the Registrable Securities requested to be
registered in any Short-Form Registration must equal at least $10,000,000.
Demand Registrations shall be Short-Form Registrations whenever the Manager is
permitted to use any applicable short form. After the Manager has become subject
to the reporting requirements of the Securities Exchange Act, the Manager shall
use its best efforts to make Short-Form Registrations available for the sale of
Registrable Securities.
(d) Priority on Demand Registrations. If the managing underwriters for
a Demand Registration advise the Manager in writing that in their opinion the
number of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold in an orderly manner
in such offering within a price range acceptable to the holders of the
Registrable Securities initially requesting registration, without adversely
affecting the marketability of the offering, then the Manager shall exclude from
such registrations such excess amount of Registrable Securities, and shall
include in such
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registration prior to the inclusion of any securities which are not Registrable
Securities, the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold in an orderly manner within the
price range of such offering without adversely affecting the marketability of
the offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities owned by each such holder.
(e) Restrictions on Demand Registrations. The Manager shall not be
obligated to effect any Demand Registration within 180 days after the effective
date of a previous Demand Registration or a previous registration in which the
holders of Registrable Securities were given piggyback rights pursuant to
Section 5.2 unless the underwriter in such previous registration consents to a
shorter period. The Manager may postpone for up to 180 days the filing or the
effectiveness of a registration statement for a Demand Registration if the Board
determines in its reasonable good faith judgment that such Demand Registration
would reasonably be expected to have a material adverse effect on any proposal
or plan by the Manager or any of its Subsidiaries to engage in any acquisition
of assets (other than in the ordinary course of business) or any merger,
consolidation, business combination, tender offer, joint venture, reorganization
or similar transaction; provided that in such event, the holders of Registrable
Securities initially requesting such Demand Registration shall be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as one of the permitted Demand Registrations
hereunder and the Manager shall pay all Registration Expenses in connection with
such registration.
(f) Selection of Underwriters. The Manager shall have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the approval (which shall not be unreasonably withheld) of the
Majority Willis Stein Holders.
5.2 PIGGYBACK REGISTRATIONS.
(a) Right to Piggyback. Whenever the Manager proposes to register any
of its securities (whether for itself or any of its securityholders) under the
Securities Act (other than pursuant to a Demand Registration) and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Manager shall give prompt written
notice (in any event within three business days after its receipt of notice of
any exercise of demand registration rights other than under this Agreement) to
all holders of Registrable Securities of its intention to effect such a
registration and, subject to subparagraph (c) and (d) below, shall include in
such registration all Registrable Securities with respect to which the Manager
has received written requests for inclusion therein within 20 days after the
receipt of the Manager's notice.
(b) Piggyback Expenses. The Registration Expenses in all Piggyback
Registrations shall be paid by the Manager.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Manager or a successor,
and the managing underwriters advise the Manager in writing that in their
opinion the number of securities
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requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Manager shall exclude from such registrations such excess amount
of Registrable Securities, and shall include in such registration (i) first, the
securities the Manager proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis of the number of Registrable Securities
owned by each such holder, and (iii) third, other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. If the managing underwriters
of a Piggyback Registration on behalf of the holders of the Manager's Securities
advise the Manager in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Manager shall exclude from such registrations such excess amount
of Registrable Securities, and shall include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among such holders on the basis of the number of shares
owned by each such holder and (ii) second, other securities requested to be
included in such registration.
(e) Selection of Underwriters. The selection of investment banker(s)
in any Piggyback Registration and manager(s) for the offering must be approved
by the holders of a majority of the Registrable Securities included in such
Piggyback Registration. Such approval shall not be unreasonably withheld.
(f) Other Registrations. If the Manager has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 5.1 or pursuant to this Section 5.2, and if such previous registration
has not been withdrawn or abandoned, the Manager shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible into or exchangeable or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration unless the underwriter in the previous registration
consents to a shorter period.
5.3 HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities shall not effect any Public
Sale of equity securities of the Manager, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 180-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration in which
Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
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(b) The Manager (i) shall not effect any Public Sale of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such units or securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (ii) shall
cause each holder of units, or any securities convertible into or
exchangeable or exercisable for units, purchased from the Manager at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any Public Sale of any such units or
securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
5.4 REGISTRATION PROCEDURES. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Article V, the Manager shall use its best
efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof,
and pursuant thereto the Manager shall as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided that a reasonable
time before filing a registration statement or prospectus or any amendments
or supplements thereto, the Manager shall furnish to the counsel selected
by the holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed,
which documents shall be subject to the review and comment of such
counsel);
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not
less than 180 days and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or
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advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller (provided
that the Manager shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any
such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, whereupon such sellers shall cease
distributing any Registrable Securities until, at the request of any such
seller, the Manager shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Manager are
then listed and, if not so listed, to be listed on NASDAQ and, if listed on
NASDAQ, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-1 promulgated by
the SEC or, failing that, to secure NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such
with respect to such Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
holders of a majority of the Registrable Securities being sold or the
underwriters reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including effecting a stock
split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Manager, and
cause the Manager's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
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(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months beginning with the first day of the
Manager's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
by the SEC;
(k) permit any holder of Registrable Securities which holder, in
its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Manager, to participate in the preparation of
such registration statement and to require the insertion therein of
material, furnished to the Manager in writing, which in the reasonable
judgment of such holder and its counsel should be included; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any equity securities included in such registration
statement for sale in any jurisdiction, the Manager shall use its best
efforts promptly to obtain the withdrawal of such order.
5.5 REGISTRATION EXPENSES. All expenses incident to the
Manager's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, NASD fees, printing expenses,
messenger and delivery expenses, fees and disbursements of custodians, and
fees and disbursements of counsel for the Manager and all independent
certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Manager (all such expenses
being herein called "Registration Expenses"), shall be borne as provided in
this Agreement, except that the Manager shall, in any event, pay its
internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to
be registered on each securities exchange on which similar securities
issued by the Manager are then listed or on the NASD automated quotation
system.
5.6 INDEMNIFICATION.
(a) The Manager agrees to indemnify, to the extent permitted by
law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses caused
by any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Manager by such
holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto
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after the Manager has furnished such holder with a sufficient number of
copies of the same. In connection with an underwritten offering, the
Manager shall indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Manager in writing such information and affidavits as the
Manager reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law,
shall indemnify the Manager, its directors and officers and each Person who
controls the Manager (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue
or alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in
writing by such holder; provided that the obligation to indemnify shall be
individual, not joint and several, for each holder and shall be limited to
the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to
give prompt notice shall not impair any Person's right to indemnification
hereunder to the extent such failure has not prejudiced the indemnifying
party) and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party
shall not be subject to any liability for any settlement made by the
indemnified party without its consent. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(d) The indemnification provided for under this Article V shall
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the Transfer of
securities. In order to provide for contribution in any case in which
either (i) any holder of Registrable Securities exercising rights under
this Agreement makes a claim for indemnification pursuant to this Section
5.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration
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of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this Section 5.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
such holder in circumstances for which indemnification is provided under
this Section 5.6; then, in each such case, the Manager and such holder will
contribute to the aggregate losses, claims, damages or liabilities which
they would otherwise be obligated to indemnify under Section 5.6(a) or (b)
(after contribution from others) in such proportions so that such holder is
responsible for the portion of such aggregate losses, claims, damages or
liabilities represented by the percentage that the public offering price of
its Registrable Securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, and the Manager is responsible for the remaining portion;
provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it from the
sale of all Registrable Securities sold by it pursuant to such registration
statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities
Act, shall be entitled to contribution from any person or entity who is not
guilty of such fraudulent misrepresentation.
5.7 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such underwriter and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting
arrangements.
5.8 OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Manager shall not grant to any Persons the right to request
the Manager to register any equity securities of the Manager, or any
securities convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the Majority Willis Stein
Holders.
ARTICLE VI
PREEMPTIVE RIGHTS
6.1 ISSUANCE OF NEW SECURITIES TO WILLIS STEIN
(a) If at any time after the date of this Agreement an Issuer
proposes to issue or sell (a "Proposed Issuance") to Willis Stein, PIC or
any Person controlled by Willis Stein or PIC, any Common Equity Securities
or Preferred Securities (collectively, "New Securities"), such Issuer shall
first offer to sell to each other holder of Investor Securities a portion
of each type of such New Securities equal to the quotient determined by
dividing (a) the amount of Fully-Diluted Equity represented by Investor
Securities held or beneficially owned by such holder of Investor Securities
by (b) the total amount of Fully-Diluted Equity
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represented by Investor Securities outstanding immediately prior to such
issuance or sale. Each holder of Investor Securities shall be entitled to
purchase such New Securities at the most favorable price and on the most
favorable terms as such New Securities are to be offered to Willis Stein.
(b) In order to exercise its purchase rights hereunder, each
holder of Investor Securities must, within ten Business Days after receipt
of written notice from the Issuer describing in reasonable detail the New
Securities being offered, the purchase price thereof, the payment terms
therefor and the percentage allotment for each holder of Investor
Securities, deliver a written agreement (each, an "Acceptance Agreement) to
the Issuer irrevocably committing to purchase an amount of New Securities
equal to such holder's percentage allotment of New Securities, on the terms
specified in such written notice and on such other customary terms not
inconsistent therewith on which such New Securities are issued to Willis
Stein.
(c) If the Issuer has received any Acceptance Agreements, the
Issuer may, at its sole discretion, elect to cancel the Proposed Issuance
by delivery of written notice to the holders of Investor Securities who
have delivered Acceptance Agreements. If the Issuer elects to consummate
the Proposed Issuance, then the Issuer shall be entitled to sell to Willis
Stein during the ninety days following such expiration on terms and
conditions no more favorable to the purchasers thereof than those offered
to the holders of Investor Securities all such New Securities which the
holders of Investor Securities have not elected to purchase pursuant to any
Acceptance Agreement; and contemporaneously with any such issuance, each
holder of Investor Securities that has executed an Acceptance Agreement
shall be obligated to purchase from the Issuer thereof, and each such
Issuer shall be obligated to sell to each such holder, the New Securities
which such holder has committed to purchase pursuant to such Acceptance
Agreement. Any New Securities offered or sold by an Issuer after such
ninety-day period must be reoffered to the holders of Investor Securities
pursuant to the terms of this Section 6.1.
(d) The provisions of this Section 6.1 will not apply to the
following issuances of New Securities:
(i) any New Securities issued upon the conversion or
exercise of any Common Equity Equivalents not issued in violation of
this Section 6.1; or
(ii) any issuance of New Securities incident to the
exercise, conversion or exchange of any securities of an Issuer that
were not issued in violation of this Section 6.1, a subdivision of
shares (including any stock dividend or stock split), any combination
of shares (including any reverse stock split) or any recapitalization,
reorganization or reclassification of the Company.
(e) Nothing in this Section 6.1 shall be deemed to prevent
Willis Stein purchasing for cash any New Securities without first complying
with the provisions of this Section 6.1; provided, that in connection with
such purchase, (a) the Manager's Board has
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determined in good faith (1) that one or more of the Issuers needs an
immediate cash investment, (2) that no alternative financing is otherwise
available on reasonable terms, and (3) that the delay caused by compliance
with the provisions of this Section 6.1 in connection with such investment
would be reasonably likely to cause harm to an Issuer, (b) the Person
making such purchase (for purposes of this Section 6.1, the "Purchasing
Holder") gives prompt notice to the other holders of Investor Securities,
which notice shall describe, in reasonable detail, the New Securities being
purchased by the Purchasing Holder and the purchase price thereof, and (c)
the Purchasing Holder and the applicable Issuer take all steps reasonably
necessary to enable the Other Holders of Investor Securities to effectively
exercise their rights under the terms specified in this Section 6.1 with
respect to the New Securities issued to the Purchasing Holder in reliance
on this Section 6.1(e).
ARTICLE VII
MISCELLANEOUS
7.1 CERTAIN DEFINED TERMS. Capitalized terms used in the
Agreement which are not otherwise defined in this Agreement and which are
defined in the LLC Agreement shall have the meanings attributed to such
terms in the LLC Agreement. As used in this Agreement, the following terms
shall have the meanings set forth or as referenced below:
"Acquisition" means the acquisition of the publishing assets of
Petersen Publishing Company by Operating LLC and its affiliates pursuant to
the Purchase Agreement (as defined in the LLC Agreement).
"Affiliate" of any particular Person means any other Person
Controlling, Controlled by or under common Control with such particular
Person or, in the case of a natural Person, any other member of such
Person's Family Group.
"Agreement" has the meaning set forth in the preface.
"Allocable Securities" has the meaning given to such term in
Section 3.2(c).
"Available Securities" has the meaning given such terms in
Section 3.2(b)(iii).
"Board" has the meaning given such term in Recital F.
"Business Day" means any day other than a Saturday or Sunday, a
legal holiday or day on which commercial banks in New York, Chicago or Los
Angeles are required by law to be closed.
"Common Equity Equivalents" means (without duplication with any
Common Equity Securities or other Common Equity Equivalents) rights,
warrants, options (including the Options), convertible securities,
exchangeable securities, indebtedness or other rights, in
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each case exercisable for or convertible or exchangeable into, directly or
indirectly, Common Equity Securities or securities exercisable for or
convertible or exchangeable into Common Equity Securities, whether at the
time of issuance or upon the passage of time or the occurrence of some
future event.
"Common Equity Securities" means, collectively, the Manager
Common Stock, the PIC Common Stock, the Common Units and any other type,
class or series of authorized capital stock of or equity interests in any
of the Issuers which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate
in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of such Issuer.
"Control" (including, with correlative meaning, all conjugations
thereof) means with respect to any Person, the ability of another Person to
control or direct the actions or policies of such first Person, whether by
ownership of voting securities, by contract or otherwise.
"Demand Registrations" has the meaning given such term in Section
5.1(a).
"Electing Holder" has the meaning given such term in Section
3.2(c).
"Election Notice" has the meaning given such term in Section
3.2(b)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Executives" means the Persons designated as "Executives" in
Schedule A hereto.
"Executive Securities" means (a) the Manager Common Stock and
Common Units acquired by D. Claeys Bahrenburg and Neal Vitale pursuant to
their respective Executive Agreements (other than pursuant to Section 1(a)
of each such agreement) and by certain other Executives pursuant to Section
2D of the Securities Purchase Agreement, (b) any Options and any Common
Equity Securities issued upon exercise of such Options, (c) any other
Common Equity Securities hereafter issued to employees of or consultants to
any of the Manager, the LLC and Operating LLC which are designated by the
Willis Stein Majority Holders as "Executive Securities," and (d) any
Securities of any of the Issuers issued with respect to Securities referred
to in any of clauses (a), (b) or (c) above by way of a payment-in-kind,
stock dividend or stock split or in connection with a combination of
shares, exchange, conversion, recapitalization, merger, consolidation or
other reorganization.
"Family Group" means, with respect to any individual, such
individual's spouse and descendants (whether natural or adopted) and any
trust established and maintained for the benefit of such individual, such
individual's spouse or such individual's descendants (whether natural or
adopted).
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"Fully-Diluted Equity" means, as of any date of determination,
the amount or number of shares or units of Common Equity Securities
outstanding plus (without duplication) all shares of Common Equity
Securities issuable, whether at such time or upon the passage of time or
the occurrence of future events, upon the exercise, conversion or exchange
of all then-outstanding Common Equity Equivalents.
"Independent Third Party" means any Person who, immediately prior
to the contemplated transaction, does not beneficially own five percent
(5%) or more of the Fully-Diluted Equity or the Preferred Securities, if
any, who is not an Affiliate of any such five percent (5%) beneficial owner
and is not a member of the Family Group of any such five percent (5%)
beneficial owner.
"Investor Ownership Percentage" means, for each holder of
Investor Securities, with respect to each type and class of Investor
Securities held by such holder, the percentage obtained by dividing the
number of shares or units or amount of such Investor Securities of such
type or class held by such holder of Investor Securities by the total
number of outstanding shares or units or amount of such Investor Securities
of such type or class.
"Investor Securities" means all Securities other than Executive
Securities.
"Issuers" means the Manager, the LLC and PIC, each in its
capacity as an issuer of Securities.
"Liquidation Value" means, with respect to any series of
Preferred Securities of an Issuer, the fixed sum or percentage of par value
or stated value in respect of the rights of the holders thereof to
participate in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of such Issuer.
"LLC Agreement" has the meaning given such term in Recital A.
"Long-Form Registrations" has the meaning given such term in
Section 5.1(a).
"Majority Non-Willis Stein Holders" means, at any time, the
holders of a majority of the Investor Securities of the Manager (other than
Securities held by Willis Stein) then outstanding.
"Majority Willis Stein Holders" means, at any time, the holders
of a majority of the Willis Stein Manager Securities then outstanding.
"Member" has the meaning given to such term in the LLC Agreement.
"NASD" means the National Association of Securities Dealers.
"NASDAQ" means the NASD Automated Quotation System.
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"Offered Securities" when used in Section 3.2(b), has the meaning
given such term in Section 3.2(b)(i), and when used in Section 3.2(c), has
the meaning given such term in Section 3.2(c).
"Options" means any options to purchase shares of Common Equity
Securities granted by one of the Companies to any Executive on or after the
date of this Agreement.
"Other Holder" has the meaning given such term in Section 3.2(b)
or 3.2(c), as applicable.
"Ownership Percentage" means, for each Securityholder and with
respect to each type and class of Security, subject to Section 3.2(e)
above, the percentage obtained by dividing the number of shares or units or
amount of such Security held by such Securityholder by the total number of
shares or units or amount of such Security outstanding; provided that for
purposes of Section 3.2(b)(iii), such calculation will be made excluding
Securities held by the Selling Holder.
"Permitted Transferee" means, in the case of a Transfer by an
individual, any transferee by the applicable laws of descent and
distribution or any member of such Person's Family Group, or in the case of
a Transfer by a Person which is not an individual, an Affiliate of such
Person.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a joint stock company, a limited liability
company, a trust, an unincorporated organization or a government or any
department or agency or political subdivision thereof.
"Piggyback Registration" has the meaning given such term in
Section 5.2(a).
"Preferred Securities" means the Preferred Units, the PIC
Preferred Stock and any other type, class or series of authorized capital
stock or other interest in capital of any of the Issuers that is limited to
a fixed sum or percentage of par value or stated value in respect of the
rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of such entity.
"Preference Amount" with respect to any Preferred Securities
means the sum of (i) with respect to Preferred Units, the sum of the
Unreturned Preferred Capital and the Unpaid Preferred Yield with respect
thereto, and (ii) with respect to any other Preferred Securities, including
any PIC Preferred Stock, the sum of the Liquidation Value thereof plus the
aggregate amount of accrued and unpaid dividends thereon.
"Public Offering" means a sale of Common Equity Securities to the
public in an offering pursuant to an effective registration statement filed
with the SEC pursuant to the Securities Act, as then in effect, provided
that a Public Offering shall not include an
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offering made in connection with a business acquisition or combination or
an employee benefit plan.
"Public Sale" means a sale of Securities pursuant to a Public
Offering or a Rule 144 Sale.
"Qualified IPO" means receipt by Manager of at least $75,000,000
gross cash proceeds upon consummation of an underwritten sale of its common
stock pursuant to a registration statement filed under the Securities Act
of 1933, provided that the sum of (a) the product of the net price per
share of such offering multiplied by the aggregate number of shares of
common stock issued by Manager and outstanding as of the closing of the
Acquisition (as adjusted for stock splits, combinations of shares and other
recapitalizations subsequent thereto), other than Executive Securities,
plus (b) the aggregate amount of all cash paid as distributions or
dividends on the equity securities of LLC which were outstanding as of the
closing of the Acquisition, other than Executive Securities, plus (c) the
fair market value of such LLC securities, and of any other property
received by the holders thereof at any time in respect of such securities
in connection with any Sale of the Company prior thereto, in each case as
determined by the Board, equals or exceeds $330,000,000.
"Registrable Securities" means (i) the shares of Class A Common
Stock of Manager issued pursuant to the Securities Purchase Agreement dated
as of September ___, 1996 among certain of the parties hereto (the
"Securities Purchase Agreement"), (ii) the shares of Class A Common Stock
of Manager issued or issuable upon conversion of the Class B Common Stock
of Manager issued pursuant to the Securities Purchase Agreement or upon
conversion of non-voting securities issued pursuant to a Reorganization
Plan, (iii) any voting common stock of Manager issued to the holders of
Securities in connection with a Reorganization Plan or issued or issuable
with respect to rights on securities so issued, (iv) any Common Equity
Securities of the Manager (other than non-voting securities) issued in
respect of or in exchange for or upon conversion of Investor Securities,
and (v) any other Common Equity Securities of the Manager (other than non-
voting Securities) issued or issuable with respect to the securities
referred to in any of clauses (i), (ii), (iii) and (iv) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, including
pursuant to a Reorganization Plan. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when
they have been (i) Transferred in a Public Sale or (ii) otherwise
Transferred and new certificates not bearing the legend set forth in
Section 7.2(a) hereof shall have been delivered by the Manager and
subsequent disposition of such securities shall not require registration or
qualification of such securities under the Securities Act or such state
securities or blue sky laws then in force. For purposes of this Agreement,
a Person will be deemed to be a holder of Registrable Securities whenever
such Person has the right to acquire such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon the
exercise of such right), whether or not such acquisition has actually been
effected.
"Registration Expenses" has the meaning given such term in
Section 5.5.
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"Reorganization Plan" has the meaning given such term in Section
4.2.
"Repurchase Notice" has the meaning given such term in Section
3.2(b)(ii).
"Rule 144" means Rule 144 adopted under the Securities Act (or
any successor rule or regulation).
"Rule 144 Sale" means a sale of Securities to the public through
a broker, dealer or market-maker pursuant to the provisions of
Rule 144.
"Sale of the Company" means the consummation of a transaction,
whether in a single transaction or in a series of related transactions that
are consummated contemporaneously (or consummated pursuant to
contemporaneous agreements), with any Independent Third Party other Person
or Persons pursuant to which such Person or Persons (a) acquire (whether by
merger, stock purchase, recapitalization, reorganization, redemption,
issuance of capital stock or otherwise) a majority of the Fully-Diluted
Equity of the Manager and the LLC or (b) acquire assets constituting all or
substantially all of the assets of the Manager, the LLC and their
respective Subsidiaries on a consolidated basis.
"Sale Notice" has the meaning given such term in Section 3.2(c).
"SEC" means the Securities and Exchange Commission.
"Securities" means (i) any Common Equity Securities or Preferred
Securities purchased or otherwise acquired by a Securityholder, (ii) any
other equity securities issued or issuable with respect to the securities
referred to in clause (i) above by way of stock dividend or stock split or
in connection with a combination or shares, recapitalization, merger,
consolidation or other reorganization and (iii) any other equity securities
of PIC, the Manager or the LLC held by a Securityholder. As to any
particular Securities, such Securities shall cease to be Securities when
they have been Transferred pursuant to a Public Sale.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securityholder" has the meaning given such term in the preface.
"Selling Holder" when used in Section 3.2(b), has the meaning
given such term in Section 3.2(b)(i), and when used in Section 3.2(c), has
the meaning given such term in Section 3.2(c).
"Short-Form Registrations" has the meaning given such term in
Section 5.1(a).
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"Subsidiary" means any entity with respect to which another
entity has the power to vote or direct the voting of sufficient securities
to elect directors having a majority of the voting power of the board of
directors of such entity or otherwise has the power, by contract or
otherwise, to control the business and affairs of such entity.
"Supplemental Repurchase Notice" has the meaning given to such
term in Section 3.2(b)(iv).
"Tag-Along Notice" has the meaning given such term in Section
3.2(c).
"Transfer" means (in either the noun or the verb form, including
with respect to the verb form, all conjugations thereof within their
correlative meanings) with respect to any Security, the gift, sale,
assignment, transfer, pledge, hypothecation or other disposition (whether
for or without consideration, whether directly or indirectly, and whether
voluntary, involuntary or by operation of law) of such Security or any
interest therein.
"Transfer Notice" has the meaning set forth in Section
3.2(b)(i).
"Willis Stein Manager Securities" means (a) the Securities issued
by the Manager acquired by Willis Stein and (b) any Securities issued by
the Manager with respect to Securities referred to in any of clause (a)
above by way of a payment-in-kind, stock dividend or stock split or in
connection with a combination of shares, exchange, conversion,
recapitalization, merger, consolidation or other reorganization.
7.2 LEGENDS.
(a) Securityholders Agreement. Each certificate or instrument
evidencing Securities and each certificate or instrument issued in exchange
for or upon the Transfer of any such Securities (if such securities remain
subject to this Agreement after such Transfer) shall be stamped or
otherwise imprinted with a legend (as appropriately completed under the
circumstances) in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A CERTAIN SECURITYHOLDERS AGREE-
MENT DATED AS OF SEPTEMBER 30, 1996 AMONG THE
ISSUER OF SUCH SECURITIES (THE "MANAGER") AND
CERTAIN OF THE MANAGER'S SECURITYHOLDERS AND, AS
SUCH, ARE SUBJECT TO CERTAIN VOTING PROVISIONS,
PURCHASE RIGHTS AND RESTRICTIONS ON TRANSFER SET
FORTH IN THE SECURITYHOLDERS AGREEMENT. A COPY
OF SUCH SECURITYHOLDERS AGREEMENT WILL BE FUR-
NISHED WITHOUT CHARGE BY THE MANAGER TO THE
HOLDER HEREOF UPON WRITTEN REQUEST."
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(b) Removal of Legends. Whenever in the opinion of the issuer of
such Securities and counsel reasonably satisfactory to the issuer of such
Securities (which opinion shall be delivered to the issuer of such
Securities in writing) the restrictions described in the legend set forth
above cease to be applicable to any Securities, the holder thereof shall be
entitled to receive from the Issuer thereof, without expense to the holder,
a new instrument or certificate not bearing a legend stating such
restriction.
7.3 EXPENSES OF DIRECTORS, ETC. The Manager shall pay the
reasonable out-of-pocket expenses incurred by each director in connection
with attending the meetings of the Board and any committee thereof. In
addition, the Manager shall be authorized to enter into indemnification
agreements with the directors and may pay to each director (but not to any
director, other than Robert E. Petersen, who is also an employee of the
Operating LLC) an annual fee of $35,000, payable in advance in four equal
quarterly installments. So long as any Willis Stein Director serves on the
Board and for four years thereafter, the Manager shall maintain directors
and officers indemnity insurance coverage satisfactory to Willis Stein, and
the Manager's certificate of incorporation and bylaws shall provide for
indemnification and exculpation of directors to the fullest extent
permitted under applicable law.
7.4 AMENDMENT AND WAIVER. Subject to Section 7.13 and except as
otherwise provided herein, any modification, amendment or waiver of any
provision of this Agreement shall be effective against the Manager, the LLC
and the Securityholders if such modification, amendment or waiver is
approved in writing by the Majority Willis Stein Holders, the Manager and
the LLC; provided that any amendment, modification or waiver of any
provision of this Agreement which has a material adverse effect on any
Securityholder in its capacity as such, if such effect would be borne
disproportionately by such Securityholder relative to other Securityholders
holding Securities of the same class, shall be effective against such
Securityholder only if consented to in writing by such Securityholder. The
failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not
affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms. Each Issuer
agrees that it will use its reasonable best efforts to amend the
Securityholders Agreement and the LLC Agreement to the extent required to
enable each Investor to comply with federal laws (including the Bank
Holding Company Act of 1956) which may be applicable to such Investor so
long as such amendment would not adversely affect any Issuer or any other
holder of Securities.
7.5 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision
had never been contained herein.
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7.6 ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein or in the LLC Agreement, Securities Purchase Agreement or the other
written agreements of even date herewith, this document embodies the
complete agreement and understanding among the parties hereto with respect
to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
7.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Issuers, Willis Stein, holders of Willis Stein Manager
Securities and their respective successors and assigns and the
Securityholders and any subsequent holders of Securities and the respective
successors and permitted assigns of each of them, so long as they hold
Securities.
7.8 COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
7.9 REMEDIES. The Issuers and the Securityholders shall be
entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement
(including costs of enforcement) and to exercise any and all other rights
existing in their favor. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each of the Issuers or any
Securityholder may in its or his sole discretion apply to any court of law
or equity of competent jurisdiction for specific performance or injunctive
relief (without posting a bond or other security) in order to enforce or
prevent any violation or threatened violation of the provisions of this
Agreement.
7.10 NOTICES. Any notice provided for in this Agreement
shall be in writing and shall be either personally delivered, or mailed
first class mail (postage prepaid) or sent by reputable overnight courier
service (charges prepaid) to any of the Issuers at the address set forth
below and to any other recipient at the address indicated on the attached
Schedule of Notice Addresses and to any subsequent holder of Securities
subject to this Agreement at such address as indicated by the records of
the issuer of such Securities, or at such other address or to the attention
of such other person as the recipient party has specified by prior written
notice to the sending party. Notices will be deemed to have been given
hereunder (i) when sent by facsimile (receipt confirmed), if received
during business hours on a business day and otherwise on the first business
day following thereafter, (ii) when delivered personally, (iii) five days
after deposit in the U.S. mail and (iv) one business day after deposit
with a reputable overnight courier service (prepaid for overnight service).
The Issuers' address is:
c/o Willis Stein & Partners, L.P.
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Telecopy: (312) 422-2418
Attention: Avy H. Stein
-33-
<PAGE>
Daniel H. Blumenthal
and to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Telecopy: (312) 861-2200
Attention: John A. Weissenbach
Any notice delivered to a Securityholder other than Willis Stein, the
Manager, any Executive, PPC or PIC shall also be sent to:
Cahill Gordon & Reindel
Eighty Pine Street
New York, New York 10005-1702
Telecopy: (212) 269-5420
Attention: Roger Meltzer
7.11 GOVERNING LAW. The corporate law of the State of
Delaware shall govern all issues and questions concerning the relative
rights of the Manager and its stockholders and of PIC and its stockholders
and the limited liability company law of the state of Delaware shall govern
all issues and questions concerning the relative rights of the LLC and its
members. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois without giving
effect to any choice of law or conflict of law provision or rule (whether
of the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Illinois.
7.12 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
7.13 FURTHER ASSURANCE. In connection with this Agreement
and the transactions contemplated hereby each party hereto shall execute
and deliver any additional documents and instruments and perform any
additional acts (including amendments to this Agreement) that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and to give effect to the intent of the parties hereto. In
furtherance of the foregoing, the parties acknowledge that in connection
with the Reorganization Plan, each party hereto will execute such
amendments and modifications to this Agreement as are reasonably requested
by the Manager to effectuate the intent of the parties hereto and provide
for substantially the same rights and obligations of each party upon the
consummation of the transactions contemplated by the Reorganization Plan as
are contemplated hereby.
* * * *
-34-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Securityholders Agreement on the day and year first above written.
BRIGHTVIEW COMMUNICATIONS GROUP, INC.,
in its capacity as an Issuer of Securities and as
a Securityholder
By: ____________________________________
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN INVESTMENT CORP.,
in its capacity as an Issuer of Securities and as
a Securityholder
By: ____________________________________
Name: Daniel H. Blumenthal
Title: Vice President
PETERSEN HOLDINGS, L.L.C.
By: BrightView Communications Group, Inc.
Its: Managing Member
By: ____________________________________
Name:
Title:
WILLIS STEIN & PARTNERS, L.P.
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: ____________________________________
Its: Managing Director
PETERSEN PUBLISHING COMPANY
By: ____________________________________
Robert E. Petersen
-35-
<PAGE>
Chairman
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its: General Partner
By: ___________________________________
Name: Brian Richmond
Title: General Partner
BANK AMERICA INVESTMENT CORPORATION
By: ____________________________________
Name:
Title:
CIVC PARTNERS II
By: ___________________________________
Name:
Title: A General Partner
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: ___________________________________
Name:
Title:
ALLSTATE INSURANCE COMPANY
By: ___________________________________
Name:
Title:
FUI, INC.
By: ___________________________________
Name:
Title:
-36-
<PAGE>
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
By: ___________________________________
Name:
Title:
NASSAU CAPITAL PARTNERS II, L.P.
By: Nassua Capital, L.L.C.
Its: General Partner
By: ___________________________________
Name:
Title:
NAS PARTNERS I, L.L.C.
By: ___________________________________
Name:
Title:
_______________________________________
James D. Dunning, Jr.
_______________________________________
Laurence H. Bloch
_______________________________________
Stuart Karu
_______________________________________
-37-
<PAGE>
Thomas J. Strauss
_______________________________________
Irwin Bard
_______________________________________
Bernard Shavitz
_______________________________________
D. Claeys Bahrenburg
_______________________________________
Neal Vitale
-38-
<PAGE>
SCHEDULE OF SECURITYHOLDERS
---------------------------
-39-
<PAGE>
EXHIBIT 10.8
PROMISSORY NOTE
---------------
$8,000.00 September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay to
the order of BrightView Communications Group, Inc., a Delaware corporation (the
"Company"), at its offices or such other place as designated in writing by the
holder hereof, the aggregate principal sum of $8,000.00 together with interest
earned thereon when due. The principal amount of the Note and all interest
accrued thereon shall be due and payable on March 1, 1997. This Note was issued
pursuant to and is subject to the terms of the Executive Securities Purchase and
Employment Agreement (the "Executive Agreement"), dated as of the date hereof,
among the Company, Petersen Holdings, L.L.C. ("Holdings"), Petersen Publishing
Company, L.L.C. and Executive. Capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note at a
rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest rate
permitted by applicable law, and shall be payable at such time as the principal
of this Note becomes due and payable. For purposes hereof, the "Weighted
Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of the Company.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, Holdings and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
D. Claeys Bahrenburg
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
---------------
$2,000.00 September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay
to the order of BrightView Communications Group, Inc., a Delaware corporation
(the "Company"), at its offices or such other place as designated in writing by
the holder hereof, the aggregate principal sum of $2,000.00 together with
interest earned thereon when due. The principal amount of the Note and all
interest accrued thereon shall be due and payable on the earlier to occur of (i)
December 31, 2001, (ii) termination of Executive as an employee of Operating
LLC, and (iii) a Sale of the Company. This Note was issued pursuant to and is
subject to the terms of the Executive Securities Purchase and Employment
Agreement (the "Executive Agreement"), dated as of the date hereof, among the
Company, Petersen Holdings, L.L.C. ("Holdings"), Petersen Publishing Company,
L.L.C. and Executive. Capitalized terms used herein and not otherwise defined
shall have the meanings given such terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of the Company.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, Holdings and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
D. Claeys Bahrenburg
<PAGE>
10.10
PROMISSORY NOTE
---------------
$198,000.00 September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay
to the order of Petersen Holdings, L.L.C., a Delaware limited liability company
(the "Company"), at its offices or such other place as designated in writing by
the holder hereof, the aggregate principal sum of $198,000.00 together with
interest earned thereon when due. The principal amount of the Note and all
interest accrued thereon shall be due and payable on the earlier to occur of (i)
December 31, 2001, (ii) termination of Executive as an employee of Operating
LLC, and (iii) a Sale of the Company. This Note was issued pursuant to and is
subject to the terms of the Executive Securities Purchase and Employment
Agreement (the "Executive Agreement"), dated as of the date hereof, among the
Company, BrightView Communications Group, Inc. ("BrightView"), Petersen
Publishing Company, L.L.C. and Executive. Capitalized terms used herein and not
otherwise defined shall have the meanings given such terms in the Executive
Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, BrightView and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
D. Claeys Bahrenburg
<PAGE>
10.11
PROMISSORY NOTE
---------------
$792,000.00 September 30, 1996
For value received, D. Claeys Bahrenburg ("Executive") promises to pay
to the order of Petersen Holdings, L.L.C., a Delaware limited liability company
(the "Company"), at its offices or such other place as designated in writing by
the holder hereof, the aggregate principal sum of $792,000.00 together with
interest earned thereon when due. The principal amount of the Note and all
interest accrued thereon shall be due and payable on March 1, 1997. This Note
was issued pursuant to and is subject to the terms of the Executive Securities
Purchase and Employment Agreement (the "Executive Agreement"), dated as of the
date hereof, among the Company, BrightView Communications Group, Inc.
("BrightView"), Petersen Publishing Company, L.L.C. and Executive. Capitalized
terms used herein and not otherwise defined shall have the meanings given such
terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, BrightView and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
D. Claeys Bahrenburg
<PAGE>
10.12
PROMISSORY NOTE
---------------
$7,500.00 September 30, 1996
For value received, Neal Vitale ("Executive") promises to pay to the
order of BrightView Communications Group, Inc., a Delaware corporation (the
"Company"), at its offices or such other place as designated in writing by the
holder hereof, the aggregate principal sum of $7,500.00 together with interest
earned thereon when due. The principal amount of the Note and all interest
accrued thereon shall be due and payable on the earlier to occur of (i) December
31, 2001, (ii) termination of Executive as an employee of Operating LLC, and
(iii) a Sale of the Company. This Note was issued pursuant to and is subject to
the terms of the Executive Securities Purchase and Employment Agreement (the
"Executive Agreement"), dated as of the date hereof, among the Company, Petersen
Holdings, L.L.C. ("Holdings"), Petersen Publishing Company, L.L.C. and
Executive. Capitalized terms used herein and not otherwise defined shall have
the meanings given such terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of the Company.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, Holdings and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
Neal Vitale
<PAGE>
10.13
PROMISSORY NOTE
---------------
$742,500.00 September 30, 1996
For value received, Neal Vitale ("Executive") promises to pay to the
order of Petersen Holdings, L.L.C., a Delaware limited liability company (the
"Company"), at its offices or such other place as designated in writing by the
holder hereof, the aggregate principal sum of $742,500.00 together with interest
earned thereon when due. The principal amount of the Note and all interest
accrued thereon shall be due and payable on the earlier to occur of (i) December
31, 2001, (ii) termination of Executive as an employee of Operating LLC, and
(iii) a Sale of the Company. This Note was issued pursuant to and is subject to
the terms of the Executive Securities Purchase and Employment Agreement (the
"Executive Agreement"), dated as of the date hereof, among the Company,
BrightView Communications Group, Inc. ("BrightView"), Petersen Publishing
Company, L.L.C. and Executive. Capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, BrightView and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
Neal Vitale
<PAGE>
10.14
PROMISSORY NOTE
---------------
$2,000.00 January 27, 1997
For value received, Richard Willis ("Executive") promises to pay to
the order of BrightView Communications Group, Inc., a Delaware corporation (the
"Company"), at its offices or such other place as designated in writing by the
holder hereof, the aggregate principal sum of $2,000.00 together with interest
earned thereon when due. The principal amount of the Note and all interest
accrued thereon shall be due and payable on the earlier to occur of (i) December
31, 2001, (ii) termination of Executive as an employee of Operating LLC, and
(iii) a Sale of the Company. This Note was issued pursuant to and is subject to
the terms of the Executive Securities Purchase and Employment Agreement (the
"Executive Agreement"), dated as of the date hereof, among the Company, Petersen
Holdings, L.L.C. ("Holdings"), Petersen Publishing Company, L.L.C. and
Executive. Capitalized terms used herein and not otherwise defined shall have
the meanings given such terms in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of the Company.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, Holdings and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
Richard Willis
<PAGE>
10.15
PROMISSORY NOTE
---------------
$198,000.00 January 27, 1997
For value received, Richard Willis ("Executive") promises to pay to
the order of Petersen Holdings, L.L.C., a Delaware limited liability company
(the "Company"), at its offices or such other place as designated in writing by
the holder hereof, the aggregate principal sum of $198,000.00 together with
interest earned thereon when due. The principal amount of the Note and all
interest accrued thereon shall be due and payable on the earlier to occur of (i)
December 31, 2001, (ii) termination of Executive as an employee of Operating
LLC, and (iii) a Sale of the Company. This Note was issued pursuant to and is
subject to the terms of the Executive Securities Purchase and Employment
Agreement (the "Executive Agreement"), dated as of the date hereof, among the
Company, BrightView Communications Group, Inc. ("BrightView"), Petersen
Publishing Company, L.L.C. and Executive. Capitalized terms used herein and not
otherwise defined shall have the meanings given such terms in the Executive
Agreement.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) Weighted Average Rate, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable. For purposes hereof, the
"Weighted Average Rate" means the weighted average cost of borrowing by Petersen
Publishing Company, L.L.C. as in effect from time to time, as determined in good
faith by the board of directors of BrightView.
The amounts due under this Note are secured by a pledge of the Pledged
Securities, as such term is defined in the Executive Securities and Pledge
Agreement, dated as of the date hereof, among the Company, BrightView and
Executive, and the payment of the principal amount and accrued interest under
this Note is subject to certain offset rights under the Executive Agreement.
In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
____________________________________
Richard Willis
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 16, 1996, in the Registration Statement
(Amendment No. 2 to Form S-4 No. 333-18017) and related Prospectus of Petersen
Publishing Company, L.L.C. for the registration of $100,000,000 of its 11 1/8%
Series B Senior Subordinated Notes due 2006.
Ernst & Young LLP
February 6, 1997
Los Angeles, California
