SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): June 15, 1999
AUDIO BOOK CLUB,INC.
(Exact name of registrant as specified in its charter)
FLORIDA 1-13469 65-0429858
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2295 Corporate Blvd., N.W., Boca Raton, FL 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561-241-1426
Former name or former address, if changed since last report
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Item 2. Acquisition or Disposition of Assets.
On June 15, 1999 (the "Closing"), Audio Book Club, Inc. (the "Registrant")
consummated the acquisition (the "Acquisition") from Doubleday Direct, Inc.
("Doubleday") of Doubleday's business of direct marketing and distribution of
audiobooks and related products through Doubleday's AUDIOBOOKS DIRECT Club (the
"Acquired Business"), pursuant to the terms of an Asset Purchase Agreement dated
March 18, 1999, as amended, between Doubleday and ABD Acquisition Corp. ("ABD"),
a wholly-owned subsidiary of the Registrant (the "Purchase Agreement").
At the time of the Acquisition, the AUDIOBOOKS DIRECT Club was one of the
industry's leading direct marketers of audiobooks using a membership club
format. As part of the Acquisition, ABD acquired AUDIOBOOKS DIRECT Club's total
membership file of approximately 500,000 members, as well as certain of
Doubleday's other assets relating exclusively to the AUDIOBOOKS DIRECT Club. The
Registrant and Doubleday also entered into a reciprocal marketing arrangement
pursuant to which the Registrant received the exclusive rights, with respect to
audiobooks, for three years, subject to a one-year extension, at no additional
cost and an additional three years at market rates to insert its new member
acquisition material into the member mailings of Doubleday's consumer book clubs
and Doubleday Select's professional book clubs, as well as distributing its
member solicitation packages via direct mail campaigns to the active and
inactive Doubleday and Doubleday Select book club membership lists. Subject to
certain exceptions set forth in the Mailing Agreement (as defined in the
Purchase Agreement), the Registrant will also be Doubleday's exclusive source
for audiobooks.
At the time of the Acquisition the Registrant and Doubleday announced the
launch on July 15, 1999 of a co-branded website to be coupled with an online
cross-marketing and advertising campaign pursuant to the Online Marketing
Agreement dated March 18, 1999 by and between Doubleday and one of its
subsidiaries and the Registrant.
As consideration for the Acquisition and the related transactions,
including the Mailing Agreement, Non-Compete Agreement and a Transitional
Services Agreement (as defined in the Purchase Agreement), Doubleday received
cash consideration of $18,615,000. The purchase price was determined by
negotiations between representatives of the Registrant and Doubleday.
The cash consideration paid for the Acquisition was obtained by the
Registrant from (i) available cash, (ii) additional financing from Fleet
National Bank ("Fleet") and ING (U.S.) Capital Corporation pursuant to a credit
agreement dated as of December 31, 1998 (the "Credit Agreement") among the
Registrant, the banks, financial institutions and other
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institutional lenders named therein, as Initial Lenders, and Fleet, as Initial
Issuing Bank, Swingline Bank and Administrative Agent, as amended by Amendment
and Supplement No. 1 thereto dated June 14, 1999 and (iii) Norton Herrick, the
Registrant's Co-Chief Executive Officer, pursuant to a $4,350,000 Convertible
Senior Subordinated Promissory Note due December 31, 2004.
The descriptions of the Purchase Agreement described herein are qualified
in their entirety by reference to the terms contained therein a copy of which is
filed as an exhibit to this Report.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
A. Financial Statements of the Business Acquired.
It is impracticable to provide the required financial statements of the
Acquired Business at this time. The required financial statements will be filed
under cover of Form 8-K/A within 60 days of the date this Form 8-K was required
to be filed.
B. Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial information
at this time. The required pro forma financial information will be filed under
cover of Form 8-K/A within 60 days of the date this Form 8-K was required to be
filed.
C. Exhibits.
Exhibit 2.1 - Asset Purchase Agreement, dated as of March 18, 1999 by and
between Doubleday Direct, Inc. and ABD Acquisition Corp.
Exhibit 2.2 - List of Omitted Schedules/Exhibits to the Asset Purchase
Agreement.
Exhibit 2.3 - Amendment No. 1 to the Asset Purchase Agreement by and
between Doubleday Direct Inc. and ABD Acquisition Corp.
Exhibit 2.4 - Amendment No. 2 to the Asset Purchase Agreement by and
between Doubleday Direct Inc. and ABD Acquisition Corp.
Exhibit 10.1 - Amendment and Supplement No. 1 to Credit Agreement dated
June 14, 1999 by and among the Registrant, Fleet National Bank, as
administrative agent and ING (U.S.) Capital Corporation.
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Exhibit 10.2 - $4,350,000 Principal Amount Convertible Senior Subordinated
Promissory Note of the Registrant dated June 11, 1999 issued in favor of Norton
Herrick.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUDIO BOOK CLUB. INC.
By: /s/ Michael Herrick
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Michael Herrick,
Co-Chief Executive Officer
Date: June 29, 1999
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ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of the 18th day of March 1999, by and between Doubleday
Direct, Inc. ("Seller"), a New York corporation, and ABD Acquisition Corp.
("Buyer"), a Delaware corporation.
W I T N E S S E T H :
WHEREAS, Buyer is a wholly-owned subsidiary of Audio Book Club, Inc.
("Audio"); and
WHEREAS, Seller is engaged in the business of direct marketing and
distribution, by mail order and internet, of audiobooks and related products
through "AUDIOBOOKS DIRECT Club" ("ABD"), a membership club (the "Business") and
owns or has rights to use, among other assets, certain data bases, licenses,
inventory, tradenames and goodwill relating thereto, all as more particularly
set forth in this Agreement; and
WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase from
Seller, as a going concern, the Business and all of the assets and rights
relating thereto, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Purchase and Sale Agreement.
1.1 Agreement of Purchase and Sale. Subject to the terms and conditions set
forth in this Agreement and in reliance upon the representations, warranties,
covenants and conditions herein contained, on the Closing Date (as defined in
Section 2.1 hereof) Seller shall sell, convey, assign, transfer and deliver to
Buyer, and Buyer shall purchase from Seller, the Purchased Assets (as defined in
Section 1.2 hereof), free and clear of any and all liens, pledges, security
interests, claims, charges or encumbrances of any nature whatsoever.
1.2 Purchased Assets. As used in this Agreement, the term "Purchased
Assets" means all rights, interest and title to the properties and assets owned
by Seller and otherwise employed, predominantly used or available for use in the
Business, real and personal, tangible and intangible, of every kind and nature,
wherever located, as the same shall exist on the Closing Date, including,
without limitation:
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(i) the Masterfile Database (as defined in Section 4.5 hereof);
(ii) except for any rights with respect to the "Doubleday" trademark
and tradenames, the Intellectual Property Rights (as defined in Section 4.8
hereof), including without limitation the "AUDIOBOOKS DIRECT" name, and all
goodwill associated therewith and with the Business;
(iii) the Inventory (as defined in Section 4.6 hereof);
(iv) all contracts, agreements or commitments, written or oral, set
forth on Schedule 1.2(iv) (the "Assumed Contracts");
(v) to the extent Seller has rights to the creative material, all
brochures, sales literature, advertising materials, art work and copy files
(for all media), promotional and other selling materials used in the
Business, and masters thereof, wherever situated, in hard copy and
electronic format, including, but not limited to, book cover images and
title copy descriptions (all such items being hereinafter collectively
referred to as the "Promotional Materials");
(vi) all papers, documents (including information stored in electronic
forms such as computer disks, CD Rom, computer tape, computer hard drive
and the like), instruments, books and records, files, books of account and
other records by which any of the Purchased Assets might be identified or
rights with respect thereto enforced, or otherwise pertaining to the
Purchased Assets or the Business that are located at the Seller's offices
or other locations used in connection with the Business (including, without
limitation, customer invoices, vendor and supplier lists, drafts and other
documents and materials relating to customer transactions);
(vii) all analytical and testing reports and files, as set forth on
Schedule 1.2(vii), relating to the Business, including, but not limited to,
all media performance (i.e., list performance/history, in house and outside
lists, radio, print, package inserts performance, and telemarketing) in
hard copy and electronic format;
(viii) all back order files and collections files relating to the
Business as set forth on Schedule 1.2(viii);
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(ix) all prepaid items, deposits and advances (including royalty
advances as set forth in Schedule 4.8) relating to the Business;
(x) all income derived, in any manner, from the exploitation of the
Masterfile Database, including without limitation lists rental, package
inserts (PIP) and ridealong (RAL) revenue becoming due after the Closing
Date (collectively "List Revenues"); and
(xi) other assets predominantly used in or available for use in the
Business.
1.3 Additional Purchased Assets. In the event that Buyer shall establish
and notify Seller at any time or from time to time following the Closing Date
that any of the Schedules describing the Purchased Assets failed to include
assets or properties of Seller used by Seller in the Business (other than
Excluded Assets), then: (a) with respect to any such assets or properties used
in the Business, Seller shall, at its own expense, promptly convey, transfer,
assign and deliver to Buyer or other such person as may be designated by Buyer,
and Buyer or such designee shall acquire from Seller, without additional
consideration, all such assets and properties, which shall be deemed for all
purposes to be included in the definition of Purchased Assets hereunder as
provided in Section 1.2 hereof and (b) with respect to any such assets or
properties used primarily, but not exclusively, in the Business, Seller shall
grant to Buyer an irrevocable, royalty-free license or otherwise convey to Buyer
the unlimited right to use any such assets or property, without additional
consideration. Excluded Assets shall mean (a) accounts receivable and other
receivables related to merchandise shipped prior to the Closing Date and list
rentals due prior to the Closing Date, (b) contracts, agreements or commitments
which are not Assumed Contracts, (c) the trademark "Doubleday" and rights
related thereto, (d) Seller's cash and cash equivalents and (e) all properties
and assets owned by Seller but excluded from Purchased Assets under Section 1.2
as not "predominantly used" in the Business, as listed on Schedule 1.3.
1.4 Assumed Liabilities.
(a) Subject to the terms and conditions set forth in this Agreement and in
reliance upon the representations, warranties, covenants and conditions herein
contained, on the Closing Date Buyer shall assume, and shall only assume:
(i) Seller's obligations under the Assumed Contracts, including
without limitation Advertising Commitments (as defined in Section 4.16
hereof);
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(ii) Seller's obligations to fulfill outstanding orders to ABD
customers at the Closing Date;
(iii) subject to the provisions of Section 1.6, Seller's obligations
to process ABD returns;
(iv) the Simon & Schuster Commitment (as defined in Section 3.22
hereof);
(v) Seller's obligation to satisfy the unpaid advances with respect to
commitments negotiated by Seller with publishers for audiobook titles
("Unpaid Publisher Advance Commitments"), as set forth on Schedule
1.4(a)(v) (which Schedule shall identify the amount of each advance, the
scheduled payment date(s) of such advance and the recipient thereof), as
such Schedule shall be updated from time to time pursuant to Section 3.7
hereof;
(vi) subject to the provisions of Section 3.20, Seller's obligations
to make refunds to ABD customers in accordance with Buyer's return policy;
and
(vii) Unfulfilled Purchase Orders (as defined in Section 1.6 below);
in each and every case only to the extent that the foregoing represent
obligations which are by their stated terms to be performed, in the ordinary
course, subsequent to the Closing Date ("Assumed Liabilities"); provided,
however, that the Buyer shall satisfy the Simon & Schuster Commitment regardless
of the date on which it is by its stated terms required to be performed.
(b) Anything herein contained to the contrary notwithstanding, the
following liabilities of Seller are specifically excluded from the Assumed
Liabilities and shall constitute "Retained Liabilities":
(i) any and all income, franchise, sales, use, property, payroll,
employment, transfer and any other taxes, charges, fees, levies, imports,
duties, licenses or other assessments, together with interest, penalties
and any other additions to tax or additional amount imposed by any
governmental or taxing authority, or liability for such amounts as a result
of Seller being a member of an affiliated, consolidated, combined or
unitary group or being a party to any agreement or arrangement whereby
Seller may be liable for taxes or any other person for any period prior to
(or up to and including) the close of business on the day prior to the
Closing Date;
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(ii) any and all employment or consulting arrangements, executive
compensation plans, collective bargaining agreements, bonus plans,
guaranteed bonus agreements, deferred compensation agreements, employee
pension plans or retirement plans, employee profit sharing plans, employee
stock purchase and stock option plans, group life insurance,
hospitalization insurance or other plans or arrangements providing for
benefits to employees of Seller;
(iii) any liabilities and obligations of Seller, the existence of
which constitutes a breach of any of the representations, warranties or
covenants made by Seller in this Agreement or in any document delivered by
it pursuant hereto;
(iv) any liabilities and obligations arising out of or in connection
with any litigation, investigation or proceeding to which Seller is a
party, or which are based upon events occurring or circumstances existing
prior to the Closing Date;
(v) any liabilities and obligations of Seller for any breach or
violation, prior to the Closing Date, of any of the Assumed Contracts;
(vi) except for the Simon & Schuster Commitment (which shall be
Buyer's obligation), any liabilities and obligations with respect to Unpaid
Publisher Advance Commitments becoming due and payable prior to the Closing
Date;
(vii) any liabilities and obligations with respect to the Advertising
Commitments becoming due and payable prior to the Closing Date (except for
Buyer's obligations to partially reimburse Seller in respect of the
March/April 1999 Mailing (as defined in Section 3.23 hereof)); and
(viii) any other liability or obligation which is not an Assumed
Liability.
(c) For purposes of clarification, notwithstanding the assignment of any
contract or other rights included in the Purchased Assets, except as otherwise
provided herein, Seller has not assigned and Buyer has not assumed and Seller
retains its rights and its obligations, including all rights and remedies of
enforcement, with respect to receivables or other amounts owed or obligations to
or from Seller on sales of ABD merchandise or other transactions prior to the
Closing Date.
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1.5 Purchase Price. Subject to any adjustment pursuant to Section 1.6
hereof, the purchase price for the Purchased Assets shall be $21 million payable
in cash (the "Purchase Price") at the Closing. As a further inducement to Buyer
to enter into this Agreement, the Seller has agreed to enter into the
Non-Compete Agreement, Mailing Agreement and the Transitional Services Agreement
(as such terms are defined in Article 3). The Purchase Price shall be allocated
as set forth on Schedule 1.5 hereto (Buyer and Seller each hereby agreeing to
report the transaction for tax purposes on a basis consistent therewith). Any
adjustment to the Purchase Price shall be allocated to the various categories of
Purchased Assets by adjusting them accordingly.
1.6 Purchase Price Adjustments. The Buyer and the Seller shall in good
faith calculate any adjustments to the Purchase Price in accordance herewith.
(a) In the event the Closing Inventory Price (as defined herein) is
determined to be less than $2,400,000, then the Purchase Price shall be
reduced by the difference between the Closing Inventory Price and
$2,400,000. In the event the Closing Inventory Price is determined to be
greater than $2,400,000, then the Purchase Price shall be increased by the
difference between the Closing Inventory Price and $2,400,000; provided
that, notwithstanding the foregoing, in no event shall the Purchase Price
be increased pursuant hereto in excess of $500,000. For purposes hereof,
"Closing Inventory Price" shall mean the aggregate dollar value of the
Inventory transferred hereunder as calculated by multiplying (1) the Cost
of Merchandise (as defined herein) for a particular item by (2) the
Inventory Count (as defined herein) in respect of such item, each to be
determined as follows:
(i) The "Cost of Merchandise" shall mean the Seller's cost, based
solely on expenditures to third parties per item of Inventory, as set
forth on Schedule 1.6(a) ("Cost of Merchandise Schedule"); provided,
however, that for purposes hereof, costs relating to any purchase
orders for which Seller has not received the underlying merchandise as
of the Closing Date (the "Unfulfilled Purchase Orders") shall be
excluded from such schedule. The Cost of Merchandise Schedule shall be
delivered by Seller to Buyer no later than 20 days prior to the
scheduled Closing Date. Upon the delivery of the Cost of Merchandise
Schedule to Buyer, the Buyer shall have ten (10) business days in
which to review the calculations contained therein and to propose such
adjustments (if any) as shall in its judgment be appropriate to
properly reflect applicable costs. In connection with such review the
Buyer
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and Buyer's accountants, if requested by Buyer, will have reasonable
access to all requisite accounting and other records of Seller and
may, at its expense, employ such tests and auditing procedures as the
Buyer deems to be appropriate under the circumstances. If the parties'
representatives cannot agree within three (3) business days of Buyer's
response that the Cost of Merchandise Schedule correctly reflects the
cost of the items of Inventory, the cost calculations in question
shall be submitted to a mutually acceptable third-party for review and
resolution, with the fees and expenses thereof to be shared equally by
the parties; and any determination by such third-party shall be final
and binding upon the parties hereto.
(ii) The Inventory Count shall be a physical count of the
Inventory conducted by representatives of the Buyer and Seller, to be
supervised or observed, if requested, by either Buyer or Seller (and
at the requesting party's sole expense), by Buyer's accountants, as
brought forward and adjusted through the close of business on the day
before the Closing (the "Inventory Date") to reflect all interim sales
and acquisitions by the Seller. The parties will commence taking the
Inventory Count no later than seven (7) days prior to the scheduled
Closing Date and will use their best efforts to complete said count no
later than 48 hours prior to Closing. In any event, the actual
Inventory Count shall be completed prior to the Closing. During the
taking of the Inventory Count, the parties shall exclude any damaged
or defective merchandise as well as any inventory acquired by Seller
prior to Closing without the prior written consent of Buyer as
provided in Section 3.6(vii) hereof ("Excluded Inventory"), and such
damaged and defective merchandise and the Excluded Inventory shall not
be included in the Inventory Count for purposes of calculating the
Closing Inventory Price. During the period after the commencement of
the Inventory Count and ending on the Closing Date, the parties'
representatives shall endeavor to agree upon which merchandise is
damaged, defective or Excluded Inventory, if such representatives
cannot agree on whether particular merchandise is damaged, defective
or Excluded Inventory, the merchandise in question shall be submitted
to a mutually acceptable third-party for review and resolution, with
the fees and expenses thereof to be shared equally by the parties; and
any determination by such third-party shall be final and binding upon
the parties hereto.
(b) (i) In the event that the number of Active Members (as defined
herein) is less than 152,000 as of the Closing (the "Active Member
Threshold Amount"), then the Purchase
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Price shall be reduced by the product of (1) the difference between the
actual number of Active Members, as set forth on Schedule 1.6(b)(i), and
the Active Member Threshold Amount multiplied by (2) $50. For purposes
hereof, an "Active Member" shall mean (A) all members enrolled in ABD that
have been mailed the Seller's ABD regular member catalog mailings during
the most recently completed regular promotion period who do not have a past
due balance greater than 26 weeks and (B) all new members that were
enrolled and were shipped an enrollment package during the specified
promotion period who do not have a past due balance greater than 14 weeks,
as set forth on Schedule 1.6(b)(i).
(ii) In the event that the number of Inactive Members (as defined
herein) is less than 268,850 as of the Closing (the "Inactive Member
Threshold Amount"), then the Purchase Price shall be reduced by the product
of (1) the difference between the actual number of Inactive Members, as set
forth on Schedule 1.6(b)(ii), and the Inactive Member Threshold Amount
multiplied by (2) $25. For purposes hereof, "Inactive Member" shall mean
all members enrolled in ABD at one time or another, but who are not deemed
"Active Members" as of the date hereof, as set forth on Schedule
1.6(b)(ii).
(iii) The Buyer shall have ten (10) business days in which to review
the membership lists contained on Schedules 1.6(b)(i) and (ii) and to
propose such adjustments (if any) as shall in its judgment be required to
properly reflect actual membership. In connection with such review, the
Buyer and Buyer's accountants, if requested by Buyer, will have reasonable
access to all requisite accounting and other records of Seller and may, at
its expense, employ such tests and auditing procedures as the Buyer deems
to be appropriate under the circumstances. If the parties' representatives
cannot agree within three (3) business days of Buyer's responses that the
membership lists correctly reflect the number of Active and Inactive
Members, the lists shall be submitted to a mutually acceptable third-party
for review and resolution, with the fees and expenses thereof to be shared
equally by the parties; and any determination by such third-party shall be
final and binding upon the parties hereto.
2. Closing.
2.1 Closing Date. The closing of the sale and purchase provided for herein
(the "Closing") shall take place at 10 A.M., New York time, at the offices of
Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174, within
five (5) business days after the Buyer consummates a debt funding (the
"Financing"), resulting in net proceeds of not less than $70,000,000 to Audio to
be used first to repay $49,000,000 of indebtedness and other obligations under
existing loans or credit
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facilities of Audio, and then to the payment of the Purchase Price (such time
and date of Closing being hereinafter called the "Closing Date").
Notwithstanding anything to the contrary contained herein, if the Financing has
not been consummated by May 31, 1999, then either party may terminate this
Agreement without liability other than as may be set forth in Section 10.1
hereof, unless the parties shall otherwise mutually agree to extend this
Agreement.
2.2 Action by Buyer. Subject to the terms and conditions herein contained,
on the Closing Date Buyer shall deliver to Seller (in addition to the documents
and instruments to be delivered by it pursuant to Article 3 and Section 8.2
hereof), on account of the Purchase Price for the Purchased Assets, $21 million
(subject to adjustment as set forth in Section 1.6 above) by wire transfer of
immediately available funds. Seller shall designate the account and provide
Buyer with wiring instructions no later than two (2) business days prior to the
Closing Date. Buyer shall also enter into the Non-Compete Agreement, the Mailing
Agreement and the Transitional Services Agreement, together with the other
agreements contemplated hereby, at the Closing.
2.3 Action by Seller. Subject to the terms and conditions herein contained,
on the Closing Date Seller shall deliver to Buyer (in addition to the documents
and instruments to be delivered by it pursuant to Article 3 and Section 8.1
hereof) the following:
(a) a duly executed Bill of Sale and Assignment in substantially the form
of Exhibit 1 attached hereto and made a part hereof; and
(b) assignments with respect to the Intellectual Property Rights (in forms
suitable for recording in the United States Patent and Trademark Office and in
the comparable offices of all relevant foreign jurisdiction) other instruments
of transfer, including without limitation any assignments with respect to all
Assumed Contracts (including License Agreements);
(c) all third party consents and governmental and administrative approvals,
as shall be, in the opinion of Buyer, reasonably necessary or appropriate in
order to convey, transfer and assign to and vest in Buyer good and marketable
right, title and interest in and to the Purchased Assets, free and clear of all
liens, pledges, security interests, claims, charges and encumbrances of any
nature whatsoever;
(d) an updated schedule containing a true and complete list of all Unearned
Publisher Advance Commitments as of the Closing Date, in form consistent with
Schedule 1.4(a)(v);
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(e) an updated schedule containing a true and complete list of the amount
and scheduled payment date of all the unrecouped prepaid advances to audiobook
publishers for audiobook titles as of the Closing Date, in form consistent with
Schedule 4.8;
(f) an updated schedule containing a true and complete list of all back
order files and collections files relating to the Business as of the Closing
Date, in form consistent with Schedule 1.2(viii);
(g) an updated schedule containing a true and complete list of the
Advertising Commitments as of the Closing Date, in a form consistent with
Schedule 4.16;
(h) an updated schedule containing a true and complete list of the
Inventory as of the Closing Date, in a form consistent with Schedule 4.6A; and
(i) Seller shall also enter into the Non- Compete Agreement, the Mailing
Agreement and the Transitional Services Agreement, together with the other
agreements contemplated hereby, at the Closing.
3. Additional Covenants.
3.1 Further Assurances/Cooperation.
(a) Each party hereto shall from time to time after the Closing Date, at
such party's sole cost and expense, take any and all actions and execute,
acknowledge, deliver, file and/or record any and all documents and instruments,
as the other party may reasonably request in order to more fully perfect the
rights and obligations which are intended to be transferred hereunder.
(b) Each of the parties hereto hereby agrees to fully cooperate with the
other parties hereto in preparing and filing any notices, applications, reports
and other instruments and documents which are required by, or which are
commercially reasonable in the opinion of any of the parties hereto in respect
of, any statute, rule, regulation or order of any governmental or administrative
body in connection with the transactions contemplated hereby.
3.2 Investigation.
(a) Between the date hereof and the Closing Date Buyer may, directly and
through its representatives, make such investigation of Seller related to the
Business and the Purchased Assets as Buyer deems necessary or advisable, but
such investigation shall not affect any of the representations and warranties of
Seller contained herein or in any instrument or
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document delivered pursuant hereto. In furtherance of the foregoing, Buyer and
Buyer's representatives shall have, upon prior reasonable notice to Seller and
during Seller's normal business hours after the date hereof, full access to the
premises and to the books and records of Seller to the extent applicable to the
Business, and the officers of Seller shall furnish, and cause KPMG Peat Marwick
LLP ("KPMG") to furnish, to Buyer and its representatives such financial and
operating data and other information with respect to the Business and the
Purchased Assets and permit Buyer to perform financial analyses and procedures
thereon, all as Buyer may from time to time reasonably request. The information
obtained by Buyer during such investigation shall be subject to the
Confidentiality Agreement (as defined in Section 7.1).
(b) Buyer and Seller acknowledge that anything in this Agreement contained
to the contrary notwithstanding, Seller has not yet delivered any of the
Schedules referred to in Articles 1, 3 and 4 of this Agreement. Seller shall
deliver such Schedules to Buyer as soon as practicable hereafter, but in no
event later than March 30, 1999. Buyer shall have twenty (20) business days
after delivery of such Schedules to review and approve them. Buyer may, in its
sole discretion, reject any of such Schedules within such twenty day period and
terminate this Agreement. If Buyer has not rejected such Schedules within such
period, then the Schedule(s) shall be deemed to have been accepted by the Buyer
as the Schedule(s) referred to in such Articles.
3.3 Consummation of Transaction. Each party shall use its best efforts to
cause all conditions precedent to its obligations and to the obligations of the
other party hereto to consummate the transactions contemplated hereby to be
satisfied, including, but not limited to, using its best efforts to obtain all
required consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the obligations imposed upon any of
the parties hereto under this Agreement or any agreement executed and delivered
pursuant hereto.
3.4 Accuracy of Representations. Each party hereto agrees that prior to the
Closing Date it will enter into no transaction and take no action, and will use
its best efforts to prevent the occurrence of any event, which would result in
any of its representations, warranties or covenants contained in this Agreement
or in any agreement, document or instrument delivered pursuant hereto not to be
true and correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
3.5 Non-Assignable Contracts. Anything in this Agreement contained to the
contrary notwithstanding, nothing in
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this Agreement shall be construed as an attempt to assign (a) any contract or
agreement that is at law non-assignable without the consent of the other party
thereto and as to which such consent shall not have been given, or (b) any
contract or agreement as to which all the remedies for the enforcement thereof
and the rights thereunder enjoyed by Seller would not, as a matter of law, pass
to Buyer as an incident of the assignments provided for by this Agreement.
Attached hereto as Schedule 3.5 is a list of all such non-assignable contracts.
In order, however, that the full value of every contract and agreement of the
character described in clauses (a) and (b) of the immediately preceding sentence
and all claims and demands relating to such contracts and agreements may be
realized, Seller hereby agrees with Buyer that it will, at its sole cost and
expense, at the reasonable request and under the direction of Buyer, in the name
of Seller or otherwise, as Buyer shall specify and as shall be permitted by law,
take all such action and do or cause to be done all such things as shall be, in
the opinion of Buyer, necessary or desirable (1) in order that the rights and
benefits of Seller under such contracts and agreements shall be preserved and
(2) for, and to facilitate, the collection of the monies due and payable, and to
become due and payable, to Seller in and under every such contract and
agreement, and Seller will hold the same for the benefit of and will pay the
same, when received, to Buyer.
3.6 Conduct of Business. The Seller shall conduct the Business during the
period from the date hereof to the Closing Date, and during the transition
period contemplated by the Transitional Services Agreement, only in the ordinary
course of business and in a manner consistent with existing policies and
practices, and in compliance with applicable laws, except pursuant to the terms
hereof or unless Buyer shall otherwise agree in writing; and Seller shall use
its best efforts to preserve intact the Business, to maintain and preserve the
Purchased Assets, to continue new member recruitment and enrollment activities
at levels consistent with past practices to maintain/increase its membership
base, to keep available the services of key management personnel of the Business
and to preserve the present goodwill of Seller and its relationships with
customers, suppliers and other persons with whom it has Business relations. By
way of illustration and not limitation, Seller shall not, between the date
hereof and the Closing Date, directly or indirectly do, or propose or commit to
do, any of the following without the prior written consent of Buyer:
(i) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of the Purchased Assets, except the
sale of the Inventory in the ordinary course of business (and any
associated reduction in unearned royalties); provided, however, that Seller
shall not make any wholesale, remainder or other bulk sale of any portion
of the Inventory to a third-party purchaser, and shall not factor, sell,
encumber
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or otherwise dispose of any accounts receivable relating to list rentals or
offer on a widespread basis discounts or similar incentives to accelerate
the collection of accounts receivable relating to list rentals;
(ii) sell, assign or transfer any patents, trademarks, trade names,
copyrights, licenses or other intangible assets related to the Business or
the Purchased Assets;
(iii) cause Seller to suffer any event or condition of any character
materially and adversely affecting the Business or the Purchased Assets;
(iv) alter the Masterfile Database or price lists relating to the
Business, other than in the ordinary course of business; provided, however,
that Seller may be permitted to increase prices with respect to audiobook
titles in a commercially reasonable manner and if market conditions permit;
(v) waive or accelerate any rights of value or enter into any
transactions with respect to the Business not in the ordinary course of
business;
(vi) enter into, renegotiate or modify any license agreements with
publishers for audiobook titles, which agreements provide for payment in
excess of $20,000, individually;
(vii) purchase, or enter into an agreement to purchase, inventory
having a Cost of Merchandise in excess of $10,000 and not subject to or
otherwise covered by any License Agreement; provided, however, that in the
event that Buyer does not respond within 24 hours after Seller's notice
requesting approval in respect of any such purchase or agreement, then
Buyer shall be deemed to have consented to such purchase or agreement;
(viii) authorize or permit its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative to sell, agree to sell or enter into any arrangements or
negotiations or authorize any third party to enter into negotiations or
solicit offers of any type or provide information, cooperate in any way or
assist, facilitate or encourage discussions, relating to the sale, transfer
or other disposition of the Business (including any merger or consolidation
involving the Seller or any other similar transaction);
(ix) fail to maintain the books of account and records exclusively
relating to the Purchased Assets in
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the usual, regular and ordinary manner, on a basis consistent with past
practice, or fail to comply with all material laws applicable to the
conduct of the Business with respect to the Purchased Assets and perform
its obligations relating to the Business with respect to the Purchased
Assets without default;
(x) make or institute any material changes to the Advertising
Commitments (for purposes hereof, a "material" change shall be any change
in the Advertising Commitments having an economic value in excess of
$20,000); or
(xi) authorize any of, or commit or agree to take, any of the
foregoing actions.
3.7 Schedule Updates. Every two (2) weeks from the date hereof until the
Closing, the Seller will notify the Buyer by written update to Schedules
1.2(vii) (analytical and testing reports and files), 1.4(a)(v) (Unpaid Publisher
Advance Commitments), 4.6A (Inventory), 4.8 (License Agreements) and 4.16
(Advertising Commitments) of any matter occurring after the date hereof which,
if existing or occurring on the date hereof would have been required to be set
forth on such Schedules or which would render inaccurate any of the statements
contained in such Schedules (each a "Supplement"). Upon Buyer's receipt of such
Supplement, such representations and warranties will be deemed to be
automatically updated as set forth therein; provided, however, that no
Supplement provided pursuant to this Section shall be deemed to cure any breach
of any representation, warranty or covenant in this Agreement existing as of the
date hereof.
3.8 Payment of Taxes Upon Transfer of Purchased Assets. Seller shall
responsible for, and shall pay, any and all sales, use, purchase, transfer and
similar taxes and any and all filing, recording, registration and similar fees,
arising out of the transactions contemplated by this Agreement.
3.9 Discharge of Liens. Buyer shall cause all liens, pledges, security
interests, claims, charges and encumbrances upon any of the Purchased Assets, to
be terminated or otherwise discharged at or prior to the Closing.
3.10 Retained Liabilities. Subsequent to the Closing Date, Seller shall
pay, discharge and perform the Retained Liabilities. All such Retained
Liabilities in excess of $5,000 shall be performed in due course, except for any
Retained Liabilities which are the subject of a good faith dispute, in which
event Seller shall provide Buyer written notice within five (5) days of the
initiation of such dispute.
3.11 Books and Records. Seller shall, for a period of at least seven years
following the Closing Date,
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maintain and make available to Buyer and its representatives for inspection and
reproduction, during regular business hours, all books and records relating to
the Purchased Assets, the Business or the Assumed Liabilities which are not
included among the Purchased Assets. Buyer shall, for a period of at least seven
years following the Closing Date, maintain and make available to Seller and its
representatives for inspection and reproduction, during regular business hours,
all books and records relating to the Purchased Assets, the Business or the
Assumed Liabilities which are included among the Purchased Assets, but only
insofar as said books and records relate to periods ending on or prior to the
Closing Date.
3.12 Preparation of Financial Information.
(a) Seller shall cause KPMG, the independent accountants of Seller, to
prepare audited financial statements for the Business for the years ended June
30, 1998 and June 30, 1997 and unaudited interim financial statements with
respect to the Business for the six months and twelve months ended December 31,
1997 and December 31, 1998 and for the three months ending March 31, 1999 and
March 31, 1998, (collectively, the "Financial Statements"), and to provide all
necessary assistance with respect thereto, it being understood and agreed by
Seller that such assistance shall include, without limitation, (i) providing the
independent accountants of Seller, Buyer and Buyer's representatives with all
necessary financial information and data relating to the Business for such
periods, (ii) making available to the independent accountants of Seller and to
Buyer all employees of Seller deemed necessary by Buyer to assist in the
preparation of such financial statements, and (iii) if requested by the
independent accountants of Seller, delivering a management representation
letter.
(b) The fees and expenses of KPMG in preparing Financial Statements for the
Business as provided in this Section in an amount estimated by Seller's
independent accountants to be $110,000 to $140,000 shall be borne equally by
Buyer and Seller. Additional expenses estimated to be in the amount of $25,000
for a review of the quarters ended March 31, 1999 and March 31, 1998 shall be
borne equally by Buyer and Seller.
(c) Additional accounting fees charged by Seller's independent accountants
for "Comfort Letters" or other costs associated with any financing by Buyer
shall be borne by Buyer.
3.13 Mailing Agreement. At the Closing, Buyer and Seller shall enter into a
strategic partnership and cross marketing relationship for internet advertising
and marketing, in the form attached hereto as Exhibit 2 (the "Mailing
Agreement").
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3.14 Transitional Services Agreement.
(a) At the Closing, Buyer shall enter into a transitional services
agreement, in the form attached hereto as Exhibit 3 (the "Transitional Services
Agreement").
(b) Except as may otherwise be agreed to by the parties hereto, Seller
shall as soon as practicable after the expiration of the Transitional Services
Agreement (the "Services Termination Date") delete or destroy all copies of the
Masterfile Database in Seller's possession or control; provided, however, that
Seller shall, for a period of 120 days following the Services Termination Date,
retain limited use of the relevant portion of the Masterfile Database pertaining
only to member accounts having past due account balances still outstanding at
the Closing Date for the sole purpose of collecting such receivables. Every
thirty (30) days thereafter, Seller shall purge such member account information
for such accounts as have been paid. Buyer shall also make available to the
Seller that member account information for which Seller becomes legally
compelled to produce with respect to claims arising out of events occurring
prior to the Closing Date.
3.15 Notice to Club Members. At the Closing, Seller shall issue a notice in
a form reasonably approved by both parties, to all Active and Inactive Members
advising them of the purchase by Buyer.
3.16 Hart-Scott-Rodino Act. Each of the parties shall promptly file, or
shall cause its "ultimate parent entity", as defined in the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), to file, and
shall assist the other party in filing, any Notification and Report forms and
related material that it may be required to file under the Act; will use its
best efforts to obtain an early termination of the applicable waiting period;
and will make any further filings pursuant thereto that may be necessary, proper
or advisable in connection therewith. Buyer and Seller will be equally
responsible for payment of any applicable filing fees.
3.17 Employees. Buyer shall have no obligation to employ any employees or
Seller.
3.18 Waiver of Compliance with Bulk Transfer Laws. Subject to the
provisions of Section 6.1, with respect to the transactions contemplated by this
Agreement, Buyer hereby waives compliance with any applicable provisions of the
bulk transfer laws (Article 6 of the Uniform Commercial Code).
3.19 Non-Compete Agreement. At the Closing, the Seller shall enter into a
non-compete agreement, in the form attached hereto as Exhibit 4 (the
"Non-Compete Agreement").
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3.20 Reimbursement of Buyer. Seller shall within ten (10) days of written
itemized request reimburse Buyer for any refunds, credits, returns,
replacements, repairs and warranty costs and expenses with respect to sales of
merchandise by Seller through ABD prior to the Closing, provided such costs and
expenses are made or incurred by Buyer within the six (6) month period after the
Closing Date; further provided, however, that the Seller shall not be obligated
to Buyer for any refunds, credits, returns, replacements, repairs or warranty
costs and expenses with respect to merchandise for which payment has not been
made to Seller, in which event Seller shall assign to Buyer, and Buyer shall be
entitled to collect for its own account, the applicable accounts receivable.
3.21 Notice of Certain Matters. Each of the parties hereto shall give
written notice to the other party, promptly upon becoming aware of (i) the
occurrence of a material adverse change in the condition of the Purchased Assets
or the Business, (ii) any occurrence, or failure to occur, of any event, which
occurrence or failure to occur has caused or could reasonably be expected to
cause any representation or warranty in this Agreement to be untrue or
inaccurate in any material respect at any time after the date hereof and prior
to the Closing Date or (iii) any material failure on the part of either party to
comply with of satisfy any covenant, condition or agreement to be complied with
or satisfied by such party hereunder; provided that the delivery of any notice
pursuant to this Section 3.21 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
3.22 Payment of Simon & Schuster Commitment. When and if the Closing shall
occur, Buyer shall be responsible for payment (and shall pay when due on or
about May 1, 1999) the unpaid advance commitment to Simon & Schuster in the
aggregate amount of $500,000 (the "Simon & Schuster Commitment").
3.23 March/April Mailing. When and if the Closing shall occur, Buyer shall
reimburse Seller an aggregate amount of $200,000 toward the costs and expenses
incurred by Seller in connection with the production of the ABD direct mail
campaign of not less than 2.6 million pieces scheduled for mailing in
March/April 1999 (the "March/April 1999 Mailing").
4. Representations and Warranties as to Seller. Seller hereby, represents
and warrants to Buyer as follows:
4.1 Organization, Standing and Power. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, with full corporate power and authority to own, lease and operate its
properties and to carry on the Business as presently conducted by it. Except for
the states of Pennsylvania, Indiana and Virginia, there are no states or
jurisdictions in which the character and
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location of any of the properties owned or leased by Seller, or the conduct of
its business, makes it necessary for it to qualify to do business as a foreign
corporation.
4.2 Interests in Other Entities. Seller does not (i) own, directly or
indirectly, of record or beneficially, any shares of voting stock or other
equity securities of any other corporation engaged in the same or similar
business to the Business; (ii) have any ownership interest, direct or indirect,
of record or beneficially, in any unincorporated entity engaged in the same or
similar business to the Business; or (iii) have any obligation, direct or
indirect, present or contingent, (A) to purchase or subscribe for any interest
in, advance or loan monies to, or in any way make investments in, any other
person or entity engaged in the same or similar business to the Business, or (B)
to share any profits or capital investments or both from a entity engaged in the
same or similar business to the Business.
4.3 Authority. The execution and delivery by Seller of this Agreement and
of all of the agreements to be executed and delivered by it pursuant hereto, the
performance by it of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the part of Seller
(including, but not limited to, the unanimous consent of Bertelsmann AG Book
Board of Directors and Seller has all necessary power with respect thereto. This
Agreement is, and when executed and delivered by Seller each of the other
agreements to be delivered by it pursuant hereto will be, the valid and binding
obligation of Seller, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief, and other equitable
remedies.
4.4 Noncontravention. Neither the execution and delivery by Seller of this
Agreement or of any agreement to be executed and delivered by any or all of them
pursuant hereto, nor the consummation of any of the transactions contemplated
hereby or thereby, nor the performance it of its obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (A) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-laws of Seller or (B) give rise to a default,
or any right of termination, cancellation or acceleration, or otherwise be in
conflict with or result in a loss of contractual benefits to Seller, under any
of the material terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which it is a
party or by which Seller or any of the Purchased Assets may be bound, or require
any consent, approval or notice under the terms of any such document or
instrument, or (C) violate any order, writ,
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injunction, decree, law, statute, rule or regulation of any court or
governmental authority which is applicable to, and which violation has a
material adverse affect on, Seller or any of the Purchased Assets, or (D) result
in the creation or imposition of any lien, claim, restriction, charge or
encumbrance upon any of the Purchased Assets, or (E) interfere with or otherwise
materially adversely affect the ability of Buyer to carry on the Business after
the Closing Date on substantially the same basis as is now conducted by Seller.
4.5 Properties. Except for the Excluded Assets, the Purchased Assets
comprise all of the properties and assets which are necessary in order for Buyer
to carry on the Business after the Closing Date on substantially the same basis
as is now conducted by Seller. Seller has good and valid title to all of the
Purchased Assets, free and clear of all liens, pledges, security interests,
claims, charges or encumbrances of any nature whatsoever. Schedule 4.5 is a
complete list of all property owned by Seller or leased by or to Seller, or
which is otherwise used or available for use in connection with the Business.
The Seller's ABD masterfile database includes, without limitation, all active
and inactive customer (member) data, sales/returns transaction history, payment
history, promotional marketing data and history, and collections history (such
data being hereinafter collectively referred to as the "Masterfile Database").
The Masterfile Database is able to be copied to a magnetic tape form in readable
format or other format requested by Buyer. The Masterfile Database contains the
name, address, marketing and transaction history for each Active and Inactive
Member. The Masterfile Database contains no less than 160,000 Active Members and
no less than 283,000 Inactive Members. The Business has no other Active Members
or Inactive Members (since inception) other than as disclosed on Schedules
1.6(b)(i) and (ii). Seller has not sold or granted any other party rights or
access to the Masterfile Database except as set forth in Schedule 4.5. Schedule
4.5 is a complete list of all rentals of the Masterfile Database in the five (5)
years preceding the date hereof, including the names of the renter (and if an
agency, the client of the agency, if known), the amount received or to be
received from such rental and, to the extent unpaid as of the date hereof, the
due date for payment thereof. Attached as Schedule 4.5 is a list of all
audiobook titles distributed by ABD in the last six (6) months (the "Current
Titles").
4.6 Inventory. The inventory of the Seller consists of all audiobooks and
premium merchandise (e.g., audio cassette players and audio-video merchandise),
wherever located, related to the Business as set forth on Schedule 4.6A hereto
(all such items being hereinafter collectively referred to as the "Inventory"),
other than those audiobooks set forth on Schedule 4.6B and not offered through
the Business, all of which Inventory is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is damaged or
defective. The
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Inventory consists of no less than 675,000 units of audiobook products and no
less than 55,000 units of premium merchandise, with a Cost of Merchandise of no
less than $2.4 million.
4.7 Book Clubs. Schedule 4.7 is a complete list of each of the book clubs
operated by Seller and its subsidiaries for which Seller or such subsidiaries
offers such club's membership lists or database for rental, including without
limitation CROSSINGS, CROSSINGS FOR KIDS, DOUBLEDAY BOOK CLUB, DOUBLEDAY LARGE
PRINT HOME LIBRARY, LITERARY GUILD, MILITARY BOOK CLUB, MYSTERY GUILD, SCIENCE
FICTION BOOK CLUB, STAGE & SCREEN and Continuity Programs operated by LITERARY
EXPRESS, INC., and any new book clubs formed or acquired by Seller and/or its
subsidiaries after the date hereof.
4.8 Intellectual Property.
(a) Schedule 4.8 is a complete and correct list of all (i) United States
and foreign patents, trademark and trade name registrations, trademarks and
trade names, brandmarks and brand name registrations, servicemarks and
servicemark registrations, assumed names and copyrights and copyright
registrations, owned in whole or in part and used by Seller with respect to the
Business, and all applications therefor, including without limitation the
"AUDIOBOOKS DIRECT" name, (ii) inventions, discoveries, improvements, processes,
formulae, proprietary rights and trade secrets relating to the Business
(including customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (iii) domain name, fictitious and
d.b.a. name, proprietary "800" and "888" prefix phone numbers, Internet URL's
and other identifier and proprietary rights owned or used by Seller in
connection with the Business (and with respect to such "800" and "888" prefix
phone numbers, Seller will use commercially reasonable efforts to obtain from
its long distance carrier consent to the assignment and transfer of all such
phone numbers and related rights), and (iv) licenses, sublicenses and similar
agreements (including pending) between Seller or ABD and the respective
copyright owners of all labels currently distributed by the Business (the
"License Agreements") (all such items listed in (i) through (iv) above being
hereinafter referred to as "Intellectual Property Rights"). Schedule 4.8 also
identifies, with respect to the License Agreements, the copyright owners, the
advance and the amount and scheduled payment date of the advance, if any, which
has not been recouped (including without limitation the Simon & Schuster
Commitment). Except as set forth on Schedule 4.8, the License Agreements permit
distribution of audiobooks to club members located in the United States and
Canada and are the Business's standard form of License Agreement, a copy of
which is annexed to Schedule 4.8. Except for finished goods purchased directly
from publisher's inventory, all Current Titles are subject to effective License
Agreements.
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(b) Except as expressly set forth in said Schedule 4.8, (i) Seller owns or
has the right to use all of the Intellectual Property Rights; (ii) no
proceedings are pending or, to the best of the knowledge of Seller are
threatened, which challenge the rights of Seller in respect thereto or the
validity thereof and, to the best knowledge of Seller, there is no valid basis
for any such proceedings; (iii) none of the aforesaid violates any laws,
statutes, ordinances or regulations, or has at any time infringed upon or
violated any rights of others, or is being infringed by others; and (iv) none of
the aforesaid is subject to any outstanding order, decree, judgment, stipulation
or charge.
4.9 Absence of Changes. Since December 31, 1998, there has not been (a) any
material adverse change in the condition (financial or otherwise), assets,
liabilities, business, prospects, or results of operations of the Business
(including, without limitation, any such material adverse change resulting from
damage, destruction or other casualty, loss, whether or not covered by
insurance), (b) any waiver by Seller of any material right, or cancellation of
any debt or claim, related to the Business, or (c) any change in the accounting
principles or methods which are utilized by Seller.
4.10 Litigation. Except as set forth in Schedule 4.10 there are no claims,
suits, actions, arbitrations, investigations, inquiries or other proceedings
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending or, to the best of the
knowledge of Seller, threatened, against or relating to Seller, the Business or
any of the Purchased Assets; nor, is there any basis for any such claim, suit,
action, arbitration, investigation, inquiry or other proceeding. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect which
relate to Seller, the Business or any of the Purchased Assets, the effect of
which is (a) to limit, restrict, regulate, enjoin or prohibit any business
practice in any area, or the acquisition of any properties, assets or
businesses, or (b) otherwise materially adverse to the Business or any of the
Purchased Assets.
4.11 No Violation of Law. Seller is not engaging in any activity or
omitting to take any action as a result of which (a) it is in violation of any
law, rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to Seller, the Business or any of the Purchased
Assets in any material respect, including, but not limited to, those relating to
truth-in-advertising, occupational safety and health; environmental and
ecological protection; business practices and operations; labor practices; and
employee benefits, and (b) Seller, the Business and/or any of the
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Purchased Assets have been or may be materially and adversely affected.
4.12 Government and Third-Party Consents /Approvals. Except for the
clearance required under the HSR Act, no approval, authorization, consent or
order or action of, or filing with, any third party or court, administrative
agency or governmental authority (a) is required for the execution and delivery
by Seller of this Agreement and of all of the agreements to be executed and
delivered by Seller pursuant hereto, or the consummation by Seller of the
transactions contemplated hereby or thereby or (b) is necessary in order that
the Business may be conducted immediately following the Closing Date
substantially in the same manner as heretofore conducted.
4.13 Products Liability. Schedule 4.13 lists all product liability claims
made or to the knowledge of Seller threatened in Seller's last three (3) fiscal
years with respect to the Business.
4.14 Material and Other Contracts.
(a) Schedule 4.14(a) lists all pending or executory contracts, agreements
or commitments relating to the Business, including, without limitation, license
agreements, product supplier agreements, distribution agreements, marketing
agreements (including, without limitation, agreements relating to rights to list
rentals, audio file, package inserts and ride alongs), non-competition
agreements, confidentiality agreements and vendor agreements, and other
agreements relating to the Intellectual Property Rights (all such items being
hereinafter collectively referred to as the "Material Agreements"). True and
complete copies of all such documents and complete descriptions of all oral
contracts (if any) referred to in Schedule 4.14(a) have been provided or made
available to Buyer and its counsel. Each of the Assumed Contracts is (i) in full
force and effect, no person or entity which is a party thereto or otherwise
bound thereby is in default thereunder, and, to the best of the knowledge of
Seller, no event, occurrence, condition or act exists which does (or which with
the giving of notice or the lapse of time or both would) give rise to a default
or right of cancellation, acceleration or loss of material contractual benefits
thereunder; and (ii) there has been no threatened cancellations thereof, and
there are no outstanding disputes thereunder.
(b) Schedule 4.14(b) contains a complete and correct list of all contracts,
commitments, obligations and understandings which are not set forth in any other
Schedule delivered hereunder and to which Seller is a party or otherwise bound,
and which relate to the Business, except for each of those which (i) was made in
the ordinary course of business, and (ii) either (A) is terminable by
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Seller (and will be terminable by Buyer) without liability, expense or other
obligation on 30 days' notice or less, or (B) may be anticipated to involve
aggregate payments to or by Seller of $5,000 (or the equivalent) or less
calculated over the full term thereof, and (iii) is not otherwise material to
the Business or any of the Purchased Assets. Complete and correct copies of all
contracts, commitments, obligations and undertakings set forth on any of the
Schedules delivered pursuant to this Agreement have been furnished by Seller to
Buyer, and except as expressly stated on the Schedule on which they are set
forth, (y) each of them is in full force and effect, no person or entity which
is a party thereto or otherwise bound thereby is in default thereunder, and, to
the best of the knowledge of Seller, no event, occurrence, condition or act
exists which does (or which with the giving of notice or the lapse of time or
both would) give rise to a default or right of cancellation, acceleration or
loss of material contractual benefits thereunder; and (z) there has been no
threatened cancellations thereof, and there are no outstanding disputes
thereunder.
4.15 Business Financial Statements;1998 Revenues. Schedule 4.15 is a true
and correct copy of the unaudited balance sheet with respect to the Business as
at December 31, 1997 and December 31, 1998 and the related statement of
operations for the years ended December 31, 1997 and December 31, 1998 and the
latest interim financial statements (collectively, the "Business Financials").
The Business Financials have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may otherwise be indicated therein) and each presents
fairly, in all material respects, the financial position of the Business as at
the date thereof and the results of its operations and cash flow position for
the period indicated. Seller represents and warrants that the revenues of Seller
(net of refunds, credits, returns, replacements, repairs, warranty costs and
expenses and bad debt expenses) for the year ended December 31, 1998 is no less
than $17.6 million.
4.16 Advertising. Schedule 4.16 hereto sets forth (to the extent each has
been determined as of the date hereof and to the extent each relates solely to
the Business) Seller's advertising plans, commitments and arrangements for
fiscal year 1999 (the "Advertising Commitments"), identifying all merchandise
(identified by SKU number) to be advertised by Seller for such period, together
with all associated processing charges, postage, material costs and other
advertising expenses. Schedule 4.16 shall also set forth a calendar of all
scheduled campaigns (whether inserts, direct mailing, or otherwise) and the
forecasted quantities and "response rates" with respect thereto.
4.17 Books and Records. The books and records of Seller are complete and
correct in all material respects, have been maintained in accordance with good
business practices, and
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accurately reflect the basis for the financial condition, results of operations
and cash flow of Seller as set forth in the Business Financials.
4.18 Taxes. Seller has filed all tax returns that it was required to file
and/or is the beneficiary of an applicable extension of time within which to
file any tax return to be filed by or in respect of Seller. All tax returns
filed by or in respect of Seller were correct and complete in all material
respects. All taxes owed by or for Seller (whether or not shown on any tax
return) have been paid or adequate provision for the payment thereof has been
made. Seller has reported and duly paid state and local sales and use taxes in
all states in which it is required to report and pay such taxes, including sales
and/or use taxes on sales of merchandise and on promotional materials. There is
no material dispute or claim concerning any tax liability of Seller either
formally asserted or raised, or, to the knowledge of Seller, threatened by any
governmental or administrative entity.
4.19 Brokers. No agent, broker, person, or firm acting on behalf of Seller,
or under its authority, is or will be entitled to a financial advisory fee,
brokerage commission or other like payment in connection with any of the
transactions contemplated hereby.
4.20 Information as to Seller. None of the representations or warranties
made by Seller in this Agreement or in any agreement executed and delivered by
it pursuant hereto are false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein contained not misleading.
5. Representations and Warranties as to Buyer. Buyer hereby represents and
warrants to Seller as follows:
5.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it.
5.2 Authority. The execution and delivery by Buyer of this Agreement and of
each agreement to be executed and delivered by it pursuant hereto, the
compliance by Buyer with the provisions hereof and thereof, and the consummation
of the transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Buyer, and Buyer has
all necessary corporate power with respect thereto. This Agreement is, and when
executed and delivered by Buyer each other agreement to be executed and
delivered by it pursuant hereto will be, the valid and binding obligation of
Buyer in accordance with its terms, except as the
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same may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the rights of creditors generally and subject to the rules
of law governing (and all limitations on) specific performance, injunctive
relief, and other equitable remedies.
5.3 Noncontravention. Neither the execution and delivery by Buyer of this
Agreement or of any of the aforementioned other agreements, nor the consummation
of the transactions contemplated hereby or thereby, nor the compliance by Buyer
with the provisions hereof and thereof, will (nor with the giving of notice or
the lapse of time or both, would) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws of Buyer, or in the
breach of any material agreement to which Buyer is a party or otherwise bound.
5.4 Brokers. No agent, broker, person, or firm acting on behalf of Buyer,
or under its authority, is or will be entitled to a financial advisory fee,
brokerage commission or other like payment in connection with any of the
transactions contemplated hereby.
5.5 Information as to Buyer. None of the representations or warranties made
by Buyer in this Agreement or in any agreement executed and delivered by or on
behalf of any of them pursuant hereto are false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements therein contained not misleading.
6. Indemnification.
6.1 Indemnification by Seller. Seller shall indemnify and hold Buyer and
Audio harmless from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto (a "Loss")
which Loss Buyer or Audio may sustain, suffer or incur and which arise out of,
are caused by, relate to, or result or occur from or in connection with (a)
liabilities other than the Assumed Liabilities, (b) the noncompliance with any
applicable bulk transfer laws of any jurisdiction, (c) the breach by Seller of
any representation, warranty or covenant made by it in this Agreement or in any
agreement or instrument executed and delivered pursuant hereto, (d) the
operation of the Business by Seller prior to the Closing Date (regardless of
whether any claim is brought prior to or subsequent to the Closing), (e) any
wilful misconduct or negligence by Seller which interferes with the transactions
contemplated by this Agreement, or (f) any refunds, credits or replacement
issued after the Closing Date relating to sales made
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by ABD prior to the Closing Date. Furthermore, Seller will indemnify and hold
Buyer harmless against all liabilities, loss, expense, cost or obligations of
any nature, known or unknown, fixed or contingent, matured or unmatured, to any
party which Buyer might incur relating to the transaction contemplated hereunder
and the transfer of the Business to Buyer regardless of whether said claim is
instituted prior to or subsequent to the Closing and regardless of whether the
transaction contemplated hereby is consummated. Seller will indemnify Buyer for
any willful or negligent act by Seller interfering with the intent and/or terms
of this Agreement and the transaction contemplated hereunder. This
indemnification obligation shall also apply to claims directly by Buyer or Audio
against the Seller as well as to third party claims.
6.2 Indemnification by Buyer. Buyer and Audio indemnifies and holds Seller
harmless from and against any Loss, which Loss Seller may sustain, suffer or
incur and which arise out of, are caused by, relate to, or result or occur from
or in connection with (a) the Assumed Liabilities, (b) the breach by Buyer of
any representation, warranty or covenant made by it in this Agreement or in any
agreement or instrument executed and delivered pursuant hereto, or (c)
liabilities relating to the ABD merchandise sold (other than claims caused by a
breach of a representation or warranty by Seller or negligent acts or omissions
of Seller), or the operation of the Business by Buyer after the Closing Date.
This indemnification obligation shall also apply to claims directly by Seller
against Buyer or Audio as well as to third party claims.
6.3 Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under this Article 6, the
party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim; provided, however,
that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder unless such failure materially and
adversely affects the indemnifying party or parties. The indemnifying party or
parties shall have ten days after said notice is given to elect, by written
notice given to the indemnified party or parties, to undertake, conduct and
control, through counsel of their own choosing (subject to the consent of the
indemnified party or parties, such consent not to be unreasonably withheld) and
at their sole risk and expense, the good faith settlement or defense of such
claim, and the indemnified party or parties shall cooperate with the
indemnifying parties in connection therewith; provided: (i) in the case of
Seller as the indemnifying party, it shall not thereby permit to exist any lien,
encumbrance or other adverse change upon any of the Purchased Assets, Buyer or
the Business, and (ii) the indemnified party or parties shall be entitled to
participate in such settlement or defense through
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counsel chosen by the indemnified party or parties, provided that the fees and
expenses of such counsel shall be borne by the indemnified party or parties. So
long as the indemnifying party or parties are contesting any such claim in good
faith, the indemnified party or parties shall not pay or settle any such claim;
provided, however, that notwithstanding the foregoing, the indemnified party or
parties shall have the right to pay or settle any such claim at any time,
provided that in such event they shall waive any right of indemnification
therefor by the indemnifying party or parties. If the indemnifying parties do
not make a timely election to undertake the good faith defense or settlement of
the claim as aforesaid, or if the indemnifying parties fail to proceed with the
good faith defense or settlement of the matter after making such election, then,
in either such event, the indemnified party or parties shall have the right to
contest, settle or compromise the claim at their exclusive discretion, at the
risk and expense of the indemnifying parties to the full extent set forth in
Sections 6.1 or 6.2 hereof, as the case may be.
7. Nondisclosure/Announcements.
7.1 "Confidential Information" Defined. The parties hereto hereby agree
that all confidential information of a party to which the other party obtains
access shall be governed by and subject to all of the terms and conditions of
the confidentiality covenants set forth in the Confidentiality Agreement dated
February 10, 1997 (the "Confidentiality Agreement") between Audio and Seller, to
which Confidentiality Agreement Buyer hereby agrees to be bound. The
Confidentiality Agreement is further ratified by the parties hereto.
7.2 Nondisclosure. Prior to receiving Hart-Scott Rodino approval, no party
hereto shall issue any press release or otherwise divulge or disclose the
existence of this Agreement, the terms hereof, or the transactions contemplated
hereby without the prior written approval of the other parties hereto, except as
may be required by applicable law or the applicable rules or regulations of any
stock exchange. Upon receiving Hart-Scott-Rodino approval, the parties shall
mutually agree on and issue a press release regarding the relationship
contemplated in this Agreement, provided that under no circumstances shall the
Purchase Price or any other financial terms of this Agreement be disclosed
except as otherwise required by law.
7.3 No disparagement. At no time during the period commencing on the date
hereof and continuing for five years after the Closing Date shall Seller or any
subsidiary thereof, on the one hand, or Buyer or Audio, on the other hand,
disparage the commercial, business or financial reputation of the other parties
hereto or any of their respective officers, directors, employees, agents or
affiliates.
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7.4 Injunctive Relief, etc. The parties hereto hereby acknowledge and agree
that (i) the parties hereto would be irreparably injured in the event of a
breach by the other party of any of their respective obligations under this
Article 7, (ii) monetary damages would not be an adequate remedy for any such
breach, and (iii) such non-breaching party shall be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach. It is hereby also agreed that the existence of any claims which the
breaching party may have against the non-breaching party, whether under this
Agreement or otherwise, shall not be a defense to the enforcement by the
non-breaching party of any of its rights under this Article 7.
7.5 Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this Article 7 shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (Seller, Buyer and Audio each hereby acknowledging that
said restrictions are reasonably necessary for the protection of the other
party). Accordingly, it is hereby agreed that if any one or more of the
provisions of this Article 7 shall be adjudicated to be invalid or unenforceable
for any reason whatsoever, said provision shall be (only with respect to the
operation thereof in the particular jurisdiction in which such adjudication is
made) construed by limiting and reducing it so as to be enforceable to the
extent permissible.
7.6 Additional Undertakings. The provisions of this Article 7 shall be in
addition to, and not in lieu of, any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise.
8. Conditions to Closing.
8.1 Buyer's Right. Buyer shall have the right to terminate this Agreement
and abandon the transactions contemplated hereby in the event that any of the
following shall not be true or shall not have occurred, as the case may be, as
of the Closing Date:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Seller contained in this Agreement or in any document,
agreement or instrument delivered by it pursuant hereto shall have been
true when made, and, in addition, shall be true in all material respects on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
(b) Performance of Agreements. Seller shall have performed all
obligations and agreements, and complied with all covenants and conditions,
in all material respects, contained in this Agreement or in any document,
agreement or instrument
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delivered by it pursuant hereto and required to be performed or complied
with by it, in a commercially reasonable manner, at or prior to the Closing
Date.
(c) Opinion of Counsel for Seller. Buyer shall have received an
opinion of Robert J. Posch, Jr., Vice President, Legal, Postal and
Government Affairs for Seller, dated the Closing Date, in form reasonably
satisfactory to the parties at the Closing.
(d) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and no suit, action, inquiry, investigation or proceeding before a
court or administrative agency shall have been instituted by any person or
entity in which it will be, or it is, sought to restrain, prohibit or
change the material terms of or obtain material damages or other relief in
connection with this Agreement or any of the transactions contemplated
hereby, and which in the commercially reasonable judgment of Buyer makes it
inadvisable to proceed with the consummation of such transactions.
(e) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements
with third parties) required as a precondition to the performance by Seller
of its obligations hereunder and under any agreement delivered pursuant
hereto, or which in Buyer's judgment are reasonably necessary to continue
unimpaired any rights in and to the Purchased Assets which could be
impaired by the purchase and sale hereunder, shall have been duly obtained
and shall be in full force and effect.
(f) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by Seller
pursuant hereto, shall be reasonably satisfactory in all material respects
to Buyer and its counsel.
(g) Board Authorization. The approval of this Agreement and all of the
transactions contemplated hereby by the Board of Directors of Buyer no
later than March 15, 1999.
(h) Due Diligence. Buyer being satisfied with the results of its "due
diligence" investigation (as contemplated in Section 3.2 hereof) of
Seller's business, liabilities, properties and assets are materially
consistent with all of the data, statistics, financial statements,
representations, assurances and other information, financial and otherwise
relating to Seller's business liabilities, properties
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and assets provided to Buyer by Seller, either orally or in writing, prior
to the date of this Agreement.
(i) Ancillary Agreements. Buyer and Seller shall have entered into
each of the Mailing Agreement, the Transitional Services Agreement and the
Non-Compete Agreement.
(j) No Material Adverse Changes. There shall not have occurred after
the date hereof, in the reasonable judgment of Buyer, a material adverse
change in the condition of the Purchased Assets or the Business.
(k) Hart-Scott-Rodino Act. Buyer, Seller and any other person (as
defined in the HSR Act) and the rules and regulations thereunder) which is
required in connection with the transactions contemplated hereby to file a
Notification and Report Form for Certain Mergers and Acquisitions with the
United States Department of Justice and the United States Federal Trade
Commission pursuant to Title II of the HSR Act shall have made such filing,
and the applicable waiting period with respect to each such filing
(including any extension thereof by reason of a request for additional
information) shall have expired or been terminated.
8.2 Seller's Right. Seller shall have the right to terminate this Agreement
and abandon the transactions contemplated hereby in the event that any of the
following shall not be true or shall not have occurred, as the case may be, as
of the Closing Date:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Buyer contained in this Agreement or in any document,
agreement or instrument delivered by it pursuant hereto shall have been
true when made, and, in addition, shall be true in all material respects on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
(b) Performance of Agreements. Buyer shall have performed all
obligations and agreements, and complied with all covenants and conditions
in all material respects, contained in this Agreement or in any document,
agreement or instrument delivered by it pursuant hereto and required to be
performed or complied with by it at or prior to the Closing Date.
(c) Hart-Scott-Rodino Act. Buyer, Seller and any other person (as
defined in the HSR Act and the rules and regulations thereunder) required
in connection with the transactions contemplated hereby to file a
Notification and Report Form for Certain Mergers and Acquisitions with the
United States Department of Justice and the United States Federal Trade
Commission pursuant to Title II of the HSR Act shall have made such filing
and the applicable waiting period with respect to each such filing
(including any extension thereof by reason of a
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request for additional information) shall have expired or been terminated.
(d) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by Buyer
pursuant hereto, shall be reasonably satisfactory in all material respects
to Seller and its counsel.
(e) Board Authorization. The approval of this Agreement and all of the
transactions contemplated hereby by the Boards of Directors of Seller and
Bertelsmann AG Book no later than March 15, 1999.
(f) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements
with third parties) required as a precondition to the performance by Buyer
of its obligations hereunder and under any agreement delivered pursuant
hereto.
(g) Opinion of Counsel for Buyer. Seller shall have received an
opinion of Tenzer Greenblatt LLP, counsel for Buyer, dated the Closing
Date, in form reasonably satisfactory to the parties at the Closing.
(h) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and no suit, action, inquiry, investigation or proceeding before a
court or administrative agency shall have been instituted by any person or
entity in which it will be, or it is, sought to restrain, prohibit or
change the material terms of or obtain material damages or other relief in
connection with this Agreement or any of the transactions contemplated
hereby, and which in the commercially reasonable judgment of Seller makes
it inadvisable to proceed with the consummation of such transactions.
(i) Ancillary Agreements. Buyer and Seller shall have entered into
each of the Mailing Agreement, the Transitional Services Agreement and the
Non-Compete Agreement.
8.3 Effect of Abandonment. In the event that this Agreement is terminated
and the transactions contemplated hereby are abandoned pursuant to the terms
hereof, this Agreement shall forthwith become wholly void and of no force and
effect, except as to Sections 10.1, 10.14 and Article 6 hereof and the
obligations set forth in the Confidentiality Agreement; provided, however, that
nothing in this Agreement contained shall be deemed to relieve any party hereto
from liability for any breach of this Agreement prior to termination.
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9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that all representations and
warranties made by or on behalf of it in this Agreement or in any document or
instrument delivered pursuant hereto shall survive the Closing Date and the
consummation of the transactions contemplated hereby for a period of two (2)
years, except for the representations and warranties contained in Sections 4.11,
4.13 and 4.18, which shall survive for the applicable statute of limitations
period.
10. Miscellaneous Provisions.
10.1 Expenses. Except as otherwise provided in this Agreement, each of the
parties hereto shall pay his or its own costs and expenses in connection with
this Agreement and the transactions contemplated hereby; provided, however, that
Buyer shall reimburse Seller for all reasonable expenses incurred by Seller with
respect to the audit pursuant to Section 3.12 hereof in the event that all
conditions in Section 8.1 shall have been satisfied and Buyer, in breach of its
obligations under this Agreement, willfully fails to close or consummate the
Financing.
10.2 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the date delivered, if delivered personally, or one (1) business day
after having been deposited with courier, if sent by overnight courier or having
been sent by telecopy, if sent by telecopy (receipt confirmed), or three (3)
business days after having been mailed, if mailed by registered or certified
mail, postage prepaid, return receipt requested, as follows:
If to Buyer, to: ABD Acquisition Corp.
20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
Attn.: Michael Herrick, co-CEO
- and -
ABD Acquisition Corp.
Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431-0810
Attn.: Norton Herrick, Co-CEO
Copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Barry S. Rutcofsky, Esq.
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If to Seller, to: Doubleday Direct, Inc.
401 Franklin Avenue
Garden City, New York 11530
Attention: Markus Wilhem,
President and CEO
Copy to: Doubleday Direct, Inc.
401 Franklin Avenue
Garden City, New York 11530
Attn: Robert J. Posch, Jr.,
Vice President, Legal,
Postal and Government Affairs
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
10.3 Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without regard to its choice
of law principles.
10.4 Waiver, etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement. No waiver of
any breach of any of the provisions of this Agreement shall be effective unless
set forth in a written instrument executed by the party or parties against whom
or which enforcement of such waiver is sought; and no waiver of any such breach
shall be construed or deemed to be a waiver of any other or subsequent breach.
10.5 Assignment. Prior to the Closing Date, neither this Agreement nor any
rights, interests or obligations hereunder may be assigned (by operation of law
or otherwise) by any party hereto without the prior written consent of all of
the parties hereto, except that Buyer may (a) assign any and all of its rights
and remedies and delegate any and all of its obligations under this Agreement to
any affiliate, subsidiary or any entity owned or controlled by Audio, provided
such affiliate, subsidiary or entity agrees in writing to be bound by the terms
hereof, and (b) grant a security interest in its rights under this Agreement to
Buyer's lender, as administrative agent (the "Agent"), in connection with the
financing of the transactions contemplated by this Agreement.
10.6 Attorneys' Fees. The parties hereto agree that if any party seeks to
resolve any dispute arising under this Agreement pursuant to a legal proceeding,
the prevailing party to such proceeding shall be entitled promptly to receive
from the other party, the fees and expenses (including reasonable
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attorneys' fees and expenses) incurred on the prevailing party's behalf in
connection with such proceedings.
10.7 Binding Effect; Benefits. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their respective
successors and permitted assigns. Nothing herein contained, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
10.8 Amendment. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.
10.9 Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
10.10 Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement
including without limitation the Ancillary Agreements attached as Exhibits
hereto) and the Confidentiality Agreement constitute the entire agreement of the
parties hereto with respect to the subject matter hereof, and supersede all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
10.11 Schedules. The Schedules delivered pursuant to this Agreement are an
integral part hereof. Each such Schedule shall be in writing, shall indicate the
Section pursuant to which it is being delivered, and shall be initialled by the
delivering party.
10.12 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10.13 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
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10.14 Remedies. Seller agrees and acknowledges that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that Buyer may be, therefore, without an adequate legal remedy in the event
of any violation of the covenants set forth in this Agreement by Seller.
Accordingly, if Seller breaches its obligations under this Agreement, Buyer
shall be entitled to seek enforcement of its remedies by an injunction, a
restraining order, or a decree of specific performance requiring Seller to
fulfill its obligations under this Agreement, in addition to all other rights
and remedies, at law or in equity, that may be available to Buyer under this
Agreement. Moreover, to facilitate the foregoing, Seller hereby expressly waives
any requirement for the posting of a bond or similar security in connection with
seeking of equitable remedies.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Attest: ABD ACQUISITION CORP.
________________________ By:/s/ Michael Herrick
Secretary --------------------------
Name: Michael Herrick
Title: Co-CEO
Attest: DOUBLEDAY DIRECT, INC.
/s/ Robert J. Posch By: /s/ Markus Wilhelm
- -------------------------- --------------------------
Secretary Name: Markus Wilhelm
Title: President & CEO
With respect to the provisions set forth in Sections 6 and 7 of the foregoing
agreement, the undersigned has executed hereinbelow.
Attest: AUDIO BOOK CLUB, INC.
________________________ By:/s/ Michael Herrick
Secretary --------------------------
Name: Michael Herrick
Title: Co-CEO
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Exhibit 2.2
LIST OF OMITTED SCHEDULES/EXHIBITS
TO ASSET PURCHASE AGREEMENT
Except as otherwise indicated herein, the list identifies schedules and
exhibits annexed to the Asset Purchase Agreement but omitted from this filing.
In accordance with Item 601 of Regulation S-B, copies of any such schedule or
exhibit will be furnished by the Company to the Securities and Exchange
Commission upon request.
Exhibit/Schedule/Annex Description
- ---------------------- -----------
Schedule 1.2(iv) Contracts, Agreements and Commitments
Schedule 1.2(vii) Analytical and Testing Reports and Files
Schedule 1.2(viii) Back Order and Collection Files
Schedule 1.3 Excluded Assets
Schedule 1.4(a)(v) Unpaid Publisher Advance Commitments
Schedule 1.5 Allocation of Purchase Price
Schedule 1.6(a) Cost of Merchandise
Schedule 1.6(b)(i) Active Members List
Schedule 1.6(b)(ii) Inactive Members List
Schedule 3.5 Non-Assignable Contracts
Schedule 4.5 Masterfile Database Rights and Access
Schedule 4.6A Inventory
Schedule 4.7 List of Bookclubs of the seller
Schedule 4.8 License Agreements and Intellectual
Property
Schedule 4.10 Litigation
Schedule 4.13 Product Liability Claims
Schedule 4.14(a) Pending and Executory Contracts
and 4.14(b) Agreements, Commitments and Obligations
Schedule 4.15 Certain Financial Statements of Acquired
Business
Schedule 4.16 Advertising Commitments
Exhibit 1 Bill of Sale and Assignment
Exhibit 2 Mailing Agreement
Exhibit 3 Transitional Services Agreement
Exhibit 4 Non-Compete Agreement
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
Agreement, dated as of June 11, 1999, by and between Doubleday Direct, Inc.
("Seller"), a New York corporation, and ABD Acquisition Corp. ("Buyer"), a
Delaware corporation.
W I T N E S S E T H:
WHEREAS, Buyer and Seller have entered into an Asset Purchase Agreement
dated as of March 18, 1999 (the "Purchase Agreement") relating to the purchase
and sale of certain assets.
WHEREAS, Buyer and Seller wish to amend said Agreement in the manner set
forth herein. All capitalized terms used herein and not otherwise defined in
this Agreement shall have the meaning ascribed to them in the Purchase
Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Section 1.2 is hereby amended by deleting paragraph (iii) of said
section.
2. Section 1.5 is amended by deleting the phrase: "$21,000,000" in the
first sentence and replacing it with "$18,615,000".
3. Section 1.6(a) is deleted in its entirety.
4. Section 2.2 is amended by deleting the phrase $21 million in the first
sentence and replacing it with $18.615 million.
5. Section 2.3(h) is deleted in its entirety.
6. Section 3.7 is amended by deleting the phrase "4.6.A ("Inventory") in
the first sentence of said Section.
7. Section 3.9 is amended by changing the word Buyer to Seller and by
adding the following phrase to the end of
<PAGE>
said Section: "(other than inventory to be purchased pursuant to the Inventory
Purchase Order dated of even date herewith, as to which any such liens, pledges,
security interests, claims, charges and encumbrances shall be discharged, paid
or satisfied by Seller prior to any purchase by Buyer)".
8. Section 4.6 is deleted in its entirety.
9. Except as set forth herein, the terms and conditions of the Asset
Purchase Agreement are hereby ratified and remain in full force and effect.
IN WITNESS WHEREOF, the undersigned hereby executes this Agreement as of
the date first above written.
DOUBLEDAY DIRECT, INC.
By: /s/ William A. Gatti
-----------------------------
Name: William A. Gatti
Title: S.V.P., Human Res./Admin.
ABD ACQUISITION CORP.
By: /s/ Norton Herrick
-----------------------------
Name: Norton Herrick
Title: Co-CEO
-2-
AMENDMENT No. 2 TO ASSET PURCHASE AGREEMENT
Agreement, dated as of June 11, 1999, by and between Doubleday Direct, Inc.
("Seller"), a New York corporation, and ABD Acquisition Corp. ("Buyer"), a
Delaware corporation.
W I T N E S S E T H:
WHEREAS, Buyer and Seller have entered into an Asset Purchase Agreement
dated as of March 18, 1999, relating to the purchase and sale of certain assets,
as amended by Amendment No. 1 dated as of even date herewith (as so amended, the
"Purchase Agreement").
WHEREAS, Buyer and Seller wish to amend further the Purchase Agreement in
the manner set forth herein. All capitalized terms used herein and not otherwise
defined in this Agreement shall have the meaning ascribed to them in the
Purchase Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Section 1.4(a) is amended by deleting clause (iv) of said section in its
entirety and the phrase "provided, however, that the Buyer shall satisfy the
Simon & Schuster Commitment regardless of the date on which it is by its stated
terms required to be performed" from the last sentence of said section.
2. Seller acknowledges that it has satisfied its unpaid advance commitment
to Simon & Schuster in the amount of $500,000 (the "Simon & Schuster
Committment").
3. Section 1.4(b) is amended by deleting the phrase "except for the Simon &
Schuster Commitment (which shall be Buyer's obligation)," from clause (vi) of
said section as well as the phrase "(except for Buyer's obligations to partially
reimburse Seller in respect of the March/April 1999 Mailing (as defined in
Section 3.23 hereof)" from clause (vii) of said section.
4. Section 3.22 is deleted in its entirety.
<PAGE>
5. Section 3.23 is deleted in its entirety.
Except as set forth herein, the terms and conditions of the Purchase
Agreement are hereby ratified and remain in full force and effect.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of the
date first above written.
DOUBLEDAY DIRECT, INC.
By: /s/ William A. Gatti
-----------------------------
Name: William A. Gatti
Title: S.V.P., Human Res./Admin.
ABD ACQUISITION CORP.
By: /s/ Norton Herrick
-----------------------------
Name: Norton Herrick
Title: Co-CEO
-2-
AMENDMENT AND SUPPLEMENT NO. 1
TO
CREDIT AGREEMENT
AGREEMENT, made as of this 14th day of June, 1999, by and among:
AUDIO BOOK CLUB, INC. a Florida corporation (hereinafter referred to as the
"Borrower" or the "Company");
The financial institutions which have executed the signature page annexed
hereto (individually, a "Lender Party" and collectively, the "Lender Parties");
and
FLEET NATIONAL BANK, as Initial Issuing Bank and Swing Line Bank, and as
administrative agent for the Lender Parties (in such capacity, together with its
successors in such capacity, the "Administrative Agent");
WHEREAS:
(A) The Borrower is indebted to the Lender Parties pursuant to a Credit
Agreement dated December 31, 1998 (as amended and as it is hereby and as it may
hereafter from time to time be amended, modified or supplemented, the "Credit
Agreement");
(B) The Borrower has requested and the Lender Parties have agreed, upon the
terms and conditions set forth herein, (i) to permit the acquisition by ABD
Acquisition Corp. ("ABD"), a wholly-owned subsidiary of the Borrower, of certain
assets of Doubleday Direct, Inc., a New York corporation, (ii) to increase the
Term Facility by an aggregate principal amount of Six Million ($6,000,000)
Dollars, which amount shall be used to finance, in part, such acquisition, (iii)
to change the interest rate applicable to the Advances, (iv) to reflect the
creation of certain new Subsidiaries by the Borrower, each to become a Guarantor
under the Credit Agreement, (v) to permit the Borrower to incur an additional
$4.35 million of Senior Subordinated Debt, and (vi) to revise certain other
provisions of the Credit Agreement;
(C) The Borrower and a Subsidiary of the Borrower (the "Existing
Subsidiary") have formed four new Subsidiaries (the "New Subsidiaries") (one of
which is ABD), which New Subsidiaries are concurrently herewith becoming
Guarantors under the terms of the Subsidiary Guaranty and additional grantors
under the terms of the Security Agreement and the Intellectual Property Security
Agreement to the Lenders, and the Company and the Existing Subsidiary will
pledge the capital stock of the New Subsidiaries to the Administrative Agent in
accordance with the Security Agreement;
(D) The Borrower and certain Subsidiaries have completed certain
intercompany asset transfers and propose to complete certain additional asset
transfers; and
<PAGE>
(E) All capitalized terms that are used herein without definition and which
are defined in the Credit Agreement shall have the respective meanings ascribed
thereto therein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Article I
Amendments to Credit Agreement.
This Amendment and Supplement No. 1 to Credit Agreement shall be deemed to
be an amendment and supplement to the Credit Agreement, and shall not be
construed in any way as a replacement therefor. All of the terms and provisions
of this Amendment and Supplement No. 1 are hereby incorporated by reference into
the Credit Agreement as if such terms and provisions were set forth in full
therein. The Credit Agreement is hereby amended, effective upon the satisfaction
of the conditions precedent set forth in Article V hereof, in the following
respects:
1.1 (a) Article 1, "Definitions", is amended to insert the following new
definition where alphabetically appropriate:
"ABD" means ABD Acquisition Corp., a wholly-owned subsidiary of Borrower.
"Amendment No. 1" means Amendment and Supplement No.1 to this Credit
Agreement dated as of June 14, 1999, among the Borrower, the Lender Parties
signatory thereto and the Administrative Agent.
"Acquisition Agreement" means the Asset Acquisition Agreement dated as of
March 18, 1999, as amended to date, between ABD and Doubleday.
"December 1998 Note" means a certain 9% Convertible Senior Subordinated
Promissory Note due December 31, 2004 in the principal amount of $14,000,000
issued to Norton Herrick by the Company on December 31, 1998.
"Doubleday Acquisition" means the acquisition by ABD of certain of the
assets of Doubleday, pursuant to an the Acquisition Agreement.
"Doubleday" means Doubleday Direct, Inc., a New York corporation.
"June 1999 Note" means a certain 9% Convertible Senior Subordinated
Promissory Note due December 31, 2004 in the principal amount of $4,350,000
issued to Norton Herrick by the Borrower on June 11, 1999.
-2-
<PAGE>
"Second Tranche Term Borrowing" means the Term Advances made by the Term
Lenders pursuant to the Credit Agreement as amended by Amendment No. 1.
(b) The definition of "Senior Subordinated Debt" set forth in Article 1 is
hereby amended and restated to read in its entirety as follows:
"Senior Subordinated Debt" means the December 1998 Note and
the June 1999 Note and any guaranties thereof permitted to be
issued by the Subsidiaries of the Company from time to time
pursuant to Section 6.2(c)(iv), as the same may be amended,
modified or supplemented from time to time consistent with the
terms of this Agreement.
1.2 The grid set forth in the definition of "Applicable Margin" is amended
and restated to read as follows:
Applicable Margin for
Revolving Credit Advances and Term Advances
Consolidated
Applicable Margin for Applicable Margin for Debt to
Eurodollar Rate Advances Prime Rate Advances EBITDA Ratio
- ------------------------ ------------------- ------------
3.50% 2.25% Greater than or
equal to 4.0:1.0
3.25% 2.00% Greater than or
equal to 3.0:1.0
but less than
4.0:1.0
3.00% 1.75% Less than
3.0:1.0
1.3 Section 2.1(a), "The Term Advances", is amended and restated to read as
follows:
(a) The Term Advances. The Borrower acknowledges that each of the Term
Lenders has made a Term Advance to the Borrower on the Closing Date in an
amount equal to such Lender Party's Term Commitment as in effect on such
date. Each Lender Party severally agrees, on the terms and conditions
hereinafter set forth, to make a second Term Advance to the Borrower on the
Effective Date (as defined in this Amendment No. 1), each such second Term
Advance to be in the principal amount of $3,000,000 or an aggregate for all
Lender Parties of $6,000,000. Each Term Borrowing shall consist of Term
Advances made simultaneously by the Term Lenders ratably according to their
Term Commitments as in effect on the date of the relevant Term Borrowing.
Amounts borrowed under this Section 2.1(a) and repaid or prepaid may not be
reborrowed.
-3-
<PAGE>
1.4 Section 2.1(c), "The Revolving Credit Advances", is amended to
substitute the amount "$37,500,000" for the amount "$31,500,000" appearing in
the table included therein to substitute "September 29, 1999" for the two
references to "June 30, 1999".
1.5 The grid set forth in Section 2.4, "Repayment of Advances", is amended
and restated to read as follows:
- --------------------------------------------------------------------------------
Date Amount
- --------------------------------------------------------------------------------
March 31, 1999 $250,000
- --------------------------------------------------------------------------------
Each of June 30, 1999, September 30, 1999 and $330,000
December 31, 1999
- --------------------------------------------------------------------------------
Each of March 31, 2000, June 30, 2000, September $930,000
30, 2000 and December 31, 2000
- --------------------------------------------------------------------------------
Each of March 31, 2001, June 30, 2001, September $1,550,000
30, 2001 and December 31, 2001
- --------------------------------------------------------------------------------
Each of March 31, 2002, June 30, 2002, September $2,170,000
30, 2002 and December 31, 2002
- --------------------------------------------------------------------------------
Each of March 31, 2003, June 30, 2003, September $2,790,000
30, 2003 and December 31, 2003
- --------------------------------------------------------------------------------
1.6 Section 2.14, "Use of Proceeds" is amended and restated to read as
follows:
SECTION 2.14 Use of Proceeds. (a) The proceeds of the Advances and
issuances of Letters of Credit shall be available, and the Borrower shall
use such proceeds and Letters of Credit solely (i) to finance in part the
Acquisitions, (ii) to pay fees and expenses incurred in connection with the
Acquisitions, (iii) to repay existing indebtedness of the Borrower, and
(iv) to finance working capital and capital expenditures of the Borrower,
and (b) the proceeds of the Second Tranche Term Borrowing shall be used to
finance, in part, the Doubleday Acquisition.
1.7 Section 6.2(c)(viii)(A) is changed to amend and restate the first
parenthetical set forth therein to read in its entirety as follows : "(but, in
respect of the Senior Subordinated Debt, such principal amount may be increased
but not to exceed Nineteen Million Five Hundred Thousand ($19,500,000) Dollars
-4-
<PAGE>
whether such increase is effected by the initial holder of the Senior
Subordinated Debt or in respect of the first refinancing of the Senior
Subordinated Debt that exists on the Closing Date or as of the date of Amendment
No. 1); and the reference to $18,500,000 in subsection 6.2(c)(viii)(C) is
changed to read $19,500,000".
1.8 Section 6.11(B) is amended and restated to read in its entirety as
follows:
"(B) notwithstanding any other provisions of the Loan Documents, including
Sections 5.12 and 6.20 hereof, payment of such amounts, if any, which are
payable by the Borrower pursuant to the terms and conditions of that
certain letter agreement, dated on or about the date of Amendment No. 1
(which amended and restated that certain letter agreement dated as of
December 31, 1998), as it may be amended from time to time with the consent
of the Senior Lenders (as so amended, the "Letter Agreement") between the
Borrower and Norton Herrick executed and delivered in connection with the
Senior Subordinated Debt;"
1.9 Section 6.12, "Amendment, Etc. of Acquisition Documents", is amended to
add immediately following the words "Acquisition Document", the first time they
appear in Section 6.12, the following: "(which capitalized term shall, for
purposes of this Section 6.12, be deemed to include reference to the Doubleday
Acquisition Documents as such term is defined in Amendment No. 1)".
1.10 Section 6.13(b)(ii)(A), "Amendment, Etc. of Material Contracts", is
amended to change the final parenthetical contained therein to read in its
entirety as follows:
"(other than an increase not to exceed 11% for the period from October 1,
1999 through December 31, 1999 in respect of the December 1998 Note and
other than an increase not to exceed 11% for the period from July 15, 1999
through December 31, 1999 in respect of the June 1998 Note, in each case so
long as such increase is solely in the form of non-current pay interest
which accrues and is not payable in cash until final maturity of the Senior
Subordinated Debt)."
1.11 Section 6.21, "Shelf Registration", is amended and restated to read in
its entirety as follows:
-5-
<PAGE>
SECTION 6.21 Shelf Registration. Fail to cause a shelf registration on Form
S-3 for an offering to be made on a continuous basis pursuant to Rule 415
under the Securities Act of 1933, which shelf registration statement
registers for resale the shares of the Borrower's Common Stock issued in
connection with (or issuable upon exercise of any warrants issued in
connection with) any of the Acquisitions or otherwise issued or issuable on
the Closing Date, to be declared effective on or prior to the 180th day
following the Closing Date (or by February 15, 2000 in respect of the shelf
registration relating to common stock issuable upon exercise of any
warrants issued on the date of Amendment No. 1) (or fail to list the shares
registered under such shelf registration for trading on the AMEX or on the
NASDAQ National Market System, subject to notice of official issuance, by
such 180th day or by February 15, 2000 in respect of the shelf registration
statement relating to common stock issuable upon exercise of any warrants
issued on the date of Amendment No. 1) or fail to have filed within sixty
days after the Closing Date (or by February 15, 2000 in respect of the
shelf registration relating to common stock issuable upon exercise of any
warrants issued on the date of Amendment No. 1) such shelf registration;
and the Borrower shall keep each shelf registration statement effective
(except for periods of not more than 20 consecutive days required in order
to amend, supplement or otherwise correct any disclosures in such
registration statement) until the earlier of (a) the second anniversary of
the effective date of such shelf registration statement (provided, however,
that such two year period shall be extended if required by any other
agreement) and (b) the date that is one week after all shares issued in
connection with any Acquisition (or issuable under such warrants) and
included in the shelf registration statement have been sold.
1.12 Section 8.1, "Minimum EBITDA," is amended to revise and restate the
chart appearing therein to/ read in its entirety as follows:
Period Minimum EBITDA
------ --------------
(a) fiscal quarter ending on $0.00 (i.e., no negative
March 31, 1999 amount)
-6-
<PAGE>
(b) two fiscal quarters ending on
June 30, 1999 $ 2,500,000
(c) three fiscal quarters ending on
September 30, 1999 $ 6,500,000
(d) four fiscal quarters ending on the
dates specified below:
December 31, 1999 $11,000,000
March 31, 2000 $12,500,000
June 30, 2000 $13,500,000
September 30, 2000 $14,000,000
December 31, 2000 $15,000,000
December 31, 2001 $17,000,000
December 31, 2002 $18,000,000
December 31, 2003 $19,000,000
1.13 Section 8.2, "Consolidated Senior Debt to EBITDA Ratio" is amended to
delete the text of clause (a) thereof and to replace it with the words
"[intentionally deleted]", and to change the Maximum Ratio under clause (b)
thereof from "4.00 to 1.00" to "4.5 to 1.00", and to change the Maximum Ratio
opposite December 31, 1999 to read "3.25 to 1.00".
1.14 Section 8.3, "Consolidated Debt to EBITDA Ratio" is amended to delete
the text of clause (a) thereof and to replace it with the words "[intentionally
deleted]", and to change the Maximum Ratio under clause (b) thereof from "6.00
to 1.00" to "6.75 to 1.00", and to change the Maximum Ratio opposite December
31, 1999 to read "5.00 to 1.00".
1.15 Schedule I to the Credit Agreement is replaced by Schedule I annexed
hereto as Exhibit A.
1.16 The Schedules annexed hereto as part of Schedule 3 shall be deemed
respectively to replace the Schedules of the respective corresponding number
presently attached to the Credit Agreement.
1.17 Without limiting the generality of any provisions contained in the
Loan Documents, the Borrower covenants that it shall deliver or cause to be
delivered to the Administrative Agent the following:
(a) a bailee letter, in form and substance reasonably satisfactory to the
Administrative Agent, from Doubleday (or its appropriate affiliate)
relating to all items of inventory
-7-
<PAGE>
owned by any Loan Party located on premises owned, leased or controlled
directly or indirectly by Doubleday prior to the purchase by any Loan Party
of any such items of inventory respectively; and
(b) within ten days after the date of Amendment No. 1, agreements,
including an amendment to the Intellectual Property Security Agreement, in
form and substance reasonably satisfactory to the Administrative Agent
adding to the schedules attached to the Intellectual Property Security
Agreement any trademarks of any Loan Party not currently listed thereon.
Article II
Increases in Commitment.
2.1 Commencing as of the Effective Date (as defined in Article V below),
the Term Commitment of each of the Term Lenders shall be increased from the
amount set forth, with respect to such Term Lender, on Schedule I to the Credit
Agreement to the respective amounts set forth opposite the name of each of the
Term Lenders on Exhibit A annexed hereto.
2.2 In order to evidence the Term Advances made by each of the Term Lenders
under its Term Commitment as amended hereby, the Borrower shall execute and
deliver to each of the Term Lenders a new note substantially in the form
attached to the Credit Agreement as Exhibit C, reflecting the Term Commitment of
such Lender Party as amended hereby, dated the Effective Date and otherwise duly
completed (collectively, all of the above-described promissory notes are defined
as the "New Notes"). Upon execution and delivery by the Borrower of the New
Notes, the Administrative Agent shall cause each of the Term Notes being
replaced by a New Note to be marked "Replaced by New Note", and returned to the
Borrower.
2.3 All references in the Credit Agreement, Loan Documents and all other
instruments, documents and agreements executed and delivered pursuant to any of
the foregoing, to "the ratable benefit of the Lender Parties", "pro rata", or
terms of similar effect shall be deemed to refer to the ratable interests of the
Lender Parties, as their respective pro rata interests shall be adjusted to
reflect the increase in the Term Commitment of each of the Term Lenders as set
forth on Exhibit A annexed hereto.
Article III
Consent and Waiver
-8-
<PAGE>
3.1 Notwithstanding any provisions of the Credit Agreement to the contrary,
the Lender Parties and the Administrative Agent hereby consent to (a) the
acquisition by the Borrower of certain of the assets (the "Acquired Assets") of
Doubleday as set forth in the Doubleday Acquisition Documents (as hereinafter
defined) (the "Doubleday Acquisition"); subject, however, to the fulfillment, to
the satisfaction of the Lender Parties and the Administrative Agent, of the
conditions precedent set forth in Article V hereof.
3.2 Notwithstanding any provisions of the Credit Agreement to the contrary,
the Administrative Agent and the Lenders consent to the formation of the New
Subsidiaries set forth on Schedule 1 to this Amendment No. 1 and to the
completed and proposed intercompany asset transfers set forth on Schedule 2 to
this Amendment No. 1 and waive any Defaults that may have occurred pursuant to
Sections 5.13, 6.15 or 7.1 of the Credit Agreement, as a result of the failure
of Borrower or the Existing Subsidiary to timely notify the Administrative Agent
and/or Lenders of such actions, to timely pledge to the Administrative Agent
stock certificates representing the outstanding capital stock of the New
Subsidiaries, and/or any failure of the New Subsidiaries to timely become
Guarantors under the Subsidiary Guaranty and to timely become grantors under the
Security Agreement and the Intellectual Property Security Agreement and to
execute and deliver any documents necessary to perfect security interests in the
assets transferred or proposed to be transferred. The Administrative Agent and
the Lenders acknowledge that simultaneously with the execution and delivery of
this Amendment No. 1: (a) the Borrower and the Existing Subsidiary, have
delivered to the Lenders stock certificates, together with stock powers executed
in blank, representing all of the outstanding capital stock of the New
Subsidiaries and (b) each of the New Subsidiaries has executed and delivered to
the Administrative Agent appropriate supplements to the Subsidiary Guaranty, the
Security Agreement and the Intellectual Property Security Agreement.
3.3 Notwithstanding any provisions of the Credit Agreement to the contrary,
the Administrative Agent and Lenders consent to: (a) the Borrower executing and
delivering the June 1999 Note (the form of which is attached as Exhibit B to
this Amendment No. 1) to Norton Herrick, Co-Chief Executive Officer, a director
and a principal shareholder of the Company, as consideration for a $4,350,000
loan to the Company; (b) the execution and delivery by the New Subsidiaries (set
forth on Schedule 1 to this Amendment No. 1) of a guaranty supplement (the form
of which is attached as Exhibit C to this Amendment No. 1) to become additional
Guarantors under the Subsidiary Guaranty dated as of December 31, 1998 from CH
Acquisitions Corp., ABC Internet Services, Inc., ABC Investment
-9-
<PAGE>
Corp., Classic Radio Holding Corp. and Classic Radio Acquisition Corp., as
guarantors in favor of the holder of the December 1998 Note; (c) the execution
and delivery by the Borrower of Amendment No. 1 to the December 1998 Note (the
form of which is attached as Exhibit D to this Amendment No. 1) and (d) the
execution and delivery of a subsidiary guaranty (the form of which is attached
as Exhibit E to this Amendment No. 1) by the Subsidiaries of the Borrower
(including the New Subsidiaries) in favor of the holder of the June 1999 Note.
Article IV
Representations and Warranties.
The Borrower hereby represents and warrants to the Administrative Agent and
the Lender Parties that:
4.1 There exists no Default or Event of Default under the Credit Agreement,
as amended hereby, as of the date hereof.
4.2 Each and every one of the representations and warranties set forth in
Article IV of the Credit Agreement is true in all material respects as of the
date hereof except that certain amended Schedules to the Credit Agreement are
attached hereto as Schedule 3 to this Amendment No. 1, and, to the extent that
any of such representations or warranties apply to any Guarantor, whether as a
"Guarantor", a "Loan Party" or otherwise, each such representation and warranty
shall be deemed to apply to each of the newly-formed Subsidiaries of the
Borrower listed on Schedule 1 annexed hereto (each of such newly-formed
Subsidiaries being hereinafter called a "New Guarantor"; and collectively, the
"New Guarantors").
4.3 Each Loan Party (a) to the extent it is a party thereto, has all
requisite corporate power and authority to execute and deliver this Amendment
No. 1, the New Notes, the Subsidiary Guaranty, the Security Agreement, the
Intellectual Property Security Agreement (or supplements to the foregoing, as
applicable), the amendment to the Security Agreement contemplated by Section 5.5
hereof, and each other agreement, instrument or document contemplated to be
executed or delivered by the Borrower, any New Guarantor or any other Loan Party
pursuant to Amendment No. 1 (all such agreements, instruments and documents
contemplated to be executed or delivered in connection herewith by any Loan
Party are sometimes hereinafter referred to collectively, together with this
Amendment No. 1, as the "New Documents") and to consummate the transactions
contemplated hereby and thereby and (b) has taken all action, corporate or
otherwise, necessary to authorize the execution and delivery of the New
Documents and the consummation of the transactions contemplated hereby and
thereby.
4.4 Neither execution and delivery of the New Documents by any Loan Party
-10-
<PAGE>
nor consummation by it of the transactions contemplated hereby and thereby (a)
conflict with, or result in any breach or violation of any provision of, the
certificate of incorporation or by-laws of any Loan Party, (b) conflict with or
result in any breach or violation of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in the creation of a Lien upon any of the properties or assets of any
Loan Party (other than Liens granted or permitted by the Collateral Documents or
the Credit Agreement, as amended and supplemented to date) under, any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture,
deed of trust, license, lease agreement or other instrument or obligation to
which any Loan Party is a party or to which any of its properties or assets are
subject, where the conflict, breach or default relates to an instrument,
agreement or other document involving assets, revenues or liabilities in excess
of $250,000 individually or $500,000 in the aggregate (with respect to all Loan
Parties) or otherwise could be reasonably expected to have a Material Adverse
Effect, (c) require any consent, approval, authorization or permit of, or filing
with or notification to, any third party or any governmental, judicial,
administrative or regulatory authority of the United States or of any state,
local or foreign government or subdivision thereof (a "Governmental Entity")
other than those listed on Schedule 4.2 to the Credit Agreement (as amended and
restated in the form attached to this Amendment No. 1 as Schedule 3), all of
which have been obtained, taken, given or made are in full force and effect, or
except where the failure to receive any authorization, appraisal, or permit or
to make any filing or give any notification related to an instrument, agreement
or other document involving assets, revenues or liabilities, not exceeding
$250,000 individually or $500,000 in the aggregate (with respect to all Loan
Parties) or otherwise would not be reasonably likely to have a Material Adverse
Effect, or (d) violate any order, writ, injunction, decree, judgment, ruling,
law, statute, rule or regulation of any Governmental Entity, the violation of
which could be reasonably expected to have a Material Adverse Effect.
4.5 This Amendment No. 1, the New Notes and the other New Documents have
each been duly executed and delivered by each Loan Party that is a party thereto
and each constitutes the valid and legally binding obligation of such Loan
Party, except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws, now or hereafter in effect, relating to or affecting the
enforcement of creditors' rights generally, and to the extent such
enforceability is subject to general principles of equity (whether such
enforcement is sought in a proceeding at law or in equity), and (b) except that
the remedy of specific performance and other equitable remedies are subject to
judicial discretion.
4.6 The Liens and security interests granted pursuant to the Collateral
Documents secure, without limitation, the indebtedness, liabilities and
obligations of the Borrower to the Administrative Agent and the Lender Parties
under the Credit Agreement, as amended hereby, whether or not expressly so
stated in the Collateral Documents, and the terms "Obligations", "Debt" and
"Indebtedness" as used in such Collateral Documents (or any other term
-11-
<PAGE>
used therein to describe or refer to the indebtedness, liabilities and
obligations of the Borrower to the Administrative Agent and the Lender Parties)
includes, without limitation, the indebtedness, liabilities and obligations of
the Borrower under the New Notes and the Credit Agreement as amended hereby.
4.7 (a) Borrower and each other Loan Party thereto has the corporate power
to execute and deliver each of the Doubleday Acquisition Documents (defined in
Section 5.6 below) to which it is or will be a party and to perform such
Doubleday Acquisition Documents. Except as set forth on Schedule 4.4 to the
Credit Agreement (as amended and restated in the form attached to this
Amendment), no consent or approval of any Person (including, without limitation,
any stockholder of the Borrower), no consent or approval of any landlord or
mortgagee, no waiver of any Lien or right of distraint or other similar right
and no consent, license, approval, authorization or declaration of any
governmental authority, bureau or agency, is or will be required in connection
with the execution or delivery by the Borrower of any of the Doubleday
Acquisition Documents to which it is or will be a party.
(b) The execution and delivery by any Loan Party of each of the Doubleday
Acquisition Documents to which it is or will be a party and the performance by
each such Loan Party under each of the Doubleday Acquisition Documents to which
it is or will be a party does not (i) violate any provision of law (including,
without limitation, the Williams Act, Sections 13 and 14 of the Securities
Exchange Act of 1934, and the Hart-Scott-Rodino Antitrust Improvements Act of
1976, and Regulations T, U, and X of the Board of Governors of the Federal
Reserve System and the rules and regulations promulgated thereunder) or (ii)
conflict with or result in a breach of any order, writ, injunction, ordinance,
resolution, decree, or other similar document or instrument of any Governmental
Entity, or any certificate of incorporation or by-laws of or applicable to any
Loan Party or create (with or without the giving of notice or lapse of time, or
both) a default under or breach of or conflict with any material agreement,
instrument, document, bond, note or indenture to which Loan Party is a party, or
by which it is bound or any of its properties or assets is affected where the
breach or default relates to an agreement, instrument, document, note or
indenture involving assets, revenues or liabilities in excess of $250,000
individually or $500,000 in the aggregate (in respect of all Loan Parties) or
otherwise could reasonably be expected to have a Material Adverse Effect, or
result in the imposition of any Lien of any nature whatsoever upon any of the
properties or assets owned by or used in connection with the business of any
Loan Party or any other Loan Party, except for the Liens created and granted or
permitted under the Collateral Documents or Credit Agreement, as amended and
supplemented to date.
(c) Upon consummation of the Doubleday Acquisition, (i) ownership of all of
the Acquired Assets shall have vested in ABD free and clear of all Liens, other
than those created or permitted by the Collateral Documents or the Credit
Agreement, each as amended and supplemented to date. None of the parties to any
of the Doubleday Acquisition Documents has waived compliance by any of the other
parties thereto with any term, covenant or condition thereof, and no party
thereto has breached any covenant set forth therein or failed to perform any
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<PAGE>
of its obligations thereunder which waiver, breach or failure to perform is of a
material term or condition or could reasonably be expected to materially and
adversely affect the Acquired Assets or otherwise have a Material Adverse
Effect. The representation in the preceding sentence as to any party to the
Doubleday Acquisition Documents which is not a Loan Party is made to the best
knowledge of the Borrower. Upon consummation of the Doubleday Acquisition, such
Acquisition shall have been consummated in substantially the manner and in all
material respects as set forth in the Doubleday Acquisition Documents and in
accordance with applicable law.
(d) Each Doubleday Acquisition Document to which any Loan Party or any of
its respective Subsidiaries is a party has been duly executed and delivered by
such Loan Party or such Subsidiary, as the case may be, and, to the best
knowledge of the Borrower, each Doubleday Acquisition Document has been duly
executed and delivered by the parties thereto other than the Borrower and its
Subsidiaries, and is in full force and effect. The representations and
warranties of any Loan Party and each of its respective Subsidiaries contained
in each Doubleday Acquisition Document to which such Loan Party or such
Subsidiary, as the case may be, is a party are true and correct in all material
respects on the date hereof, except to the extent specifically made as of an
earlier date, and the Administrative Agent and each Lender Party shall be
entitled to rely upon such representations and warranties with the same force
and effect as if they were incorporated in this Agreement and made to the
Administrative Agent and each Lender Party directly as of the date hereof.
(e) True and correct copies of each of the Doubleday Acquisition Documents
have been delivered to the Administrative Agent, and as of the Effective Date,
the Doubleday Acquisition shall have been consummated in accordance therewith,
and no party thereto shall have waived any material term or condition contained
therein.
(f) Each Doubleday Acquisition Document to which any Loan Party or the
seller thereunder (the "Seller") is a party, when duly executed and delivered by
such Loan Party and the Seller, constitutes the valid and legally binding
obligation of each such Loan Party or (to the best knowledge of the Borrower)
the Seller, as the case may be, enforceable in accordance with its terms, except
that the remedy of specific performance and other equitable remedies are subject
to judicial discretion and except as (i) such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium, or other similar laws, now or hereafter in effect, relating to or
affecting the enforcement of creditors' rights generally, and (ii) to the extent
such enforceability is subject to general principles of equity (whether such
enforcement is sought in a proceeding at law or in equity).
4.8 All of the assets subject to the intercompany asset transfers described
in Schedule 2 annexed to this Amendment No. 1 that have been completed, were
transferred and assigned or, if to be transferred and assigned after the date of
this Amendment, shall be transferred and assigned, subject in all cases to the
Administrative Agent's Lien, and, as of the date hereof and
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<PAGE>
after giving affect to any such transfer, each of such assets remains subject to
such Lien which remains in full force and effect as a first priority security
interest in favor of the Administrative Agent for the ratable benefit of the
Lender Parties (except for Liens expressly permitted under the Collateral
Documents or the Credit Agreement, each as amended and supplemented to date),
except to the extent that any common law trademark so transferred has since the
date of the Credit Agreement been registered with the U.S. Patent Trademark
Office, in which case, appropriate filings with such Governmental Entity may be
required to perfect the Lien of the Administrative Agent on such federally
registered marks.
Article V
Conditions.
The effectiveness of this Amendment No. 1 shall be subject to the
fulfillment by the Borrower, in a manner satisfactory to the Administrative
Agent and the Lender Parties, of all of the conditions precedent set forth in
this Article V, and the date on which all such conditions shall have been
fulfilled to the satisfaction of the Administrative Agent and the Lender
Parties, and this Amendment No. 1 shall have become effective, shall be herein
called the "Effective Date":
5.1 (a) The representations and warranties contained herein and each other
agreement, instrument, certificate or other writing delivered to the
Administrative Agent or any Lender Party pursuant hereto or to the Credit
Agreement shall be correct on and as of the date hereof after giving effect to
this Amendment No. 1 as though made on and as of such date except to the extent
modified hereby and (b) no Default or Event of Default shall have occurred and
be continuing on the Effective Date or would result from the taking effect of
this Amendment No. 1, or the transactions contemplated hereby, including the
Doubleday Acquisition.
5.2 The Borrower shall have:
(a) executed and delivered to the Administrative Agent this Amendment No.
1;
(b) executed and delivered to each of the Term Lenders its respective New
Note;
(c) paid to the Administrative Agent, for the ratable benefit of the Lender
Parties, a fee in the amount of $240,000 with respect to this Amendment,
together with such other fees as may be due from the Borrower to the Lender
Parties with respect hereto;
(d) paid all reasonable fees and expenses of Winston & Strawn, counsel to
the Administrative Agent and to Fleet National Bank, incurred in connection
herewith; and
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<PAGE>
(e) otherwise complied in all respects with the terms hereof and of any
other agreement, document, instrument or other writing to be delivered by the
Borrower in connection herewith.
5.3 The Administrative Agent shall have received, on or before the date
hereof, the following, each in form and substance satisfactory to the
Administrative Agent:
(a) copies of the resolutions adopted by the Borrower's Board of Directors,
certified by an authorized officer thereof, authorizing (i) the execution,
delivery and performance by the Borrower of this Amendment No. 1 and the other
New Documents, and (ii) the Borrower's subsidiary's investment in the Acquired
Assets and the execution, delivery and consummation of the Doubleday Acquisition
Documents; and
(b) a certificate of an authorized officer of the Borrower, certifying the
names and true signatures of the officer authorized to sign the New Documents,
together with evidence of the incumbency of such authorized officer; and a
compliance certificate executed by the Chief Financial Officer of the Borrower
dated the date hereof certifying that the conditions set forth in Section 5.1
and otherwise in this Article V shall have been satisfied (together with a
detailed computation of compliance with financial covenants set forth in the
Credit Agreement).
5.4 With respect to each of the New Guarantors, the Administrative Agent
shall have received each of the following duly executed by such New Guarantor,
and otherwise in form and substance satisfactory to the Administrative Agent:
(a) a Subsidiary Guaranty (or supplement or agreement of joinder to the
existing Subsidiary Guaranty) guarantying to the Administrative Agent and the
Lender Parties the prompt payment, when and as due, of all Obligations of the
Loan Parties under the Loan Documents, including all obligations under any
hedging agreement;
(b) a Security Agreement (or supplement or agreement of joinder to the
existing Security Agreement) granting to the Administrative Agent, for the
ratable benefit of the Lender Parties, a security interest in all of the
Collateral of such New Guarantor, together with:
(i) proper financing statements under the Uniform Commercial Code of all
jurisdictions that the Administrative Agent may deem necessary or desirable in
order to perfect and protect the first priority Liens and security interests
created under the Security Agreement, covering the Collateral described in the
Security Agreement which are able to be perfected by filing;
(ii) to the extent required by the Administrative Agent, completed requests
for information, dated on or before the Effective Date (or if not received prior
to the Effective Date,
-15-
<PAGE>
received within fifteen days following the Effective Date), listing all
effective financing statements filed that name such New Guarantor as debtor,
together with copies of such financing statements;
(iii) evidence of the completion of all other recordings and filings of or
with respect to the Security Agreement (which evidence may be delivered promptly
following the filing of the foregoing) that the Administrative Agent may deem
necessary or desirable in order to perfect and protect the Liens created
thereby;
(iv) evidence of the insurance required by the terms of the Security
Agreement;
(v) copies of the Assigned Agreements, if any, referred to in the Security
Agreement, together with a consent (to the extent required by the Administrative
Agent) to such assignments, if any, duly executed by each party to such Assigned
Agreements other than such New Guarantor;
(vi) a Note Assignment Agreement covering (and together with) all
intercompany notes, if any, made by such New Guarantor payable to the Borrower
and duly endorsed to the Administrative Agent; and
(vii) evidence that all other action that the Administrative Agent may deem
necessary or desirable in order to perfect the first priority liens and security
interests created under the Security Agreement has been taken;
(c) an Intellectual Property Security Agreement (or a supplement or joinder
to the existing Intellectual Property Security Agreement) granting to the
Administrative Agent for the ratable benefit of the Lender Parties a security
interest in all of such New Guarantor's intellectual property, together with
evidence that all action that the Administrative Agent may deem necessary or
desirable in order to perfect and protect the first priority Liens and security
interests created under the Intellectual Property Security Agreement has been
taken;
(d) a supplement or joinder to the Intercompany Subordination Agreement
pursuant to which the New Subsidiaries agree to be bound by the provisions of
such Agreement and to become parties thereto;
(e) certified copies of resolutions of the Board of Directors of such New
Guarantor approving the Credit Agreement, and of each Loan Party approving this
Amendment No. 1 and each other Loan Document to which it is a party, and of all
documents evidencing other necessary corporate action and governmental and other
third party approvals and consents, if any, with respect to the Credit
Agreement, this Amendment No.1, and each other Loan Document;
(f) a copy of the charter of such New Guarantor and each amendment
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<PAGE>
thereto, certified (as of a date reasonably near the date of the Effective Date)
by the Secretary of State of the jurisdiction of its incorporation as being a
true and correct copy thereof;
(g) a copy of a certificate of the Secretary of State of the jurisdiction
of such New Guarantor's incorporation, dated within five (5) Business Days of
the date of the Effective Date, listing the charter of such New Guarantor and
each amendment thereto on file in its office and certifying that (A) such
amendments are the only amendments to such New Guarantor's charter on file in
its office, (B) to the extent obtainable, that such New Guarantor has paid all
franchise taxes to the date of such certificate and (c) such New Guarantor is
duly incorporated and in good standing or existing, as the case may be, under
the laws of the jurisdiction of its incorporation;
(h) a copy of a certificate of the Secretary of State of each State listed
on Schedule 1 hereto, or on Schedule 4.2 to the Credit Agreement (as amended and
restated in the form annexed hereto as part of Schedule 3) dated reasonably near
the Effective Date, stating that such New Guarantor is duly qualified and in
good standing or existence as a foreign corporation in such State and has filed
all annual reports required to be filed to the date of such certificate;
(i) a certificate of the Secretary or an Assistant Secretary of such New
Guarantor certifying the names and true signatures of the officers of such New
Guarantor authorized to sign this Amendment No. 1, and each other Loan Document
to which they are or are to be parties and the other documents to be delivered
hereunder and thereunder; and
(j) such financial, business and other information regarding such New
Guarantor as any of the Lender Parties shall have reasonably requested.
5.5 The Borrower or the relevant Subsidiary of the Borrower shall have
taken all action necessary to allow the Administrative Agent to obtain a valid
and enforceable, first priority, perfected security interest in 100% of the
stock of each New Guarantor, and delivered or caused to be delivered to the
Administrative Agent certificates representing such pledged shares accompanied
by undated stock powers executed in blank and irrevocable proxies, and the
Security Agreement shall have been amended to reflect the foregoing, upon terms
and conditions reasonably satisfactory to the Administrative Agent.
5.6 (a) The Administrative Agent shall have received a true, correct and
complete copy of the Acquisition Agreement (including all exhibits, annexes and
schedules thereto) and all agreements, instruments, and documents executed and
delivered in connection therewith, and all exhibits, annexes and schedules
annexed thereto, and all amendments and modifications to any of the foregoing
(collectively, all of the foregoing, are referred to as the "Doubleday
Acquisition Documents"), which Doubleday Acquisition
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<PAGE>
Documents shall be certified as true, correct and complete by an officer of the
Borrower, and shall be satisfactory to the Administrative Agent and the Lender
Parties in all respects;
(b) the Borrower shall have executed and delivered to the Administrative
Agent such lien searches and UCC-1 financing statements in connection with the
Acquired Assets as the Administrative Agent may have requested, in form
sufficient for filing; and
(c) upon the Administrative Agent's request, the Borrower shall have (i)
delivered to the Administrative Agent the original of all instruments, documents
and chattel paper, and all other Collateral of which the Administrative Agent
determines it should have physical possession in order to perfect its security
interest therein, duly pledged, endorsed or assigned to the Administrative Agent
without restriction, (ii) obtained and delivered to the Administrative Agent
landlord waivers, in form and substance reasonably satisfactory to the
Administrative Agent, with respect to any Inventory or other tangible Collateral
located at a location that is not owned by the Borrower or a Subsidiary, (iii)
delivered to the Administrative Agent warehouse receipts covering any portion of
the Inventory or other Collateral located in warehouses and for which warehouse
receipts are issued, and (iv) taken all such other actions and obtain all such
other agreements as the Administrative Agent may reasonably deem necessary or
desirable in respect of any Collateral, and otherwise complied with the
provisions of Section 5.13 of the Credit Agreement.
5.7 Each of the parties hereto shall have executed and delivered this
Amendment No. 1 to the Administrative Agent.
5.8 The Administrative Agent shall have received satisfactory evidence of
the increase in principal amount of the Senior Subordinated Debt, the proceeds
of which shall be applied by the Borrower to finance, in part, the Doubleday
Acquisition, together with such amendments of the Senior Subordinated Debt
Documents (which may include the Letter Agreement, the Intercreditor Agreement,
the Senior Subordinated Security Agreement, and the 9% Convertible Senior
Subordinated Promissory Notes) and such other agreements and documents as may be
necessary to reflect such increase, each of which shall be reasonably
satisfactory to the Administrative Agent in all respects.
5.9 The Administrative Agent shall have received a favorable written
opinion of Tenzer Greenblatt LLP, counsel to the Borrower and Guarantors, and of
such other counsel as the Administrative Agent may require, as to such matters
relating to the transactions contemplated by this Amendment No. 1 (including the
Doubleday Acquisition), the New Notes and the Collateral Documents executed by
each of the New Guarantors in form and substance as the Lender Parties may
reasonably request.
5.10 All proceedings in connection with the transactions contemplated by
this Amendment No. 1 including the Doubleday Acquisition, and all documents
incidental
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<PAGE>
thereto shall be reasonably satisfactory to the Administrative Agent, the Lender
Parties and their respective counsel, and each such Person shall have received
all such information and such counterpart originals or certified copies of
documents as may have been reasonably requested.
Article VI
Acknowledgments, Confirmations and General Amendments.
6.1 Each of the Guarantors hereby (i) acknowledges and consents to this
Amendment No. 1 (whether or not its consent is required); (ii) confirms and
agrees that the Subsidiary Guaranty to which it is a party is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, and all references in any such Subsidiary Guaranty to "the Credit
Agreement," "thereof," "thereunder" or words of like import referring to the
Credit Agreement shall mean the Credit Agreement as amended by this Amendment
No.1; (iii) confirms and agrees that, the "Guaranteed Obligations" as defined in
such Subsidiary Guaranty include the Obligations of the Borrower to the Lender
Parties under the Credit Agreement as amended by this Amendment No. 1, and under
the New Notes; and (iv) confirms and agrees that the Liens and security
interests granted by each of them pursuant to the Collateral Documents secure,
without limitation, the indebtedness, liabilities and obligations of the
Guarantors to the Lender Parties and the Administrative Agent under the
Subsidiary Guaranty, including without limitation, the Guaranteed Obligations
which obligations include the obligations of the Borrower under the New Notes
and the Credit Agreement as amended hereby.
6.2 All references in the Credit Agreement and every other agreement,
instrument and document executed and delivered by each of the Loan Parties in
connection therewith, including, without limitation, any of the Collateral
Documents, to "Credit Agreement" and "Agreement", as applicable, and also, in
the case of the Credit Agreement to "this Agreement", shall be deemed to refer
to the Credit Agreement as amended and supplemented hereby.
6.3 All references in the Credit Agreement, the Collateral Documents or any
other agreement, instrument and document executed and delivered in connection
therewith to "Notes" shall be deemed to include, without limitation, the New
Notes.
6.4 All references in the Credit Agreement, the Collateral Documents or any
other agreement, instrument or document executed and delivered in connection
therewith to the "Term Advances" or "Advances" (or any other term or terms used
in any of such documents to describe or refer to Advances made by the Lender
Parties to the Borrower under the Credit Agreement) shall be deemed to refer to
Advances made by the Lender Parties to the Borrower pursuant to the Credit
Agreement as amended and supplemented hereby.
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<PAGE>
6.5 The Credit Agreement, the Collateral Documents and all agreements,
instruments and documents executed and delivered in connection with any of the
foregoing, shall each be deemed amended hereby to the extent necessary, if any,
to give effect to the provisions of this Amendment No. 1.
Article VII
Continued Effectiveness of Credit Agreement.
The Credit Agreement and the other agreements to which the Borrower is a
party delivered in connection herewith or with the Credit Agreement are, and
shall continue to be, in full force and effect, and are hereby ratified and
confirmed in all respects except that on and after the date hereof (a) all
references in the Credit Agreement to "this Agreement", "hereto", "hereof",
"hereunder" or words of like import referring to the Credit Agreement shall mean
the Credit Agreement as amended and supplemented by this Amendment No. 1 and (b)
all references in the Credit Agreement and such other agreement to which the
Borrower is a party to the "Credit Agreement", "thereto", "thereof",
"thereunder" or words of like import referring to the Credit Agreement shall
mean the Credit Agreement as amended and supplemented by this Amendment No. 1.
Article VIII
Miscellaneous.
8.1 Except as specifically amended herein, the Credit Agreement shall
remain in full force and effect in accordance with its terms.
8.2 This Amendment No. 1 shall be governed and construed in accordance with
the laws of the State of New York.
8.3 No modification or waiver of or with respect to any provisions of this
Amendment No. 1 and all other agreements, instruments and documents delivered
pursuant hereto or thereto, nor consent to any departure by the Administrative
Agent or the Lender Parties from any of the terms or conditions thereof, shall
in any event be effective unless it shall be in writing and executed in
accordance with the provisions of the Credit Agreement, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No consent to or demand on the Borrower in any case shall, of
itself, entitle it to any other or further notice or demand in similar or other
circumstances. This Amendment No. 1, together with the Credit Agreement, as
amended, embodies the entire agreement and understanding among the Borrower, the
Administrative Agent and the Lender Parties and supersedes all prior agreements
and understandings relating to the subject matter hereof.
8.4 The provisions of this Amendment No. 1 are severable, and if any
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<PAGE>
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Amendment No. 1 in any jurisdiction.
8.5 This Amendment No. 1 may be signed in any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
8.6 This Amendment No. 1 shall be binding upon and inure to the benefit of
the Borrower and its respective successors and to the benefit of the
Administrative Agent and the Lender Parties and their respective successors and
assigns. The rights and obligations of the Borrower under this Amendment No. 1
shall not be assigned or delegated without the prior written consent of the
Lender Parties, and any purported assignment or delegation without such consent
shall be void.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be
duly executed on the date first above written.
AUDIO BOOK CLUB, INC.
By __________________________
Title
FLEET NATIONAL BANK,
as Administrative Agent,
Initial Issuing Bank, Swing
Line Bank, and as a Bank
By ____________________________
Title
ING (U.S.) CAPITAL CORPORATION
By___________________________
Title
The undersigned, whether or not consent is required in respect of any of the
foregoing, hereby confirm, agree to and accept the terms of this Amendment No. 1
and confirm the truth and accuracy of the representations and warranties
relating to any of the undersigned.
ABC INTERNET SERVICES, INC.
By__________________________
Title
CLASSIC RADIO HOLDING CORP.
By__________________________
Title
<PAGE>
CLASSIC RADIO ACQUISITION CORP.
By__________________________
Title
ABC INVESTMENT CORP.
By__________________________
Title
CH ACQUISITIONS CORP.
By__________________________
Title
ABD ACQUISITION CORP.
By__________________________
Title
RADIO SPIRITS, INC.
By__________________________
Title
BOOKSALOUD, INC.
By__________________________
Title
MULTIMEDIA FULFILLMENT, INC.
By__________________________
Title
<PAGE>
EXHIBIT A TO AMENDMENT AND
SUPPLEMENT NO. 1 TO THE CREDIT AGREEMENT
SCHEDULE I
TO CREDIT AGREEMENT
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
====================================================================================================================================
SwingLine
Revolving Commitment
Credit (The SwingLine
Commitment Commitment is
(Letters of Credit are a a Sublimit of
Name of $1,000,000 Sublimit of the Revolving Domestic Eurodollar
Initial Lender the Revolving Term Credit Lending Lending
Party Credit Commitments) Commitment Commitment) Office Office
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fleet National Bank $4,500,000 $15,500,000 $1,000,000 One Federal Street One Federal Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110
Fax: (617) 346-4375 Fax: (617) 346-4375
Phone: (617) 346-4388 Phone: (617) 346-4388
- ------------------------------------------------------------------------------------------------------------------------------------
ING (U.S.) Capital $4,500,000 $15,500,000 $0 200 Galleria Parkway, N.W. 200 Galleria Parkway,
Corporation Suite 950 N.W.
Atlanta, GA 30339 Suite 950
Fax: (770) 951-1005 Atlanta, GA 30339
Phone: (770) 956-9200 Fax: (770) 951-1005
Phone: (770) 956-9200
====================================================================================================================================
</TABLE>
<PAGE>
EXHIBIT B TO AMENDMENT AND
SUPPLEMENT NO.1 TO CREDIT AGREEMENT
JUNE 1999 NOTE
<PAGE>
EXHIBIT C TO AMENDMENT AND
SUPPLEMENT NO. 1 TO CREDIT AGREEMENT
SUBSIDIARY GUARANTY SUPPLEMENT
<PAGE>
EXHIBIT D TO AMENDMENT AND
SUPPLEMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 TO DECEMBER 1998 NOTE
<PAGE>
EXHIBIT E TO AMENDMENT AND
SUPPLEMENT NO. 1 TO CREDIT AGREEMENT
SUBSIDIARY GUARANTY
<PAGE>
SCHEDULE 1 TO AMENDMENT AND
SUPPLEMENT NO. 1 TO CREDIT AGREEMENT
Borrower has caused the following wholly-owned subsidiaries to be formed
all of which are "New Guarantors"
Name Jurisdiction of Incorporation Immediate
- ---- ----------------------------- ---------
Parent
- ------
ABD Acquisition Corp. Delaware Borrower
Radio Spirits, Inc. Delaware Borrower
BooksAloud, Inc. Florida Borrower
Multimedia Fulfillment, Inc. Delaware Classic Radio
Holding Corp.
<PAGE>
SCHEDULE 2 TO AMENDMENT AND
SUPPLEMENT NO. 1 TO THE CREDIT AGREEMENT
1. Classic Radio Holding Corp., ("CRHC") has orally assigned to ABC
Investment Corp., a wholly-owned subsidiary of the Company ("ABCIC"), certain
common law trademarks previously used by Radio Spirits, Inc. Specifically, such
marks are:
(a) "Radio Spirits, Inc." and design;
(b) "Radio SuperHeros" and design;
(c) "Radio Movie Classics" and design; and
(d) "When Radio Was" and design.
In anticipation of the formal assignment of these marks to ABCIC, ABCIC has
filed applications to register such marks with the U.S. Patent and Trademark
Office (the "PTO").
2. Classic Radio Acquisition Corp. ("CRAC") has orally assigned to ABCIC
its interest in the common law trademark "Adventures in Cassettes" and design,
which mark was acquired by it from Metacom, Inc. In anticipation of the
assignment of this trademark to ABCIC, ABCIC has filed an application to
register such trademark with the PTO.
3. CRAC has assigned to ABCIC its interest in two registered trademarks
acquired from Premier: "Video Images7" and "Video Yesteryear7" and the
assignments of these registered marks have been filed with the PTO.
4. Borrower has assigned to ABCIC its interest in two registered
trademarks, "BooksAloud" and "BooksAloud.com," and the assignments of these
registered marks have been filed with the PTO.
<PAGE>
5. CRAC has assigned to ABCIC the following common law marks:
(a) "Radio Yesteryear"
(b) "Radiola"
(c) "Sandy Hook Records"
(d) "Premier Electronics"
NEITHER THIS NOTE, NOR ANY SECURITY ISSUABLE UPON CONVERSION HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS. NO INTEREST IN THIS NOTE MAY BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF ITS COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
AUDIO BOOK CLUB, INC.
9% CONVERTIBLE SENIOR SUBORDINATED PROMISSORY NOTE
DUE DECEMBER 31, 2004
$4,350,000.00 June 11, 1999
AUDIO BOOK CLUB, INC. (together with its successors, the "Company"), a
Florida corporation, for value received, hereby promises to pay to Norton
Herrick or registered assigns (the "Holder") the principal sum of FOUR MILLION
THREE HUNDRED FIFTY THOUSAND DOLLARS ($4,350,000) on December 31, 2004 (the
"Maturity Date"), and to pay interest on the unpaid principal balance hereof
from June 11, 1999 to the Maturity Date at the rate of nine percent (9.0%) per
annum, in arrears, quarterly on March 31, June 30, September 30 and December 31
in each year, commencing on June 30, 1999, until the principal amount hereof
shall become due and payable; and to pay on demand interest on any overdue
principal (including any overdue partial payment of principal and principal
payable at the maturity hereof), and (to the extent permitted by applicable law)
on any overdue installment of interest (the due date of such payments to be
determined without giving effect to any grace period) at the rate of eleven
percent (11.0%) per annum.
1. Interest and Payment
1.1 Interest shall be computed on the basis of a 360 day year of twelve 30
day months for the actual time elapsed.
1.2 At the option of the Holder, the Company may pay a scheduled interest
payment in a number of whole shares of common stock, without par value ("Common
Stock"), of the Company, in lieu of paying such interest in cash, equal to the
quotient of dividing the amount of accrued and unpaid interest payable on such
interest payment date by an amount equal to the then current Conversion Price
(as hereinafter defined). No fractional shares of Common Stock will be issued to
the Holder in lieu of cash interest. Instead of any fractional share which would
otherwise be issuable in lieu of cash interest, the Company will calculate
<PAGE>
and pay a cash adjustment in respect of such fraction (calculated to the nearest
1/100th of a share) in an amount equal to the same fraction of the Conversion
Price at the close of business on the fifth business day immediately preceding
such interest payment date. The Holder may exercise its option to cause the
Company to issue shares of Common Stock, in lieu of cash interest payable on an
interest payment date, by giving the Company written notice of its exercise of
such option at least five business days prior to such interest payment date and
the Company will deliver or cause its transfer agent to deliver, to the Holder
or its designee on such interest payment date, duly executed certificates for
the number of whole shares of Common Stock so issuable to the Holder registered
in the Holder's name or such other name or names and in such denominations as
the Holder shall have designated in its notice of exercise, and, if applicable,
a check payable to the Holder for any cash adjustment in lieu of a fractional
share.
1.3 Except as provided in Section 1.2 hereof, payments of principal, Change
in Control Purchase Price (as hereinafter defined), if any, and accrued interest
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private Debts to
the Holder hereof at its address shown in the register maintained by the Company
for such purpose.
1.4 (a) The Company shall pay all amounts payable with respect to this Note
(without any presentment of this Note) by crediting, by federal funds bank wire
transfer, the account of the Holder in any bank in the United States of America
as may be designated in writing by the Holder or in such other manner or to such
other address in the United States of America as may be designated in writing by
the Holder (and as to which, absent subsequent notice from the Holder, the
Company may conclusively rely). Annex I shall be deemed to constitute notice,
direction or designation (as appropriate) by the payee of this Note to the
Company with respect to payments to be made to such payee as above provided. In
the absence of such written direction, all amounts payable with respect to this
Note shall be paid by check mailed and addressed to the Holder at its address
shown in the register maintained by the Company pursuant to Section 2.1.
(b) All payments received on account of this Note shall be applied first to
the payment of accrued and unpaid interest on this Note and then to the
reduction of the unpaid principal amount of this Note. In case the entire
principal amount of this Note is paid or this Note is purchased by the Company,
this Note shall be surrendered to the Company for cancellation and shall not be
reissued, and no Note shall be issued in lieu of the paid principal amount of
any Note.
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1.5 (a) If any payment due on account of this Note shall fall due on a day
other than a business day, then such payment shall be made on the first business
day following the day on which such payment shall have so fallen due; provided
that if all or any portion of such payment shall consist of a payment of
interest, for purposes of calculating such interest, such payment shall be
deemed to have been originally due on such first following Business Day, such
interest shall accrue and be payable to (but not including) the actual date of
payment, and the amount of the next succeeding interest payment shall be
adjusted accordingly.
(b) Any payment to be made to the Holder on account of this Note shall be
deemed to have been made on the business day such payment actually becomes
available at such Holder's bank prior to the close of business of such bank,
provided that interest for one day at the non-default interest rate of this Note
shall be due on the amount of any such payment that actually becomes available
to the Holder at the Holder's bank after 1:00 p.m. (local time of such bank).
1.6 The Company may, upon at least three business days prior written notice
to the Holder specifying the date of the prepayment (the "Prepayment Date") and
the principal amount to be prepaid, prepay the unpaid principal balance of this
Note in whole at any time or in part from time to time, without penalty or
premium, in multiples of $100,000 (or if the outstanding principal amount is
less than $100,000 at such time, then such principal amount) together with
interest on the principal amount being prepaid accrued to the designated
Prepayment Date.
1.7 In the event of a Change in Control, the Company will, within 15
business days after the occurrence of such event, give notice of such Change in
Control to the Holder. Such notice shall contain an irrevocable offer to the
Holder to repurchase this Note on a date (the "Change in Control Payment Date")
specified in such notice that is not less than thirty (30) days and not more
than ninety (90) days after the date of such notice, at a purchase price equal
to 100% of the aggregate principal amount thereof and all interest accrued and
unpaid on such principal amount to the Change in Control Payment Date (the
"Change in Control Purchase Price"). Each such notice shall: (i) be dated the
date of the sending of such notice; (ii) be executed by an executive officer of
the Company; (iii) specify, in reasonable detail, the nature and date of the
Change in Control; (iv) specify the Change in Control Payment Date; (v) specify
the principal amount of this Note outstanding; (vi) specify the interest that
would be due on this Note, accrued to the Change in Control Payment Date; and
(vii) specify that this Note shall be purchased at the Change in Control
Purchase Price. The Holder
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shall have the option to accept or reject such offered payment. In order to
accept such offered payment, the Holder shall cause a notice of such acceptance
to be delivered to the Company at least five days prior to the Change in Control
Payment Date. A failure to accept in writing such written offer of payment as
provided in this Section 1.7, or a written rejection of such offered prepayment,
shall be deemed to constitute a rejection of such offer. The offered payment
shall be made at the Change in Control Purchase Price determined as of the
Change in Control Payment Date.
1.8 Upon any partial payment of the outstanding principal amount of this
Note, the Holder shall mark this Note with a notation of the principal amount so
paid and the date of such payment
2. Registration; Exercise; Substitution
2.1 The Company will keep at its principal executive office a register for
the registration and transfer of this Note. The name and address of the Holder
of this Note, each transfer hereof made in accordance with Section 2.2(a) and
the name and address of each transferee of this Note shall be registered in such
register. The person in whose name this Note shall be registered shall be deemed
and treated as the owner and holder thereof, and the Company shall not be
affected by any notice or knowledge to the contrary, other than in accordance
with Section 2.2(a)
2.2 (a) Upon surrender of this Note at the principal executive office of
the Company, duly endorsed or accompanied by a written instrument of transfer
duly executed by the Holder or the Holder's attorney duly authorized in writing,
the Company will execute and deliver, at the Company's expense (except as
provided in Section 2.2(c)), a new Note (or Notes) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Subject to Section 2.2(b), the new Note(s) shall be registered
in such name(s) as the Holder may request. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note, if no interest shall
have been paid thereon. Each such new Note shall carry the same rights to unpaid
interest and interest to accrue on the unpaid principal amount thereof as were
carried by the Note so exchanged or transferred.
(b) This Note has been acquired for investment and has not been registered
under the securities laws of the United States of America or any state thereof.
Accordingly, notwithstanding Section 2.2(a), neither this Note nor any interest
thereon may be offered for sale, sold or transferred in
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the absence of registration and qualification of this Note under applicable
federal and state securities laws or an opinion of counsel of the Holder
reasonably satisfactory to the Company that such registration and qualification
are not required. This Note shall not be transferred in denominations of less
than $100,000 and integral multiples thereof, provided that the Holder may
transfer this Note as an entirety regardless of the principal amount thereof.
(c) The Company may require payment of a sum sufficient to cover any stamp
tax or governmental change imposed in respect of any such transfer of this Note.
2.3 Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note (which evidence shall be, if the Holder is the payee or an
institutional investor, notice from the payee or such institutional investor of
such loss, theft, destruction or mutilation), and (a) in the case of loss, theft
or destruction, of indemnity reasonably satisfactory to the Company; provided,
however, that if the Holder is the payee or an institutional investor, the
unsecured agreement of indemnity of the payee or such institutional investor
shall be deemed to be satisfactory; or (b) in the case of mutilation, upon
surrender and cancellation thereof; the Company at its own expense will execute
and deliver, in lieu thereof, a replacement Note, dated and bearing interest
from the date to which interest shall have been paid on such lost, stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note, if no interest shall have been paid thereon.
2.4 The Company will pay taxes (if any) due (but not, in any event, income
taxes of the Holder) in connection with and as the result of the initial
issuance of this Note and in connection with any modification, waiver or
amendment of this Note and shall save the Holder harmless, without limitation as
to time, against any and all liabilities with respect to all such taxes.
3. Subordination
3.1 Notwithstanding any other provision contained in this Agreement, the
Subordinated Debt is subordinate and junior in right of payment to all Senior
Debt to the extent provided in this Section 3.
3.2 In the event of (a) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company; (b) any proceeding for the liquidation,
dissolution or other winding-up of the Company, voluntary or involuntary,
whether or
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not involving insolvency or bankruptcy proceedings; (c) any general assignment
by the Company for the benefit of creditors; or (d) any other marshaling of the
assets of the Company; all Senior Debt shall first be paid in full, in cash or
Cash Equivalents (as defined in Section 8 hereof and, for all purposes of this
Section 3, as so defined), before any payment or distribution, whether in cash,
securities or other property, shall be made to any holder of any Subordinated
Debt on account of any Subordinated Debt. Any payment or distribution, whether
in cash, securities or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or readjustment
the payment of which is subordinated, at least to the extent provided in
this,Section 3 with respect to Subordinated Debt, to the payment of all Senior
Debt at the time outstanding and to any securities issued in respect thereof
under any such plan of reorganization or readjustment, but only if the rights of
the holders of the Senior Debt are not impaired by such plan without their
consent), which would otherwise (but for this Section 3) be payable or
deliverable in respect of Subordinated Debt, shall be paid or delivered directly
to the holders of Senior Debt in accordance with the priorities then existing
among such holders, until all Senior Debt shall have been paid in full, in cash
or Cash Equivalents.
3.3 If any holder of Subordinated Debt does not file a proper claim or
proof of Debt therefor prior to 20 days before the expiration of the time to
file such claim or proof, then the Senior Agent is hereby authorized and
empowered (but not obligated) as the agent and attorney-in-fact for such holder
for the specific and limited purpose set forth in this Section 3.3 to file such
claim or proof for or on behalf of such holder; provided, however, that the
Senior Agent shall have, prior to taking any such action, given 15 days prior
written notice (which notice may be given up to 60 days prior to the expiration
of the time to file such claim or proof) to such holder of Subordinated Debt
that it intends to file such claim or proof of Debt. In no event may the Senior
Agent or any holder of the Senior Debt vote any claim on behalf of any holder of
the Subordinated Debt, and such agency and appointment of attorney-in-fact shall
not extend to any such right to vote any such claim.
3.4 If (a) the Company shall default in the payment or prepayment of any
principal of, premium, if any, or interest on, or commitment fee or letter of
credit fee or Administrative Agent fee or indemnity under Section 2.10 or 2.12
or 11.4(c) (or comparable sections under any replacement Senior Debt) in respect
of, any Senior Debt (a "Senior Payment Default") when the same becomes due and
payable, whether at maturity, at a date fixed for prepayment, by declaration of
acceleration or otherwise, or shall
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<PAGE>
fail to comply with any covenant or agreement in respect of Senior Debt which
covenant or agreement default results in actual acceleration of the maturity of
such Senior Debt ("Covenant Acceleration"); and (b) the Company receives from
the Senior Agent written notice of the happening of such Senior Payment Default
or Covenant Acceleration, stating that such notice is a payment blockage notice
pursuant to this Section 3.4; no direct or indirect payment (in cash, property
or securities or by set-off or otherwise) shall be made or agreed to be made on
account of any Subordinated Debt, or as a sinking fund for any Subordinated
Debt, or in respect of any redemption, retirement purchase, prepayment or other
acquisition or payment of any Subordinated Debt, unless and until such Senior
Payment Default shall have been cured or waived or otherwise shall have ceased
to exist or such Covenant Acceleration shall have been rescinded and the
underlying covenant default shall have been cured or waived or shall have
otherwise ceased to exist.
The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any such notice from the Senior Agent under this Section
3.4.
3.5 If (a) any Significant Nonpayment Default shall have occurred; and (b)
the Company and the Holder receive from the Senior Agent written notice (a "Stop
Payment Notice") of the happening of such Significant Nonpayment Default,
stating that such notice is a payment blockage notice pursuant to this Section
3.5; no direct or indirect payment (in cash, property or securities or by
set-off or otherwise) shall be made or agreed to be made for or on account of
any Subordinated Debt, or as a sinking fund for any Subordinated Debt or in
respect of any redemption, retirement, repurchase, prepayment, purchase or other
acquisition or payment of any Subordinated Debt for a period (each, a "Payment
Blockage Period") commencing on the date such Stop Payment Notice is delivered
to the Company and ending on the earliest to occur of the following: (a) the
time as of which each Significant Nonpayment Default which is the subject of
such Stop Payment Notice shall have been waived or cured (whether by amendment
of any provisions of the Senior Credit Agreement or otherwise), (b) a number of
days shall have elapsed as is necessary to prevent the total number of days that
a Stop Payment Notice (or Stop Payment Notices in the event that more than one
Stop Payment Notice has been given) is in effect during any consecutive 365 day
period from exceeding 180 days in the aggregate, and (c) the date of the
repayment in full in cash or Cash Equivalents of the Senior Debt and the
termination of any commitment to make further loans or advances in respect of
the Senior Debt; provided, however, that (i) the Senior Agent shall not be
permitted to issue a Stop Payment Notice more than six times in the aggregate;
(ii) only two Stop Payment Notices may be
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issued in any period of 365 consecutive days; (iii) Payment Blockage Periods may
not be in effect for more than 180 days (whether or not such days are
consecutive) during any period of 365 consecutive days, and if any Payment
Blockage Period is in effect on the 181st day in any period of 365 consecutive
days, such Payment Blockage Period will terminate immediately; and (iv) no
Payment Blockage Period may be imposed as a result of a Significant Nonpayment
Default which served as the basis for or was continuing during any previous
Payment Blockage Period, unless any such Significant Nonpayment Default shall
have been cured or waived or otherwise ceased to exist for a period of not less
than 60 consecutive days after the date that the previous Stop Payment Notice
was given.
3.6 If, at any time during which the Senior Credit Facility is in effect,
the Holder elects to exercise any Remedies in respect of any Event of Default,
the Holder shall deliver to the Company and to the Senior Agent written notice
(an "Enforcement Notice") specifying the Event or Events of Default which are
the basis for the exercise of such Remedies and stating that the Holder intends
to exercise Remedies; provided, however, that the failure to deliver such
Enforcement Notice to the Senior Agent shall not affect the validity of the
Enforcement Notice as between such holder or holders and the Company.
3.7 Notwithstanding anything contained in this Note to the contrary, for so
long as any amount is outstanding under the Senior Credit Facility including any
letter of credit reimbursement obligations or commitments, the Holder shall not
exercise any Remedies in respect thereof during any period (a "Standstill
Period") commencing on the first date the Holder, but for the provisions of this
Section 3, would have been entitled to exercise any Remedies and ending upon the
earliest of-
(a) the date which is 10 business days after the Enforcement Notice is
delivered to the Company and the Senior Agent pursuant to Section 3.6; provided,
however, that if any Payment Blockage Period arising from the giving of a Stop
Payment Notice is in effect on such 10th business day after the Enforcement
Notice is so delivered, this clause (a) shall be ineffective to terminate such
Standstill Period;
(b) in the event that a Payment Blockage Period arising from the giving of
a Stop Payment Notice is in effect on the date which is 10 business days after
an Enforcement Notice is delivered to the Company and the Senior Agent pursuant
to Section 3.6, the expiration of such Payment Blockage Period;
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(c) the date that any holder of any Senior Debt commences the exercise of
any Remedies in respect of such Senior Debt; and
(d) the first date upon which any of the Events of Default described in
Section 7.1(f) and (g) shall have occurred and be continuing beyond any period
of grace specified therein; and, in such event, the automatic acceleration of
this Note contemplated in respect of such Event of Default pursuant to Section
7.2(a) shall occur immediately upon the termination of the Standstill Period.
3.8 If (a) any payment or distribution shall be paid to or collected or
received by any holders of Subordinated Debt in contravention of any of the
terms of this Section 3 but whether or not any Stop Payment Notice or (pursuant
to Section 3.4) payment blockage notice shall theretofore have been given (i.e.,
if paid, collected or received at a time when either such notice could have been
given had the Senior Agent been aware of circumstances giving rise to the right
to deliver any such notice); and (b) the Senior Agent shall have notified the
holders of Subordinated Debt in writing, within 30 days after the date such
payment or distribution is made, of the facts by reason of which such payment or
collection or receipt so contravenes this Section 3 or constituted a Significant
Nonpayment Default; then such holders of Subordinated Debt will deliver such
payment or distribution, to the extent necessary to pay all such Senior Debt in
full, in cash or Cash Equivalents, to the Senior Agent, on behalf of the holders
of the Senior Debt, and, until so delivered, the same shall be held in trust by
such holders of Subordinated Debt as the property of the holders of such Senior
Debt. If any amount is delivered to the Senior Agent pursuant to this Section
3.8, whether or not such amounts have been applied to the payment of Senior Debt
and the outstanding Senior Debt shall thereafter be paid in full, in cash or
Cash Equivalents, by the Company or otherwise other than pursuant to this
Section 3.8, the holders of Senior Debt shall return to such holders of
Subordinated Debt an amount equal to the amount delivered to such holders of
Senior Debt pursuant to this Section 3.8, so long as after the return of such
amounts the Senior Debt shall remain indefeasibly paid in full, in cash or Cash
Equivalents.
3.9 Except as provided in this Section 3, the rights set forth in this
Section 3 of the holders of the Senior Debt as against each holder of
Subordinated Debt shall remain in full force and effect without regard to, and
shall not be impaired by:
(a) any act or failure to act on the part of the Company;
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(b) any extension or indulgence in respect of or change in the time, manner
or place of any payment or prepayment of the Senior Debt or any part thereof or
in respect of any other amount payable to any holder of Senior Debt, including,
without limitation, any increase in the Senior Debt resulting from extension of
additional credit to the Company or any subsidiary or otherwise and permitted by
Section 6.3(iii) or (iv) hereof;
(c) any amendment, modification, restatement, refinancing or waiver of, or
addition or supplement to, or deletion from, or compromise, release, consent or
other action in respect to any of the terms of any Senior Debt or any other
agreement which may be relating to any Senior Debt, other than such as would
cause all or any portion of such Debt to fail to meet the definition of "Senior
Debt;"
(d) any exercise or non-exercise by any holder of Senior Debt of any right
power, privilege or remedy under or in respect of any Senior Debt or
Subordinated Debt or any waiver of any such right, power, privilege or remedy or
any default in respect of any Senior Debt or the Subordinated Debt, any dealing
with or action against or application of proceeds from any collateral security
therefor or any receipt by any holder of Senior Debt of any security, or any
failure by any holder of Senior Debt to perfect a security interest in, or any
release by any such Senior Debt of, any security for or guaranty of the payment
of any Senior Debt or any manner of sale or other disposition of any assets of
the Company or any subsidiary;
(e) any merger or consolidation of the Company or any of its subsidiaries
into or with any other subsidiaries of the Company or into or with any person,
or any transfer of any or all of the property of the Company or any of its
subsidiaries to any other person or any change, restructuring or termination of
the corporate structure or existence of the Company or any of its subsidiaries;
(f) the absence of any notice to, or knowledge by, any holder of
Subordinated Debt of the existence or occurrence of any of the matters or events
set forth in the foregoing clauses (a) through (e).
(g) any lack of validity or enforceability of any instrument or agreement
evidencing or securing any Senior Debt or any other agreement or instrument
relating thereto; or
(h) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company or any holder of Subordinated Debt.
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3.10 Each holder of Subordinated Debt and the Company hereby waives
promptness, diligence, notice of appearance and any other notice with respect to
any of the Senior Debt and these provisions and any requirement that any holder
of the Senior Debt protect, secure, perfect or insure any security interest or
Lien or any property subject thereto or exhaust any right to take any action
against the Company or any other person or entity or any collateral.
3.11 The Company will, and will use its reasonable efforts to cause each
holder of Subordinated Debt to, at the Company's expense and at any time and
from time to time, promptly execute and deliver all further instruments and
documents, and take all further actions, that may be necessary or desirable, or
that any holder of any Senior Debt may reasonably request, in order to protect
any right or interest granted or purported to be granted under this Section 3 or
enable the holders of the Senior Debt to exercise and enforce their rights and
remedies under these provisions.
3.12 Each holder of Subordinated Debt waives any and all notices of the
acceptance of the provisions of this Section 3 or of the creation, renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.
3.13 The obligations of each holder of Subordinated Debt under the
provisions set forth in this Section 3 shall continue to be effective, or be
reinstated, as the case may be, as to any payment in respect of any Senior Debt
that is rescinded or must otherwise be returned by the holder of such Senior
Debt upon the occurrence or as a result of any bankruptcy or judicial
proceeding, all as though such payment had not been made.
3.14 Nothing contained in this Section 3 shall impair, as between the
Company and any holder of Subordinated Debt, the obligation of the Company to
pay to such holder the principal thereof and interest thereon as and when the
same shall become due and payable in accordance with the terms thereof and to
comply with each and every provision of this Note or prevent any holder of any
Subordinated Debt from exercising all rights, powers and remedies otherwise
permitted by applicable law or under this Note, all subject to the rights of the
holders of the Senior Debt hereunder including rights to receive cash,
securities or other property otherwise payable or deliverable to the holders of
Subordinated Debt.
3.15 Upon the payment in full of all Senior Debt, the holders of
Subordinated Debt shall be subrogated to all rights of any holder of Senior Debt
to receive any further payments or distributions applicable to the Senior Debt
until the
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Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, securities or other property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Subordinated Debt on the other hand, be deemed to be a payment by the
Company on account of Senior Debt and not on account of Subordinated Debt.
Notwithstanding the foregoing provisions of this Section 3.15 or any other
provision of this Note each holder of Subordinated Debt hereby waives. any and
all exoneration and impairment defenses that it may at any time have by law or
otherwise in respect of subrogation rights.
3.16 Each holder of Subordinated Debt, by its acceptance thereof, shall be
deemed to acknowledge and agree that the foregoing subordination provisions are,
and are intended to be, an inducement to and a consideration of each holder of
any Senior Debt, whether such Senior Debt was created or acquired before or
after the creation of Subordinated Debt, to acquire and hold, or to continue to
hold, such Senior Debt, and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt. Each such holder of Senior
Debt is intended to be, and is, a third party beneficiary of this Section 3.
Each holder of Subordinated Debt acknowledges and agrees that the provisions set
forth in this Section 3 shall be enforceable against such holder of Subordinated
Debt by the holders of the Senior Debt. Notwithstanding anything contained in
this Note to the contrary, none of the provisions of this Section 3 (including,
without limitation, this Section 3.16 and defined terms used herein) may,
directly or indirectly, be amended, modified, supplemented or waived without the
prior written consent of the Senior Agent, on behalf of the holders of the
Senior Debt.
3.17 Notwithstanding the other provisions of this Section 3.17, no
amendment to or refinancing of the Senior Debt or any agreement or instrument
related thereto shall be entitled to the benefits of this Section 3 without the
consent of the Holder to the extent that such amendment would prohibit directly
and expressly the Company or any subsidiary from making scheduled payments in
respect of the Subordinated Debt in accordance with the terms of this Agreement
as in effect on the date hereof or as may be amended to the extent permitted by
the Senior Credit Agreement; provided that no change of financial covenants or
increase in the restrictiveness of negative covenants or events of default under
the Senior Debt documents (that do not by their terms refer to this Note) shall
be deemed to constitute a prohibition from making scheduled payments, even if
the ultimate
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effect of any such change would cause the Company to be in default under the
Senior Debt if such a scheduled payment were made.
3.18 As used in this Section 3 and elsewhere in this Note, the following
terms have the respective meanings set forth below:
"Credit Facility" means and includes a credit agreement or similar
agreement pursuant to which the lender or lenders commit(s) to permit the
Company, subject to the conditions therein, to obtain from time to time
thereunder term or revolving loans and/or letters of credit and periodically
repay the same.
"December Note" means that certain 9% Convertible Senior Subordinated Note
due December 31, 2004 in the principal amount of $14.0 million payable to the
Holder and dated December 31, 1998, as the same may be amended, amended and
restated, modified, supplemented, extended, renewed or refinanced from time to
time.
"First Amendment" means a certain Amendment and Supplement No. 1 to Credit
Agreement dated June 11, 1999 among the parties to the Senior Credit Agreement.
"Junior Subordinated Debt" means any Debt of the Company or any subsidiary
which is (a) issued on or after the Issue Date of this Note and which is
expressly subordinated in right of payment to any Debt of the Company, or (b)
owing to any subsidiary or affiliate of the Company.
"Remedies" means and includes, with respect to any Debt (including, without
limitation, the Senior Debt and the Subordinated Debt):
(a) the acceleration of the maturity of any of such Debt;
(b) the exercise of any put right or other similar right to require the
Company or any subsidiary to repurchase any of such Debt prior to the stated
maturity thereof;
(c) the collection or commencement of proceedings against the Company, any
subsidiary thereof or any other person obligated on such Debt or any of their
respective property, to enforce or collect any of such Debt;
(d) taking possession of or foreclosing upon (whether by judicial
proceedings or otherwise) any Liens or other collateral security for such Debt;
or causing a marshaling of any property of the Company or any subsidiary;
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(e) the making of a demand in respect of any Guaranty given by the Company
or any subsidiary of the Company of such Debt;
(f) commencing or joining in or causing the Company to commence or join in
or assist the Company in commencing, any proceeding of the nature referred to in
Section 7.1(f) or 7.1(g); or
(g) exercising any other remedies with respect to such Debt or any claim
with respect thereto.
"Senior Agent" means, for so long as the Senior Credit Agreement remains
outstanding, Fleet National Bank, as administrative agent in respect of the
Senior Credit Agreement, and thereafter, any one agent or lender in respect of
the Senior Credit Facility, or a representative of either, designated in writing
to the Holder by the Company as being the "Senior Agent".
"Senior Credit Agreement" means the Credit Agreement dated as of December
31, 1998 among the Company, Fleet National Bank as administrative agent
(together with its successors in such capacity) and the banks, financial
institutions and other institutional lenders from time to time named therein, as
amended and supplemented by a certain Amendment Agreement dated as of January
25, 1999 and the First Amendment, and as such Credit Agreement, as so amended
and supplemented, may be further amended, supplemented, extended, renewed,
refinanced, amended and restated or replaced in whole or in part from time to
time.
"Senior Credit Facility" means and includes:
(a) the Senior Credit Agreement; and
(b) any Credit Facility (whether or not secured), which Credit Facility has
refinanced in whole or in part the Senior Debt governed by the terms of a Senior
Credit Facility which the Company has designated in writing to the Holder as
being the "Senior Credit Facility;" provided, however, that, by making such
designation, the predecessor Senior Credit Facility shall cease to be the Senior
Credit Facility (but any Debt outstanding or incurred thereunder shall continue
to be Senior Debt for so long as such Debt meets the definition thereof).
"Senior Debt" means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal or interest (including interest (at the
rate specified in the applicable Senior Credit Facility) accruing after the
filing of a petition under the Bankruptcy Code, whether or not allowed),
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fees, expenses, indemnification or otherwise (including letter of credit
reimbursement obligations whether or not any draw has occurred), if in respect
of:
(a) the Senior Credit Facility; and
(b) any other Debt of the Company owing to the Senior Agent or any lender
under the Senior Credit Facility (whether or not such lender continues to be a
lender thereunder) with respect to any obligations under Bank Hedge Agreements
(as defined in the Senior Credit Agreement) related to the Senior Credit
Agreement that are or may become owed by the Company directly or indirectly,
other than Debt incurred pursuant to a Senior Credit Facility.
Notwithstanding the foregoing, in no event shall "Senior Debt" include any
Junior Subordinated Debt.
"Significant Nonpayment Default" means and includes:
(a) an event of default under the Senior Credit Facility in respect of the
failure of the Company to comply with any material covenant or agreement in
respect of the Senior Credit Facility or documents executed or delivered in
connection therewith (it being understood that the provisions of Sections 2.14,
5.2, 5.5, 5.6, 5.7, 5.13 and 5.14, Article 6 and Article 8 of the Senior Credit
Agreement, as in effect on the date hereof and any comparable provisions in
effect after the date hereof, are "material covenants" for such purpose); and
any event of default under Sections 9.2, 9.5, 9.7 through 9.14 (inclusively)
under the Senior Credit Agreement (or any comparable provision in effect after
the date hereof); and
(b) an event of default in respect of the Senior Credit Facility arising
out of any Event of Default in respect of this Note.
"Subordinated Debt" means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent and whether for principal, interest (including interest accruing
after the filing of a petition under the Federal Bankruptcy Code, to the extent
allowed), fees, expenses, indemnification or otherwise, in respect of this Note
and the December Note.
4. Conversion
4.1 The Holder may convert the outstanding principal amount of this Note,
and accrued and unpaid interest thereon (or a portion of such outstanding
principal amount as provided in
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Section 4.3) into fully paid and nonassessable shares of Common Stock of the
Company ("Conversion Shares") at any time prior to the time the outstanding
principal amount of this Note, and accrued and unpaid interest thereon is paid
in full, at the Conversion Price then in effect, except that if this Note is to
be prepaid in full or repurchased pursuant to the provisions hereof, such
conversion right shall terminate at the close of business on the Prepayment Date
or the Change in Control Purchase Date, as the case may be. The number of shares
of Common Stock issuable upon conversion of this Note shall be determined by
dividing the principal amount (and accrued and unpaid interest, if any) to be
converted by the conversion price in effect on the Conversion Date (the
"Conversion Price"). The initial Conversion Price is $11.125 and is subject to
adjustment as provided in this Section 4.
The provisions of this Note that apply to conversion of the outstanding
principal amount of this Note and accrued and unpaid interest thereon also apply
to a partial conversion of this Note. The Holder is not entitled to any rights
of a holder of Conversion Shares until the Holder has converted this Note (or a
portion thereof) into Conversion Shares, and only to the extent that this Note
is deemed to have been converted into Conversion Shares under this Section 4.
4.2 To convert all or a portion of this Note, the Holder must (a) complete
and sign a notice of election to convert substantially in the form annexed
hereto (each, a "Conversion Notice"), (b) surrender the Note to the Company, (c)
furnish appropriate endorsements or transfer documents if required by the
Company and (d) pay any transfer or similar tax, if required. The date on which
the Holder satisfies all of such requirements is the conversion date (the
"Conversion Date"). As soon as practicable, and in any event within three (3)
business days, after the Conversion Date, the Company will deliver, or cause to
be delivered, to the Holder a certificate for the number of whole Conversion
Shares issuable upon such conversion and a check for any fractional Conversion
Share determined pursuant to Section 4.4 and for interest on this Note accrued
and unpaid through the Conversion Date (unless such interest has also been
converted as permitted by this Section 4). The person in whose name the
certificate for Conversion Shares is to be registered shall become the
shareholder of record on the Conversion Date and, as of the Conversion Date, the
rights of the Holder shall cease as to the portion thereof so converted;
provided, however, that no surrender of a Note on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person entitled to receive the Conversion Shares upon such conversion as the
shareholder of record of such Conversion Shares on such date, but such surrender
shall be effective to constitute
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the person entitled to receive such Conversion Shares as the shareholder of
record thereof for all purposes at the close of business on the next succeeding
day on which such stock transfer books are open; provided further that such
conversion shall be at the Conversion Price in effect on the date that this Note
shall have been surrendered for conversion, as if the stock transfer books of
the Company had not been closed.
4.3 In the case of a partial conversion of this Note, upon such conversion,
the Company shall execute and deliver to the Holder, at the expense of the
Company, a new Note in an aggregate principal amount equal to the unconverted
portion of the principal amount. This Note may be converted in part in a
principal amount equal $100,000 or an integral multiple thereof, unless the
outstanding principal amount of this Note is less than $100,000, in which case,
only such outstanding principal amount and accrued and unpaid interest thereon
is convertible into Conversion Shares.
4.4 No fractional Conversion Shares shall be issued upon conversion of this
Note. Instead of any fractional Conversion Share which would otherwise be
issuable upon conversion of this Note, the Company shall calculate and pay a
cash adjustment in respect of such fraction (calculated to the nearest 1/100th
of a share) in an amount equal to the same fraction of the Conversion Price at
the close of business on the Conversion Date.
4.5 The issuance of certificates for Conversion Shares upon the conversion
of any Security shall be made without charge to the Holder for such certificates
or for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder; provided, however, that in the event that certificates for
Conversion Shares are to be issued in a name or names other than the name of the
Holder, such Note, when surrendered for conversion, shall be accompanied by an
instrument of transfer, in form satisfactory to the Company, duly executed by
the Holder or his duly authorized attorney; and provided further, moreover, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name or names other than that of the Holder, and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall established to the satisfaction of the Company that
such tax has been paid or is not applicable.
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4.6 (a) In case the Company shall at any time after the date hereof issue,
grant or sell Additional Stock (as hereinafter defined) for a consideration,
exercise or conversion price per share less than the Conversion Price in effect
immediately prior to the issuance or sale of such Additional Stock, or without
consideration, then forthwith upon such issuance or sale, the Conversion Price
shall (upon such issuance or sale) be reduced to a price determined by dividing
(i) an amount equal to the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the
Conversion Price then in effect, plus (b) the consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Conversion Price be adjusted pursuant to
this computation to an amount in excess of the Conversion Price in effect
immediately prior to such computation, except as provided in 4.6(d) hereof.
"Additional Stock" shall mean Common Stock or options, warrants or other rights
to acquire or securities convertible into or exchangeable for shares of Common
Stock, including shares held in the Company's treasury, and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, other
than:
(A) This Note and the December Note;
(B) Warrants to purchase Common Stock issued to the Holder on December 31,
1998 (the "Warrants");
(C) Common Stock issued or issuable upon conversion of this Note and the
December Note or exercise of the Warrants;
(D) Common Stock issued or issuable upon the conversion or exercise of
options, warrants, rights, and other securities or debt convertible into or
exercisable or exchangeable for Common Stock outstanding on the date hereof;
(E) The grant of options, warrants, stock appreciation rights or other
rights available for future grant under the Company's stock option plan or any
future stock option or incentive plan approved by the Company's shareholders;
(F) Common Stock issuable upon exercise of options, warrants, stock
appreciation rights or other rights outstanding or available for future grant
under the Company's stock option plan or any future stock option or incentive
plan
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approved by the Company's shareholders; provided, that, any such options,
warrants, stock appreciation rights or other rights provide for an exercise
price or conversion price at least equal to the lesser of the Market Price (as
hereinafter defined) or the last sale price of the Common Stock on the day of or
day prior to (i) the date of approval of such grant by the Board of Directors or
(ii) the date of execution of an agreement relating to such grant;
(G) Warrants to be issued in connection with the Senior Credit Agreement
(including warrants issued in connection with the First Amendment) and shares of
Common Stock issuable upon the exercise thereof, and
(H) Common Stock or options, warrants, rights or other securities or debt
convertible into, or exercisable or exchangeable for, Common Stock (or shares of
Common Stock issuable upon the conversion or exercise thereof) in connection
with future acquisitions.
The term "Market Price" shall mean the average of the daily closing prices of a
share of Common Stock for the 10 consecutive trading days immediately prior to
the day in question. The closing price for each day shall be (a) the last
reported sales price or, in the case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case on
the principal national securities exchange on which the Common stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, on The Nasdaq Stock Market, Inc.
"Nasdaq"), (b) if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the Company
for that purpose, or (c) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on Nasdaq and the average
price cannot be determined as contemplated by clause (b), the fair market value
of the Common Stock as determined in good faith by resolution of the independent
directors of the Company. For the purposes of the preceding sentence, the term
"trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on such exchange or in
such market.
(b) For the purpose of any computation to be made in accordance with
Section 4.6(a), the following provisions shall apply:
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(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In the case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the fair market
value of such consideration as determined in good faith by the Board of
Directors.
(iii) The reclassification of securities of the Company other than shares
of Common Stock into securities including shares of Common Stock shall be deemed
to involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in Section 4.6(b)(ii).
(iv) In the case of the issuance of options, rights, or warrants to
purchase or subscribe for shares of Common Stock, securities convertible into or
exchangeable for shares of Common Stock, or options, rights or warrants to
purchase or subscribe for any such convertible or exchangeable securities, the
following provisions shall apply:
(A) The aggregate maximum number of shares of Common Stock issuable under
such options, rights or warrants shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, and shall be deemed to be
issued for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance plus
the consideration, if any, received by the Company in connection with sale or
issuance of such options, rights or warrants; provided however that upon the
expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this
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subsection (A) shall be reduced by such number of shares as to which options,
warrants and/or rights shall have expired or terminated unexercised, and such
number of shares of Common Stock shall no longer be deemed to be issued and
outstanding, and the Conversion Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had such
adjustment been made on the basis of the issuance only of shares of Common Stock
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise of rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and shall be deemed to be issued for a consideration equal to the consideration
received by the Company in connection with the sale of such securities plus the
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided however that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subsection (B) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Conversion Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
such adjustment been made on the basis of the issuance only of shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in Section 4.6(b)(iv)(A), or in the
price per share at which the securities referred to in Section 4.6(b)(iv)(B) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price in respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities.
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(D) Except as otherwise provided in this Section 4.6(b), no adjustment of
the Conversion Price shall be made upon the actual issuance of such Common Stock
upon exercise of options, rights or warrants or upon the actual issuance of such
Common Stock upon conversion or exchange of any convertible or exchangeable
securities.
(c) In case the Company shall pay or make a dividend or other distribution
to all holders of its Common Stock in shares of Common Stock, the Conversion
Price in effect at the opening of business on the day next following the date
fixed for the determination of shareholders entitled to receive such dividend or
other distribution shall be reduced by multiplying such Conversion Price by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination,
and the denominator shall be the sum of the numerator and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day next
following the date fixed for such determination. For the purposes of this
Section 4.6(c), the number of shares of Common Stock at any time outstanding
shall not include shares of Common Stock held in the treasury of the Company.
The Company will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
(d) In the event that the Company shall at any time prior to the conversion
in full of the Note declare a dividend (other than a dividend consisting solely
of shares of Common Stock or a cash dividend or distribution payable out of
current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the Note to the
extent of the unconverted portion thereof shall thereafter be entitled, in
addition to the shares of Common Stock or other securities receivable upon the
conversion thereof, to receive, upon conversion of such unconverted portion of
the Note, the same monies, property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Subsection.
(e) In case the outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the Conversion Price in effect at
the opening of business
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on the day following the day upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall each be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(f) In case the Company shall fail to take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or other distribution payable in shares of Common Stock, then such record date
shall be deemed to be the date of the issue of the shares of Common Stock deemed
to have been issued as a result of the declaration of such dividend or other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
4.7 No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($.01) in
the Conversion Price; provided, however, that any adjustments which by reason of
this Section 4.7 are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
4.8 Notice of Certain Events.
(a) In the event that: (i) the Company takes any action which would require
an adjustment in the Conversion Price; (ii) the Company takes any action
described in Section 4.9(a), (b) or (c); or (iii) there is a dissolution or
liquidation of the Company; the Holder may wish to convert this Note into shares
of Conversion Shares prior to the record date for or the effective date of the
transaction so that such Holder may receive the securities or assets which a
holder of shares of Common Stock on that date may receive. Therefore, the
Company shall give notice to the Holder in accordance with the provisions of
this Section 4.8 stating the proposed record or effective date, as the case may
be, which notice shall be given prior to the proposed record or effective date
and, in any case, no later than notice of such transaction is given to holders
of Common Stock. Failure to give such notice or any defect therein shall not
affect the validity of any transaction referred to in clause (i), (ii) or (iii)
of this Section.
(b) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 4, the Company, at its expense, shall
promptly compute such
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adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each Holder a statement, signed by its chief financial officer,
setting forth such adjustment or readjustment and showing in reasonable detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any Holder, furnish or cause to
be furnished to such Holder a like certificate setting forth (i) such adjustment
and readjustment, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the Conversion of the portion of this Note
specified in such request.
4.9 If any of the following shall occur, namely:
(a) any reclassification or change of outstanding shares of Common Stock
issuable upon conversion of this Note (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination);
(b) any consolidation or merger to which the Company is a party, other than
a merger in which the Company is the continuing corporation and which does not
result in any reclassification of, or change (other than a change in name, or
par value, or from par value to no par value, or from no par value to par value
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock; or
(c) any sale or conveyance of all or substantially all of the property or
business of the Company and its subsidiaries as an entirety;
then the Company, or such successor or purchasing corporation, as the case may
be, shall, as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, execute and deliver to the Holder, an
agreement in form satisfactory to the Holder providing that the Holder shall
have the right to convert this Note into the kind and amount of shares of stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of this Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Such agreement shall provide for adjustments of the Conversion
Price which shall be as nearly equivalent as may be practicable to the
adjustments of the Conversion Price provided for in this Section 4. If, in the
case of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable
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thereupon by a holder of Common Stock includes shares of stock or other
securities and property of a corporation other than the successor or purchasing
corporation, as the case may be, in such consolidation, merger, sale or
conveyance, then such agreement shall also be executed by such other corporation
and shall contain such additional provisions to protect the interests of the
Holder as the Board of Directors shall reasonably consider necessary by reason
of the foregoing. The provisions of this Section 4.9 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales or
conveyances.
4.10 The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of this Note, the full number of
Conversion Shares then issuable upon the conversion in full of this Note.
4.11 If the Company or an affiliate of the Company shall at any time after
the date hereof and prior to the conversion of the Note in full issue any rights
to subscribe for shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company, the Holder of the
unconverted portion of the Note shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the Conversion thereof, to
receive such rights at the time such rights are distributed to the other
shareholders of the Company.
5. Affirmative Covenants
The Company covenants that on and after the Issue Date and so long as any
portion of the Note shall be outstanding:
5.1 The Company will, and will cause each of its Subsidiaries to, pay
before they become delinquent: (a) all taxes, assessments and governmental
charges or levies imposed upon it or its property; and (b) all claims or demands
of materialmen, mechanics, carriers, warehousemen, vendors, landlords and other
like persons that if unpaid, might by law become a Lien upon its property;
provided, that items of the foregoing description need not be paid so long as
such items are being contested in good faith and by appropriate proceedings and
as to which appropriate reserves in accordance with GAAP have been established
and maintained with respect thereto, unless and until any Lien resulting
therefrom attaches to its property and becomes enforceable, unless such Lien is
effectively stayed or fully bonded pending the disposition of such proceedings.
5.2 The Company will, and will cause each of its subsidiaries to:
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(a) maintain its property that is reasonably necessary in the conduct of
its business in good working order and condition, ordinary wear and tear,
obsolescence and insured casualty losses excepted;
(b) maintain, with insurers reasonably believed to be financially sound and
reputable, insurance with respect to its property and business against such
casualties and contingencies, of such types and in such amounts as is customary
in the case of corporations engaged in the same or a similar business and
similarly situated;
(c) keep proper books of record and account, in which full and correct
entries shall be made of all dealings and transactions of or in relation to the
properties and business thereof;
(d) do or cause to be done all things reasonably necessary to preserve and
keep in full force and effect its corporate existence, corporate rights (charter
and statutory) and corporate franchises, except as permitted by Section 6. 1;
(e) comply, in all material respects, with all applicable laws, rules and
regulations (including, without limitation, ERISA, Environmental Laws and
Environmental Permits) and obtain all licenses, permits, franchises and other
governmental authorizations necessary for the ownership of its properties and
the conduct of its business, except where its obligation to so comply being
contested in good faith and by appropriate proceedings and adequate resources
have been established are being maintained in accordance with GAAP, and except
where failure to comply could not reasonably be expected to have a Material
Adverse Effect; and
(f) conduct its business so as not to become subject to any liability under
any Environmental Law that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect and except where any such
liability is being contested in good faith by appropriate proceedings and
adequate reserves have been established and are being maintained in accordance
with GAAP.
5.3 The Company will conduct and cause each of its subsidiaries to conduct,
all transactions otherwise permitted by this Note with any of their Affiliates
on terms that are fair and reasonable and no less favorable to the Company or
any such subsidiary than it could obtain in a comparable arms-length transaction
with a person not an Affiliate; provided, however, that this Section 5.3 shall
not be deemed to prohibit any transactions solely between the Company and its
wholly-owned
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subsidiaries carried out in the ordinary course of business, subject, however,
to any applicable provisions of Section 6, the transactions contemplated hereby,
the issuance and exercise of the Warrants, the provisions of a certain letter
agreement dated the date hereof between the Company and such payee (the "Letter
Agreement") or payments pursuant the Acquisition Documents and the Future
Acquisition Puts (as those terms are defined in the Senior Credit Agreement,
collectively, the "Acquisition Obligations" and, individually, an "Acquisition
Obligation").
5.4 The Company shall deliver to the Holder, except during any period in
which the Holder or an Affiliate thereof is serving as a director or executive
officer of the Company:
(a) as soon as available and in any event within thirty (30) days after the
end of each month which is not a fiscal quarter end, a consolidated balance
sheet, statement of income and cash flows commencing April 1999, of the Company
and its subsidiaries, as of the end of such month and for the period commencing
at the end of the previous month and ending with the end of such month and
consolidated statement of income and a consolidated statement of cash flows of
the Company and its subsidiaries, for the period commencing at the end of the
previous fiscal year of the Company and ending with the end of such month,
setting forth in each case commencing April 2000 in comparative form the
corresponding figures for the corresponding period of the prior fiscal year, all
in reasonable detail and duly certified by the chief financial officer of the
Company.
(b) as soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, and in any event
within 55 days thereafter: (i) a consolidated balance sheet as at the end of
such quarter; and (ii) consolidated statements of income and cash flows for such
quarter and (in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter; for the Company and its subsidiaries,
setting forth in each case, in comparative form, the financial statements for
the corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally, and certified as complete and correct by the Chief Financial Officer
of the Company, and accompanied by the certificate required by Section 5.5;
provided, that timely,delivery of copies of the Company's Quarterly Report on
Form 10-QSB filed with the Securities and Exchange Commission ("SEC") shall be
deemed to satisfy the requirements of this Section 5.4(b) so long as such
Quarterly Report contains or is accompanied by the information specified in this
Section 5.4(b);
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(c) as soon as practicable after the end of each fiscal year of the
Company, and in any event within 110 days thereafter: (i) a consolidated balance
sheet as at the end of such year; and (ii) consolidated statements of income,
stockholders' equity and cash flows for such year; for the Company and its
subsidiaries, setting forth, in comparative form, the financial statement for
the previous fiscal year, all in reasonable detail, prepared in accordance with
GAAP, and accompanied by: (A) an audit report thereon of independent certified
public accountants of recognized national standing, which report shall state
without qualifications related to the scope of the audit, the compliance of the
audit with generally accepted auditing standards or the ability of the Company
or a material subsidiary thereof to continue as a going concern, that such
financial statements have been prepared and are in conformity with GAAP; and (B)
the certificates required by Section 5.5 and Section 5.6; provided, that timely
delivery of the Company's Annual Report on Form 10-KSB for such fiscal year
filed with the SEC shall be deemed to satisfy the requirements of this Section
5.4(c) so long as such Annual Report contains or is accompanied by the reports
and other information otherwise specified in this Section 5.4(c);
(d) promptly upon their becoming available, and in any event within 15 days
thereafter: (i) each financial statement, report, notice or proxy statement sent
by the Company to stockholders generally; (ii) each regular or periodic report
(including, without limitation, each Form 10-KSB, Form 10-QSB and Form 8-K), any
registration statement which shall have become effective with respect to a
public offering of securities of the Company for its own account, and all
amendments thereto filed by the Company or any subsidiary thereof with the SEC;
(e) within 15 business days after any executive officer of the Company
becoming aware (i) of the existence of any condition or event which constitutes
a Default or an Event of Default; or (ii) that the holder of any Debt in a
principal amount of $400,000 or more (other than this Note) shall have given
notice or taken any other action with respect to a claimed or default or event
of default; a notice specifying the nature of the claimed Default, Event of
Default or default or event of default and the notice given or action taken (if
any) by such holder of Debt (other than this Note) and what action the Company
is taking or proposes to take with respect thereto;
(f) promptly upon receipt thereof, a copy of each report or management
letter submitted to the Company or any subsidiary thereof by independent
accountants in connection with any annual, interim or special audit made of the
books of the Company or such subsidiary;
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(g) promptly after the commencement of any action or proceeding relating to
the Company or any subsidiary thereof in any court or before any court or other
governmental authority or arbitration tribunal as to which there is a reasonable
possibility of an adverse determination and that, if adversely determined, would
have a Material Adverse Effect a notice specifying the nature and period of
existence thereof and what action the Company or such subsidiary is taking or
proposes to take with respect thereto; and
(h) with reasonable promptness, such other data and information as from
time to time may be reasonably requested the Holder.
5.5 Each set of financial statements delivered to the Holder pursuant to
Section 5.4(a), Section 5.4(b), or Section 5.4(c) shall be accompanied by a
certificate of the Chief Financial Officer, setting forth a statement that the
signer has reviewed the relevant terms hereof and has made, or caused to be
made, under his supervision or authority, a review of the transactions and
conditions of the Company and its subsidiaries from the beginning of the
accounting period covered by the income statements being delivered therewith to
the date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
5.6 Each set of annual financial statements delivered pursuant to Section
5.4(c) shall be accompanied by a certificate of the accountants that audited
such financial statements, stating that they have reviewed this Note and stating
further, whether, in making their audit, such accountants have become aware of
any condition or event that then constitutes a Default or an Event of Default,
and, if such accountants are aware that any such condition or event then exists,
specifying the nature and period of existence thereof.
5.7 The Company will, except during any period in which the Holder or any
Affiliate thereof is serving as a director or executive officer of the Company,
permit the representatives of the Holder to visit and inspect any of the
properties of the Company or any of its Subsidiaries, to examine all their
respective books of account, records, reports and other papers, to make copies
and extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective executive officers and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss
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the finances and affairs of the Company and its Subsidiaries) all at such
reasonable times and as often as may be reasonably requested. At all times
during which there exists a Default or Event of Default, except during any
period in which the Holder or any Affiliate thereof is serving as a director or
executive officer of the Company, expenses incurred by the Holder of this Note
in connection with this Section 5.7 shall be reimbursed by the Company to the
Holder.
5.8 The Company will make all payments and otherwise perform, or cause the
relevant subsidiary of the Company to pay or otherwise perform, all obligations
in respect of all leases of real property to which the Company or any of its
subsidiaries is a party, keep such leases in full force and effect and not allow
such leases to lapse or be terminated or any rights to renew such leases to be
forfeited or canceled, notify the Holder of any default by any party with
respect to such leases (except during any period in which the Holder or any
Affiliate thereof is serving as a director or executive officer of the Company)
and cooperate with the Holder in all respects to cure any such default and cause
each of its subsidiaries to do so except, in any case, where the failure to do
so, either individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect and except where its failure to do so is being
contested in good faith and by proper proceedings.
5.9 The Company will perform and observe, and cause each of its
subsidiaries to perform and observe, all of the material terms and provisions of
each Material Contract (as that term is defined in the Senior Credit Agreement)
to which it is a party to be performed or observed by it, maintain, and cause
each of its subsidiaries to maintain, each such Material Contract to which it is
a party in full force and effect, and enforce, and cause each of its
subsidiaries to enforce, each such Material Contract to which it is a party in
accordance with its terms, except where the failure to do so would not be
reasonably likely to have a Material Adverse Effect and except where its failure
to do so is being contested in good faith and by proper proceedings.
5.10 The Company will perform and observe, or cause the relevant subsidiary
of the Company to perform and observe, all of the material terms and provisions
of each Acquisition Obligation to be performed or observed by it or such
subsidiary, maintain each such Acquisition Obligation in full force and effect,
enforce each such Acquisition Obligation in accordance with its terms, take all
such action to such end as may be from time to time requested by the Holder
required in order to enforce its material rights under the Acquisition
Obligations and, upon request of the Holder, make to each other party to each
such Acquisition Obligation such demands and requests for action or
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for information and reports as the Company or any subsidiary of the Company is
entitled to make under such Acquisition Obligation required in order to enforce
its material rights under the Acquisition Obligations.
5.11 The Company shall promptly, and in any case within 30 days after the
date hereof, cause each of its existing direct and indirect wholly-owned
subsidiaries and any such subsidiaries of the Company hereafter formed and/or
acquired by the Company (or any subsidiary of the Company) to issue to the
Holder a guaranty of the Company's obligations under this Note, which guaranties
shall be substantially similar to the Subsidiary Guaranties issued pursuant to
the Senior Credit Agreement, except that such guaranties will be subordinated to
the obligations of such subsidiaries under the Subsidiary Guaranties issued or
to be issued by such subsidiaries under the Senior Credit Agreement consistent
with the subordination provisions set forth in Section 3 of this Note, will
guaranty the obligations of the Company under this Note and will otherwise be in
form and substance reasonably satisfactory to the Holder and the Senior Agent.
6. Negative Covenants
6.1 The Company will not, and will not permit any subsidiary thereof to,
(a) merge with or into or consolidate with any other person, permit any other
person to merge or consolidate with or into it, or (b) sell all or substantially
all of its property to any other person; provided, however, that the foregoing
restriction does not apply to the merger or consolidation of the Company with
another corporation or transfer of all or substantially all of the property of
the Company to any other person if: (i) the corporation that results from such
merger or consolidation or to which all or substantially all of the property of
the Company is transferred (the "Surviving Corporation") (a) is organized under
the laws of, and conducts substantially all of its business and has
substantially all of its properties within, the United States of America or any
jurisdiction or jurisdictions thereof and (b) has shareholders' equity
immediately after such transaction that is equal to or greater than the
shareholders' equity of the Company immediately prior to such transaction; (ii)
the due and punctual payment of the principal of, and interest on this Note,
according to their tenor, and the due and punctual performance and observance of
all the covenants in this Note, to be performed or observed by the Company, are
expressly assumed pursuant to such assumption agreements and instruments in such
forms as shall be approved reasonably by the Holder, or assumed by operation of
law, by the Surviving Corporation; and (iii) immediately prior to, and
immediately after the consummation of the transaction, and after giving effect
thereto, no Default or Event of Default exists or
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would exist. Notwithstanding the foregoing, a subsidiary of the Company may
merge into the Company so long as the Company is the Surviving Corporation, and
a subsidiary of the Company, may merge with or into a wholly-owned subsidiary of
the Company, so long as such wholly-owned subsidiary is the Surviving
Corporation. Notwithstanding anything contained herein to the contrary, the
Company may (i) sell all or substantially all of its property to, or enter into
a merger transaction with, any other person if such sale or merger follows and
is the result of an acceleration of the Senior Debt and the transaction has been
approved by the Senior Agent and the banks which are parties to the Senior
Credit Agreement and (ii) in compliance with Section 6.19 of the Senior Credit
Agreement, transfer its assets to a wholly-owned subsidiary so long as such
subsidiary executes and delivers a guaranty in favor of the Holder that is
reasonably acceptable to the Holder, subordinated on terms and conditions
acceptable to the Senior Agent consistent with the terms of subordination set
forth in Section 3 hereof.
6.2 The Company will not and will not permit any subsidiary of the Company
to, sell, lease as lessor, transfer or otherwise dispose of its property
(collectively, "Transfers"), except:
(A) Transfers of inventory and of unnecessary, obsolete or worn-out assets,
in each case in the ordinary course of business of the Company or such
subsidiary;
(B) Transfers from a subsidiary of the Company to the Company or a
wholly-owned subsidiary of the Company, or from the Company to a wholly-owned
subsidiary of the Company provided such subsidiary issues a guaranty of the
Company's obligations under this Note consistent with the provisions of Section
5.11;
(C) any other Transfer at any time of any property to a person for such
consideration as determined, in each case by the Board of Directors, in its good
faith opinion, to be in the best interest of the Company and to reflect the fair
market value of such property if the conditions specified in each of the
following clauses (A) and (B) would be satisfied with respect to such Transfer:
(A) the sum of: (1) the book value of such property at the time of Transfer;
plus (2) the aggregate book value of all other property Transferred (other than
in transactions described in clauses (A) and (B) above), after the Issue Date,
would not exceed 25% of consolidated total assets of the Company and its
subsidiaries (determined in accordance with GAAP) measured as of the last day of
the immediately preceding fiscal quarter of the Company; and (B) immediately
before and after the consummation of the Transfer, and after giving effect
thereto, no Default or Event of Default would exist;
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(D) any other Transfer of property to the extent that the proceeds of such
Transfer, net of transaction costs and expenses incurred and actually paid in
connection with such Transfer (including sales, transfer or gains taxes), within
365 days after such Transfer are applied by the Company or such subsidiary (A)
to fund its working capital and capital expenditure or acquisitions
requirements, and/or (B) to pay or prepay a principal amount of Debt of the
Company or any subsidiary thereof (other than Junior Subordinated Debt) equal to
the amount of such net proceeds; and, in connection with any such payment; the
Company shall pay all accrued interest thereon and any premium or make-whole
amount required to be paid in connection therewith; provided, however, that in
the event that any Debt so prepaid is not Senior Debt then the Company shall
prepay, together with such prepayment of such other Debt, a proportional and
ratable principal amount of this Note pursuant to Section 1.6.;
(E) any Transfers pursuant to the Acquisition Obligations; and
(F) any other Transfer permitted to be made by the Company or any of its
subsidiaries consistent with the terms of the Senior Credit Agreement as in
effect on the Issue Date.
6.3 The Company will not, and will not permit any subsidiary to, directly
or indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to, any Debt, other than:
(A) the December Note, this Note and any guaranties of the December Note or
this Note;
(B) Debt owing by the Company to any wholly-owned subsidiary of the Company
and Debt of a subsidiary of the Company owing to the Company or a wholly-owned
subsidiary of the Company;
(C) Debt existing on the Issue Date and listed on Schedule 6.3 (including
Debt under the Senior Credit Agreement, provided that loans thereunder shall not
exceed an aggregate of $40 million plus an additional $6 million to be used
solely for working capital and general corporate purposes of the Company,
including, but not limited to, acquisitions);
(D) Debt incurred under the Senior Credit Facility from time to time
following the Issue Date, provided that the principal amount of the loans
thereunder shall not exceed an aggregate of $40 million plus an additional $6
million to be used solely for working capital and general corporate purposes of
the Company, including, but not limited to, acquisitions;
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(E) Debt incurred or created to refinance any of the Debt permitted by
clauses (C) and (D) of this Section 6.3, provided that in the case of Debt
listed on Schedule 6.3 (other than Senior Debt and refinancing thereof), the
principal amount does not exceed the principal amount of Debt being refinanced;
(F) Debt (other than Debt incurred under the Senior Credit Facility)
incurred or assumed in connection with "Permitted Acquisitions" and "Permitted
Club Acquisitions" (as those terms are defined in the Senior Credit Agreement);
(G) Debt incurred in connection with conversion of the obligations of the
Company or any subsidiary thereof under the Acquisition Puts (as defined in the
Senior Credit Agreement) pursuant to the terms of the Acquisition Documents (as
defined in the Senior Credit Agreement) or the conversion of obligations under
Future Acquisition Puts (as defined in the Senior Credit Agreement) into Debt of
the Company or its subsidiaries under the terms of the agreements governing such
Future Acquisition Puts;
(H) Debt (other than this Note and the December Note) owing by the Company
or a subsidiary thereof to Norton Herrick, Michael Herrick and/or Howard Herrick
(together, the "Herricks") and/or any of their respective Affiliates;
(I) Debt incurred by the Company or a subsidiary thereof to finance the
payment of the Change in Control Purchase Price of this Note or the December
Note;
(J) Debt, in addition to the Debt permitted to be incurred by the clauses
(A) through (1) of this Section 6.3, in the principal amount at any time
outstanding not to exceed $1,000,000;
(K) Any Guaranties made or issued by the Company of Debt permitted to be
incurred by any of its subsidiaries pursuant to clauses (E), (F), (G), (H), (I),
(J) and (L) above and Guaranties made or issued by subsidiaries of the Company
of Debt permitted to be incurred by the Company pursuant to clauses (C), (D),
(E), (F), (G), (H), (1), (J) and (L) above; and
(L) Any other Debt permitted to be incurred by the Company or any of its
subsidiaries consistent with the terms of the Senior Credit Agreement as in
effect on the Issue Date.
6.4 The Company will not, and will not permit any subsidiary thereof to,
incur, assume or Guaranty any Debt which is subordinated in right of payment to
any other Debt of the Company or any subsidiary thereof, unless such Debt (other
than the December Note) is also subordinated in right of payment to
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the obligations of the Company in respect of the December Note and this Note on
terms reasonably acceptable to the Holder. The Company will not, and will not
permit any subsidiary thereof to, incur or create any Debt in favor of an
Affiliate or another subsidiary (other than Debt in favor of the Company or a
wholly-owned subsidiary thereof which is a guarantor of Debt under the Senior
Credit Facility) unless such Debt is also subordinated in right of payment to
the obligations of the Company in respect of this Note on terms reasonably
acceptable to the Holders.
6.5 The Company will not, and will not permit any subsidiary thereof to,
engage in any business if, as a result, the general nature of the business in
which the Company and its subsidiaries, taken as a whole, would then be engaged
would be substantially changed from the general nature of the business in which
the Company and the Subsidiaries, taken as a whole, are engaged on the Issue
Date.
7. Events of Default
7.1 An "Event of Default" exists at any time if any of the following occurs
(whether such occurrence shall be voluntary or come about or be effected by
operation of law or otherwise):
(a) The Company defaults in the payment of the principal of this Note when
due (whether at the Maturity Date or any Prepayment Date) or in the payment of
the Change in Control Purchase Price when due or defaults in the payment of any
accrued interest on this Note when due and such default continues for a period
of 30 business days after the date such interest became due;
(b) The Company or any subsidiary thereof defaults in the performance or
observance of any of the covenants contained in Section 5.2(d) or Section 6
hereof or defaults in the performance or observance of any of the covenants
contained in Sections 5.2(e), 5.3, 5.4 (e) or 5.10 hereof and such default
remains uncured for more than 30 days;
(c) The Company or any subsidiary thereof defaults in the performance of
any covenants contained in this Note, and such default remains uncured, after
notice and an opportunity to cure, for more than 60 days;
(d) Any warranty, representation or other statement by or on behalf of the
Company contained in this Note or in any certificate, financial statement,
report or notice furnished after the date hereof to Holder pursuant to the terms
of this Note, or in any written amendment, supplement, modification or
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waiver with respect to any such document shall be false or misleading in any
material respect when made;
(e) Either (i) the Company or any subsidiary thereof fails to pay when due
and within any applicable period of grace, any principal of, premium, if any, or
interest in respect of any Debt for borrowed money of the Company or such
subsidiary in the aggregate principal amount of $2 million; or (ii) any event
shall occur or any condition shall exist in respect of such Debt, or under any
agreement securing or relating to such Debt, and in either case, as a result
thereof: (A) the maturity of such Debt, or a material portion thereof, is
accelerated, or (B) any one or more of the holders thereof or a trustee therefor
is permitted to require the Company or such subsidiary to repurchase such Debt
from the holders thereof, and any such trustee or holder exercises such option;
or (C) any such one or more of such holders or such trustee declares an
acceleration of the maturity of such Debt;
(f) a receiver, liquidator, custodian or trustee of the Company or any
subsidiary thereof or of all or any substantial part of the property of either
is appointed by court order and such order remains in effect for more than 60
days; or an order for relief is entered with respect to the Company or any such
subsidiary, or the Company of any subsidiary thereof is adjudicated a bankrupt
or insolvent; or all or any substantial part of the property of the Company or
any subsidiary thereof is sequestered by court order and such order remains in
effect for more than 60 days; or an involuntary case or proceeding is commenced
against the Company or any subsidiary thereof under the Federal Bankruptcy Code
or any other bankruptcy reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, and is not dismissed within 60 days after such filing;
(g) The Company or any subsidiary thereof: (i) commences a voluntary case
or proceeding or seeks relief under any provision of the Federal Bankruptcy Code
or any other bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any petition against it under
any such law; or (ii) makes an assignment for the benefit of creditors, or
admits in writing its inability or fails, to pay its debts generally as they
become due, or consents to the appointment of a receiver, liquidator or trustee
of the Company or a subsidiary thereof or of all or a substantial part of its
property;
(h) A final, non-appealable judgment or final, non-appealable judgments for
the payment of money aggregating in
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excess of $2.0 million (in excess of any insurance relating to such judgments or
judgments or any claim or claims underlying such judgment or judgments and the
relevant insurer or insurers shall not have denied liability under such
insurance or rejected any claims made with respect thereto) is or are
outstanding against one or more of the Company and its subsidiaries and any one
of such judgments shall have been outstanding for more than 60 days from the
date of its entry and shall not have been discharged in full or stayed;
(i) The Note shall cease to be in full force and effect or shall be
declared by a court of competent jurisdiction to be void, voidable or
unenforceable, or the validity or enforceability of the Note shall be contested
by the Company or any Affiliate, or the Company or any Affiliate shall deny that
the Company has any further liability or obligation under the Note; or
(j) An Event of Default (as defined in the December Note) occurs under the
December Note.
7.2 Default Remedies
(a) If any Event of Default specified in Section 7.1(f) or (g) shall exist,
the principal amount of this Note at the time outstanding, together with
interest accrued and unpaid thereon, shall automatically immediately become due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.
(b) Subject to Section 3.6 and Section 3.7, if any Event of Default, other
than those specified in Section 7.1 (a), shall exist, the Holder may exercise
any right, power or Remedy permitted to such Holder by law, and shall have in
particular, without limiting the generality of the foregoing, the right to
declare the entire principal of, and all interest accrued and unpaid on, this
Note then outstanding to be, and this Note shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Company shall forthwith
pay to the Holder such principal and interest.
(c) Subject to Sections 3.6 and 3.7, during the continuance of an Event of
Default described in Section 7.1 (a) and irrespective of whether the Note shall
have become due and payable pursuant to Section 7.2(b), the Holder may, at the
Holder's option, by notice in writing to the Company, declare the principal
amount of this Note at the time outstanding, and accrued and unpaid interest
thereon, to be, and the same shall thereupon become, forthwith due and payable,
without any
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presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company shall forthwith pay to the Holder such
principal and interest.
(d) During the continuance of an Event or Default and irrespective of
whether this Note shall become due and payable pursuant to Section 7.2(a), (b)
or (c) and irrespective of whether the Holder shall otherwise have pursued or be
pursuing any other rights or Remedies, subject to Section 3.6 and Section 3.7,
the Holder may proceed to protect and enforce its rights under this Note by
exercising such Remedies as are available to such holder in respect thereof
under applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any agreement contained herein or in aid of
the exercise of any power granted herein.
(e) No course of dealing on the part of the Holder nor any delay or failure
on the part of the Holder to exercise any right shall operate as a waiver of
such right or otherwise prejudice the Holder's rights, powers and Remedies. All
rights and Remedies of the Holder hereunder and under applicable law are
cumulative, and not exclusive of any other rights or Remedies the Holder would
otherwise have.
(f) The rights of the Holder to receive payments in respect of this Note,
and to exercise any Remedies, solely as between the Holder and the holders of
the Senior Debt, shall be subject in all respects to the provisions of Section
3; provided, however, that all such rights shall remain unconditional and
absolute as between the Holder and the Company.
7.3 If a declaration is made pursuant to Section 7.2(b) arising solely out
of an Event of Default described in Section 7.1(e) regarding the Senior Debt,
then and in every such case, if the holders of the Senior Debt waive such
default in respect of the Senior Debt or such default is cured, and the holders
of the Senior Debt rescind or annul any and all accelerations of the maturity of
all or any portion of the Senior Debt and any required or demanded repurchase of
all or any portion thereof, then, upon written notice to the Holder of such
events with respect to the Senior Debt, any declaration made pursuant to Section
7.2(b) and the consequences thereof, shall automatically and without any further
action on the part of the Holder, be annulled and rescinded; provided, however,
that at the time such declaration is deemed annulled and rescinded: (i) no
judgment or decree shall have been entered for the payment of any moneys due on
or pursuant to this Note; and (ii) no other Default or Event of Default shall be
continuing; provided further that no such rescission and annulment shall extend
to or affect any subsequent
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Default or Event of Default or impair any right consequent thereon.
8. Interpretation of this Note
8.1 As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Affiliate" means and includes with respect to any person, at any time,
each other person (other than, with respect to the Company, a subsidiary of the
Company): (a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such person; (b)
that beneficially owns or holds five percent or more of any class of the Voting
Stock of such person; (c) five percent or more of the Voting Stock (or if such
other person is not a corporation, five percent or more of the equity interest)
of which is beneficially owned or held by such person; or (d) that is an officer
or director of or holds a position of comparable authority with such person; at
such time; provided, however, that no person holding this Note or Warrants shall
be deemed to be an "Affiliate" of the Company solely by virtue of the ownership
of such securities. As used in this definition: "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"Applicable Interest Law" means any present or future law (including,
without limitation, the laws of the State of New York and the United States of
America) which has application to the interest and other charges pursuant to
this Note.
"Board of Directors" means, at any time, the board of directors of the
Company or any or any committee thereof that, in the instance, shall have the
lawful power to exercise the power and authority of such board of directors.
"Capital Lease" means, at any time, a lease of any property with respect to
which the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Cash Equivalents" means, for all purposes of Section 3 hereof, equivalents
of cash that are acceptable to the Senior Agent in its reasonable business
judgment.
"Change in Control" means, at any time, an occurrence or event or failure
of an event to occur, as a result of which a
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person or group of related persons (other than the Herricks, an Affiliate of any
of the Herricks, or any trust for the benefit of any of the Herricks) acquires
more than 50% of the Voting Stock of the Company.
"Debt" with respect to any person, means, without duplication, the
liabilities of such person with respect to: (a) borrowed money; (b) the deferred
purchase price of property acquired by such person (excluding accounts payable
and accrued expenses arising in the ordinary course of business, but including
all liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such property); (c) borrowed money
secured by any Lien existing on property owned by such person (whether or not
such liabilities have been assumed); (d) Capital Leases of such person; (e)
letters of credit bankers acceptances or similar instruments serving a similar
function issued or accepted by banks and other financial institutions for the
account of such person (whether or not representing obligations for borrowed
money), other than undrawn trade letters of credit in the ordinary course of
business; (f) Swaps of such person; and (g) any Guaranty of such person of any
obligation or liability of another person of obligations of the type listed in
clause (a) through clause (f) of this definition of Debt; provided that, with
respect to the Company, Debt shall not include any unfunded obligations which
may now or hereafter exist with respect to Company's Plans. As used in this
definition, "Swaps" means, with respect to any person, obligations with respect
to interest rate swaps and currency swaps and similar obligations obligating
such person to make payments, whether periodically or upon the happening of a
contingency, except that if any agreement relating to such obligation provides
for the netting of amounts payable by and to such person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
person, then in each such case, the amount of such obligations shall be the net
amount thereof. The aggregate net obligation of Swaps at any time shall be the
aggregate amount of the obligations of such person under all Swaps assuming all
such Swaps had been terminated by such person as of the end of the then most
recently ended fiscal quarter of such person. If such net aggregate obligation
shall be an amount owing to such person, then the amount shall be deemed to be
zero. Unless the context otherwise requires, "Debt" means Debt of the Company or
of a subsidiary of the Company.
"Default" means any event which, with the giving of notice or the passage
of time, or both, would become an Event of Default.
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"Environmental Law" means any law, statute or regulation enacted by any
governmental authority in connection with or relating to the protection or
regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Materials and any applicable orders, decrees or judgments issued by any court of
competent jurisdiction in connection with any of the foregoing.
"Environmental Permit" means any permit, approval, identification number or
other authorization required by any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under Section 414
of the IRC.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
"Guaranty" means with respect to any person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other person (the "Primary Obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the Guarantor: (a) to
purchase such indebtedness or obligation or any property constituting security
therefor; (b) to advance or supply funds (i) for the purchase or payment of such
indebtedness, dividend or obligation; or (ii) to maintain working capital or
other balance sheet condition or any income statement condition of the Primary
Obligor or otherwise to advance or make available funds for the purchase or
payment of such indebtedness, dividend or obligation; (c) to lease property or
to purchase securities or other property or services primarily for the purpose
of assuring the owner of such indebtedness or obligation of the ability of the
Primary Obligor to make payment of the indebtedness or obligation; or (d)
otherwise to assure the
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owner of the indebtedness or obligation of the Primary Obligor against loss in
respect thereof.
"Hazardous Material" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
Environmental Laws as "hazardous substances", "hazardous materials", "hazardous
wastes", "toxic substances" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, "TLCP toxicity"
or "EP toxicity"; (b) oil, petroleum or petroleum derived substances, natural
gas, natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; (d) asbestos or urea formaldehyde in
any form; and (e) dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million.
"IRC" means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.
"Issue Date" means June 11, 1999.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a person other than the owner of such property (for purposes of this
definition, the "Owner"),whether such interest is based on the common law,
statute or contract, and includes but is not limited to: (a) the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes, and the
filing of any financing statement under the Uniform Commercial Code of any
jurisdiction, or an agreement to give any of the foregoing; (b) reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting real
property; and (c) any interest in any property held by the owner evidenced by a
conditional sale agreement, Capital Lease or other arrangement pursuant to which
title to such property has been retained by or vested in some other person for
security purposes. The term "Lien" does not include negative pledge clauses in
loan agreements and equal and ratable security clauses in loan agreement.
"Material Adverse Effect" means, with respect to any event or circumstance
(either individually or in the aggregate
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with all other events and circumstances), an effect caused thereby or resulting
therefrom that would be materially adverse as to, or in respect of: (a) the
business, operations, profits, financial condition or properties of the Company
and its subsidiaries, taken as a whole; (b) the ability of the Company to
perform its obligations under this Note; or (c) the validity or enforceability
of this Note.
"Note" means and includes each 9% Convertible Senior Subordinated Note due
December 31, 2004 which may be issued by the Company from time to time pursuant
to the provisions of this Note, in exchange for, upon transfer of, in
substitution for, or in replacement of this Note, as the same may be amended,
modified, supplemented, refunded, refinanced or extended from time to time.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Voting Stock" means with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time any stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency), and, in the case of
the Company, shall include the Common Stock. Except as otherwise provided,
references herein to "Voting Stock" shall mean Voting Stock of the Company.
"Warrant" means each warrant to purchase Common Stock issued pursuant to
the Warrant Agreement dated as of December 31, 1998 between the Company and the
Holder, pursuant to which the Warrants were issued.
8.2 (a) Unless otherwise provided herein, all financial statements
delivered in connection herewith will be prepared in accordance with GAAP. Where
the character or amount of any asset or liability or item of income or expense,
or any consolidation or other accounting computation is required to be made for
any purpose hereunder, it shall be done in accordance with GAAP; provided,
however, that if any term defined herein includes or excludes amounts, items or
concepts that would not be included in or excluded from such term if such term
were defined with reference solely to GAAP, such term will be deemed to
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include or exclude such amounts, items or concepts as set forth herein.
(b) Whenever accounting amounts of a group of persons are to be determined
"on a consolidated basis" it shall mean that, as to balance sheet amounts to be
determined as of a specific time, the amount that would appear on a consolidated
balance sheet of such persons prepared as of such time, and as to income
statement amounts to be determined for a specific period, the amount that would
appear on a consolidated income statement of such persons prepared in respect of
such period, in each case with all transactions among such persons eliminated,
and prepared in accordance with GAAP except as otherwise required hereby.
8.3 Where any provision herein 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,
including actions taken by or on behalf of any partnership in which such person
is a general partner.
8.4 (a) The titles of the Sections of this Note appear as a matter of
convenience only, do not constitute a part hereof and shall not affect the
construction hereof. The words "herein," "hereof," "hereunder" and "hereto"
refer to this Note as a whole and not to any particular Section or other
subdivision. References to Annexes and Sections are, unless otherwise specified,
references to Sections of this Note. References to Annexes and Schedules are,
unless otherwise specified, references to Schedules attached to this Note.
(b) Each covenant contained herein shall be construed (absent an express
contrary provision herein) as being independent of each other covenant contained
herein, and compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with one or more other
covenants.
8.5 THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY CHOICE
OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY
LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF FLORIDA AS THE APPLICABLE
INTEREST LAW.
9. Miscellaneous
9.1 All communications under this Note shall be in writing and shall be
delivered either by nationwide overnight courier or
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by facsimile transmission (confirmed by delivery by nationwide overnight courier
sent on the day of the sending of such facsimile transmission). Communications
to the Company shall be addressed as set forth on Annex 1, or at such other
address of which the Company shall have notified the Holder. Communications to
the Holder shall be addressed as set forth on Annex 1, or at such other address
of which such Holder shall have notified the Company (and the Company shall
record such address in the register for the registration and transfer of this
Note). Any communication addressed and delivered as herein provided shall be
deemed to be received when actually delivered to the address of the addressee
(whether or not delivery is accepted) or received by the telecopy machine of the
recipient. Any communication not so addressed and delivered shall be
ineffective. Notwithstanding the foregoing provisions of this Section 9.1,
service of process in any suit, action or proceeding arising out of or relating
to this Note or any transaction contemplated hereby, or any action or proceeding
to execute or otherwise enforce any judgment in respect of any breach hereunder
or under any document hereby, shall be delivered in the manner provided in
Section 9.6(c).
9.2 All warranties, representations, statements of fact, certifications and
covenants contained in this Note or in any certificate, financial statement,
report or notice delivered or provided hereunder shall be considered to have
been relied upon by the other party hereto and shall survive the delivery to
such party regardless of any investigation made by or on behalf of any party
hereto. All statements in any certificate, delivered pursuant to the terms
hereof shall constitute warranties and representations hereunder. All
obligations hereunder (other than payment of this Note, but including, without
limitation, reimbursement obligations in respect of costs, expenses and fees)
shall survive the payment of this Note and the termination hereof. Subject to
the preceding, this Note embodies the entire agreement and understanding between
the Company and the Holder, and supersedes all prior agreements and
understandings, relating to the subject matter hereof.
9.3 The provisions hereof are intended to be for the benefit of the Holder,
from time to time, of this Note, and shall be enforceable by any such Holder
whether or not an express assignment to such Holder of rights hereunder shall
have been made by the payee or his successors or assigns. In the event that the
payee named herein transfers or assigns less than all of this Note, the term
"Holder" as used herein shall be deemed to refer to the assignor and assignee or
assignees hereof, collectively, and any action permitted to be taken by the
Holder hereunder shall be taken only upon the consent or approval of persons
comprising the Holder that own that percentage interest in the principal amount
of this Note as shall be designated by the payee
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named herein at the time of such assignment. Anything contained in this Section
9.3 notwithstanding, the Company may not assign any of its respective rights,
duties or obligations hereunder other without the prior written consent of the
Holder. For purposes of the avoidance of doubt, the Holder of this Note shall be
permitted to pledge or otherwise grant a lien in and to this Note; provided,
however, that any such pledgee or holder of a Lien shall not be considered a
Holder hereunder until it shall have foreclosed upon this Note in accordance
with applicable law and informed the Company, in writing, of the same.
9.4 (a) This Note may be amended, and the observance of any term hereof may
be waived, with (and only with) the written consent of the Company and the
Holder, provided, however, that without the written consent of the holders of
Senior Debt, no amendment, supplement or modification of the provisions of
Section 3, or any defined term to the extent used therein, shall be effective as
to any holder of Senior Debt who has not consented to such amendment, supplement
or modification.
Any amendment or waiver consented to as provided in this Section 9.4 shall
be binding upon the then current Holder and upon each future holder of this Note
and upon the Company whether or not this Note shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall extend to or affect
any obligation,.covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon.
9.5 (a) The Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the Holder in connection with
the consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements with
respect to this Note (whether or not any such amendments, waivers, consents,
standstill agreements or other similar agreements are executed).
(b) At any time when the Company and the Holder are conducting
restructuring or workout negotiations in respect hereof, or a Default or Event
of Default exists, the Company shall pay when billed the reasonable costs and
expenses (including reasonable attorneys' fees and the fees of professional
advisors) incurred by the Holder in connection with the assessment, analysis or
enforcement of any rights or remedies that are or may be available to the
Holder.
(c) If the Company shall fail to pay when due any principal of, or interest
on, this Note, the Company shall pay to the Holder, to the extent permitted by
law, such amounts as shall
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be sufficient to cover the costs and expenses, including but not limited to
reasonable attorneys' fees, incurred by the Holder in collecting any sums due on
this Note.
9.6 (a) THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS NOTE OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE
OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS NOTE MAY BE
BROUGHT BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY,
NEW YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS
SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY
OF THIS NOTE, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING
BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT
IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN
ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS PERSONALLY SERVED OR
SERVED BY U.S. EXPRESS, REGISTERED OR CERTIFIED MAIL OR BY NATIONWIDE OVERNIGHT
COMMERCIAL COURIER OR DELIVERY SERVICE AT THE ADDRESSES PROVIDED HEREIN FOR
NOTICES SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER. RECEIPT OF
PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY
RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(d) NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY
HOLDER OF THIS NOTE TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER
PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE COMPANY IN SUCH
OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE
LAW.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
AUDIO BOOK CLUB, INC.
By: /s/ John Levy
---------------------------
Name: John Levy
Title: Executive Vice
President
and Chief Financial Officer
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Annex I
1. Holder's Payment Instructions
Citibank
New York, NY
ABA #
Credit: Norton Herrick
Account#
2. Addresses for Notices
(a) If to the Company, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attention: Chief Financial Officer
Telephone No.: 973-539-9528
Facsimile No.: 973-539-1273
with a copy to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
Telephone No.: (212) 885-5555
Facsimile No.: (212) 885-5001
(b) If to the payee, to:
Mr. Norton Herrick
2295 Corporate Blvd., N.W.
Suite 222 P.O. Box 5010
Boca Raton, FL 33431
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
Telephone No.: 212-753-7200
Facsimile No.: 212-980-7177
<PAGE>
Schedule 6.3
1. Debt incurred under the Senior Credit Agreement on December 31, 1998 and
the Issue Date.
2. Debt of an immaterial amount owing under a lease for mail system equipment
due to Pitney Bowes Credit Corporation.
