<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1997
REGISTRATION NO. 333-23425
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JOURNAL REGISTER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2711 22-3498615
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
</TABLE>
--------------------------
STATE STREET SQUARE
50 WEST STATE STREET
TRENTON, NJ 08608
(609) 396-2200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
ROBERT M. JELENIC
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
JOURNAL REGISTER COMPANY
STATE STREET SQUARE
50 WEST STATE STREET
TRENTON, NJ 08608
(609) 396-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
ANDREW R. BROWNSTEIN, ESQ. JOHN S. D'ALIMONTE, ESQ.
Wachtell, Lipton, Rosen & Katz Willkie Farr & Gallagher
51 West 52nd Street 153 East 53rd Street
New York, NY 10019 New York, NY 10022
(212) 403-1000 (212) 821-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 10,781,250 shares $17.00 $183,281,250 $55,540(3)
</TABLE>
(1) Includes shares issuable upon exercise of the Underwriters' over-allotment
option. See "Underwriters."
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(3) $52,273 of the Registration Fee was previously paid.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 7,500,000 shares of Common Stock, par value $.01 (the "Common Stock"), of
Journal Register Company, together with a separate prospectus cover page
relating to a concurrent offering outside the United States and Canada (the
"International Offering") of an aggregate of 1,875,000 shares of Common Stock.
The complete prospectus for the U.S. Offering follows immediately after this
Explanatory Note. After such prospectus is the alternate cover page for the
International Offering. All of the pages of the prospectus for the U.S. Offering
are to be used for both the U.S. Offering and the International Offering.
<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.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 6, 1997
9,375,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 9,375,000 SHARES OF COMMON STOCK BEING OFFERED, 7,500,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,875,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. PRIOR TO THE OFFERINGS, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. UPON COMPLETION OF THE
OFFERINGS AND ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED
HEREIN, CERTAIN AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC WILL
OWN APPROXIMATELY 78.2% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING.
APPROXIMATELY $34.6 MILLION OF THE $137.4 MILLION NET PROCEEDS
TO THE COMPANY OF THE OFFERINGS WILL BE USED TO REPAY INDEBTEDNESS
OWED TO AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE BETWEEN $15.00 AND $17.00. SEE "UNDERWRITERS"
FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "JRC."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................................ $ $ $
TOTAL(3)................................................. $ $ $
</TABLE>
- ---------
(1)THE COMPANY AND CERTAIN AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC
(COLLECTIVELY, "WARBURG, PINCUS") HAVE AGREED TO INDEMNIFY THE UNDERWRITERS
AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. WARBURG, PINCUS CURRENTLY OWNS SUBSTANTIALLY ALL OF
THE EQUITY SECURITIES OF THE COMPANY. UPON COMPLETION OF THE OFFERINGS AND
ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN, WARBURG, PINCUS
WILL OWN APPROXIMATELY 78.2% OF THE SHARES OF COMMON STOCK THEN
OUTSTANDING. IT IS PROBABLE THAT, FOLLOWING COMPLETION OF THE OFFERINGS,
WARBURG, PINCUS WILL CONTINUE TO BE ABLE TO ELECT THE COMPANY'S BOARD OF
DIRECTORS AND TAKE, OR BLOCK, OTHER CORPORATE ACTIONS REQUIRING STOCKHOLDER
APPROVAL, AS WELL AS DICTATE THE DIRECTION AND POLICIES OF THE COMPANY. SEE
"RISK FACTORS--INFLUENCE BY EXISTING STOCKHOLDER." UPON COMPLETION OF THE
OFFERINGS AND ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN,
OFFICERS AND DIRECTORS OF THE COMPANY (OTHER THAN DIRECTORS WHO ARE
AFFILIATED WITH WARBURG, PINCUS) WILL OWN, IN THE AGGREGATE, APPROXIMATELY
1.5% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING.
(2)BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
APPROXIMATELY $34.6 MILLION OF THE PROCEEDS TO COMPANY WILL BE USED TO
REPAY INDEBTEDNESS OWED TO WARBURG, PINCUS.
(3)WARBURG, PINCUS CAPITAL PARTNERS, L.P. ("WPCP"), AN AFFILIATE OF E.M.
WARBURG, PINCUS & CO., LLC HAS GRANTED TO THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 1,406,250 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
PROCEEDS TO COMPANY AND PROCEEDS TO WPCP WILL BE $ , $ ,
$ , AND $ , RESPECTIVELY. SEE "UNDERWRITERS" AND SEE NOTE
(1) ABOVE.
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY WILLKIE FARR & GALLAGHER, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-----------------
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED IN THE OFFERINGS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED IN THE OFFERINGS TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE IN THE OFFERINGS SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 12
The Company........................................................................... 18
Use of Proceeds....................................................................... 18
Dividend Policy....................................................................... 19
Dilution.............................................................................. 19
Capitalization........................................................................ 20
Selected Combined Financial and Operating Data........................................ 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 23
Business.............................................................................. 34
Management............................................................................ 49
Certain Transactions.................................................................. 58
Principal and Selling Stockholders.................................................... 59
Description of Capital Stock.......................................................... 61
Shares Eligible for Future Sale....................................................... 64
Underwriters.......................................................................... 65
Legal Matters......................................................................... 68
Experts............................................................................... 68
Additional Information................................................................ 69
Forward-Looking Statements............................................................ 69
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
interim unaudited financial information.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERINGS
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL COMBINED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. EXCEPT AS OTHERWISE INDICATED HEREIN, ALL PRO FORMA
INFORMATION HAS BEEN PREPARED TO GIVE EFFECT TO THE CONVERSION OF THE COMPANY
FROM A LIMITED LIABILITY COMPANY TO A CORPORATION AND THE CONTRIBUTION OF AN
AFFILIATED ENTITY TO THE COMPANY AS IF SUCH TRANSACTIONS HAD OCCURRED AS OF
DECEMBER 31, 1996. PRO FORMA NET INCOME, AS ADJUSTED, GIVES EFFECT TO THE
DECREASE IN INTEREST EXPENSE, NET OF TAXES, ATTRIBUTABLE TO THE APPLICATION OF
THE NET PROCEEDS FROM THE OFFERINGS AND TO THE MANAGEMENT BONUSES (AS DEFINED
HEREIN). UNLESS THE CONTEXT INDICATES OR REQUIRES OTHERWISE, AS USED IN THIS
PROSPECTUS, THE "COMPANY" MEANS JOURNAL REGISTER COMPANY AND ALL OF ITS
SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS. "COMMON STOCK" MEANS THE
COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE. UNLESS OTHERWISE INDICATED,
INDUSTRY DATA CONTAINED HEREIN ARE DERIVED FROM PUBLICLY AVAILABLE INDUSTRY
JOURNALS, REPORTS AND OTHER PUBLICLY AVAILABLE SOURCES, WHICH THE COMPANY HAS
NOT INDEPENDENTLY VERIFIED AND WHICH THE COMPANY BELIEVES TO BE RELIABLE, AND
WHERE SUCH SOURCES WERE NOT AVAILABLE, FROM COMPANY ESTIMATES, WHICH THE COMPANY
BELIEVES TO BE REASONABLE, BUT WHICH CANNOT BE INDEPENDENTLY VERIFIED. DAILY AND
SUNDAY CIRCULATION DATA CONTAINED HEREIN ARE AVERAGES FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 ACCORDING TO THE AUDIT BUREAU OF CIRCULATIONS ("ABC") FAS-FAX
REPORT. ALL POPULATION AND HOUSEHOLD INCOME DATA CONTAINED HEREIN ARE AS OF 1996
AND WERE OBTAINED FROM EQUIFAX MDS, 1996. EBITDA IS DEFINED BY THE COMPANY AS
OPERATING INCOME (LOSS) PLUS DEPRECIATION, AMORTIZATION AND OTHER NON-CASH
CHARGES. EBITDA IS NOT INTENDED TO REPRESENT CASH FLOW FROM OPERATIONS AND
SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO OPERATING OR NET INCOME COMPUTED
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"), AS AN
INDICATOR OF THE COMPANY'S OPERATING PERFORMANCE, AS AN ALTERNATIVE TO CASH FLOW
FROM OPERATING ACTIVITIES (AS DETERMINED IN ACCORDANCE WITH GAAP) OR AS A
MEASURE OF LIQUIDITY. THE COMPANY BELIEVES THAT EBITDA IS A STANDARD MEASURE
COMMONLY REPORTED AND WIDELY USED BY ANALYSTS, INVESTORS AND OTHER INTERESTED
PARTIES IN THE MEDIA INDUSTRY. HOWEVER, NOT ALL COMPANIES CALCULATE EBITDA USING
THE SAME METHODS; THEREFORE, THE EBITDA FIGURES SET FORTH HEREIN MAY NOT BE
COMPARABLE TO EBITDA REPORTED BY OTHER COMPANIES.
THE COMPANY
Journal Register Company is a leading U.S. newspaper publisher, with total
paid daily circulation of approximately 556,000 and total non-daily distribution
of approximately 2.7 million. The Company owns and operates 18 daily newspapers
and 118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Since 1993, the Company has successfully completed seven strategic
acquisitions, acquiring six daily newspapers, 52 non-daily publications and one
commercial printing company. The Company has generally increased the revenues
and significantly increased the cash flow and profitability of its acquired
newspapers. For the fiscal year ended December 31, 1996, the Company generated
revenues of $351.1 million, EBITDA of $119.4 million, net income of $28.1
million and pro forma net income, as adjusted of $36.3 million. In 1996, the
Company's EBITDA as a percentage of revenues ("EBITDA Margin") was approximately
34%, representing the sixth consecutive year of improvement in its EBITDA
Margin. From 1992 through 1996, the Company recorded compound annual growth in
revenues and EBITDA of approximately 8% and 12%, respectively. The Company has
achieved this growth through a combination of expanding revenues in existing
geographic areas, strategic acquisitions and implementing cost controls and
ongoing expense reduction efforts at existing and acquired newspapers.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well defined
suburban circulation areas and include the St. Louis, Missouri SUBURBAN JOURNALS
(the "JOURNALS"), the largest group of weekly newspapers in the United States
based on total distribution.
4
<PAGE>
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served, and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment and culture. The Company maintains high product quality
standards, using extensive process color and compelling graphic design to
attract new readers and to more fully engage existing readers. The Company's
newspapers typically are produced using advanced prepress pagination technology
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (approximately 73% of
1996 revenues), paid circulation (23%), and commercial printing and other (4%).
The Company's advertiser base is predominantly local. The Company's newspapers
seek to produce desirable results for local advertisers by targeting readers
based on certain geographic and demographic characteristics. The Company seeks
to increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, local content and creative and interactive
promotions. The Company promotes single copy sales of its newspapers because it
believes that such sales have higher readership than subscription sales, and
that single copy readers tend to be more active consumers of goods and services,
as indicated in a recent Newspaper Association of America ("NAA") study. Single
copy sales also tend to generate higher profits than subscription sales, as
single copy sales generally have higher per unit prices and lower associated
distribution costs. Subscription sales, which provide readers with the
convenience of home delivery, are an important component of the Company's
circulation base. The Company also publishes numerous special sections and niche
and special interest publications. Such publications tend to increase readership
within targeted demographic groups and geographic areas. The Company believes
that as a result of these strategies, its newspapers represent an attractive and
cost-effective medium for its readers and advertisers.
The Company's advertising revenues in 1996 were derived primarily from a
broad group of local retailers (approximately 58%) and classified advertisers
(approximately 38%). No advertiser accounted for more than 2% of the Company's
1996 advertising revenues. The Company believes that because its newspapers rely
on a broad base of local retail and local classified advertising rather than
more volatile national and major account advertising, its advertising revenues
tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement its publishing operations,
consisting of three commercial printing operations as well as a company which
develops application software for the newspaper industry.
STRATEGY
The Company's objective is to continue its growth in revenues, cash flow,
profitability and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards.
- EXPAND ADVERTISING REVENUES AND READERSHIP. The Company focuses on
increasing advertising and circulation revenues and expanding readership
at its existing and newly acquired properties. The Company's expansion
strategy includes, among other things, cross-selling advertising space
among publications, developing creative and interactive promotional
campaigns, launching new products and increasing its on-line presence.
- GROW BY ACQUISITION. Since 1993, the Company has completed seven strategic
acquisitions and has generally increased the revenues and significantly
increased the cash flow and profitability of its acquired newspapers. The
Company seeks to acquire publications located within its existing
geographic clusters. However, the Company may acquire publications not
located within existing clusters, but which, in turn, could form the bases
of new clusters. Following the acquisition of a publication, the Company
seeks to implement improvements quickly and efficiently. Typically, these
improvements are aimed at increasing readership, enhancing advertising and
circulation revenues and reducing expenses by implementing strategies
similar to those in use at the Company's existing properties. The Company
believes that there are sufficient potential acquisition candidates to
justify the continued pursuit of its acquisition strategy.
5
<PAGE>
Historically, the Company has financed acquisitions through cash on hand
and borrowings and anticipates that it will finance future acquisitions
through cash on hand, borrowings and/or issuances of capital stock. The
Credit Agreement contains certain restrictions on sources of financing for
acquisitions. In addition, the financial covenants contained in the Credit
Agreement may limit the Company's ability to make acquisitions. See "Risk
Factors--Acquisition Strategy" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
- CAPTURE SYNERGIES FROM GEOGRAPHIC CLUSTERING. The Company's strategy of
clustering newspapers and other operations has resulted in significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news-gathering and consolidation of certain
production functions, primarily printing. Such synergies and cost savings
have resulted in the cost effective introduction of new products and
services, improved printing quality, expanded paging and improved
distribution.
- IMPLEMENT CONSISTENT OPERATING POLICIES AND STANDARDS. The Company has
developed certain operating policies and standards which it believes have
resulted in significant improvements in the cash flow and profitability of
existing and acquired newspapers. These policies and standards include
specific guidelines regarding, among other things, local content, product
quality, distribution and customer service, marketing and promotion,
financial controls, centralized purchasing and community involvement.
6
<PAGE>
The following table sets forth information regarding the Company's
newspapers:
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -----------
DAILY SUNDAY NON-DAILY DAILY
YEAR YEAR CIRCU- CIRCU- DISTRI- CIRCU-
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION LATION(2) LATION(2) BUTION(3) LATION(2)
- ------------------- ----------------- ------------- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
NEW HAVEN
REGISTER....... 1755 1989 New Haven 100,102 116,936 100,226
THE HERALD....... 1881 1995 New Britain 28,061 56,370(4)
THE BRISTOL
PRESS.......... 1871 1994 Bristol 18,238 -- (4) 20,036
THE REGISTER
CITIZEN........ 1889 1993 Torrington 13,601 12,871 14,857
THE MIDDLETOWN
PRESS.......... 1884 1995 Middletown 12,111 -- (4)
Non-Daily
Distribution... 675,010
OHIO
THE NEWS-HERALD.. 1878 1987 Lake County 51,752 64,349 53,914
THE MORNING
JOURNAL........ 1921 1987 Lorain 41,272 46,136 43,560
THE TIMES
REPORTER....... 1903 1987 Dover-New 24,316 26,513 25,829
Philadelphia
Non-Daily
Distribution... 54,651
PHILADELPHIA AND
SURROUNDING AREAS
DAILY LOCAL
NEWS........... 1872 1986 West Chester, PA 34,457 32,582 35,201
THE TIMES
HERALD......... 1799 1993 Norristown, PA 25,365 21,583 26,041
THE PHOENIX...... 1888 1986 Phoenixville, PA 4,681 4,841
THE TRENTONIAN... 1945 1985 Trenton, NJ 61,678 48,468 72,460
Non-Daily
Distribution... 164,817
GREATER ST. LOUIS
AREA
Suburban
Newspapers
of Greater St.
Louis
73 editions of
40 JOURNALS.... 1922 1984 St. Louis, MO 1,616,592
THE TELEGRAPH.... 1836 1985 Alton, IL 29,812 32,143 32,000 31,325
CENTRAL NEW ENGLAND
THE HERALD NEWS.. 1872 1985 Fall River, MA 30,319 32,558 31,827
TAUNTON DAILY
GAZETTE........ 1848 1996 Taunton, MA 15,270
THE RECORD....... 1896 1987 Troy, NY 27,216 31,003 30,012
THE CALL......... 1892 1984 Woonsocket, RI 19,807 19,485 22,877
THE TIMES........ 1885 1984 Pawtucket, RI 18,098 20,680
Non-Daily
Distribution... 153,036
----------- ----------- ----------- -----------
TOTALS............. 556,156 540,997 2,696,106 533,686
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
1994
-------------------------------------
SUNDAY NON-DAILY DAILY SUNDAY NON- DAILY
CIRCU- DISTRI- CIRCU- CIRCU- DISTRI-
PUBLICATION LATION(2) BUTION(3) LATION(2) LATION(2) BUTION(3)
- ------------------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONNECTICUT
NEW HAVEN
REGISTER....... 122,256 100,160 124,177
THE HERALD.......
THE BRISTOL
PRESS..........
THE REGISTER
CITIZEN........ 13,936
THE MIDDLETOWN
PRESS..........
Non-Daily
Distribution...
OHIO
THE NEWS-HERALD.. 65,912 56,388 67,790
THE MORNING
JOURNAL........ 47,275 44,228 48,140
THE TIMES
REPORTER....... 28,412 26,202 29,433
Non-Daily
Distribution...
PHILADELPHIA AND
SURROUNDING AREAS
DAILY LOCAL
NEWS........... 33,298 33,530 33,360
THE TIMES
HERALD......... 22,512 27,915 24,208
THE PHOENIX...... 4,975
THE TRENTONIAN... 57,164 75,437 61,482
Non-Daily
Distribution... 99,266 91,062
GREATER ST. LOUIS
AREA
Suburban
Newspapers
of Greater St.
Louis
73 editions of
40 JOURNALS.... 1,600,000 1,607,117
THE TELEGRAPH.... 33,228 33,327 35,122
CENTRAL NEW ENGLAND
THE HERALD NEWS.. 34,924 33,308 36,539
TAUNTON DAILY
GAZETTE........
THE RECORD....... 33,011 31,533 34,621
THE CALL......... 22,334 24,957 24,619
THE TIMES........ 23,088
Non-Daily
Distribution...
--------- ----------- ----------- ----------- -----------
TOTALS............. 514,262 1,699,266 515,048 519,491 1,698,179
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages are for the six months ended September 30, 1996, 1995
and 1994 according to the ABC Fas-Fax Report, and circulation averages are
for publications owned by the Company for a full year as of such dates,
other than with respect to the TAUNTON DAILY GAZETTE.
The Company provides the circulation figures set forth in the table above and
elsewhere in this Prospectus because newspaper circulation is a traditional
statistic provided by newspaper companies as descriptive of their respective
newspapers. The Company does not view circulation as a primary indicator of
operating performance or manage its business to maximize the circulation of
its individual newspapers. See "Selected Combined Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations," "Business--Strategy--Expand
Advertising Revenues and Readership" and "Business--Circulation."
(3) Non-daily distribution reflects average distribution for December 1996, 1995
and 1994, as applicable, except as otherwise noted in "Business--Overview of
Operations." Non-daily distribution includes both paid and free
distribution. Non-daily distribution for 1995 and 1994 excludes distribution
of total market coverage publications.
(4) In August 1996, the Company commenced publication of a Sunday newspaper, THE
HERALD PRESS, serving readers of THE HERALD, THE BRISTOL PRESS and THE
MIDDLETOWN PRESS.
7
<PAGE>
BACKGROUND
Affiliates of E.M. Warburg, Pincus & Co., LLC (collectively, "Warburg,
Pincus") have owned the majority of the equity securities of the Company and its
predecessors since 1983. Since 1990, Warburg, Pincus has owned substantially all
of the equity securities of the Company. Warburg, Pincus is a specialized
financial services organization which manages approximately $7.0 billion of
investments in its venture banking activities. Upon completion of the Offerings
and assuming issuance of the Bonus Shares, Warburg, Pincus will own
approximately 78.2% of the Common Stock then outstanding. Warburg, Pincus has
agreed with the Company that, following consummation of the Offerings and with
respect to any matter brought to a stockholder vote, Warburg, Pincus will vote
in its own discretion shares representing no more than 50% of the voting power
of the Company's shares entitled to vote on the applicable matter. The shares
owned by Warburg, Pincus which represent in excess of such 50% will be voted in
the same proportion as the shares voted by the other stockholders on the
applicable matter.
In 1997, the Company was converted from a limited liability company to a
Delaware corporation in connection with the Offerings. The structure of the
Company as a corporation is not expected to cause the financial condition and
operations of the Company to differ materially from its operations as a limited
liability company.
8
<PAGE>
THE OFFERINGS
The offering of 7,500,000 shares of Common Stock initially being offered in
the United States and Canada (the "U.S. Offering") and the offering of 1,875,000
shares of Common Stock initially being offered in a concurrent international
offering outside the United States and Canada (the "International Offering") are
collectively referred to as the "Offerings." The closing of each of the
Offerings is conditioned upon the closing of the other Offering.
<TABLE>
<S> <C>
Common Stock offered
United States Offering..................... 7,500,000 shares
International Offering..................... 1,875,000 shares
Total.................................... 9,375,000 shares(1)
Common Stock to be outstanding after the
Offerings.................................. 48,437,500 shares(2)
New York Stock Exchange symbol............... JRC
Use of Proceeds.............................. For repayment of outstanding indebtedness.
Approximately $34.6 million will be used to
repay indebtedness (including accrued
interest) owed to Warburg, Pincus. See "Use
of Proceeds."
</TABLE>
- ------------------------
(1) Assumes the Underwriters' over-allotment option is not exercised. If such
over-allotment is exercised, up to an additional 1,406,250 shares will be
sold by Warburg, Pincus Capital Partners, L.P. ("WPCP"), an affiliate of
E.M. Warburg, Pincus & Co., LLC, in the Offerings.
(2) Includes the Bonus Shares (as defined herein). Excludes 4,843,750 shares of
Common Stock reserved for issuance under the Company's 1997 Stock Incentive
Plan (the "1997 Plan"), of which options for 968,750 shares with an exercise
price per share equal to the Price to Public have been granted or will be
issued following completion of the Offerings and of which options to
purchase 968,750 shares with an exercise price per share equal to 150% of
the Price to Public have been granted or will be issued following completion
of the Offerings. See "Management--Compensation Pursuant to Plans--1997
Stock Incentive Plan."
RISK FACTORS
In addition to the other information contained in this Prospectus, the
discussion of risk factors, which begins on page 12 hereof, should be considered
carefully in evaluating an investment in the Common Stock. The risks of
investing in the Common Stock include the following factors: newspaper industry
competition, dependence on local economies, fluctuation of quarterly results,
the Company's acquisition strategy, the price and availability of newsprint, the
Company's indebtedness, the holding company structure, the stockholders'
deficit, the expected charge to second quarter earnings, environmental matters,
potential litigation exposure, influence by existing stockholders, anti-takeover
effect of certain certificate of incorporation and by-laws provisions, absence
of prior public market and possible volatility of stock price, shares eligible
for future sale and dilution.
9
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following summary combined data (except number of newspapers and per
share amounts) for (i) the combined balance sheets of the Company as of December
31, 1992, 1993 and 1994 and the related combined statements of operations and
cash flows for each of the two years in the period ended December 31, 1993 have
been derived from unaudited financial statements which include audited financial
statements of the Company's material subsidiaries, (ii) the combined balance
sheets of the Company as of December 31, 1995 and 1996 and the related combined
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996 have been derived from the audited financial
statements of the Company, and (iii) the combined balance sheet as of March 31,
1997 and the related combined statements of operations and cash flows for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company. In the opinion of management, the unaudited
financial statements include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The summary combined
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising................................. $ 193,064 $ 201,929 $ 224,071 $ 249,534 $ 256,971 $ 58,668 $ 60,419
Circulation................................. 54,607 58,230 65,204 73,797 79,776 19,739 19,830
--------- --------- --------- --------- --------- --------- ---------
Newspaper revenues............................ 247,671 260,159 289,275 323,331 336,747 78,407 80,249
Commercial printing and other................. 13,150 11,710 10,875 15,626 14,373 3,802 2,791
--------- --------- --------- --------- --------- --------- ---------
260,821 271,869 300,150 338,957 351,120 82,209 83,040
Operating expenses:
Salaries and employee benefits.............. 95,522 96,252 105,607 110,651 111,626 28,129 28,663
Newsprint, ink and printing charges......... 32,964 35,285 36,481 48,243 50,110 13,190 9,130
Selling, general and administrative......... 25,770 24,017 25,312 28,678 30,993 7,619 7,641
Depreciation and amortization............... 33,812 24,097 18,605 19,178 20,525 4,956 5,418
Other....................................... 30,622 30,757 34,187 38,743 38,976 9,625 9,543
Unusual items(1)............................ 119,583 241,969 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
338,273 452,377 220,192 245,493 252,230 63,519 60,395
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....................... (77,452) (180,508) 79,958 93,464 98,890 18,690 22,645
Net interest and other expense................ (60,876) (55,295) (42,049) (64,028) (56,472) (15,743) (12,989)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes, extraordinary items and cumulative
effect of accounting changes................ (138,328) (235,803) 37,909 29,436 42,418 2,947 9,656
Provision for income taxes (benefit).......... (3,726) 3,067 4,126 2,653 14,309 994 3,932
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items and
cumulative effect of accounting changes..... (134,602) (238,870) 33,783 26,783 28,109 1,953 5,724
Extraordinary items and cumulative effect of
accounting changes(2)....................... 99,146 7,698 (13,100) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................. $ (35,456) $(231,172) $ 20,683 $ 26,783 $ 28,109 $ 1,953 $ 5,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per common share(3)...... -- -- -- -- $ .74 -- $ .15
OTHER DATA:
EBITDA(4)..................................... $ 75,943 $ 85,558 $ 98,563 $ 112,642 $ 119,415 $ 23,646 $ 28,063
EBITDA Margin................................. 29.1% 31.5% 32.8% 33.2% 34.0% 28.8% 33.8%
Capital expenditures.......................... $ 3,896 $ 12,457 $ 8,326 $ 4,859 $ 7,675 $ 1,616 $ 1,531
Net cash provided by operating activities..... 20,404 23,277 46,268 26,778 60,065 8,532 14,439
Net cash used in investing activities......... 3,298 54,995 22,614 50,557 25,700 1,613 1,193
Net cash (used in) provided by financing
activities.................................. (29,495) 32,055 (33,361) 24,384 (34,441) (9,804) (15,713)
Number of daily newspapers, end of period..... 13 15 16 17 18 17 18
Number of non-daily publications, end of
period...................................... 62 65 68 114 118 114 118
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------
PRO FORMA
PRO FORMA(5) AS ADJUSTED(6)
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total current assets.............................................................. $ 61,989 $ 75,013
Property, plant and equipment, net................................................ 89,331 89,331
Total assets...................................................................... 299,275 313,520
Total current liabilities, less current maturities of long-term debt.............. 38,175 38,175
Total debt, including current maturities.......................................... 639,119 516,144
Stockholders' deficit............................................................. (417,934) (283,714)
</TABLE>
10
<PAGE>
- ------------------------------
(1) As a result of the restructuring of the Company's debt in 1992 and 1993 and
management's assessment of certain of its newspaper properties, the Company
reduced the carrying value of its intangible assets related to prior
acquisitions and reflected this charge as an unusual item in the financial
statements.
(2) Extraordinary items represent gains or losses related to debt
extinguishment. In 1992, a Plan of Reorganization of a subsidiary of the
Company was approved by the court. As a result, certain of that subsidiary's
obligations were discharged, and the Company recognized a gain on
extinguishment of debt of $113.9 million. In connection with certain
refinancings, the Company recognized a net gain of $7.7 million in 1993 and
a loss of $13.1 million in 1994 on extinguishment of debt. In 1992, the
Company incurred a charge of $14.8 million, which was classified as a
cumulative effect of accounting changes relating to the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions."
(3) The pro forma net income per common share was calculated reflecting the
37,962,500 shares which were issued prior to the Offerings but subsequent to
December 31, 1996. If effect were given to the issuance of the shares of
Common Stock in the Offerings and the Bonus Shares (as defined herein) and
to the net interest expense reduction related to the use of proceeds used to
reduce debt and additional debt to pay the cash portion of the Management
Bonuses, the pro forma net income per common share would increase by $.01
for the year end December 31, 1996 and would be the same for the three month
period ended March 31, 1997. See "The Company" and Notes 2 and 11 of "Notes
to Combined Financial Statements."
(4) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash charges. EBITDA is not
intended to represent cash flow from operations and should not be considered
as an alternative to operating or net income computed in accordance with
GAAP, as an indicator of the Company's operating performance, as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) or as a measure of liquidity. The Company believes
that EBITDA is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the media industry.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, not all companies
calculate EBITDA using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
Certain covenants contained in the Company's Credit Agreement are based upon
EBITDA. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 of "Notes to Combined Financial
Statements."
(5) Reflects the conversion of the Company from a limited liability company to a
Delaware corporation. As a result of such conversion, the membership
interests in the limited liability company were exchanged for shares of
Common Stock.
(6) Adjusted to give effect to the Offerings and the application of the net
proceeds therefrom. Also, reflects the charge for discontinuation of the
StarShare Plan (as defined herein) and for the Management Bonuses and
related incurrence of indebtedness. See "Risk Factors--Charge to Second
Quarter Earnings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Management Bonus Plan" and
"Management."
11
<PAGE>
RISK FACTORS
PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE PURCHASERS SHOULD
CONSIDER CAREFULLY AND EVALUATE, IN ADDITION TO OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, THE FOLLOWING RISK FACTORS:
NEWSPAPER INDUSTRY COMPETITION
The Company's business is concentrated in newspapers and other publications
located primarily in small metropolitan and suburban areas in the United States.
Revenues in the newspaper industry primarily consist of advertising and paid
circulation. Competition for advertising expenditures and paid circulation comes
from local, regional and national newspapers, shopping guides ("shoppers"),
television, radio, direct mail, on-line services and other forms of
communication and advertising media. Competition for newspaper advertising
expenditures is based largely upon advertiser results, readership, advertising
rates, demographics and circulation levels, while competition for circulation
and readership is based largely upon the content of the newspaper, its price and
the effectiveness of its distribution. Many of the Company's competitors are
larger and have greater financial resources than the Company. See "Business--
Competition."
DEPENDENCE ON LOCAL ECONOMIES
The Company's advertising revenues and, to a lesser extent, circulation
revenues are dependent on a variety of factors specific to the communities which
the Company's newspapers serve. These factors include, among others, the size
and demographic characteristics of the local population, local economic
conditions in general, and the related retail segments in particular, and local
weather conditions. If the local economy, prevailing retail environment or
weather conditions of the communities which the Company's newspapers serve were
to be adversely affected, there could be no assurance that the Company's
financial condition or results of operations would not be adversely affected.
For a discussion of recent population and household income trends in the areas
which are served by the Company's newspapers, see "Business--Overview of
Operations."
FLUCTUATION OF QUARTERLY RESULTS
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter, as it
includes heavy holiday season advertising. The Company expects that seasonal
fluctuations will continue to affect its results of operations in future
periods. Results of operations in any period should not be considered indicative
of the results to be expected for any future periods.
The following table sets forth certain unaudited quarterly financial data,
for each of the past nine quarters ended March 31, 1997. Operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------------ ------------------------------------------ ---------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 73,101 $ 85,690 $ 87,002 $ 93,164 $ 82,209 $ 90,367 $ 86,630 $ 91,914 83,040
Operating income.............. 17,257 25,825 23,026 27,356 18,690 25,926 24,479 29,795 22,645
Net income.................... 2,415 9,639 6,387 8,342 1,953 7,967 6,855 11,334 5,724
EBITDA(1)..................... 21,690 30,447 27,962 32,543 23,646 31,228 29,416 35,125 28,063
EBITDA Margin................. 29.7% 35.5% 32.1% 34.9% 28.8% 34.6% 34.0% 38.2% 33.8%
</TABLE>
- ------------------------
(1) See Note (4) to "Summary Combined Financial and Operating Data."
12
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Quarterly Results."
ACQUISITION STRATEGY
The Company has grown through, and anticipates that it will continue to grow
through, acquisitions of daily and non-daily newspapers and similar
publications. Acquisitions may expose the Company to particular risks,
including, without limitation, diversion of management's attention, assumption
of liabilities and amortization of goodwill and other acquired intangible
assets, some or all of which could have a material adverse effect on the
financial condition or results of operations of the Company. Depending on the
value and nature of the consideration paid by the Company for acquisitions, such
acquisitions may have a dilutive impact on the Company's earnings per share. In
making acquisitions, the Company competes for acquisition targets with other
companies, many of which are larger and have greater financial resources than
the Company. There can be no assurance that the Company will continue to be
successful in identifying acquisition opportunities, assessing the value,
strengths and weaknesses of such opportunities, evaluating the costs of new
growth opportunities at existing operations or managing the publications it owns
and improving their operating efficiency. Historically, the Company has financed
acquisitions through cash on hand and borrowings, which borrowings have
increased the Company's indebtedness. The Company anticipates that it will
finance future acquisitions through cash on hand, borrowings and issuances of
capital stock. The Credit Agreement limits acquisitions to certain permitted
investments and newspapers in the United States, and requires that acquisitions
be financed through certain permitted sources. In addition, the financial
covenants contained in the Credit Agreement may limit the Company's ability to
make acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Strategy--Grow by Acquisition."
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. The Company's newsprint
consumption (excluding paper consumed in the Company's commercial printing
operations) totaled approximately $41 million in 1996, which was approximately
12% of the Company's newspaper revenues. In 1996, the Company consumed
approximately 61,000 metric tons of newsprint. The average price per metric ton
of newsprint based on East Coast transaction prices in 1995, 1996 and March 1997
was $668, $645 and $535, respectively, as reported by the trade publication PULP
AND PAPER WEEKLY. The Company has no long-term contracts to purchase newsprint.
Generally, the Company has in the past and currently purchases all of its
newsprint from two suppliers, Abitibi-Price Inc. and Kruger Inc. Historically,
the percentage of the Company's newsprint supplied by each of such suppliers has
varied. The Company believes that it would not be materially adversely effected
if it were no longer able to purchase its newsprint supply from its two current
suppliers and that, in such event, other newsprint suppliers would be readily
available to the Company. In the future, the Company may purchase newsprint from
other suppliers. The inability of the Company to obtain an adequate supply of
newsprint in the future could have a material adverse effect on the financial
condition or results of operations of the Company. Historically, the price of
newsprint has been cyclical and volatile. In 1995 and 1996, the Company's
average cost of newsprint consumed reflected increases of approximately 34% and
13%, compared to the previous year, respectively. In December 1996, newsprint
suppliers announced a newsprint price increase planned to take effect in
February 1997; this increase was delayed. The initial announcements indicated
the increase would be $75 per metric ton. The Company has been informed by its
suppliers that they will implement some portion of the announced price increase.
The Company believes that if any price increase is sustained in the industry,
the Company will also be impacted by such increase. The Company is unable to
predict whether, or to what extent, any increase will be sustained. Significant
increases in newsprint costs could have a material adverse effect on the
financial condition or results of operations of the Company. The Company seeks
to manage the effects of increases in prices of newsprint through a combination
of, among other things, technology
13
<PAGE>
improvements, including web width reductions, inventory management and
advertising and circulation price increases. The Company also has reduced fringe
circulation in response to increased newsprint prices, as it is the Company's
experience that such circulation does not provide adequate response for
advertisers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview--Operating Expenses" and "Business--Raw
Materials."
INDEBTEDNESS
The Company has a substantial amount of indebtedness. As of March 31, 1997,
after giving effect to the Offerings, the application of the net proceeds
therefrom and the payment of the Management Bonuses, the consolidated
indebtedness of the Company would have been approximately $516.1 million, which
represents a multiple of 4.2 times the Company's twelve months trailing EBITDA
of approximately $123.8 million. As of March 31, 1997, after giving effect to
the Offerings, the application of the net proceeds therefrom and the payment of
the Management Bonuses and the amount related to the discontinuation of the
StarShare Plan, the Company would have had a net stockholders' deficit of
approximately $283.7 million and a total capitalization of $232.4 million, and,
thus, the percentage of the Company's indebtedness to total capitalization would
have been 222.1%. The Company may incur additional indebtedness to fund
operations, capital expenditures or future acquisitions. See "-- Stockholders'
Deficit," "Use of Proceeds", "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Management Bonus Plan."
The Company believes that cash provided by operating activities will be
sufficient to fund its operations and to meet payment requirements under its
Senior Secured Term Loans (collectively, the "Term Loan") and Senior Secured
Revolving Credit Facility (the "Revolver," and together with the Term Loan, the
"Senior Facilities") under the Credit Agreement (as defined herein). However, a
decline in cash provided by operating activities, which could result from
factors beyond the Company's control, such as unfavorable economic conditions,
an overall decline in advertising expenditures or increased competition, could
impair the Company's ability to service its debt. The Credit Agreement requires
the maintenance of certain financial ratios and imposes certain operating and
financial restrictions on the Company which restrict, among other things, the
Company's ability to declare dividends, redeem stock, incur indebtedness, create
liens, sell assets, consummate mergers and make capital expenditures,
investments and acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and Notes 4 and 11 of "Notes to Combined Financial Statements."
HOLDING COMPANY STRUCTURE
The Company is a holding company which conducts its operations through
direct and indirect subsidiaries. The Company's available cash will depend upon
the cash flow of its subsidiaries and the ability of such subsidiaries to make
funds available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to the Company, whether in the
form of loans, dividends or otherwise. The Credit Agreement is secured by the
common stock and certain assets of the Company's operating subsidiaries. In
addition, the Company's subsidiaries may, subject to limitations contained in
the Credit Agreement, become parties to financing arrangements which may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings of a subsidiary, creditors of such subsidiary would
generally be entitled to priority over the Company with respect to assets of the
affected subsidiary.
STOCKHOLDERS' DEFICIT
As of March 31, 1997, after giving effect to the Offerings, the application
of the net proceeds therefrom and the payment of the Management Bonuses and the
amount related to the discontinuation of
14
<PAGE>
the StarShare Plan, the stockholders' deficit of the Company would have been
approximately $283.7 million. There can be no assurance as to when or if such
deficit will be eliminated. The Company believes that the deficit does not have
a material adverse effect on its liquidity or financial condition. In each of
the financial periods covered by the Financial Statements, the stockholders'
deficit of the Company decreased as a result of increases in net income. The
stockholders' deficit increased in the period between December 31, 1993 and
December 31, 1994 due to a redemption of preferred stock, which involved a
charge of approximately $61.6 million. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Financial Statements."
CHARGE TO SECOND QUARTER EARNINGS
The Company expects to incur a charge to pre-tax earnings of approximately
$ million in the second quarter of 1997. The charge consists of an amount for
the Management Bonuses and an amount for the discontinuation of the StarShare
Plan. The Management Bonuses are expected to account for approximately $
million of such charge, comprised of 1,100,000 shares of Common Stock (the
"Bonus Shares"), the per share value of which, upon award, was equal to the
Price to Public set forth on the cover page of this Prospectus (the "Price to
Public") of $ , plus a cash portion of approximately $ million. The Company
expects that the cash portion of the Management Bonuses will be used to satisfy
recipients' tax obligations arising from the Management Bonuses. The
discontinuation of the StarShare Plan (as defined herein) will account for
approximately $3.0 million of such charge. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Management Bonus
Plan," "Management--Compensation Pursuant to Plans--Management Bonus Plan,"
"Management--Executive Compensation" and "Certain Transactions."
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations pertaining to air and water quality, storage
tanks and the management and disposal of wastes at its facilities. To the best
of the Company's knowledge, its operations are in material compliance with
applicable environmental laws and regulations as currently interpreted. The
Company cannot predict with any certainty whether future events, such as changes
in existing laws and regulations or the discovery of conditions not currently
known to the Company, may give rise to additional costs which could be material.
Furthermore, actions by federal, state and local governments concerning
environmental matters could result in laws or regulations that could have a
material adverse effect on the financial condition or results of operations of
the Company. The Company is not aware of any pending legislation by federal,
state or local governments relating to environmental matters which, if enacted,
would reasonably be expected to have a material adverse effect on the financial
condition or results of operations of the Company. See "Business--Environmental
Matters."
POTENTIAL LITIGATION EXPOSURE
The Company and its subsidiaries are involved in a number of litigation
matters which have arisen in the ordinary course of business. The Company
believes that the outcome of these legal proceedings will not have a material
adverse effect on the Company's financial condition or results of operations.
For the periods covered by the Financial Statements contained herein, the
Company has not paid damages in connection with litigation matters that have had
a material adverse effect on the financial condition or results of operations of
the Company. See "Business--Legal Proceedings."
INFLUENCE BY EXISTING STOCKHOLDER
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
Warburg, Pincus will beneficially own approximately 78.2% of the outstanding
shares of the Common Stock. Warburg, Pincus has agreed with the Company that,
following completion of the Offerings and with respect to any matter
15
<PAGE>
brought to a stockholder vote, Warburg, Pincus will vote in its own discretion
shares representing no more than 50% of the voting power of the Company's shares
entitled to vote on the applicable matter. The shares owned by Warburg, Pincus
which represent in excess of such 50% will be voted in the same proportion as
the shares voted by the other stockholders on the applicable matter.
Notwithstanding such agreement, it is probable that Warburg, Pincus will
continue to be able to elect the Company's Board of Directors (the "Board of
Directors") and take, or block, other corporate actions requiring stockholder
approval, as well as to dictate the direction and policies of the Company. The
concentration of ownership, whether or not the agreement is in effect, also
could delay, deter or prevent a sale of the Company or a majority of the
outstanding stock of the Company. The controlling stock ownership of the Company
by Warburg, Pincus could result in changes in the Company's structure, even if
not deemed to be in the best interest of the minority stockholders of the
Company. See "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECT OF CERTAIN CERTIFICATE
OF INCORPORATION AND BY-LAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate") and By-laws (the "By-laws") may have the effect of delaying,
deterring or preventing a sale of the Company or a majority of the outstanding
stock of the Company. Such provisions may also render the removal of directors
and management more difficult. Specifically, the By-laws provide for a
classified Board of Directors serving staggered three-year terms, restrictions
on who may call a special meeting of stockholders, a prohibition on stockholder
action by written consent and certain advance notice requirements for
stockholder nominations of candidates for election to the Board of Directors and
certain other stockholder proposals. The Certificate does not include an
election to opt out of the Delaware anti-takeover statute. In addition, the
Certificate authorizes the issuance of preferred stock, par value $.01 per share
(the "Preferred Stock"), without stockholder approval and upon such terms as the
Board of Directors may determine. The issuance of Preferred Stock may also have
the effect of delaying, deterring or preventing a sale of the Company or a
majority of the outstanding stock of the Company. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of Preferred Stock that may be issued in the future. The Company has no
present plans to issue any shares of Preferred Stock. See "Description of
Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET;
POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, there can be no
assurance that an active trading market for the Common Stock will develop or be
sustained following the Offerings or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiation between the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. The price at which the Common Stock will
trade will depend upon a number of factors, some of which are beyond the
Company's control. Such factors include, but are not limited to, the Company's
historical and anticipated operating results, general market and economic
conditions, quarterly fluctuations in the Company's financial and operating
results, announcements by the Company or others and developments affecting the
Company, its publications, its advertisers, readers and suppliers, the markets
in which it competes or the newspaper industry generally. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations.
These broad market fluctuations may have an adverse effect on the market price
of the Common Stock. See "Underwriters-- Pricing of the Offerings."
16
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise could have an adverse effect on the price of the Common Stock. The
shares of Common Stock sold in the Offerings will be eligible for immediate
resale, except to the extent acquired by "affiliates" of the Company, as such
term is defined in Rule 144. Additionally, the Bonus Shares and 37,962,500
shares of Common Stock will be eligible for sale in the public market pursuant
to Rule 144 or Rule 701 ("Rule 701") under the Securities Act, or otherwise, 180
days after the effective date of the Registration Statement of which this
Prospectus is a part upon expiration of lock-up agreements with the
Underwriters. Sales of such shares in the public market or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock or impair the Company's ability to raise additional capital in the future
through the sale of equity securities. Any additional shares outstanding upon
completion of these Offerings will be eligible for sale pursuant to Rule 144
upon the expiration of the applicable holding period. Promptly after completion
of the Offerings, the Company has covenanted to file with the Securities and
Exchange Commission (the "Commission") a registration statement covering the
Bonus Shares and the shares of Common Stock underlying grants available under
the 1997 Plan. In addition, Warburg, Pincus and certain individuals
(collectively, the "Individuals") who, immediately prior to completion of the
Offerings, owned in the aggregate less than 1% of the shares of Common Stock
outstanding, have rights under certain circumstances to require the Company to
register a total of 37,962,500 shares of Common Stock, in certain cases, after
expiration of lock-up agreements. See "Management--Compensation Pursuant to
Plans," "Description of Capital Stock--Registration Rights," "Shares Eligible
for Future Sale" and "Underwriters."
DILUTION
Investors purchasing Common Stock in the Offerings will incur substantial
and immediate dilution in the amount of approximately $(24.49) in net tangible
book value per share of Common Stock from the initial public offering price. See
"Dilution."
17
<PAGE>
THE COMPANY
The Company is a leading U.S. newspaper publisher, with total paid daily
circulation of approximately 556,000 and total non-daily distribution of
approximately 2.7 million. The Company owns and operates 18 daily newspapers and
118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Warburg, Pincus has owned the majority of the equity securities of the
Company and its predecessors since 1983. Since 1990, Warburg, Pincus has owned
substantially all of the equity securities of the Company. Upon completion of
the Offerings and assuming issuance of the Bonus Shares, Warburg, Pincus will
own approximately 78.2% of the Common Stock then outstanding.
Beginning in 1983, Warburg, Pincus acquired and owned newspaper publications
in partnership with the prior management of the Company's predecessors. In 1990,
Warburg, Pincus acquired substantially all of the equity securities of these
ventures, and such ventures have been operated by current management since such
time. In 1992 and 1993, certain of the Company's subsidiaries underwent certain
debt restructuring transactions. See Note 2 of "Selected Combined Financial and
Operating Data." In 1997, the Company was converted from a limited liability
company into a Delaware corporation in connection with the Offerings. See Note
11 of "Notes to Combined Financial Statements."
The Company's principal executive office is located at State Street Square,
50 West State Street, Trenton, New Jersey 08608-1298, and its telephone number
is (609) 396-2200. The Company's Internet address is
http://www.journalregister.com.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock in the
Offerings are estimated to be $137.4 million, after deducting underwriting
discounts and commissions and estimated offering expenses and assuming an
initial offering price of $16 per share. The Company will not receive any
proceeds from the sale of Common Stock by WPCP if the Underwriters'
over-allotment option is exercised.
The Company intends to use the net proceeds of the Offerings to repay
indebtedness. Approximately $102.8 million of such proceeds will be used to
repay a portion of the amounts outstanding under the Term Loan and the Revolver,
which bear interest at floating rates which were each approximately 7.75% per
annum (as of January 1, 1997). The Term Loan has a final maturity of December
31, 2002, and all borrowings under the Revolver must be repaid by December 31,
2003. Paydowns on the Revolver increase the availability thereof, subject to the
requirement that all borrowings must be repaid by December 31, 2003. In
connection with the Offerings, the Credit Agreement will be amended and
restated. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Approximately $34.6
million of the net proceeds will be used to retire all of the outstanding
principal amount of and accrued and unpaid interest on the Company's
Subordinated Notes due to Warburg, Pincus, which bear interest at a rate of
10.0% per annum and mature on June 30, 2002 (the "Subordinated Notes"). The
Company intends to use cash on hand and/or borrowings under the Revolver to fund
the cash portion of the Management Bonuses. The Company expects that the
Management Bonuses will total approximately $ million, comprised of 1,100,000
Bonus Shares, valued, upon award, at the Price to Public of $ per share, plus
a cash portion of approximately $ million. The Company expects that the cash
portion of the Management Bonuses will be used to satisfy recipients' tax
obligations arising from the Management Bonuses. See "Risk Factors--Charge to
Second Quarter Earnings," "Management--Compensation Pursuant to
Plans--Management Bonus Plan," "Certain Transactions" and Notes 4 and 11 of
"Notes to Combined Financial Statements."
18
<PAGE>
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
Company intends to retain future earnings for reinvestment in the Company. In
addition, the Credit Agreement places limitations on the Company's ability to
pay dividends or make any other distributions on the Common Stock. See Note 4 of
"Notes to Combined Financial Statements." Any future determination as to the
payment of dividends will be subject to such prohibitions and limitations, will
be at the discretion of the Board of Directors and will depend on the Company's
results of operations, financial condition, capital requirements and other
factors deemed relevant by the Board of Directors. See "Risk Factors--Holding
Company Structure" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DILUTION
The pro forma net tangible book deficit of the Company as of March 31, 1997
was $545.6 million, or approximately $14.37 per share of Common Stock. Net
tangible book deficit per share represents the amount of total tangible assets
less total liabilities, as of March 31, 1997, divided by the aggregate number of
shares of Common Stock to be issued in connection with the conversion of the
Company from a limited liability company to a Delaware corporation. After giving
effect to the sale by the Company of the 9,375,000 shares of Common Stock in the
Offerings (at an assumed price of $16 per share less underwriting discounts and
commissions and estimated offering expenses), payment of Management Bonuses
including issuance of Bonus Shares and the charge related to the discontinuation
of the StarShare Plan, the net tangible book deficit of the Company on March 31,
1997 would have been $411.3 million or $8.49 per share. This represents an
immediate decrease in net tangible book deficit of $5.88 per share of Common
Stock to existing stockholders and an immediate dilution of approximately $24.49
per share to new investors purchasing shares in the Offerings. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................. $ 16.00
Net tangible book (deficit) per share before the Offerings............ $ (14.37)
Increase per share attributable to the Offerings...................... 5.88
---------
Net tangible book (deficit) per share after the Offerings............... (8.49)
---------
Dilution per share to new investors..................................... $ (24.49)
---------
---------
</TABLE>
The following table sets forth on a pro forma basis reflecting the
completion of the Offerings as of March 31, 1997, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by the new
investors purchasing shares of Common Stock from the Company in the Offerings
(before deducting the underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 37,962,500 78% $ 224,271 57% $ 5.91
New investors......................................... 9,375,000 20 150,000 38 $ 16.00
Management............................................ 1,100,000 2 17,600 5 $ 16.00
------------ ----- ---------- -----
Total................................................. 48,437,500 100% $ 391,871 100%
------------ ----- ---------- -----
------------ ----- ---------- -----
</TABLE>
The foregoing calculations reflect the issuance of the Bonus Shares to
certain management employees, assume no exercise of the Underwriters'
over-allotment option and exclude shares subject to options granted under the
1997 Plan that will be issued following completion of the Offerings. See
"Management--Compensation Pursuant to Plans--1997 Stock Incentive Plan."
19
<PAGE>
CAPITALIZATION
The following table sets forth the historical, pro forma and pro forma, as
adjusted capitalization of the Company as of March 31, 1997. The pro forma
capitalization reflects the conversion of the Company from a limited liability
company to a Delaware corporation. The pro forma as adjusted capitalization
reflects the Offerings, and the application of the estimated net proceeds
therefrom, the discontinuation of the StarShare Plan and the payment of the
Management Bonuses. See "The Company," "Use of Proceeds" and
"Management--Compensation Pursuant to Plans--Management Bonus Plan." This table
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus. See "Combined Financial Statements" and
Notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt (including current maturities):
Term Loan................................................................. $ 487,995 $ 487,995 $ 397,995
Revolver.................................................................. 116,000 116,000 117,166
Subordinated Notes and accrued interest due to stockholders............... 34,141 34,141 --
Other debt................................................................ 983 983 983
---------- ---------- -----------
Total debt.............................................................. 639,119 639,119 516,144
Stockholders' equity (deficit):
Membership interests...................................................... 2,104 -- --
Common stock, par value $.01 per share, 300,000,000 shares authorized,
37,962,500 shares issued and outstanding pro forma and 48,437,500 shares
issued and outstanding as adjusted(1)................................... -- 380 484
Additional paid-in capital................................................ 222,167 223,891 378,762
Accumulated deficit....................................................... (642,205) (642,205) (662,960)
---------- ---------- -----------
Total stockholders' deficit............................................. (417,934) (417,934) (283,714)
---------- ---------- -----------
Total capitalization........................................................ $ 221,185 $ 221,185 $ 232,430
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------------
(1) Includes the issuance of the Bonus Shares. Excludes 4,843,750 shares of
Common Stock reserved for issuance under the 1997 Plan, of which options for
1,937,500 shares have been granted or will be issued following completion of
the Offerings. See "Management--Compensation Pursuant to Plans."
20
<PAGE>
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The following summary combined data (except number of newspapers and per
share amounts) for (i) the combined balance sheets of the Company as of December
31, 1992, 1993 and 1994 and the related combined statements of operations and
cash flows for each of the two years in the period ended December 31, 1993 have
been derived from unaudited financial statements which include audited financial
statements of the Company's material subsidiaries, (ii) the combined balance
sheets of the Company as of December 31, 1995 and 1996 and the related combined
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996 have been derived from the audited financial
statements of the Company, and (iii) the combined balance sheet as of March 31,
1997 and the related combined statement of operations and cash flows for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company. In the opinion of management, the unaudited
financial statements include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The selected combined
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising.............................. $ 193,064 $ 201,929 $ 224,071 $ 249,534 $ 256,971 $ 58,668 $ 60,419
Circulation.............................. 54,607 58,230 65,204 73,797 79,776 19,739 19,830
--------- --------- --------- --------- --------- --------- ---------
Newspaper revenues......................... 247,671 260,159 289,275 323,331 336,747 78,407 80,249
Commercial printing and other.............. 13,150 11,710 10,875 15,626 14,373 3,802 2,791
--------- --------- --------- --------- --------- --------- ---------
260,821 271,869 300,150 338,957 351,120 82,209 83,040
Operating expenses:
Salaries and employee benefits........... 95,522 96,252 105,607 110,651 111,626 28,129 28,663
Newsprint, ink and printing charges...... 32,964 35,285 36,481 48,243 50,110 13,190 9,130
Selling, general and administrative...... 25,770 24,017 25,312 28,678 30,993 7,619 7,641
Depreciation and amortization............ 33,812 24,097 18,605 19,178 20,525 4,956 5,418
Other.................................... 30,622 30,757 34,187 38,743 38,976 9,625 9,543
Unusual items(1)......................... 119,583 241,969 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
338,273 452,377 220,192 245,493 252,230 63,519 60,395
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).................... (77,452) (180,508) 79,958 93,464 98,890 18,690 22,645
Net interest and other expense............. (60,876) (55,295) (42,049) (64,028) (56,472) (15,743) (12,989)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes, extraordinary items and cumulative
effect of accounting changes............. (138,328) (235,803) 37,909 29,436 42,418 2,947 9,656
Provision for income taxes (benefit)....... (3,726) 3,067 4,126 2,653 14,309 994 3,932
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items
and cumulative effect of accounting
changes.................................. (134,602) (238,870) 33,783 26,783 28,109 1,953 5,724
Extraordinary items and cumulative effect
of accounting changes(2)................. 99,146 7,698 (13,100) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ (35,456) $(231,172) $ 20,683 $ 26,783 $ 28,109 $ 1,953 $ 5,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per common share(3)... -- -- -- -- $ .74 -- $ .15
OTHER DATA:
EBITDA(4).................................. $ 75,943 $ 85,558 $ 98,563 $ 112,642 $ 119,415 $ 23,646 $ 28,063
EBITDA Margin.............................. 29.1% 31.5% 32.8% 33.2% 34.0% 28.8% 33.8%
Capital expenditures....................... $ 3,896 $ 12,457 $ 8,326 $ 4,859 $ 7,675 $ 1,616 $ 1,531
Net cash provided by operating
activities............................... 20,404 23,277 46,268 26,778 60,065 8,532 14,439
Net cash used in investing activities...... 3,298 54,995 22,614 50,557 25,700 1,613 1,193
Net cash (used in) provided by financing
activities............................... (29,495) 32,055 (33,361) 24,384 (34,441) (9,804) (15,713)
Number of daily newspapers, end of period.. 13 15 16 17 18 17 18
Number of non-daily publications, end of
period................................... 62 65 68 114 118 114 118
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets................................. $ 57,248 $ 57,901 $ 56,959 $ 73,456 $ 66,035 $ 61,989
Property, plant and equipment, net................... 105,012 104,958 100,842 99,036 91,713 89,331
Total assets......................................... 447,734 244,428 245,290 306,434 305,985 299,275
Total current liabilities, less current maturities of
long-term debt..................................... 54,167 31,028 33,734 44,582 37,720 38,175
Total debt, including current maturities............. 570,777 625,317 664,298 689,256 654,825 639,119
Members' deficit(5).................................. (206,462) (437,634) (478,548) (451,767) (423,658) (417,934)
</TABLE>
- ------------------------
(1) As a result of the restructuring of the Company's debt in 1992 and 1993 and
management's assessment of certain of its newspaper properties, the Company
reduced the carrying value of its intangible assets related to prior
acquisitions and reflected this charge as an unusual item in the financial
statements.
(2) Extraordinary items represent gains or losses related to debt
extinguishment. In 1992, a Plan of Reorganization of a subsidiary of the
Company was approved by the court. As a result, certain of that subsidiary's
obligations were discharged, and the Company recognized a gain on
extinguishment of debt of $113.9 million. In connection with certain
refinancings, the Company recognized a net gain of $7.7 million in 1993 and
a loss of $13.1 million in 1994 on extinguishment of debt. In 1992, the
Company incurred a charge of $14.8 million, which was classified as a
cumulative effect of accounting changes relating to the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions."
(3) The pro forma net income per common share was calculated reflecting the
37,962,500 shares which were issued prior to the Offerings but subsequent to
December 31, 1996. If effect were given to the issuance of the shares of
Common Stock in the Offerings and the Bonus Shares and to the net interest
expense reduction related to the use of proceeds used to reduce debt and
additional debt to pay the cash portion of the Management Bonuses, the pro
forma net income per common share would increase by $.01 for the year end
December 31, 1996 and would be the same for the three month period ended
March 31, 1997. See "The Company" and Notes 2 and 11 of "Notes to the
Combined Financial Statements."
(4) See Note (4) to "Summary Combined Financial and Operating Data."
(5) During 1994, the Company was converted into a limited liability company. In
connection with such conversion, the Company's preferred stock and dividends
in arrears thereon were redeemed for approximately $61.6 million. For the
years ended December 31, 1992 and 1993, Members' deficit refers to
Stockholders' deficit.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL COMBINED FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company's principal business is publishing newspapers in the United
States, where its publications are primarily small metropolitan and suburban
daily newspapers and suburban and community non-daily newspapers. The Company's
revenues are derived from advertising, paid circulation and commercial printing
and other.
The Company currently owns and operates 18 daily newspapers and 118
non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company has total paid daily circulation of
556,000, total paid Sunday circulation of 541,000, and total non-daily
distribution of 2.7 million.
The Company's objective is to continue its growth in revenues, EBITDA,
EBITDA Margin and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards. Since 1993, the Company
has successfully completed seven strategic acquisitions, acquiring six daily
newspapers, 52 non-daily publications and one commercial printing company which
prints several of the non-daily publications acquired.
The Company believes that small metropolitan and suburban daily newspapers
and suburban and community non-daily newspapers are generally effective in
addressing the needs of local readers and advertisers under widely varying
economic conditions. The Company believes that because its newspapers rely on a
broad base of local retail and local classified advertising rather than more
volatile national and major account advertising, its advertising revenues tend
to be relatively stable.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards which it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content; (ii) maintaining and
improving product quality; (iii) enhancing distribution and customer service;
(iv) facilitating marketing and promotion; (v) implementing financial controls;
and (vi) promoting community involvement. See "Business--Strategy."
SOURCES OF REVENUES
The Company's revenues are derived from advertising (73.2% of 1996
revenues), paid circulation (22.7%) and commercial printing and other (4.1%).
The Company has a broad and diverse advertiser base, of which no advertiser
accounted for more than 2.0% of the Company's 1996 advertising revenues.
Substantially all of the Company's advertising revenues in 1996 were derived
from local retailers (58.3%) and classified advertisers (37.6%). Changes in
advertising rates are driven primarily by results achieved for advertisers,
local economic conditions and competition. The Company generally seeks to
increase advertising rates annually and has generally done so at the majority of
its newspapers for each of the past five years.
Circulation revenues are derived from home delivery sales to subscribers and
single copy sales made through retail outlets and vending machines. In 1996,
71.5% of circulation revenues were derived from subscription sales and 28.5%
were derived from single copy sales. Single copy rates currently range from $.35
to $.50 per daily copy and from $.50 to $1.75 per Sunday copy. The Company
implements creative and
23
<PAGE>
interactive programs and promotions to increase readership and circulation,
through both subscription and single copy sales. Circulation has generally
declined throughout the newspaper industry in recent years, and the Company's
newspapers have generally experienced this trend, even as operating performance
has improved. The Company seeks to maximize the overall operating performance of
its newspapers rather than maximizing circulation, and does not view circulation
as a primary indicator of operating performance.
OPERATING EXPENSES
Operating expenses (excluding depreciation and amortization) represented
66.0% of the Company's revenues in 1996. The Company's primary expenses are:
salaries and employee benefits (31.8% of 1996 revenues); newsprint, ink and
printing charges (14.3%); selling, general and administrative expenses (8.8%),
which include insurance, telecommunication services, bad debt expense, promotion
expense and agency commissions; and other expenses (11.1%), which include, among
other items, costs related to newspaper delivery, editorial expenses such as
correspondents, wire services, syndicated columnists, supplies and production
costs other than newsprint, ink and printing charges, such as printing plates
and composing charges. The Company is focused on minimizing expenses and has
successfully reduced operating expenses (excluding non-cash charges) as a
percentage of revenues in each of the past six years.
Salaries and employee benefits are the Company's largest operating expense.
The Company has been able to control salaries and employee benefit expenses as a
result of efficiencies realized from implementing new technology as well as its
focus on synergies from its strategy of clustering operations. In 1996, salaries
and employee benefits increased .9% due to acquisitions, but decreased as a
percentage of revenues. For operations owned for the full twelve months in both
1995 and 1996, salaries and employee benefit expenses declined by 5.1%.
Newsprint represents the single largest raw material expense of the Company
and, after salaries and employee benefit expenses, is its most significant
operating expense. Newsprint expense increased significantly in 1995 on an
industry-wide basis, peaking at $770 per metric ton in the first quarter of 1996
(based on average East Coast transaction prices), as reported by the trade
publication PULP AND PAPER WEEKLY. Prices began to decrease in the second
quarter of 1996 and, by December 1996, had decreased to $510 per metric ton
(based on East Coast transaction prices). In December 1996, newsprint suppliers
announced a newsprint price increase to take effect in February 1997; this
increase was delayed. The initial announcements indicated the increase would be
$75 per metric ton. The Company has been informed by its suppliers that they
will implement some portion of the announced price increase. The Company
believes that if any price increase is sustained in the industry, the Company
will also be impacted by such increase. The Company is unable to predict
whether, or to what extent, any increase will be sustained. The Company has in
the past implemented programs to reduce newsprint consumption to offset
newsprint price increases. For example, in 1995 the Company began reducing web
widths at a majority of its newspapers, which has resulted in reduced page sizes
and produced a corresponding decrease in newsprint consumption by approximately
8%. As part of its effort to control expenses, the Company actively manages its
newsprint inventory based on anticipated changes in newsprint prices and adjusts
advertising and circulation rates to offset, in part, the effects of changes in
newsprint prices. See "Risk Factors--Price and Availability of Newsprint" and
"Business--Raw Materials."
24
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected combined financial information for the
years ended December 31, 1994, 1995 and 1996 and for the three months ended
March 31, 1996 and 1997 and the approximate percentage of revenues represented
thereby:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------------------- ------------------------
% OF % OF % OF % OF
1994 REVENUES 1995 REVENUES 1996 REVENUES 1996 REVENUES
--------- ------------- --------- ------------- --------- ------------- --------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Advertising....... $ 224,071 74.7% $ 249,534 73.6% $ 256,971 73.2% $ 58,668 71.4%
Circulation....... 65,204 21.7 73,797 21.8 79,776 22.7 19,739 24.0
--------- ----- --------- ----- --------- ----- --------- -----
Newspaper
revenues.......... 289,275 96.4 323,331 95.4 336,747 95.9 78,407 95.4
Commercial printing
and other......... 10,875 3.6 15,626 4.6 14,373 4.1 3,802 4.6
--------- ----- --------- ----- --------- ----- --------- -----
300,150 100.0 338,957 100.0 351,120 100.0 82,209 100.0
Operating expenses:
Salaries and
employee
benefits........ 105,607 35.2 110,651 32.6 111,626 31.8 28,129 34.2
Newsprint, ink and
printing
charges......... 36,481 12.2 48,243 14.2 50,110 14.3 13,190 16.1
Selling, general
and
administrative... 25,312 8.4 28,678 8.5 30,993 8.8 7,619 9.3
Depreciation and
amortization.... 18,605 6.2 19,178 5.7 20,525 5.8 4,956 6.0
Other............. 34,187 11.4 38,743 11.4 38,976 11.1 9,625 11.7
--------- ----- --------- ----- --------- ----- --------- -----
220,192 73.4 245,493 72.4 252,230 71.8 63,519 77.3
--------- ----- --------- ----- --------- ----- --------- -----
Operating income.... 79,958 26.6 93,464 27.6 98,890 28.2 18,690 22.7
Net interest and
other expense..... (42,049) (14.0) (64,028) (18.9) (56,472) (16.1) (15,743) (19.1)
--------- ----- --------- ----- --------- ----- --------- -----
Income before
provision for
income taxes and
extraordinary
item.............. 37,909 12.6 29,436 8.7 42,418 12.1 2,947 3.6
Provision for income
taxes............. 4,126 1.4 2,653 .8 14,309 4.1 994 1.2
--------- ----- --------- ----- --------- ----- --------- -----
Income before
extraordinary
items............. 33,783 11.2 26,783 7.9 28,109 8.0 1,953 2.4
Extraordinary item:
Loss on
extinguishment
of debt......... (13,100) (4.4) -- -- -- -- -- --
--------- ----- --------- ----- --------- ----- --------- -----
Net income.......... $ 20,683 6.8% $ 26,783 7.9% $ 28,109 8.0% $ 1,953 2.4%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
OTHER DATA:
EBITDA(1)........... $ 98,563 32.8% $ 112,642 33.2% $ 119,415 34.0% $ 23,646 28.8%
Net cash provided by
operating
activities........ $ 46,268 $ 26,778 $ 60,065 $ 8,532
Net cash used in
investing
activities........ 22,614 50,557 25,700 1,613
Net cash (used in)
provided by
financing
activities........ (33,361) 24,384 (34,441) (9,804)
Number of daily
newspapers, end of
period............ 16 17 18 17
Number of non-daily
publications, end
of period......... 68 114 118 114
<CAPTION>
% OF
1997 REVENUES
--------- -------------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Advertising....... $ 60,419 72.8%
Circulation....... 19,830 23.9
--------- -----
Newspaper
revenues.......... 80,249 96.7
Commercial printing
and other......... 2,791 3.3
--------- -----
83,040 100.0
Operating expenses:
Salaries and
employee
benefits........ 28,663 34.5
Newsprint, ink and
printing
charges......... 9,130 11.0
Selling, general
and
administrative... 7,641 9.2
Depreciation and
amortization.... 5,418 6.5
Other............. 9,543 11.5
--------- -----
60,395 72.7
--------- -----
Operating income.... 22,645 27.3
Net interest and
other expense..... (12,989) (15.6)
--------- -----
Income before
provision for
income taxes and
extraordinary
item.............. 9,656 11.7
Provision for income
taxes............. 3,932 4.8
--------- -----
Income before
extraordinary
items............. 5,724 6.9
Extraordinary item:
Loss on
extinguishment
of debt......... -- --
--------- -----
Net income.......... $ 5,724 6.9%
--------- -----
--------- -----
OTHER DATA:
EBITDA(1)........... $ 28,063 33.8%
Net cash provided by
operating
activities........ $ 14,439
Net cash used in
investing
activities........ 1,193
Net cash (used in)
provided by
financing
activities........ (15,713)
Number of daily
newspapers, end of
period............ 18
Number of non-daily
publications, end
of period......... 118
</TABLE>
- ------------------------
(1) See Note (4) to "Summary Combined Financial and Operating Data."
The Company's revenues increased from $260.8 million in 1992 to $351.1
million in 1996. EBITDA has grown from $75.9 million to $119.4 million over the
same period. Growth in revenues and EBITDA was mainly attributable to
acquisitions consummated since 1993, expansion in advertising and circulation
revenues and the Company's continued focus on expense controls. During 1992 and
1993, the Company
25
<PAGE>
evaluated its intangible assets based on facts and circumstances existing at the
time. The Company's evaluation considered the outlook for the newspaper
properties it owned, its capital structure and the industry conditions existing
at the time. As a result of this evaluation, the Company reduced its intangible
assets by $119.6 million and $242.0 million in 1992 and 1993, respectively.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company's results for the three months ended March 31, 1997 discussed
below include the results of the TAUNTON DAILY GAZETTE (the "Taunton
acquisition") from its acquisition date of December 13, 1996.
REVENUES. In the three months ended March 31, 1997, revenues increased
$831,000, or 1.0% to $83.0 million from $82.2 million in the first quarter of
1996. Newspaper revenues increased $1.8 million, or 2.4%, to $80.2 million in
the first quarter of 1997 from $78.4 million in the first quarter of 1996
primarily due to an increase in advertising revenues. Advertising revenues
increased $1.7 million, or 3.0%, to $60.4 million in the first quarter of 1997,
from $58.7 million in the first quarter of 1996 primarily due to volume
increases and the Taunton acquisition. Circulation revenues increased
approximately $100,000, to $19.8 million in the first quarter of 1997 from $19.7
million in the first quarter of 1996. Commercial printing and other revenues
decreased approximately $1.0 million or 26.6%, from $3.8 million in the first
quarter of 1996 to $2.8 million in the first quarter of 1997, reflecting the
continued highly competitive conditions in the commercial printing industry.
Commercial printing and other represented 3.4% of the Company's revenues in the
first quarter of 1997 compared to 4.6% in the first quarter of 1996.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In the first quarter of 1997,
salaries and employee benefit expenses accounted for 34.5% of the Company's
revenues, as compared to 34.2% in the first quarter of 1996. Salaries and
employee benefit expenses increased approximately $534,000, or 1.9%, to $28.7
million in the first quarter of 1997 from $28.1 million in the first quarter of
1996 due to the Taunton acquisition.
NEWSPRINT, INK AND PRINTING CHARGES. In the first quarter of 1997,
newsprint, ink and printing charges accounted for 11.0% of the Company's
revenues, as compared to 16.0% in the first quarter of 1996. Newsprint, ink and
printing charges decreased $4.1 million, or 30.8%, in the first quarter of 1997
to $9.1 million from $13.2 million in the first quarter of 1996, primarily as a
result of a decrease in the average price per ton of newsprint in the first
quarter of 1997 as compared to the first quarter of 1996, which accounted for
approximately $3.0 million of this decrease. The Company reduced the width of
several of its newspapers after March 31, 1996, which resulted in savings of
approximately $200,000 in the first quarter of 1997, as compared to the first
quarter of 1996. See "Business--Raw Materials." The other significant decrease
related to a reduction in commercial printing jobs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the first quarter of 1997,
selling, general and administrative expenses accounted for 9.2% of the Company's
revenues, as compared to 9.3% in the first quarter of 1996. Selling, general and
administrative expenses for the first quarter of 1997 were basically flat
compared with the first quarter of 1996, at approximately $7.6 million in both
periods.
DEPRECIATION AND AMORTIZATION EXPENSE. In the first quarter of 1997,
depreciation and amortization expense accounted for 6.5% of the Company's
revenues, as compared to 6.0% in the first quarter of 1996. Depreciation and
amortization expense increased approximately $462,000, or 9.3%, to $5.4 million
in the first quarter of 1997 from $5.0 million in the first quarter of 1996;
this was primarily due to an increase in amortization expense primarily due to
the amortization of intangible assets, most of which related to the Taunton
acquisition.
OTHER EXPENSES. In the first quarter of 1997, other expenses accounted for
11.5% of the Company's revenues, as compared to 11.7% in the first quarter of
1996. Other expenses were basically flat for the first quarter of 1997 as
compared to the first quarter of 1996, decreasing $81,000.
26
<PAGE>
OPERATING INCOME. Operating income increased 21.2% to $22.6 million in the
first quarter of 1997 from $18.7 million in the first quarter of 1996. As a
percentage of revenues, operating income increased from 22.7% in the first
quarter of 1996 to 27.3% in the first quarter of 1997.
NET INTEREST EXPENSE. Net interest expense was approximately $12.9 million
in the first quarter of 1997, a decrease of 16.4% from net interest expense of
$15.5 million in the first quarter of 1996. The decrease of $2.5 million
reflects a decrease in average borrowing rates and an approximately $41.0
million decrease in average debt outstanding during the first quarter of 1997.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
33.7% and 40.7% for the quarters ended March 31, 1996 and 1997, respectively. In
1996, the effective tax rate was lower than the combined federal and state
statutory rates primarily due to the recognition of tax benefits which had been
offset by a valuation allowance in previous years. See Note 6 of "Notes to
Combined Financial Statements (Unaudited)." In the first quarter of 1997, the
effective tax rate substantially approximates the combined federal and state
statutory rates. The Company intends to implement various tax strategies in the
second half of 1997 which the Company expects will result in an effective tax
rate of approximately 37% for 1998.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. In 1996, revenues increased $12.1 million, or 3.6%, to $351.1
million from $339.0 million in 1995, primarily as a result of acquisitions.
Revenues in 1995 reflect the results of operations since the 1995 acquisitions
of New England Acquisition Corp. (42 non-daily publications and one commercial
printing company), THE HERALD and THE MIDDLETOWN PRESS, as compared to the full
12 months of results for each of these acquired companies in 1996. Newspaper
revenues for operations owned during the full 12 months in both periods were
basically flat, at $304.2 million in 1995 and $304.0 million in 1996.
Advertising revenues increased $7.5 million, or 3.0%, to $257.0 million in 1996
from $249.5 million in 1995. For newspapers operated during the full 12 months
in both periods, advertising revenues declined 1.0% to $231.7 million in 1996
from $234.1 million in 1995. In 1996, advertising revenues were negatively
impacted by record-breaking snowfalls in the first quarter in the eastern United
States and the soft retail environment in such areas. Circulation revenues
increased $6.0 million, or 8.1%, to $79.8 million in 1996 from $73.8 million in
1995. For newspapers operated during the full 12 months in both periods,
circulation revenues increased $2.2 million or 3.3%, from $70.1 million in 1995
to $72.3 million in 1996, as a result of increased subscription and single copy
rates. Commercial printing and other revenues decreased $1.2 million or 8.0%,
from $15.6 million in 1995 to $14.4 million in 1996, reflecting highly
competitive conditions in the commercial printing industry offset, in part, by a
full year of revenues in 1996 attributable to the commercial printing business
acquired in 1995. Commercial printing and other revenues represented 4.1% of the
Company's revenues in 1996.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In 1996, salaries and employee
benefit expenses accounted for 31.8% of the Company's revenues, as compared to
32.6% in 1995. Salaries and employee benefit expenses increased $1.0 million to
$111.6 million in 1996 from $110.6 million in 1995, primarily as a result of the
1995 acquisitions, which added approximately 450 full-time and 240 part-time
employees. For operations owned during the full 12 months in both periods,
salaries and employee benefit expenses decreased $5.2 million or 5.1% in 1996 as
compared to 1995, due to a reduction in the number of employees resulting from
operating efficiencies.
NEWSPRINT, INK AND PRINTING CHARGES. In 1996, newsprint, ink and printing
charges accounted for 14.3% of the Company's revenues, as compared to 14.2% in
1995. Newsprint, ink and printing charges increased $1.9 million, or 3.9%, in
1996 to $50.1 million from $48.2 million in 1995, as a result of the 1995
acquisitions. For operations owned during the full 12 months in both periods,
newsprint, ink and printing charges were basically flat, at $43.5 million in
1995 and $43.4 million in 1996, primarily due to an increase of approximately
3.0% in newsprint expense (excluding paper consumed in the Company's commercial
printing operations) offset by a decrease in commercial printing expense. The
3.0% increase in newsprint
27
<PAGE>
expense is a result of a 13.0% increase in the average price of newsprint offset
by a decrease in volume. The consumption decrease was primarily related to
web-width reductions at a majority of the Company's newspapers which reduced
page sizes and produced a corresponding decrease in newsprint consumption of
approximately 8%. The Company also reduced fringe circulation, as it is the
Company's belief that such circulation does not provide adequate response for
advertisers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1996, selling, general,
and administrative expenses accounted for 8.8% of the Company's revenues, as
compared to 8.5% in 1995. Selling, general and administrative expenses increased
$2.3 million, or 8.1%, to $31.0 million in 1996 from $28.7 million in 1995,
primarily due to acquisitions. For operations owned during the full 12 months in
both periods, selling, general and administrative expenses increased $413,000 or
1.5%, from $26.7 million to $27.1 million.
DEPRECIATION AND AMORTIZATION EXPENSE. In 1996, depreciation and
amortization expense accounted for 5.8% of the Company's revenues, as compared
to 5.7% in 1995. Depreciation and amortization expense increased $1.3 million,
or 7.0%, to $20.5 million in 1996 from $19.2 million in 1995, primarily as a
result of acquisitions made during the period.
OTHER EXPENSES. In 1996, other expenses accounted for 11.1% of the
Company's revenues, as compared to 11.4% in 1995. Other expenses increased
$233,000, or .6%, to $39.0 million in 1996 from $38.8 million in 1995. For
operations owned during the full 12 months in both periods, other expenses
decreased $2.5 million, or 7.1%, from $35.1 million to $32.6 million primarily
as a result of cost controls related to the Company's clustering strategy.
OPERATING INCOME. Operating income increased 5.8% to $98.9 million in 1996
from $93.5 million in 1995. As a percentage of revenues, operating income
increased from 27.6% in 1995 to 28.2% in 1996 primarily for the reasons
discussed above.
NET INTEREST EXPENSE. Net interest expense was $56.3 million in 1996, an
11.1% decrease from $63.3 million in 1995. The decrease of $7.0 million
reflected a decrease in average borrowing rates and a decrease in average debt
outstanding during 1996 of approximately $18.0 million.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
9.0% in 1995 and 33.7% in 1996, which were lower than the combined federal and
state statutory rates. In both years, this was primarily due to the recognition
of tax benefits which had been offset by a valuation allowance in previous
years. See Note 7 of "Notes to Combined Financial Statements." The Company
expects to report an effective tax rate which is higher than those effective
rates previously reported, but lower than the combined federal and state
statutory rates as a result of the various tax strategies which the Company
intends to implement.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. In 1995, revenues increased $38.8 million, or 12.9%, to $339.0
million from $300.2 million in 1994, primarily as a result of acquisitions and
advertising and circulation rate increases. Revenues in 1994 reflect the results
of operations since the 1994 acquisition of THE BRISTOL PRESS, as compared to
the full 12 months of results for this company in 1995. Revenues in 1995 reflect
the results of operations since the 1995 acquisitions of New England Acquisition
Corp., THE HERALD and THE MIDDLETOWN PRESS. Newspaper revenues for operations
owned during the full 12 months in both periods, increased $13.0 million, or
4.6% from $283.7 million to $296.7 million. Advertising revenues increased $25.4
million, or 11.4%, to $249.5 million in 1995 from $224.1 million in 1994
primarily due to the results of acquisitions and rate increases. For newspapers
operated during the full 12 months in both periods, advertising revenues
increased $9.1 million, or 4.2%, due to an increase in rates of approximately
6.7% offset by a volume decrease of approximately 2.5%. Circulation revenues
increased $8.6 million, or 13.2%, to $73.8 million in 1995 from $65.2 million in
1994. For newspapers operated during the full 12 months in both periods,
circulation
28
<PAGE>
revenues increased $3.9 million, or 6.1%, from $63.8 in 1994 to $67.7 million in
1995 as a result of increased prices and the introduction in the first quarter
of 1994 of Sunday editions for the two newspapers acquired in 1993, THE TIMES
HERALD and THE REGISTER CITIZEN.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In 1995, salaries and employee
benefit expenses accounted for 32.6% of the Company's revenues, as compared to
35.2% in 1994. Salaries and employee benefit expenses increased $5.0 million, or
4.8%, to $110.6 million in 1995 from $105.6 million in 1994 as a result of
acquisitions during both periods. The acquisitions in 1994 and 1995 increased
the number of employees by approximately 525 full-time and 260 part-time. For
operations owned during the full 12 months in both periods, salaries and
employee benefit expenses decreased $3.6 million, or 3.4%, in 1995 as compared
to 1994, due to a reduction in the number of employees resulting from operating
efficiencies.
NEWSPRINT, INK AND PRINTING CHARGES. In 1995, newsprint, ink and printing
charges accounted for 14.2% of the Company's revenues, as compared to 12.2% in
1994. Newsprint, ink and printing charges increased $11.7 million, or 32.2%, to
$48.2 million in 1995 from $36.5 million in 1994, as a result of higher average
newsprint prices and increased paper expense related to the commercial printing
operation acquired in May 1995, partially offset by decreased consumption. For
operations owned during the full 12 months in both periods, newsprint, ink and
printing charges increased $6.3 million, or 17.7%, from $36.1 million in 1994 to
$42.4 million in 1995 resulting from an approximately 33.0% increase in the
price per ton of newsprint partially offset by a decrease in consumption of
approximately 6.0% and a decrease in commercial printing expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1995, selling, general and
administrative expenses accounted for 8.5% of the Company's revenues, as
compared to 8.4% in 1994. Selling, general and administrative expenses increased
$3.4 million, or 13.3%, to $28.7 million in 1995 from $25.3 million in 1994, due
to acquisitions. For operations owned during the full 12 months in both periods,
selling, general and administrative expenses increased $1.1 million, or 4.8%,
from $24.8 million to $25.9 million.
DEPRECIATION AND AMORTIZATION EXPENSE. In 1995, depreciation and
amortization expense accounted for 5.7% of the Company's revenues, as compared
to 6.2% in 1994. Depreciation and amortization expense increased approximately
$573,000, or 3.1%, to $19.2 million in 1995 from $18.6 million in 1994,
primarily as a result of acquisitions made during the period.
OTHER EXPENSES. In 1995, other expenses accounted for 11.4% of the
Company's revenues, which was the same as in 1994. Other expenses increased $4.5
million, or 13.3%, to $38.7 million in 1995 from $34.2 million in 1994,
primarily due to acquisitions. For operations owned during the full 12 months in
both periods, other expenses increased $1.1 million, or 3.3%, from $32.9 million
to $34.0 million due, in part, to increased distribution expenses.
OPERATING INCOME. Operating income increased 16.9% to $93.5 million in 1995
from $80.0 million in 1994. As a percentage of revenues, operating income
increased from 26.6% in 1994 to 27.6% in 1995 primarily for reasons discussed
above.
NET INTEREST EXPENSE. Net interest expense was $63.3 million in 1995, a
52.7% increase over net interest expense of $41.5 million in 1994. The increase
of $21.8 million reflected approximately $70.2 million higher average debt
outstanding in 1995 related to the redemption of preferred stock, acquisitions,
and an increase in average borrowing rates.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
10.8% in 1994 and 9.0% in 1995, which were lower than the combined federal and
state statutory rates. In both years, this was primarily a result of the
reversal of certain temporary differences as well as the use of federal and
state net operating loss carryforwards. The related deferred tax benefits had
been offset by a valuation allowance in previous years. See Note 7 of "Notes to
Combined Financial Statements."
29
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial data
for each of the past nine quarters ended March 31, 1997. Operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------------ ------------------------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 73,101 $ 85,690 $ 87,002 $ 93,164 $ 82,209 $ 90,367 $ 86,630 $ 91,914 $ 83,040
Operating income......... 17,257 25,825 23,026 27,356 18,690 25,926 24,479 29,795 22,645
Net income............... 2,415 9,639 6,387 8,342 1,953 7,967 6,855 11,334 5,724
EBITDA(1)................ 21,690 30,447 27,962 32,543 23,646 31,228 29,416 35,125 28,063
EBITDA Margin............ 29.7% 35.5% 32.1% 34.9% 28.8% 34.6% 34.0% 38.2% 33.8%
</TABLE>
- ------------------------
(1) See Note (4) to "Summary Combined Financial and Operating Data."
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising. The timing of acquisitions has also
affected quarterly operating results. In addition, advertising and circulation
revenues for the Company were adversely affected in 1996 by record-breaking
snowfalls in the eastern United States and the soft local retail environments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive cash
flow. The Company believes cash flow from operations will be sufficient to fund
its operations, capital expenditures and long-term debt obligations. The Company
believes that cash flow from operations and future borrowings, if available, and
its ability to issue Common Stock as consideration for future acquisitions, will
provide it with the flexibility to fund its acquisition strategy while
continuing to meet its operating needs, capital expenditures and long-term debt
obligations. See "Business--Legal Proceedings" and "Business-- Environmental
Matters."
CASH FLOWS FROM OPERATIONS. Net cash provided by operating activities
totaled $14.4 million in the quarter ended March 31, 1997 as compared to $8.5
million in the quarter ended March 31, 1996. This increase of $5.9 million was
due primarily to the increase in net income and a net increase in payables. Net
cash provided by operating activities totaled $60.1 million in 1996 as compared
to $26.8 million in 1995. This increase of $33.3 million was related primarily
to a decrease in newsprint inventory and a net increase in payables.
CASH FLOWS FROM INVESTING ACTIVITIES. Capital expenditures totaled
approximately $1.5 million in the quarter ended March 31, 1997 and $1.6 million
in the quarter ended March 31, 1996. The Company's capital expenditure programs
(excluding acquisitions) totaled $7.7 million in 1996, $4.9 million in 1995 and
$8.3 million in 1994. The Company has a capital expenditure program (excluding
acquisitions) of approximately $9.0 million planned for 1997, which will include
spending on technology, including prepress and business systems; computer
hardware; other machinery and equipment; plant and properties; and vehicles and
other assets. The Company believes its capital expenditure program is sufficient
to maintain its current level and quality of operations. The Company reviews its
capital expenditure program periodically and modifies it as required to meet
current needs. It is expected that the 1997 capital expenditure program will be
funded from operating cash flow. The success of the Company's operations in
Philadelphia and surrounding areas may necessitate the construction of a
centralized production facility within the next two to three years. Costs for
this facility are estimated to be $25.0 million overall. The Company expects to
fund this construction project with cash flow from operations and borrowings.
30
<PAGE>
The Company has been able to maintain a low ratio of capital expenditures to
depreciation and amortization expenses due to its: (i) maintenance program for
existing presses and facilities; (ii) ability to transfer redundant presses,
mechanical and computer equipment and other capital items among the Company's
locations; and (iii) strategy of evaluating acquisitions partially based on the
condition of the facilities and production equipment. In 1996, the Company had
capital expenditures of $7.7 million and depreciation and amortization of $20.5
million.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing activities
was $15.7 million in the quarter ended March 31, 1997 and $9.8 million in the
quarter ended March 31, 1996. Long-term debt repayments of $16.5 million were
made from cash flow during the quarter ended March 31, 1997. Net cash (used in)
provided by financing activities was ($34.4) million during 1996 and $24.4
million during 1995. Long-term debt reflects debt repayments totaling
approximately $55.7 million from cash flow during 1996, offset by borrowings
under the Revolver for the December 1996 acquisition of the TAUNTON DAILY
GAZETTE. As of December 31, 1996, the Company had $654.8 million of outstanding
debt which is due and payable in installments through 2003. Of the Company's
outstanding indebtedness at December 31, 1996, $119.0 million was outstanding
under the Revolver. As of December 31, 1996, the Company had $26.0 million
unused and available under the Revolver. Borrowings under the Revolver are to be
repaid by 2003 and at December 31, 1996, interest was calculated at 2.0% above
LIBOR for substantially all borrowings under the Revolver.
As of March 31, 1997, after giving effect to the Offerings, the use of
proceeds therefrom and the payment of the Management Bonuses, the Company would
have had outstanding indebtedness of $516.1 million.
The Company manages its exposure to interest rate fluctuations for its
variable rate debt by entering into interest rate protection agreements. The
Company is required under its Credit Agreement to have interest rate protection
for a minimum of 50.0% of its outstanding balance under the Credit Agreement.
During 1996, the Company entered into interest rate swap and collar agreements.
During 1996, the Company's weighted average effective interest rate on its
outstanding balance was 8.4%. This takes into account the interest rate
protection agreements in effect during 1996. The Company has similar interest
rate protection agreements in place for 1997.
The following sets forth the material terms of the Company's credit
agreement (as amended and restated, the "Credit Agreement").
Substantially concurrent with the completion of the Offerings, the Company
will enter into the amended and restated Credit Agreement with the banks and
other financial institutions signatories thereto (collectively, the "Banks") and
The Chase Manhattan Bank, as agent for the Banks. The Credit Agreement provides
for the $398.0 million Term Loan and the $235.0 million Revolver. See
"Underwriters." The Term Loan has a final maturity on May 5, 2003, and the
Revolver matures on December 31, 2003.
The aggregate annual maturities of long-term debt payable under the Term
Loan are as follows:
<TABLE>
<S> <C>
1997........................................................ $33,105,000(1)
1998........................................................ 57,060,000
1999........................................................ 65,730,000
2000........................................................ 74,650,000
2001........................................................ 83,340,000
Thereafter.................................................. 84,110,000
</TABLE>
- ------------------------
(1) Does not include $13,535,000 of principal payments scheduled and paid in
March 1997 prior to the execution of the Credit Agreement.
The Revolver has a step-down of availability of $40.0 million on each of
December 31, 2000, 2001 and 2002. The final $115.0 million of availability
expires and, if outstanding, is due on December 31, 2003.
31
<PAGE>
Generally, the Company may repay drawdowns on the Revolver without penalty
or premium. Prepayments are required in the event of certain dispositions,
equity issuances and incurrences of subordinated indebtedness. In addition,
commencing in the year 2000, the Credit Agreement requires a mandatory
prepayment of the debt equal to 50% of the prior year's Excess Cash Flow (as
defined in the Credit Agreement).
The Senior Facilities are secured by substantially all of the assets of the
Company and the common stock and assets of the Company's subsidiaries.
The amounts outstanding under the Senior Facilities bear interest at (i)
1/4% to 0% above the higher of the Prime Rate or 1/2% above the Federal Funds
Rate or (ii) 1 1/2% to 1/2% above LIBOR. The interest rate spreads are dependent
upon the debt to twelve months trailing cash flow ratio (as defined in the
Credit Agreement) and reduce as such ratio declines.
An annual commitment fee of 3/8% to 1/4% is incurred on the unused portion
of the commitment under the Revolver. The commitment fee spreads are dependent
upon the debt to twelve months trailing cash flow ratio and reduce as such ratio
declines.
The Credit Agreement requires the Company to maintain interest rate
protection for at least 50% of the outstanding debt in order to manage interest
rate risk. The Credit Agreement contains certain financial covenants, including,
but not limited to, a minimum fixed charge coverage test, a minimum interest
coverage test and a total debt to cash flow ratio test. In addition, the Credit
Agreement contains other customary affirmative and negative covenants relating
to (among other things) limitations on other indebtedness, liens, investments,
restricted payments, dividends, redemption of stock, mergers and acquisitions,
certain changes in control, sales of assets, capital expenditures,
sale-leasebacks, insurance, mortgages, transactions with affiliates and conduct
of business, with customary exceptions and baskets. The Credit Agreement
contains customary events of default, including failure to make payments when
due, defaults under other agreements or instruments of indebtedness,
noncompliance with covenants, breaches of representations and warranties,
bankruptcy, receivership, judgments in excess of specified amounts, impairment
of security interests in collateral and certain changes of control. See Notes 4
and 11 of "Notes to Combined Financial Statements."
MANAGEMENT BONUS PLAN
In recognition of certain management employees' prior services to the
Company, the Company adopted a bonus plan (the "Management Bonus Plan") pursuant
to which it awarded, upon pricing of the Offerings, one-time special bonuses
(each, a "Management Bonus" and collectively, the "Management Bonuses"). The
Management Bonuses are comprised of 1,100,000 shares of Common Stock (the "Bonus
Shares"), valued at the time of award at the Price to Public of $ , and a
cash portion that the Company expects will be used to satisfy recipients' tax
obligations arising from the Management Bonuses. The Bonus Shares have not yet
been issued to the recipients of the Management Bonuses. The Management Bonus
Plan provides that such Bonus Shares will be issued upon the effectiveness of a
registration statement covering the Bonus Shares, which registration statement
the Company has covenanted to file as promptly as practicable. Each Management
Bonus is comprised of approximately 45% cash and 55% Common Stock. The
Management Bonuses total $ million, comprised of $ million in shares of
Common Stock and $ million in cash. The Management Bonuses were awarded to 37
employees of the Company, none of whom is an affiliate of Warburg, Pincus. Mr.
Jelenic, Ms. Clifton, Messrs. Rush and Mailman and Ms. Dresser, the chief
executive officer and four other most highly compensated executive officers of
the Company (see "Management--Executive Compensation"), were awarded Management
Bonuses with a total value of approximately $ million, $ million, $ million,
$ million and $ million, respectively.
The Company expects to incur a charge to pre-tax earnings of approximately
$35.0 million in the second quarter of 1997. The Management Bonuses are expected
to account for approximately $ million of such charge. The discontinuation of
the StarShare Plan will account for approximately $3.0 million of
32
<PAGE>
such charge. See "Risk Factors--Charge to Second Quarter Earnings,"
"Management--Compensation Pursuant to Plans--Management Bonus Plan,"
"Management--Executive Compensation" and "Certain Transactions."
RECENT ACQUISITIONS
During 1995 and 1996, the Company acquired four newspaper properties
including three daily newspapers and 48 non-daily publications. Management based
their acquisition decisions on the target's cash flow potential, fit with the
Company's clustering approach, position within applicable circulation area,
potential to increase revenues, state of plant and equipment, and potential for
expense reduction. The Company obtained appraisals for the subscription lists
for two of these acquisitions, and the remaining assets of such acquired
properties were valued based on internal valuations of the Company. The assets
of the other two acquisitions were valued based on internal valuations of the
Company. The following sets forth these acquisitions: (i) on December 13, 1996,
the Company acquired for approximately $18.0 million certain assets and
liabilities of the TAUNTON DAILY GAZETTE; (ii) on May 5, 1995, the Company
acquired for $31.0 million certain assets and liabilities of New England
Acquisition Corp. (42 non-daily publications and one commercial printing
company); (iii) on June 21, 1995, the Company acquired the stock of THE HERALD
(New Britain) for $11.0 million plus the assumption of certain noncurrent
liabilities; (iv) on August 31, 1995, the Company acquired for $5.5 million
certain assets and liabilities of THE MIDDLETOWN PRESS. The cost of each of
these acquisitions was funded through a combination of borrowings and available
cash.
INFLATION
The Company's results of operations and financial condition have not been
significantly affected by inflation. Subject to normal competitive conditions,
the Company generally has been able to pass along rising costs through increased
advertising and circulation rates.
33
<PAGE>
BUSINESS
GENERAL
The Company is a leading U.S. newspaper publisher, with total paid daily
circulation of approximately 556,000 and total non-daily distribution of
approximately 2.7 million. The Company owns and operates 18 daily newspapers and
118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Since 1993, the Company has successfully completed seven strategic
acquisitions, acquiring six daily newspapers, 52 non-daily publications and one
commercial printing company. The Company has generally increased the revenues
and significantly increased the cash flow and profitability of its acquired
newspapers. For the fiscal year ended December 31, 1996, the Company generated
revenues of $351.1 million, EBITDA of $119.4 million, net income of $28.1
million and pro forma net income, as adjusted, of $36.3 million. In 1996, the
Company's EBITDA as a percentage of revenues was approximately 34%, representing
the sixth consecutive year of improvement in its EBITDA Margin. From 1992
through 1996, the Company recorded compound annual growth in revenues and EBITDA
of approximately 8% and 12%, respectively. The Company has achieved this growth
through a combination of expanding revenues in existing geographic areas,
strategic acquisitions and implementing cost controls and ongoing expense
reduction efforts at existing and acquired newspapers.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well defined
suburban circulation areas and include the JOURNALS, the largest group of weekly
newspapers in the United States based on total distribution.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment, and culture. The Company maintains high product quality
standards, using extensive process color and compelling graphic design to
attract new readers and to more fully engage existing readers. The Company's
newspapers typically are produced using advanced prepress pagination technology
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (approximately 73% of
1996 revenues), paid circulation, including single copy sales and prepaid
subscriptions (23%), and commercial printing and other (4%). The Company's
advertiser base is predominantly local. The Company's newspapers seek to produce
desirable results for local advertisers by targeting readers based on certain
geographic and demographic characteristics. The Company seeks to increase
readership, and thereby generate traffic for its advertisers, by focusing on
high product quality, local content and creative and interactive promotions. The
Company promotes single copy sales of its newspapers because it believes that
such sales have higher readership than subscription sales and that single copy
readers tend to be more active consumers of goods and services, as indicated by
a recent NAA study. Single copy sales also tend to generate higher profits than
subscription sales, as single copy sales generally have higher per unit prices
and lower associated distribution costs. Subscription sales, which provide
readers with the convenience of home delivery, are an important component of the
Company's circulation base. The Company also publishes numerous special sections
and niche and special interest publications. Such publications tend to increase
readership within targeted demographic groups and geographic areas. The Company
believes that as a result of these strategies, its newspapers represent an
attractive and cost-effective medium for its readers and advertisers.
34
<PAGE>
The Company's advertising revenues in 1996 were derived primarily from a
broad group of local retailers (approximately 58%) and classified advertisers
(approximately 38%). No advertiser accounted for more than 2% of the Company's
1996 advertising revenues. The Company believes that because its newspapers rely
on a broad base of local retail and local classified advertising rather than
more volatile national and major account advertising, its advertising revenues
tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement and enhance its publishing
operations, consisting of three commercial printing operations as well as a
company which develops application software for the newspaper industry.
INDUSTRY OVERVIEW
Newspaper publishing is one of the oldest and largest segments of the media
industry. Newspapers are an important medium for local advertising, accounting
for approximately 22% of all media advertising expenditures in 1996 according to
preliminary information provided by the NAA. The newspaper industry in the
United States is comprised of the following segments: national and major
metropolitan dailies; small metropolitan and suburban dailies; and suburban and
community non-dailies. The Company is in the business of operating small
metropolitan and suburban daily newspapers and suburban and community non-daily
newspapers.
In many communities, the local newspaper provides a combination of social
and economic linkages which make it attractive for readers and advertisers
alike. The Company believes that small metropolitan and suburban dailies as well
as suburban and community non-dailies and similar publications are generally
effective in addressing the needs of local readers and advertisers under widely
varying economic conditions, and thereby provide relatively stable revenues and
cash flow. The Company believes that because small metropolitan and suburban
daily newspapers rely on a broad base of local retail and local classified
advertising rather than more volatile national and major account advertising,
their advertising revenues tend to be relatively stable. In addition, the
Company believes such newspapers tend to publish information which is of
particular interest to the local reader and which national and major
metropolitan newspapers, television and radio generally do not report to the
same extent. Most small metropolitan and suburban daily newspapers are the only
daily local newspaper in the communities they serve. Further, the Company
believes that relatively few daily newspapers have been established in recent
years due to the high cost of starting a daily newspaper operation and building
a franchise identity.
Free circulation "total market coverage" publications ("TMC") and shoppers
are often published primarily to supplement the circulation and penetration of
daily newspapers and, to some extent, non-daily newspapers. These publications
provide nearly 100% penetration in their areas of distribution when combined
with the circulation of the newspaper serving such geographic area and generally
derive revenues solely from advertising. These publications typically have
limited or no news or editorial content.
The newspaper industry has recently begun to offer on-line versions of
newspapers which many publishers, including the Company, believe will provide
the opportunity for newspaper companies to broaden their presence within areas
served, to leverage franchise identity and to build advertising revenues. Since
1995, the Company has published an on-line version of the NEW HAVEN REGISTER.
The Company currently plans to establish an on-line editorial presence and a
full on-line classified advertising service for each of its daily newspapers and
the JOURNALS by the end of 1997. The Company has to date developed and
maintained, and believes it can significantly expand, its on-line presence with
minimal capital expenditures.
STRATEGY
The Company's objective is to continue its growth in revenues, cash flow,
profitability and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards.
35
<PAGE>
- EXPAND ADVERTISING REVENUES AND READERSHIP. The Company focuses on
increasing advertising and circulation revenues and expanding readership
at its existing and newly acquired properties. More specifically, the
Company seeks to:
INCREASE ADVERTISING REVENUES. Much attention and effort is devoted to
increasing the advertising revenues of individual newspapers through a
combination of special promotions, market research, presentations and
sales training, as well as cross-selling opportunities within geographic
clusters. The Company seeks to attract new advertisers and increase the
level of advertising from existing accounts. Its sales strategies
primarily involve programs designed to expand advertisers' reach and
penetration in desirable geographic areas or to target specific
demographic groups. These programs emphasize the cross-selling of
advertising into the Company's other newspapers located within the same
geographic cluster; the publication of special sections and niche and
special interest publications which allow advertisers to target specific
demographic groups; the development of new advertising positions such as
front-page "skyboxes"; and the expansion of advertising positions which
allow the use of full color.
EXPAND READERSHIP. The Company continually seeks to improve its
publications in order to attract new readers and to more fully engage
existing readers. These quality enhancements have included, among others:
converting from afternoon to morning publication; upgrading and expanding
printing facilities and printing presses; increasing the use of color and
color photographs, including their use on all section front pages, and in
many cases, on additional pages within the newspaper; continually
improving graphic design and, when appropriate, implementing complete
redesigns; adding reader services such as mutual fund listings, complete
listings of stock market quotations and highlighting local stocks of
interest; introducing color weather maps and complete entertainment
sections; introducing new editions zoned to particular geographic areas
and the selective opening of news bureaus to support the zoned editions;
developing Newspaper in Education programs which bring newspapers into
the classroom; and developing creative and interactive promotional
campaigns, often in partnership with its local advertisers.
LAUNCH NEW PRODUCTS. The Company focuses on introducing new products to
increase readership and advertising revenues at each of its existing
properties. New products have historically included both paid and
non-paid circulation publications. New paid publications include Sunday
editions of daily newspapers and new non-daily newspapers. Other new
products include more frequent publication of non-daily newspapers; zoned
editions of daily newspapers; niche publications covering subjects of
interest to residents of particular geographic areas and members of
particular demographic groups; special interest publications covering
subjects such as children and parenting, employment, health, seniors and
real estate; and shoppers.
EXPAND ON-LINE PRESENCE. The Company seeks to increase its overall
readership in the geographic areas it serves, leverage its franchise
identity and build advertising revenues through expanding its on-line
presence. Since 1995, the Company has published an electronic version of
the NEW HAVEN REGISTER, which the Company believes has become an
important source of news and information about Connecticut on the
Internet (http://www.ctcentral.com). The Company currently plans to
establish an on-line editorial presence and a full on-line classified
advertising service for each of its daily newspapers and the JOURNALS by
the end of 1997. The Company has to date developed, and believes it can
significantly expand, its on-line presence with minimal capital
expenditures.
- GROW BY ACQUISITION. Since 1993, the Company has completed seven strategic
acquisitions and has generally increased the revenues and significantly
increased the cash flow and profitability of its acquired newspapers. The
Company seeks to acquire properties at attractive prices on favorable
purchase terms and which satisfy several of the following criteria: (i)
established publication with loyal readership; (ii) leading position
within a well-defined circulation area; (iii) potential for increases in
advertising and circulation revenues; (iv) well-equipped plants; (v)
potential for
36
<PAGE>
expense reduction; and (vi) synergies with the Company's existing
geographic clusters or with other potential acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recent Acquisitions."
Following the acquisition of a publication, the Company seeks to implement
product improvements and expense reductions quickly and efficiently.
Typically, improvements are aimed at increasing readership, enhancing
advertising and circulation revenues and increasing profitability. Such
improvements have historically included: (i) increased coverage of local
news and sports; (ii) product redesigns; (iii) increased paging, sections
and use of color and color photographs; (iv) the addition of daily
business sections with full stock market price listings, color weather
maps, Sunday editions, zoned editions and morning publication; and (v)
creative and interactive promotional campaigns. The Company also seeks to
reduce expenses by implementing operating policies and standards, many of
which are similar to those in use at existing properties.
The Company seeks to acquire publications located within its existing
geographic clusters. However, the Company may acquire publications not
located within existing clusters, but which, in turn, could form the bases
of new clusters. The Company believes that there are sufficient potential
acquisition candidates to justify the continued pursuit of its acquisition
strategy. However, the Company is unable to predict the number or timing
of future acquisition opportunities or whether such opportunities will
meet the Company's acquisition criteria set forth in clauses (i) through
(vi) in the second preceding paragraph.
Historically, the Company has financed acquisitions through cash on hand
and/or borrowings and anticipates that it will finance future acquisitions
through cash on hand, borrowings and/or issuances of capital stock. The
Credit Agreement contains certain restrictions on sources of financing for
acquisitions. In addition, the financial covenants contained in the Credit
Agreement may limit the Company's ability to make acquisitions. The
Company does not currently have pending any agreements, negotiations or
understandings with respect to material acquisitions pending consummation
of the Offerings or otherwise. See "Risk Factors--Acquisition Strategy"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
- CAPTURE SYNERGIES FROM GEOGRAPHIC CLUSTERING. The Company's strategy of
clustering newspapers and other operations has resulted in significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news-gathering and consolidation of certain
production functions, primarily printing. Such synergies and cost savings
have resulted in the cost effective introduction of new products and
services, improved printing quality, expanded paging and improved
distribution.
- IMPLEMENT CONSISTENT OPERATING POLICIES AND STANDARDS. The Company has
developed certain operating policies and standards which it believes have
resulted in significant improvements in the cash flow and profitability of
existing and acquired newspapers. These policies and standards include,
among others:
FOCUS ON LOCAL CONTENT. Each newspaper has a strong focus on coverage of
local news and sports, tailored to the communities it serves.
Substantially all of the Company's daily newspapers publish a minimum of
24 pages in a minimum of four sections, and each section has a process
color front page. The editorial content emphasizes key issues and topics
of interest to the local community, and includes coverage of local youth,
high school, college and professional sports, as well as local business,
politics, entertainment and culture. The newspapers typically include
complete listings of stock market quotations and stocks of local
interest, color weather maps, entertainment sections, and in many cases,
are zoned to serve more fully particular geographic segments of their
circulation areas.
37
<PAGE>
MAINTAIN AND IMPROVE PRODUCT QUALITY. The Company focuses on optimizing
its production resources to reduce costs and increase quality, with an
emphasis on capturing production synergies within each cluster of
operations. The Company maintains high standards of product quality
through offset printing, extensive use of process color and design
excellence. The Company's newspapers are typically produced using
advanced prepress pagination technology, which allows design flexibility
as well as high quality reproduction of color graphics. The Company
believes that its product quality, combined with its emphasis on local
content, attract new readers and increase effectiveness for advertisers.
ENHANCE DISTRIBUTION AND CUSTOMER SERVICE. Substantially all of the
Company's daily newspapers have morning distribution. The Company
implements comprehensive customer service and quality control programs to
ensure that its newspapers are delivered complete, on time and in good
condition. The Company promotes single copy sales because it believes
that such sales have higher readership than subscription sales and that
single copy readers tend to be more active consumers of goods and
services, as indicated by a recent NAA study. In addition, the Company
tracks rates of newspaper returns and customer service calls through
formal reports, which are reviewed weekly in an effort to optimize the
number of newspapers available for sale and to improve delivery and
customer service. The Company further implements carrier retention
programs to enhance delivery of its newspapers and utilizes distribution
methods which make its newspapers readily available to customers.
FACILITATE MARKETING AND PROMOTION. The Company's marketing programs
include third party market research; sophisticated value-added sales
presentations; special section and niche and special interest publication
development; and creative and interactive promotional campaigns designed
to encourage strong reader involvement and generate traffic for
advertisers. In many cases, the Company develops campaigns in partnership
with local advertisers which seek to increase traffic for the advertiser
and readership of the Company's newspapers.
IMPLEMENT FINANCIAL CONTROLS. For each of its operations, the Company's
corporate management team utilizes a detailed annual budgeting process,
reviews complete monthly financial statements and maintains strict cost
controls. The Company also strives to maintain low overhead expenses and
centrally purchases, among other things, newsprint, ink, office equipment
and supplies, production equipment and telecommunication services.
PROMOTE COMMUNITY INVOLVEMENT. The Company believes that each of its
newspapers is an integral part of the communities it serves. Local
management often participates on the boards of directors of local
institutions; newspaper staff identify and address community issues; and,
in many cases, management and employees also champion local service
organizations, both editorially and through direct personal involvement.
OVERVIEW OF OPERATIONS
The Company's operations are currently clustered in five geographic areas:
CONNECTICUT. The Company owns the NEW HAVEN REGISTER, an approximately
100,000 circulation daily newspaper, four suburban daily newspapers, 51
non-daily publications and one commercial printing company. The suburban daily
newspapers in this cluster are THE HERALD (New Britain), THE BRISTOL PRESS, THE
REGISTER CITIZEN (Torrington) and THE MIDDLETOWN PRESS. The five daily
newspapers have aggregate daily and Sunday circulation of approximately 172,000
and 186,000, respectively. The 51 suburban and community non-daily publications
have aggregate distribution of approximately 675,000. Combined, the Company's
Connecticut daily newspapers and non-daily publications serve a state-wide
audience with concentrations in the northwest (Litchfield County) through
Hartford and its suburban areas to the greater New Haven area and the
Connecticut shoreline from New Haven northeast to New London. The Connecticut
cluster accounted for approximately 35% of the Company's 1996 revenues.
38
<PAGE>
The following table sets forth information regarding the Company's
publications in Connecticut:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -------------------------- ----------------- ------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NEW HAVEN REGISTER........ 1755 1989 New Haven 100,102 116,936
THE HERALD................ 1881 1995 New Britain 28,061 56,370(4)
THE BRISTOL PRESS......... 1871 1994 Bristol 18,238 --(4)
THE REGISTER CITIZEN...... 1889 1993 Torrington 13,601 12,871
THE MIDDLETOWN PRESS...... 1884 1995 Middletown 12,111 --(4)
Shore Line Newspapers
13 publications......... 1877 1995 Guilford 131,867
Elm City Newspapers
8 publications.......... 1931 1995 Milford 48,865
Imprint Newspapers
15 publications......... 1931 1995 Bristol 142,563
Foothills Trader
3 publications.......... 1965 1995 Torrington 50,000
CONNECTICUT'S COUNTY
KIDS.................... 1989 1996 Westport 40,000
EAST HARTFORD GAZETTE..... 1885 1995 East Hartford 20,000
THOMASTON EXPRESS......... 1874 1994 Thomaston 1,401
TMC (9 publications)...... 240,314
------------- ------------- -------
TOTALS.................... 172,113 186,177 675,010
------------- ------------- -------
------------- ------------- -------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (60,156) and free (614,854)
distribution. Paid and free non-daily distribution for Shore Line and Elm
City Newspapers reflects the monthly average for September 1996. All other
non-daily distribution reflects average distribution for December 1996.
(4) In August 1996, the Company commenced publication of a Sunday newspaper, THE
HERALD PRESS, serving readers of THE HERALD, THE BRISTOL PRESS and THE
MIDDLETOWN PRESS.
The NEW HAVEN REGISTER is the Company's largest newspaper based on daily
circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Middlesex and New London
Counties. This area (including portions of Fairfield County which are served by
related non-daily publications) has a population of 773,215 and had population
growth of approximately 7% from 1980 to 1996. Such area has an average household
income of $65,031, which is 22% above the national average of $53,176, and a
retail environment of approximately 6,800 stores. This area features a number of
large and well established institutions, including Yale University and Yale-New
Haven Hospital. As a result of its proximity to the large media markets of New
York City, Boston and Hartford, New Haven has only one locally licensed
television station (which serves a state-wide, rather than a local, audience)
and a fragmented radio market. Consequently, the Company believes that the NEW
HAVEN REGISTER is a powerful local news and advertising franchise for the
greater New Haven area.
THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS serve contiguous
areas between New Haven and Hartford. THE BRISTOL PRESS serves an area which has
a population of 319,807 and had population growth of approximately 5% from 1980
to 1996. This area has an average household income of $73,517, which is 38%
above the national average. THE MIDDLETOWN PRESS serves an area which has a
population of 99,333 and had population growth of approximately 15% from 1980 to
1996. This area has an average household income of $62,258, which is 17% above
the national average. THE HERALD serves an area which has a population of
106,347 and had population growth of approximately 1% from 1980 to 1996. This
area
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<PAGE>
has an average household income of $52,910. THE REGISTER CITIZEN serves an area
which has a population of 243,424 and had population growth of approximately 12%
from 1980 to 1996. This area has an average household income of $71,175, which
is 34% above the national average.
The Connecticut publications benefit from considerable cross-selling of
advertising as well as from news-gathering and production synergies. The NEW
HAVEN REGISTER gathers state-wide news for all of the Company's Connecticut
newspapers; the newspapers cross-sell advertising through a one-order, one-bill
system; and THE HERALD and THE MIDDLETOWN PRESS are printed at one facility, as
are THE REGISTER CITIZEN and THE BRISTOL PRESS. Moreover, in August 1996, in
order to take advantage of the contiguous nature of the geographic areas served
by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS, the Company started a
Sunday newspaper, THE HERALD PRESS, serving readers of these three dailies with
three zoned editions and having Sunday circulation of approximately 56,370.
OHIO. The Company owns three daily newspapers and a commercial printing
operation in Ohio. The daily newspapers are THE NEWS-HERALD (Lake County), THE
MORNING JOURNAL (Lorain) and THE TIMES REPORTER (Dover-New Philadelphia). The
Ohio newspapers have aggregate daily and Sunday circulation of approximately
117,000 and 137,000, respectively. The Ohio cluster accounted for approximately
19% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in Ohio:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ------------------------------ ----------------- ------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
THE NEWS-HERALD............... 1878 1987 Lake County 51,752 64,349
THE MORNING JOURNAL........... 1921 1987 Lorain 41,272 46,136
THE TIMES REPORTER............ 1903 1987 Dover-New 24,316 26,513
Philadelphia
TMC (3 publications).......... 54,651
------------- ------------- ------
TOTALS........................ 117,340 136,998 54,651
------------- ------------- ------
------------- ------------- ------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution is solely free distribution and reflects average
distribution for December 1996.
THE NEWS-HERALD and THE MORNING JOURNAL serve areas located directly east
and west of Cleveland, respectively. THE NEWS-HERALD, which is one of Ohio's
largest suburban newspapers, serves communities located in Lake and Geauga
Counties, two of Ohio's four most affluent counties. Lake and Geauga Counties
have populations of 222,797 and 83,173, respectively, and had population growth
of approximately 5% and 12%, respectively, from 1980 to 1996. Lake and Geauga
Counties have average household incomes of $55,321 and $82,042, respectively.
THE MORNING JOURNAL serves an area which has a population of 148,382 and had
population growth of approximately 2% from 1980 to 1996. This area has an
average household income of $47,977. THE TIMES REPORTER serves the rural
communities of Dover and New Philadelphia, which are located 75 miles south of
Cleveland. THE TIMES REPORTER serves an area which has a population of 103,433
and had population growth of approximately 5% from 1980 to 1996. This area has
an average household income of $37,447. The Company believes that each of its
three Ohio newspapers benefits from a fragmented local media environment. The
Company further believes that THE NEWS-HERALD and THE MORNING JOURNAL compete
effectively with Cleveland's major metropolitan newspaper due to their focus on
coverage of local news and sports. The Company's Ohio cluster benefits from a
variety of synergistic opportunities, including the cross-selling of advertising
and editorial coverage.
40
<PAGE>
PHILADELPHIA AND SURROUNDING AREAS. The Company owns four daily newspapers
and 11 non-daily publications serving areas surrounding Philadelphia,
Pennsylvania. These publications include, in Pennsylvania, the DAILY LOCAL NEWS
(West Chester), THE TIMES HERALD (Norristown), THE PHOENIX (Phoenixville) and a
group of non-daily newspapers serving Philadelphia's affluent Main Line; and, in
New Jersey, THE TRENTONIAN (Trenton). The four daily newspapers have aggregate
daily and Sunday circulation of approximately 126,000 and 103,000, respectively.
This cluster's non-daily distribution totals approximately 165,000. This cluster
accounted for approximately 17% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in Philadelphia and surrounding areas:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED (1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -------------------------- ----------------- ------------- ------------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 34,457 32,582
THE TIMES HERALD.......... 1799 1993 Norristown, PA 25,365 21,583
THE PHOENIX............... 1888 1986 Phoenixville, PA 4,681
THE TRENTONIAN............ 1945 1985 Trenton, NJ 61,678 48,468
Suburban Philadelphia
7 publications.......... 1885 1986 Suburban 92,100
Philadelphia
TMC (4 publications)...... 72,717
------------- ------------- -------
TOTALS.................... 126,181 102,633 164,817
------------- ------------- -------
------------- ------------- -------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (11,025) and free (153,792)
distribution. Non-daily distribution reflects average distribution for
December 1996.
The Company's Pennsylvania publications are all located within 30 miles of
Philadelphia. These newspapers serve geographic areas with highly desirable
demographics: The DAILY LOCAL NEWS serves an area which has a population of
386,951 and had population growth of approximately 29% from 1980 to 1996. This
area has an average household income of $80,100, which is 51% above the national
average. THE TIMES HERALD serves an area which has a population of 170,108 and
had population growth of approximately 3% from 1980 to 1996. This area has an
average household income of $76,456, which is 44% above the national average.
THE PHOENIX serves an area which has a population of 99,564 and had population
growth of approximately 14% from 1980 to 1996. This area has an average
household income of $82,722, which is 56% above the national average. The
Company's weekly newspaper group in suburban Philadelphia serves an area which
has a population of 316,585 and had population growth of approximately 17% from
1980 to 1996. This area has an average household income of $98,770, which is 86%
above the national average. Each of the Company's Pennsylvania properties is
located within 20 miles of the area's largest retail complex, the King of
Prussia Plaza and Court, which is the largest mall on the East Coast of the
United States in terms of total square footage. THE TRENTONIAN is published in
Trenton, the capital of New Jersey, located 40 miles north of Philadelphia and
75 miles south of New York City. THE TRENTONIAN serves an area which has a
population of 295,088 and had population growth of approximately 8% from 1980 to
1996. This area has an average household income of $65,780, which is 24% above
the national average. THE TRENTONIAN's tabloid format and emphasis on local
sports allows it to compete effectively with the other local daily newspaper in
Trenton. Unlike Sunday circulation figures for most of the Company's other
newspapers, the Sunday circulation figures for the newspapers in this cluster
are less than those for the corresponding daily circulation. This is due, in
part, to the fact that the Sunday editions located in this cluster, including
that of the largest newspaper in this cluster in terms of circulation, THE
TRENTONIAN, were generally commenced more recently than those located in other
clusters and several years later than the
41
<PAGE>
daily editions of such newspapers. The Sunday circulation figures in this
cluster are below those for daily newspapers also as a result of the fact that
THE TRENTONIAN is distributed in a tabloid format, which format, in the
Company's opinion, generally has higher circulation during the week than on
weekends due to its higher percentage of single copy sales. The Company believes
that its newspapers in this cluster compete effectively in the areas they serve
with Philadelphia's major metropolitan newspapers and radio stations due to
their focus on local news and sports. The Company's Philadelphia cluster
cross-sells advertising. The nature of the cluster has allowed for the
implementation of significant cost saving programs. For example, THE TIMES
HERALD and several non-daily suburban publications share printing facilities, as
do the DAILY LOCAL NEWS and THE PHOENIX. THE TRENTONIAN's television guide is
printed at the DAILY LOCAL NEWS facility. All of these publications share
certain news-gathering resources.
GREATER ST. LOUIS AREA. The Company owns the JOURNALS, the largest group of
suburban and community non-daily newspapers in the United States (in terms of
total distribution), one daily newspaper and a commercial printing operation in
the greater St. Louis area. The JOURNALS are a group of 40 newspapers which are
distributed two to three times each week in the St. Louis suburban areas,
including communities in Illinois, with total weekly distribution of
approximately 1.6 million. The Company's daily newspaper in this cluster, THE
TELEGRAPH (Alton, IL), has daily and Sunday circulation of approximately 30,000
and 32,000, respectively. This cluster accounted for approximately 16% of the
Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in the greater St. Louis area:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- --------------------------- -------------- ------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Suburban Newspapers of
Greater St. Louis (73
editions of 40
JOURNALS)................ 1922 1984 St. Louis, MO 1,616,592
THE TELEGRAPH.............. 1836 1985 Alton, IL 29,812 32,143
TMC (2 publications)....... 32,000
------ ------ --------------
TOTALS..................... 29,812 32,143 1,648,592
------ ------ --------------
------ ------ --------------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (9,263) and free (1,639,329)
distribution and reflects September 1996 net distribution.
The JOURNALs have total distribution of approximately 949,000 mid-week and
approximately 638,000 on Sunday, for total weekly distribution of approximately
1.6 million. The JOURNALS reach approximately 90% of the homes in the greater
St. Louis area. The JOURNALS serve an area which has a population of
approximately 2.4 million and had population growth of approximately 5% from
1980 to 1996. This area has an average household income of $57,585. According to
EDITOR & PUBLISHER magazine, St. Louis is the 17th largest metropolitan area in
the United States. The JOURNALS have received national recognition and have been
studied by domestic and foreign publishers as a model of successful neighborhood
newspapers. Due to St. Louis' character as a city of neighborhoods--92
municipalities comprise St. Louis County alone, the Company believes the
JOURNALS offer local retailers a cost-effective way to reach targeted
demographic groups, which enables the JOURNALS to compete effectively with the
major metropolitan daily and other weekly newspapers in the area. The Company
believes that the area's largest radio station competes primarily for major
accounts rather than small advertisers and, thus, is not a significant direct
competitor. The Company believes that the JOURNALS' targeted, highly localized
approach places the JOURNALS in a strong competitive position. THE TELEGRAPH
serves a community located in southeast Illinois, within the greater St.
42
<PAGE>
Louis area and which is connected by a new bridge to St. Louis. THE TELEGRAPH
serves an area which has a population of 120,628, which is essentially unchanged
since 1980. This area has an average household income of $41,784.
Suburban and community non-daily newspapers, such as the JOURNALS, have
several advantages over national and major metropolitan daily newspapers,
including an intrinsically lower cost structure, the ability to publish only on
what are for dailies the most profitable days (i.e. one midweek day and one
weekend day) and the ability to avoid expensive wire services and syndicated
feature material. Moreover, suburban and community non-daily newspapers provide
an alternative outlet for local merchants and advertisers to advertise in their
own local areas at costs lower than those of national and major metropolitan
newspapers. Thus, the JOURNALS have a broader advertiser base and do not rely to
the same degree as national and major metropolitan daily newspapers on major
accounts for advertising revenue.
CENTRAL NEW ENGLAND. The Company owns five daily and 11 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE RECORD (Troy, NY), THE CALL (Woonsocket, RI), THE TIMES
(Pawtucket, RI) and a group of weekly newspapers serving the Narragansett, Rhode
Island area. The five daily newspapers have aggregate daily circulation of
approximately 111,000 and aggregate Sunday circulation of approximately 83,000.
The non-daily publications in this cluster have total distribution of
approximately 153,000. The central New England cluster accounted for
approximately 13% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in central New England.
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ---------------------------- --------------- ------------- ----------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
THE HERALD NEWS............. 1872 1985 Fall River, MA 30,319 32,558
TAUNTON DAILY GAZETTE....... 1848 1996 Taunton, MA 15,270
THE RECORD.................. 1896 1987 Troy, NY 27,216 31,003
THE CALL.................... 1892 1984 Woonsocket, RI 19,807 19,485
THE TIMES................... 1885 1984 Pawtucket, RI 18,098
Southern Rhode Island
Newspapers
5 non-daily publications.. 1854 1995 Wakefield, RI 30,436
THE CUMBERLAND SHOPPER...... 1996 1996 Pawtucket and 10,000
Woonsocket, RI
TMC (5 publications)........ 112,600
------------- ------ -------
TOTALS...................... 110,710 83,046 153,036
------------- ------ -------
------------- ------ -------
</TABLE>
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (30,436) and free (122,600)
distribution. Paid and free non-daily distribution for Southern Rhode Island
Newspapers (except THE COVENTRY COURIER) reflects the June 30, 1996 CAC
Audit report. The other non-daily distribution figures reflect average
distribution for December 1996.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles apart.
Each is approximately 50 miles south of Boston, Massachusetts and 20 miles east
of Providence, Rhode Island. The region's largest shopping mall, located in
Taunton, contains one million square feet of retail space and approximately 150
stores. THE HERALD NEWS serves an area which has a population of 163,500 and had
population growth of approximately 1% from 1980 to 1996. This area has an
average household income of $43,854. The TAUNTON DAILY GAZETTE serves an area
which has a population of 112,108 and had population growth of approximately 13%
from 1980 to 1996. This area has an average household income of $50,685. THE
CALL
43
<PAGE>
serves an area which has a population of 171,676 and had population growth of
approximately 9% from 1980 to 1996. This area has an average household income of
$54,799. THE TIMES serves an area which has a population of 184,025 and had
population growth of approximately 4% from 1980 to 1996. This area has an
average household income of $48,698. Southern Rhode Island Newspapers serve an
area which has a population of 151,484 and had population growth of
approximately 24% from 1980 to 1996. This area has an average household income
of $68,087, which is 28% above the national average. THE RECORD (Troy, NY)
serves an area which has a population of 182,484 and had population growth of
approximately 5% from 1980 to 1996. This area has an average household income of
$47,455. No local television stations exist in the communities which the central
New England newspapers serve. Further, the Company believes that its central New
England properties benefit from fragmented local radio markets. As a result, the
Company believes that each of its newspapers is a significant media outlet in
its respective community, thereby making these newspapers attractive vehicles
for area advertisers. The central New England newspapers benefit from
advertising cross-selling; moreover, the Company's Massachusetts and Rhode
Island newspapers benefit from significant production and editorial synergies.
For example, THE TIMES and THE HERALD NEWS are printed at the same facility.
Moreover, THE TIMES, THE CALL and the group of paid suburban and community
non-daily newspapers serving southern Rhode Island all share certain news
gathering resources. The Company believes that significant synergistic
opportunities may be available between the TAUNTON DAILY GAZETTE, the Company's
most recent acquisition, and THE HERALD NEWS.
ADVERTISING
Substantially all the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company
believes that because its newspapers rely on a broad base of local retail and
local classified advertising rather than more volatile national and major
account advertising, its advertising revenues tend to be relatively stable.
Local advertising is more stable than national advertising because a community's
need for local services provides a stable base of local businesses and because
local advertisers generally have fewer effective advertising vehicles from which
to choose. Advertising revenues accounted for approximately 73% of the Company's
total revenues for 1996. The Company's advertising rate structures vary among
its publications and are a function of various factors, including results
achieved for advertisers, local market conditions and competition, as well as
circulation, readership, demographics and type of advertising (whether
classified or display). In 1996, local and regional advertising accounted for
the largest share of the Company's advertising revenues (42%), followed by
classified advertising (38%), pre-printed inserts (16%), legal advertising (2%)
and national advertising (2%). The Company's advertising revenues are not
reliant upon any one company or industry, but rather are supported by a variety
of companies and industries, including realtors, car dealerships, grocery stores
and other local businesses. No advertiser accounted for more than 2% of the
Company's total 1996 advertising revenues. The Company's corporate management
works with its local newspaper management to approve advertising rates and to
establish goals for each year during a detailed budget process. Local management
is given little latitude for discounting from the approved rates. Corporate
management also works with local advertising staff to develop marketing kits,
presentations and third-party research studies. A portion of the compensation
for the Company's publishers is based upon increasing advertising revenues. The
Company stresses the timely collection of receivables, and sales compensation
depends in part upon performance relative to goals and timely collection of
advertising receivables. Additionally, corporate management facilitates the
sharing of advertising resources and information across the Company's
publications. See "Risk Factors--Dependence on Local Economies."
CIRCULATION
Substantially all of the Company's circulation revenues are derived from
home delivery sales of publications to subscribers and single copy sales made
through retailers and vending racks. Circulation accounted for approximately 23%
of the Company's total revenues in 1996. Approximately 71% of 1996 circulation
revenues were derived from subscription sales and approximately 29% from single
copy sales.
44
<PAGE>
Single copy sales rates currently range from $.35 to $.50 cents per daily copy
and $.50 cents to $1.75 per Sunday copy. The Company promotes single copy sales
of its newspapers because it believes that such sales have higher readership
than subscription sales and that single copy readers tend to be more active
consumers of goods and services, as indicated by a recent NAA study. Single copy
sales also tend to generate a higher profit than subscription sales, as single
copy sales generally have higher per unit prices and lower associated
distribution costs. In 1996, the Company had total daily circulation of
approximately 556,000, Sunday circulation of approximately 541,000 and non-daily
distribution of approximately 2.7 million, most of which is distributed free of
charge. The Company's corporate management works with its local newspaper
management to establish subscription and single copy rates. In addition, the
Company tracks rates of newspaper returns and customer service calls through
formal reports which are reviewed weekly in an effort to optimize the number of
newspapers available for sale and to improve delivery and customer service. The
Company also implements creative and interactive programs and promotions to
increase readership, through both subscription and single copy sales.
Circulation has generally declined throughout the newspaper industry in recent
years, and the Company's newspapers have generally experienced this trend, even
as overall operating performance of its newspapers has improved. The Company
seeks to maximize the overall operating performance rather than maximizing
circulation of its individual newspapers.
OTHER OPERATIONS
The Company owns and operates three commercial printing facilities: Imprint
Printing in North Haven, Connecticut; Midwest Offset in New Philadelphia, Ohio;
and Mississippi Valley Offset in St. Louis, Missouri. These operations also
print certain of the Company's publications. The commercial printing operations
accounted for approximately 4% of the Company's 1996 revenues. The Company also
owns Integrated Newspaper Systems, Inc., a company which develops application
software for the newspaper industry.
EMPLOYEE RELATIONS
The Company employs approximately 4,250 employees (including approximately
1,370 part-time employees) in 10 states and has agreements with 16 local
collective bargaining agents representing, in the aggregate, approximately 380
full-time and 210 part-time employees. Of such 4,250 employees, approximately
100 hold positions in management/administration, approximately 875 hold
positions in editorial, approximately 800 hold positions in advertising and
approximately 2,475 hold positions in production/operations. Other than a
one-day strike by employees at THE TIMES HERALD of Norristown, Pennsylvania
occurring immediately after the Company's acquisition of such newspaper in
September 1993, the Company has not experienced any strikes or general work
stoppages in the past five years. The Company is in the process of negotiating
collective bargaining agreements with respect to approximately 120 full-time and
90 part-time employees. In the next 12 months, contracts with seven collective
bargaining units, representing, in the aggregate, 107 of the Company's
employees, are scheduled for renegotiation. The Company believes that its
relations with its employees are satisfactory.
RAW MATERIALS
The basic raw material for newspapers is newsprint. The Company's newsprint
consumption (excluding paper consumed in the Company's commercial printing
operations) totaled approximately $41 million in 1996, which was approximately
12% of the Company's newspaper revenues. In 1996, the Company consumed
approximately 61,000 metric tons of newsprint. The Company has no long-term
contracts to purchase newsprint. Generally, the Company has in the past and
currently purchases all of its newsprint from two suppliers, although in the
future the Company may purchase newsprint from other suppliers. The Company
believes that concentrating its newsprint purchases in this way provides a more
secure newsprint supply and lower per unit newsprint prices. The Company also
believes that it purchases
45
<PAGE>
newsprint at price levels lower than those which are available to individually
owned small metropolitan and suburban daily newspapers and suburban and
community non-daily publications and consistent with price levels generally
available to the largest newsprint purchasers. The available sources of
newsprint have been, and the Company believes will continue to be, adequate to
supply the Company's needs. The inability of the Company to obtain an adequate
supply of newsprint in the future could have a material adverse effect on the
financial condition and results of operations of the Company. Historically, the
price of newsprint has been cyclical and volatile. In 1995 and 1996, the
Company's average cost of newsprint reflected increases of approximately 34% and
13%, compared to the previous year, respectively. In December 1996, newsprint
suppliers announced a newsprint price increase planned to take effect in
February 1997; this increase was delayed. The initial announcements indicated
that the increase would be $75 per metric ton. The Company has been informed by
its suppliers that they will implement some portion of the announced price
increase. The Company believes that if any price increase is sustained in the
industry, the Company will also be impacted by such increase. The Company is
unable to predict whether, or to what extent, any increase will be sustained.
The Company seeks to manage the effects of increases in prices of newsprint
through a combination of, among other things, technology improvements, including
web width reductions, inventory management and advertising and circulation price
increases. The Company also has reduced fringe circulation in response to
increased newsprint prices, as it is the Company's experience that such
circulation does not provide adequate response for advertisers. See "Risk
Factors--Price and Availability of Newsprint" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising. See "Risk Factors--Fluctuation of
Quarterly Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."
COMPETITION
While many of the Company's small metropolitan and suburban daily newspapers
are the only daily newspapers of general circulation published in their
respective communities, they compete within their own geographic areas with
other daily newspapers of general circulation published in adjacent or nearby
cities and towns. Competition for advertising expenditures and paid circulation
comes from local, regional and national newspapers, shoppers, television, radio,
direct mail, on-line services and other forms of communication and advertising
media. Since 1995, the Company has been developing on-line publications based on
its newspapers and is seeking to attract advertising for its on-line
publications. The Company has published an on-line version of the NEW HAVEN
REGISTER since 1995. The Company intends to establish an on-line editorial
presence and a full on-line classified advertising service for each of its daily
newspapers and the JOURNALS by the end of 1997. Competition for newspaper
advertising expenditures is largely based upon advertiser results, readership,
advertising rates, demographics and circulation levels, while competition for
circulation and readership is based largely upon the content of the newspaper,
its price and the effectiveness of its distribution. The Company's non-daily
publications, including shoppers and real estate guides, primarily compete with
direct mail advertising, shared mail packages and other private advertising
delivery services. As with daily newspapers, competition for advertising
expenditures for suburban and community non-daily publications is largely based
upon advertiser results, readership, advertising rates, demographics and
circulation levels. The Company believes that, because of the relative
competitive position of its suburban and community non-daily publications in the
communities which they serve, such publications generally have been able to
compete effectively with other forms of media
46
<PAGE>
advertising. Commercial printing, a highly competitive business, is largely
driven by price and quality. See "Risk Factors--Newspaper Industry Competition."
LEGAL PROCEEDINGS
The Company is involved in a number of litigation matters which have arisen
in the ordinary course of business. The Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the Company's
financial condition or results of operations. See "Risk Factors--Potential
Litigation Exposure."
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publication companies, the
Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks, and the
management and disposal of wastes at its facilities. To the best of the
Company's knowledge, its operations are in material compliance with applicable
environmental laws and regulations as currently interpreted. The Company
believes that continued compliance with these laws and regulations will not have
a material adverse effect on the Company's financial condition or results of
operations. The Company is in the process of developing a remediation plan for
possible groundwater contamination which has been detected at one of its
facilities. The Company is assessing the potential remediation costs. The
Company believes that the remediation of any such groundwater contamination will
not have a material adverse effect on its financial condition or results of
operations. See "Risk Factors--Environmental Matters."
47
<PAGE>
PROPERTIES AND FACILITIES
The Company owns and operates 69 facilities used in the course of producing
and publishing its daily and non-daily publications. Approximately 38 of the
Company's facilities are leased for terms ranging from one to five years. These
leased facilities range in size from approximately 250 to 22,000 square feet.
The location and approximate size of the principal physical properties used by
the Company at December 31, 1996, as well as the expiration date of the leases
relating to such properties which the Company leases, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA IN SQUARE FEET
--------------------------------------
<S> <C> <C> <C>
LEASE EXPIRATION
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET DATE
- --------------------------------- ------------------ ------------------ --------------------
New Haven, CT.................... 205,000(1)(3)
New Britain, CT.................. 44,899(1)(3)
Bristol, CT...................... 40,000(1)(4)
Torrington, CT................... 36,120(1)(3)
Middletown, CT................... 30,000(1)(4)
North Haven, CT.................. 24,000(3) 10,000(5) 12/31/97
Guilford, CT..................... 18,400(1)
West Hartford, CT................ 14,200(1)
Milford, CT...................... 11,745(1)
Willoughby, OH................... 113,400(1)(3)
Lorain, OH....................... 68,770(1)(3)
New Philadelphia, OH............. 85,567(1)(3)
Trenton, NJ...................... 54,642(1)(3) 18,889(2) 11/30/2000
West Chester, PA................. 34,000(1)(3)
Norristown, PA................... 40,000(1)(3)
Phoenixville, PA................. 10,696(1)(4)
Wayne, PA........................ 11,980(1)(4)
Fall River, MA................... 57,571(1)(3)
Taunton, MA...................... 21,100(1)(4)
Troy, NY......................... 50,000(1)(4)
Woonsocket, RI................... 49,338(1)(3)
Pawtucket, RI.................... 41,096(1)(4)
Wakefield, RI.................... 11,750(1)(4)
St. Louis, MO.................... 69,415(1)(3) 22,043(1) 12/31/2000
Woodson Terrace, MO.............. 5,000(1) 02/09/99
St. Charles, MO.................. 4,298(1) 06/30/99
Collinsville, IL................. 14,587(1)
Granite City, IL................. 17,550(1)
Belleville, IL................... 8,400(1)
Alton, IL........................ 48,000(1)(3)
</TABLE>
- ------------------------
(1) Offices
(2) Corporate headquarters
(3) Printing plant
(4) Production facility
(5) Warehouse
The Company believes that all of its properties are in generally good
condition, are well maintained and are adequate for their current operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
REGULATION
Paid circulation newspapers which are delivered by second class mail are
required to obtain permits from, and file an annual statement of ownership and
circulation with, the United States Postal Service. There is no significant
regulation with respect to acquisition of newspapers, other than filings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if certain
threshold requirements under such Act are satisfied.
48
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the directors,
executive officers and other senior management of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert M. Jelenic.................................... 46 Chairman, President, Chief Executive Officer and
Director
Jean B. Clifton...................................... 36 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Allen J. Mailman..................................... 50 Vice President, Technology
Trish K. Dresser..................................... 38 Vice President, Marketing and Promotion
William J. Higginson................................. 41 Vice President, Production
William J. Rush...................................... 60 Vice President of the Company and Publisher and Chief
Executive Officer, NEW HAVEN REGISTER
John Collins......................................... 44 Vice President, Budgets and Planning
Diane B. Pardee...................................... 37 Vice President, Corporate Communications
Douglas M. Karp...................................... 41 Director
Sidney Lapidus....................................... 59 Director
John L. Vogelstein................................... 62 Director
</TABLE>
Following completion of the Offerings, the Company intends to elect two
additional persons, each of whom will be independent directors, to the Board of
Directors.
ROBERT M. JELENIC is the Chairman, President and Chief Executive Officer of
the Company. He has been President and Chief Executive Officer since the
inception of the Company in 1990 and has been a director of the Company and its
predecessors for more than the past five years. A Chartered Accountant, Mr.
Jelenic began his business career with Arthur Andersen in Toronto, Canada. Mr.
Jelenic has 21 years of senior management experience in the newspaper industry,
including 12 years with the Toronto Sun Publishing Corp. Mr. Jelenic is a
director of the NAA.
JEAN B. CLIFTON is Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, positions she has held since the
inception of the Company, and has been a director of the Company and its
predecessors for more than the past five years. Prior to joining the Company,
Ms. Clifton, a Certified Public Accountant, had been employed by Arthur Young &
Co. (a predecessor to Ernst & Young LLP). She has 11 years of senior management
experience in the newspaper industry. Ms. Clifton is a member of the Postal
Affairs Committee and the Employee Benefits Committee of the NAA.
ALLEN J. MAILMAN is Vice President of Technology of the Company, a position
he has held since March 1994. From the Company's inception in 1990 to March
1994, Mr. Mailman was Corporate Director of Information Services of the Company.
He has 22 years of management experience in the newspaper industry, including 14
years with Newhouse Publications.
TRISH K. DRESSER is Vice President of Marketing and Promotion of the
Company, a position she has held since June 1995. From the Company's inception
in 1990 until June 1995, Ms. Dresser was Corporate Director of Promotions of the
Company. She has 12 years of experience in the newspaper industry, including
five years with the Toronto Sun Publishing Corp.
WILLIAM J. HIGGINSON is Vice President of Production of the Company, a
position he has held since July 1995. From January 1994 to July 1995, he was
Corporate Production Director of the Company and, from 1991 to January 1994, was
Production Director of the NEW HAVEN REGISTER. Mr. Higginson has 24 years of
experience in the newspaper industry.
49
<PAGE>
WILLIAM J. RUSH is Vice President of the Company, a position he has held
since January 1996, and Publisher and Chief Executive Officer of the NEW HAVEN
REGISTER, a position he has held since 1990. Mr. Rush, with 39 years of
experience in the newspaper industry, has held, at various times, the top
executive position at seven newspapers in three states.
JOHN COLLINS is Vice President of Budgets and Planning of the Company, a
position he has held since April 1996. From June 1995 to April 1996, Mr. Collins
was Vice President, Finance of the Company and, from December 1991 to June 1995,
was Chief Financial Officer of the NEW HAVEN REGISTER. He has 19 years of
experience in the newspaper industry, including 10 years with Times Mirror
Corporation.
DIANE B. PARDEE is Vice President of Corporate Communications of the
Company, a position she has held since August 1996. Prior to her present
position, she was Director of Corporate Communications of the Company from
September 1993 to August 1996, Director of Public Affairs for the Business
Committee for the Arts, Inc. from April 1992 to June 1993 and prior to that, she
was Editor-in-Chief of UNIQUE HOMES magazine.
DOUGLAS M. KARP has been a director of the Company since March 1997. Mr.
Karp has been a General Partner of Warburg, Pincus & Co. ("WP") and a Member and
Managing Director of E.M. Warburg, Pincus & Co., LLC ("EMWP") and its
predecessors since 1991. He is a director of LCI International, Inc., TresCom
International, Inc., TV Filme, Inc. and several privately held companies.
SIDNEY LAPIDUS has been a director of the Company and its predecessors for
more than the past five years. Mr. Lapidus has been a General Partner of WP and
a Member and Managing Director of EMWP and its predecessors since 1982, where he
has been employed since 1967. He is a director of Caribiner International, Inc.,
Grubb & Ellis Company, Knoll, Inc., Pacific Greystone Corporation, Panavision
Inc. and several privately held companies.
JOHN L. VOGELSTEIN has been a director of the Company and its predecessors
for more than the past five years. Mr. Vogelstein is a General Partner of WP and
a Member, Vice Chairman and President of EMWP, where he has been employed since
1967. Mr. Vogelstein is a director of ADVO Inc., Aegis Group plc., Golden Books
Family Entertainment, Inc., Knoll, Inc., LCI International, Inc., Mattel, Inc.,
Value Health, Inc., Vanstar Corporation and several privately held companies.
Prior to completion of the Offerings, the Board of Directors will be divided
into three classes serving staggered three-year terms. At each annual meeting of
stockholders of the Company, successors to the class of directors whose term
expires at such meeting will be elected to serve for three-year terms and until
their successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
After the completion of the Offerings, the Board of Directors of the Company
will have two standing committees: an Audit Committee and a Compensation
Committee.
The Audit Committee will have general responsibility for supervising
financial controls, as well as responsibility for accounting and audit
activities of the Company. The Audit Committee will annually review the
qualifications of the Company's independent certified public accountants, make
recommendations to the Board of Directors as to their selection and review the
planning, fees and results of their audit. The Audit Committee will consist
solely of independent directors as and when elected. The Compensation Committee
will be responsible for reviewing and approving the amount and type of
consideration to be paid to senior management and for administering the 1997
Plan and will consist solely of non-employee directors. See "--Compensation
Pursuant to Plans--1997 Stock Incentive Plan."
50
<PAGE>
DIRECTORS' ANNUAL COMPENSATION
The Company will reimburse its directors for all reasonable expenses
incurred in connection with their attendance at Board of Directors meetings.
Following the completion of the Offerings, independent directors will receive an
annual fee of $10,000, a fee of $1,000 for each Board of Directors meeting
attended in person and a fee of $500 for each Board of Directors meeting
attended by telephone conference call. Under the 1997 Plan, the Company will
grant independent directors during the term of their directorships non-qualified
options to purchase 10,000 shares of Common Stock annually on terms and
conditions specified by the committee administering such plan. As of the date
hereof, there are three non-employee directors of the Company, each of whom is
affiliated with Warburg, Pincus. See "-- Compensation Pursuant to Plans--1997
Stock Incentive Plan."
51
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
the Company to its Chief Executive Officer and to each of its four most highly
compensated executive officers (other than the Chief Executive Officer) whose
total compensation exceeded $100,000 for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------- ----------------
<S> <C> <C> <C> <C> <C>
NAME AND LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) PAYOUTS($)(2) COMPENSATION(3)
- -------------------------------------------- --------- ---------- ----------- ---------------- ----------------
Robert M. Jelenic,.......................... 1996 $ 800,000 $ 200,000 $ 326,667 $ 24,000
Chairman, President, Chief Executive 1995 775,000 200,000 252,000 4,500
Officer and Director 1994 750,000 150,000 0 4,500
Jean B. Clifton,............................ 1996 425,000 125,000 143,850 12,750
Executive Vice President, Chief 1995 405,000 125,000 110,250 4,500
Financial Officer, Treasurer, 1994 390,000 100,000 0 4,500
Secretary and Director
William J. Rush,............................ 1996 265,000 15,000 76,050 7,950
Vice President of the Company and 1995 245,000 15,000 58,050 4,500
Publisher and Chief Executive 1994 235,000 12,500 0 4,500
Officer, NEW HAVEN REGISTER
Allen J. Mailman,........................... 1996 180,000 7,500 48,250 5,400
Vice President of Technology 1995 165,000 10,000 36,450 4,500
1994 159,167 5,000 0 4,500
Trish K. Dresser,........................... 1996 165,000 7,500 25,933 4,950
Vice President of Marketing and Promotion 1995 142,500 12,000 19,800 4,275
1994 122,000 2,500 0 3,660
</TABLE>
- ------------------------
(1) All other annual compensation has been omitted because such compensation
(which related only to perquisites and personal benefits) did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
each listed executive officer.
(2) Prior to the Offerings, the Company maintained a bonus plan (the "StarShare
Plan"), which commenced in January 1992 and in which key employees were
eligible to participate. Each participant received award units (the
"StarShare Units") based on target percentages of his or her base salary.
Each StarShare Unit represented a proportionate share of an aggregate dollar
amount. Such dollar amount was based on certain performance measures related
to the Company's compound annual growth in cash flow and revenue and
reduction in debt and/or equity redemption over a three-year performance
period. See Note (2) to Long-Term Incentive Plan Award Table. In general,
StarShare Units granted under the StarShare Plan vested at the end of the
third anniversary of the grant. Following the applicable vesting period, the
values of the StarShare Units were paid to the participants in three annual
installments, with interest paid on the second and third payments at the
applicable treasury note rate from the first applicable payment date. The
Company presently intends to discontinue the StarShare Plan prior to
completion of the Offerings, and StarShare Units will not be convertible
into or exercisable for shares of Common Stock following completion of the
Offerings.
(3) These amounts represent the Company's matching contributions under the
Company's 401(k) Plan and Supplemental 401(k) Plan.
52
<PAGE>
LONG-TERM INCENTIVE PLAN AWARD
The following table sets forth the awards under the StarShare Plan in 1996:
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER PERIOD -----------------------------------------
OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT(1) ($ OR #) ($ OR #) ($ OR #)(2)
- ------------------------------------------ ------------- ----------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Robert M. Jelenic,........................ 32,000 March 15, 1999 $ 0 $ 320,000 $ 1,200,000
Chairman, President, Chief Executive
Officer and Director
Jean B. Clifton,.......................... 14,875 March 15, 1999 0 148,750 557,813
Executive Vice President, Chief
Financial Officer, Treasurer,
Secretary and Director
William J. Rush,.......................... 7,950 March 15, 1999 0 79,500 298,125
Vice President of the Company and
Publisher and Chief Executive Officer,
NEW HAVEN REGISTER
Allen J. Mailman,......................... 5,400 March 15, 1999 0 54,000 202,500
Vice President of Technology
Trish K. Dresser,......................... 4,950 March 15, 1999 0 49,500 185,625
Vice President of Marketing and
Promotion
</TABLE>
- ------------------------
(1) See Note (2) to Summary Compensation Table.
(2) To achieve maximum payout the Company's compound annual growth rate of
EBITDA for the three-year performance period must exceed 20% (without taking
into account acquisitions) and the Company's debt reduction and/or equity
redemption over such period must exceed $400 million.
53
<PAGE>
COMPENSATION PURSUANT TO PLANS
MANAGEMENT BONUS PLAN
In recognition of certain management employees' prior services to the
Company, the Company adopted the Management Bonus Plan pursuant to which it
awarded, upon pricing of the Offerings, the Management Bonuses. The Management
Bonuses are comprised of 1,100,000 shares of Common Stock valued upon award at
$ per share, and a cash portion that the Company expects will be used to
satisfy recipients' tax obligations arising from the Management Bonuses. The
Bonus Shares have not yet been issued to the recipients of the Management
Bonuses. The Management Bonus Plan provides that such Bonus Shares will be
issued upon the effectiveness of a registration statement covering the Bonus
Shares, which registration statement the Company has covenanted to file as
promptly as practicable. Each Management Bonus will consist of approximately 45%
cash and 55% Common Stock. The Management Bonuses will total $ million,
comprised of $ million in shares of Common Stock and $ million in cash.
The Management Bonuses were awarded to 37 employees of the Company, none of whom
is an affiliate of Warburg, Pincus. Mr. Jelenic, Ms. Clifton, Messrs. Rush and
Mailman and Ms. Dresser, the chief executive officer and four other most highly
compensated executive officers of the Company (see "--Executive Compensation"),
were awarded Management Bonuses with a total value of approximately $ million,
$ million, $ million, $ million and $ million, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Bonus Plan" and "Certain Transactions."
1997 STOCK INCENTIVE PLAN
Prior to completion of the Offerings, the Board of Directors adopted and the
stockholders approved the Company's 1997 Plan. Set forth below is a discussion
of the material terms of the 1997 Plan.
Subject to adjustment as provided in the 1997 Plan, the 1997 Plan authorizes
the granting of up to 4,843,750 shares of Common Stock through (i) incentive
stock options ("ISOs") and non-qualified stock options ("NQOs") (in each case,
with or without related stock appreciation rights ("SARs")), to acquire Common
Stock, (ii) awards of restricted shares of Common Stock ("Restricted Stock"),
and (iii) performance units ("Performance Units") (collectively, "Awards") to
such directors, officers and other employees of, and consultants to, the Company
and its subsidiaries and affiliates as may be designated by the Compensation
Committee or such other committee of the Board as the Board may designate (the
"Committee"). All directors, officers, employees of, and consultants to the
Company, its subsidiaries and affiliates who are responsible for or contribute
to the management, growth and profitability of the business of the Company, its
subsidiaries and affiliates are eligible to receive Awards under the 1997 Plan;
provided, that (i) consultants are not eligible to receive grants of incentive
stock options and (ii) directors are eligible to receive only NQOs, as described
below, and Restricted Stock. Approximately 180 persons will be eligible to be
granted Awards under the 1997 Plan. No participant in the 1997 Plan may be
granted Awards covering in excess of 700,000 shares of Common Stock in any
fiscal year. The aggregate number of shares available for Awards and the
per-participant limitation are 4,843,750 and 2,000,000, respectively, subject to
adjustment for changes in capitalization, such as stock dividends or stock
splits. It is expected that Mr. Jelenic, Ms. Clifton, Messrs. Rush and Mailman
and Ms. Dresser will receive options to purchase 322,917, 161,458, 26,237,
28,255 and 28,255 shares of Common Stock, respectively, at an exercise price per
share equal to the Price to Public and options to purchase 322,917, 161,458,
26,237, 28,255 and 28,255 shares of Common Stock, respectively, at an exercise
price per share equal to 150% of the Price to Public.
The Committee will administer the 1997 Plan, approve the eligible
participants who will receive Awards, determine the form and terms of the Awards
and have the power to fix vesting periods. Subject to certain limitations, the
Committee may from time to time delegate some of its authority under the 1997
Plan.
54
<PAGE>
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
provides that publicly traded companies may not deduct compensation paid to the
chief executive officer or any of the four most highly compensated other
officers ("Covered Employees") to the extent it exceeds $1,000,000 in any one
tax year, unless the payments are made based upon the attainment of objective
performance goals that are established by a committee of the Board, comprised
solely of two or more outside directors of the Company, based upon business
criteria and other material terms approved by stockholders. This limitation will
apply to the Company following completion of the Offerings but does not apply to
the Management Bonuses. The 1997 Plan is designed so that options and SARs
granted with a fair market value exercise price, and awards of Common Stock
designated as "Performance Awards" (as described below), that are made to
Covered Employees will be considered performance-based and hence fully
deductible. However, the Committee will have the discretion to grant awards to
Covered Employees that will not qualify for the exemption from Section 162(m).
Moreover, in certain cases such as death or disability (as described below),
Performance Awards may become payable even though the performance goals are not
met, in which event the Performance Awards will not be exempt from Section
162(m) and the Company might lose part or all of its tax deduction.
Under the terms of the 1997 Plan, the Committee may from time to time grant
options to purchase shares of Common Stock at a price (generally payable in cash
and/or shares of Common Stock) determined by the Committee which in the case of
ISOs may not be less than the Fair Market Value (as defined in the 1997 Plan) of
the shares of Common Stock, as determined by the mean between the highest and
lowest sales prices on the New York Stock Exchange or such other exchange on
which the Common Stock is listed on the date the option is granted. Generally,
options may not be exercised later than ten years after the date of grant. The
Committee may also grant SARs related to the options granted under the 1997
Plan. A SAR would entitle the holder thereof to receive, upon exercise, the
appreciation from the option price to the fair market value of the shares of
Common Stock on the date of exercise, such appreciation being payable in cash
and/or in shares of Common Stock as determined by the Committee. Exercise of a
SAR cancels the related option to the extent of such exercise, and the shares of
Common Stock related thereto are not available for future grants under the 1997
Plan.
The Committee will determine the times at which an option may be exercised.
Except as otherwise determined and as set forth below, an option may only be
exercised during employment or generally during the three months following
termination of employment for any reason other than death, permanent disability,
retirement or cause. Upon termination of employment for cause, an option may no
longer be exercised. Stock options generally may be exercised during the period
of one year after death if the optionee is still in the employ of the Company or
any of its subsidiaries or affiliates at the time of death, to the extent
exercisable at the time of termination by death. After termination of an
optionee's employment with the Company or any of its subsidiaries or affiliates
on account of permanent disability, stock options generally may be exercised
during the period of three years after the date of termination to the extent
exercisable at the time of termination; provided, that in the event of death
prior to expiration of the option term following termination of employment for
permanent disability, options generally may be exercised during the period of
one year following the date of death, to the extent exercisable at the time of
death. After an optionee retires from the Company or any of its subsidiaries or
affiliates, the optionee's stock options generally may thereafter be exercised
to the extent to which they were exercisable at the time of the optionee's
retirement and may be exercised at any time during the one-year period following
retirement (or such shorter period as the Committee determines); provided, that
in the event of death prior to the expiration of the option, options generally
may be exercised during the period of one year following the date of death.
The 1997 Plan provides that the Committee may establish option exercise
procedures for purposes of permitting an optionee to defer receipt of
compensation beyond the date of the option exercise.
Under the 1997 Plan, the Committee may also make awards of Restricted Stock.
The Committee may condition the grant or vesting of such awards on the
attainment of certain performance goals and/or upon
55
<PAGE>
the participant's continued service with the Company or any of its subsidiaries
or affiliates. During the period (the "Restricted Period") commencing with the
grant of Restricted Stock and ending on attainment of the applicable performance
goals or satisfaction of the requisite period of service, the participant is not
permitted to sell, transfer, assign or otherwise dispose of the Restricted
Stock. The participant generally has the right during the Restricted Period to
vote the Restricted Stock and to receive cash dividends paid thereon. However,
the Committee may determine that such cash dividends be deferred and reinvested
in additional Restricted Stock and that dividends payable in Common Stock be
paid in Restricted Stock. Upon termination of employment prior to the end of the
Restricted Period, the Restricted Stock will be forfeited, although the
Committee may waive any remaining restrictions upon termination of employment
due to retirement or involuntary termination of employment other than for cause.
The Committee may award performance units ("Performance Units"). The
Committee may condition the vesting of such Performance Units on the attainment
of specified levels of one or more performance goals described below and/or upon
the continued service of the participant. The Performance Units may not be sold,
assigned or otherwise transferred during the period (the "Performance Cycle")
over which the Performance Units are to be earned. Upon termination of
employment prior to the end of the Performance Cycle, the Performance Units will
be forfeited, although the Committee may waive any remaining payment
limitations, except as described in the immediately following paragraph, upon
termination of employment due to retirement or involuntary termination other
than for cause. Subject to the Committee's approval, a participant may,
generally prior to commencement of the Performance Cycle, elect to defer receipt
of cash or shares in settlement of the Performance Units. At the end of the
Performance Cycle, the Committee will determine which Performance Units have
been earned and will cause to be delivered to the participant a number of shares
equal to the number of Performance Units deemed by the Committee to have been
earned or cash equal to the fair market value of such shares.
The Committee may designate an award of Restricted Stock or Performance
Units to a Covered Employee as a qualified performance-based award ("Performance
Award") and condition the vesting of such awards upon the attainment of
specified levels of one or more of the following performance goals: earnings per
share and/or return on equity. The Committee will not have the power to waive
achievement of such goals, except upon the death or disability of the
participant.
The 1997 Plan provides that the Committee may establish procedures for the
distribution of shares distributable pursuant to Performance Units for purposes
of permitting an awardee to defer compensation.
At the time any Award under the 1997 Plan is granted, the Committee may
grant the participant the right to receive a cash payment in an amount specified
by the Committee, to be paid when the award results in compensation income to
the participant and to help the participant pay the resulting taxes.
The 1997 Plan also provides that each director of the Company who is not
otherwise an employee of the Company or any of its subsidiaries or affiliates
and is not an officer, director or employee of EMWP or Warburg, Pincus will
receive, during the term of his directorship, an annual grant of non-qualified
options to purchase 10,000 shares of Common Stock on terms and conditions
specified by the Committee.
The 1997 Plan provides for the use of authorized but unissued shares or
treasury shares. To the extent that treasury shares are not used, authorized but
unissued shares of Common Stock of the Company have been reserved for issuance
upon exercise of options or distribution of Awards granted under the 1997 Plan.
No Awards may be granted under the 1997 Plan after May 6, 2007, but Awards
theretofore granted may extend beyond that date. The 1997 Plan may be amended or
discontinued by the Board of Directors at any time, but no termination may
impair the rights of any holders of options or awards granted prior thereto
without such holder's consent. Subject to certain limitations, the Committee may
amend to the terms of any Award retroactively or prospectively, but the 1997
Plan does not permit the Committee to cause a Performance Award to fail to be
exempt from Section 162(m) or impair the rights of any holder
56
<PAGE>
without the holder's consent. The Committee has the power to interpret the 1997
Plan and to make all other determinations necessary or advisable for its
administration.
Except as otherwise described herein, benefits under the 1997 Plan to the
Chief Executive Officer and the other executive officers named in the Executive
Compensation Table above, to the current executive officers of the Company and
to the other employees of the Company are not currently determinable because the
1997 Plan is discretionary.
PENSION PLAN
Mr. Rush participates in the Journal News, Inc. Retirement Plan (the "JNI
Retirement Plan"), which is a noncontributory defined benefit pension plan
covering substantially all non-union employees of certain of the Company's
subsidiaries. The JNI Retirement Plan provides for normal retirement benefits on
the later of the date on which the participant attains age 65 or the fifth
anniversary of such participant's becoming a JNI Retirement Plan participant.
Annual normal retirement benefits are based on career average pay and generally
consists of the sum of the following: (i) for each year after 1993, 1% of the
participant's "covered compensation" plus 1.5% of compensation in excess of
"covered compensation," (ii) if the participant also participated in the
predecessor pension plan, 1.5% of the participant's average annual compensation
for 1988-1993, times years of service through October 31, 1993, minus 1.25% of
the participant's Social Security benefit, times years of service through
October 31, 1993 (up to 40) and (iii) for the period from November 1, 1993
through December 31, 1993, 1% of compensation for such period, up to $3,786,
plus 1.5% of the compensation for such period in excess of $3,786. "Covered
compensation" is the average of the taxable Social Security wage bases for the
35 years ending in the year of retirement. As of December 31, 1996, Mr. Rush had
10 years of credited service. Mr. Rush's annual normal retirement benefit based
upon 15 years of credited service is projected to be $71,862.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during 1996. Officers'
compensation was determined by Messrs. Jelenic and Vogelstein. Upon completion
of the Offerings, the Board of Directors will form a Compensation Committee
which will be responsible for reviewing and approving the amount and type of
consideration to be paid to senior management and for administering the 1997
Plan. See "-- Compensation Pursuant to Plans--1997 Stock Incentive Plan." The
members of the Company's Compensation Committee of the Board of Directors will
be Messrs. Karp and Vogelstein. See "Certain Transactions."
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<PAGE>
CERTAIN TRANSACTIONS
On December 21, 1994, the Company issued approximately $55.0 million of
Senior Subordinated Notes and $55.0 million of Subordinated Notes to Warburg,
Pincus. The Company repaid the Senior Subordinated Notes in full during 1995.
The Company believes that the terms of such Senior Subordinated Notes and such
Subordinated Notes were at least as favorable as those which would have been
obtainable by the Company from an unaffiliated source. The Company repaid $27.5
million principal amount of Subordinated Notes during 1995. The Company intends
to repay the remaining outstanding principal amount of and accrued and unpaid
interest on the Subordinated Notes from the net proceeds to the Company of the
Offerings. See "Use of Proceeds" and Note 4 of "Notes to Combined Financial
Statements."
On December 21, 1994, the Company redeemed all of its issued and outstanding
Senior Preferred Stock held by Warburg, Pincus for its face value of
approximately $18.0 million plus dividends in arrears of approximately $20.0
million. In addition, the Company redeemed all of its issued and outstanding
Serial Preferred Stock held by Warburg, Pincus for its face value of
approximately $23.0 million. The Company believes that the terms of such Senior
Preferred Stock were at least as favorable as those which would have been
obtainable by the Company from an unaffiliated source.
A predecessor (the "Predecessor") of the Company and each of the
stockholders of two subsidiaries (collectively, the "Exchange Subsidiaries") of
the Company entered into an Exchange Agreement (the "Exchange Agreement") dated
as of December 21, 1994. Pursuant to the Exchange Agreement, the Predecessor, a
limited liability company, issued to Warburg, Pincus an aggregate of 997,410
Class A Membership Interests and 997,410 Class B Membership Interests in the
Predecessor in exchange for the stock of the Exchange Subsidiaries held by
Warburg, Pincus.
Warburg, Pincus has agreed with the Company that, following completion of
the Offerings and with respect to any matter brought to a stockholder vote,
Warburg, Pincus will vote in its own discretion shares representing no more than
50% of the voting power of the Company's shares entitled to vote on the
applicable matter. The shares owned by Warburg, Pincus which represent in excess
of such 50% will be voted in the same proportion as the shares voted by the
other stockholders on the applicable matter.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), Warburg, Pincus and the Individuals are entitled to certain
registration rights with respect to their respective shares of capital stock of
the Company. See "Description of Capital Stock--Registration Rights."
In recognition of certain management employees' prior services to the
Company, the Company intends to pay the Management Bonuses pursuant to the
Management Bonus Plan. The Company has agreed to file a registration statement
covering the Bonus Shares following completion of the Offerings. See
"Management--Compensation Pursuant to Plans--Management Bonus Plan."
In addition, it is expected that Mr. Jelenic, Ms. Clifton, Messrs. Rush and
Mailman and Ms. Dresser will be granted options to purchase 322,917, 161,458,
26,237, 28,255 and 28,255 shares of Common Stock, respectively, at an exercise
price per share equal to the Price to Public and options to purchase 322,917,
161,458, 26,237, 28,255, and 28,255 shares of Common Stock, respectively, at an
exercise price per share equal to 150% of the Price to Public. See
"Management--Compensation Pursuant to Plans--1997 Stock Incentive Plan."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of March 31, 1997 and as adjusted to
reflect the sale of the shares of Common Stock offered in the Offerings, by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and each executive
officer listed in the summary compensation table and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERINGS(1)(2) OFFERINGS(1)(2)(3)
------------------------- -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Warburg, Pincus Capital Company, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 24,248,774 63.9% 24,248,774 50.1%
Warburg, Pincus Capital Partners, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 1,529,054 4.0 1,529,054 3.2
Warburg, Pincus Investors, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 12,086,349 31.8 12,086,349 24.9
Douglas M. Karp(4)(5)..................................... 37,864,177 99.7 37,864,177 78.2
Sidney Lapidus(4)(5)...................................... 37,864,177 99.7 37,864,177 78.2
John L. Vogelstein(4)(5).................................. 37,864,177 99.7 37,864,177 78.2
Robert M. Jelenic(6)...................................... 0 0.0 403,333 0.8
Jean B. Clifton(6)........................................ 0 0.0 201,667 0.4
William J. Rush(6)........................................ 0 0.0 45,833 0.1
Allen J. Mailman(6)....................................... 0 0.0 45,833 0.1
Trish K. Dresser(6)....................................... 0 0.0 45,833 0.1
Directors and executive
officers as a group
(8 persons)............................................. 37,864,177 99.7 38,606,676 79.7
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock subject
to options and warrants held by that person that are currently exercisable
or exercisable within 60 days of the date of this Prospectus are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except
as otherwise indicated, the persons in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Based upon 37,962,500 shares of Common Stock outstanding prior to the
Offerings and 48,437,500 shares of Common Stock outstanding after completion
of the Offerings, including the Bonus Shares.
(3) Assumes no exercise of the Underwriters' over-allotment option. In the event
such option is exercised, WPCP will beneficially own 122,804 shares or 0.3%
of the Common Stock after the Offerings.
(4) The sole general partner of WPCP, Warburg, Pincus Capital Company, L.P.
("WPCC") and Warburg, Pincus Investors, L.P. ("Investors") is WP, a New York
general partnership. EMWP manages WPCP, WPCC and Investors. The members of
EMWP are substantially the same as the partners of WP. Lionel I. Pincus is
the Managing Partner of WP and the Managing Member of EMWP and may be deemed
to control both WP and EMWP. WP has a 20% interest in the profits of WPCP,
WPCC and
59
<PAGE>
Investors as the general partner. Douglas M. Karp and Sidney Lapidus,
directors of the Company, are Managing Directors of EMWP and General
Partners of WP. John L. Vogelstein, a director of the Company, is a Member,
Vice Chairman and President of EMWP and a General Partner of WP. As such,
Messrs. Karp, Lapidus and Vogelstein may be deemed to have an indirect
pecuniary interest (within the meaning of Rule 16a-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) in an indeterminate
portion of the shares beneficially owned by WPCP, WPCC, Investors and WP.
See Note 5 below.
(5) All of the shares indicated as owned by Messrs. Karp, Lapidus and Vogelstein
are owned directly by WPCC, WPCP or Investors and are included because of
their affiliation with WPCC, WPCP and Investors. Messrs. Karp, Lapidus and
Vogelstein disclaim "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act. The address of Messrs. Karp,
Lapidus and Vogelstein is c/o E.M. Warburg, Pincus & Co., LLC, 466 Lexington
Avenue, New York, New York 10017. See Note 4 above.
(6) All shares indicated as owned by such person on this table represent Bonus
Shares and, thus, assume the issuance of the Bonus Shares.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Certificate and By-laws is a summary and is qualified in its
entirety by the provisions of the Certificate and By-laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
the authorized capital stock of the Company will consist of (i) 300,000,000
shares of Common Stock, par value $.01 per share, of which 48,437,500 shares
will be outstanding, and (ii) 1,000,000 shares of Preferred Stock, of which no
shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the stockholders of the Company and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Warburg, Pincus has agreed with the Company
that, following completion of the Offerings and with respect to any matter
brought to a stockholder vote, Warburg, Pincus will vote in its own discretion
shares representing no more than 50% of the voting power of the Company's shares
entitled to vote on the applicable matter. The shares owned by Warburg, Pincus
which represent in excess of such 50% will be voted in the same proportion as
the shares voted by the other stockholders on the applicable matter. See "Risk
Factors--Influence by Existing Stockholder."
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities and the liquidation preference, if any, of any outstanding
Preferred Stock. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offerings will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
At present, there is no established trading market for the Common Stock. The
Common Stock has been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time 1,000,000
shares of Preferred Stock in one or more series, and to fix the rights,
designations, powers, preferences, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series, all without stockholder approval. The
ability to issue Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or making a proposal to acquire, the Company or a majority of the
outstanding stock of the Company. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of holders of
Preferred Stock that may be issued in the future. The Company has no present
plans to issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Effect of Certain Certificate of Incorporation and By-laws Provisions."
61
<PAGE>
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate and By-laws limit the liability of directors to the maximum
extent permitted by Delaware law. Delaware law currently provides that directors
of the Company will not be personally liable for monetary damages for breach of
their fiduciary duties as directors or officers, except liability for (i) breach
of the directors' and officers' duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which directors or officers derive an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of the Certificate has no effect on the
availability of equitable remedies, such as injunction or rescission, based upon
a director's breach of the duty of care.
These provisions will not limit liability under state or federal securities
laws. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 ("Section 203") of
the Delaware General Corporation Law (the "DGCL"). Under Section 203, certain
"business combinations" (as defined herein) between a Delaware corporation whose
stock generally is publicly traded or held of record by more than 2,000
stockholders and an "interested stockholder" (as defined herein) are prohibited
for a three-year period following the date that such a stockholder became an
interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203 (the Company did
not make such an election), (ii) the business combination was approved by the
board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or stock held in employee benefit plans in which the employees
do not have the right to determine confidentially whether such stock will be
tendered in a tender or exchange offer) or (iv) the business combination was
approved by the board of directors of the corporation and ratified by two-thirds
of the voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term business combination is defined generally to include mergers
or consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term interested
stockholder is defined generally as a stockholder who, together with affiliates
and associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. Section 203 could prohibit or delay a
merger, takeover or other change in control of the Company and therefore could
discourage attempts to acquire the Company or a majority of the outstanding
stock of the Company.
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act, Warburg,
Pincus is entitled to notice of such registration and to include its Registrable
Shares (as defined therein) in such registration, subject to the right of an
underwriter participating in the offering to limit the number of shares included
in such registration. In addition,
62
<PAGE>
Warburg, Pincus has the right, so long as it owns at least 10% of the then
outstanding shares of Common Stock, to require the Company to register any or
all of its Registrable Shares on two occasions. Moreover, pursuant to the
Registration Rights Agreement, the Individuals are entitled, under certain
circumstances, to registration of their shares of Common Stock in connection
with the exercise by Warburg, Pincus of its registration rights. All expenses
relating to the filing of such registration statements, excluding underwriting
discounts and selling commissions attributable to the Registrable Shares and the
fees and expenses of the holder's own counsel, will be paid by the Company. The
Company is required to use its best efforts to effect such registrations,
subject to certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is The Bank of New
York.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to completion of the Offerings, there has been no public market for
the Common Stock. Sales of substantial amounts of Common Stock in the public
market or the perception that such sales may occur, could have an adverse effect
on the price of the Common Stock.
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
the Company will have outstanding 48,437,500 shares of Common Stock. All the
shares of Common Stock sold in the Offerings will be eligible for immediate
resale, except to the extent acquired by "affiliates" of the Company, as such
term is defined in Rule 144, or subject to a lock-up agreement as described
below. Following the completion of the Offerings, the Company has covenanted to
file with the Commission a Registration Statement covering the Bonus Shares and
the shares of Common Stock underlying grants available under the 1997 Plan.
The remaining 37,962,500 shares of Common Stock outstanding upon completion
of the Offerings (taking into account issuance of the Bonus Shares) will be
"restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 or Rule 701 under the
Securities Act. Sales of restricted securities in the public market, or the
availability of such shares for sale, could have an adverse effect on the price
of the Common Stock.
The Company, all of its directors, executive officers, the other recipients
of Bonus Shares and Warburg, Pincus have agreed that they will enter into
contractual lock-up agreements providing that they will not offer, sell,
contract to sell or sell any option or consent to purchase, purchase any option
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock or enter into any
swap or similar agreement that transfers, in whole or in part, the economic risk
of ownership of the Common Stock, whether any of the foregoing transactions are
to be settled by delivery of Common Stock or other such securities, in cash or
otherwise, for a period of 180 days after the date of this Prospectus without
the prior written consent of Morgan Stanley & Co. Incorporated, except (i) in
the case of the Company, upon exercise of outstanding stock options and except
for the issuance of options pursuant to the 1997 Plan and (ii) in the case of
WPCP, the shares of Common Stock to be sold pursuant to the Underwriters'
over-allotment option. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144 or Rule 701, or otherwise, shares subject to lock-up agreements will
not be saleable until such agreements expire. Taking into account the lock-up
agreements, the number of shares that will be available for sale in the public
market, subject to the restrictions of Rule 144, will be as follows: (i)
9,375,000 shares will be eligible for immediate sale as of the date of this
Prospectus and (ii) 39,062,500 shares will be eligible for sale beginning 180
days after the date hereof (taking into account issuance of the Bonus Shares).
Following the expiration of the lock-up agreements, the Bonus Shares and
1,937,500 shares subject to options which are expected to be issued pursuant to
the 1997 Plan will also be available for sale in the public market pursuant to
Rule 701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144, but without compliance with certain restrictions,
including the holding period requirement, of Rule 144. In general, under Rule
144 as currently in effect, beginning 90 days after the date of this Prospectus,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for the applicable holding period (including the holding
period of any prior owner except an affiliate) would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the then outstanding shares of Common Stock (approximately 484,375
shares of Common Stock immediately after completion of the Offerings and
assuming issuance of the Bonus Shares) or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
notice requirements and to the availability of current public information about
the Company. In addition, Warburg, Pincus and the Individuals have rights under
certain circumstances to require the Company to register a total of 37,962,500
shares of Common Stock after expiration of lock-up agreements. See "Description
of Capital Stock--Registration Rights."
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
has agreed to sell an aggregate of 9,375,000 shares of Common Stock and the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc. and Chase Securities Inc. are serving as
U.S. Representatives, have severally agreed to purchase, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch
International, Bear, Stearns International Limited and Chase Manhattan
International Limited are serving as International Representatives, have
severally agreed to purchase, the respective number of shares of Common Stock
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................................................
Donaldson, Lufkin & Jenrette Securities Corporation................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................................................
Bear, Stearns & Co. Inc............................................................................
Chase Securities Inc...............................................................................
Subtotal......................................................................................... 7,500,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.........................................................
Donaldson, Lufkin & Jenrette Securities Corporation................................................
Merrill Lynch International........................................................................
Bear, Stearns International Limited................................................................
Chase Manhattan International Limited..............................................................
Subtotal......................................................................................... 1,875,000
----------
Total.......................................................................................... 9,375,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered in the
Offerings (other than those covered by the Underwriters' over-allotment option),
if any such shares are taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (i) it is not purchasing any U.S. Shares (as defined herein)
being sold by it for the account of anyone other than a United States or
Canadian Person (as defined herein) and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any U.S. Shares or distribute
any prospectus relating to the U.S. Shares outside the United States or Canada
or to anyone other than a United States or Canadian Person. Pursuant to the
Agreement Between U.S. Underwriters and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined
herein) being sold by it for the account of any United States or Canadian Person
and (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International
65
<PAGE>
Underwriter, the foregoing representations and agreements (i) made by it in its
capacity as a U.S. Underwriter shall apply only to shares purchased by it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter shall apply only to shares purchased by it in its
capacity as an International Underwriter. The foregoing limitations do not apply
to stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. Underwriters and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or Canada or any corporation, pension, profit-sharing, or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside the
United States and Canada of any United States or Canadian Person) and includes
any United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in Canada in contravention of the securities laws of Canada or
any province or territory thereof and has represented that any offer of shares
of Common Stock in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any shares of Common Stock a notice stating in
substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or territory
of Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares of Common Stock a notice to the
foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that (i)
it has not offered or sold and during the period of six months from the closing
date of the Offerings will not offer or sell any shares of Common Stock in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing, or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations (1995)
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered hereby
in, from, or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995,
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ per share below the public offering price. The Underwriters
may
66
<PAGE>
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain dealers.
Pursuant to the Underwriting Agreement, WPCP has granted the U.S.
Underwriters an option, excercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,406,250 additional shares of
Common Stock at the Price to Public on the cover page hereof, less Underwriting
Discounts and Commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offerings. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock offered by the U.S.
Underwriters hereby.
The Company, all of its executive officers and directors, other recipients
of awards of Bonus Shares and Warburg, Pincus have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, they will not (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right, or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for the shares Common Stock (in the case of
Warburg, Pincus, whether such shares or any such securities are now owned by
Warburg, Pincus or acquired after the date of the Prospectus) or (ii) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the shares of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of the shares Common Stock or such other securities, in cash
or otherwise, for a period of 180 days after the date of this Prospectus, other
than the sale to the Underwriters of any shares of Common Stock pursuant to the
Underwriting Agreements.
The Company, Warburg, Pincus and the Underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
Certain affiliates of Chase Securities Inc. have limited partnership
interests in WPCP (less than 3%), Investors (less than 1%) and WPCC (less than
3%). In addition, The Chase Manhattan Bank, an affiliate of Chase Securities
Inc., is Agent on, and a lender under, the Credit Agreement, and receives
customary fees for its service as such. The Chase Manhattan Bank also engages in
various general financing and banking transactions with the Company and its
affiliates.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
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<PAGE>
PRICING OF THE OFFERINGS
Prior to completion of the Offerings, there has been no public market for
the Common Stock. The initial public offering price has been determined by
negotiations between the Company and the Representatives of the Underwriters.
Among the factors considered in determining the initial public offering price
were the information set forth in this Prospectus and otherwise available to the
Representatives, the future prospects of the Company and the newspaper industry
in general, revenues, earnings, and certain other financial and operating
information of the Company in recent periods and the price-earnings ratios,
market prices of securities, profitability and certain financial and operating
information of companies engaged in activities similar to those of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered in the Offerings will be
passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New
York. Certain legal matters in connection with the Offerings will be passed upon
for the Underwriters by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The balance sheet of Journal Register Company at March 11, 1997 and the
combined financial statements (including the schedule) of Journal Register
Company, LLC and Affiliates at December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission under the Securities Act a
Registration Statement (the "Registration Statement") on Form S-1 with respect
to the Common Stock offered in the Offerings. This Prospectus does not contain
all of the information set forth in the Registration Statement in accordance
with the rules and regulations of the Commission. For further information
pertaining to the Company and the Common Stock offered in the Offerings,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements, notes and schedule filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement may 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 and at the Commission's Regional Offices in
New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661). Copies of such material can be obtained from the public reference
section of the Commission at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 or on the Internet at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, which are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by use of terms such as
"believes," "anticipates," "intends" or "expects." The forward-looking
statements contained in this Prospectus are generally located in the material
set forth under the headings "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," but may be found in other locations as well. These forward-looking
statements relate to the plans and objectives of the Company for future
operations. In light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements in this Prospectus
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Many factors could
cause the Company's actual results to differ materially from those in the
forward-looking statements, including, among other things: (i) a decline in
general economic conditions, (ii) the unavailability or material increase in
price of newsprint, (iii) an adverse judgment in pending or future litigation,
(iv) increased competitive pressure from current competitors and future market
entrants, and (v) sales of substantial amounts of the Common Stock in the public
markets following the Offerings, or the perception that such sales could occur.
The foregoing review of important factors should not be construed as exhaustive
and should be read in conjunction with other cautionary statements that are
included in this Prospectus. The Company undertakes no obligation to release
publicly the results of any future revisions it may make to forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Journal Register Company
Report of Independent Auditors....................................................... F-2
Balance Sheet as of March 11, 1997................................................... F-3
Note to Balance Sheet................................................................ F-4
Journal Register Company, LLC and Affiliates
Report of Independent Auditors....................................................... F-5
Combined Balance Sheets as of December 31, 1995 and 1996............................. F-6
Combined Statements of Income for each of the three years in the period ended
December 31, 1996.................................................................. F-7
Combined Statements of Members' Deficit for each of the three years ended in the
period ended December 31, 1996..................................................... F-8
Combined Statements of Cash Flows for each of the three years in the period ended
December 31, 1996.................................................................. F-9
Notes to Combined Financial Statements............................................... F-10
Combined Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)....... F-22
Combined Statements of Income for the three months ended March 31, 1996 and 1997
(unaudited)........................................................................ F-23
Combined Statements of Cash Flows for the three months ended March 31, 1996 and 1997
(unaudited)........................................................................ F-24
Notes to Combined Financial Statements (unaudited)................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company
We have audited the accompanying balance sheet of Journal Register Company as of
March 11, 1997. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in acccordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Journal Register Company at March
11, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 12, 1997
F-2
<PAGE>
JOURNAL REGISTER COMPANY
BALANCE SHEET
MARCH 11, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash................................................................................. $ 100
---------
---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par, 500 shares authorized, none issued and outstanding........ $ --
Common stock, $.01 par, 500 shares authorized, 100 shares issued and outstanding..... 1
Additional paid-in capital........................................................... 99
---------
Total stockholders' equity........................................................... $ 100
---------
---------
</TABLE>
See accompanying note.
F-3
<PAGE>
JOURNAL REGISTER COMPANY
NOTE TO BALANCE SHEET
MARCH 11, 1997
ORGANIZATION AND BASIS OF PRESENTATION
Journal Register Company (the "Company") was incorporated on March 11, 1997. In
conjunction with the formation of the Company, a company under common control
named Journal Register Company, was renamed Journal Register Newspapers, Inc.
The Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock of the
Company. Prior to the issuance of shares pursuant to the Registration Statement,
certain companies under common control with the Company will be combined with
the Company. Substantially all of the membership interests and equity securities
of these companies are owned by entities controlled by affiliates of E.M.
Warburg, Pincus & Co., LLC. Since the companies are under common control, this
transaction will be accounted for similar to a pooling of interests.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company, LLC and Affiliates
We have audited the accompanying combined balance sheets of Journal Register
Company, LLC and Affiliates as of December 31, 1996 and 1995, and the related
combined statements of income, members' deficit and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Journal
Register Company, LLC and Affiliates at December 31, 1996 and 1995, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 5, 1997
F-5
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
PRO FORMA
DECEMBER 31, UNAUDITED
-------------------------------- STOCKHOLDERS'
1995 1996 EQUITY
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 8,622,605 $ 8,546,396
Accounts receivable, less allowance for doubtful accounts
of $2,874,271 in 1995 and $4,172,936 in 1996............. 43,383,073 44,063,981
Inventories................................................ 16,631,351 6,204,002
Deferred income taxes...................................... -- 2,950,798
Other current assets....................................... 4,819,139 4,270,098
--------------- ---------------
Total current assets......................................... 73,456,168 66,035,275
Property, plant and equipment:
Land....................................................... 7,253,772 7,260,008
Buildings and improvements................................. 58,565,573 59,001,100
Machinery and equipment.................................... 129,799,039 135,936,921
--------------- ---------------
195,618,384 202,198,029
Less accumulated depreciation.............................. (96,582,342) (110,484,723)
--------------- ---------------
Property, plant and equipment, net........................... 99,036,042 91,713,306
Deferred income taxes........................................ -- 222,316
Intangible and other assets, net of accumulated amortization
of $10,952,402 in 1995 and $17,610,762 in 1996............. 133,941,759 148,014,311
--------------- ---------------
$ 306,433,969 $ 305,985,208
--------------- ---------------
--------------- ---------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Current maturities of long-term debt....................... $ 58,252,361 $ 54,173,894
Accounts payable........................................... 9,822,674 7,200,381
Income taxes payable....................................... 2,137,919 1,195,534
Accrued interest........................................... 9,565,772 7,498,261
Deferred subscription revenue.............................. 6,220,345 5,878,837
Other accrued expenses and current liabilities............. 16,835,692 15,946,505
--------------- ---------------
Total current liabilities.................................... 102,834,763 91,893,412
Senior debt, less current maturities......................... 599,780,000 566,390,000
Subordinated notes and accrued interest due to members....... 30,290,310 33,319,341
Deferred income taxes........................................ 1,662,602 --
Accrued retiree benefits and other liabilities............... 12,830,257 11,602,809
Income taxes payable......................................... 10,802,709 26,437,689
Commitments and contingencies (NOTE 8)
Members' deficit:
Common stock, $.01 par, 300,000,000 shares authorized and
37,962,500 shares issued and outstanding................. -- -- $ 379,625
Membership interests....................................... 2,104,200 2,104,200 --
Additional paid-in capital................................. 222,167,335 222,167,335 223,891,910
Accumulated deficit........................................ (676,038,207) (647,929,578) (647,929,578)
--------------- --------------- ---------------
Net members' deficit......................................... (451,766,672) (423,658,043) (423,658,043)
--------------- --------------- ---------------
$ 306,433,969 $ 305,985,208
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
-------------- -------------- --------------
Revenues:
Advertising................................................... $ 224,071,191 $ 249,533,751 $ 256,971,648
Circulation................................................... 65,204,313 73,797,189 79,775,654
-------------- -------------- --------------
Newspaper revenues.............................................. 289,275,504 323,330,940 336,747,302
Commercial printing and other................................... 10,875,057 15,626,106 14,372,773
-------------- -------------- --------------
300,150,561 338,957,046 351,120,075
Operating expenses:
Salaries and employee benefits................................ 105,606,718 110,651,094 111,626,137
Newsprint, ink and printing charges........................... 36,481,069 48,243,571 50,110,087
Selling, general and administrative........................... 25,312,179 28,678,214 30,992,643
Depreciation and amortization................................. 18,605,116 19,177,764 20,525,352
Other......................................................... 34,187,475 38,742,660 38,976,064
-------------- -------------- --------------
220,192,557 245,493,303 252,230,283
-------------- -------------- --------------
Operating income................................................ 79,958,004 93,463,743 98,889,792
Other income (expense):
Interest expense.............................................. (41,791,327) (63,468,099) (56,409,520)
Interest income............................................... 330,117 158,212 106,805
Other......................................................... (587,971) (717,961) (169,154)
-------------- -------------- --------------
Income before provision for income taxes and extraordinary
item.......................................................... 37,908,823 29,435,895 42,417,923
Provision for income taxes...................................... 4,126,326 2,653,294 14,309,294
-------------- -------------- --------------
Income before extraordinary item................................ 33,782,497 26,782,601 28,108,629
Extraordinary item:
Loss on extinguishment of debt................................ 13,099,981 -- --
-------------- -------------- --------------
Net income...................................................... $ 20,682,516 $ 26,782,601 $ 28,108,629
-------------- -------------- --------------
-------------- -------------- --------------
Pro forma-unaudited
Historical net income......................................... $ 28,108,629
--------------
--------------
Pro forma net income per common share......................... $ .74
--------------
--------------
Pro forma common shares outstanding........................... 37,962,500
--------------
--------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF MEMBERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED MEMBERSHIP ADDITIONAL ACCUMULATED
STOCK INTEREST PAID-IN-CAPITAL DEFICIT TOTAL
---------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.............. $ 411,875 $2,104,200 $283,352,872 $ (723,503,324) $ (437,634,377)
Net income................................ 20,682,516 20,682,516
Redemption of Preferred Stock............. (411,875) -- (61,185,537) -- (61,597,412)
Balance at December 31, 1994.............. -- 2,104,200 222,167,335 (702,820,808) (478,549,273)
Net income................................ 26,782,601 26,782,601
---------- ----------- -------------- -------------- --------------
Balance at December 31, 1995.............. -- 2,104,200 222,167,335 (676,038,207) (451,766,672)
Net income................................ 28,108,629 28,108,629
---------- ----------- -------------- -------------- --------------
Balance at December 31, 1996.............. -- $2,104,200 $222,167,335 $ 647,929,578 $ (423,658,043)
---------- ----------- -------------- -------------- --------------
---------- ----------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 20,682,516 $ 26,782,601 $ 28,108,629
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss on debt extinguishment...................................... 13,099,981 -- --
Provision for losses on accounts receivable...................... 1,926,668 2,871,631 3,914,496
Depreciation and amortization.................................... 18,605,116 19,177,764 20,525,352
Net (gain) loss on disposal of property, plant and equipment..... 82,817 263,465 (110,197)
Increase in income taxes payable................................. 1,103,527 497,516 14,692,595
(Decrease) increase in accrued interest.......................... (3,104,305) 8,760,434 (2,067,511)
(Decrease) in deferred income taxes.............................. (21,641) (482,695) (4,835,716)
(Increase) in accounts receivable................................ (7,623,838) (6,947,008) (3,971,885)
Decrease (increase) in inventories............................... (3,248,860) (7,209,388) 10,475,816
(Decrease) increase in accounts payable.......................... 7,157,704 (5,320,331) (2,663,768)
(Decrease) increase in deferred subscription revenue............. 2,084,094 182,721 (401,370)
(Decrease) in accrued retiree benefits and other liabilities..... (663,135) (1,802,611) (1,227,448)
(Increase) decrease in other assets, net of increase (decrease)
in other liabilities........................................... (3,812,587) (9,996,494) (2,374,167)
------------- ------------- -------------
Net cash provided by operating activities.......................... 46,268,057 26,777,605 60,064,826
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment......................... (8,325,764) (4,859,023) (7,674,504)
Net proceeds from sale of property, plant and equipment............ 211,941 40,715 236,643
Purchase of newspaper properties................................... (14,500,000) (45,738,379) (18,262,205)
------------- ------------- -------------
Net cash used in investing activities.............................. (22,613,823) (50,556,687) (25,700,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt:
Senior Facilities................................................ 559,000,000 133,000,000 7,000,000
Deferred loan costs.............................................. (10,462,253) -- --
Accretion on Subordinated Notes.................................. 6,981,454 2,745,390 3,029,031
Repayments of:
Senior debt...................................................... (527,282,676) (29,000,000) (44,470,000)
Subordinated Notes............................................... -- (82,361,724) --
Redemption of preferred stock:
Preferred stock.................................................. (41,187,500) -- --
Preferred stock dividends........................................ (20,409,912) -- --
------------- ------------- -------------
Net cash (used in) provided by financing activities................ (33,360,887) 24,383,666 (34,440,969)
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents................... (9,706,653) 604,584 (76,209)
Cash and cash equivalents, beginning of year....................... 17,724,674 8,018,021 8,622,605
------------- ------------- -------------
Cash and cash equivalents, end of year............................. $ 8,018,021 $ 8,622,605 $ 8,546,396
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................................... $ 37,119,772 $ 51,672,881 $ 54,244,177
Income taxes..................................................... 3,044,440 1,940,148 4,452,415
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
Issuance of additional Subordinated Notes.......................... $ 6,981,454 $ 2,745,390 $ 3,029,031
</TABLE>
See accompanying notes.
F-9
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include Journal Register Company, LLC
("JRC, LLC") and all of its wholly owned affiliates, INS Holdings, Inc. ("INSI")
and Journal Register Company (now known as Journal Register Newspapers, Inc.)
("JRC"). The Company is used to refer to the combination of JRC, INSI and JRC,
LLC.
JRC, LLC was organized in New York in December 1994 for the purpose of
acquiring and operating newspaper companies; it commenced operations in December
1994. Effective December 21, 1994, the stockholders of Journal News, Inc.
("JNI") and Journal Company, Inc. ("JCI"), affiliates of the Company
(collectively the "Companies"), entered into an exchange agreement (the
"Exchange Agreement") with the Company, whereby JRC, LLC issued 2 million
membership interests, representing all the issued and outstanding membership
interests in JRC, LLC, to the stockholders of the Companies in exchange for all
of the issued and outstanding common stock of the Companies. Since the combined
Companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests and the accompanying combined financial
statements include the accounts and operations of JNI and JCI for all periods
presented. Affiliates of E.M. Warburg, Pincus and Co., LLC (collectively
"Warburg, Pincus") own substantially all of the membership interests of JRC,
LLC.
JRC is jointly owned by the operating subsidiaries of JRC, LLC and manages
the newspaper subsidiaries of JRC, LLC on an expense reimbursement basis. INSI,
which is owned by Warburg, Pincus, is a company that develops application
software for the newspaper industry and provides services to the Company's
subsidiaries and unrelated companies. (See Note 11, Subsequent Events
(unaudited).)
The Company primarily publishes small metropolitan and suburban daily and
suburban and community non-daily newspapers serving markets in Connecticut,
Ohio, Philadelphia and its surrounding areas, the greater St. Louis area and
central New England and has commercial printing operations in Connecticut, Ohio
and Missouri.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of JRC, LLC and all
of its wholly owned affiliates, JRC and INSI. All significant intercompany
accounts and transactions have been eliminated.
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. Such estimates would include the allowance for doubtful
accounts and valuation allowance for deferred income taxes. Actual results could
differ from those estimates.
COMBINED STATEMENTS OF CASH FLOWS
For purposes of the accompanying combined statements of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value due to the short-term maturity of these
instruments.
F-10
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA EARNINGS PER SHARE
The pro forma net income per common share was calculated based upon the
37,962,500 shares which will be issued prior to the proposed offerings but
subsequent to December 31, 1996. If effect were given to the 9,375,000 shares
that will be issued in the proposed offerings for which the proceeds will be
used to repay debt and the additional 1,100,000 shares to be issued to
management as part of special bonuses (see Footnote 11, Subsequent Events
(unaudited)), the shares outstanding would be 48,437,500 and net income would
increase to $36,298,026, resulting in net income per common share of $.75 or an
increase of $.01. The net income of $36,298,026 reflects net interest expense
reduction ($12.4 million, or $8.2 million net of tax) resulting from the use of
proceeds to reduce debt and additional debt required to pay the special
management bonuses. The interest expense reduction includes savings net of tax
of $1.5 million associated with the lower interest rate based on the pro forma
reduction in outstanding borrowings used to calculate the Company's interest
rate (see Note 4, "Long-Term Debt").
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at the
lower of cost (primarily first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred; costs of major additions and betterments are
capitalized.
Depreciation is provided for financial reporting purposes primarily by the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 to 30
years
Machinery and equipment....................................... 3 to 20
years
</TABLE>
INTANGIBLE ASSETS AND OTHER ASSETS
Intangible assets recorded in connection with the acquisition of newspapers
generally consist of the values assigned to subscriber lists and the excess of
cost over the value of identifiable net assets of the companies acquired. These
assets are carried at the lower of amortized cost or the amount expected to be
recovered by projected future operations after considering attributable general
and administration expense and interest on debt allocated to the various
newspapers. If, in the opinion of management, an impairment in value occurs, any
necessary write-downs are charged to expense.
The balance of intangible assets at December 31, 1996 was comprised of
subscriber lists and excess cost over the value of identifiable net assets of
companies acquired. These assets are being amortized over a period of 4 to 40
years and are amortized by the straight-line method.
In the beginning of 1996, the Company adopted SFAS No. 121 "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF." The adoption of SFAS No. 121 did not materially impact the financial
statements. In accordance with SFAS No. 121 the Company reviews the
recoverability of intangibles and other long-lived assets whenever events and
circumstances indicate that
F-11
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the carrying amount may not be recoverable. The carrying amount of the
long-lived assets is reduced by the difference between the carrying amount and
estimated fair value.
Other assets consist principally of capitalized costs associated with the
Term Loan and the Revolver (as defined in Note 4, Long-Term Debt) that are being
amortized over the terms of such loans.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Each of JCI, JNI, JRC, INSI and JRC, LLC files its own federal income tax
returns on a consolidated or separate basis as appropriate.
DEFERRED SUBSCRIPTION REVENUE
Deferred subscription revenue arises from subscription payments made in
advance of newspaper delivery. Revenue is recognized in the period in which it
is earned.
INTEREST RATE PROTECTION AGREEMENTS
The Company enters into Interest Rate Protection Agreements ("IRPA") to
modify the interest characteristics of its outstanding debt. Each IRPA is
designated for all or a portion of the principal balance and term of a specific
debt obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the life
of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related to
the debt (the accrual accounting method). The related amount payable to or
receivable from counterparties is included in accrued interest. The fair values
of IRPAs are not recognized in the financial statements. Gains and losses on
terminations of IRPAs would be deferred as an adjustment to the carrying amount
of the outstanding debt and amortized as an adjustment to interest expense
related to the debt over the remaining term of the original contract life of the
IRPAs. In the event of the early extinguishment of a designated debt obligation,
any realized or unrealized gain or loss from the IRPA would be recognized in
income coincident with the extinguishment. Any IRPAs that were not designated
with outstanding debt or notional amounts (or durations) of IRPAs in excess of
the principal amounts (or maturities) of the underlying debt obligations would
be recorded as an asset or liability at fair value, with changes in fair value
recorded in other income (expense).
CONCENTRATION OF RISK
Certain employees of the Company's newspapers are employed under collective
bargaining agreements.
F-12
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets as of December 31, net of accumulated
amortization, are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Excess of cost over the value of identifiable net assets and
subscriber lists........................................... $ 114,888,103 $ 125,846,862
Prepaid pension cost......................................... 5,984,261 7,152,779
Other........................................................ 13,069,395 15,014,670
-------------- --------------
$ 133,941,759 $ 148,014,311
-------------- --------------
-------------- --------------
</TABLE>
4. LONG-TERM DEBT
The Company's long-term debt as of December 31 was comprised of the
following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Senior Secured Term Loans.................................... $ 546,000,000 $ 501,530,000
Senior Secured Revolving Credit Facility..................... 112,000,000 119,000,000
Subordinated Notes and accrued interest due to members....... 30,290,310 33,319,341
Other debt................................................... 965,216 975,742
-------------- --------------
689,255,526 654,825,083
Less current portion......................................... (58,252,361) (54,173,894)
-------------- --------------
$ 631,003,165 $ 600,651,189
-------------- --------------
-------------- --------------
</TABLE>
Effective December 21, 1994 (the "Effective Date") JRC, LLC entered into a
definitive credit agreement (as amended the "Credit Agreement") to obtain Senior
Secured Term Loans (the "Term Loan") and a Senior Secured Revolving Credit
Facility (the "Revolver"). At December 31, 1996, JRC, LLC had approximately
$501.5 million outstanding under the Term Loan and $119.0 million outstanding
under the Revolver. JRC, LLC had $26.0 million unused and available under the
Revolver at December 31, 1996. The Term Loan matures on December 31, 2002 and
the Revolver matures on December 31, 2003. (See Note 11, Subsequent Events
(unaudited).)
During 1996, the Company had net borrowings under the Revolver of $7.0
million. The Company borrowed approximately $18.0 million under the Revolver to
fund the acquisition of the TAUNTON DAILY GAZETTE (see Note 9, Acquisitions)
which was offset by $11.0 million of net paydowns of the Revolver.
The aggregate annual maturities of long-term debt payable under the Term
Loan are as follows:
<TABLE>
<S> <C>
1997.......................................................... $54,140,000
1998.......................................................... 70,060,000
1999.......................................................... 80,980,000
2000.......................................................... 91,900,000
2001.......................................................... 102,590,000
Thereafter.................................................... 101,860,000
</TABLE>
The Revolver has a step-down of availability of $25.0 million on each of
December 31, 2000, 2001 and 2002. The final $70.0 million of availability
expires and, if outstanding, is due on December 31, 2003.
F-13
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. LONG-TERM DEBT (CONTINUED)
In addition, commencing in the year 2000, the Credit Agreement requires a
mandatory prepayment of the debt equal to 75.0% of Excess Cash Flows, as defined
in the Credit Agreement.
The Senior Facilities are secured by substantially all of the assets of the
Company and the common stock and assets of the Company's subsidiaries. The
Senior Facilities require compliance with certain covenants, which require,
among other things, maintenance of certain financial ratios, and restrict the
Company's ability to declare dividends, redeem stock, incur additional
indebtedness, create liens, sell assets, consummate mergers and make capital
expenditures, investments and acquisitions.
The amounts outstanding under the Senior Facilities bear interest at (i)
1 1/8% to 0% above the higher of the Prime Rate or 1/2% above the Federal Funds
Rate (collectively the "Base Rate") or (ii) 2 3/8% to 1% above the London
Interbank Offered Rate ("LIBOR"). The interest rate spreads are dependent upon
the debt to twelve months trailing cash flow ratio (as defined in the Credit
Agreement) and reduce as such ratio declines. As of December 31, 1996, the
Company was paying interest at 2% above LIBOR. As of December 31, 1994 and 1995
the Company was paying 2 3/8% above LIBOR. At December 31, 1996 the Company had
outstanding $615.5 million of LIBOR loans and $5 million of Base Rate loans. The
average all-in interest rates on the Senior Facilities were approximately 6.5%,
9.1% and 8.4% for the years ended December 31, 1994, 1995 and 1996,
respectively. The average all-in interest rates reflect the effects of "IRPAs".
An annual commitment fee of 1/2% is incurred on the unused portion of the
commitment under the Revolver.
The Credit Agreement requires the Companies to maintain interest rate
protection for at least fifty percent of the outstanding debt in order to manage
interest rate risk. In accordance with this requirement, the Companies
participated in various interest rate protection agreements whereby the
Companies have assumed a fixed rate of interest and a counterparty has assumed
the variable rate (the "SWAPs"). The aggregate notional principal amount of such
SWAPs is $445.0 million. The Companies have also entered into interest rate
collar agreements with an aggregate notional principal amount of $141.0 million.
The agreements are with major financial institutions which are expected to fully
perform under the terms of the agreements thereby mitigating the credit risk
from the transactions. The notional amounts of such IRPAs are used to measure
interest to be paid or received with respect to such IRPAs and do not represent
the amount of exposure to credit risk. Pursuant to the SWAP agreements, the
Company agrees to exchange with certain banks at specific dates the difference
between fixed rate in the SWAP agreements and LIBOR floating rate applied to the
notional principal amount. Under the collar agreements, the Company assumes the
fixed rate position on an agreed upon ceiling rate and receives payment if the
LIBOR exceeds such fixed rate. Alternatively, the Company assumes the LIBOR
fixed rate position and makes payments to the banks if LIBOR is below the fixed
floor rate. No payments are made if the LIBOR remains between the fixed ceiling
and fixed floor rates.
Interest rate protection agreements relating to the Company's borrowings
include the SWAP agreements with notional principal amounts of $300.0 million
and $145.0 million, maturing on January 30, 1999 and January 30, 1997,
respectively; and with fixed rates of approximately 6.22% and 5.14%,
respectively. Interest rate protection agreements also include collars with
aggregate notional principal amounts of $141.0 million and ceiling interest
rates ranging from 7.29% through 7.41% and floor interest rates of 5.48%. The
collars expire on various dates between April 30, 1998 and June 30, 1998. If the
F-14
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. LONG-TERM DEBT (CONTINUED)
SWAPs were marked to market at December 31, 1996, they would result in a net
loss of approximately $1.3 million. If the collars were marked to market at
December 31, 1996 they would result in a net loss of approximately $195,000. The
fair value as of December 31, 1996 of the IRPAs was obtained from the Company's
bank.
As of December 31, 1996, the Company has a contract for a collar with a
notional principal amount of $145.0 million. The collar replaces the $145.0
million SWAP, identified above, that expired on January 30, 1997. The collar is
effective January 30, 1997 and expires April 30, 1998, and has a ceiling rate of
7.31% and floor rate of 5.48%. The notional principal amount of the collar
amortizes at the end of each quarter in $17.5 million increments. If the $145.0
million collar was marked to market at December 31, 1996 it would result in a
$188,000 loss.
The estimated fair value of the Term Loan and Revolver approximates their
carrying value since the interest rates are variable.
In connection with the refinancings in 1994, the Company recognized a net
loss of approximately $13.1 million on the early extinguishment of debt which
was classified as an extraordinary item.
As of December 31, 1995 and 1996, affiliates of Warburg, Pincus owned
approximately $30.3 million and $33.3 million, respectively, of the Company's
Subordinated Notes. The Subordinated Notes bear interest at 10.0% per annum.
5. PENSION PLANS
The Company and its affiliates have separate defined benefit pension plans,
certain of which are successors to prior plans. The benefits are based on years
of service and primarily on the employee's career average pay. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes under a different actuarial cost method and
different assumptions from those used for financial reporting. Assets of the
plans consist principally of short-term investments, equity securities and
corporate and U.S. Government obligations.
F-15
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. PENSION PLANS (CONTINUED)
The following table sets forth the plans' funded status and the amount
recognized in the Company's combined balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
------------- ------------- ------------- -------------
Actuarial present value of benefit obligation:
Vested benefit obligation......................... $ 41,814,000 $ 10,185,000 $ 43,197,000 $ 10,234,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Accumulated benefit obligation.................... $ 42,458,000 $ 10,418,000 $ 44,209,000 $ 10,462,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation........................ $ 42,907,000 $ 10,745,000 $ 44,489,000 $ 10,641,000
Fair value of plan assets........................... 55,777,489 8,646,188 60,027,445 9,027,442
------------- ------------- ------------- -------------
Plan assets in excess of (less than) projected
benefit obligation................................ 12,870,489 (2,098,812) 15,538,445 (1,613,558)
Unrecognized net transition (asset) obligation being
amortized over 15 years........................... (324,042) 856,148 (274,820) 716,721
Adjustment required to recognize minimum
liability......................................... -- (546,151) -- (399,756)
Unrecognized net (gain) loss........................ (2,877,298) 218,477 (4,833,514) (112,682)
Unrecognized prior service cost..................... (3,684,888) (387,395) (3,277,332) (426,321)
------------- ------------- ------------- -------------
Prepaid (accrued) pension cost...................... $ 5,984,261 $ (1,957,733) $ 7,152,779 $ (1,835,596)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Assumptions used in determining the funded status of the pension plans are
as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Discount rate........................................................ 7.50% 7.75%
Average rate of increase in compensation levels...................... 3.0 3.0
Expected long-term rate of return on assets.......................... 9.0 9.0
Mortality rates...................................................... 71GAT 83GAM
Unloaded
</TABLE>
Components of net periodic pension income include:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost..................................... $ 1,146,853 $ 954,671 $ 1,366,184
Interest cost.................................... 2,919,187 3,126,405 3,864,310
Expected return on plan assets................... (4,398,713) (4,631,255) (5,704,717)
Net amortization................................. (261,625) (363,963) (280,076)
Other............................................ 55,298 92,964 --
------------- ------------- -------------
Net periodic pension income...................... $ (539,000) $ (821,178) $ (754,299)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Net amortization consists of amortization of net assets or obligations at
transition, subsequent plan amendments and of subsequent net gains and losses.
F-16
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. PENSION PLANS (CONTINUED)
The Company also has defined contribution pension plans covering certain
employees. Contributions to these plans are based on a percentage of
participants' salaries and amounted to approximately $497,000, $438,000 and
$417,000 in 1994, 1995, and 1996, respectively.
The Company contributes to various multi-employer union administered pension
plans. Contributions to these plans amounted to approximately $133,000, $98,000
and $71,000 in 1994, 1995 and 1996, respectively.
6. POSTRETIREMENT BENEFITS
The following table sets forth the postretirement medical plans' funded
status as of December 31:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................................ $ 7,111,000 $ 6,807,000
Fully eligible active plan participants............................................. 113,200 126,800
Other active plan participants...................................................... 178,600 169,400
------------ ------------
7,402,800 7,103,200
Plan assets at fair value............................................................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess of plan assets................ 7,402,800 7,103,200
Unrecognized net gain................................................................. 226,502 321,420
Unrecognized prior service cost....................................................... 768,600 785,900
------------ ------------
Accrued postretirement benefit obligation............................................. $ 8,397,902 $ 8,210,520
------------ ------------
------------ ------------
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the period............................. $ 11,500 $ 11,000 $ 10,800
Interest cost on accumulated postretirement benefit obligation.............. 495,600 460,600 525,300
Other....................................................................... 1,773 (127,700) (96,100)
---------- ----------- ----------
$ 508,873 $ 343,900 $ 440,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Future benefit costs were estimated assuming medical costs would increase at
a 10% annual rate during 1996 and decreasing 1.0% per year to a 6.5% annual
increase in the year 2000 and beyond. The discount rate used to estimate the
accumulated postretirement obligation was 8.75%, 7.5% and 7.75% at December 31,
1994, 1995 and 1996, respectively. If the assumed trend rate were to change by
1.0% the accumulated postretirement benefit obligation would change by
approximately $352,000 and the net periodic postretirement benefit costs would
change by approximately $33,400.
F-17
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Current tax expense:
Federal............................................................. $ 600,192 $ 23,299 $ 9,812,276
State............................................................... 3,547,775 2,414,365 9,332,734
------------ ------------ -------------
Total current......................................................... 4,147,967 2,437,664 19,145,010
Deferred tax expense (benefit):
Federal............................................................. -- -- (4,321,652)
State............................................................... (21,641) 215,630 (514,064)
------------ ------------ -------------
Total deferred........................................................ (21,641) 215,630 (4,835,716)
------------ ------------ -------------
Total provision for taxes............................................. $ 4,126,326 $ 2,653,294 $ 14,309,294
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Tax at U.S. statutory rates........................................ $ 13,315,827 $ 10,302,563 $ 14,846,273
State taxes, net of federal effect................................. 2,291,992 1,709,497 5,732,136
Reduction in valuation allowance................................... (11,811,378) (9,892,560) (6,632,116)
Other.............................................................. 329,885 533,794 363,001
-------------- ------------- -------------
$ 4,126,326 $ 2,653,294 $ 14,309,294
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The reduction in the valuation allowance in 1996 reflects the recognition of
approximately $4,332,000 in deferred tax benefits expected to be realized in
future years, as well as the reversal of certain temporary differences. The
decrease in the valuation allowance in 1994 and 1995 reflects the use of
approximately $20.7 million and $6.1 million respectively, of federal net
operating loss carryforwards, as well as the reversal of certain temporary
differences in each of these years.
State net operating loss carryforwards were utilized as follows: $4.4
million in 1994, $5.5 million in 1995 and $300,000 in 1996.
At December 31, 1996, certain subsidiaries have remaining net operating loss
carryforwards available ranging from approximately $20,000 to $73.8 million in
various state and local jurisdictions. Substantial portions of the related
deferred tax assets are offset by valuation allowances. The carryforwards at
December 31, 1996 expire in various years through 2011.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-18
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................................ $ 15,491,049 $ 14,986,274
Other........................................................ -- 394,159
------------- -------------
Total deferred tax liabilities................................. 15,491,049 15,380,433
Deferred tax assets:
Intangible assets............................................ 10,848,566 7,865,686
Retiree benefits............................................. 1,554,823 1,015,199
Net operating loss carryforwards............................. 2,778,381 2,791,250
Deferred interest expense.................................... 5,766,896 5,467,656
Other........................................................ 2,913,590 3,763,363
------------- -------------
Total deferred tax assets...................................... 23,862,256 20,903,154
Valuation allowance............................................ 10,033,809 2,349,607
------------- -------------
Net deferred tax assets........................................ 13,828,447 18,553,547
------------- -------------
Net deferred tax (assets) liabilities.......................... $ 1,662,602 $ (3,173,114)
------------- -------------
------------- -------------
</TABLE>
The Company's valuation allowances for deferred tax assets decreased by
approximately $8.6 million in 1995 and $7.7 million in 1996.
The Company's federal income tax returns, which consist of filings for three
separate consolidated groups and two individual entities, have not been examined
by the Internal Revenue Service.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable operating
leases which expire over the next five years. These leases contain several
renewal options for periods up to five years. The Company's future minimum lease
payments under operating leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,315,955
1998............................................................ 1,238,355
1999............................................................ 1,185,287
2000............................................................ 1,112,328
2001............................................................ 244,822
</TABLE>
Total rent expense was $1.3 million, $1.4 million and $1.4 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
The Company is involved in certain litigation matters which have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings should not have a material adverse impact on the
Company's financial position or results of operations.
F-19
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. ACQUISITIONS
On December 13, 1996, the Company acquired for approximately $18.0 million
certain assets and liabilities of a daily newspaper, published in Taunton,
Massachusetts. The Company applied the purchase method of accounting for this
transaction. Accordingly, the total acquisition cost was preliminarily allocated
to the assets and liabilities of the TAUNTON DAILY GAZETTE based on their
relative estimated fair values on the effective date of the acquisition of $1.8
million and $500,000, respectively. Intangible assets of approximately $17.0
million were recorded for the subscriber list and excess of the purchase price
over the value of identifiable net assets and are being amortized on a
straight-line basis over four to 40 years.
On May 5, 1995, the Company acquired for $31.0 million certain assets and
liabilities of a group of newspapers, which include 42 publications and a
commercial printing company, located in Connecticut and Rhode Island
(collectively, the "New England Acquisition Corp."). The Company applied the
purchase method of accounting for this transaction. Accordingly, the total
acquisition cost was allocated to the assets and liabilities of the New England
Acquisition Corp. based on their relative estimated fair values on the effective
date of the acquisition of approximately $5.0 million and $2.1 million,
respectively.
On June 21, 1995, the Company acquired the stock of the THE HERALD (New
Britain) for $11.0 million plus the assumption of certain noncurrent
liabilities. THE HERALD publishes a daily newspaper in Connecticut. The Company
applied the purchase method of accounting for this transaction. The estimated
fair values of identifiable net assets and liabilities on the effective date of
the acquisition were $2.5 million and $7.5 million, respectively.
On August 31, 1995, the Company acquired for $5.5 million certain assets and
liabilities of the THE MIDDLETOWN PRESS, a daily newspaper published in
Middletown, Connecticut. The Company applied the purchase method of accounting
for this transaction. The estimated fair values of identifiable assets and
liabilities on the effective date of the acquisition were $4.1 million and
$500,000, respectively.
Intangible assets of $45.9 million related to the aforementioned 1995
acquisitions were recorded for the subscriber lists and excess of the purchase
price over the value of identifiable net assets and are being amortized on a
straight-line basis over 4 to 40 years.
F-20
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. MEMBERSHIP INTERESTS
Membership Interests and Capital Stock of JRC, LLC and Affiliates at
December 31, 1994, 1995 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
MEMBERSHIP INTERESTS/SHARES ADDITIONAL
PAR ---------------------------------------- MEMBERSHIP PAID-IN
VALUE AUTHORIZED ISSUED OUTSTANDING INTEREST CAPITAL
--------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Journal Register Company, LLC:
Class A Membership Interest........... $ 1.00 1,000,000 1,000,000 1,000,000 $ 1,000,000
Class B Membership Interest........... $ 1.00 1,000,000 1,000,000 1,000,000 1,000,000
Additional paid-in capital............ -- $ 216,982,319
------------ --------------
2,000,000 216,982,319
INS Holdings, Inc.:
Common stock voting................... $ .10 2,000 2,000 2,000 200 --
Common stock non-voting............... $ .10 1,000,000 1,000,000 1,000,000 100,000 --
Preferred Stock, Class A.............. $ 1.00 4,000 4,000 4,000 4,000
Additional paid-in capital............ -- 5,185,016
------------ --------------
104,200 5,185,016
------------ --------------
$ 2,104,200 $ 222,167,335
------------ --------------
------------ --------------
</TABLE>
In connection with the Exchange Agreement mentioned in Note 1 to the
combined financial statements, on December 21, 1994 the Company exchanged 2
million of its membership interests, representing all the issued and outstanding
membership interests of the Company, for all the issued and outstanding shares
of common stock of each of JNI and JCI.
JCI redeemed all of the issued and outstanding shares of its Senior
Preferred Stock on December 21, 1994 (the "Redemption Date") for its face value
of $18.2 million plus dividends in arrears of approximately $20.4 million. In
addition, JCI redeemed all of the issued and outstanding shares of its Serial
Preferred Stock on the Redemption Date for its face value of $23.0 million.
11. SUBSEQUENT EVENTS (UNAUDITED)
On March 11, 1997, Journal Register Company was incorporated. In conjunction
with the formation of Journal Register Company, a company under common control
named Journal Register Company (see Note 1, Organization and Basis of
Presentation), was renamed Journal Register Newspapers, Inc. Journal Register
Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock. Prior
to the issuance of shares pursuant to the Registration Statement, certain
entities (INS Holdings, Inc., Journal Register Newspapers, Inc. and JRC, LLC)
under common control with the Company will be combined with Journal Register
Company. Substantially all of the membership interests and equity securities of
these entities are owned by Warburg, Pincus. Since the companies are under
common control, this transaction will be accounted for similar to a pooling of
interests.
The Company intends to adopt a bonus plan to pay special bonuses to certain
employees totalling approximately $32 million assuming a price to public in the
proposed offerings pursuant to the Registration Statement described above of
$16.00. The Company expects to incur a charge to pre-tax earnings of
approximately $35 million in the second quarter of 1997. The Company expects
that the bonus plan will account for approximately $32 million of such charge;
however, the amount of such charge will depend on the price to public. The
discontinuation of the Company's long-term incentive plan will account for
approximately $3 million of such charge. The charge of $35 million was not
reflected in the pro forma information since it represents a one-time charge in
conjunction with the offering. In addition, the Company intends to adopt a stock
incentive plan. Such plan will be accounted for in accordance with APB Opinion
No. 25.
In connection with the aforementioned public offering, the Company expects
to amend the terms of, and restate, the Credit Agreement.
F-21
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
MARCH 31,
1997
PRO FORMA
DECEMBER 31, MARCH 31, STOCKHOLDERS'
1996 1997 EQUITY
-------------- -------------- ---------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Assets
Current assets:
Cash and cash equivalents.................................... $ 8,546,396 $ 6,079,172
Accounts receivable, less allowance
for doubtful accounts of $4,172,936 at December 31, 1996
and $4,760,334 at March 31, 1997........................... 44,063,981 41,914,883
Inventories.................................................. 6,204,002 6,285,690
Deferred income taxes........................................ 2,950,798 2,849,718
Other current assets......................................... 4,270,098 4,859,362
-------------- --------------
Total current assets........................................... 66,035,275 61,988,825
Property, plant and equipment:
Land......................................................... 7,260,008 7,249,658
Buildings and improvements................................... 59,001,100 59,379,943
Machinery and equipment...................................... 135,936,921 136,791,411
-------------- --------------
202,198,029 203,421,012
Less accumulated depreciation................................ 110,484,723 114,090,020
-------------- --------------
Property, plant and equipment, net............................. 91,713,306 89,330,992
Deferred income taxes.......................................... 222,316 --
Intangible and other assets, net of accumulated amortization of
$17,610,762 at December 31, 1996 and $19,315,541 at March 31,
1997......................................................... 148,014,311 147,955,077
-------------- --------------
$ 305,985,208 $ 299,274,894
-------------- --------------
-------------- --------------
Liabilities and Members' Deficit
Current liabilities:
Current maturities of long-term debt......................... $ 54,173,894 $ 58,154,621
Accounts payable............................................. 7,200,381 7,690,234
Income taxes payable......................................... 1,195,534 476,397
Accrued interest............................................. 7,498,261 7,270,155
Deferred subscription revenue................................ 5,878,837 5,601,342
Other accrued expenses and current liabilities............... 15,946,505 17,136,606
-------------- --------------
Total current liabilities...................................... 91,893,412 96,329,355
Senior debt, less current maturities........................... 566,390,000 545,875,000
Subordinated notes and accrued interest due to members......... 33,319,341 34,140,914
Deferred income taxes.......................................... -- 687,404
Accrued retiree benefits and other liabilities................. 11,602,809 11,130,451
Income taxes payable........................................... 26,437,689 29,045,701
Commitments and contingencies
Members' deficit:
Common stock, $.01 par value, 300,000,000 shares authorized
and 37,962,500 shares issued and outstanding............... $ 379,625
Membership interests......................................... 2,104,200 2,104,200 --
Additional paid-in capital................................... 222,167,335 222,167,335 223,891,910
Accumulated deficit.......................................... (647,929,578) (642,205,466) (642,205,466)
-------------- -------------- ---------------
Net members' deficit........................................... (423,658,043) (417,933,931) $ (417,933,931)
-------------- -------------- ---------------
---------------
$ 305,985,208 $ 299,274,894
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenues:
Advertising...................................................................... $ 58,668,448 $ 60,419,663
Circulation...................................................................... 19,739,034 19,829,684
------------- -------------
Newspaper revenues................................................................. 78,407,482 80,249,347
Commercial printing and other...................................................... 3,801,960 2,791,049
------------- -------------
82,209,442 83,040,396
Operating expenses:
Salaries and employee benefits................................................... 28,129,000 28,662,953
Newsprint, ink and printing charges.............................................. 13,190,394 9,130,050
Selling, general and administrative.............................................. 7,619,237 7,641,156
Depreciation and amortization.................................................... 4,956,489 5,418,231
Other............................................................................ 9,624,345 9,543,316
------------- -------------
63,519,465 60,395,706
Operating income................................................................... 18,689,977 22,644,690
Other income (expense):
Interest expense................................................................. (15,494,084) (12,960,201)
Interest Income.................................................................. 15,915 13,130
Other............................................................................ (265,150) (41,507)
------------- -------------
(15,743,319) (12,988,578)
------------- -------------
Income before provision for income taxes........................................... 2,946,658 9,656,112
Provision for income taxes......................................................... 993,908 3,932,000
------------- -------------
Net income......................................................................... $ 1,952,750 $ 5,724,112
------------- -------------
------------- -------------
Pro forma
Historical net income............................................................ $ 5,724,112
Pro forma net income per common share............................................ $ .15
-------------
-------------
Pro forma common shares outstanding.............................................. 37,962,500
-------------
-------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................................... $ 1,952,750 $ 5,724,112
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 4,956,489 5,418,231
Provision for losses on accounts receivable................................... 776,724 524,428
(Gain) loss on sale of property, plant and equipment.......................... 14,929 (139,400)
Increase (decrease) in deferred income tax provision.......................... (347,365) 1,010,800
Decrease in accounts receivable............................................... 1,773,124 1,624,670
(Increase) decrease in inventories............................................ 995,600 (81,688)
Increase (decrease) in accounts payable....................................... (1,871,181) 489,853
Increase in income taxes payable.............................................. 23,127 1,888,875
(Decrease) in accrued interest................................................ (1,313,141) (228,106)
(Decrease) increase in deferred subscription revenue.......................... 15,249 (277,495)
(Decrease) in accrued retirees benefits and other liabilities................. (394,092) (472,358)
Decrease (increase) in other assets, net of increase (decrease) in other
liabilities................................................................. 1,949,789 (1,042,799)
-------------- --------------
Net cash provided by operating activities....................................... 8,532,002 14,439,123
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery and equipment................................... 2,807 337,875
Additions to property, plant and equipment...................................... (1,615,967) (1,530,795)
-------------- --------------
Net cash used in investing activities........................................... (1,613,160) (1,192,920)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of:
Senior bank debt.............................................................. 16,000,000 --
Accretion of subordinated notes............................................... 750,857 821,573
Repayment of Senior bank debt................................................... (26,555,000) (16,535,000)
-------------- --------------
Net cash used in financing activities......................................... (9,804,143) (15,713,427)
Net decrease in cash and cash equivalents......................................... (2,885,301) (2,467,224)
Cash and cash equivalents, beginning of the period................................ 8,622,605 8,546,396
-------------- --------------
Cash and cash equivalents, end of the period...................................... $ 5,737,304 $ 6,079,172
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest...................................................................... $ 15,788,363 $ 12,305,090
Income taxes.................................................................. 1,318,146 1,032,325
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
Issuance of additional Subordinated Notes....................................... $ 750,857 $ 821,573
</TABLE>
See accompanying notes.
F-24
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. UNAUDITED COMBINED FINANCIAL STATEMENTS
The combined financial statements are unaudited and are subject to year-end
adjustments. However, in the opinion of management, all known adjustments (which
consist primarily of normal recurring accruals) have been made and present
fairly the combined operating results for the unaudited periods. Because of the
seasonal nature of the Company's business, results for interim periods are not
indicative of results to be expected for the fiscal year. These financial
statements should be read in conjunction with the audited financial statements
contained herein.
2. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements include Journal
Register Company, LLC ("JRC, LLC") and all of its wholly owned affiliates, INS
Holdings, Inc. ("INSI") and Journal Register Company (now known as Journal
Register Newspapers, Inc.) ("JRC"). The Company is used to refer to the
combination of JRC, INSI and JRC, LLC.
JRC, LLC was organized in New York in December 1994 for the purpose of
acquiring and operating newspaper companies; it commenced operations in December
1994. Effective December 21, 1994, the stockholders of Journal News, Inc.
("JNI") and Journal Company, Inc. ("JCI"), affiliates of the Company
(collectively the "Companies"), entered into an exchange agreement (the
"Exchange Agreement") with the Company, whereby JRC, LLC issued 2 million
membership interests, representing all the issued and outstanding membership
interests in JRC, LLC, to the stockholders of the Companies in exchange for all
of the issued and outstanding common stock of the Company. Since the combined
Companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests and the accompanying combined financial
statements include the accounts and operations of JNI and JCI for all periods
presented. Affiliates of E.M. Warburg, Pincus and Co., LLC (collectively
"Warburg, Pincus") own substancially all of the membership interests of JRC,
LLC.
JRC is jointly owned by the operating subsidiaries of JRC, LLC and manages
the newspaper subsidiaries of JRC, LLC on an expense reimbursement basis. INSI,
which is owned by Warburg, Pincus, is a company that develops application
software for the newspaper industry and provides services to the Company's
subsidiaries and unrelated companies. (See Note 7, Subsequent Events).
The Company primarily publishes small metropolitan and suburban daily and
suburban and community non-daily newspapers serving markets in Connecticut,
Ohio, Philadelphia and its surrounding areas, the greater St. Louis area and
central New England and has commercial printing operations in Connecticut, Ohio
and Missouri.
3. 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. Such estimates would include the allowance for doubtful
accounts and valuation allowance for deferred income taxes. Actual results could
differ from those estimates.
F-25
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
4. PRO FORMA STOCKHOLDERS' EQUITY
Pro forma stockholders' equity reflects 37,962,500 of unregistered shares of
common stock to be issued to the existing shareholders in exchange for their
membership interests.
5. PRO FORMA EARNINGS PER SHARE
The pro forma net income per common share was calculated based upon the
37,962,500 shares which will be issued prior to the proposed offerings but
subsequent to December 31, 1996. If effect were given to the 9,375,000 shares
issued in the proposed offerings for which the proceeds will be used to repay
debt and the additional 1,100,000 shares to be issued to management as part of
special bonuses (see Note 7, Subsequent Events), the shares would be 48,437,500
and net income would increase to $7,434,563, resulting in net income per common
share of $.15. The net income of $7,434,563 reflects net interest expense
reduction ($2.9 million and $1.7 million net of tax) resulting from the use of
proceeds to reduce debt and additional debt required to pay the special
management bonuses. The interest expense reduction includes savings net of tax
effect of $200,000 associated with the lower interest rate based on the pro
forma reduction in outstanding borrowings used to calculate the Company's
interest rate spread.
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Current tax expense:
Federal............................................................................ $ 670,873 $ 2,112,159
State.............................................................................. 670,400 809,041
------------ -------------
Total Current........................................................................ 1,341,273 2,921,200
------------ -------------
------------ -------------
Deferred tax expense (benefit):
Federal............................................................................ (310,438) 974,841
State.............................................................................. (36,927) 35,959
Total Deferred....................................................................... (347,365) 1,010,800
------------ -------------
Total provision for taxes............................................................ $ 993,908 $ 3,932,000
------------ -------------
------------ -------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Tax at U.S. statutory rate........................................................... $ 1,031,330 $ 3,379,639
State taxes, net of federal effect................................................... 411,757 549,250
Reduction in valuation allowance..................................................... (476,406) --
Other................................................................................ 27,227 3,111
------------ -------------
$ 993,908 $ 3,932,000
------------ -------------
------------ -------------
</TABLE>
F-26
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
7. SUBSEQUENT EVENTS
On March 11, 1997, Journal Register Company was incorporated. In conjunction
with the formation of Journal Register Company, a company under common control
named Journal Register Company (see Note 1, Organization and Basis of
Presentation), was renamed Journal Register Newspapers, Inc. Journal Register
Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock. Prior
to the issuance of shares pursuant to the Registration Statement, certain
entities (INS Holdings, Inc., Journal Register Newspapers, Inc. and JRC, LLC)
under common control with the Company will be combined with Journal Register
Company. Substantially all of the membership interests and equity securities of
these entities are owned by Warburg, Pincus. Since the companies are under
common control, this transaction will be accounted for similar to a pooling of
interests.
The Company intends to adopt a bonus plan to pay special bonuses to certain
employees totaling approximately $32 million assuming a price to public in the
proposed offerings pursuant to the Registration Statement described above of
$16.00. The Company expects to incur a charge to pre-tax earnings of
approximately $35 million in the second quarter of 1997. The Company expects
that the bonus plan will account for approximately $32 million of such charge;
however, the amount of such charge will depend on the price to public. The
discontinuation of the Company's long-term incentive plan will account for
approximately $3 million of such charge. The charge of $35 million was not
reflected in the pro forma information since it represents a one-time charge in
conjunction with the offering. In addition, the Company intends to adopt a stock
incentive plan. Such plan will be accounted for in accordance with APB Opinion
No. 25.
In connection with the aforementioned public offering, the Company expects
to amend the terms of, and restate, the Credit Agreement.
F-27
<PAGE>
[LOGO]
<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.
<PAGE>
[Alternate Cover Page]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 6, 1997
9,375,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 9,375,000 SHARES OF COMMON STOCK BEING OFFERED, 1,875,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 7,500,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THE OFFERINGS, THERE HAS BEEN NO PUBLIC MARKET FOR
THE COMMON STOCK OF THE COMPANY. UPON COMPLETION OF THE OFFERINGS
AND ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN, CERTAIN
AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC WILL OWN APPROXIMATELY
78.2% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING. APPROXIMATELY
$34.6 MILLION OF THE $137.4 MILLION NET PROCEEDS TO THE COMPANY OF
THE OFFERINGS WILL BE USED TO REPAY INDEBTEDNESS OWED TO AFFILIATES
OF E.M. WARBURG, PINCUS & CO., LLC. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15.00
AND $17.00. SEE "UNDERWRITERFOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "JRC."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................................ $ $ $
TOTAL(3)................................................. $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND CERTAIN AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC
(COLLECTIVELY, "WARBURG, PINCUS") HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. WARBURG, PINCUS CURRENTLY OWNS
SUBSTANTIALLY ALL OF THE EQUITY SECURITIES OF THE COMPANY.
UPON COMPLETION OF THE OFFERINGS AND ASSUMING ISSUANCE OF THE BONUS
SHARES DESCRIBED HEREIN, WARBURG, PINCUS WILL OWN APPROXIMATELY 78.2% OF
THE SHARES OF COMMON STOCK THEN OUTSTANDING. IT IS PROBABLE THAT, FOLLOWING
COMPLETION OF THE OFFERINGS, WARBURG, PINCUS WILL CONTINUE TO BE ABLE TO
SELECT THE COMPANY'S BOARD OF DIRECTORS AND TAKE, OR BLOCK, OTHER CORPORATE
ACTIONS REQUIRING STOCKHOLDER APPROVAL, AS WELL AS DICTATE THE DIRECTION
AND POLICIES OF THE COMPANY. SEE "RISK FACTORS--INFLUENCE BY EXISTING
STOCKHOLDER." UPON COMPLETION OF THE OFFERINGS AND ASSUMING ISSUANCE OF
THE BONUS SHARES DESCRIBED HEREIN,
OFFICERS AND DIRECTORS OF THE COMPANY (OTHER THAN DIRECTORS WHO ARE
AFFILIATED WITH WARBURG, PINCUS) WILL OWN, IN THE AGGREGATE, APPROXIMATELY
1.5% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
APPROXIMATELY $34.6 MILLION OF THE PROCEEDS TO COMPANY WILL BE USED TO
REPAY INDEBTEDNESS OWED TO WARBURG, PINCUS.
(3) WARBURG, PINCUS CAPITAL PARTNERS, L.P. ("WPCP"), AN AFFILIATE OF E.M.
WARBURG, PINCUS & CO., LLC HAS GRANTED TO THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 1,406,250 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS, PROCEEDS TO COMPANY AND PROCEEDS TO WPCP WILL BE $ ,
$ , $ , AND $ , RESPECTIVELY. SEE
"UNDERWRITERS" AND SEE NOTE (1) ABOVE.
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY WILLKIE FARR & GALLAGHER, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-----------------
MORGAN STANLEY & CO.
INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
CHASE MANHATTAN INTERNATIONAL LIMITED
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the shares of Common Stock being registered hereby, other than underwriting
discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 55,573
NASD Filing Fee................................................. 17,750
New York Stock Exchange Listing Fee............................. 100,000
Printing and Engraving Expenses................................. 450,000
Legal Fees and Expenses......................................... 1,020,000
Accounting Fees and Expenses.................................... 1,250,000
Transfer Agent and Registrar Fees and Expenses.................. 12,500
Blue Sky Fees and Expenses (including legal fees)............... 20,000
Miscellaneous................................................... 345,000
---------
Total........................................................... $3,270,823
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL and Article VIII of the Company's Certificate of
Incorporation (the "Certificate") provide for indemnification of the Company's
directors and officers to the maximum extent permitted by Delaware law, which
may include liabilities under the Securities Act.
Section 9 of the Underwriting Agreement provides for indemnification by the
Underwriters of directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act,
under certain limited circumstances.
The Registration Rights Agreement provides for indemnification by Warburg,
Pincus of the Company and its directors and officers against certain liabilities
under certain circumstances.
As permitted by the DGCL, the Certificate provides that directors of the
Company will not be personally liable for monetary damages for breach of their
fiduciary duties as a director, except liability for (i) breach of a director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
the law, (iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption and (iv) any transaction from which directors derive an improper
personal benefit.
An insurance policy obtained by the Registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold by
the Company within the past three years which were not registered under the
Securities Act:
On December 21, 1994, the Company issued approximately $55 million of Senior
Subordinated Notes and $55 million of Subordinated Notes to Warburg, Pincus.
II-1
<PAGE>
Pursuant to the terms of an Exchange Agreement, dated as of December 21,
1994, by and among the Predecessor and each of the stockholders of the Exchange
Subsidiaries, the Predecessor, a limited liability company, issued to:
(i) WPCC 638,756 Class A Membership Interests and 638,756 Class B
Membership Interests in the Predecessor in exchange for WPCC's stock in the
Subsidiaries;
(ii) WPCP 40,278 Class A Membership Interests and 40,278 Class B
Membership Interests in the Predecessor in exchange for WPCP's stock in the
Subsidiaries;
(iii) Investors 318,376 Class A Membership Interests and 318,376 Class B
Membership Interests in the Predecessor in exchange for Investors' stock in
the Subsidiaries; and
(iv) Five individuals (collectively, the "Individuals") 2,590 Class A
Membership Interests and 2,590 Class B Membership Interests in the
Predecessor in exchange for the Individuals' stock in the Subsidiaries.
In connection with the Predecessor's conversion into the Registrant, a
Delaware corporation, the Registrant issued to:
(i) WPCC 24,248,774 shares of common stock of the Registrant in exchange
for WPCC's Membership Interests in the Predecessor;
(ii) WPCP 1,529,054 shares of common stock of the Registrant in exchange
for WPCP's Membership Interests in the Predecessor;
(iii) Investors 12,086,349 shares of common stock of the Registrant in
exchange for Investors' Membership Interests in the Predecessor; and
(iv) the Individuals 98,323 shares of common stock of the Registrant in
exchange for the Individuals' Membership Interests in the Predecessor.
The sales described in this Item 15 were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. The foregoing transactions
did not involve a distribution or public offering. No underwriters were engaged
in connection with the foregoing issuances of securities and no commissions or
discounts were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Certificate of Incorporation of the Company**
3.2 By-laws of the Company**
4.1 Specimen of Common Stock Certificate
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the Common Stock
10.1 Form of Amended and Restated Credit Agreement (the "Credit Agreement") among the
Company, each of the banks and other financial institutions that is a signatory
thereto or which, pursuant to Section 11.06(b) thereof, becomes a "Bank" thereunder
(collectively, the "Banks") and The Chase Manhattan Bank (National Association), as
agent for the Banks.
10.2 Form of 1997 Stock Incentive Plan**
10.3 Form of Management Bonus Plan
10.4 Supplemental 401(k) Plan**
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.5 Form of Voting Agreement by and among Journal Register Company, Warburg, Pincus
Capital Company, L.P., Warburg, Pincus Capital Partners, L.P. and Warburg, Pincus
Investors, L.P.**
10.6 Form of Registration Rights Agreement by and among Journal Register Company,
Warburg, Pincus Capital Company, L.P., Warburg, Pincus Capital Partners, L.P. and
Warburg, Pincus Investors, L.P.
11.1 Computation of earnings per share**
21.1 Subsidiaries of the Registrant**
23.1 Consent of Ernst & Young LLP
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on Signature Page)**
27.1 Financial Data Schedule
</TABLE>
- ------------------------
** Previously filed
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
The Registrant will provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant as described in Item 14 above, or otherwise, the Registrant has been
advised that in the opinion of the 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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 the
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Trenton, State of New
Jersey, on the 6th day of May, 1997.
JOURNAL REGISTER COMPANY
By: /s/ JEAN B. CLIFTON
------------------------------------------
Name: Jean B. Clifton
Title: Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
* Chairman, President, Chief Executive May 6, 1997
------------------------------------------- Officer and Director (Principal
Robert M. Jelenic Executive Officer)
Executive Vice President, Chief
* Financial Officer and Director May 6, 1997
------------------------------------------- (Principal Accounting Officer and
Jean B. Clifton Principal Financial Officer)
*
------------------------------------------- Director May 6, 1997
Douglas M. Karp
*
------------------------------------------- Director May 6, 1997
Sidney Lapidus
*
------------------------------------------- Director May 6, 1997
John L. Vogelstein
/s/ JEAN B. CLIFTON
-------------------------------------------
*By Jean B. Clifton, as Attorney-in-Fact
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
The Board of Directors of
Journal Register Company, LLC
We have audited the combined financial statements of Journal Register
Company, LLC and Affiliates (the "Company") as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated March 5, 1996 (included elsewhere in this
Registration Statement). Our audits also included the combined financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the combined financial statement schedule referred to above,
when considered in relation to the basic combined financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 5, 1997
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD ADJUSTMENTS(2) EXPENSES DEDUCTIONS(1) PERIOD
------------ --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts.................... $ 2,874 $ 3,914 $ 2,615 $ 4,173
Valuation allowance for deferred tax assets........ $ 10,034 $ 7,684 $ 2,350
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts.................... $ 1,974 $ 2,871 $ 1,971 $ 2,874
Valuation allowance for deferred tax assets........ $ 18,637 $ 1,957 $ 10,560 $ 10,034
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts.................... $ 1,653 $ 1,926 $ 1,605 $ 1,974
Valuation allowance for deferred tax assets........ $ 23,103 $ 4,466 $ 18,637
</TABLE>
- ------------------------
(1) Write-off of uncollectible accounts for the allowance for doubtful accounts
and reduction of the valuation allowance for deferred tax assets.
(2) Valuation allowance related to 1995 acquisitions.
<PAGE>
EXHIBIT 4.1
[SPECIMEN COMMON STOCK CERTIFICATE]
[FACE OF CERTIFICATE]
COMMON STOCK COMMON STOCK
NUMBER SHARES
[LOGO]
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
CUSIP 481138 10 5
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Journal Register Company (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the registered
holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This
certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile
signatures of its duly authorized officers and its facsimile seal
to be affixed hereto.
[SEAL]
Dated:
/s/ Jean B. Clifton /s/ Robert M. Jelenic
Executive Vice President, Chairman, President and
Chief Financial Officer Chief Executive Officer
and Treasurer
Countersigned and Registered:
THE BANK OF NEW YORK
By: ________________________________
Authorized Signature
Transfer Agent and Registrar
<PAGE>
[BACK OF CERTIFICATE]
JOURNAL REGISTER COMPANY
A FULL STATEMENT OF THE DESIGNATION AND ANY PREFERENCES
CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND
LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS AND TERMS AND
CONDITIONS OF REDEMPTION OF THE SHARES OF CAPITAL STOCK MAY BE
OBTAINED FROM THE CORPORATION BY ANY STOCKHOLDER UPON REQUEST AND
WITHOUT CHARGE.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT - _______________
common (Cust)
TEN ENT - as tenants by the Custodian _________________________
entireties (Minor)
JT TEN - as joint tenants under Uniform Transfer to
with right of Minors Act ________________________
survivorship and (State)
and not as tenants
in common
Additional abbreviations may also be used though not in the above
list.
For Value received,_________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEEE
[___________________] ___________________________________________
_________________________________________________________________
(Please print or typewrite name and address including postal zip
code of assignee)
_____________________________________________ Shares of Stock
represented by the within Certificate, and do hereby irrevocably
constitute and appoint________ Attorney to
<PAGE>
transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated:____________ Signature(s) ______________________________
Notice: The signature(s) to
this assignment must
correspond with the name as
written upon the face of the
Certificate in every
particular without alteration
or enlargement or any change
whatever.
Signature Guaranteed By:
________________________
<PAGE>
EXHIBIT 5.1
May __, 1997
Journal Register Company
State Street Square
50 West State Street
Trenton, New Jersey 08608
Ladies and Gentlemen:
In connection with the registration of 9,375,000 shares of common
stock, par value $.01 per share (the "Shares"), of Journal Register Company (the
"Company") under the Securities Act of 1933, as amended, on Form S-1 filed with
the Securities and Exchange Commission (the "Commission") on March 17, 1997
(File No. 333-23425), as amended by Amendment No. 1 filed with the Commission on
April 21, 1997 (collectively, and as it may be further amended, the
"Registration Statement"), you have requested our opinion with respect to the
following matters.
In connection with the delivery of this opinion, we have examined
originals or copies of the Amended and Restated Certificate of Incorporation and
By-Laws of the Company as set forth as exhibits to Amendment No. 1 to the
Registration Statement, the Registration Statement, certain resolutions adopted
or to be adopted by the Board of Directors, the form of stock certificate
representing the Shares and such other records, agreements, instruments,
certificates and other documents of public officials, the Company and its
officers and representatives and have made such inquiries of the Company and its
officers and representatives, as we have deemed necessary or appropriate in
connection with the opinions set forth herein. We are familiar with the
proceedings heretofore taken, and with the additional proceedings proposed to be
taken, by the Company
<PAGE>
Journal Register Company
May __, 1997
Page 2
in connection with the authorization, registration, issuance and sale of the
Shares. With respect to certain factual matters material to our opinion, we
have relied upon representations from, or certificates of, officers of the
Company. In making such examination and rendering the opinions set forth below,
we have assumed without verification the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the authenticity of
the originals of such documents submitted to us as certified copies, the
conformity to originals of all documents submitted to us as copies, the
authenticity of the originals of such later documents, and that all documents
submitted to us as certified copies are true and correct copies of such
originals.
Based on such examination and review, and subject to the foregoing, we
are of the opinion that the Shares have been duly authorized and, upon issuance,
delivery and payment therefor in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and non-assessable.
We are members of the Bar of the State of New York, and we have not
considered, and we express no opinion as to, the laws of any jurisdiction other
than the laws of the United States of America, State of New York and the General
Corporation Law of the State of Delaware.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus that
is a part of the Registration Statement. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
<PAGE>
Exhibit 10.1
[EXECUTION COUNTERPART]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JOURNAL REGISTER COMPANY
---------
CREDIT AGREEMENT
Dated as of __________, 1997
---------
THE CHASE MANHATTAN BANK,
as Agent
THE BANK OF NEW YORK,
CIBC, INC.,
FLEET NATIONAL BANK and
KEYBANK NATIONAL ASSOCIATION,
as Managing Agents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT dated as of May 2, 1997 between: JOURNAL REGISTER
COMPANY, a corporation duly organized and validly existing under the laws of
the State of Delaware (the "BORROWER"); each of the banks and other financial
institutions that is a signatory hereto or which, pursuant to Section
11.06(b) hereof, shall become a "Bank" hereunder (individually, a "BANK" and,
collectively, the "BANKS"); and THE CHASE MANHATTAN BANK, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"AGENT").
Journal News, Inc. and Journal Company, Inc. (collectively, the
"EXISTING BORROWERS"), in each case a wholly owned subsidiary of Journal
Register Company, LLC ("JOURNAL REGISTER LLC"), a limited liability company duly
organized and validly existing under the laws of the State of New York, are
borrowers under an Amendment and Restatement dated as of December 17, 1996 of
Credit Agreement dated as of December 21, 1994 (the "1994 CREDIT AGREEMENT")
with the Banks and the Agent (as heretofore modified and supplemented and in
effect on the date of this Agreement, the "EXISTING CREDIT AGREEMENT").
Substantially concurrently herewith, Journal Register LLC is merging with and
into the Borrower, with the Borrower being the surviving entity of such merger.
Effective on the Effective Date (as defined below), the Borrower wishes to
become a party to the Existing Credit Agreement as borrower and to assume all of
the obligations of the Existing Borrowers under or in respect of the Existing
Credit Agreement, and in that connection the parties to the Existing Credit
Agreement wish to amend in certain respects and to restate in its entirety the
Existing Credit Agreement, it being the intention of the parties that the loans
outstanding under the Existing Credit Agreement on the Effective Date (other
than such loans required to be paid as of the Effective Date as contemplated
hereby) shall continue and remain outstanding and not be repaid on the Effective
Date, but shall be assigned and reallocated among the Banks as provided in
Section 2.01 hereof.
The Borrower and its subsidiaries are engaged as an integrated group
in the business of publishing, distributing and selling newspapers, and in
related businesses, and in furnishing the required supplies, services,
equipment, credit and other facilities for such integrated operation. The
integrated operation requires financing on such a basis that credit supplied to
the Borrower be made available from time to time to its subsidiaries, as
required for the continued successful operation of the Borrower and its
subsidiaries, separately, and the integrated operation as a whole. In that
connection, the Borrower has requested that the Banks make loans to the Borrower
(to be made available by the Borrower to its subsidiaries) in an aggregate
principal amount up to but not exceeding $632,995,000 to provide financing for
general corporate purposes, permitted acquisitions of newspaper companies and
working capital for the
CREDIT AGREEMENT
----------------
<PAGE>
-2-
ongoing operations of the Borrower and its subsidiaries. The Banks are willing
to make such loans to the Borrower on the terms and conditions of this
Agreement.
Accordingly, the parties hereto hereby agree that the Existing
Agreement shall, as of the Effective Date, be amended in certain respects and
restated in its entirety as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"ACQUISITION" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower and/or any of its Subsidiaries (a) acquires any going business or all
or substantially all of the assets of any corporation, partnership, joint
venture or other firm or any division of any corporation, partnership, joint
venture or other firm or the right to use or manage or otherwise exploit any
such business or assets, whether through purchase or lease of assets, merger or
otherwise, (b) directly or indirectly acquires control of at least a majority
(in number of votes) of the securities of a corporation which have ordinary
voting power for the election of directors or (c) directly or indirectly
acquires control of a majority ownership interest in any partnership, joint
venture or other firm. The terms "ACQUIRE" and "ACQUIRED" used as a verb shall
have a correlative meaning.
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in a form supplied by the Agent.
"AFFILIATE" shall mean, with respect to the Borrower and its
Subsidiaries, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, the Borrower and, if such other
Person is an individual, any member of the immediate family (including parents,
spouse and children) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "CONTROL" (including, with its correlative meanings, "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of
CREDIT AGREEMENT
----------------
<PAGE>
-3-
securities or partnership or other ownership interests, by contract or
otherwise), PROVIDED that, in any event, any Person which owns directly or
indirectly 5% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate of the Borrower or any of its Subsidiaries solely by
reason of his or her being a director, officer or employee of the Borrower or
any of its Subsidiaries, (b) none of the Borrower or any of its Subsidiaries
shall be an Affiliate.
"AMENDMENT NO. 1 EFFECTIVE DATE" shall mean the effective date of
Amendment No. 1 dated as of May 5, 1995 to the 1994 Credit Agreement.
"AMENDMENT NO. 2 EFFECTIVE DATE" shall mean the effective date of
Amendment No. 2 dated as of June 20, 1995 to the 1994 Credit Agreement.
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and for each
Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan in the Administrative Questionnaire
submitted by such Bank or such other office of such Bank (or of an affiliate
of such Bank) as such Bank may from time to time specify to the Agent and the
Borrower as the office by which its Loans of such Type are to be made and
maintained.
"APPLICABLE MARGIN" shall mean:
(a) with respect to Base Rate Loans, 0.25% at all times when the
Total Debt Ratio is greater than or equal to 5.0 to 1 and 0.0% at all times
when the Total Debt Ratio is less than 5.0 to 1; and
(b) with respect to Eurodollar Loans, 1.50% at all times when the
Total Debt Ratio is greater than or equal to 5.0 to 1, 1.25% at all times
when the Total Debt Ratio is greater than or equal to 4.5 to 1 but less
than 5.0 to 1, 1.00% at all times when the Total Debt Ratio is greater than
or equal to 4.0 to 1 but less than 4.5 to 1, 0.75% at all times when the
Total Debt Ratio is greater than or equal to 3.5 to 1 but less than 4.0 to
1, 0.625% at all times when the Total Debt Ratio is greater than or equal
to 3.0 to 1 but less than 3.5 to 1 and 0.50% at all times when the Total
Debt Ratio is less than 3.0 to 1.
CREDIT AGREEMENT
----------------
<PAGE>
-4-
For purposes of this definition, the Total Debt Ratio shall be determined (i)
for any day during the period commencing on the Effective Date and ending on the
third Business Day after the first date the Borrower delivers to the Agent
consolidated financial statements of the Borrower pursuant to either Section
8.01(a) or 8.01(b) hereof on the basis of the Total Debt Ratio determined as of
the Effective Date on a pro forma basis (after giving effect to the initial
public offering of the Borrower, the application of the proceeds thereof, the
payment in full of the Warburg Subordinated Debt, the making of the Loans
hereunder and the other transactions contemplated to occur on or prior to the
Effective Date) and certified by a Senior Officer in the certificate delivered
pursuant to Section 6.01(g) hereof and (ii) for any day thereafter on the basis
of the then most recent consolidated financial statements of the Borrower
delivered to the Agent pursuant to said Section 8.01(a) or 8.01(b). Any change
in the Applicable Margins as a result of a change in the Total Debt Ratio shall
be effective as of the third Business Day following the date the relevant
consolidated financial statements of the Borrower are so delivered to the Agent,
PROVIDED that in the event that the Borrower shall fail to deliver to the Agent
any consolidated financial statements by the respective date required pursuant
to said Sections 8.01(a) or 8.01(b), the Applicable Margins shall be deemed to
be equal to the highest Applicable Margins provided for in this Agreement for
each day during the period commencing on the date said financial statements were
so required to be delivered and ending on the third Business Day following the
date such financial statements are in fact delivered to the Agent; PROVIDED,
FURTHER, that the Applicable Margins shall be subject to adjustment in
accordance with paragraphs (a) and (b) above on and as of any Borrowing Date if
(i) a borrowing of Revolving Credit Loans occurs on such Borrowing Date in
excess of $10,000,000 in aggregate principal amount (unless the proceeds of such
borrowing are to be, and are in fact, used to make repayments of Term Loans, in
which case no such adjustment to the Applicable Margins shall be so required to
be made on such Borrowing Date) and (ii) such borrowing results in a change in
the Total Debt Ratio as of such Borrowing Date that would in turn result in a
change in the Applicable Margins as reflected in the certificate of a Senior
Officer delivered to the Agent in accordance with and as required by Section
6.02(b) hereof. Notwithstanding the provisions of the immediately preceding
sentence, no reduction in the Applicable Margins provided for by this definition
shall be effective earlier than the date three Business Days after the date the
Agent receives a notice from the Borrower specifically requesting such
reduction.
"APPROVED TITLE REPORTS" shall mean, collectively, (a) the Approved
Title Reports referred to in Section 6.01(q) of the
CREDIT AGREEMENT
----------------
<PAGE>
-5-
Existing Credit Agreement, (b) the NEN Title Reports after having been marked by
the Borrowers' counsel and approved by the Agent and showing only those title
exceptions which are acceptable to the Agent as of the Amendment No. 1 Effective
Date, (c) the New Britain Title Reports after having been marked by the
Borrowers' counsel and approved by the Agent and showing only those title
exceptions which are acceptable to the Agent as of the Amendment No. 2 Effective
Date and (d) with respect to any Mortgage Property Acquired by any Obligor after
the Amendment No. 2 Effective Date if such Acquisition is financed in whole or
in part with the proceeds of PAD Loans hereunder or Permitted Additional Debt as
permitted by Section 8.07(e) hereof, title reports prepared by the Title Insurer
for the benefit of the Agent covering such Mortgage Property updated to within
30 days prior to the date such PAD Loans are made or such Permitted Additional
Debt is incurred, in each case, after having been marked by the Borrowers'
counsel and approved by the Agent and showing only those title exceptions which
are acceptable to the Agent as of the date such PAD Loans are made or such
Permitted Additional Debt is incurred.
"BANKRUPTCY CODE" shall mean the United States Federal Bankruptcy Code
of 1978, as amended from time to time.
"BASE RATE" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (a) the Federal Funds Rate for such day PLUS 1/2 of 1% and
(b) the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans which bear interest at rates based
upon the Base Rate.
"BORROWER SECURITY AGREEMENT" shall mean a Security Agreement
substantially in the form of Exhibit A hereto between the Borrower and the
Agent, as the same shall be amended, supplemented or otherwise modified and in
effect from time to time.
"BORROWING DATE" shall mean each date on which Loans are made
hereunder.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City and, if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, or a
Conversion of or into, or a Continuation of, or an Interest Period for, a
Eurodollar Loan or a notice by the Borrower with respect to any
CREDIT AGREEMENT
----------------
<PAGE>
-6-
such borrowing, payment, prepayment, Conversion, Continuation or Interest
Period, which is also a day on which dealings in Dollar deposits are carried out
in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Borrower or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP; PROVIDED that "Capital
Expenditures" shall not include (a) capitalized interest to the extent otherwise
included in "Capital Expenditures" as required by GAAP or (b) at the option of
the Borrower (which option shall be (i) irrevocable and (ii) notified to the
Agent), any such expenditures (including, without limitation, Capital Lease
Obligations incurred) up to but not exceeding $5,000,000 in the aggregate in any
fiscal year and up to but not exceeding $10,000,000 in the aggregate.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"CASH EQUIVALENTS" shall mean:
(a) direct obligations of the United States of America, or of any
agency thereof, or obligations guaranteed as to principal and interest by
the United States of America, or of any agency thereof, in either case
maturing not more than 180 days from the date of acquisition thereof;
(b) certificates of deposit or Eurodollar time deposits maturing on
demand or within 180 days from the date of acquisition thereof issued by
any Bank or bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and
undivided profits of at least $500,000,000;
(c) commercial paper rated A-1 or better or P-1 or better by Standard
& Poor's Rating Agency Incorporated or
CREDIT AGREEMENT
----------------
<PAGE>
-7-
Moody's Investors Service, Inc., respectively, maturing not more than 180
days from the date of acquisition thereof;
(d) operating deposit accounts with banks (including banks with a
smaller capital, surplus and undivided profits than that specified in
clause (b) above); and
(e) repurchase agreements and reverse repurchase agreements with a
term not in excess of 180 days with any Person relating to obligations
referred to in clause (a) above (PROVIDED that such agreements are entered
into on terms and conditions substantially similar to the terms and
conditions set forth in the form of Master Repurchase Agreement promulgated
by the Public Securities Association with a "Buyer's Margin Amount" (as
defined therein) at least equal to 100%).
"CASH FLOW" shall mean, for any period, the sum of the following for
the Borrower and its Subsidiaries for such period, determined on a consolidated
basis without duplication in accordance with GAAP: operating income before
taxes, Interest Expense, amortization and depreciation and extraordinary gains
and losses and excluding all other non-cash subtractions from net operating
income not otherwise excluded and excluding all other non-cash items of income;
PROVIDED that: (a) if any portion of such period occurs on or after October 1,
1995 but on or before June 30, 1997, Cash Flow shall be determined on a pro
forma basis for such period as if the Taunton Acquisition occurred on the first
day of such period utilizing the actual Cash Flow of The Taunton Daily Gazette
for the relevant period as increased by an amount equal to the amount specified
for the relevant calendar month in Annex 2 hereto, (b) except with respect to
the Taunton Acquisition, if the Borrower or any of its Subsidiaries shall have
Acquired or Disposed of one or more Newspapers or MVO or other businesses
related to newspaper publishing (or any part of any thereof) to any Person other
than an Obligor during such period, Cash Flow for any portion of such period
occurring prior to the date 12 complete calendar months after the consummation
of such Acquisition or Disposition, as the case may be, shall be increased or
decreased, as the case may be, by such an amount as shall be agreed between the
Borrower and the Majority Banks (or, if the Borrower and the Majority Banks
shall fail to agree as to any such amount within 30 days after the consummation
of such Acquisition or Disposition, as the case may be, by the actual amount of
the cash flow attributable to such Newspapers or MVO or other business), (c)
there shall be excluded from the calculation of Cash Flow which includes any
period during the fiscal year ended December 31, 1996, (i) reserves of up to
$2,500,000 for additional litigation and receivables reserves and (ii)
CREDIT AGREEMENT
----------------
<PAGE>
-8-
capitalized expenses in respect of the Borrower's and its Subsidiaries'
development and implementation of their on-line services of up to $750,000,
(d) there shall be excluded from the calculation of Cash Flow which includes
any period during the fiscal year ending December 31, 1997 capitalized
expenses in respect of the Borrower's and its Subsidiaries' development and
implementation of their on-line services of up to $500,000 and (e) there
shall be excluded from the calculation of Cash Flow payments under the
Management Bonus Plan and accrued expenses relating to the discontinuance of
JRN's StarShare Plan of up to an aggregate amount of $35,000,000.
"CASUALTY EVENT" shall mean, with respect to any Property of any
Person, any loss of, damage to or destruction of, or any condemnation or taking
of, such Property for which such Person or any of its Subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other compensation.
"CHANRY" shall mean Chanry Media, Inc. and its Subsidiaries.
"CHASE" shall mean The Chase Manhattan Bank.
"CLASS" shall have the meaning assigned to such term in Section 1.03
hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITMENTS" shall mean, collectively, the Revolving Credit
Commitments and the PAD Commitments.
"COMMITMENT PERCENTAGE" shall mean (a) with respect to any Revolving
Credit Bank, the ratio of (i) the amount of the Revolving Credit Commitment of
such Bank to (ii) the aggregate amount of the Revolving Credit Commitments of
all of the Revolving Credit Banks (or, if the Revolving Credit Commitments have
expired or terminated, the ratio of (i) the aggregate outstanding principal
amount of the Revolving Credit Loan(s) held by such Bank to (ii) the aggregate
outstanding principal amount of the Revolving Credit Loans held by all of the
Revolving Credit Banks); (b) with respect to any Term Loan Bank, the ratio of
(i) the aggregate outstanding principal amount of the Term Loan(s) held by such
Bank to (ii) the aggregate outstanding principal amount of the Term Loans held
by all of the Term Loan Banks; and (c) with respect to each Series of PAD Loans
and each Bank holding PAD Loans of any Series of PAD Loans, the ratio of (i) the
amount of the PAD Commitment of such Series of such Bank to (ii) the aggregate
amount of the PAD Commitments of such Series
CREDIT AGREEMENT
----------------
<PAGE>
-9-
of all of the Banks holding PAD Loans of such Series (or, if the such Series of
PAD Commitments have expired or terminated, the ratio of (i) the aggregate
outstanding principal amount of the PAD Loan(s) of such Series held by such Bank
TO (ii) the aggregate outstanding principal amount of the PAD Loans of such
Series held by all of the Banks).
"COMPLIANCE CERTIFICATE" shall mean a certificate of the chief
financial officer or controller of the Borrower, substantially in the form of
Exhibit C hereto and appropriately completed.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.08 hereof of Base Rate Loans into Eurodollar Loans or
Eurodollar Loans into Base Rate Loans which may be accompanied by the transfer
by a Bank (at its sole discretion) of a Loan from one Applicable Lending Office
to another.
"CREDIT DOCUMENTS" shall mean, collectively, this Agreement, the
Notes, the Subsidiary Guarantee and the Security Documents.
"DEFAULT" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"DISPOSITION" shall mean (a) any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Borrower or any of its Subsidiaries to any other Person, excluding any such
sale, assignment, transfer or other disposition in the ordinary course of
business and on ordinary business terms, or (b) the entering into of any
agreement by the Borrower or any of its Subsidiaries with any other Person
pursuant to which such other Person has the right to use or manage or otherwise
exploit any Property (whether now owned or hereafter acquired) of the Borrower
or such Subsidiary and pursuant to which such other Person is entitled, directly
or indirectly, to retain all or a substantial part of the revenues derived from
the use or management or other exploitation of such Property. The terms
"DISPOSE" and "DISPOSED" used as a verb shall have a correlative meaning.
CREDIT AGREEMENT
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"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EFFECTIVE DATE" shall mean the date upon which the conditions to
effectiveness of this Agreement specified in Section 6 hereof shall have been
satisfied or waived.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (each, a "CLAIM")
by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property or health, personal injuries, fines or
penalties arising out of, based on or resulting from (i) the presence, or
Release, of any Hazardous Material at or from any location, whether or not owned
by such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of Hazardous Materials
or arising from alleged injury or threat of injury to health, safety or the
environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of the environment (including the environment as it affects human
health or safety) or to emissions, discharges, Releases or threatened Releases
of pollutants, contaminants, chemicals or toxic or hazardous substances or
wastes into the indoor or outdoor environment, including, without limitation,
ambient air, soil, surface water, ground water, wetlands, land or subsurface
strata, or otherwise relating to the manufacture, processing, distribution,
generation, recycling, use, treatment, storage, disposal, transport or handling
of pollutants, contaminants, chemicals or toxic or hazardous substances or
wastes (or the effect of the same on human health or safety).
"EQUITY ISSUANCE" shall mean (a) the issuance or sale after the
Effective Date by the Borrower or any of its Subsidiaries to any Person or
Persons of (i) any capital stock, (ii) any warrants or options exercisable in
respect of any capital stock (other than (x) any warrants or options issued to
directors, officers, employees or consultants of the Borrower or
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any of its Subsidiaries pursuant to employee benefit plans established in the
ordinary course of business and (y) any capital stock of the Borrower or such
Subsidiary issued upon the exercise of such warrants or options) or (iii) any
other security or instrument representing an equity interest (or the right to
obtain any equity interest) in the Borrower or such Subsidiary or (b) the
receipt by the Borrower or any of its Subsidiaries after the Effective Date of
any capital contribution (whether or not evidenced by any equity security issued
by the recipient of such contribution); PROVIDED that Equity Issuance shall not
include (w) any such issuance or sale by any Subsidiary of the Borrower to the
Borrower or any other Subsidiary of the Borrower, (x) any capital contribution
by the Borrower or any of its Subsidiaries to any other Subsidiary of such
Person, (y) any such issuance or sale pursuant to the Management Bonus Plan or
Stock Incentive Plan or (z) any such issuance or sale relating to the
acquisition by the Borrower of all of the capital stock or other ownership
interests of INS from Warburg and/or Warburg Affiliates.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
"EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar Loan
for any Interest Period therefor, the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/100 of 1%), as determined by the Agent, of the rates
per annum quoted by the respective Reference Banks at approximately 11:00 a.m.
London time (or as soon thereafter as practicable) on the date two Business Days
prior to the first day of such Interest Period for the offering by the
respective Reference Banks to leading banks
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in the London interbank market of Dollar deposits having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
Eurodollar Loans to be made by the respective Reference Banks for such Interest
Period. If any Reference Bank is not participating in any Eurodollar Loan
during any Interest Period therefor, such Reference Bank shall quote a rate per
annum for such Loan for such Interest Period by reference to an amount equal to
$5,000,000. If any Reference Bank does not timely furnish such information for
determination of any Eurodollar Base Rate, the Agent shall determine such
Eurodollar Base Rate on the basis of information timely furnished by the
remaining Reference Banks.
"EURODOLLAR LOANS" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest
Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient of the
Eurodollar Base Rate for such Loan for such Interest Period DIVIDED BY 1 MINUS
the Reserve Requirement for such Loan for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning given to such term in
Section 9 hereof.
"EXCESS CASH FLOW" shall mean, for any period, the sum of the
following for such period: (a) Cash Flow MINUS (b) the sum of the following
(without duplication of deductions): (i) Total Debt Service PLUS (ii)
prepayments of principal of the Loans made pursuant to Section 2.08 hereof
(other than any such prepayments made pursuant to Section 2.08(d) hereof),
PROVIDED that, in the case of any such prepayments of principal of the Revolving
Credit Loans, the Revolving Credit Commitments shall have been reduced by a like
amount, PLUS (iii) prepayments of principal of the Loans made pursuant to
Section 2.09 hereof (other than any such prepayments made pursuant to Section
2.09(d) hereof) PLUS (iv) Capital Expenditures made as permitted by Section 8.10
hereof (other than Capital Expenditures made pursuant to clause (z) thereof, but
only to the extent funded with the proceeds of Revolving Credit Loans) PLUS (v)
cash payments in respect of Permitted Acquisitions made as permitted by Section
8.05(b)(iv) hereof (except to the extent made with the proceeds of Loans
hereunder or the proceeds of Permitted Additional Debt) PLUS (vi) Restricted
Payments made as permitted by Section 8.09(c) PLUS (vii) any net increase in
Working Capital (or MINUS any net decrease in Working Capital) PLUS (viii) costs
paid in cash in connection with obtaining Interest Rate
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Protection Agreements PLUS (ix) taxes (other than deferred taxes) paid during
such period or paid or expected to be paid in cash thereafter in respect of such
period, in each case in respect of income or activities earned or conducted
during such period.
"EXISTING BANK" shall mean each Bank which is a party to both the
Existing Credit Agreement and this Agreement.
"EXISTING CREDIT AGREEMENT" shall have the meaning given to such term
in the second paragraph hereof.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the immediately preceding Business Day as
so published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to Chase on such day on such transactions as determined by the
Agent.
"FIXED CHARGES RATIO" shall mean, at any date, the ratio of (a) Cash
Flow for the period of 12 complete consecutive months ended on, or most recently
ended prior to, such date TO (b) Total Fixed Charges for such period.
"GAAP" shall mean generally accepted accounting principles applied on
a basis consistent with those which, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of his,
her or its obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank to issue
CREDIT AGREEMENT
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a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall
have a correlative meaning.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCBS"), (b) any chemicals or other
materials or substances that are now or hereafter become defined as or included
in the definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (c) any other chemical or other
material or substance, exposure to which is now or hereafter prohibited, limited
or regulated under any Environmental Law.
"INACTIVE SUBSIDIARIES" shall mean, collectively, Chanry and its
Subsidiaries, The Hartford Times, Inc., Community Offset, Inc., Central New
Jersey Publishing Company, All Home Distribution, Inc., Asheboro Publications,
Inc., Orange Coast Publishing Company and The Tribune Publishing Company of
Royal Oak, Michigan.
"INDEBTEDNESS" shall mean, as to any Person: (a) indebtedness
created, issued or incurred by such Person for borrowed money (whether by loan
or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) such indebtedness or
other obligations of others secured by a Lien on Property of such Person,
whether or not the respective indebtedness or other obligation so secured has
been assumed by such Person; (d) obligations of such Person in respect of
letters of credit or similar instruments issued or accepted by banks and other
financial institutions for the account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by such
Person; PROVIDED that, with respect to the Borrower or any of its Subsidiaries,
there shall be excluded from Indebtedness of the Borrower or of its Subsidiaries
any of the foregoing obligations
CREDIT AGREEMENT
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of the Borrower or its Subsidiaries described in clauses (a) through (f) above
to the Borrower or any of its Subsidiaries.
"INS" shall mean INS Holdings, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware.
"INTEREST COVERAGE RATIO" shall mean, at any date, the ratio of (a)
Cash Flow for the period of twelve complete consecutive months ended on, or most
recently ended prior to, such date TO (b) cash Interest Expense for such period.
"INTEREST EXPENSE" shall mean, for any period, interest expense of the
Borrower and its Subsidiaries for such period (determined on a consolidated
basis without duplication in accordance with GAAP) including, without
limitation, the following: (a) all interest in respect of Indebtedness (other
than Warburg Subordinated Debt) of the Borrower and its Subsidiaries (including
imputed interest expense in respect of Capital Lease Obligations) paid, accrued
or capitalized during such period; PLUS (b) all commitment and agency fees paid
to the Banks and/or the Agent and all commitment and agency fees accrued during
such period and in either case in connection with this Agreement (but excluding
any legal fees or expenses in connection with this Agreement and the other
Credit Documents); PLUS (c) the net amounts payable (or MINUS the net amounts
receivable) by the Borrower and its Subsidiaries during such period under
Interest Rate Protection Agreements (but in any event excluding capitalized
costs incurred in connection with obtaining Interest Rate Protection Agreements
and the related amortization).
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from a Base Rate Loan or the last day of the immediately preceding Interest
Period for such Loan and ending on the numerically corresponding day in the
first, second, third or sixth month thereafter, as the Borrower may select as
provided in Section 4.05 hereof, except that each Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) if any Interest Period for any
Revolving Credit Loan would otherwise commence before and end after the
Revolving Credit Commitment Termination Date, such Interest Period shall end on
the Revolving Credit Commitment Termination Date; (b) no Interest Period for any
Term Loan may commence before and end after any Principal Payment Date unless,
after giving effect thereto, the aggregate
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principal amount of the Term Loans having Interest Periods which end after such
Principal Payment Date shall be equal to or less than the aggregate principal
amount of the Term Loans scheduled to be outstanding after giving effect to the
payments of principal required to be made on such Principal Payment Date; (c) no
Interest Period for any PAD Loan of any Series may commence before and end after
any Principal Payment Date for PAD Loans of such Series unless, after giving
effect thereto, the aggregate principal amount of the PAD Loans of such Series
having Interest Periods which end after such Principal Payment Date shall be
equal to or less than the aggregate principal amount of the PAD Loans of such
Series scheduled to be outstanding after giving effect to the payment of
principal required to be made on such Principal Payment Date; (d) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, in the case of an Interest Period for
Eurodollar Loans, if such next succeeding Business Day falls in the next
succeeding calendar month, on the immediately preceding Business Day); and (e)
notwithstanding the foregoing, no Interest Period shall have a duration of less
than one month and, if the Interest Period for any Eurodollar Loan would
otherwise be a shorter period (by reason of clause (a), (b), (c) or (d) above or
otherwise), such Loan shall not be available hereunder.
"INTEREST RATE PROTECTION AGREEMENT" shall mean an interest rate swap,
cap or collar agreement or similar arrangement between any Person and a
financial institution providing for the transfer or mitigation of interest risks
either generally or under specific contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
short sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed
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to be advanced, lent or extended to such Person; or (d) the entering into of any
Interest Rate Protection Agreement.
"JCI" shall mean Journal Company, Inc., a corporation duly organized
and validly existing under the laws of the State of Delaware.
"JCI/JNI SECURITY AGREEMENT" shall mean the Security Agreement dated
as of December 21, 1994 between the Subsidiary Guarantors and the Agent, as the
same shall be amended, supplemented or otherwise modified and in effect from
time to time.
"JNI" shall mean Journal News, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware.
"JRN" shall mean Journal Register Newspapers, Inc., a non-stock
corporation duly organized and validly existing under the laws of the State of
Delaware.
"LENDER" shall mean, at any time, (a) each Bank party to this
Agreement at such time and (b) any other Person holding Permitted Additional
Debt at such time if such other Person was a Bank party to this Agreement at the
time it provided such Permitted Additional Debt.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Credit Documents, a
Person shall be deemed to own subject to a Lien any Property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
other than an operating lease relating to such Property.
"LOANS" shall mean the Revolving Credit Loans, Term Loans and PAD
Loans.
"MAJORITY BANKS" shall mean Majority Revolving Credit Banks and
Majority Term Loan Banks.
"MAJORITY REVOLVING CREDIT BANKS" shall mean Revolving Credit Banks
having at least 60% of the sum of (a) the aggregate unused amount of the
Revolving Credit Commitments at such time PLUS (b) the aggregate outstanding
principal amount of the Revolving Credit Loans at such time or, if the Revolving
Credit Commitments have terminated, Revolving Credit Banks holding at
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least 60% of the aggregate outstanding principal amount of the Revolving Credit
Loans.
"MAJORITY TERM LOAN BANKS" shall mean Banks having at least 60% of the
sum of (a) the aggregate outstanding principal amount of the Term Loans at such
time PLUS (b) the aggregate outstanding principal amount of the PAD Loans at
such time PLUS (c) if any PAD Commitments are then in effect, the aggregate
unused amount of the PAD Commitments at such time.
"MANAGEMENT BONUS PLAN" shall mean the Borrower's "Management Bonus
Plan" pursuant to which the Borrower will pay management bonuses totalling
approximately $32,000,000, comprised of approximately $1,100,000 in shares of
common stock of the Borrower valued at the initial public offering price of
the Borrower's common stock and a cash portion that the Borrower expects will
be used to satisfy the recipients' tax obligations arising from the shares of
common stock.
"MARGIN STOCK" shall mean margin stock within the meaning of
Regulation U and Regulation X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the Property, business, financial condition, operations, assets, liabilities,
capitalization or prospects of the Borrower and its Subsidiaries taken as a
whole, (b) the ability of the Borrower or any of its Subsidiaries to perform any
of such Person's non-monetary obligations under any of the Transaction
Documents, (c) the validity or enforceability of any of the Transaction
Documents, (d) the rights and remedies of the Banks and the Agent under any of
the Credit Documents or (e) the timely payment of the principal of or interest
on the Loans or other amounts payable in connection therewith.
"MORTGAGE NOTICE" shall have the meaning given to such term in Section
8.22 hereof.
"MORTGAGE PROPERTIES" shall mean, collectively, the properties
identified in Exhibit D-1 to the 1994 Credit Agreement, the NEN Mortgage
Properties, the New Britain Mortgage Properties and any additional real property
Acquired by any Obligor after the Amendment No. 2 Effective Date if such real
property is financed in whole or in part with the proceeds of PAD Loans
hereunder or Permitted Additional Debt incurred as permitted by Section 8.07(e)
hereof, PROVIDED that from and after the date of the Disposition of any of the
foregoing properties, there shall be excluded from Mortgage Properties the
properties so Disposed of.
"MORTGAGES" shall mean mortgages or deeds of trust, as the case may
be, if any, to be granted by the Mortgagors to the Agent, pursuant to Section
8.22 hereof substantially in the form
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of Exhibit D to the 1994 Credit Agreement (with such changes thereto as the
Agent shall reasonably request) covering the Mortgage Properties.
"MORTGAGORS" shall mean each of the Subsidiary Guarantors, and each
other Subsidiary of the Borrower that is required to execute and deliver a
Mortgage pursuant to the terms of this Agreement.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and which is covered by Title IV of ERISA.
"MVO" shall mean Mississippi Valley Offset Company Inc., a Missouri
corporation that is a Subsidiary of JNI and a Subsidiary Guarantor.
"NEN ACQUISITION" shall mean the Acquisition of various publications
and commercial printing operations located largely in the States of Connecticut
and Rhode Island contemplated by the Asset Purchase Agreement dated as of March
10, 1995 by and among NH Acquisition Corp. and Capital Cities Media, Inc.,
Foothills Trader, Inc., Guilford Publishing Company, Inc., Imprint, Inc. and
Wilson Publishing Company (including all schedules and exhibits thereto).
"NEN ACQUISITION LOAN BANKS" shall mean Banks from time to time
holding NEN Acquisition Loans after giving effect to any assignments thereof
permitted by Section 11.06 hereof.
"NEN ACQUISITION LOANS" shall mean the loans provided for by Section
2.01(c) hereof, which may be Base Rate Loans and/or Eurodollar Loans. The NEN
Acquisition Loans outstanding as of the Effective Date are set forth in Annex 1
hereto.
"NEN ACQUISITION ENVIRONMENTAL REPORTS" shall mean the Phase I
Environmental Reports entitled "Elm City Citizen Newspapers, 349 New Haven
Avenue, Milford, Connecticut", "Shore Line Newspapers, 120 North Fair Street,
Guilford, New Haven County, Connecticut", "Wilson Newspapers, Inc., 187 Main
Street, Wakefield, Rhode Island", "Imprint Newspapers, 20 Isham Road, West
Hartford, Connecticut" and "Imprint Printing, Inc., 97 Defco Park Road, North
Haven, New Haven County, Connecticut", each prepared by H2M Associates, Inc. and
dated November, 1994.
"NEN MORTGAGE PROPERTIES" shall mean the properties identified in
Attachment B to Amendment No. 1 to the 1994 Credit Agreement.
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"NEN SURVEYS" shall have the meaning given to such term in Section
4.11 of Amendment No. 1 to the 1994 Credit Agreement.
"NEN TITLE REPORTS" shall have the meaning given to such term in
Section 4.12 of Amendment No. 1 to the 1994 Credit Agreement.
"NET PROCEEDS" shall mean:
(a) with respect to any receipt of proceeds of any Disposition
referred to in Section 2.09(b) hereof or any insurance payment, or any
condemnation award or other compensation in respect of any Casualty Event
referred to in Section 2.09(c) hereof, the excess, if any, of: (i) the
aggregate amount of such proceeds OVER (ii) the sum of (x) the reasonable fees
and out-of-pocket expenses incurred by the Borrower or any of its Subsidiaries,
in the case of any such Disposition, in effecting such Disposition or, in the
case of any such Casualty Event, in collecting such payment or compensation (as
the case may be) PLUS (y) the taxes paid (or reasonably estimated to be payable)
by the Borrower or any of its Subsidiaries in connection with any such
Disposition or Casualty Event but only to the extent payable within 120 days of
such Disposition or such Casualty Event (as the case may be) or, if such taxes
are not so paid within such 120 days, only if an amount equal to such taxes is
deposited with the Agent for credit to an escrow account to be held in such
account and used to pay the same when due PLUS (z) in the case of any such
Disposition or Casualty Event, any contractually required repayments of
Indebtedness of the Borrower or any of its Subsidiaries to the extent secured by
a Lien on the related Property;
(b) with respect to any Equity Issuance, the aggregate amount of all
cash received by the Borrower or any of its Subsidiaries in respect of such
Equity Issuance or sale by the Borrower net of (only in the case of an Equity
Issuance referred to in clause (a) of the definition of that term or such a sale
by the Borrower) reasonable fees and out-of-pocket expenses incurred by the
Borrower or such Subsidiary in connection therewith; and
(c) with respect to any issuance of Subordinated Debt permitted under
Section 8.07 hereof, the aggregate amount of all cash received by the Borrower
or any of its Subsidiaries in respect of such issuance net of reasonable fees
and out-of-pocket expenses (including, without limitation, underwriting
discounts) incurred by the Borrower or such Subsidiary in connection therewith.
CREDIT AGREEMENT
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"NEW BANK" shall mean each Bank which is a party to this Agreement but
not the Existing Credit Agreement.
"NEW BRITAIN ACQUISITION" shall mean the Acquisition of "The New
Britain Herald" located in New Britain, Connecticut and other Property as
contemplated by the Stock Purchase Agreement dated as of June 20, 1995 by and
among each of the shareholders of the Herald Publishing Company and New Britain
Publishing Company (including all schedules and exhibits thereto).
"NEW BRITAIN ACQUISITION ENVIRONMENTAL REPORTS" shall mean the Phase I
Environmental Site Assessment for The Herald Publishing Company at 7-15 Franklin
Square, New Britain, Connecticut, dated June, 1995, prepared by Mitchell R.
Chester, The East Hartford Gazette, 54 Connecticut Boulevard, East Hartford,
Connecticut, dated June, 1995, prepared by Mitchell R. Chester and One Herald
Square, New Britain Connecticut, dated March, 1991, prepared by Consulting
Environmental Engineers, Inc. and the Environmental Site Assessment for The
Herald at 1 Herald Square, New Britain, Connecticut, dated April, 1995, prepared
by Haley & Aldrich, Inc.
"NEW BRITAIN ACQUISITION LOAN BANKS" shall mean the Banks from time to
time holding New Britain Acquisition Loans after giving effect to any
assignments thereof permitted by Section 11.06 hereof.
"NEW BRITAIN ACQUISITION LOANS" shall mean the loans provided for by
Section 2.01(d) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
The New Britain Acquisition Loans outstanding as of the Effective Date are set
forth in Annex 1 hereto.
"NEW BRITAIN MORTGAGE PROPERTIES" shall mean the properties identified
in Attachment B to Amendment No. 2 to the 1994 Credit Agreement.
"NEW BRITAIN SURVEYS" shall have the meaning given to such term in
Section 4.11 of Amendment No. 2 to the 1994 Credit Agreement.
"NEW BRITAIN TITLE REPORTS" shall have the meaning given to such term
in Section 4.12 of Amendment No. 2 to the 1994 Credit Agreement.
"NEWSPAPER" shall mean each newspaper owned or operated by, or
proposed to be Acquired by, any Subsidiary of the Borrower (or, if the context
so requires, a Subsidiary of the Borrower that owns or operates, or proposes to
Acquire, such a newspaper)
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and may include, without limitation, tangible assets used or usable in the
operation of such newspaper, real property used in connection with such
newspaper, contracts, leases and agreements relating to such newspaper, all
licenses required for the operation of such newspaper in accordance with
applicable laws and regulations and copyrights, trademarks, trade names, logos,
jingles, service marks, slogans and promotional materials used in connection
with such newspaper.
"1994 CREDIT AGREEMENT" shall have the meaning given to such term in
the second paragraph hereof.
"NOTES" shall mean the promissory notes (if any) issued by the
Borrower pursuant to Section 2.07 hereof.
"OBLIGORS" shall mean, collectively, the Borrower and the Subsidiary
Guarantors.
"PAD COMMITMENTS" shall mean any commitment(s) to make loans to the
Borrower pursuant to Section 2.01(e) hereof.
"PAD LOANS" shall mean, collectively, (a) the NEN Acquisition Loans,
(b) the New Britain Acquisition Loans and (c) the loans made pursuant to the PAD
Commitments, which may be Base Rate Loans and/or Eurodollar Loans.
Notwithstanding anything herein to the contrary, PAD Loans are not considered to
be Permitted Additional Debt.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED ACQUISITION" shall mean an Acquisition of any one or more
Newspapers in the United States of America made as permitted by Section
8.05(b)(iv) hereof.
"PERMITTED ADDITIONAL DEBT" shall have the meaning assigned to such
term in Section 8.07(e) hereof.
"PERMITTED LIENS" shall mean, with respect to Liens on the Property of
the Borrower and/or any of its Subsidiaries, collectively, Liens permitted by
Section 8.06 hereof.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
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"PLAN" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and which is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any
Loan or any other amount owing to any of the Banks or the Agent under or
pursuant to this Agreement or any other Credit Document, a rate per annum equal
to 5% PLUS the Base Rate as in effect from time to time PLUS the Applicable
Margin (PROVIDED that, if any amount in respect of which interest is payable at
the Post-Default Rate is principal of a Eurodollar Loan and the day interest
thereon commences to be payable at the Post-Default Rate is a day other than the
last day of an Interest Period therefor, the "Post-Default Rate" for such
principal shall be, for the period from and including such day to but excluding
the last day of such Interest Period, 5% PLUS the interest rate for such Loan
for such Interest Period as provided in Section 3.02(b) hereof and, thereafter,
the rate provided for above in this definition).
"PRIME RATE" shall mean the rate of interest from time to time
announced by Chase at its principal office in New York, New York as its prime
commercial lending rate.
"PRINCIPAL PAYMENT DATES" shall mean (a) with respect to Term Loans,
NEN Acquisition Loans and New Britain Acquisition Loans, the Quarterly Dates
occurring in March, June, September and December of each year, commencing with
the first Quarterly Date after the Effective Date through and including (i)
December, 2002, with respect to Term Loans, and (ii) March, 2003, with respect
to NEN Acquisition Loans and New Britain Acquisition Loans, (b) May 5, 2003,
with respect to the last scheduled installment of the NEN Acquisition Loans, (c)
May 1, 2003, with respect to the last scheduled installment of the New Britain
Acquisition Loans and (d) with respect to each Series of PAD Loans other than
NEN Acquisition Loans and New Britain Acquisition Loans, the dates on which the
Borrower is required to pay each scheduled installment of such Loans as may be
hereafter agreed between the Borrower and the Bank providing such Loans,
PROVIDED that the requirements of Section 3.01(e) hereof are satisfied.
"PROPERTY" shall mean all property of any kind whatsoever, whether
real, personal or mixed and whether tangible or intangible, and any right or
interest in or to any such property of any kind whatsoever.
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"QUARTERLY DATES" shall mean the last Business Day of each March,
June, September and December in each year, the first of which shall be the first
such day after the date of this Agreement.
"REFERENCE BANKS" shall mean Chase and/or such other Bank or Banks as
the Agent shall select (after consultation with the Borrower) and designate to
the Borrower as a "Reference Bank" hereunder (or their Applicable Lending
Offices, as the case may be).
"REGULATION A", "REGULATION D", "REGULATION U" and "REGULATION X"
shall mean, respectively, Regulation A, Regulation D, Regulation U and
Regulation X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"REGULATORY CHANGE" shall mean, with respect to any Bank, any change
after the date of this Agreement in United States Federal, state or foreign law
or regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including such Bank of or under any United States Federal, state
or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"REQUIRED LENDERS" shall mean, at any time, Lenders having at least
60% of the sum of (a) the aggregate outstanding principal amount of the Loans at
such time PLUS (b) the aggregate unused amount of the Commitments at such time
PLUS (c) the aggregate outstanding principal amount of Permitted Additional Debt
at such time.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion
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Dollars against "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall include any other reserves required to be maintained by such
member banks by reason of any Regulatory Change with respect to (a) any category
of liabilities which includes deposits by reference to which the Eurodollar Base
Rate is to be determined as provided in the definition of "Eurodollar Base Rate"
in this Section 1.01 or (b) any category of extensions of credit or other assets
which includes Eurodollar Loans.
"RESTRICTED PAYMENT" shall mean (a) dividends (in cash, property or
obligations) on, or other payments or distributions on account of, or payments
or the setting apart of money for a sinking or other analogous fund for the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Borrower, but excluding dividends payable solely in shares
of common stock of the Borrower (or, in the case of dividends on preferred stock
of the Borrower, in shares of common stock or preferred stock of the same issue)
and (b) payments (in cash, property or obligations) or distributions on account
of, or payments or the setting apart of money for a sinking or other analogous
fund for the purchase, redemption, retirement or other acquisition of any
Subordinated Debt.
"REVOLVING CREDIT BANKS" shall mean (a) on the Effective Date, the
Banks having Revolving Credit Commitments as indicated on Annex 1 hereto and (b)
thereafter, the Banks from time to time holding Revolving Credit Loans and
Revolving Credit Commitments after giving effect to any assignments thereof
permitted by Section 11.06 hereof.
"REVOLVING CREDIT COMMITMENT" shall mean: (a) for each Revolving
Credit Bank that is a party to this Agreement on the Effective Date, the
obligation of such Bank to make Revolving Credit Loans up to an aggregate
principal amount equal to the amount set forth opposite the name of such Bank on
Annex 1 hereto; and (b) for each Revolving Credit Bank that acquires all or a
portion of another Revolving Credit Bank's Revolving Credit Commitment by
assignment pursuant to Section 11.06(b) hereof, the obligation of such Bank to
make Revolving Credit Loans up to an aggregate principal amount equal to such
Bank's Revolving Credit Commitment after giving effect to such assignment (in
each case, as the same may be reduced or increased from time to time pursuant to
Section 2.03 hereof or Section 11.06(b) hereof). The original aggregate
principal amount of the Revolving Credit Commitments is $235,000,000 as of the
Effective Date.
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"REVOLVING CREDIT LOANS" shall mean the loans provided for by Section
2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean the
Quarterly Date occurring in December, 2003.
"SCHEDULED PAYMENT" shall mean each repayment of the principal of the
Term Loans required to be made on a Principal Payment Date pursuant to Section
3.01(a) hereof, each repayment of the principal of the NEN Acquisition Loans
required to be made on a Principal Payment Date pursuant to Section 3.01(c)
hereof, each repayment of the principal of the New Britain Acquisition Loans
required to be made on a Principal Payment Date pursuant to Section 3.01(d)
hereof, each repayment of PAD Loans other than NEN Acquisition Loans and New
Britain Acquisition Loans pursuant to Section 3.01(e) hereof and the reduction
in the Revolving Credit Commitments required by Section 2.03(b)(v) hereof. For
purposes of computing Total Debt Service, the amount of each Scheduled Payment
shall be (a) the aggregate principal amount of the Term Loans, NEN Acquisition
Loans, New Britain Acquisition Loans and PAD Loans actually repaid pursuant to
Section 3.01(a), Section 3.01(c), Section 3.01(d) or Section 3.01(e),
respectively, hereof on a Principal Payment Date after giving effect to any
reductions in the amount required to be repaid on such Principal Payment Date
pursuant to Section 2.08 or 2.09 hereof PLUS (b) the aggregate principal amount
of the Revolving Credit Loans actually repaid pursuant to Section 2.09(a) hereof
after giving effect to the reduction in the Revolving Credit Commitments
pursuant to Section 2.03(b)(v) hereof.
"SECURITY DOCUMENTS" shall mean, collectively, the Borrower Security
Agreement, the JCI/JNI Security Agreement and all Uniform Commercial Code
financing statements required thereby to be filed with respect to the security
interests created pursuant thereto and, if and to the extent executed and
delivered pursuant to Section 8.22 hereof, the Mortgages, any Supplemental
Mortgages and the Supplement to the Subsidiary Guarantee referred to in Section
8.22(ii) hereof (PROVIDED that, notwithstanding the foregoing, the Mortgages,
such Supplemental Mortgages and such Subsidiary Guarantee shall be deemed to be
Security Documents and Transaction Documents for purposes of Sections 7.04, 7.05
and 7.06 hereof).
"SENIOR OFFICER" shall mean the President, Executive Vice President,
Chief Financial Officer, Controller or Vice President-Finance of the Borrower,
as the context requires.
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"STOCK INCENTIVE PLAN" shall mean the Borrower's "1997 Stock Incentive
Plan" which authorized the granting of up to 4,843,750 shares of common stock of
the Borrower through incentive stock options and non-qualified stock options to
acquire common stock of the Borrower and awards of common stock to directors,
officers and employees of or consultants to the Borrower and its Subsidiaries
and Affiliates.
"SUBORDINATED DEBT" shall mean unsecured Indebtedness (i) for which
the Borrower is directly and primarily liable, (ii) in respect of which no
Subsidiary of the Borrower is contingently or otherwise obligated and (iii) that
is subordinated to the obligation of the Borrower to pay principal of and
interest on the Loans and Notes and other amounts hereunder on terms, and
pursuant to documentation containing other terms (including interest,
amortization, covenants and events of default), in form and substance
satisfactory to the Majority Banks; PROVIDED that in no event shall any
Subordinated Debt provide for the payment of any principal thereof prior to the
date which is at least 91 days after the last scheduled principal payment date
of any of the Loans.
"SUBSIDIARY" shall mean, for any Person, any corporation, partnership
(other than any limited partnership of which such Person is solely a limited
partner) or other entity of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person; PROVIDED that Chanry shall not be deemed to be a Subsidiary of JNI
for any purpose of this Agreement other than to the extent Chanry is included in
the historical financial statements of JNI and its Subsidiaries. "WHOLLY OWNED
SUBSIDIARY" shall mean any such corporation, partnership or other entity of
which all such securities or other ownership interests, other than directors'
qualifying shares, are so owned or controlled.
"SUBSIDIARY GUARANTEE" shall mean the Guarantee Agreement dated as of
December 21, 1994 between the Subsidiary Guarantors (including, without
limitation, from and after the Effective Date, JNI and JCI) and the Agent, as
the same shall be
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amended, supplemented or otherwise modified and in effect from time to time.
"SUBSIDIARY GUARANTORS" shall mean each of the Subsidiaries of the
Borrower which are, from time to time, parties to the Subsidiary Guarantee.
"SUPPLEMENTAL MORTGAGE" shall have the meaning given to such term in
Section 8.22 hereof.
"SURVEYS" shall mean, collectively, (a) the surveys delivered to the
Agent pursuant to Section 6.01(p) of the 1994 Credit Agreement, (b) the NEN
Surveys, (c) the New Britain Surveys and (d) and each other survey of Mortgage
Property Acquired by any Obligor after the Amendment No. 2 Effective Date if
such Acquisition is financed in whole or in part with the proceeds of PAD Loans
hereunder or Permitted Additional Debt as permitted by Section 8.07(e) hereof,
each dated not more than 30 days prior to the date such PAD Loans are made or
such Permitted Additional Debt is incurred, certified to the Agent, made in
accordance with the "Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys" established and adopted by the American Land Title Association
and American Congress on Surveying and Mapping in 1992, and meeting the accuracy
requirements of an "Urban" survey as defined therein, showing all buildings and
other improvements, if any, all encroachments, if any, all set-back lines, if
any, and all areas affected by any easements or other instruments of record, if
any (the recording data in respect of which shall be marked on the survey),
containing metes and bounds description of such Mortgage Properties, setting
forth the flood zone designations, if any, in which such Mortgage Properties are
located.
"TAUNTON ACQUISITION" shall mean the acquisition by Taunton
Acquisition Corp., a Delaware corporation, of the assets of The Taunton Daily
Gazette.
"TERM LOAN BANKS" shall mean the Banks from time to time holding Term
Loans after giving effect to any assignments thereof permitted by Section 11.06
hereof.
"TERM LOANS" shall mean the loans provided for by Section 2.01(a)
hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"TITLE COMMITMENTS" shall have the meaning given to such term in
Section 8.22 hereof.
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"TITLE INSURER" shall mean First American Title Insurance Company or
such other title insurance company as the Majority Banks shall approve.
"TITLE POLICIES" shall have the meaning given to such term in Section
8.22 hereof.
"TITLE REPORTS" shall mean, collectively, (a) the title reports
delivered to the Agent pursuant to Section 6.01(q) of the 1994 Credit Agreement,
(b) the NEN Title Reports, (c) the New Britain Title Reports and (d) each other
title report prepared by the Title Insurer for the benefit of the Agent covering
Mortgage Property Acquired by any Obligor after the Amendment No. 2 Effective
Date if such Acquisition is financed in whole or in part with the proceeds of
PAD Loans hereunder or Permitted Additional Debt as permitted by Section 8.07(e)
hereof.
"TOTAL DEBT" shall mean, at any date, all Indebtedness of the Borrower
and its Subsidiaries that would be listed as a liability on a consolidated
balance sheet of the Borrower and its Subsidiaries as at such date prepared in
accordance with GAAP and including in any event obligations in respect of (a)
agreements-not-to-compete and (b) the liabilities described in Schedule VI
hereto but excluding in any event income taxes payable or deferred, unearned
circulation revenue, liabilities under Plans and liabilities of the type
described in Statement of Financial Accounting Standards Nos. 87, 106, 107 and
109 of the Financial Accounting Standards Board to the extent the same may be
treated as an accrued expense under GAAP.
"TOTAL DEBT RATIO" shall mean, at any date, the ratio of (a) the
aggregate principal amount of Total Debt of the Borrower and its Subsidiaries
then outstanding TO (b) Cash Flow for the period of twelve complete consecutive
months ended on, or most recently ended prior to, such date.
"TOTAL DEBT SERVICE" shall mean, for any period, the sum of the
following for the Borrower and its Subsidiaries for such period, determined on a
consolidated basis without duplication in accordance with GAAP: (a) Scheduled
Payments and other regularly scheduled payments of principal of Indebtedness
which Indebtedness is included in Total Debt; (b) Interest Expense; and (c)
payments of principal of and cash interest on Warburg Subordinated Debt (other
than the payment in full of the Warburg Subordinated Debt pursuant to Section
6.01(f) hereof); PROVIDED that solely for purposes of determining compliance
with: (i) Section 8.12 hereof at any date, payments of principal of and cash
interest on Warburg Subordinated Debt (to the extent included in the calculation
of Total Debt Service for such
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period), shall be deemed, except as otherwise permitted by clause (ii) below, to
have been paid in equal monthly installments during such period; (ii) Section
8.12 hereof at any date occurring during fiscal year 1996, payments of principal
of and cash interest on Warburg Subordinated Debt (to the extent included in the
calculation of Total Debt Service for such period), may, at the election (which
election shall be notified by the Borrower to the Agent on or prior to the date
of each such payment) of the Borrower, be deemed to have been paid in equal
monthly installments during a period of up to 24 complete calendar months ended
on, or most recently ended prior to, such payment date; and (iii) Section 8.12
hereof at any date occurring on or after January 1, 1997, each payment of
principal of or cash interest on Warburg Subordinated Debt made during fiscal
year 1996 (to the extent included in the calculation of Total Debt Service for
such fiscal year) shall be reduced by the sum of the following (without
duplication of deductions): (w) the amount of such payment of principal or cash
interest made with proceeds of Permitted Additional Debt and with proceeds (up
to but not exceeding $5,000,000 in the aggregate) of Warburg Subordinated Debt;
(x) Excess Cash Flow for fiscal year 1995, if any; (y) Excess Cash Flow for the
period commencing on January 1, 1996 and ended on the date of such payment of
principal or interest; and (z) the lesser of (I) $6,000,000 and (II) cash
balances and Cash Equivalents of the Borrower as at December 31, 1994 as shown
on the combined consolidated financial statements of JNI and JCI and their
respective Subsidiaries delivered to the Agent pursuant to the Existing Credit
Agreement.
"TOTAL FIXED CHARGES" shall mean, for any period, the sum of the
following for the Borrower and its Subsidiaries for such period, determined on a
consolidated basis without duplication in accordance with GAAP: (a) Total Debt
Service; (b) Capital Expenditures made as permitted by Section 8.10 hereof
(other than Capital Expenditures made pursuant to clause (z) thereof); and (c)
taxes (other than deferred taxes) paid during such period or paid or expected to
be payable in cash thereafter in respect of such period, in each case in respect
of income or activities earned or conducted during such period.
"TRANSACTION DOCUMENTS" shall mean, collectively, the Credit Documents
and each other material agreement, instrument or other document (including all
schedules and exhibits thereto) entered into and delivered in connection with
any Acquisition consummated by any Obligor after the Effective Date if such
Acquisition is financed in whole or in part with the proceeds PAD Loans
hereunder or Permitted Additional Debt as permitted by Section 8.07(e) hereof.
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"TYPE" shall have the meaning assigned to such term in Section 1.03
hereof.
"WARBURG" shall mean, collectively: (i) Warburg, Pincus Capital
Company, L.P., a Delaware limited partnership, (ii) Warburg, Pincus Capital
Partners, L.P., a Delaware limited partnership, (iii) Warburg, Pincus Investors,
L.P., a Delaware limited partnership, (iv) Warburg, Pincus & Co., a New York
general partnership, and (v) any other venture banking fund in which Warburg,
Pincus & Co. is the general partner.
"WARBURG AFFILIATE" shall mean any Subsidiary of any of the entities
listed in clauses (i) through (v), inclusive, of the definition of "Warburg" in
this Section 1.01.
"WARBURG SUBORDINATED DEBT" shall mean Indebtedness of JNI and/or JCI
owed to Warburg immediately prior to the Effective Date as listed in Schedule VI
hereto.
"WORKING CAPITAL" shall mean, at any time, the excess, if any, of the
current assets (net of cash and Cash Equivalents and excluding accrued interest
thereon) of the Borrower and its Subsidiaries over their current liabilities
(excluding any such liabilities in respect of the current portion of long-term
debt, liabilities under Plans and liabilities of the type described in Statement
of Financial Accounting Standards Nos. 87, 106, 107 and 109 of the Financial
Accounting Standards Board and accrued Interest Expense, accrued income taxes
payable or deferred, each determined on a consolidated basis without duplication
in accordance with GAAP).
1.02 ACCOUNTING TERMS AND DETERMINATIONS; FISCAL PERIODS.
----------------------------------------------------
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Agent and the Banks hereunder shall (unless otherwise disclosed to the Banks in
writing at the time of delivery thereof in the manner described in subsection
(b) below) be prepared, in accordance with generally accepted accounting
principles applied on a basis consistent with those used in the preparation of
the latest financial statements furnished to the Banks hereunder (which, prior
to the delivery of the first consolidated financial statements under Section
8.01 hereof, shall mean the combined financial statements of Journal Register
LLC and its Subsidiaries as at December 31, 1996 referred to in Section 7.02
hereof). All calculations made for the purposes of determining compliance with
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this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
consolidated financial statements furnished to the Banks pursuant to Section
8.01(a) or (b) hereof (or prior to the delivery of the first financial
statements under Section 8.01 hereof, used in the preparation of the combined
financial statements of Journal Register LLC and its Subsidiaries as at
December 31, 1996 referred to in Section 7.02 hereof) unless (i) the Borrower
shall have objected to determining such compliance on such basis at the time of
delivery of such consolidated financial statements or (ii) the Majority Banks
shall have objected to so determining such compliance within 30 days after
delivery to the Banks of such consolidated financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest consolidated financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first consolidated financial statements delivered under Section
8.01 hereof, shall mean the combined financial statements of Journal Register
LLC and its Subsidiaries as at December 31, 1996 referred to in Section 7.02
hereof).
(b) The Borrower shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Section 8.01(a) or
(b) hereof, as the case may be, (i) a description in reasonable detail of any
material variation between the application of accounting principles employed in
the preparation of such statement and the application of accounting principles
employed in the preparation of the immediately preceding annual or quarterly
financial statements as to which no objection has been made in accordance with
the last sentence of paragraph (a) above and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.
(c) The Borrower will not, nor will the Borrower permit any of its
Subsidiaries to, change the last day of its fiscal year from December 31, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30, respectively.
1.03 CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished
by "Class" and by "Type". The Class of a Loan (or of a Commitment to make a
Loan) refers to whether such Loan is a Revolving Credit Loan, a Term Loan or a
PAD Loan, each of which constitutes a Class. The "Type" of a Loan refers to
whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which
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constitutes a Type. In addition, PAD Loans (and Commitments to make PAD Loans)
are distinguished by "Series". The Series of a PAD Loan (or of a Commitment to
make a PAD Loan) refers both to the date such PAD Loan was made (or the date
such PAD Commitment was extended to the Borrower) and the purpose for which the
proceeds of such PAD Loan may be utilized and only PAD Loans made on the same
specified date and only for the same specified purpose are included within a
particular Series of PAD Loans. Loans may be identified by both Class and Type
and PAD Loans may also be identified by Series.
Section 2. COMMITMENTS.
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2.01 LOANS.
------
(a) TERM LOANS. On the Effective Date, (i) the "Term Loans" (as
defined in the Existing Credit Agreement) held by the Existing Banks under the
Existing Credit Agreement immediately prior to the Effective Date shall
automatically, and without any action on the part of any Person, be designated
and continued as Term Loans hereunder and each of the New Banks that is a Term
Loan Bank (and each Existing Bank, if any, whose relative proportion of Term
Loans hereunder is increasing over its relative proportion of "Term Loans" held
by it under the Existing Credit Agreement (each an "INCREASING EXISTING TERM
LOAN BANK")) shall, by assignments from the Existing Banks, if any, whose
relative proportion of the Term Loans hereunder is decreasing from its relative
proportion of "Term Loans" held by it under the Existing Credit Agreement (which
assignments shall be deemed to occur automatically on the Effective Date),
acquire a portion of the Term Loans of the Existing Banks so designated and
continued (the Term Loan Banks shall, through the Agent, make such additional
adjustments among themselves as shall be necessary), (ii) each such New Bank and
each Increasing Existing Term Loan Bank severally agrees, on the terms and
conditions of this Agreement, to make a term loan (on a non pro-rata basis) to
the Borrower in Dollars and/or (iii) the Borrower shall prepay the Term Loans of
the Existing Banks (on a non pro-rata basis), in each case in such amounts, such
that after giving effect thereto, the Term Loan Banks shall hold the Term Loans
hereunder in the respective principal amounts specified in Annex 1 hereto.
From and after the Effective Date, the Borrower (as provided in
Section 2.08(a) hereof) may Convert Term Loans of one Type into Term Loans of
another Type (as provided in Section 2.08(a) hereof) or Continue Term Loans of
one Type as Term Loans of the same Type (as provided in Section 2.08(a) hereof).
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(b) REVOLVING CREDIT LOANS. On the Effective Date, (i) the
"Revolving Credit Loans" (as defined in the Existing Credit Agreement) held by
the Existing Banks under the Existing Credit Agreement immediately prior to the
Effective Date shall automatically, and without any action on the part of any
Person, be designated and continued as Revolving Credit Loans outstanding under
the Revolving Credit Commitments, (ii) each Revolving Credit Bank (including,
without limitation, each New Bank that is a Revolving Credit Bank) shall have a
Revolving Credit Commitment in the amount set opposite the name of such Bank on
Annex 1 hereto, (iii) each of the New Banks that is a Revolving Credit Bank (and
each Existing Bank, if any, whose relative proportion of Revolving Credit
Commitments hereunder is increasing over its relative proportion of "Revolving
Credit Commitments" held by it under the Existing Credit Agreement (each an
"INCREASING EXISTING REVOLVING CREDIT BANK")) shall, by assignments from the
Existing Banks, if any, whose relative proportion of the Revolving Credit
Commitments hereunder is decreasing from its relative proportion of "Revolving
Credit Commitments" held by it under the Existing Credit Agreement (which
assignments shall be deemed to occur automatically on the Effective Date),
acquire a portion of the Revolving Credit Loans of the Existing Banks so
designated and continued (and the Revolving Credit Banks shall, through the
Agent, make such additional adjustments among themselves as shall be necessary),
(iv) each such New Bank and each Increasing Existing Revolving Credit Bank
severally agrees, on the terms and conditions of this Agreement, to make (on a
non pro-rata basis) a revolving credit loan to the Borrower in Dollars and/or
(v) the Borrower shall prepay the Revolving Credit Loans of the Existing Banks
(on a non pro-rata basis), in each case in such amounts, such that after giving
effect thereto and any other Revolving Credit Loans made to the Borrower on the
Effective Date, the Revolving Credit Banks shall hold the Revolving Credit Loans
hereunder ratably in accordance with their respective Revolving Credit
Commitments.
From and after the Effective Date, each Revolving Credit Bank
severally agrees, on the terms of this Agreement, to make Revolving Credit Loans
to the Borrower in Dollars during the period from and including the Effective
Date to but excluding the Revolving Credit Commitment Termination Date in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount of such Bank's Revolving Credit Commitment as then in effect.
Subject to the terms of this Agreement, during such period the Borrower may
borrow, prepay and reborrow the amount of the Revolving Credit Commitments by
means of Base Rate Loans and Eurodollar Loans and may (as provided in Section
2.08(a) hereof) Convert Revolving Credit Loans of one Type into Revolving Credit
Loans of the other Type or Continue Revolving
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Credit Loans of one Type as Revolving Credit Loans of the same Type.
(c) NEN ACQUISITION LOANS. On the Effective Date, (i) the "NEN
Acquisition Loans" (as defined in the Existing Credit Agreement) held by the
Existing Banks under the Existing Credit Agreement shall automatically, and
without any action on the part of any Person, be designated and continued as NEN
Acquisition Loans hereunder and each of the New Banks that is a NEN Acquisition
Loan Bank (and each Existing Bank, if any, whose relative proportion of NEN
Acquisition Loans hereunder is increasing over its relative proportion of "NEN
Acquisition Loans" held by it under the Existing Credit Agreement (each an
"INCREASING EXISTING NEN ACQUISITION LOAN BANK")) shall, by assignments from the
Existing Banks, if any, whose relative proportion of the NEN Acquisition Loans
hereunder is decreasing from its relative proportion of "NEN Acquisition Loans"
held by it under the Existing Credit Agreement (which assignments shall be
deemed to occur automatically on the Effective Date), acquire a portion of the
NEN Acquisition Loans of the Existing Banks so designated and continued (and the
NEN Acquisition Loan Banks shall, through the Agent, make such additional
adjustments among themselves as shall be necessary), (ii) each such New Bank and
each Increasing Existing NEN Acquisition Loan Bank severally agrees, on the
terms and conditions of this Agreement, to make a term loan (on a non pro-rata
basis) to the Borrower in Dollars and/or (iii) the Borrower shall prepay the NEN
Acquisition Loans of the Existing Banks (on a non pro-rata basis), in each case
in such amounts, such that after giving effect thereto, the NEN Acquisition Loan
Banks shall hold the NEN Acquisition Loans hereunder in the respective principal
amounts specified in Annex 1 hereto.
From and after the Effective Date, the Borrower may (as provided in
Section 2.08(a) hereof) Convert NEN Acquisition Loans of one Type into NEN
Acquisition Loans of the other Type or Continue NEN Acquisition Loans of one
Type as NEN Acquisition Loans of the same Type.
(d) NEW BRITAIN ACQUISITION LOANS. On the Effective Date, (i) the
"New Britain Acquisition Loans" (as defined in the Existing Credit Agreement)
held by the Existing Banks under the Existing Credit Agreement shall
automatically, and without any action on the part of any Person, be designated
and continued as New Britain Acquisition Loans hereunder and each of the New
Banks that is a New Britain Acquisition Loan Bank (and each Existing Bank, if
any, whose relative proportion of New Britain Acquisition Loans hereunder is
increasing over its relative proportion of "New Britain Acquisition Loans" held
by it under
CREDIT AGREEMENT
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the Existing Credit Agreement (each an "INCREASING EXISTING NEW BRITAIN
ACQUISITION LOAN BANK")) shall, by assignments from the Existing Banks, if any,
whose relative proportion of the New Britain Acquisition Loans hereunder is
decreasing from its relative proportion of "New Britain Acquisition Loans" held
by it under the Existing Credit Agreement (which assignments shall be deemed to
occur automatically on the Effective Date), acquire a portion of the New Britain
Acquisition Loans of the Existing Banks so designated and continued (and the New
Britain Acquisition Loan Banks shall, through the Agent, make such additional
adjustments among themselves as shall be necessary), (ii) each such New Bank and
each Increasing Existing New Britain Acquisition Loan Bank severally agrees, on
the terms and conditions of this Agreement, to make a term loan (on a non
pro-rata basis) to the Borrower in Dollars and/or (iii) the Borrower shall
prepay the New Britain Acquisition Loans of the Existing Banks (on a non
pro-rata basis), in each case in such amounts, such that after giving effect
thereto, the New Britain Acquisition Loan Banks shall hold the New Britain
Acquisition Loans hereunder in the respective principal amounts specified in
Annex 1 hereto.
From and after the Effective Date, the Borrower may (as provided in
Section 2.08(a) hereof) Convert New Britain Acquisition Loans of one Type into
New Britain Acquisition Loans of the other Type or Continue New Britain
Acquisition Loans of one Type as New Britain Acquisition Loans of the same Type.
(e) PAD LOANS. From and after the Effective Date, any Bank or any
other Person (other than Warburg or any Warburg Affiliate) may provide a new PAD
Commitment to the Borrower in compliance with Section 8.07(e) hereof as if it
were Permitted Additional Debt, PROVIDED that each of the following conditions
is satisfied as of the date each such new PAD Commitment becomes effective
hereunder:
(i) no Default shall have occurred and be continuing as of such date;
(ii) the sum of the aggregate outstanding principal amount of the PAD
Loans (excluding the NEN Acquisition Loans and New Britain Acquisition
Loans) PLUS the aggregate outstanding principal amount of Permitted
Additional Debt PLUS the aggregate unused amount of the PAD Commitments
then in effect PLUS the unused amount of such new PAD Commitment shall not
exceed $125,000,000 as of such date; and
(iii) such Bank or such other Person shall have agreed to provide
such new Commitment and, if not already a Bank,
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shall have agreed to be bound by the provisions of this Agreement as a
"Bank" hereunder pursuant to documentation in form and substance
satisfactory to the Agent;
and upon the execution and delivery of such documentation, such Bank or such
other Person, if not already a Bank hereunder, shall become a "Bank" hereunder
having the obligations, rights and benefits of a Bank hereunder holding a PAD
Commitment in an amount equal to the amount of such new PAD Commitment.
If a Bank extends a new PAD Commitment to the Borrower pursuant to
this Section 2.01(e), such Bank agrees, on the terms of this Agreement and
subject to such other conditions as may be agreed to between the Borrower and
such Bank, to make a PAD Loan or PAD Loans to the Borrower in Dollars on such
date(s) as shall be agreed between such Bank and the Borrower in an aggregate
principal amount as shall be agreed between such Bank and the Borrower.
Thereafter, the Borrower may (as provided in Section 2.08(a) hereof) Convert PAD
Loans of one Type into PAD Loans of the other Type or Continue Pad Loans of one
Type as PAD Loans of the same Type.
(f) LIMIT ON EURODOLLAR LOANS.
--------------------------
(i) On the Effective Date, all "Interest Periods" under the Existing
Credit Agreement in respect of the "Eurodollar Loans" thereunder that are being
continued hereunder shall be continued hereunder until the end of such Interest
Periods and shall not be terminated and, subject to the provisions hereof, the
Borrower shall be permitted to Continue such Loans as Eurodollar Loans or to
Convert such Loans into Base Rate Loans of the appropriate Class hereunder.
Notwithstanding the restatement of the Existing Credit Agreement as of the
Effective Date, all accrued and unpaid interest on the "Loans" under the
Existing Credit Agreement that are being continued hereunder shall remain
payable and be paid by the Borrower to the respective Existing Banks in
accordance with Section 3.02 hereof as if such Loans were made hereunder. As of
the Effective Date, after giving effect to the adjustments contemplated by
Sections 2.01(a), (b), (c) and (d) and this Section 2.01(f), the relevant Banks
shall hold Loans of a particular Class pro rata according to their respective
Commitments and within each such Class the relevant Banks shall hold Loans of a
particular Type pro rata according to the amounts of their respective Commitment
Percentages and, in the case of Eurodollar Loans having different Interest
Periods, such Loans shall be allocated pro rata among the relevant Banks
according the amount of such Loans respectively held by such Banks.
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(ii) No more than eight separate Interest Periods in respect of
Eurodollar Loans of a Class may be outstanding from each Bank at any one time.
(g) ASSUMPTION OF EXISTING LOANS. By its execution of this Agreement
the Borrower hereby assumes all of the obligations of JNI and JCI, as borrowers,
under the Existing Credit Agreement with respect to the loans thereunder that
are being continued hereunder and all other amounts payable with respect thereto
that remain unpaid as of the Effective Date (except for amounts contemplated to
be paid as of the Effective Date under Section 6.01(f) hereof). From and after
the Effective Date, neither JNI nor JCI shall be borrowers hereunder but shall
each be a Subsidiary Guarantor party to the Subsidiary Guarantee and fully
liable thereunder.
2.02 BORROWINGS. The Borrower shall give the Agent (which shall
promptly notify the Banks) notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than 12:00 noon New York time on the date
specified for each borrowing hereunder, each Bank shall make available the
amount of the Loan to be made by it on such date to the Agent, at account
designated by the Agent, in immediately available funds, for account of the
Borrower. The amount so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by depositing
the same, in immediately available funds, in an account of the Borrower
(designated by the Borrower) maintained with Chase.
2.03 CHANGES OF COMMITMENTS.
-----------------------
(a) VOLUNTARY. The Borrower shall have the right to terminate or
reduce the aggregate amount of the Revolving Credit Commitments at any time or
from time to time prior to the Revolving Credit Commitment Termination Date;
PROVIDED that (i) the Borrower shall give notice of each such termination or
reduction as provided in Section 4.05 hereof and (ii) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000.
(b) REDUCTION OF REVOLVING CREDIT COMMITMENTS.
(i) The Revolving Credit Commitments shall automatically terminate at
the opening of business on the Revolving Credit Commitment Termination
Date.
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(ii) The Revolving Credit Commitments shall automatically reduce by
the aggregate principal amount of each prepayment of Revolving Credit Loans
made as required by Section 2.09(b), 2.09(c), 2.09(d) or 2.09(e) hereof.
(iii) The Revolving Credit Commitments shall automatically reduce by
the amount of any prepayment of Revolving Credit Loans that would have been
required to have been made pursuant to Section 2.09(b), 2.09(c), 2.09(d) or
2.09(e) hereof but for the provisions of Section 2.09(g) hereof.
(iv) If any event of the type described in Section 2.09(b), 2.09(c),
2.09(d) or 2.09(e) hereof occurs on any date when no Loans are outstanding
and the Revolving Credit Commitments are in effect, then on such date the
Revolving Credit Commitments shall automatically reduce by an amount equal
to the aggregate principal amount of the Loans that would have been
required to have been repaid had Loans been outstanding on such date in a
principal amount equal to the aggregate amount of the Revolving Credit
Commitments in effect on such date.
(v) The Revolving Credit Commitments shall automatically reduce to
(x) $195,000,000 at the opening of business on the Quarterly Date occurring
in December, 2000, (y) $155,000,000 at the opening of business on the
Quarterly Date occurring in December, 2001 and (z) $115,000,000 at the
opening of business on the Quarterly Date occurring in December, 2002,
PROVIDED that, if at the opening of business on any such Quarterly Date the
amount of the Revolving Credit Commitments then in effect is equal to or
less than the respective amount specified above, no further reductions in
the Revolving Credit Commitments as of such date shall be required pursuant
to this Section 2.03(b)(v).
(c) EFFECT OF COMMITMENT REDUCTIONS. Commitments once terminated or
reduced may not be reinstated.
2.04 COMMITMENT FEES. The Borrower shall pay to the Agent for
account of each Bank having a PAD Commitment a commitment fee on the daily
average unused amount of such Bank's PAD Commitment, for the period from and
including such date as shall be agreed between such Bank and the Borrower to but
excluding the earlier of the date such PAD Commitment is terminated or expires,
at a rate per annum equal to 3/8 of 1%, except that for any day on which the
Total Debt Ratio is less than 4.50 to 1, commitment fees payable by the Borrower
hereunder
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in respect of the PAD Commitments shall be calculated at a rate per annum equal
to 1/4 of 1% (PROVIDED that no reduction in commitment fee pursuant to this
sentence shall be effective earlier than the date three Business Days after the
date the Agent receives a certificate of the Borrower as to the related
reduction in the Total Debt Ratio and specifically requesting such reduction in
such commitment fee). The Borrower shall pay to the Agent for account of each
Revolving Credit Bank a commitment fee on the daily average unused amount of
such Bank's Revolving Credit Commitment, for the period from and including the
Effective Date to but excluding the earlier of the date such Commitment is
terminated or expires, at a rate per annum equal to 3/8 of 1%, except that for
any day on which the Total Debt Ratio is less than 4.50 to 1, commitment fees
payable by the Borrower hereunder in respect of the Revolving Credit Commitments
shall be calculated at a rate per annum equal to 1/4 of 1% (PROVIDED that no
reduction in commitment fee pursuant to this sentence shall be effective earlier
than the date three Business Days after the date the Agent receives a
certificate of the Borrower as to the related reduction in the Total Debt Ratio
and specifically requesting such reduction in such commitment fee). Accrued
commitment fees shall be payable on each Quarterly Date, commencing with the
first Quarterly Date after the Effective Date, in arrears and on the earlier of
the date the related Commitments are terminated or expire. Notwithstanding the
foregoing, as of the Effective Date the commitment fees with respect to the
Revolving Credit Commitments shall be determined on the basis of the Total Debt
Ratio as of the Effective Date as set forth in the certificate furnished
pursuant to Section 6.01(g) hereof.
2.05 LENDING OFFICES. The Loans of each Type made by each Bank shall
be made and maintained at such Bank's Applicable Lending Office for Loans of
such Type.
2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the failure of any other
Bank to make a Loan to be made by such other Bank. The amounts payable by the
Borrower at any time hereunder and under the Notes to each Bank shall be, as
between the Borrower on the one hand and such Bank on the other hand, a separate
and independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes; PROVIDED that this
Section 2.06 shall not be construed
CREDIT AGREEMENT
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to permit acceleration of the Loans or cancellation of the Commitments by any
Bank except in accordance with Section 9 hereof or as otherwise expressly
permitted by the terms hereof.
2.07 EVIDENCE OF DEBT.
-----------------
(a) Each Bank shall maintain in accordance with
its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Bank resulting from
each Loan made or continued hereunder by such Bank, including the amounts of
principal and interest payable and paid to such Bank from time to time
hereunder.
(b) The Agent shall maintain accounts in which it shall record (i)
the amount of each Loan made or continued hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Bank hereunder and (iii) the amount of any sum received by the Agent hereunder
for the account of the Banks and each Bank's share thereof.
(c) The entries made in the accounts maintained pursuant to paragraph
(a) or (b) of this Section 2.07 shall be PRIMA FACIE evidence of the existence
and amounts of the obligations recorded therein; PROVIDED that the failure of
any Bank or the Agent to maintain such accounts or any error therein shall not
in any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
(d) Any Bank may request that Loans made or continued by it hereunder
be evidenced by a promissory note(s). In such event, the Borrower, at its own
expense, shall prepare, execute and deliver to such Bank a promissory note(s)
payable to the order of such Bank (or, if requested by such Bank, to such Bank
and its registered assigns) and substantially in the form of Exhibit E-1, E-2,
E-3, E-4 or E-5, as appropriate, and such note(s) shall be evidence of such
Loans (and all amounts payable in respect thereof).
2.08 CONVERSION OR CONTINUATION OF LOANS; OPTIONAL PREPAYMENTS.
----------------------------------------------------------
(a) CONVERSION OR CONTINUATION. Subject to Section 4.04 hereof, the
Borrower shall have the right to Convert Loans of one Type into Loans of the
other Type or to Continue Loans of one Type as Loans of the same Type, at any
time or from time to time; PROVIDED that: (i) the Borrower shall give the Agent
notice of each such Conversion or Continuation as provided
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in Section 4.05 hereof; and (ii) Eurodollar Loans may be Converted only on the
last day of an Interest Period for such Loans.
(b) OPTIONAL PREPAYMENTS. Subject to Section 4.04 hereof, the
Borrower shall have the right to prepay Loans in whole or in part without
premium or penalty (but subject to the penultimate sentence of Section 3.02
hereof) at any time or from time to time; PROVIDED that: (i) the Borrower shall
give the Agent notice of each such prepayment as provided in Section 4.05 hereof
(and, upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due and payable hereunder); (ii) Eurodollar Loans may be
prepaid at any time and from time to time, PROVIDED that the Borrower pays any
amounts owing under Section 5.05 hereof in the event of any such prepayment on a
date other than the last day of an Interest Period for such Loans; and (iii)
unless such prepayment is being made pursuant to Section 2.08(c) or 2.08(d),
each such prepayment shall, at the option of the Borrower, be applied to the
prepayment of Revolving Credit Loans, Term Loans, and/or PAD Loans (the amount
of the Loans of each Class and Series of Loans so prepaid to be applied ratably
to the installments of such Loans then outstanding).
(c) TERM LOAN AND PAD LOAN OPTIONAL PREPAYMENTS. On any Business Day
(the "PREPAYMENT DATE") occurring in any calendar year, the Borrower shall have
the right to prepay in whole but not in part without premium or penalty (but
subject to the penultimate sentence of Section 3.02 hereof) the one or two
quarterly installments of principal of all Term Loans and PAD Loans that are
scheduled to be paid on the first and/or second (as the case may be) Principal
Payment Dates immediately following the Prepayment Date; PROVIDED that: (i) the
Borrower shall give the Agent notice of each such prepayment as provided in
Section 4.05 hereof (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder) and
a certificate of a Senior Officer with respect to each such prepayment, which
notice shall specify that such prepayment is being made pursuant to this Section
2.08(c) and which certificate shall be in form and detail satisfactory to the
Agent and shall specify the amount of the Term Loans and PAD Loans to be prepaid
pursuant to this Section 2.08(c) and shall contain a calculation of interest
thereon to be paid as required by the penultimate sentence of Section 3.02
hereof; (ii) Eurodollar Loans may be prepaid at any time and from time to time,
provided that the Borrower pays any amounts owing under Section 5.05 hereof in
the event of any such prepayment on a date other than the last day of an
Interest Period for such Loans; (iii) the amount so prepaid (the "PREPAYMENT
AMOUNT") shall be equal to the
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aggregate principal amount of all Term Loans and all PAD Loans scheduled to be
paid on the first and/or second (as the case may be) Principal Payment Dates
immediately following the Prepayment Date PLUS accrued interest on such Loans
through the Prepayment Date (it being understood that if the Agent shall receive
an amount more than the Prepayment Amount, then the amount of such prepayment in
excess of the Prepayment Amount shall be deemed to have been a prepayment of
Term Loans and PAD Loans made pursuant to Section 2.08(b) hereof); and (iv) the
Borrower may make only one prepayment pursuant to this Section 2.08(c) during
any calendar year.
(d) ESTIMATED EXCESS CASH FLOW. The Borrower shall have the right to
prepay without premium or penalty (but subject to the penultimate sentence of
Section 3.02 hereof) the amount the Borrower reasonably estimates will be
payable pursuant to Section 2.09(d) hereof on the next date for such prepayment
specified in said Section 2.09(d) (the "REQUIRED PREPAYMENT DATE"); PROVIDED
that: (i) the Borrower shall give the Agent notice of each such prepayment as
provided in Section 4.05 hereof (and, upon the date specified in any such notice
of prepayment, the amount to be prepaid shall become due and payable hereunder)
and a certificate of a Senior Officer with respect to each such prepayment,
which notice shall specify that such prepayment is being made pursuant to this
Section 2.08(d) and which certificate shall be in form and detail satisfactory
to the Agent and shall contain a calculation of estimated Excess Cash Flow
computed with respect to the related Required Prepayment Date and prepaid
pursuant to this Section 2.08(d); (ii) Eurodollar Loans may be prepaid at any
time and from time to time, provided that the Borrower pays any amounts owing
under Section 5.05 hereof in the event of any such prepayment on a date other
than the last day of an Interest Period for such Loans; (iii) each such
prepayment shall be applied in the manner provided in said Section 2.09(d); (iv)
the Borrower may make only one prepayment pursuant to this Section 2.08(d)
during any calendar year; and (v) if the actual amount of the Loans that would
otherwise have been required to be prepaid pursuant to said Section 2.09(d) on
the Required Prepayment Date determined in accordance with said Section 2.09(d)
shall exceed the estimated amount paid by the Borrower pursuant to this Section
2.08(d), then the Borrower shall make a prepayment in an amount equal to such
excess in accordance with said Section 2.09(d) on or before the Required
Prepayment Date (it being understood that if such estimated amount exceeds such
actual amount, the Borrower shall not be entitled to any refund with respect to
such excess and such excess shall be applied to the prepayment of the next
Scheduled Payment or, if the Term Loans and PAD Loans shall have been paid in
full, to the
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repayment of Revolving Credit Loans and the reduction of the Revolving Credit
Commitments).
2.09 MANDATORY PREPAYMENTS.
----------------------
(a) REVOLVING CREDIT COMMITMENT REDUCTIONS. If, after giving effect
to any termination or reduction of the Revolving Credit Commitments pursuant to
Section 2.03 hereof, the aggregate unpaid principal amount of the Revolving
Credit Loans exceeds the aggregate amount of the Revolving Credit Commitments as
then in effect, the Borrower shall prepay Revolving Credit Loans on the date of
such termination or reduction in an aggregate amount equal to the amount of such
excess.
(b) DISPOSITIONS. If, at any time or from time to time, the Borrower
or any of its Subsidiaries shall receive Net Proceeds from any Disposition
(other than any Disposition permitted under clauses (i), (ii), (v) and (vi) of
Section 8.05(c) hereof, but, in the case of said clause (ii), only to the extent
such Net Proceeds are applied (or are committed to be applied) by the Borrower
or such Subsidiary within 90 days of such Disposition to purchase like Property
to be used in the ordinary course of its business), the Borrower shall, within
240 days after receipt of such Net Proceeds (subject to the proviso below, if
such proceeds have not been applied by such 240th day, then on such 240th day)
unless the Borrower shall have used all or a portion of such proceeds to
consummate an Acquisition, apply or cause to be applied (as provided in Section
2.09(f) hereof) to the prepayment of principal of the Loans an amount equal to
the lesser of (i) the amount of such Net Proceeds or (ii) the amount thereof
remaining after the consummation of such Acquisition; PROVIDED that if on such
240th day such proceeds have not been so used but the Borrower or any of its
Subsidiaries shall have entered into an agreement with respect to an
Acquisition, then, within 90 days thereafter, the Borrower or such Subsidiary
may use all or a portion of such Net Proceeds (but not in excess of the
aggregate amount of all cash consideration and all cash costs and expenses in
respect of such Acquisition) to consummate such Acquisition, and any portion of
such Net Proceeds not so used shall be applied to prepay the Loans as provided
herein; and, PROVIDED FURTHER that the Borrower shall have no obligations to
make any such application in respect of the Net Proceeds received in respect of
any single Disposition unless and until the aggregate amount of all Net Proceeds
received in respect of all Dispositions effected on and after the Effective Date
exceeds $2,000,000, in which case an amount equal to the amount of such excess
shall be so applied.
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(c) CASUALTY EVENTS. Within two Business Days after receipt of any
proceeds by the Borrower or any of its Subsidiaries in respect of any Casualty
Event affecting any Property of the Borrower or any of its Subsidiaries (except
to the extent such proceeds are to be applied (or are committed to be applied)
within 180 days after the date of receipt of such proceeds towards the repair,
reconstruction or replacement of such Property, and if such proceeds have not
been so utilized by such 180th day, then on such 180th day) the Borrower shall
apply, or cause to be applied, an amount equal to the Net Proceeds of such
Casualty Event or such unutilized portion thereof (as provided in
Section 2.09(f) hereof), to prepay principal of the Loans, PROVIDED that the
Borrower shall have no obligation to make any such application in respect of the
Net Proceeds received in respect of any single Casualty Event unless the amount
of such Net Proceeds exceeds $50,000, in which case an amount equal to the full
amount received shall be so applied.
(d) EXCESS CASH FLOW. Not later than five Business Days after
receipt by the Agent of the annual consolidated financial statements of the
Borrower and its Subsidiaries to be delivered by the Borrower pursuant to
Section 8.01(b) hereof (or, if such consolidated financial statements are not
received by the last day on which they are required to be delivered, not later
than five Business Days after the last day on which such financial statements
are required by said Section 8.01(b) to be so delivered) in respect of each
fiscal year of the Borrower (commencing with fiscal year 1999), the Borrower
shall apply an amount equal to 50% of Excess Cash Flow for such fiscal year or
the excess of such amount over the estimated Excess Cash Flow prepayment for
such fiscal year made pursuant to Section 2.08(d) hereof (as provided in Section
2.09(f) hereof) to the prepayment of principal of the Loans; PROVIDED that the
Borrower shall not be required to make any prepayment under this Section 2.09(d)
with respect to any fiscal year if, as of the last day of such fiscal year, the
Total Debt Ratio is less than 3.0 to 1 (as demonstrated in the Compliance
Certificate delivered under Section 8.01 hereof accompanying the audited
consolidated financial statements of the Borrower as of the end of and for such
fiscal year).
(e) EQUITY ISSUANCES AND SUBORDINATED DEBT. Not later than 240 days
after receipt by the Borrower of Net Proceeds of any Equity Issuance (other than
the proceeds of the Borrower's initial public offering received as of the
Effective Date and applied as contemplated by Section 6.01(f) hereof) or the
issuance or incurrence of any Subordinated Debt permitted under Section 8.07(g)
hereof after the Effective Date (and, subject to the proviso below, if such
proceeds have not been applied by such
CREDIT AGREEMENT
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240th day, then on such 240th day) unless the Borrower shall have used all or a
portion of such proceeds to consummate an Acquisition, the Borrower shall apply
or cause to be applied (as provided in Section 2.09(f) hereof) to the prepayment
of principal of the Loans an amount equal to the lesser of (i) the amount of
such Net Proceeds or (ii) the amount thereof remaining after the consummation of
such Acquisition; PROVIDED that if on such 240th day such proceeds have not been
so used but the Borrower or any of its Subsidiaries shall have entered into an
agreement with respect to an Acquisition, then, within 90 days thereafter, the
Borrower or such Subsidiary may use all or a portion of such proceeds (but not
in excess of the aggregate amount of all cash consideration and all cash costs
and expenses in respect of such Acquisition) to consummate such Acquisition, and
any portion of such proceeds not so used shall be applied to prepay the Loans as
provided herein.
(f) APPLICATION OF PAYMENTS. Prepayments of Loans made pursuant to
clauses (b), (c), (d) and (e) of this Section 2.09 shall be applied, first, to
the Term Loans and PAD Loans pro rata in accordance with the respective
aggregate principal amounts of the Loans of such Classes and, with respect to
PAD Loans, pro rata in accordance with the aggregate principal amounts of the
PAD Loans of each Series (the amount of the Loans of each such Class and Series
so prepaid to be applied ratably to the installments of such Loans then
outstanding) and, if the Term Loans and PAD Loans shall have been paid in full,
to the Revolving Credit Loans.
(g) LIMITATIONS ON PREPAYMENTS OF LOANS. Notwithstanding anything in
this Section 2.09 to the contrary:
(i) if any Permitted Additional Debt is outstanding at the time any
prepayment of Loans is required to be made pursuant to paragraph (b), (c),
(d) or (e) above, then the maximum amount of Net Proceeds or Excess Cash
Flow, as the case may be, that shall be required to be applied to the
prepayment of the Loans and the reduction of the Revolving Credit
Commitments pursuant to said paragraph (b), (c), (d) or (e) at such time
shall be equal to (x) the product (the "ADJUSTED AMOUNT") of (I) the amount
of Net Proceeds or Excess Cash Flow, as the case may be, that would
otherwise be required to be so applied but for the provisions of this
Section 2.09(g)(i) (the "ORIGINAL AMOUNT") MULTIPLIED BY (II) a fraction,
the numerator of which is the sum of the aggregate outstanding principal
amount of the Loans and the unused amount of the Revolving Credit
Commitments at such time and the denominator of which is the sum of the
aggregate outstanding principal amount of the Loans, the
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unused Revolving Credit Commitments and the aggregate outstanding principal
amount of Permitted Additional Debt at such time PLUS (y) the amount, if
any, by which (I) the Original Amount MINUS the Adjusted Amount EXCEEDS
(II) the amount of any prepayment of Permitted Additional Debt that is
required to be made simultaneously with the prepayment of the Loans
pursuant to paragraph (b), (c), (d) or (e) of this Section 2.09; and
(ii) no prepayment of Revolving Credit Loans pursuant to any of
paragraph (b), (c), (d), (e) or (f) above shall be required to be made
except to the extent that on the date such prepayment is required to be
made the amount otherwise required to be prepaid exceeds the aggregate
unused amount of the Revolving Credit Commitments in effect on such date.
(h) NOTICE; DELIVERY OF CERTIFICATE. The Borrower shall give notice
to the Agent of each prepayment pursuant to this Section 2.09 in the same manner
and at the same time as is required for any optional prepayment pursuant to
Section 2.08 hereof. At the time it makes any prepayment of the Loans as
required by paragraph (b), (c), (d), (e) or (f) above or, if no prepayment of
the Loans is required by paragraph (e) above, at the time it receives Net
Proceeds of any Equity Issuance, the Borrower will deliver to the Agent a
certificate of a Senior Officer, in form and detail satisfactory to the Agent,
containing calculations of Excess Cash Flow or Net Proceeds or the Total Debt
Ratio in respect of, or after giving effect to, the related Disposition,
Casualty Event or Equity Issuance, as the case may be, and any deductions
therefrom in respect of amounts that are not required to be prepaid pursuant to
this Section 2.09, and specifying the amount of each such prepayment or, if no
prepayment of Loans is required by paragraph (e) or (g) above, specifying that
no prepayment of the Loans is required and also specifying the amount of the
reduction pursuant to Section 2.03(b) hereof, if any, in the Revolving Credit
Commitments.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
-----------------------------------
3.01 REPAYMENT OF LOANS.
(a) The Borrower hereby promises to pay to the Agent for account of
each Term Loan Bank the aggregate principal amount of the Term Loans held by
such Bank in twenty-three consecutive quarterly installments payable on the
Principal Payment Dates, the aggregate principal amount to be paid on each
Principal Payment Date in respect of all Term Loans held by all Term Loan Banks
to be in the amount specified below:
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Principal Payment Date Aggregate Amount
Occuring In: of Payment
---------------------- ----------------
June 1997 $10,000,000
September 1997 $10,000,000
December 1997 $10,000,000
March 1998 $13,000,000
June 1998 $13,000,000
September 1998 $13,000,000
December 1998 $13,000,000
March 1999 $14,937,500
June 1999 $14,937,500
September 1999 $14,937,500
December 1999 $14,937,500
March 2000 $16,937,500
June 2000 $16,937,500
September 2000 $16,937,500
December 2000 $16,937,500
March 2001 $18,937,500
June 2001 $18,937,500
September 2001 $18,937,500
December 2001 $18,937,500
March 2002 $17,750,000
June 2002 $17,750,000
September 2002 $17,750,000
December 2002 $17,750,000
(b) The Borrower hereby promises to pay to the Agent for account of
each Revolving Credit Bank the full outstanding principal amount of such Bank's
Revolving Credit Loans, and each of such Bank's Revolving Credit Loans shall
mature, on the Revolving Credit Commitment Termination Date.
(c) The Borrower hereby promises to pay to the Agent for account of
each NEN Acquisition Loan Bank the aggregate principal amount of the NEN
Acquisition Loans held by such Bank in twenty-five consecutive quarterly
installments payable on the Principal Payment Dates, the aggregate principal
amount to be paid on each Principal Payment Date in respect of all NEN
Acquisition Loans held by all NEN Acquisition Loan Banks to be in the amount
specified below:
Principal Payment Date Aggregate Amount
Occuring In/On: of Payment
---------------------- ----------------
June 1997 $ 742,500
September 1997 $ 742,500
December 1997 $ 742,500
March 1998 $ 907,500
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June 1998 $ 907,500
September 1998 $ 907,500
December 1998 $ 907,500
March 1999 $1,072,500
June 1999 $1,072,500
September 1999 $1,072,500
December 1999 $1,072,500
March 2000 $1,237,500
June 2000 $1,237,500
September 2000 $1,237,500
December 2000 $1,237,500
March 2001 $1,361,250
June 2001 $1,361,250
September 2001 $1,361,250
December 2001 $1,361,250
March 2002 $1,402,500
June 2002 $1,402,500
September 2002 $1,402,500
December 2002 $1,402,500
March 2003 $1,897,500
May 5, 2003 $1,897,500
(d) The Borrower hereby promises to pay to the Agent for account of
each New Britain Acquisition Loan Bank the aggregate principal amount of the New
Britain Acquisition Loans held by such Bank in twenty-five consecutive quarterly
installments payable on the Principal Payment Dates, the aggregate principal
amount to be paid on each Principal Payment Date in respect of all New Britain
Acquisition Loans held by all New Britain Acquisition Loan Banks to be in the
amount specified below:
Principal Payment Date Aggregate Amount
Occuring In/On: of Payment
---------------------- ----------------
March 1997 $292,500
June 1997 $292,500
September 1997 $292,500
December 1997 $292,500
March 1998 $357,500
June 1998 $357,500
September 1998 $357,500
December 1998 $357,500
March 1999 $422,500
June 1999 $422,500
September 1999 $422,500
December 1999 $422,500
March 2000 $487,500
June 2000 $487,500
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September 2000 $487,500
December 2000 $487,500
March 2001 $536,250
June 2001 $536,250
September 2001 $536,250
December 2001 $536,250
March 2002 $552,500
June 2002 $552,500
September 2002 $552,500
December 2002 $552,500
March 2003 $552,500
May 1, 2003 $942,500
(e) The Borrower hereby promises to pay to the Agent for the account
of each Bank holding PAD Loans (other than NEN Acquisition Loans and New Britain
Acquisition Loans) the aggregate principal amount of such Loans held by such
Bank on such days and at such times as shall be agreed by such Bank and the
Borrower, PROVIDED that if the proceeds (or any part of the proceeds) of such
Loans are to be used to finance Permitted Acquisitions, the Borrower shall not,
except upon the acceleration of such Loans following an Event of Default, agree
or be contractually obligated to repay such Loans more quickly than would be
permitted by Section 8.07(e)(i) hereof if such Loans were Permitted Additional
Debt.
3.02 INTEREST. The Borrower hereby promises to pay to the Agent for
account of each Bank interest on the unpaid principal amount of each Loan made
by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) during such periods such Loan is a Base Rate Loan, the Base Rate
(as in effect from time to time) PLUS the Applicable Margin; and
(b) during such periods such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period PLUS the Applicable Margin.
Notwithstanding the foregoing, (x) upon the occurrence and during the
continuance of an Event of Default specified in clause (a) of Section 9 hereof
arising by reason of a failure to pay principal of or interest on any of the
Loans, the Borrower will (to the fullest extent permitted by the law of the
State of New York) pay to the Agent for account of each Bank interest at the
applicable Post-Default Rate on the full outstanding principal amount of
CREDIT AGREEMENT
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each of such Bank's Loans (whether or not due and payable) and (y) upon the
occurrence and during the continuance of an Event of Default specified in said
clause (a) arising by reason of a failure to pay any other amount, the Borrower
will (to the fullest extent permitted by the law of the State of New York) pay
to the Agent for account of the Agent or any Bank to which such amount is owed
interest on such amount at the applicable Post-Default Rate. Accrued interest
on each Loan shall be payable (i) in the case of each Base Rate Loan, quarterly
on the Quarterly Dates, commencing with the first Quarterly Date occurring after
the Effective Date, (ii) in the case of each Eurodollar Loan, on the last day of
each Interest Period therefor and, if such Interest Period is longer than three
months, at three month intervals following the first day of such Interest
Period, and (iii) in the case of each Loan, upon the payment or prepayment
thereof or the Conversion of such Loan to a Loan of the other Type (but only on
the principal amount so paid, prepaid or Converted), except that interest
payable at the Post-Default Rate shall be payable from time to time on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Agent shall give notice thereof to the Banks to which such
interest is payable and the Borrower.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
------------------------------------------------
4.01 PAYMENTS.
---------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this
Agreement, the Notes and the other Credit Documents shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Agent at an account designated by the Agent, not later than 11:00 a.m. New York
time on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) Any Bank for whose account any such payment is to be made, may
(but shall not be obligated to) debit the amount of any such payment which is
not made by such time to any ordinary deposit account of the Borrower with such
Bank (with notice to the Borrower and the Agent, PROVIDED that the failure of
such Bank to so notify the Borrower and the Agent shall not affect the validity
of the actions taken by such Bank as permitted by this paragraph (b)).
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(c) The Borrower shall, at the time of making each payment under this
Agreement or any Note for account of any Bank, specify to the Agent (which shall
notify the intended recipients thereof) the Loans or other amounts payable by
the Borrower hereunder to which such payment is to be applied in which case such
payment shall, subject to Section 4.02 hereof and unless an Event of Default
shall have occurred and be continuing, be applied as so specified (and in the
event that the Borrower fail to so specify, or if an Event of Default has
occurred and is continuing, the Agent may distribute such payment to the Banks
and/or the other Person(s) to which amounts are payable by the Borrower
hereunder in such manner as the Majority Banks or, in the absence of
instructions from the Majority Banks, the Agent may determine to be appropriate,
subject to Section 4.02 hereof).
(d) Each payment received by the Agent under this Agreement or any
Note for account of a Bank shall be paid promptly to such Bank in immediately
available funds, for account of such Bank's Applicable Lending Office for the
Loan in respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day which is not a Business Day such payment shall be
made on the immediately preceding Business Day.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each payment of commitment fees under Section 2.04 hereof in
respect of Commitments of a particular Class and Series shall be made for
account of the relevant Banks, and each termination or reduction of the amount
of the Commitments of a particular Class and Series under Section 2.03 hereof
shall be applied to the respective Commitments of such Class and Series of the
relevant Banks, pro rata according to the amounts of their Commitment
Percentages; (b) the making, Conversion and Continuation of Revolving Credit
Loans, Term Loans or PAD Loans of a particular Series of a particular Type
(other than Conversions provided for by Section 5.04 hereof) shall be made pro
rata among the relevant Banks according to the amounts of their respective
Commitment Percentages and Eurodollar Loans of a particular Class and Series
made, Converted or Continued on the same day but having different Interest
Periods shall be allocated pro rata among the relevant Banks according to the
amounts of such Loans respectively held by such Banks; (c) each payment or
prepayment of Revolving Credit Loans, Term Loans or PAD Loans of a particular
Series by the Borrower shall be made for account of the relevant Banks pro rata
in accordance with the respective unpaid principal amounts of such Loans held by
the relevant Banks; and (d) each payment of interest on Revolving
CREDIT AGREEMENT
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Credit Loans, Term Loans or PAD Loans of a particular Series shall be made for
account of the relevant Banks pro rata in accordance with the amounts of the
interest on such Loans then due and payable to such Banks.
4.03 COMPUTATIONS. Interest on Eurodollar Loans and commitment fees
shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable and interest on Base Rate Loans shall be computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable. Notwithstanding the foregoing, interest on Base Rate Loans
determined by reference to the Federal Funds Rate shall be computed on the basis
of a year of 360 days.
4.04 MINIMUM AMOUNTS. Except for Conversions made pursuant to
Section 5.04 hereof and prepayments made pursuant to Section 2.08(d) or 2.09
hereof, each borrowing, Conversion, Continuation and prepayment of principal of
(a) Base Rate Loans shall be in an amount equal to $2,000,000 or a multiple of
$1,000,000 ($500,000 in the case of PAD Loans of each Series) in excess thereof
and (b) Eurodollar Loans shall be in an amount equal to $5,000,000 ($1,000,000
in the case of PAD Loans of each Series) or a multiple of $1,000,000 ($500,000
in the case of PAD Loans of each Series) in excess thereof (borrowings,
Conversions, Continuations or prepayments of or into Loans of different Types
or, in the case of Eurodollar Loans, having different Interest Periods at the
same time hereunder to be deemed separate borrowings, Conversions, Continuations
and prepayments for purposes of the foregoing, one for each Type or Interest
Period). Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of Eurodollar Loans having the same Interest Period
shall be at least equal to $5,000,000 ($1,000,000 in the case of PAD Loans of
each Series) and, if any Eurodollar Loans would otherwise be in a lesser
principal amount for any period, such Loans shall be Base Rate Loans during such
period.
4.05 CERTAIN NOTICES. Notices by the Borrower to the Agent of
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans, of Types of Loans and of the duration of
Interest Periods shall be irrevocable and shall be effective only if received by
the Agent not later than 10:00 a.m. New York time on the number of Business Days
prior to the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
CREDIT AGREEMENT
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Number of
NOTICE BUSINESS DAYS PRIOR
Termination or
reduction of Commitments 2
Borrowing or prepayment of,
or Conversion into,
Base Rate Loans (other than
any such borrowing on the
Effective Date) 1
Borrowing of Base Rate
Loans on the Effective
Date same day
Borrowing or prepayment of,
Conversion into,
Continuation as, or
duration of Interest Period
for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid and the
date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of borrowing or Continuation of, or Conversion
into, a Eurodollar Loan shall specify the duration of the Interest Period
therefor. The Agent shall promptly notify the Banks of the contents of each
such notice. In the event that the Borrower fail to select the Type of Loan, or
the duration of any Interest Period for any Eurodollar Loan, within the time
period and otherwise as provided in this Section 4.05, such Loan (if outstanding
as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on
the last day of the then current Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or (if not then outstanding)
will be made as, a Base Rate Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have
been notified by a Bank or the Borrower (the "PAYOR") prior to the date on which
the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank hereunder or (in the case of the
Borrower) a payment to the Agent for account of one or more of the Banks
hereunder (such payment being herein called the "REQUIRED
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PAYMENT"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient(s) on such date; and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient(s) of such payment shall, on demand, repay
to the Agent the amount so made available together with interest thereon in
respect of each day during the period commencing on the date (the "ADVANCE
DATE") such amount was so made available by the Agent until the date the Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such day and, if such recipient(s) shall fail promptly to make such payment, the
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, PROVIDED that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Agent within three
Business Days of the Advance Date, then, retroactively to the Advance Date, the
Payor and the recipient(s) shall each be obligated to pay interest on the
Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
the Borrower to the Banks, the Borrower and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Borrower under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
(ii) if the Required Payment shall represent proceeds of a Loan to be
made by the Banks to the Borrower, the Payor and the Borrower shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the Borrower shall
return the Required Payment to the Agent, without limiting any claim the
Borrower may have against the Payor in respect of the Required Payment).
4.07 SHARING OF PAYMENTS, ETC.
-------------------------
(a) The Borrower agrees that, in addition to (and without limitation
of) any right of set-off, bankers' lien or counterclaim a Bank may otherwise
have, each Bank shall be entitled, at its option, to offset balances held by it
for
CREDIT AGREEMENT
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account of the Borrower at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Bank's Loans, or
any other amount payable to such Bank hereunder, which is not paid when due
(regardless of whether such balances are then due to the Borrower), in which
case it shall promptly notify the Borrower and the Agent thereof, PROVIDED that
such Bank's failure to give such notice shall not affect the validity thereof.
(b) (i) At any time and from time to time prior to the time that all
of the Loans are declared or become due and payable pursuant to Section 9 hereof
and all of the Commitments hereunder are terminated pursuant to said Section 9,
if any Bank shall obtain payment of any principal of or interest on any Loan of
any Class and Series made by it to the Borrower under this Agreement or payment
of any other amount relating to the Loans or Commitments of such Class and
Series under this Agreement or any other Credit Document through the exercise of
any right of set-off, banker's lien or counterclaim or similar right or
otherwise, and, as a result of such payment, such Bank shall have received a
greater percentage of the principal of or interest on the Loans or Commitments
of such Class and Series or such other amounts relating to the Loans of such
Class and Series then due hereunder by the Borrower to such Bank than the
percentage received by any other Banks, it shall promptly purchase from such
other Banks participations in (or, if and to the extent specified by such Bank,
direct interests in) the Loans of such Class and Series made by such other Banks
(or in interest due thereon, as the case may be) or such other amounts relating
to the Loans or Commitments of such Class and Series, respectively, in such
amounts and make such other adjustments from time to time as shall be equitable,
to the end that all the Banks shall share the benefit of such excess payment
(net of any expenses which may be incurred by such Bank in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid principal
and/or interest on the Loans of such Class and Series held by each of the Banks
or such other amounts relating to the Loans or Commitments of such Class and
Series owing to each of the Banks. To such end all the Banks shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored.
(ii) At any time from and after the time that all of the Loans are
declared or become due and payable pursuant to Section 9 hereof and all of the
Commitments hereunder are terminated pursuant to said Section 9, if any Bank
shall obtain payment of any principal of or interest on any Loan made by it to
the Borrower under this Agreement or payment of any other amount
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under this Agreement or any other Credit Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise,
and, as a result of such payment, such Bank shall have received a greater
percentage of the principal of or interest on the Loans or such other amounts
then due hereunder by the Borrower to such Bank than the percentage received by
any other Banks, it shall promptly purchase from such other Banks participations
in (or, if and to the extent specified by such Bank, direct interests in) the
Loans made by such other Banks (or in interest due thereon, as the case may be)
or such other amounts, respectively, in such amounts and make such other
adjustments from time to time as shall be equitable, to the end that all the
Banks shall share the benefit of such excess payment (net of any expenses which
may be incurred by such Bank in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid principal and/or interest on the Loans held
by each of the Banks or such other amounts owing to each of the Banks. To such
end all the Banks shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
(c) The Borrower agrees that any Bank so purchasing a participation
(or direct interest) in the Loans made by other Banks (or in interest due
thereon, as the case may be) may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as if
such Bank were a direct holder of Loans in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. YIELD PROTECTION AND ILLEGALITY.
--------------------------------
5.01 ADDITIONAL COSTS.
-----------------
(a) The Borrower shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be
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necessary to compensate it for any costs which such Bank determines are
attributable to its making or maintaining of any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by such Bank hereunder in respect of any of such Loans or such
obligation (such increases in costs and reductions in amounts receivable being
herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Notes in respect of any of such Loans (other
than taxes imposed on or measured by the overall net income of such Bank or
of its Applicable Lending Office for any of such Loans by the jurisdiction
in which such Bank has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including any of such Loans or any deposits
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof), or any commitment of such Bank (including the Commitments of such
Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its Notes
(or any of such extensions of credit or liabilities) or Commitments.
If any Bank requests compensation from the Borrower under this
Section 5.01(a), the Borrower may, by notice to such Bank (with a copy to the
Agent), suspend the obligation of such Bank to make or Continue Eurodollar
Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 5.04 hereof shall be applicable).
(b) Without limiting the effect of the provisions of Section 5.01(a)
hereof, in the event that, by reason of any Regulatory Change, any Bank either
(i) incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of such Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a category of
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liabilities or assets which it may hold, then, if such Bank so elects by notice
to the Borrower (with a copy to the Agent), the obligation of such Bank to make
or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Borrower shall pay directly to each
Bank from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank for any costs which it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office),
pursuant to any law or regulation or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority (i) following any Regulatory Change or (ii) implementing any
risk-based capital guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) heretofore or hereafter issued by any government or governmental or
supervisory authority, of capital in respect of its Commitments or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Bank (or any Applicable Lending
Office) to a level below that which such Bank (or any Applicable Lending Office)
could have achieved but for such law, regulation, interpretation, directive or
request).
(d) Each Bank will notify the Borrower of any event occurring after
the date of this Agreement that will entitle such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 60 days, after such Bank obtains actual knowledge thereof;
PROVIDED, however, that if any Bank fails to give such notice within 60 days
after it obtains actual knowledge of such an event, such Bank shall, with
respect to compensation payable pursuant to this Section 5.01 in respect of any
costs resulting from such event, only be entitled to payment under this
Section 5.01 for costs incurred from and after the date 60 days prior to the
date that such Bank does give such notice; and PROVIDED, FURTHER, that each Bank
will designate a different Applicable Lending Office for the Loans of such Bank
affected by such event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole opinion of such Bank,
be disadvantageous to such Bank, except that such Bank shall have no obligation
to designate an Applicable Lending Office located in the United States of
America. Each Bank will furnish to the Borrower a certificate setting forth the
basis and amount of each request by such Bank
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for compensation under paragraph (a) or (c) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this Section 5.01 of
the effect of any Regulatory Change pursuant to Section 5.01(a) or (b) hereof,
or of the effect of capital maintained pursuant to Section 5.01(c) hereof, on
its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Bank under this Section 5.01, shall be conclusive,
PROVIDED that such determinations and allocations are made on a reasonable
basis.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of the Eurodollar Base
Rate for any Interest Period:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Eurodollar Loans as provided
herein; or
(b) if the related Loans are Revolving Credit Loans, the Majority
Revolving Credit Banks or, if the related Loans are Term Loans, the
Majority Term Loan Banks (determined, solely for the purposes of this
Section 5.02(b), as if no PAD Loans or PAD Loan Commitments were
outstanding) or, if the related Loans are PAD Loans of a particular Series,
Banks holding at least 60% of the aggregate outstanding principal amount of
the PAD Loans of such Series determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof upon the basis of which the rate of interest for Eurodollar Loans
for such Interest Period is to be determined are not likely adequately to
cover the cost to such Banks of making or maintaining Eurodollar Loans for
such Interest Period;
then the Agent shall give the Borrower and each of the Banks which are to make
or hold such Loans prompt notice thereof, and so long as such condition remains
in effect, such Banks shall be under no obligation to make additional Eurodollar
Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans held by such Banks,
either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base
Rate Loans in accordance with Section 2.08 hereof.
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5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder, then such Bank shall promptly notify the Borrower thereof (with a
copy to the Agent) and such Bank's obligation to make or Continue, or to Convert
Base Rate Loans into, Eurodollar Loans shall be suspended until such time as
such Bank may again make and maintain Eurodollar Loans (in which case the
provisions of Section 5.04 hereof shall be applicable).
5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to
make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans is
suspended pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for such Eurodollar Loans (or, in the case of a
Conversion effected as permitted by Section 5.01(b) or 5.03 hereof, on such
earlier date as such Bank may specify to the Borrower with a copy to the Agent)
and, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.01 or 5.03 hereof which gave rise to such
Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans of any Class have
been so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans of such Class shall be
applied instead to its Base Rate Loans of such Class; and
(b) all Loans which would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Converted and Continued instead as
Base Rate Loans and all Base Rate Loans of such Bank which would otherwise
be Converted into Eurodollar Loans shall be made as or shall remain as Base
Rate Loans.
If such Bank gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 5.01 or 5.03 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans of any Class pursuant to this
Section 5.04 no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans of such Class
held by other Banks are outstanding, such Bank's Base Rate Loans of such Class
shall be automatically Converted, on the first day(s) of the next succeeding
Interest Period(s) for such outstanding Eurodollar Loans, to the extent
necessary so that, after giving effect thereto, all Loans of such Class held by
such Banks and by such Bank are held pro rata (as to principal
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amounts, Types and Interest Periods) in accordance with their respective
Commitments.
5.05 COMPENSATION. The Borrower shall pay to the Agent for account
of each Bank, upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense which such Bank determines are
attributable to:
(a) any payment, prepayment (including any mandatory prepayment) or
Conversion of a Eurodollar Loan made by such Bank for any reason
(including, without limitation, the acceleration of the Loans pursuant to
Section 9 hereof but excluding any prepayment made as of the Effective
Date) on a date other than the last day of the Interest Period for such
Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 6 hereof to be satisfied) to borrow a Eurodollar Loan from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof or to Convert a Base Rate
Loan into a Eurodollar Loan on the date for such Conversion, or to Continue
a Eurodollar Loan on the date for such Continuation, in each case as
specified in the relevant notice of Conversion or Continuation, as the case
may be, given pursuant to Section 2.08(a) hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed, Continued or Converted for the period from the date
of such payment, prepayment, Conversion or failure to borrow, Continue or
Convert to the last day of the then current Interest Period for such Loan (or,
in the case of a failure to borrow, Continue or Convert, the Interest Period for
such Loan which would have commenced on the date specified for such borrowing,
Continuation or Conversion) at the applicable rate of interest for such Loan
provided for herein over (ii) the interest component of the amount such Bank
would have bid in the London interbank market for Dollar deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Bank).
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Section 6. CONDITIONS PRECEDENT.
---------------------
6.01 EFFECTIVENESS. The effectiveness of this Agreement is subject
to the conditions precedent that, on or prior to June 30, 1997, the Agent shall
have received the following documents (with sufficient copies for each Bank),
each of which shall be reasonably satisfactory to the Agent in form and
substance satisfactory:
(a) CORPORATE DOCUMENTS. Certificates of the appropriate
governmental authority as to the good standing of each Obligor in its
jurisdiction of organization, certified copies of the charter and by-laws
(or equivalent documents) of each Obligor and of all corporate or other
authority for each of them (including, without limitation, board of
director resolutions and evidence of the incumbency of officers) with
respect to the execution, delivery and performance of this Agreement and
each other Transaction Document to which each is a party and each other
document to be delivered by any of them from time to time in connection
herewith and therewith and the Loans hereunder (and the Agent and each Bank
may conclusively rely on such certificate until it receives notice in
writing from the Borrower to the contrary).
(b) SENIOR OFFICER'S CERTIFICATE. A certificate of a Senior
Officer, dated the Effective Date, to the effect set forth in clauses (i)
and (ii) of Section 6.02(a) hereof.
(c) BORROWER SECURITY AGREEMENT. The Borrower Security Agreement,
substantially in the form of Exhibit A hereto, duly executed by the
Borrower and the Agent. In addition, the Borrower shall have taken such
other action as the Agent shall have requested in order to perfect the
security interests created pursuant to the Borrower Security Agreement,
including, without limitation, delivering to the Agent of (i) stock
certificates with undated stock powers executed in blank, (ii) copies of
duly completed and executed Uniform Commercial Code financing statements
with respect to the Property covered by the Security Agreement, for
filing, appropriately completed and duly executed copies of Uniform
Commercial Code financing statements, in proper form for filing in all
jurisdictions in which such filing is necessary or appropriate to
establish, perfect, protect and preserve the rights, titles, interests,
remedies, powers, privileges and Liens of the Agent, for the benefit of the
Banks, thereunder, and (iii) the results of record searches, by a Person
satisfactory to the Agent, of the Uniform
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Commercial Code filings which may have been filed with respect to the
Property of the Borrower covered thereby and such other Persons or names as
the Agent shall specify, in the filing offices and other records in each of
the jurisdictions requested by the Agent, and of judgment and tax liens
with respect to the Borrower.
(d) JCI/JNI SECURITY AGREEMENT. Amendment No. 1 to the JCI/JNI
Security Agreement, substantially in the form of Exhibit B-1 hereto, duly
executed by each of the Subsidiary Guarantors and the Agent. In addition,
the Subsidiary Guarantors shall have taken such other action (including,
without limitation, delivering to the Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code financing
statements) as the Agent shall have requested in order to perfect the
security interests created pursuant to the JCI/JNI Security Agreement (to
the extent such filings have not already been effected pursuant to the
Existing Credit Agreement).
(e) SUBSIDIARY GUARANTEE. Amendment No. 1 to the Subsidiary
Guarantee, substantially in the form of Exhibit B-2 hereto, duly executed
by the Subsidiary Guarantors and the Agent.
(f) REPAYMENT OF CERTAIN AMOUNTS. Evidence that (i) the accrued
and unpaid interest on, any "Loans" held by any Existing Bank under the
Existing Credit Agreement that are required to be prepaid as of the
Effective Date under Section 2.01 hereof, and all accrued and unpaid
commitment fees on the "Revolving Credit Commitments" under the Existing
Credit Agreement held by the Existing Banks shall have been paid in
full, (ii) all Warburg Subordinated Debt shall have been (or shall be
simultaneously) paid in full (or arrangements for payment in full of the
Warburg Subordinated Indebtedness within one day of the Effective Date
satisfactory to the Agent shall have been made) and (iii) $90,000,000 in
aggregate principal amount of the "Terms Loans" outstanding under the
Existing Credit Agreement shall have been prepaid as of the Effective
Date (and not less than $55,000,000 of the proceeds from the Borrower's
initial public equity offering shall be used to make such prepayment).
(g) APPLICATION OF IPO PROCEEDS; TOTAL DEBT RATIO. A certificate of
a Senior Officer, dated the Effective Date, (i) to the effect that the
initial public equity offering by the Borrower shall have been consummated
and specifying the intended use by the Borrower of the net proceeds thereof
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(including, without limitation, the payment in full of the Warburg
Subordinated Debt and the prepayment of Term Loans required by Section
6.01(f) hereof) and (ii) setting forth the Total Debt Ratio as at the
Effective Date (calculated as of the Effective Date on a pro forma basis
after giving effect to such initial public equity offering and the
application of the proceeds thereof to repay such Indebtedness and the
aggregate amount of Loans to be made or continued on the Effective Date).
(h) OPINION OF SPECIAL NEW YORK COUNSEL TO THE OBLIGORS. An opinion
of Wachtell, Lipton, Rosen & Katz, special New York counsel to certain
of the Obligors, addressed to the Banks and the Agent and dated the
Effective Date, in form and substance satisfactory to the Agent (and the
Borrower hereby instructs such counsel to deliver such opinion to the
Banks and the Agent).
(i) OPINION OF SPECIAL NEW YORK COUNSEL TO CHASE. An opinion of
Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase,
dated the Effective Date, in form and substance satisfactory to the
Agent.
(j) OTHER DOCUMENTS. The Agent shall have received such other
certificates, opinions, documents and instruments relating to the
transactions contemplated hereby as the Agent or any Bank or special New
York counsel to Chase may reasonably request.
The obligation of any Bank to continue any "Revolving Credit Loan" or "Term
Loan" under the Existing Credit Agreement or to make any other extension of
credit hereunder on the Effective Date is also subject to the payment by the
Borrower of such fees as the Borrower shall have agreed to pay to any Bank or
the Agent in connection herewith, including, without limitation, the reasonable
fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel
to Chase, in connection with the negotiation, preparation, execution and
delivery of this Agreement and the other Credit Documents and the extensions of
credit hereunder (to the extent that statements for such fees and expenses have
been delivered to the Borrower).
From and after the Effective Date the "Notes" under the Existing
Credit Agreement shall be deemed cancelled, and each Existing Bank agrees to
return such "Notes" to the Borrower as soon as practicable.
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6.02 INITIAL AND SUBSEQUENT LOANS.
-----------------------------
(a) The obligation of each Bank to make each Loan to be made by it to
the Borrower hereunder (including, without limitation, the continuance of
certain loans and commitments under the Existing Credit Agreement on the
Effective Date as provided in Section 2.01 hereof and the making of any other
Loan on the Effective Date) is subject to the further conditions precedent that
both immediately prior to such Loan and after giving effect thereto: (i) no
Default shall have occurred and be continuing and (ii) the representations and
warranties made by the Borrower and each other Obligor in each of the Credit
Documents to which it is a party, shall be true on and as of the date of the
making of such Loans with the same force and effect as if made on and as of such
date (except to the extent such representations and warranties expressly relate
to an earlier date).
(b) In addition, the obligation of each Revolving Credit Bank to make
each Revolving Credit Loan to be made by it to the Borrower hereunder on any
Borrowing Date (including, without limitation, the making of the initial
Revolving Credit Loans) is subject to the further condition precedent that, if
the aggregate principal amount of all Revolving Credit Loans to be made
hereunder on such Borrowing Date is in excess of $10,000,000 (unless the
proceeds of such Loans are to be, and are in fact, used to make repayments of
Term Loans), the Agent shall have received a certificate of a Senior Officer (in
form and detail satisfactory to the Agent) stating the Total Debt Ratio after
giving effect to the making of such Revolving Credit Loans and annexing thereto
calculations of the Total Debt Ratio.
(c) In addition, the obligation of each Revolving Credit Bank to make
each Revolving Credit Loan to be made by it to the Borrower hereunder
(including, without limitation, the making of the initial Revolving Credit
Loans) is subject to the further condition precedent that both immediately prior
to such Loan and after giving effect thereto no action shall have been taken by
the Majority Banks (including, without limitation, any modification or amendment
to this Agreement or the waiver of any default hereunder) which action has the
effect of causing the condition precedent specified in clauses (i) and (ii) of
paragraph (a) above to be satisfied unless such action has been consented to by
the Majority Revolving Credit Banks or such conditions precedent would otherwise
be satisfied in the absence of such action by the Majority Banks.
(d) Each notice of borrowing by the Borrower hereunder shall be
deemed to constitute a certification to the effect set
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forth in clauses (i) and (ii) of paragraph (a) above (both as of the date of
such notice and, unless the Borrower otherwise notifies the Agent prior to the
date of such borrowing, as of the date of such borrowing).
Section 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants to each of the Banks and the Agent that:
7.01 CORPORATE EXISTENCE. Each of the Borrower and its Subsidiaries:
(a) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation; (b) has all requisite
corporate power, and has all material governmental licenses, authorizations,
consents and approvals necessary, to own its assets and carry on its business as
now being or as proposed to be conducted; and (c) is qualified to do business in
all jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would (either
individually or in the aggregate) have a Material Adverse Effect.
7.02 FINANCIAL CONDITION. The audited combined financial statements
of Journal Register LLC and its Subsidiaries for the fiscal years of Journal
Register LLC ended on December 31, 1995 and December 31, 1996 are complete and
correct and fairly present the combined financial condition of Journal Register
LLC and its Subsidiaries as at the respective dates of presentation specified
therein and the combined results of their operations for the respective periods
of presentation specified therein, all in accordance with GAAP applied on a
consistent basis. Neither Journal Register LLC nor any of its Subsidiaries had
on December 31, 1996 any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in the combined balance sheet of Journal Register LLC and its Subsidiaries
as at said date included in the financial statements referred to in the first
sentence of this Section 7.02 and except as set forth in Schedule II hereto.
Since December 31, 1996, there has been no material adverse change in the
financial condition, business, operations, prospects, assets, liabilities or
capitalization of Journal Register LLC and its Subsidiaries taken as a whole.
7.03 LITIGATION. Except as described in Schedule II hereto, there
are no legal or arbitral proceedings or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the knowledge
of the Borrower)
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threatened against the Borrower or any of its Subsidiaries which might
reasonably be expected to be adversely determined and, if so determined, might
reasonably be expected to have a Material Adverse Effect.
7.04 NO BREACH.
----------
(a) The making and performance by the Borrower and each of its
Subsidiaries of the Transaction Documents to which it is or is intended to be a
party will not conflict with or result in a breach of, or require any consent
under, (i) its charter or by-laws, (ii) any applicable law or regulation
(including, without limitation, Regulation U or Regulation X), or (iii) any
judgment, order, writ, injunction or decree of any court or governmental
authority or agency applicable to or binding on the Borrower or any of its
Subsidiaries, as the case may be.
(b) The making and performance by the Borrower and each of its
Subsidiaries of each of the Transaction Documents to which it is or is intended
to be a party as contemplated hereby will not conflict with or result in a
breach of, or require any consent under, any agreement or instrument to which
the Borrower or any of its Subsidiaries is a party or by which it is bound or to
which it is subject, or constitute a default under any such agreement or
instrument, or result in, or require, the creation or imposition of any Lien
(other than the Liens created by the Security Documents) upon any of its
Properties pursuant to the terms of any such agreement or instrument.
7.05 CORPORATE ACTION. The Borrower and each of its Subsidiaries has
all necessary corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents to which it is or is
intended to be a party and the execution, delivery and performance thereof by
the Borrower and each of its Subsidiaries has been duly authorized by all
necessary corporate action on its part; and this Agreement has been duly and
validly executed and delivered by the Borrower and constitutes, and each of the
other Transaction Documents to which the Borrower and each of its Subsidiaries
is intended to be a party when executed and delivered by it will constitute, its
legal, valid and binding obligation, enforceable in accordance with its terms,
except as the same may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
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7.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by the Borrower
and each of its Subsidiaries of the Transaction Documents to which it is or is
intended to be a party or for the validity or enforceability thereof except for
the authorizations, approvals, consents, filings and/or registrations listed or
described in Schedule I hereto (each of which has been obtained or made and is
in full force and effect, except as specified in said Schedule I, and true and
complete copies of which have been furnished to the Agent).
7.07 MARGIN STOCK. Neither the Borrower nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock and no part of the proceeds of any Loan
hereunder will be used to buy or carry any Margin Stock. Neither the making of
any Loan hereunder, nor the use of any of the proceeds thereof, will violate or
be inconsistent with the provisions of Regulation U or Regulation X.
7.08 ERISA. The Borrower and the ERISA Affiliates have fulfilled
their respective obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any unsatisfied liability to the PBGC or any Plan or
Multiemployer Plan (other than an obligation to fund or make contributions to
any such Plan in accordance with its terms and in the ordinary course of
business or an obligation to pay premiums when due).
7.09 TAXES. The Borrower and its Subsidiaries have filed all United
States Federal income tax returns and all other material tax returns which are
required to be filed by them and has paid and will pay all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any of
its Subsidiaries, except (a) for any such tax the payment of which is being
contested in good faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP or (b) as specified in
Schedule II hereto. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of the Borrower, adequate.
7.10 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company", or a company
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"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
7.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
7.12 COMPLIANCE WITH LAWS. The Borrower and each of its Subsidiaries
is in compliance with, and has obtained all permits, licenses and other
authorizations which are required under, all applicable Federal, state and local
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements and other
governmental restrictions, except to the extent failure so to comply, or to
obtain any such permit, license or authorization, would not, individually or in
the aggregate, have a Material Adverse Effect.
7.13 DISCLOSURE. No information, report, financial statement,
exhibit, schedule or disclosure letter furnished in writing by or on behalf of
the Borrower or any of its Subsidiaries to the Agent or any Bank in connection
with the negotiation, preparation or delivery of this Agreement and the other
Transaction Documents or included therein or delivered pursuant thereto contains
any untrue statement of material fact or omits or omitted to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. All written information furnished
after the date hereof by the Borrower and its Subsidiaries to the Agent and the
Banks in connection with this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified. There is no fact (other than matters of a general economic nature)
known to the Borrower or any of its Subsidiaries that could have a Material
Adverse Effect that has not been disclosed herein, in the other Transaction
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Banks for use in connection with the
transactions contemplated hereby.
7.14 SECURITY DOCUMENTS. On and after the Effective Date, the
JCI/JNI Security Agreement will create in favor of the Agent, for the ratable
benefit of the Banks, a legal, valid, enforceable and perfected security
interest in all right, title
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and interest of the Obligors party thereto in the collateral described therein,
subject to no other Lien, except for Permitted Liens and except as provided in
Section 2(a) of the JCI/JNI Security Agreement; PROVIDED that with respect to
such security interest in such collateral located in a state, perfection of such
security interest will occur only after the financing statements (which
financing statements are referred to in Section 6.01(d) hereof) required to be
filed in such state have been properly filed. On and after the Effective Date,
the Borrower Security Agreement will create in favor of the Agent, for the
ratable benefit of the Banks, a legal, valid, enforceable and perfected security
interest in all right, title and interest of the Borrower in the collateral
described therein, subject to no other Lien, except for Permitted Liens and
except as provided in Section 2(a) of the Borrower Security Agreement; PROVIDED
that with respect to such security interest in such collateral located in a
state, perfection of such security interest will occur only after the financing
statements (which financing statements are referred to in Section 6.01(c)
hereof) required to be filed in such state have been properly filed.
7.15 ASSETS OF THE BORROWER. Each of the Borrower and its
Subsidiaries has good and marketable title in fee simple to, or valid and
subsisting leasehold interests in, all its real property, and good and
marketable title to all of its other Properties, free and clear of Liens (other
than Permitted Liens).
7.16 MATERIAL AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is (a) a party to any agreement or instrument or subject to any
corporate restriction which has or is likely to have a Material Adverse Effect
or (b) in default under any agreement or instrument to which any of them is a
party or by which any of them is bound or to which any of them is subject in any
manner which is, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect.
7.17 SOLVENCY. After giving effect to the transactions contemplated
hereby and by the other Transaction Documents and the making of the Loans:
(a) the fair salable value of the assets of the Borrower and each of
its Subsidiaries exceeds and will, immediately following the making of each
Loan, exceed the amount which will be required to be paid on or in respect
of its existing debts and other liabilities as they mature;
(b) neither the Borrower nor any of its Subsidiaries has, or will
have, immediately following the making of each
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Loan, unreasonably small capital to carry out its business as conducted or
as proposed to be conducted; and
(c) neither the Borrower nor any of its Subsidiaries intends to, or
believes that it will, incur debts beyond its ability to pay such debts as
they mature.
7.18 LABOR MATTERS. None of the Borrower or any of its Subsidiaries
has experienced any strike, labor dispute, slow down or work stoppage due to
labor disagreements which has had (during the period of five years prior to the
date hereof) or would have or is continuing to have a Material Adverse Effect.
7.19 HAZARDOUS MATERIALS. The Borrower and each of its Subsidiaries
have obtained all permits, licenses and other authorizations which are required
under all Environmental Laws, except to the extent failure to have any such
permit, license or authorization would not, individually or in the aggregate,
have a Material Adverse Effect. The Borrower and each of its Subsidiaries are
in compliance with the terms and conditions of all such permits, licenses and
authorizations, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not, individually or in the aggregate, have a Material
Adverse Effect.
In addition, except as set forth in: (i) Schedule VII hereto, (ii)
the Letter dated June 16, 1992 from the United States Environmental Protection
Agency to New Haven Register, Inc., (iii) the documents entitled "Pre-Financing
Environmental Risk Assessment of Community Newspapers, Inc." prepared by Pilko &
Associates, Inc. ("PILKO") dated January 3, 1991; "Environmental Assessment of
the Register Citizen, Torrington, Connecticut" prepared by Pilko dated September
24, 1993; "Underground Storage Tank Investigation, The Register Citizen, for
Torrington, Connecticut" prepared by Fuss & O'Neill, Inc. dated September 28,
1993; "Environmental Assessment of Journal Company, Inc. and New Haven
Acquisition Corp." prepared by Pilko dated September 11, 1993; "Environmental
Assessment of New Haven Register, New Haven, Connecticut" prepared by Pilko
dated October 12, 1993; "Environmental Assessment of Composing Facility, St.
Louis, Missouri prepared by Pilko dated October 12, 1993; "Environmental
Assessment of 15 Operating Facilities owned by Journal Company, Inc., Telephone
Interviews Concerning 4 Additional Sites" prepared by Pilko dated December,
1993; "Limited Subsurface Assessment Report of 207 Pocasset Street,
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Fall River, Massachusetts" prepared by Cistar Associates, Inc. dated July 21,
1993; "Phase I Environmental Site Assessment of Farmington Valley Herald,
Simsbury, Connecticut" prepared by Fuss & O'Neill, Inc. dated August 1994; and
"Limited Environmental Investigation of The Bristol Press, Bristol, Connecticut"
prepared by Environmental Risk Limited dated July 1994, (iv) the NEN Acquisition
Environmental Reports and (v) the New Britain Acquisition Environmental Reports
(together, the "ENVIRONMENTAL REPORTS"):
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to
the best knowledge of the Borrower and its Subsidiaries, threatened by any
Person with respect to any alleged failure by the Borrower or any of its
Subsidiaries to have any permit, license or authorization required in
connection with the conduct of the business of the Borrower or any of its
Subsidiaries or with respect to any generation, treatment, storage,
recycling, transportation, use, disposal or Release of any Hazardous
Materials generated by the Borrower or any of its Subsidiaries.
(b) To the best of the knowledge of the Borrower and its
Subsidiaries, neither the Borrower nor any of its Subsidiaries has handled
any Hazardous Material, other than as a generator, on any property now or
previously owned or leased by the Borrower or any of its Subsidiaries to an
extent that it has, or may reasonably be expected to have, a Material
Adverse Effect and to the best knowledge of the Borrower and its
Subsidiaries:
(i) no polychlorinated biphenyls are present at any property
currently owned or any premises currently leased by the Borrower or
any of its Subsidiaries;
(ii) no asbestos is present at any property currently owned or
any premises currently leased by the Borrower or any of its
Subsidiaries;
(iii) no underground storage tanks for Hazardous Materials, active
or abandoned, are now or were previously operated at any property
currently owned by the Borrower or any of its Subsidiaries, and, with
respect to premises currently leased by the Borrower or any of its
Subsidiaries, no underground storage tanks for Hazardous Materials,
active or abandoned, are now or were previously operated by the
Borrower or any of
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its Subsidiaries, except for certain tanks used for the storage of
heating oil;
(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by statute,
ordinance, rule, regulation or order, at, on or under any property now
or previously owned by the Borrower or any of its Subsidiaries; and
(v) no Hazardous Materials have been otherwise Released at, on
or under any property now or previously owned or any premises now or
currently leased by the Borrower or any of its Subsidiaries to an
extent that it has, or may reasonably be expected to have, a Material
Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any
location that is listed on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by
the Environmental Protection Agency in the Comprehensive Environmental
Response and Liability Information System, as provided for by 40 C.F.R.
Section 300.5 ("CERCLIS"), or on any similar state or local list or that
is the subject of Federal, state or local enforcement actions or other
investigations that may lead to Environmental Claims against the Borrower
or any of its Subsidiaries.
(d) No Hazardous Material generated by the Borrower or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by
the Borrower or any of its Subsidiaries at any location other than those
listed in Schedule VII hereto, except for certain tanks used for the
storage of heating oil.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Borrower or any of its
Subsidiaries and no property now, or to the best knowledge of the Borrower
previously, owned or premises leased by the Borrower or any of its
Subsidiaries is listed or proposed for listing on the National Priorities
list promulgated pursuant to CERCLA, on CERCLIS or on any similar state
list of sites requiring investigation or clean-up.
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(f) There are no Liens arising under or pursuant to any Environmental
Laws on any of the property owned or premises leased by the Borrower or any
of its Subsidiaries, and no government actions have been taken or are in
process which could subject any of such property to such Liens and neither
the Borrower nor any of its Subsidiaries would be required to place any
notice or restriction relating to the presence of Hazardous Materials at
any property owned by it in any deed to such property.
(g) Neither the Borrower nor any of its Subsidiaries has retained or
assumed any liabilities (contingent or otherwise) in respect of any
Environmental Claims (i) under the terms of any contract or agreement or
(ii) by operation of law as a result of the sale of assets or stock.
(h) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the
possession of the Borrower or any of its Subsidiaries in relation to any
property or facility now or previously owned or leased by the Borrower or
any of its Subsidiaries which have not been made available to the Banks.
7.20 SUBSIDIARIES, ETC. Schedule IV hereto sets forth as of the
Effective Date a complete and correct list of all Subsidiaries of the Borrower
(and the respective jurisdiction of incorporation of each such Subsidiary) and
of all Investments held by the Borrower or any of its Subsidiaries in any joint
venture or other Person. Except as otherwise specified in said Schedule IV and
except for the Liens created by the Security Documents, the Borrower owns, free
and clear of Liens, all outstanding shares of each such Subsidiary (and each
such Subsidiary owns, free and clear of Liens, all outstanding shares of its
Subsidiaries) and all such shares are validly issued, fully paid and
non-assessable and the Borrower (or the respective Subsidiary) also owns, free
and clear of Liens, all such Investments. None of the Inactive Subsidiaries of
the Borrower is engaged in any business of any kind whatsoever on the date
hereof. None of the Inactive Subsidiaries of the Borrower has any Indebtedness
or other obligations (contingent or otherwise) which, if such Inactive
Subsidiary failed to pay or perform the same, would have a Material Adverse
Effect.
7.21 COPYRIGHTS, PERMITS AND TRADEMARKS. The Borrower and its
Subsidiaries owns or possesses, or has a valid license or sub-license in, all
domestic and foreign letters patent, patents, patent applications, patent and
know-how licenses, inventions, technology, permits, trademark registrations and
applications,
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trademarks, trade names, trade secrets, service marks, copyrights, product
designs, applications, formulae, processes, circulation and other lists of
subscribers or purchasers of newspapers and the industrial property rights
("PROPRIETARY RIGHTS") used or necessary in the operation of its businesses in
the manner in which they are currently being conducted and which are material to
the Property, business, financial condition, operations, assets, liabilities,
capitalization or prospects of the Borrower and its Subsidiaries taken as a
whole. Neither the Borrower nor any of its Subsidiaries is aware of any
existing or threatened infringement or misappropriation of any proprietary
rights of others by the Borrower or any of its Subsidiaries or of any
proprietary rights of the Borrower or any of its Subsidiaries by others which is
material to the financial condition, business, operations, prospects, assets,
liabilities or capitalization of the Borrower and its Subsidiaries taken as a
whole.
7.22 MORTGAGE PROPERTIES. The Mortgage Properties identified as
being owned or leased by Subsidiaries of JNI and JCI are the only real property
owned or leased by the Borrower or any of its Subsidiaries other than (i) office
or garage space and (ii) other premises leased by the Borrower or any of its
Subsidiaries, PROVIDED that the aggregate annual rental for all such other
premises described in this clause (ii) does not exceed $1,000,000.
7.23 NOLS; ETC. As of December 31, 1993 and after giving effect to
the Consolidation and the other Transactions contemplated by the Transaction
Documents, the Borrower in good faith reasonably believes that JNI and JCI and
their respective Subsidiaries will have net operating loss carryforwards for
federal tax reporting purposes of not less than $260,000,000 in the aggregate
unrestricted by any provision of Section 382 of the Code and interest
carryforwards for federal tax reporting purposes of not less than $19,000,000 in
the aggregate.
7.24 CAPITALIZATION.
---------------
(a) Set forth in Schedule VIII hereto are the number and type of
shares of authorized capital stock of the Borrower on the Effective Date, and
the number of shares that are duly and validly issued and outstanding, and each
of such issued and outstanding shares has been duly and validly issued and is
fully paid and nonassessable. As of the Effective Date, except as set forth in
Schedule VIII, (x) there are no outstanding Equity Rights with respect to the
Borrower or any of its Subsidiaries and (y) there are no outstanding obligations
of the Borrower or any of its Subsidiaries to repurchase, redeem, or otherwise
acquire any shares of capital stock of the Borrower or any of its
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Subsidiaries nor are there any outstanding obligations of the Borrower or any of
its Subsidiaries to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of the Borrower or any of its Subsidiaries.
(b) As of the Effective Date, the Borrower owns 100% of the capital
stock of each of JNI and JCI. All of the issued and outstanding capital stock
of each of JNI and JCI has been validly issued and is fully paid and
non-assessable.
Section 8. COVENANTS OF THE BORROWER. So long as any of the
Commitments are in effect and until payment in full of the principal of and
interest on all Loans and all other amounts payable by the Borrower hereunder:
8.01 FINANCIAL STATEMENTS; CONTINUING DISCLOSURE. The Borrower shall
deliver to the Agent (with sufficient copies for each of the Banks):
(a) as soon as available and in any event within 50 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Borrower, consolidated and consolidating statements of income of the
Borrower and its Subsidiaries for such fiscal quarter and for the period
from the beginning of the respective fiscal year to the end of such fiscal
quarter, and the related consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as at the end of such fiscal quarter,
setting forth (in the case of such consolidated statements of income) in
comparative form the corresponding consolidated figures for the
corresponding fiscal quarter in the preceding fiscal year and (in the case
of such consolidated balance sheet) in comparative form the corresponding
consolidated balance sheet figures as at the end of the corresponding
fiscal quarter in the preceding fiscal year, accompanied by a certificate
of a Senior Officer, which certificate shall state that said financial
statements fairly present the financial condition and results of operations
of the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for, the
relevant period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 105 days after the
end of each fiscal year of the Borrower, audited consolidated statements of
income, retained earnings
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and cash flows of the Borrower and its Subsidiaries and unaudited
consolidating statements of income of the Borrower and its Subsidiaries for
such year, and the related consolidated and consolidating balance sheet of
the Borrower and its Subsidiaries as at the end of such year, setting forth
in each case in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by (i) an opinion on such
consolidated financial statements of independent certified public
accountants of recognized national standing, which opinion shall state that
said financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and its Subsidiaries as
at the end of, and for, such fiscal year, and a certificate of such
accountants stating that, in making the examination necessary for their
opinion, they obtained no knowledge, except as specifically stated, of any
Default and (ii) a certificate of a Senior Officer, which certificate shall
state that such consolidating financial statements consolidated financial
statements fairly present the consolidating financial condition and results
of operations of the Borrower and its Subsidiaries in accordance with
generally accepted accounting principles, consistently applied, as at the
end of, and for, such fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Borrower or any of its Subsidiaries shall have filed with the Securities
and Exchange Commission (or any governmental agency substituted therefor)
or any national securities exchange;
(d) promptly upon the mailing thereof to the public shareholders, if
any, of the Borrower or any of its Subsidiaries generally, copies of all
financial statements, reports and proxy statements so mailed;
(e) within ten days after the Borrower or any of its Subsidiaries
knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a senior financial officer of the Borrower
setting forth details respecting such event or condition and the action, if
any, that the Borrower or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Borrower or an ERISA Affiliate with respect to such
event or condition):
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(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (PROVIDED that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the Code
for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Borrower or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy any
secondary liability as a result of a purchaser default) or the receipt
by the Borrower or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or
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Section 307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if the Borrower or an ERISA
Affiliate fails to timely provide security to the Plan in accordance with
the provisions of said Sections;
(f) promptly after the Borrower knows or has reason to know that any
Default has occurred, a notice (which notice shall state that it is a
"Notice of Default") of such Default describing the same in reasonable
detail and, together with such notice or as soon thereafter as possible, a
description of the action taken and proposed to be taken with respect
thereto;
(g) promptly upon receipt thereof, a copy of any notice, filing,
claim or other document received by the Borrower in respect of any
Subordinated Debt of the Borrower;
(h) promptly after the occurrence thereof, notice of any strike,
labor dispute, slow down or work stoppage due to a labor disagreement (or
any material development regarding any thereof) affecting the Borrower or
any of its Subsidiaries which could reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect;
(i) promptly upon obtaining actual knowledge of any claim, demand,
action, event, condition or report or investigation involving any potential
or actual liability of the Borrower or any of its Subsidiaries arising in
connection with (a) any noncompliance with or violation of the requirements
of any Environmental Law which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect or (b) a Release
or threatened Release of any Hazardous Materials into the environment which
could reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect or which Release the Borrower or one of its
Subsidiaries would have a duty to report to a governmental authority under
any Environmental Law and which Release could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, a
notice describing the same in reasonable detail;
(j) each time the Borrower furnishes a statement pursuant to
clause (a) or clause (b) of this Section 8.01, a report (in the form
heretofore furnished to the Agent) describing in reasonable detail the
circulation volume and
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advertising lineage for each of the newspaper properties of the Borrower
and its Subsidiaries for the fiscal quarter or fiscal year covered by such
statement; and
(k) from time to time such other information regarding (i) the
business, affairs or financial condition of the Borrower or any of its
Subsidiaries (including, without limitation, any Plan or Multiemployer Plan
and any reports or other information required to be filed under ERISA),
(ii) compliance by the Borrower and any of its Subsidiaries with its
obligations under any Transaction Document and (iii) such other matters
relating to the transactions contemplated hereby, as any Bank or the Agent
may reasonably request.
The Borrower will furnish to the Agent (with sufficient copies for each of the
Banks), each time it or they furnish financial statements pursuant to clause (a)
or (b) of this Section 8.01, a Compliance Certificate, duly completed and
executed by a Senior Officer (i) to the effect that no Default has occurred and
is continuing (or, if any Default has occurred and is continuing, describing the
same in reasonable detail and describing the action taken and proposed to be
taken with respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether the Borrower is in compliance with
Sections 8.05(c)(ii) and (iii), 8.06(h) and (i), 8.07(e) and (f), 8.08(e), 8.09,
8.10, 8.11, 8.12, 8.13, 8.14 and 8.20 hereof as of the end of the respective
fiscal quarter or fiscal year.
8.02 LITIGATION. The Borrower will promptly give to each Bank notice
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting the Borrower or any of its
Subsidiaries, except proceedings which, if adversely determined, could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
8.03 CORPORATE EXISTENCE, ETC. The Borrower will, and will cause
each of its Subsidiaries to:
(a) preserve and maintain its corporate existence and all of its
material rights, privileges and franchises (provided that nothing in this
Section 8.03 shall prohibit any transaction expressly permitted by
Section 8.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such
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requirements could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained in accordance with GAAP or except to
the extent such taxes, assessments, charges and levies do not exceed
$50,000 (as to the Borrower and its Subsidiaries) in the aggregate;
(d) maintain all of its Property used or useful in its business in
good working order and condition, ordinary wear and tear excepted;
(e) keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation
to its business and activities, and permit representatives of any Bank or
the Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect its Properties, and to discuss its
business and affairs with its officers and independent public accountants
(and by this provision the Borrower authorizes said accountants to discuss
the business and affairs of the Borrower with such representatives), all to
the extent reasonably requested by such Bank or the Agent, as the case may
be; and
(f) hold a meeting at least annually with the Banks (if so requested
by the Agent) to discuss such matters relating to the financial condition
of the Borrower and its Subsidiaries and such other matters as any of the
Banks shall reasonably request.
8.04 INSURANCE.
----------
(a) The Borrower will, and will cause each of its Subsidiaries to,
keep insured by financially sound and reputable insurers all Property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations. Each policy of property
insurance required to be maintained by the Borrower and its Subsidiaries under
this Section 8.04 shall name the Agent as loss payee or additional insured (but
only to the
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extent that any single loss shall exceed $100,000 (as to the Borrower and its
Subsidiaries)) and shall provide that it will not be canceled or reduced, or
allowed to lapse without renewal, except after not less than 30 days' written
notice to the Agent, nor by any occupancy or use of any Property for purposes
more hazardous than permitted by such policy nor by any foreclosure or other
proceedings relating to such Property. The Borrower will advise the Agent
promptly of any policy cancellation, reduction or amendment.
(b) After the Effective Date, upon the request of the Agent at any
time or from time to time, not later than 15 Business Days prior to the
termination or expiry date of any insurance required to be maintained by the
Borrower hereunder the Borrower shall deliver to the Agent certificates of
insurance evidencing that such insurance has been renewed, subject only to the
payment of premiums as they become due. In addition, the Borrower will not
modify any of the provisions of any policy with respect to casualty or liability
insurance without delivering the original copy of the endorsement reflecting
such modification to the Agent accompanied by a written report of any firm of
independent insurance brokers of nationally recognized standing, stating that,
in their opinion, such policy (as so modified) adequately protects the interests
of the Banks and the Agent, is in compliance with the provisions of this
Section 8.04 and is comparable in all respects with insurance carried by
responsible owners and operators of similar Properties. The Borrower shall not
obtain or carry separate insurance concurrent in form or contributing in the
event of loss with that required by this Section 8.04 unless the Agent is the
named insured thereunder, with loss payable as provided herein (but only to the
extent any single loss thereunder shall exceed $100,000 (as to the Borrower and
its Subsidiaries)). The Borrower shall immediately notify the Agent whenever
any such separate insurance is obtained and shall deliver to the Agent
certificates of insurance evidencing the same.
8.05 PROHIBITION OF FUNDAMENTAL CHANGES.
-----------------------------------
(a) The Borrower will not, nor will the Borrower permit any of its
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), except that:
(i) any Subsidiary of the Borrower other than an Inactive Subsidiary
may be merged or consolidated with or into (A) the Borrower, if the
Borrower party to such transaction shall be the continuing or surviving
corporation
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or (B) any other Subsidiary of the Borrower; PROVIDED that (x) if any such
transaction shall be between a Subsidiary of the Borrower and a Wholly
Owned Subsidiary of the Borrower, the Wholly Owned Subsidiary shall be the
continuing or surviving corporation and if any such transaction shall be
between a Subsidiary of the Borrower that is a Subsidiary Guarantor and a
Subsidiary of the Borrower that is not a Subsidiary Guarantor, the
Subsidiary that is a Subsidiary Guarantor shall be the continuing or
surviving corporation and (y) any merger involving JNI and JCI shall
comply with clause (iii) below;
(ii) the capital stock of each Inactive Subsidiary of the Borrower may
be Disposed of and each such Inactive Subsidiary may be liquidated;
(iii) JNI and JCI may merge with each other; PROVIDED that (x) the
continuing or surviving corporation is organized under the laws of, and has
its chief executive office in, a state of the United States of America and
expressly assumes all obligations of the Borrower hereunder, (y) no Default
shall have occurred and be continuing or would occur after giving effect to
such merger and (z) after giving effect to such merger, the continuing or
surviving corporation will have net operating loss carryforwards for
federal tax reporting purposes in an aggregate amount of not less than an
amount equal to the excess of $260,000,000 OVER the amount of any net
operating loss carryforwards utilized after December 31, 1993 against
income of JNI and JCI and their respective Subsidiaries and will have
interest carryforwards for federal tax reporting purposes in an aggregate
amount of not less than an amount equal to the excess of $19,000,000 OVER
the amount of any interest carryforwards utilized after December 31, 1993
against income of JNI and JCI and their respective Subsidiaries; and
(iv) JRN and INS may merge into or consolidate with the Borrower or
any of its Subsidiaries, PROVIDED that the Borrower, if it is a party to
such transaction, shall be the continuing or surviving entity.
(b) The Borrower will not, nor will the Borrower permit any of its
Subsidiaries to, acquire any business or assets from, or any capital stock or
other ownership interest of, or be a party to any Acquisition of, any Person
other than:
(i) purchases by the Borrower and its Subsidiaries in the ordinary
course of business of inventory and other assets to be sold or used in the
ordinary course of business;
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(ii) Investments permitted by Section 8.08 hereof;
(iii) Capital Expenditures made as permitted by Section 8.10 hereof;
(iv) Acquisitions by the Borrower of Newspapers in the United States
(PROVIDED that (w) each such Acquisition shall be financed solely with
equity securities of the Borrower and/or the proceeds of an issuance or
sale of equity securities by the Borrower and/or proceeds of Revolving
Credit Loans and/or Permitted Additional Debt and/or Net Proceeds from any
Disposition and/or the cumulative Excess Cash Flow that remains after the
Borrower has performed its obligations under Section 2.09(d) hereof and
after giving effect to any Restricted Payments made as permitted by Section
8.09(a) hereof, (x) no Acquisition of any Newspaper may be made pursuant to
this clause (iv) if, after giving effect thereto, cash flow attributable to
such Newspaper's commercial printing business, if any, would have
contributed more than 10% of Cash Flow of the Borrower and its Subsidiaries
and the Newspaper(s) to be Acquired (calculated on a pro forma basis) for
the period of 12 complete calendar months ended on, or most recently ended
prior to, the date of the consummation of such Acquisition, (y) no Default
shall have occurred and be continuing or would occur after giving effect to
such Acquisition and (z) prior to such Acquisition, the Agent shall have
received a certificate of a Senior Officer certifying as to the foregoing
and containing calculations, in form and detail satisfactory to the Agent,
demonstrating compliance with this Section 8.05 and Sections 8.07, 8.11,
8.12, 8.13 and 8.14 hereof after giving effect to such Acquisition);
(v) the Borrower and each of its Subsidiaries may acquire any
business or assets from, or any capital stock or other ownership interests
of, or be a party to any Acquisition of, each other; and
(vi) the Borrower or any its Subsidiaries may acquire all of the
capital stock or other ownership interests of INS from Warburg and/or
Warburg Affiliates.
(c) The Borrower will not, nor will the Borrower permit any of its
Subsidiaries to, Dispose of any of its Property or business (including, without
limitation, any capital stock of any such Subsidiary, receivables and leasehold
interests), whether now owned or hereafter acquired, except:
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(i) any inventory or other assets Disposed of in the ordinary course
of business;
(ii) obsolete or worn-out property, tools or equipment no longer used
or useful in its business so long as the amount thereof Disposed of in any
single calendar year by the Borrower and its Subsidiaries shall not have a
fair market value in excess of $1,000,000;
(iii) any other assets of the Borrower or any of its Subsidiaries
Disposed of for cash in an amount not less than their fair market value so
long as the aggregate fair market value of the assets so Disposed of by the
Borrower and its Subsidiaries during any calendar year does not exceed
$5,000,000 or such higher amount as may be consented to by the Majority
Banks;
(iv) assets of the Borrower or any of its Subsidiaries consisting of
cash, Cash Equivalents and Inter-company Notes (as defined in the JCI/JNI
Security Agreement) Disposed of by the Borrower or any of its Subsidiaries
to each other;
(v) the Borrower and its Subsidiaries may Dispose of any of its
Property or business (including, without limitation, any capital stock of
any of such Person's Subsidiaries, receivables and leasehold interests),
whether now owned or hereafter acquired, to each other; and
(vi) the Borrower and its Subsidiaries may Dispose of all or any part
of the assets heretofore acquired as part of the NEN Acquisition and
identified on Annex 3 hereto for cash in an amount not less than their fair
market value so long as the aggregate fair market value of the assets so
Disposed of by the Borrower and its Subsidiaries does not exceed
$1,775,000.
8.06 LIMITATION ON LIENS. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of its Property (including, without limitation, the
Property covered by the Security Documents), whether now owned or hereafter
acquired, except:
(a) Liens created by the Security Documents including, without
limitation, such Liens securing Indebtedness to any Bank incurred as
permitted by Section 8.07(e) hereof;
(b) Liens on assets of its Subsidiaries existing on the date hereof
and listed in Schedule V hereto (except that
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nothing herein shall limit or otherwise affect the obligation of the
Borrower under Section 8.22(a) hereof to deliver Title Policies or Title
Commitments containing only such exceptions and such affirmative coverage
and endorsements as are approved or required by the Majority Banks under
said Section 8.22(a));
(c) Liens for taxes, assessments or charges imposed on it or any of
its property by any governmental authority not yet due or which are being
contested in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Borrower or any of
its Subsidiaries, as the case may be, in accordance with GAAP;
(d) statutory Liens of carriers, warehousemen, mechanics,
materialmen, repairmen, or other like Liens arising in the ordinary course
of business which are not overdue for a period of more than 30 days or
which are being contested in good faith and by appropriate proceedings;
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(f) Liens (other than any Lien imposed by ERISA) incurred on deposits
to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and return-of-money bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto, all of which, in
the aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(h) Liens (except in the case of Mortgage Properties) securing
Indebtedness incurred by the Borrower or any of its Subsidiaries to finance
the purchase of Property used in the ordinary course of its business in an
aggregate amount not exceeding $4,000,000 (as to the Borrower and its
Subsidiaries) at any one time outstanding, so long as no
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such Lien shall cover any other Property or secure any Indebtedness other
than the Indebtedness incurred to purchase such Property;
(i) additional Liens (except in the case of Mortgage Properties)
securing Indebtedness or other obligations of the Borrower or any of its
Subsidiaries in an aggregate amount not exceeding $400,000 (as to the
Borrower and its Subsidiaries) at any one time outstanding;
(j) any extension, renewal or replacement of the foregoing, PROVIDED
that the Liens permitted by this clause (j) shall not be spread to cover
any additional Indebtedness or Property (other than a substitution of like
Property); and
(k) until the Effective Date, the Liens in respect of the Existing
Credit Agreement.
8.07 INDEBTEDNESS. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(a) Indebtedness under the Credit Documents to which it is a party;
(b) Indebtedness in respect of the Existing Credit Agreement and,
until the day after the Effective Date, the Warburg Subordinated Debt;
(c) Indebtedness of the Borrower or any of its Subsidiaries (other
than Indebtedness in respect of the Existing Credit Agreement and the
Warburg Subordinated Debt) outstanding on the date hereof and listed on
Schedule VI hereto;
(d) income taxes payable, unearned circulation revenue and
liabilities under Plans, to the extent the same may be treated as accrued
expenses under GAAP, and taxes paid or payable in cash in respect of income
or activities earned or conducted during periods prior to December 31,
1994;
(e) Indebtedness ("PERMITTED ADDITIONAL DEBT") of the Borrower to one
or more of the Banks (other than Indebtedness under this Agreement) and/or
to any other Person in an aggregate principal or face amount not exceeding
(as to the Borrower), on or after the Effective Date an amount equal to
$125,000,000 (MINUS the sum of the aggregate outstanding principal amount
of the PAD Loans
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(excluding the NEN Acquisition Loans and New Britain Acquisition Loans)
PLUS the aggregate unused amount of the PAD Commitments then in effect) at
any one time outstanding, PROVIDED that: (i) if the proceeds (or any part
of the proceeds) of such Indebtedness are to be used to finance Permitted
Acquisitions, the Borrower shall not, except upon the acceleration of such
Indebtedness following an event of default, agree or be contractually
obligated to repay more than 6% of the original principal amount of such
Indebtedness in the first 12 month period following the incurrence of such
Indebtedness, more than 8% of the original principal amount of such
Indebtedness in the second 12 month period following the incurrence of such
Indebtedness, more than 10% of the original principal amount of such
Indebtedness in the third 12 month period following the incurrence of such
Indebtedness, more than 12% of the original principal amount of such
Indebtedness in the fourth 12 month period following the incurrence of such
Indebtedness, more than 14% of the original principal amount of such
Indebtedness in the fifth 12 month period following the incurrence of such
Indebtedness, more than 16% of the original principal amount of such
Indebtedness in the sixth 12 month period following the incurrence of such
Indebtedness, more than 17% of the original principal amount of such
Indebtedness in the seventh 12 month period following the incurrence of
such Indebtedness or more than 17% of the original principal amount of such
Indebtedness in the eighth 12 month period following the incurrence of such
Indebtedness, except that the Borrower may agree or be contractually
obligated to repay all or any part of such Indebtedness in a single
payment, or pursuant to scheduled payments, on or after June 30, 2004; (ii)
both immediately prior to, and after giving effect to, the incurrence of
such Indebtedness, no Default shall have occurred and be continuing; (iii)
such Indebtedness is incurred pursuant to and governed by agreements and
instruments containing such terms and conditions as are satisfactory to the
Majority Banks (unless such terms and conditions are no less favorable to
the Borrower than those of this Agreement and unless this Agreement permits
the Borrower to agree to different terms and conditions); and (iv) if such
Indebtedness is provided by one or more of the Lenders, such Indebtedness
may be guaranteed by the Borrower's Subsidiaries under the Subsidiary
Guarantee and its obligations in respect of such Indebtedness and such
Subsidiaries' obligations under the Subsidiary Guarantee in respect of such
Indebtedness may be secured PARI PASSU with the Secured Obligations under
and as defined in each of the Security Documents;
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(f) Indebtedness of the Borrower and its Subsidiaries (other than
Indebtedness described in clauses (a) through (e) above) in an aggregate
principal or face amount not exceeding $25,000,000 (as to the Borrower and
its Subsidiaries) at any one time outstanding;
(g) Subordinated Debt of the Borrower, PROVIDED that (i) the Net
Proceeds of such Subordinated Debt are applied to the prepayment of the
Loans to the extent required by Section 2.09(e) hereof and (ii) after
giving effect to the incurrence of such Subordinated Debt and the
application of proceeds thereof, no Default shall have occurred and be
continuing; and
(h) Indebtedness evidenced by promissory notes issued in connection
with repurchases of stock and/or options contemplated by Section 8.09(c)
hereof.
8.08 INVESTMENTS. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments in Cash Equivalents;
(b) Investments existing on the date hereof and listed on
Schedule III hereto;
(c) the Interest Rate Protection Agreements required by Section 8.21
hereof;
(d) subject to Section 8.05 hereof, additional Investments by the
Borrower and its Subsidiaries in each other;
(e) additional Investments by the Borrower and its Subsidiaries not
exceeding an aggregate amount of $2,000,000 (as to the Borrower and its
Subsidiaries);
(f) Investments by the Borrower in the Inactive Subsidiaries of the
Borrower outstanding on the date hereof; and
(g) Acquisitions expressly permitted by Section 8.05 hereof.
8.09 RESTRICTED PAYMENTS. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to, make any Restricted Payment except
for:
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(a) cash dividends paid by the Borrower on its common stock in an
amount not exceeding in any fiscal year of the Borrower an amount equal to
50% of the cumulative Excess Cash Flow (commencing with the fiscal year
ending December 31, 1997) that remains after giving effect to any
Acquisitions made as permitted by Section 8.05(b)(iv) hereof and after
deducting any cash dividends theretofore made as permitted under this
clause (c), PROVIDED that no such dividend shall be made on any date if (x)
a Default has occurred and is continuing on such date (or would occur after
giving effect thereto) or (y) the Total Debt Ratio on such date is equal to
or greater than 4.0 to 1 (or would be equal to or greater than 4.0 to 1
after giving effect thereto);
(b) additional cash dividends paid by the Borrower on its common
stock in an amount not exceeding $2,000,000 in any fiscal year of the
Borrower;
(c) repurchases of common stock of the Borrower or options thereto
from any management official upon his or her death or termination of
employment for cash or promissory notes, so long as the aggregate amount
paid in cash (i) for such common stock or options or (ii) in respect of
such promissory notes in any fiscal year of the Borrower shall not exceed
$5,000,000; and
(d) the payment in full of the Warburg Subordinated Debt as
contemplated by Section 6.01(f)(iii) hereof.
8.10 CAPITAL EXPENDITURES. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to, make any Capital Expenditure on any
date during any of the fiscal years of the Borrower set forth below if (a) Cash
Flow for the period of 12 complete consecutive months ending on, or most
recently ended prior to, such date MINUS (b) the sum of the aggregate amount of
Capital Expenditures made by the Borrower and its Subsidiaries during such 12
month period and the amount of such Capital Expenditure proposed to be made
would be less than the amount set forth below opposite such year:
YEAR AMOUNT
---- ------
1997 $125,000,000
1998 $140,000,000
1999 $155,000,000
2000 $170,000,000
2001 $190,000,000
2002 $210,000,000
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PROVIDED that (x) to the extent the Borrower or any of its Subsidiaries shall
sell or otherwise dispose of any capital asset in the ordinary course of
business or receive insurance proceeds in respect of any capital asset that is
the subject of a Casualty Event and, subject to the requirements of
Sections 2.09(b) and (c) hereof, apply (or commit to apply) the proceeds thereof
within 180 days after such Disposition or reasonably promptly after such
Casualty Event to acquire a like capital asset, the amount of such proceeds so
applied shall not be deemed to be a Capital Expenditure within the period in
which such acquisition is made, (y) notwithstanding the foregoing, the Borrower
and its Subsidiaries may make Capital Expenditures of up to $20,000,000 (as to
the Borrower and its Subsidiaries) during any fiscal year of the Borrower and
(z) in addition to the foregoing, the Borrower and its Subsidiaries may make
Capital Expenditures in respect of a printing facility in the area in and
surrounding Philadelphia, Pennsylvania of up to $25,000,000 (as to the Borrower
and its Subsidiaries) (it being understood that the Borrower and its
Subsidiaries may make Capital Expenditures in respect of such printing facility
in excess of $25,000,000 to the extent permitted above).
8.11 TOTAL DEBT RATIO. The Borrower will not, at any time during any
period set forth below, permit the Total Debt Ratio to exceed the ratio set
forth opposite such period:
PERIOD RATIO
------ -----
From and including December 31, 1996
through and including December 30, 1997 5.50 to 1
From and including December 31, 1997
through and including December 30, 1998 5.50 to 1
From and including December 31, 1998
through and including December 30, 1999 5.00 to 1
From and including December 31, 1999
through and including December 30, 2000 4.50 to 1
From and including December 31, 2000
and at all times thereafter 4.00 to 1
8.12 FIXED CHARGES RATIO. The Borrower will not, at any time, permit
the Fixed Charges Ratio to be less than 1 to 1.
8.13 INTEREST COVERAGE RATIO. The Borrower will not, at any time
permit the Interest Coverage Ratio to be less than 2 to 1.
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8.14 WORKING CAPITAL. The Borrower will not at any time permit
Working Capital to be less than zero.
8.15 LINES OF BUSINESS. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to engage to any substantial extent in any
business other than the business of printing, publishing, distributing and
selling newspapers and proprietary information data bases in connection
therewith, commercial printing activities of the types engaged in on the date
hereof and other activities incidental or related to each of the foregoing.
8.16 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement (including, without limitation, Section 8.05 hereof), the
Borrower will not, nor will the Borrower permit any of its Subsidiaries to,
directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer,
sell, lease, assign or otherwise Dispose of any assets to an Affiliate;
(c) merge into or consolidate with or purchase or acquire assets from an
Affiliate; or (d) enter into any other transaction directly or indirectly with
or for the benefit of an Affiliate (including, without limitation, Guarantees
and assumptions of obligations of an Affiliate); PROVIDED that (i) any Affiliate
who is an individual may serve as a director, officer or employee of the
Borrower or its Subsidiaries and receive reasonable compensation for his or her
services in such capacity, (ii) the Borrower and its Subsidiaries may enter into
transactions providing for the purchase or sale of inventory and other assets or
the provision of services (including, without limitation, printing and
advertising representation services) in the ordinary course of business if the
monetary or business consideration arising therefrom would be substantially as
advantageous to the Borrower and its Subsidiaries as the monetary or business
consideration which would obtain in a comparable transaction with a Person not
an Affiliate, and (iii) the Borrower or any its Subsidiaries may acquire all of
the capital stock or other ownership interests of INS from Warburg and/or
Warburg Affiliates.
8.17 SALE AND LEASEBACK. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to, enter into any arrangement with any
other Person (other than the Borrower and its Subsidiaries) providing for the
leasing by the Borrower or any of its Subsidiaries of real or personal property
which has been or is to be sold or transferred by the Borrower or any of its
Subsidiaries to such other Person or to any other Person to whom funds have been
or are to be advanced by such Person on the security of such property or rental
obligations of the Borrower or any of its Subsidiaries.
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8.18 AMENDMENT OF CERTAIN DOCUMENTS. The Borrower will not, without
the prior written consent of the Majority Banks, amend or otherwise modify, or
consent to any amendment or other modification of, or waive any provision of any
of the following agreements to which it is a party: (a) its certificate of
incorporation or by-laws (or equivalent documents) or (b) any agreement,
instrument or other document evidencing or governing any Subordinated Debt of
the Borrower.
8.19 USE OF PROCEEDS. The Borrower will use (a) the proceeds of the
Revolving Credit Loans solely (i) for general corporate purposes of the Borrower
and its Subsidiaries, including for working capital requirements of the Borrower
and its Subsidiaries in the ordinary course of business, (ii) for extensions of
credit to any of its Subsidiaries and (iii) to finance Permitted Acquisitions
and (b) the proceeds of each Series of PAD Loans other than NEN Acquisition
Loans and New Britain Acquisition Loans for any permitted purpose under this
Agreement except as may be otherwise agreed between the Banks holding such PAD
Loans and the Borrower. In all events, the Borrower will use the proceeds of
the Loans in compliance with all applicable legal and regulatory requirements,
including, without limitation, Regulation U and Regulation X.
8.20 SALES OF ACCOUNTS. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to, sell, with or without recourse, or discount
or otherwise sell for less than the face value thereof, any of their notes or
accounts receivable except that the Borrower or any of its Subsidiaries may
sell, without recourse, accounts receivable of individual account debtors that
the Borrower or such Subsidiary reasonably and in good faith believes to be
uncollectible or otherwise difficult to collect in the ordinary course of
business so long as the aggregate face amount (less applicable reserves) of all
such accounts receivable of the Borrower and its Subsidiaries so sold in any
fiscal year of the Borrower does not exceed $500,000 (as to the Borrower and its
Subsidiaries).
8.21 INTEREST RATE PROTECTION. From and after Effective Date, the
Borrower and/or its Subsidiaries will have in place and thereafter maintain in
full force and effect one or more Interest Rate Protection Agreements (in a
manner reasonably satisfactory to the Majority Banks) with one or more of the
Banks (or with another bank or financial institution having a capital, surplus
and undivided profits of at least $500,000,000) such that the average maximum
rate of interest payable by the Borrower for consecutive periods (each of which
shall be of at least two years duration) as to a principal amount at least equal
to 50% of the aggregate principal amount of the Loans scheduled to be
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outstanding during the respective period shall not exceed 10%; PROVIDED that the
Borrower's obligations under this Section 8.21 shall not apply for any period
during which the Total Debt Ratio is less than 3.0 to 1 (as demonstrated by the
most recent consolidated financial statements of the Borrower and related
Compliance Certificate required to be delivered under Section 8.01 hereof).
8.22 MORTGAGES. Not later than 45 days after the date the Majority
Banks (through the Agent) give notice (the "MORTGAGE NOTICE") to the Borrower
requesting the granting of the Mortgages, the Borrower will (i) cause each of
the Mortgagors to duly execute, acknowledge and deliver the applicable Mortgages
to the Agent (which Mortgages shall include metes and bounds descriptions of the
respective Mortgage Properties), (ii) concurrently with the delivery of the
Mortgages to the Agent, cause the Subsidiary Guarantors to enter into a
Supplement to the Subsidiary Guarantee with the Agent in substantially the form
of Exhibit B-1 to the 1994 Credit Agreement (with such changes thereto as the
Agent shall reasonably request), and (iii) furnish or cause to be furnished to
the Agent:
(a) policies of mortgage title insurance (the "TITLE POLICIES") in
ALTA Loan Policy - 1970 Form (rev. 10/17/70 and 10/17/84), or equivalent
policies, issued by the Title Insurer in an amount, as to each Mortgage
Property, equal to 125% of the fair market value of such Mortgage Property
as established by the appraisals, if any, referred to in Section 8.22(g)
hereof, insuring the Mortgages as valid first liens on the respective
Mortgage Properties, showing fee simple title to the Mortgage Properties
vested in the applicable Mortgagor subject only to such exceptions as are
set forth in the Approved Title Reports and such additional exceptions
which arose after the date of such reports as the Majority Banks in the
exercise of their reasonable discretion may approve, and containing such
affirmative coverage and endorsements as the Majority Banks may reasonably
require. The Title Policies shall contain tie-in endorsements satisfactory
to the Agent and the Majority Banks, aggregating the insurance under all
Title Policies, so that the amount of insurance afforded by the Title
Policy covering each Mortgage Property is equal to the aggregate amount of
the insurance under the Title Policies covering all Mortgage Properties.
In lieu of the Title Policies, the Borrower may cause the Subsidiary
Guarantors to deliver to the Agent, within the 45-day period specified
above, binding, irrevocable commitments by the Title Insurer, dated the
date of delivery of the Mortgages to the Agent, to issue the Title Policies
to the Agent as of such date in
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compliance with the foregoing requirements of this Section 8.22(a), which
commitments (the "TITLE COMMITMENTS") shall contain no printed exceptions
in Schedule B thereto (including any exceptions as to defects, liens,
encumbrances, adverse claims or other matters, if any, created, first
appearing in the public records or attaching subsequent to the date thereof
but prior to the date of recordation of the Mortgages) and shall otherwise
be in form and substance reasonably satisfactory to the Agent and the
Majority Banks; PROVIDED that the Borrower shall furnish or cause to be
furnished to the Agent, within such 45-day period, evidence of the payment
in full of all premiums and shall deliver the Title Policies or cause the
same to be delivered to the Agent within 30 days after the earlier of (i)
the delivery of the Title Commitments to the Agent, or (ii) the expiration
of such 45-day period. Concurrently with the delivery of the Title
Policies or the Title Commitments, as the case may be, the Borrower will
furnish copies of (i) all instruments of record and (ii) all other
documents specified in the Title Commitments or Title Policies, as the case
may be, encumbering or otherwise affecting the Mortgage Properties;
(b) the Surveys, redated to a date not more than 90 days prior to the
date of the Mortgage Notice, together with such certificates since such
redating as the Title Insurer may require in order to issue the Title
Policies and Title Commitments as hereinabove provided;
(c) opinions (dated the date on which the Mortgages are delivered to
the Agent) of local counsel to be issued to the Agent and the Banks to the
effect set forth in Exhibit G-1 to the 1994 Credit Agreement (with such
changes thereto as the Agent shall reasonably request) and also to the
effect that the Mortgages have been duly authorized, executed and delivered
by the respective Mortgagors and, in the case of the Mortgages covering the
Mortgage Property in the State of Missouri, by the trustee designated
therein (such trustee to be specified by the Borrower with the approval of
the Agent), and that such trustee has full power and authority to serve in
such capacity and to exercise all rights and powers under such Mortgage;
(d) evidence satisfactory to the Agent of (i) the due recordation of
the Mortgages and filing of financing statements reasonably satisfactory to
the Agent in connection therewith in the appropriate recording and filing
offices and (ii) the payment of all filing and recording fees and expenses,
of any mortgage, mortgage recording,
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intangibles or other tax payable in connection with the Mortgages or the
obligations secured thereby, and of the premiums for the Title Policies and
all other charges in connection therewith;
(e) such affidavits, releases, indemnities, undertakings or other
documents as the Title Insurer may require in order to issue the Title
Policies as hereinabove provided;
(f) such direct access reinsurance agreements with such other title
insurance companies on such forms and in such amounts, all as the Majority
Banks shall reasonably require;
(g) if so requested by the Majority Banks (through the Agent), an
appraisal of the Mortgage Properties, in form and substance satisfactory to
the Majority Banks, complying with the Appraisal Policies and Review
Procedures of the Board of Governors of the Federal Reserve System (12 CFR
Part 323);
(h) the hazard, flood and other insurance policies required by the
Mortgages; and
(i) if so requested by the Majority Banks (through the Agent), an
environmental survey and assessment covering each of the Mortgage
Properties.
If any Subsidiary Guarantor or the Borrower shall acquire any real property
other than the Mortgage Properties after the date of this Agreement, the
Borrower shall give notice thereof to the Agent, and the Majority Banks may, by
notice to the Borrower (through the Agent) require the Borrower to grant or
cause such Subsidiary Guarantor to grant a mortgage on such real property (a
"SUPPLEMENTAL MORTGAGE") to the Agent, in such form as the Majority Banks shall
reasonably require, as additional security for the obligations secured by the
Mortgages, in which event the Borrower, within 45 days after the giving of such
notice to it, shall grant, or cause such Subsidiary Guarantor to grant, such
Supplemental Mortgage to the Agent together with such other documents of the
types specified above in this Section 8.22 as the Majority Banks may reasonably
require.
8.23 ENVIRONMENTAL MATTERS. The Borrower will, and will cause each
of its Subsidiaries to, comply in all material respect with all Environmental
Laws now or hereafter applicable to the Borrower and its Subsidiaries, and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other
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authorizations necessary for its operations and maintain such authorizations in
full force and effect.
8.24 CERTAIN CORPORATE ACTIONS. Except as expressly permitted by
this Agreement, the Borrower will not, nor will the Borrower permit any of its
Subsidiaries to, enter into any transaction (other than the Borrower's initial
public offering, the merger of Journal Register LLC with and into the Borrower,
the Management Bonus Plan or the Stock Incentive Plan) or take any action that
would result in an "ownership change" of the Borrower or any Subsidiary as
described in Section 382 of the Code.
8.25 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES.
--------------------------------------------
(a) The Borrower will, and will cause each of its Subsidiaries to,
take such action from time to time as shall be necessary to ensure that (i)
each of its Subsidiaries at all times is a Wholly Owned Subsidiary (except
for any stock or other equity interests of such Subsidiary which is owned by
a third party as of the Effective Date, as listed in Schedule IV hereto) and
(ii) each of its Subsidiaries is and becomes a party to the Subsidiary
Guarantee and the JCI/JNI Security Agreement, PROVIDED that, in the event of
any Subsidiary organized as a partnership or limited liability company, the
Borrower shall cause each of the partners or members thereof, as the case may
be, to enter into a pledge agreement in form and substance satisfactory to
the Agent pursuant to which the Agent, on behalf of the Banks, shall be
granted a first prior perfected security interest in all of the equity
interests of such partnership or limited liability company to secure the
obligations owing to the Banks hereunder and under the other Credit
Documents, subject to no other Lien (and the organizational document for such
partnership or limited liability company shall expressly authorize each such
partner or member to so pledge its equity interests therein and shall contain
no other restriction against the Agent enforcing such security interest and
transferring such equity interests to a third party). In the event that any
such additional shares of stock or other equity interests shall be issued by
any Subsidiary of the Borrower, the Borrower agrees forthwith to, and to
cause its Subsidiaries to, deliver to the Agent pursuant to the Security
Documents the certificates (if any) evidencing such shares of stock or other
equity interests, accompanied by undated stock powers executed in blank and
to take such other action as the Agent shall request to perfect the security
interest created therein pursuant to the Security Documents.
(b) The Borrower will not permit any of its Subsidiaries to enter
into, after the date of this Agreement, any
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indenture, agreement, instrument or other arrangement that, directly or
indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness, the granting of Liens, the declaration or payment of
dividends, the making of loans, advances or Investments or the sale, assignment,
transfer or other disposition of Property.
8.26 INACTIVE SUBSIDIARIES. Anything in this Agreement to the
contrary notwithstanding, the Borrower will not, nor will the Borrower permit
any of its Subsidiaries to, engage in any transaction or any other business with
or for the benefit of any Inactive Subsidiary. Anything in this Agreement to
the contrary notwithstanding, the Borrower will not permit any of its Inactive
Subsidiaries to engage in any business or create or incur any Indebtedness or
create or incur any other obligations (contingent or otherwise) after the date
hereof.
Section 9. EVENTS OF DEFAULT. If one or more of the following events
(herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Borrower shall default in the payment (including any required
prepayment) when due of any principal of or interest on any Loan or any
other amount payable by the Borrower hereunder or under any of the other
Credit Documents; or any Obligor shall default in the payment when due of
any amount payable by such Obligor under any of the Credit Documents; or
(b) the Borrower or any of its Subsidiaries shall default in the
payment when due of any principal of or interest on any of its Indebtedness
(other than as described in paragraph (a) above) aggregating $2,000,000 or
more, or in the payment when due of any amount under any Interest Rate
Protection Agreement for a notional principal amount exceeding $1,000,000;
or any event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness or any event specified in
any Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or (with the giving of any notice or the lapse of time
or both) to permit the holder or holders of such Indebtedness (or a trustee
or agent on behalf of such holder or holders) to cause, such Indebtedness
to become due, or to be prepaid in full (whether by redemption, purchase,
offer to purchase or otherwise), prior to its stated maturity or to have
the interest rate thereon reset to a level so that securities
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evidencing such Indebtedness trade at a level specified in relation to the
par value thereof or, in the case of an Interest Rate Protection Agreement,
to permit the payments owing under such Interest Rate Protection Agreement
to be liquidated; or
(c) any representation, warranty or certification made or deemed made
by any Obligor in any Transaction Document (or in any modification or
supplement thereto), or in any certificate furnished to any Bank or the
Agent pursuant to the provisions thereof, shall prove to have been false or
misleading as of the time made, deemed made or furnished in any material
respect; or
(d) the Borrower shall default in the performance of any of its
obligations under clause (f) of Section 8.01 hereof, clause (a) of Section
8.03 hereof (as to the obligation to maintain the corporate existence of
the Borrower and its Subsidiaries only), clause (a) of Section 8.04 hereof,
Sections 8.05 through 8.22 (inclusive) hereof or Section 8.25 hereof; or
the Borrower or any other Obligor shall default in the performance of any
of its or their other obligations hereunder or under any of the other
Credit Documents to which the Borrower or any other Obligor is a party and
such default shall continue unremedied for a period of 30 days after notice
thereof to the Borrower by the Agent or any Bank (through the Agent); or
(e) the Borrower or any of its Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become
due; or
(f) the Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code (as
now or hereafter in effect), (iv) file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) fail to controvert
in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code,
or (vi) take any corporate action for the purpose of effecting any of the
foregoing; or
(g) a proceeding or case shall be commenced, without the application
or consent of the Borrower or any of its
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Subsidiaries, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower or such Subsidiary or of
all or any substantial part of its assets, or (iii) similar relief in
respect of the Borrower or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against the Borrower or
such Subsidiary shall be entered in an involuntary case under the
Bankruptcy Code; or
(h) a final judgment or judgments for the payment of money in excess
of $2,000,000 in the aggregate shall be rendered by a court or courts
against the Borrower and/or any of its Subsidiaries and the same shall not
be discharged (or adequate provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 45 days from
the date of entry thereof and the Borrower or such Subsidiary shall not,
within said period of 45 days, or such longer period during which execution
of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) an event or condition specified in Section 8.01(e) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Borrower or any ERISA Affiliate shall incur or in the
opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which is material in relation to the financial condition,
business, operations, prospects, assets, liabilities or capitalization of
the Borrower and its Subsidiaries taken as a whole; or
(j) except for any expiration or termination in accordance with its
terms or resulting from any action by the Agent or any Bank, any of the
Liens created by the Security Documents or, if the same have been executed
and delivered by the individual parties thereto and be in effect, any of
the Mortgages, shall not constitute a valid and perfected Lien on the
collateral described therein (to
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the extent perfection by filing, registration, recordation or possession is
required herein or therein) in favor of the Agent, free and clear of all
other Liens (other than Permitted Liens); or except for expiration in
accordance with its terms, any of the Security Documents (in the case of
any of the Mortgages, if the same have been executed and delivered by the
individual parties thereto) shall for whatever reason be terminated or
cease to be in full force and effect, or the enforceability thereof shall
be contested by the Borrower or any other Obligor; or if the Mortgagor
under any Mortgage covering any Mortgage Property located in Missouri (if
the Mortgage relating to such Mortgage Property shall have been executed
and delivered by the individual parties thereto and be in effect) shall
give notice to any of the Agent and the Banks terminating the operation of
such Mortgage as security for Loans made hereunder or obligations incurred
hereunder after the date on which such notice is given; or
(k) Any of the following events shall occur and be continuing:
(i) any person or group (within the meaning of Rule 13d-5 under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
and Section 13(d) and 14(d) of the Exchange Act (other than Warburg
and the Warburg Affiliates) becomes, directly or indirectly, in a
single transaction or in a related series of transactions by way of
merger, consolidation or other business combination or otherwise, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of more than 35% (or such higher percentage as shall be owned at such
time by Warburg and/or the Warburg Affiliates) of the capital stock of
the Borrower on a fully-diluted basis (in other words, giving effect
to the exercise of any warrants, options and conversion and other
rights); or
(ii) a majority of the Board of Directors of the Borrower shall
no longer be composed of individuals (x) who are members of said Board
on the Effective Date, (y) whose election or nomination to said Board
has been approved by individuals referred to in the foregoing clause
(x) constituting at the time of such election or nomination at least a
majority of said Board or (z) whose election or nomination to said
Board was approved by individuals referred to in the foregoing clauses
(x) and (y) constituting at the time of such election or nomination at
least a majority of said Board;
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(l) any Federal, state, local or foreign court or governmental
agency, authority, instrumentality or regulatory body takes any final and
nonappealable action which has the effect of reducing (i) the net operating
loss carryforwards referred to in Section 7.24 hereof to an amount below an
amount (the "ADJUSTED NOL") equal to the excess of $260,000,000 over the
amount of any net operating loss carryforwards utilized after December 31,
1993 against income of JNI and JCI and their respective Subsidiaries, or
the effect of materially limiting the use of the Adjusted NOL or (ii) the
interest carryforwards referred to in Section 7.24 hereof below an amount
(the "ADJUSTED INTEREST CARRYFORWARD") equal to the excess of $19,000,000
over the amount of any interest carryforwards utilized after December 31,
1993 against income of JNI and JCI and their respective Subsidiaries, or
the effect of materially limiting the use of the Adjusted Interest
Carryforward; or
(n) there shall have been asserted against the Borrower or any of its
Subsidiaries an Environmental Claim that, in the judgment of the Majority
Banks is reasonably likely to be determined adversely against the Borrower
or such Subsidiary, and the amount thereof (either individually or in the
aggregate) is reasonably likely to have a Material Adverse Effect (insofar
as such amount is payable by the Borrower or such Subsidiary but after
deducting any portion thereof that is reasonably expected to be paid by
other creditworthy Persons jointly and severally liable therefor);
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to any Obligor, (A) the Agent
may and, upon request of the Majority Banks shall, by notice to the Borrower,
terminate the Commitments and they shall thereupon terminate, and (B) the Agent
may and, upon request of the Majority Banks shall, by notice to the Borrower
declare the principal amount then outstanding of, and the accrued interest on,
the Loans and all other amounts payable by the Borrower hereunder and under the
Notes (including, without limitation, any amounts payable under Section 5.05
hereof) to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 9 with respect to any Obligor, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Notes (including, without
limitation, any amounts
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payable under Section 5.05 hereof) shall automatically become immediately due
and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Borrower.
Section 10. THE AGENT.
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10.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Credit Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Credit Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 10.05 and the first sentence
of Section 10.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Credit Documents, and shall not by reason of this Agreement or
any other Credit Document be a trustee for any Bank; (b) shall not be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or in
any other Transaction Document, or in any certificate or other document referred
to or provided for in, or received by any of them under, this Agreement or any
other Transaction Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, any Note or any
other Transaction Document or any other document referred to or provided for
herein or therein or for any failure by the Borrower or any other Person to
perform any of its obligations hereunder or thereunder; (c) shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder or under any other Credit Document; and (d) shall not be responsible
for any action taken or omitted to be taken by it hereunder or under any other
Credit Document or under any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent, together with the consent of the Borrower
to such assignment or transfer (to the extent provided in Section 11.06(b)
hereof). No Managing Agent, Co-Agent or Lead Manager referred to on the cover
page or signature pages of
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this Agreement shall have any rights or obligations under this Agreement
except in its capacity as a "Bank" hereunder.
10.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Credit
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks or, if provided herein, in accordance with the
instructions given by the Majority Revolving Credit Banks, the Majority Term
Loan Banks or all of the Banks as is required in such circumstance, and such
instructions of such Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks.
10.03 DEFAULTS. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default unless the Agent has received notice from
a Bank or the Borrower specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice thereof to the
Banks. The Agent shall (subject to Section 10.07 hereof) take such action with
respect to such Default as shall be directed by the Majority Banks or, if
provided herein, the Majority Revolving Credit Banks or the Majority Term Loan
Banks, PROVIDED that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Banks, the Majority
Revolving Credit Banks, the Majority Term Loan Banks or all of the Banks.
10.04 RIGHTS AS A BANK. With respect to its Commitments and the
Loans made by it, Chase (and any successor acting as Agent) in its capacity as a
Bank hereunder shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. Chase (and any successor acting as Agent)
and its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Borrower (and any of its
Subsidiaries or Affiliates) as if it were not
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acting as the Agent, and Chase and its affiliates may accept fees and other
consideration from the Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Banks.
10.05 INDEMNIFICATION. The Banks agree to indemnify the Agent (to
the extent not reimbursed under Section 11.03 hereof, but without limiting the
obligations of the Borrower under said Section 11.03) ratably in accordance with
the aggregate principal amount of the Loans held by the Banks (or, if no Loans
are at the time outstanding, ratably in accordance with their respective
Commitments), for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Agent (including by any Bank) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement or
any other Transaction Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that the Borrower is
obligated to pay under Section 11.03 hereof, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, PROVIDED that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.06 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees
that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and its
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement or under any other Credit Document. The Agent
shall not be required to keep itself informed as to the performance or
observance by the Borrower of this Agreement or any of the other Credit
Documents or any other document referred to or provided for herein or therein
or to inspect the Properties or books of the Borrower or any of its
Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder or under the Security Documents or delivered to the Agent with the
intent that such notices,
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reports and other documents and information shall be distributed to the Banks
pursuant to the terms hereof, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or
any of its Subsidiaries (or any of its affiliates) that may come into the
possession of the Agent or any of its affiliates.
10.07 FAILURE TO ACT. Except for action expressly required of the
Agent hereunder and under the other Credit Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 10.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
10.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and the Borrower, and the Agent
may be removed at any time with or without cause by the Majority Banks. Upon
any such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, which shall be a bank which has an office
in the United States of America, with a combined capital and surplus of at least
$500,000,000, PROVIDED that if such successor Agent shall not have an office in
New York, New York at which payments hereunder and notices delivered hereunder
and under the Security Documents are to be made, then the parties hereto agree
to effect such modifications to this Agreement and the Security Documents as
shall be appropriate to permit such payments to be made and such notices to be
delivered to a non-New York office. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 10 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
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10.09 CONSENTS UNDER OTHER CREDIT DOCUMENTS. Except as otherwise
provided in Section 11.04 hereof with respect to this Agreement and the Notes,
the Agent may, with the prior written consent of the Required Lenders (but not
otherwise), consent to any modification, supplement or waiver under any of the
Credit Documents or agree to additional obligations being secured by the
Collateral under and as defined in the relevant Security Document if the Lien
for such additional obligations shall be junior to the Lien in favor of the
other obligations secured by the relevant Security Document (except that no such
consent shall be required for Liens securing Permitted Additional Debt incurred
as permitted by Section 8.07(e) hereof if such Liens may be PARI PASSU with the
Liens in favor of the Agent for the benefit of the Banks as permitted by said
Section 8.07(e)), PROVIDED that, without the prior consent of each Lender, the
Agent shall not (except as expressly provided herein or in the Credit Documents)
(a) release any collateral or otherwise terminate any Lien under any Credit
Document providing for collateral security, or agree to any other additional
obligations being secured by such collateral security, except that no such
consent shall be required, and the Agent is hereby authorized, to release any
Lien covering Property that is the subject of a Disposition of Property
permitted hereby or by any of the other Credit Documents or to which the
Required Lenders have consented or (b) release the Borrower or any Subsidiary
Guarantor from its obligations under the Credit Documents except that no such
consent shall be required, and the Agent is hereby authorized, to release any
Subsidiary Guarantor from its obligations under the Credit Documents in
connection with the Disposition by the Borrower (or any of its Subsidiaries) of
all of the capital stock of such Subsidiary Guarantor, if owned by the Borrower,
or the Disposition by such Subsidiary Guarantor of all of the Property of such
Subsidiary Guarantor, in either case, as permitted hereby or by any of the other
Credit Documents or with respect to which the Required Lenders have consented.
Section 11. MISCELLANEOUS.
--------------
11.01 WAIVER. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
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11.02 NOTICES. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement or any Note) shall be given or made by telecopy,
telegraph, cable or otherwise in writing and telecopied, telegraphed, cabled,
mailed or delivered to the intended recipient at (i) in the case of the Borrower
and the Agent, the "Address for Notices" specified below its name on the
signature pages hereof and (ii) in the case of each of the Banks, the address
(or telecopy number) set forth in its Administrative Questionnaire; or, as to
any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given when transmitted by
telecopier, delivered to the telegraph or cable office or personally delivered
or, in the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid.
11.03 EXPENSES, ETC. The Borrower agrees to pay or reimburse each
of the Banks and the Agent for: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase)
in connection with (i) the negotiation, preparation, execution and delivery of
this Agreement and the other Credit Documents, the making of the Loans hereunder
and the syndication of the credit facilities hereby provided and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Credit Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and expenses of the Banks
and the Agent (including, without limitation, the reasonable fees and expenses
of legal counsel) in connection with (i) any Default and any enforcement or
collection proceedings resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this
Section 11.03; (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Credit Documents or any other
document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
any Credit Document or any other document referred to therein; and (d) all
costs, expenses and
CREDIT AGREEMENT
----------------
<PAGE>
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other charges in respect of title insurance procured with respect to the Liens
created pursuant to the Mortgages.
The Borrower hereby agrees to indemnify the Agent and each Bank and
their respective directors, officers, employees, attorneys and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them (including, without limitation, any
and all losses, liabilities, claims, damages or expenses incurred by the Agent
or any Bank, whether or not the Agent or any Bank is a party thereto) arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to the Loans hereunder or any actual or proposed use by the Borrower or
any of its Subsidiaries of the proceeds of any of the Loans hereunder,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified). Without limiting the generality of the foregoing,
the Borrower will indemnify the Agent and each Bank from, and hold the Agent and
each Bank harmless against, any losses, liabilities, claims, damages or expenses
described in the preceding sentence (including any Lien filed against any
Mortgage Property or any part of the Property covered thereby thereunder in
favor of any governmental entity, but excluding, as provided in the preceding
sentence, any loss, liability, claim, damage or expense incurred by reason of
the gross negligence or willful misconduct of the Person to be indemnified)
arising under any Environmental Law as a result of the past, present or future
operations of the Borrower or any of its Subsidiaries (or any predecessor in
interest to the Borrower or any of its Subsidiaries), or the past, present or
future condition of any site or facility owned, operated or leased at any time
by the Borrower or any of its Subsidiaries (or any such predecessor in
interest), or any Release or threatened Release of any Hazardous Materials at or
from any such site or facility, including any such Release or threatened Release
that shall occur during any period when the Agent or any Bank shall be in
possession of any such site or facility following the exercise by the Agent or
any Bank of any of its rights and remedies hereunder or under any of the
Security Documents.
11.04 AMENDMENTS, ETC. Except as otherwise expressly provided
herein, any provision of this Agreement or the Notes or any of the other Credit
Documents may be amended or modified only by an instrument signed by the
Borrower and the Majority Banks,
CREDIT AGREEMENT
----------------
<PAGE>
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or by the Borrower and the Agent acting with the written consent of the Majority
Banks, and any provision of this Agreement or any of the other Credit Documents
may be waived by the Majority Banks or by the Agent acting with the consent of
the Majority Banks; PROVIDED that: (i) no amendment, modification or waiver
shall: (a) increase or extend the term, or extend the time or waive any
requirement for the reduction or termination, of the Commitments of a Bank
without the consent of such Bank, (b) extend the date fixed for the scheduled
payment of principal of or interest on any Loan held by any Bank or any fee or
waive any Event of Default arising by reason of a failure to pay any such
principal or interest or fee without the consent of such Bank, (c) reduce the
amount of any payment of principal thereof or the rate at which interest is
payable thereon or any fee is payable hereunder without the consent of such
Bank, (d) alter the terms of this Section 11.04 without the consent of all of
the Banks, or (e) amend the definition of the term "Majority Banks", "Majority
Revolving Credit Banks", "Majority Term Loan Banks", "Lender" or "Required
Lenders", or modify in any other manner the number or percentage of the Banks
required to make any determinations or waive any rights hereunder or to modify
any provision hereof or thereof without the consent of all of the Banks and any
amendment, modification or waiver of the definition of the terms "Lender" and
"Required Lenders" or other modification of the number or percentage of the
Lenders required to make any determinations to be made by any or all of the
Lenders or waive any rights in favor of the Lenders or modifying any provision
thereof shall also require the consent of all of the Lenders; (ii) any
amendment, modification or waiver of (a) any of the conditions precedent
specified in Section 6.02 hereof with respect to the making of Revolving Credit
Loans shall require the consent of the Majority Revolving Credit Banks and (b)
any of the conditions precedent to the making of any Series of PAD Loans other
than the requirements of Sections 2.01(e) hereof shall require only the consent
of Banks holding at least 60% of the related Series of PAD Commitments for such
PAD Loans; and (iii) any amendment of Section 10 hereof, or which alters the
rights or obligations of the Agent hereunder or under any of the other Credit
Documents, shall require the consent of the Agent.
11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
CREDIT AGREEMENT
----------------
<PAGE>
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11.06 ASSIGNMENTS AND PARTICIPATIONS.
-------------------------------
(a) The Borrower may not assign its rights or obligations hereunder
or under the Notes without the prior consent of all of the Banks and the Agent.
(b) Each Bank may assign any of its Loans, its Notes, and its
Commitments (but only with the consent of, in the case of its outstanding
Commitments, the Borrower and the Agent, which consent shall not be unreasonably
withheld); PROVIDED that (i) no such consent by the Borrower or the Agent shall
be required in the case of any assignment to another Bank and no consent by the
Borrower shall be required if a Default has occurred and is continuing;
(ii) each such assignment shall be in an amount such that, after giving effect
to such assignment, the sum of (A) the aggregate amount of the unused
Commitments (if the Commitments are then in effect) of each of the assignor Bank
and the assignee bank PLUS (B) the aggregate amount of the Loans held by each of
the assignor Bank and the assignee bank shall be equal to or greater than
$5,000,000 (unless, after giving effect to such assignment and all other such
assignments by such assigning Bank occurring simultaneously or substantially
simultaneously therewith, such assigning Bank shall hold no Commitments or Loans
hereunder); (iii) each such assignment by a Bank of its Revolving Credit Loans,
Revolving Credit Note or Revolving Credit Commitment shall be made in such
manner so that the same portion of its Revolving Credit Loans, Revolving Credit
Note and Revolving Credit Commitment is assigned to the respective assignee;
(iv) each such assignment by a Bank of its Term Loans and Term Note shall be
made in such manner so that the same portion of its Term Loans and Term Note is
assigned to the respective assignee; and (v) each such assignment by a Bank of
its PAD Loans of a particular Series or PAD Commitments of a particular Series
and PAD Note for PAD Loans of such Series shall be made in such manner so that
the same portion of its PAD Loans of such Series and PAD Commitment of such
Series and PAD Note for PAD Loans of such Series is assigned to the respective
assignee. Upon execution and delivery by the assignee to the Borrower and the
Agent of an instrument in writing pursuant to which such assignee agrees to
become a "Bank" hereunder (if not already a Bank) having the Commitment(s) and
Loans specified in such instrument, and upon consent thereto by the Borrower and
the Agent, to the extent required above, the assignee shall have, to the extent
of such assignment (unless otherwise provided in such assignment with the
consent of the Borrower and the Agent), the obligations, rights and benefits of
a Bank hereunder holding the Commitment(s) and Loans (or portions thereof)
assigned to it (in addition to the Commitment(s) and Loans, if any, theretofore
held by such assignee) and the assigning Bank shall, to the extent of
CREDIT AGREEMENT
----------------
<PAGE>
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such assignment, be released from the Commitment(s) (or portion(s) thereof) so
assigned. Upon each such assignment the assigning Bank shall pay the Agent an
assignment fee of $3,000.
(c) A Bank may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loan held by it or Loans made or to be
made by it, in which event each such participant shall be entitled to the rights
and benefits of the provisions of Section 8.01(k) hereof with respect to its
participation in such Loan as if (and the Borrower shall be directly obligated
to such participant under such provisions as if) such participant were a "Bank"
for purposes of said Section, but shall not have any other rights or benefits
under this Agreement or any Note (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement (the
"PARTICIPATION AGREEMENT") executed by such Bank in favor of the participant).
All amounts payable by the Borrower to any Bank under Section 5 hereof shall be
determined as if such Bank had not sold or agreed to sell any participations in
such Loan and as if such Bank were funding all of such Loan in the same way that
it is funding the portion of such Loan in which no participations have been
sold. In no event shall a Bank that sells a participation be obligated to the
participant under the Participation Agreement to take or refrain from taking any
action hereunder or under such Bank's Note except that such Bank may agree in
the Participation Agreement that it will not, without the consent of the
participant, agree to (i) the increase or extension of the term, or the
extension of the time or waiver of any requirement for the reduction or
termination, of such Bank's Commitments, (ii) the extension of any date fixed
for the payment of principal of or interest on the related Loan or Loans or any
portion of any fees payable to the participant, (iii) the reduction of any
payment of principal thereof, (iv) the reduction of the rate at which either
interest is payable thereon or (if the participant is entitled to any part
thereof) commitment fee is payable hereunder to a level below the rate at which
the participant is entitled to receive interest or commitment fee (as the case
may be) in respect of such participation or (v) release any collateral or
otherwise terminate any Lien under the Security Documents (other than in
connection with the Disposition of Property permitted hereunder or to which the
Majority Banks have consented hereunder).
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 11.06, any Bank may (without notice to
the Borrower, the Agent or any other Bank and without payment of any fee) (i)
assign and pledge all or any portion of its Loans and its Notes to any Federal
Reserve Bank as collateral security pursuant to Regulation A and
CREDIT AGREEMENT
----------------
<PAGE>
-114-
any Operating Circular issued by such Federal Reserve Bank and (ii) assign all
or any portion of its rights under this Agreement and its Loans and its Notes to
an affiliate of such Bank. No such assignment shall release the assigning Bank
from its obligations hereunder.
(e) A Bank may furnish any information concerning the Borrower and/or
any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12 hereof.
(f) Anything in this Section 11.06 to the contrary notwithstanding,
no Bank may assign or participate any interest in any Loan held by it hereunder
to the Borrower or any of its Subsidiaries or any Affiliates without the prior
consent of each Bank.
11.07 SURVIVAL. The obligations of the Borrower under Sections
5.01, 5.05 and 11.03 hereof, and the obligations of the Banks under
Section 10.05 hereof, shall survive the repayment of the Loans and the
termination of the Commitments. In addition, each representation and warranty
made, or deemed to be made by a notice of any Loan, herein or pursuant hereto
shall survive the making of such representation and warranty, and no Bank shall
be deemed to have waived, by reason of making any Loan, any Default that may
arise by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that such Bank or the Agent may have had notice or
knowledge or reason to believe that such representation or warranty was false or
misleading at the time such Loan was made.
11.08 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. The Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York State Court sitting in New York County for the
CREDIT AGREEMENT
----------------
<PAGE>
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purposes of all legal proceedings arising out of or relating to this agreement
or the transactions contemplated hereby. The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.12 CONFIDENTIALITY. Each Bank and the Agent agrees to keep
confidential, in accordance with their customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, all non-public information provided to such Bank by or on
behalf of the Borrower or any of its Subsidiaries or Affiliates in connection
with this Agreement and identified as being confidential at the time the same is
delivered to the Banks or the Agent; PROVIDED that any Bank or the Agent may
disclose such information (a) to the extent required by statute, rule,
regulation or judicial process, (b) to counsel for any of the Banks or the
Agent, (c) to bank examiners, auditors or accountants, (d) to the Agent or any
other Bank (or to Chase Securities Inc.), (e) in connection with any litigation
to which any one or more of the Banks or the Agent is a party, (f) to a
subsidiary or affiliate of any Bank or the Agent, (g) to any assignee or
participant (or prospective assignee or participant) of or in any Loans so long
as such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Bank a Confidentiality Agreement
substantially in the form of Exhibit D hereto, (h) to any other Person in the
course of the enforcement of any Bank's or the Agent's rights or remedies
hereunder or under any other Credit Document, (i) to any other creditor of any
Obligor at any time during the continuance of an Event of Default or (j) that
subsequently becomes publicly available (other than by reason of a breach by any
Bank or the Agent of its obligations under this Section 11.12).
CREDIT AGREEMENT
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and year first above written.
JOURNAL REGISTER COMPANY
By
-------------------------
Name:
Title:
CREDIT AGREEMENT
----------------
<PAGE>
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AGENT
THE CHASE MANHATTAN BANK,
individually and
as Agent
By
-------------------------
Name:
Title:
MANAGING AGENTS
THE BANK OF NEW YORK
By
-------------------------
Name:
Title:
CIBC, INC.
By
-------------------------
Name:
Title:
FLEET NATIONAL BANK
By
-------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By
-------------------------
Name:
Title:
CO-AGENTS
TORONTO DOMINION (NEW YORK), INC.
By
-------------------------
Name:
Title:
CREDIT AGREEMENT
----------------
<PAGE>
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NATIONSBANK OF TEXAS, N.A.
By
-------------------------
Name:
Title:
LEAD MANAGERS
CORESTATES BANK
By
-------------------------
Name:
Title:
OTHER BANKS
ABN-AMRO BANK, N.V.
By
-------------------------
Name:
Title:
By
-------------------------
Name:
Title:
BANK OF HAWAII
By
-------------------------
Name:
Title:
FIRST NATIONAL BANK OF MARYLAND
By
-------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By
-------------------------
Name:
Title:
CREDIT AGREEMENT
----------------
<PAGE>
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GREAT WEST LIFE & ANNUITY
INSURANCE COMPANY
By
-------------------------
Name:
Title:
MICHIGAN NATIONAL BANK
By
-------------------------
Name:
Title:
SOCIETE GENERALE
By
-------------------------
Name:
Title:
UNION BANK
By
-------------------------
Name:
Title:
UNITED JERSEY BANK CENTRAL, N.A.
By
-------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By
-------------------------
Name:
Title:
CREDIT AGREEMENT
----------------
<PAGE>
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MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By
-------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By BOSTON MANAGEMENT AND RESEARCH,
as Investment Advisor
By
-------------------------
Name:
Title:
CREDIT AGREEMENT
----------------
<PAGE>
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CREDIT AGREEMENT
----------------
<PAGE>
EXHIBIT 10.3
JOURNAL REGISTER COMPANY MANAGEMENT BONUS PLAN
The purpose of the Plan is to recognize the prior services of certain
management employees (collectively, the "Employees") of Journal Register Company
(the "Company") and such employees' contributions to the Company's financial
performance and growth.
The Employees whose names and addresses are set forth on Schedule A
hereto shall be awarded, subject to the pricing of the Company's currently
contemplated initial public offering, the number of shares of common stock,
par value $.01 per share of the Company (the "Common Stock"), and the amount
of cash, subject to applicable withholdings, in each case set forth opposite
his or her name. The Board of Directors of the Company may, in its sole
discretion and subject to the pricing of the Company's currently contemplated
initial public offering, grant to Employees whose names are not set forth on
Schedule A hereto such number of shares of Common Stock and such amount of
cash, subject to applicable withholdings, as the Board in each case
determines appropriate. Notwithstanding the foregoing, in no event shall (i)
the number of shares of Common Stock awarded pursuant to this Plan exceed
1,100,000 in the aggregate and (ii) the amount of cash awarded pursuant to
this Plan exceed an amount equal, in the aggregate, to 82% of the total value,
as of the date of award, of the number of shares of Common Stock awarded
hereinunder.
The Company has covenanted to file with the Securities and Exchange Commission
a Registration Statement under the Securities Act of 1933, as amended, with
respect to such shares of Common Stock. No shares of Common Stock awarded under
this Plan shall be issued to the recipients thereof until such Registration
Statement has become effective.
<PAGE>
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
WARBURG, PINCUS CAPITAL COMPANY, L.P.,
WARBURG, PINCUS CAPITAL PARTNERS, L.P.,
WARBURG, PINCUS INVESTORS, L.P.
AND
JOURNAL REGISTER COMPANY
DATED AS OF
_____ __, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of _____ __,
1997, by and among Warburg, Pincus Capital Company, L.P., a Delaware limited
partnership ("WPCC"), Warburg, Pincus Capital Partners, L.P., a Delaware limited
partnership ("WPCP"), Warburg, Pincus Investors, L.P., a Delaware limited
partnership ("WPI") (each hereinafter referred to individually as a
"Stockholder" and collectively as the "Stockholders"), and Journal Register
Company, a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company is currently contemplating an Initial Public Offering
(as defined herein) of the Company's Common Stock (as defined herein); and
WHEREAS, the Company has agreed to grant certain registration rights to the
Stockholders with respect to the Registrable Shares (as defined herein);
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. DEFINITIONS
(a) DEFINED TERMS. As used in this Agreement, the following terms shall
have the respective meanings set forth below (unless otherwise expressly
provided herein):
"ACT" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission issued under
the Act, as they each may, from time to time, be in effect.
"AGREEMENT" means this Registration Rights Agreement, as it may be
amended from time to time.
"AFFILIATE" means any person or entity, directly or indirectly,
controlling, controlled by or under common control with another person or
entity.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"COMMON STOCK" means the shares of common stock, par value $.01 per
share, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
issued under the Exchange Act, as they each may, from time to time, be in
effect.
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<PAGE>
"INITIAL PUBLIC OFFERING" occurs the date on which the Company
completes an initial underwritten public offering of shares of its Common Stock
pursuant to an effective Registration Statement.
"PERSON" means an individual, partnership, joint-stock company,
limited liability company, corporation, trust or unincorporated organization,
and a government or agency or political subdivision thereof.
"REGISTRABLE SHARES" means (i) shares of Common Stock issued or
issuable to the Stockholders, (ii) any additional shares of Common Stock
acquired by the Stockholders, (iii) any shares of Common Stock subject to
options or warrants held by the Stockholders and (iv) any capital stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares of Common Stock referred to in
clauses (i), (ii) or (iii) above.
"REGISTRATION EXPENSES" means the expenses described in Section 2(d).
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission under the Act for a public offering and sale of
securities of the Company (other than any registration statement on Form S-4 or
Form S-8, or their successors, or any registration statement covering only
securities proposed to be issued in exchange for securities or assets of another
company or entity).
"RULE 144" means Rule 144 as promulgated by the Commission under the
Act, as such Rule may be amended from time to time, or any similar successor
rule that may be promulgated by the Commission.
"RULE 415" means Rule 415 as promulgated by the Commission under the
Act, as such Rule may be amended from time to time, or any similar successor
rule that may be promulgated by the Commission.
"SUBSIDIARY" means a corporation, partnership, limited liability
company or other entity of which the Company owns, directly or indirectly, more
than fifty percent (50%) of the voting stock.
2. REGISTRATION RIGHTS
(a) REQUESTED REGISTRATION.
(i) If the Company shall at any time receive from WPCC, WPCP or WPI
(the "Requesting Stockholder(s)") a written request that the Company effect a
registration with respect to all or a part of the Registrable Shares owned by
such Requesting Stockholder(s), and the Stockholders collectively (for this
purpose, together with any Person whose shares of Common Stock would be required
to be aggregated with the shares held by the Stockholders pursuant to Rule 144)
own at least ten percent (10%) of the then outstanding shares of Common Stock,
the Company shall:
-2-
<PAGE>
(A) within five business days of receipt of the written
request from such Requesting Stockholder(s), give written notice of
the proposed registration to all other holders of Registrable Shares
and to Thomas Hardy, Alan Leslie, Frances Leslie, Greta Pofcher and
the estate of Monroe Pofcher (in the case of such individuals, at
their respective addresses as set forth on the stock records of the
Company) (such other holders and such individuals being hereinafter
referred to collectively as the "Holders"); and
(B) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state
securities laws and appropriate compliance with the Act) and take
such other actions as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Shares as
are specified in such request, together with all or such portion
of Common Stock of any Holder or Holders joining in such request
as are specified in a written request received by the Company
within 15 business days after written notice from the Company is
given pursuant to Section 2(a)(i)(A) above; PROVIDED, HOWEVER,
the Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section
2(a) other than two such registrations by the Stockholders (each,
a "Required Registration") (counting for this purpose only
registrations which have been declared or ordered effective and
pursuant to which securities have been sold).
The Registration Statement filed pursuant to the request of the
Requesting Stockholder(s) may, subject to the provisions of Section 2(a)(ii)
below, include other securities of the Company which are held by officers or
directors of the Company, or which are held by Persons who, by virtue of
agreements with the Company, are entitled to include their securities in any
such registration (the "Other Stockholders"), but the Company shall have no
absolute right to include any of its securities in any such registration.
(ii) If the Requesting Stockholder(s) intend to distribute the
Registrable Shares covered by their request by means of an underwriting, such
Requesting Stockholder(s) shall so advise the Company as a part of their request
made pursuant to this Section 2(a), and the provisions of this Section 2(a)(ii)
shall apply:
If officers or directors of the Company holding Common Stock of
the Company shall request inclusion in any registration pursuant to this Section
2(a)(ii), or if the Other Stockholders request such inclusion, the Requesting
Stockholder(s) shall offer to include the securities of such officers, directors
and Other Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The
Requesting Stockholder(s) and Holders whose shares are to be included in such
registration
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<PAGE>
and the Company shall (together with all officers, directors and Other
Stockholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by the
Requesting Stockholder(s) owning a majority of the Registrable Shares to be
included in such Registration Statement and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 2(a), if the
representative of the underwriter or underwriters advises the Requesting
Stockholder(s) in writing that marketing factors require a limitation on the
number of shares to be underwritten, the securities of the Company held by
officers or directors of the Company and the securities held by Other
Stockholders shall be excluded from such registration to the extent so required
by such limitation. If, after the exclusion of such shares further reductions
are still required, the number of shares included in the registration by the
Requesting Stockholder(s) and the Holders shall be reduced on a pro rata basis
(based on the number of shares requested by the Requesting Stockholder(s) and
the Holders to be included in such registration), by such minimum number of
shares as is necessary to comply with such request. No Registrable Shares or
any other securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any officer, director or Other Stockholder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such Person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Requesting Stockholder(s). The securities so withdrawn
shall also be withdrawn from registration. If the underwriter has not limited
the number of Registrable Shares or other securities to be underwritten, the
Company may include its securities for its own account in such registration if
the representative so agrees and if the number of Registrable Shares and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(iii) Notwithstanding the foregoing, if the Company shall furnish
to the Requesting Stockholder(s) a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, based upon circumstances existing at the time
the Requesting Stockholder(s) make a written request pursuant to Section
2(a)(i), it would be seriously detrimental to the Company for such Registration
Statement to be filed and it is therefore essential to defer the filing of such
Registration Statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the request of
the Requesting Stockholder(s); PROVIDED, HOWEVER, the Company may not utilize
this right more than once in any 12 month period.
(b) PIGGYBACK REGISTRATION.
(i) Whenever the Company proposes to file a Registration Statement,
the Company shall promptly give written notice to each Stockholder of its
intention to do so and, upon the written request of any Stockholder given within
ten business days after the Company provides such notice (which request shall
state the intended method of disposition of the Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by each Stockholder to register to be registered under the Act to
the extent necessary to permit their sale or other disposition in accordance
with the intended
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<PAGE>
methods of distribution specified in the request of such Stockholder; PROVIDED,
HOWEVER, the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 2(b) without obligation to any
Stockholder.
(ii) In connection with any offering under this Section 2(b) involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the Stockholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the sole discretion of the
underwriters, jeopardize the success of the offering by the Company. If in the
sole discretion of the representative of the underwriter or underwriters the
registration of all, or part of, the Registrable Shares which the Stockholder
has requested to be included would adversely affect such public offering, then
the Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the representative believes may be sold
without causing such adverse effect. If the number of Registrable Shares to be
included in the underwriting in accordance with the foregoing is less than the
total number of shares which the Stockholder has requested to be included, then,
except as described below, the Stockholder shall participate in the underwriting
pro rata based on the number of shares requested by such Stockholder to be
included in such registration (or in any other proportion as agreed upon by all
holders of the Common Stock entitled to registration), and if a Stockholder
would thus be entitled to include more shares than the Stockholder requested to
be registered, the excess shall be allocated among other requesting holders pro
rata based upon their total ownership of Registrable Shares.
(c) REGISTRATION PROCEDURES. If and when the Company is required by the
provisions of this Agreement to seek to effect the registration of any of the
Registrable Shares under the Act, the Company shall:
(i) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(ii) keep such registration effective for a period of 120 days or
until the Requesting Stockholder(s) have completed the distribution described in
the Registration Statement relating thereto, whichever first occurs; PROVIDED,
HOWEVER, that (A) such 120-day period shall be extended for a period of time
equal to the period the Requesting Stockholder(s) refrains from selling any
securities included in such registration at the request of an underwriter of the
Common Stock of the Company; and (B) in the case of any registration of
Registrable Shares on Form S-3 which are intended to be offered on a continuous
or delayed basis, such 120-day period shall be extended, if necessary, to keep
the Registration Statement effective until all such Registrable Shares are sold,
provided that Rule 415, or any successor rule under the Act, permits an offering
on a continuous or delayed basis, and provided further that applicable rules
under the Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (I) includes any
prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or
events representing a material or fundamental change in the information set
forth in the Registration Statement, the incorporation by reference of
information
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<PAGE>
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
Registration Statement;
(iii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such Registration Statement;
(iv) furnish to the Stockholder such reasonable number of copies of
the prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Stockholder may
reasonably request in order to facilitate the public sale or disposition of the
Registrable Shares owned by the Stockholder;
(v) use its best efforts to cause all such Registrable Shares
registered hereunder to be listed on each securities exchange or quoted on
each automated quotation service on which similar securities issued by the
Company are then listed or quoted;
(vi) provide a transfer agent and registrar for all Registrable Shares
covered by the Registration Statement and a CUSIP number, if necessary, for all
such Registrable Shares, in each case not later than the effective date of such
registration;
(vii) use its best efforts to register or qualify the Registrable
Shares covered by the Registration Statement under the securities or blue sky
laws of such states as the Stockholders may reasonably request and do any and
all other acts and things that may be necessary or desirable to enable the
Stockholders to consummate the public sale or other disposition in such
jurisdictions; PROVIDED, HOWEVER, the Company shall not be required in
connection with this Section 2(c) to qualify as a foreign corporation or execute
a general consent to service of process in any jurisdiction nor register or
qualify the securities in any state which as a condition to such registration or
qualification would impose restrictions or other conditions on the Company or
any of its officers, directors or shareholders (including with respect to any
shares held by such Persons), unless such restrictions or other conditions are
approved by the party adversely affected;
(viii) furnish to each Requesting Stockholder and the managing
underwriters, if any, without any additional charge, one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(ix) use its best efforts to (A) obtain opinions of counsel to the
Company (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and not objected
to by the Requesting Stockholder(s) with a majority of the Registrable Shares
being sold), and updates thereof addressed to the Requesting Stockholder(s),
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by the
underwriters, if any; and (B) obtain "cold comfort" letters and updates thereof
(which letters and updates (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and counsel
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<PAGE>
to the Requesting Stockholder(s) with a majority of the Registrable Shares being
sold) from the Company's independent certified public accountants addressed to
such Requesting Stockholder(s) (and, if necessary, any other independent
certified public accountants of any Subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement), such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by accountants in connection with underwritten offerings
and such other matters as the underwriters, if any, or the Requesting
Stockholder(s) with a majority of the Registrable Shares being sold, reasonably
request. The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder or, if not an
underwritten offering, as otherwise reasonably requested by the Requesting
Stockholder(s) with a majority of the Registrable Shares being sold; and
(x) make available for inspection by a representative of the
Requesting Stockholder(s) and any attorneys or accountants retained by such
Requesting Stockholder(s) (and, to the extent reasonably requested, furnish
copies), in connection with the preparation of a Registration Statement pursuant
to this Agreement, all financial and other records and pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative(s), attorney(s) or accountant(s) in connection with such
registration; PROVIDED, HOWEVER, that any records, information or documents that
are designated by the Company in writing as confidential shall be kept
confidential by such persons unless disclosure of such records, information or
documents is required by court or administrative order or under applicable law;
and PROVIDED, FURTHER, that appropriate arrangements are made, to the extent
required by applicable antitrust law, to limit access to such information of the
Company to representatives of the Requesting Stockholder(s) who are not officers
or employees of the Requesting Stockholder(s); and PROVIDED, FURTHER that,
without limiting the foregoing, no such information shall be used by any such
Person in connection with any market transactions in securities of the Company
or its subsidiaries in violation of law.
If the Company has delivered preliminary or final prospectuses to the
Stockholder and after having done so the prospectus is amended to comply with
the requirements of the Act, the Company shall promptly notify the Stockholder
and, if requested, the Stockholder shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Company. The Company
shall promptly provide the Stockholder with revised prospectuses to permit the
Stockholder to resume making offers of the Registrable Shares.
(d) ALLOCATION OF EXPENSES. The Company shall pay all Registration
Expenses of all registrations under this Agreement, regardless of whether such
registrations become effective. For purposes of this Section 2, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Section 2, including, without limitation, all registration
and filing fees, exchange or automated quotation service listing or quotation
fees, printing expenses, fees and disbursements of counsel for the Company,
state blue sky fees and expenses and the expense of any regular or special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and stock transfer taxes
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<PAGE>
attributable to the sale of the Registrable Shares and the fees and expenses of
any Stockholder's own counsel and accountants, which shall be borne by such
Stockholder.
(e) INDEMNIFICATION. In the event of any registration of any of the
Registrable Shares under the Act pursuant to this Agreement, the Company
shall indemnify and hold harmless the Requesting Stockholder(s) and each
Holder whose shares of Common Stock are included in such registration, each
of its officers, directors, partners, members, legal counsel, accountants and
each Person controlling such Requesting Stockholder or Holder within the
meaning of Section 15 of the Act, and each other Person with Common Stock
covered by such registration (the "Stockholder Group"), against any losses,
claims, damages or liabilities, joint or several, to which a member of the
Stockholder Group may become subject under the Act, the Exchange Act, state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions with respect thereto) arise out of or are based upon
any untrue statement (or alleged untrue statement) of any material fact
contained in any Registration Statement under which such Registrable Shares
were registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement or any amendment or supplement to
such Registration Statement, or arise out of or are based upon the omission
(or alleged omission) to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the Company
shall reimburse such member of the Stockholder Group for any legal or any
other expenses reasonably incurred by the member in connection with
investigating and defending any such loss, claim, damage, liability or action;
provided, however, that this indemnity agreement does not apply with respect
to any loss, claim, damage, expense or liability suffered by any member of
the Stockholder Group to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such member
of the Stockholder Group expressly for use in a Registration Statement (or
any amendment thereto) or any prospectus (or any amendment thereto);
provided, further, that the indemnity agreement contained in this paragraph
shall not apply to any indemnified party if such untrue statement or omission
or alleged untrue statement or omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus and such
indemnified party or its principal failed to deliver a copy of the final or
amended prospectus at or prior to the sale of the Registrable Shares.
In the event of any registration of any of the Registrable Shares
under the Act pursuant to this Agreement, the Requesting Stockholder(s) and
each Holder whose shares of Common Stock are included in such registration
shall indemnify and hold harmless the Company, each of its officers,
directors, partners, members, legal counsel, accountants and each Person
controlling the Company within the meaning of Section 15 of the Act, each
agent and any lead institution or underwriter for the Company and any of its
directors, officers or partners or any Person who controls such agent, lead
institution or underwriter (the "Company Group"), against any losses, claims,
damages or liabilities, joint or several, to which a member of the Company
Group may become subject under the Act, the Exchange Act, state securities
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions with respect thereto) arise out of or are based upon any untrue
statement (or alleged untrue statement) of a material fact contained in any
Registration Statement under which such Registrable Shares were registered
under the Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission (or
alleged omission) to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Requesting Stockholder or Holder, or any
agent thereof, specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; and such
Requesting Stockholder or Holder shall reimburse such member of the Company
Group for any legal or other expenses reasonably incurred by such member in
connection with investigating and defending any such loss, claim, damage,
liability or action.
Each party entitled to indemnification under this Section 2(e) (the
"Indemnified Party") shall give notice to the Party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which
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<PAGE>
indemnity may be sought and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; PROVIDED
THAT, counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld or delayed); and, PROVIDED,
FURTHER, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 2, except when material prejudice to the Indemnifying Party shall
have resulted from the failure to give such notice. The Indemnified Party
may participate in such defense at such party's expense. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof,
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such claim or litigation. An
Indemnifying Party shall not be liable for any settlement of any action,
proceeding or claim effected without its prior written consent, which shall
not be unreasonably withheld; provided, however, that the indemnity agreement
contained in this paragraph shall not apply in the case of a sale directly by
the Company of its securities (including a sale of such securities through
any lead institution or underwriter retained by the Company to engage in a
distribution solely on behalf of the Company) in which such untrue statement
or omission or alleged untrue statement or omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and
the Company or such lead institution or underwriter failed to deliver a copy
of the final or amended prospectus at or prior to the sale of the Registrable
Shares.
(f) CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 2(e) of this
Agreement is for any reason not available, the parties required to indemnify by
the terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company, any seller of Common Stock and one or more of the underwriters,
except to the extent that contribution is not permitted under Section 11(f) of
the Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Common Stock (taking into account the portion of
the proceeds of the offering realized by each), the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent any statement (or alleged
statement) or omission (or alleged omission) and any other equitable
considerations appropriate under the circumstances. The Company and each Person
selling securities agree with each other that no seller of Common Stock shall be
required to contribute any amount in excess of the amount such seller would have
been required to pay to an indemnified party if the indemnity under Section 2(e)
of this Agreement were available. The Company and each such seller agrees with
each other and the underwriters of the Common Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Common Stock. For purposes of this
subsection (f), each Person, if any, who controls an underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such underwriter, and each director and each officer of the Company who signed
the Registration Statement, and each Person, if any, who controls the Company or
a seller of Common Stock within the meaning of Section 15 of the Act shall have
the same rights to contribution as the Company or a seller of Common Stock, as
the case may be.
(g) RULE 144. The Company covenants that it shall file the reports
required to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, and it will take such further
action as the Stockholders may reasonably
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<PAGE>
request, all to the extent required from time to time to enable the Stockholders
to sell Registrable Shares without registration under the Securities Act within
the limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such Rule may be amended from time to time; or (ii) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any
Stockholder, the Company shall provide a written statement as to whether it has
complied with such requirements.
(h) INFORMATION BY STOCKHOLDER. Each Stockholder shall promptly furnish
to the Company such information regarding the Stockholder and the distribution
proposed by the Stockholder as the Company may request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Section 2.
(i) HOLD-BACK AGREEMENT. The Stockholders, if requested by the
Company or an underwriter of Common Stock or other securities of the Company,
shall agree not to sell or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Stockholders during
the period commencing on the tenth day prior to the effective date of the
registration statement and ending on the 90th day following the effective
date of the Registration Statement, unless a longer period is requested by
such underwriter, in which case such latter period of time shall not exceed
180 days; provided, however, the Stockholders shall not be required to
refrain from selling a larger percentage of the Registrable Shares than the
similarly determined percentage of any other Person whose shares are included
in the Registration Statement; and, provided, further, that the foregoing
shall not in any way by construed to limit or otherwise negatively affect the
"piggyback" registration rights granted to any Stockholder pursuant to
Section 2(b) of this Agreement.
3. INFORMATION AS TO THE COMPANY AND RELATED COVENANTS
(a) INSPECTION. From and after the date hereof, the Company shall permit
each Stockholder, its nominee, assignees or its representative, so long as such
Stockholder continues to hold at least five percent (5%) of the outstanding
shares of Common Stock, to visit and inspect any of the properties of the
Company, to examine all its books of account, records, reports and other papers
not contractually required of the Company to be confidential or secret, to make
copies and extracts therefrom and to discuss its affairs, finances and accounts
with its officers, directors, key employees and independent public accountants
or any of them (and by this provision the Company authorizes said accountants to
discuss with said Stockholder, its nominee, assignees and representative the
finances and affairs of the Company and its Subsidiaries), all at such
reasonable times and as often as may be reasonably requested, provided that the
business of the Company is not unreasonably interfered with.
(b) CONFIDENTIALITY. The information and other material furnished under
or in connection with this Agreement (whether furnished before or after the date
hereof) constitutes or contains confidential business, financial or other
information of the Company or its Subsidiaries, and each Stockholder covenants
for itself and its directors, officers, partners, members and stockholders that
it shall use due care to prevent its officers, directors, partners, members,
employees, counsel, accountants and other authorized representatives from using
or disclosing such information in any manner materially detrimental to the
Company; PROVIDED, HOWEVER, such Stockholder may disclose or deliver any
information or other material disclosed to or received by the Stockholder should
such disclosure or delivery be required by law or legal process.
4. NOTICES
(a) NOTICES. All communications under this Agreement shall be in writing
and shall be delivered by hand delivery, mailed by overnight courier or by
registered or certified mail, postage prepaid, or by facsimile transmission:
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(i) if to any of the Stockholders, to:
E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue, 10th Floor
New York, New York 10017
Fax: (212) 878-9351
Attention: Douglas M. Karp
with a copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901
Fax: (203) 327-2669
Attention: John T. Capetta, Esq.
(ii) if to the Company, to:
Journal Register Company
State Street Square
50 West State Street
Trenton, New Jersey 08608-1298
Fax: (609) 396-8731
Attention: Robert M. Jelenic
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 403-2000
Attention: Andrew R. Brownstein, Esq.
Any notice so addressed shall be deemed to be given if delivered by hand,
on the date of such delivery by independent courier; if mailed by registered or
certified mail, on the third business day after the date of such mailing; and if
by facsimile transmission, upon confirmation of receipt.
5. MISCELLANEOUS
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO ITS CONFLICT
OF LAWS RULES.
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<PAGE>
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the legal representatives, successors and assigns of each of
the parties. Each Stockholder may assign all or any portion of its rights herein
to any purchaser or other acquiror of some or all of the capital stock of the
Company held by it; PROVIDED, HOWEVER, that the Company is furnished within a
reasonable time after its request, such information as it shall reasonably
request relating to such assignees.
(c) ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof. This Agreement may be amended, and the observance of
any term of this Agreement may be waived, with (and only with) the written
consent of the Company and holders of a majority of the shares of Common Stock
held by the Stockholders; PROVIDED, HOWEVER, that any amendment which adversely
affects the rights of any Stockholder shall be binding on such Stockholder only
if such Stockholder consents in writing to such amendment.
(d) SECTION HEADINGS. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(f) EXPENSES AND TAXES. The Company will pay, and save each Stockholder
harmless from any and all liabilities (including interest and penalties) with
respect to, or resulting from, any delay or failure in paying, stamp and other
taxes (other than income taxes), if any, which may be payable or determined to
be payable upon the execution and delivery of this Agreement.
(g) REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
thereto, including, without limitation, (i) consents, waivers and modifications
which may hereafter be executed; (ii) documents received by each Stockholder
pursuant hereto; and (iii) financial statements, certificates and other
information previously or hereafter furnished to each Stockholder, may be
reproduced by each Stockholder by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and each Stockholder
may destroy any original document so reproduced. All parties hereto agree and
stipulate that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by each
Stockholder in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
(h) USAGE. Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
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<PAGE>
(i) THIRD-PARTY BENEFICIARIES. No Person, other than Thomas Hardy, Alan
Leslie, Frances Leslie, Greta Pofcher and the estate of Monroe Pofcher, shall
be, or deemed to be, a third-party beneficiary of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: Warburg, Pincus & Co.,
its general partner
By:
Name:
Title:
WARBURG, PINCUS CAPITAL PARTNERS, L.P.
By: Warburg, Pincus & Co.,
its general partner
By:
Name:
Title:
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co.,
its general partner
By:
Name:
Title:
JOURNAL REGISTER COMPANY
By:
Name:
Title:
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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 reports dated March 5, 1997 and March 12, 1997 in Amendment No. 2
to the Registration Statement (Form S-1 No. 333-23425) and related Prospectus of
Journal Register Company for the registration of 9,375,000 shares of its common
stock.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey
May 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 8,546,396 6,079,172
<SECURITIES> 0 0
<RECEIVABLES> 48,236,917 46,675,217
<ALLOWANCES> 4,172,936 4,760,334
<INVENTORY> 6,204,004 6,285,690
<CURRENT-ASSETS> 66,035,275 61,988,825
<PP&E> 202,198,029 203,421,012
<DEPRECIATION> 110,484,723 114,090,020
<TOTAL-ASSETS> 305,985,208 299,274,894
<CURRENT-LIABILITIES> 91,893,412 96,329,355
<BONDS> 599,709,341 580,015,914
0 0
0 0
<COMMON> 2,104,200 2,104,200
<OTHER-SE> (425,762,243) (420,038,131)
<TOTAL-LIABILITY-AND-EQUITY> 305,985,208 299,274,894
<SALES> 351,120,075 83,040,396
<TOTAL-REVENUES> 351,120,075 83,040,396
<CGS> 217,323,144 52,230,122
<TOTAL-COSTS> 248,315,787 59,871,278
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 3,914,496 524,428
<INTEREST-EXPENSE> 56,409,520 12,960,201
<INCOME-PRETAX> 42,417,923 9,656,122
<INCOME-TAX> 14,309,294 3,932,000
<INCOME-CONTINUING> 28,108,629 5,724,112
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,108,629 5,724,112
<EPS-PRIMARY> .74 .15
<EPS-DILUTED> .74 .15
</TABLE>
