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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1999 333-46957
LIBERTY GROUP PUBLISHING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4197635
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3000 DUNDEE ROAD, SUITE 203, NORTHBROOK, ILLINOIS 60062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (847) 272-2244
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
14.75% SENIOR MANDATORY REDEEMABLE EXCHANGEABLE CUMULATIVE PREFERRED STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The number of shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of March 30, 2000 was 1,568,000. All Common Stock is
owned by affiliates of the Registrant and there is no public market for the
Common Stock.
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TABLE OF CONTENTS
PART I
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Item 1. Business.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedule and Reports on Form 8-K
(a) Consolidated Financial Statements, Consolidated Financial
Statement Schedule and Exhibits
(b) Reports on Form 8-K
</TABLE>
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LIBERTY GROUP PUBLISHING, INC.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain "forward-looking statements" (as defined in
Section 21E of the Securities Exchange Act of 1934) that reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Words such as "anticipates,"
"believes," "plans," "expects," "estimates" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect the Company's
current beliefs and are based on information currently available to the
Company. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties
and other factors include the Company's ability to serve, and retain existing
customers as well as its ability to attract new advertising and subscription
customers; the Company's ability to continue its acquisition strategy; the
Company's ability to adjust to changes in technology, customer preferences,
enhanced competition and new competitors in its community markets; collection
of receivables; general economic and business conditions, which may reduce
demand for advertising and its ability to attract and retain key employees. The
Company is not obligated to update or revise these forward-looking statements
to reflect new events or circumstances.
ITEM 1. BUSINESS
OVERVIEW
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising
in their markets. At December 31, 1999, the Company owns and operates 301
publications in 15 states. The Company's total revenues are derived from
advertising (75% of 1999 total revenues), circulation (17%) and job printing and
other (8%).
The Company's primary costs and expenses are comprised of operating costs and
selling, general and administrative expenses. Salaries and employee benefits
are the Company's largest operating costs. The Company has been able to control
salaries and employee benefit expenses by realizing efficiencies from the
implementation of new technologies and the achievement of synergies from its
strategy of clustering its newspaper operations.
INITIAL ACQUISITION
Liberty Group Publishing, Inc. ("LGP") was formed for purposes of acquiring a
portion of the daily and weekly newspapers owned by American Publishing Company
or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger
International Inc.("Hollinger"). LGP is a holding company for its wholly-owned
subsidiary, Liberty Group Operating, Inc ("Operating Company"). The
consolidated financial statements include the accounts of LGP and Operating
Company and its consolidated subsidiaries (the "Company").
On January 27, 1998, the Company acquired from Hollinger virtually all of the
assets and assumed certain liabilities that were used primarily in the business
of publishing, marketing and distributing certain local newspapers (the
"Initial Acquisition"). The initial purchase price including fees and expenses
was $322.4 million. The effective date of the Initial Acquisition was January
1, 1998. Revenues from the Initial Acquisition represented 76% and 54% of the
Company's total revenue in 1998 and 1999, respectively.
In the accompanying consolidated financial statements the terms "Liberty Group
Publishing" or the "Company" when used with respect to periods prior to January
1, 1998 refer to the combined group of newspapers sold by APC (the Local
Newspaper Group of American Publishing Company) and when used with respect to
periods subsequent to January 1, 1998 refers to Liberty Group Publishing, Inc.
and its consolidated subsidiaries. The combined historical financial information
of the newspapers
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acquired from APC prior to the Initial Acquisition on January 1, 1998 is
referred to as "Predecessor" while the consolidated financial information of
the newspapers subsequent to the date of the Initial Acquisition is referred to
as "Successor."
The Company has accounted for the Initial Acquisition using the purchase method
of accounting. Accordingly, the costs of the Initial Acquisition have been
allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The fair values of certain
identifiable intangible assets acquired and goodwill are being amortized over
periods ranging from 5 to 40 years. Because of the purchase price allocation,
the accompanying consolidated financial statements of Successor are not
directly comparable to those of Predecessor.
Prior to the Initial Acquisition, the Company operated as a business unit of
APC and as such did not file separate tax returns. The income tax provision
included in the Predecessor's financial statements was computed as if the
Predecessor were a separate company. Subsequent to the Initial Acquisition, the
Company has been and anticipates that it will be, for the foreseeable future,
in a tax loss position. Given the uncertainty as to the timing of the Company's
ability to utilize such losses to offset future taxable income, the Company
does not presently anticipate recording any tax benefit associated with its
pre-tax losses. In addition, due to the acquisition of the Company's assets
from APC, the Company's asset values and capital structure are materially
different than those set forth in the Predecessor's financial statements for
periods preceding the Initial Acquisition and, accordingly, historical interest
expense is not indicative of the interest expense that the Company incurs as a
separate company.
The results of operations and cash flows of the Predecessor have been
consolidated with those of the Company from January 1, 1998, the effective date
upon which the Company and APC agreed as to the change of control of the
newspapers to the Company.
In addition, during 1999, the Company acquired 49 publications in 13
transactions for a total acquisition cost of $54.8 million (net of property
exchanges and divestitures).
INITIAL CAPITALIZATION - BORROWINGS
The Initial Acquisition, including the payment of related fees and expenses,
was financed in part by: (i) $180.0 million from the issuance and sale by the
Operating Company of $180.0 million aggregate principal amount of 9.375% Senior
Subordinated Notes (the "Notes") due February 1, 2008 and (ii) $50.5 million
from the issuance and sale by LGP of $89.0 million aggregate principal amount
of 11.625% Senior Discount Debentures (the "Debentures") due February 1, 2009.
The Notes were issued by the Operating Company and are general unsecured
obligations of the Operating Company. The Notes are irrevocably and
unconditionally joint and severally guaranteed by each of the Operating
Company's existing and future subsidiaries. The Notes are redeemable for cash
at the option of the Operating Company anytime after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
109.375% of their principal amount. In the event of a change in control of the
Operating Company or the Company, the Company must offer to repurchase the
Notes at 101% of their principal amount.
The Debentures issued by LGP are general unsecured obligations and pay no cash
interest until February 1, 2003. The Debentures will, however, accrete on a
semi-annual equivalent bonds basis to a full principal amount of $89.0 million
on February 1, 2003. Thereafter, cash interest on the Debentures will accrue and
be payable semi-annually on February 1 and August 1 of each year. The Debentures
are redeemable for cash at the option of LGP any time after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
111.625% of their accreted value. In the event of a change in control of LGP,
LGP must offer to
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repurchase the Debentures at 101% of their accreted value. LGP is dependent
upon the cash flows of the Operating Company to service these debt repayment
requirements.
The Operating Company has in place a $175.0 million revolving credit facility
(the "Revolving Credit Facility"). The Revolving Credit Facility is secured by
substantially all of the tangible and intangible assets of the Operating
Company. Borrowings under the Revolving Credit Facility bear interest at an
annual rate, at the Company's option equal to the Base Rate (as defined in the
credit agreement) or the Eurodollar Rate (as defined in the credit agreement)
plus a margin that varies based upon a ratio set forth in the credit agreement
(the "Applicable Margin"). Under the terms of the Revolving Credit Facility,
the Company pays a fee equal to the Applicable Margin for Eurodollar Rate
Advances (as defined in the credit agreement) per annum on the aggregate amount
of outstanding letters of credit. The Operating Company also pays a fee on the
unused portion of the Revolving Credit Facility. No principal payments are due
on the Revolving Credit Facility until the maturity date January 27, 2003. At
December 31, 1999, the Operating Company had utilized $99.5 million of the
Revolving Credit Facility.
INITIAL CAPITALIZATION - EQUITY
LGP has the authority to issue up to 22,830,000 shares of capital stock, of
which 21,175,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 1,655,000 shares are designated as Common Stock, par value $0.01 per
share. The Initial Acquisition, including the payment of related fees and
expenses, was financed in part from the proceeds of (i) $45.0 million from the
issuance and sale of 1,800,000 shares of 14.75% Senior Mandatory Redeemable
Exchangeable Cumulative Preferred Stock (the "Senior Preferred Stock"), (ii)
$49.0 million from the issuance and sale of 49,000 shares of 10% Junior
Mandatory Redeemable Cumulative Preferred Stock (the "Junior Preferred Stock"),
and (iii) $8.0 million from the issuance and sale of 1,600,000 shares of Common
Stock.
After giving effect to the stock split, 100% of the Junior Preferred Stock and
92% of the Common Stock is owned by Green Equity Investors II, L.P., the
controlling stockholder of the Company. 8% of the Common Stock is owned by the
Company's senior management team. These percentages are in effect as of
12/31/99.
In February 2000, the Company effected a 20-to-1 stock split of its common
stock, bringing the total shares of common stock issued to 1,600,000. All share
and per share data included within this Registration Statement has been
retroactively restated to account for this stock split. The Company then
authorized the issuance of 55,000 additional common shares to be made available
in the form of stock options to local publishers. Management Investors will
also receive a small portion of these new shares to eliminate any dilution of
their original holdings that will result from the issuance of shares under the
Company's stock option plan.
The Senior Preferred Stock issued by LGP Company is senior to the Common Stock
and Junior Preferred Stock of the Company with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of the Company. Dividends may be paid, at the Company's option, at any dividend
payment date in cash or in additional shares of Senior Preferred Stock having a
liquidation preference equal to the dividend amount. The liquidation preference
of the Senior Preferred Stock is $25 per share. The Senior Preferred Stock is
redeemable at the option of the Company any time after February 1, 1999 at
stipulated redemption amounts and is mandatorily redeemable, subject to certain
conditions, on February 1, 2010 at a price equal to 100% of its liquidation
preference per share. In the event of a change in control of the Company, the
Company must offer to repurchase the Senior Preferred Stock at 100% of its
liquidation preference per share. Except as required by law, the holders of
shares of Senior Preferred Stock are generally not entitled or permitted to vote
on any matters voted upon by the stockholders of the Company. Subject to certain
conditions, the Senior Preferred Stock is exchangeable, on any dividend payment
date, in whole, but not in part, at the option of the Company for 14.375% Senior
Subordinated Debentures (the "Exchange Debentures") of the Company maturing
February 1, 2010. The Exchange Debentures are redeemable prior to maturity on
substantially the same terms as the Senior Preferred Stock. Since inception, the
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Company has elected to pay all of its Senior Preferred Dividends in additional
shares of Senior Preferred Stock.
The Junior Preferred Stock issued by LGP is senior to the Common Stock of LGP
with respect to dividend distributions and distributions upon the liquidation,
winding up or dissolution of the Company. Dividends may be paid, at the
Company's option, at any dividend payment date in cash or in additional shares
of Junior Preferred Stock having a liquidation preference equal to the dividend
amount. The Junior Preferred Stock is redeemable at the option of the Company
at a price equal to 100% of its liquidation preference per share and is
mandatorily redeemable on February 1, 2010 at a price equal to 100% of its
liquidation preference per share. In the event of a change in control of the
Company, the Company must offer to repurchase the Junior Preferred Stock at
100% of its liquidation preference per share. Except as required by law, the
holders of shares of Junior Preferred Stock are generally not entitled or
permitted to vote on any matters voted upon by the stockholders of the Company.
Since inception, the Company has elected to pay all of its Junior Preferred
Dividends in additional shares of Junior Preferred Stock.
RECENT ACQUISITIONS AND DISPOSITIONS
The following publications with a combined total circulation of 625,000 were
acquired by the Company during 1999:
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TITLE LOCATION TYPE OF PUBLICATIONS
- -------------------------------------- ----------------------------------- --------------------------------------
<S> <C> <C>
Suburban Life Printing & Publishing Oak Brook, IL 16 Weeklies
The Shopper Halstad, MN Shopper
Moberly Monitor Index Moberly, MO Daily
Big Nickel Joplin, MO Shopper
The Palladium Times Oswego, NY Daily
Beatrice Daily Sun Beatrice, NE Daily
Plug Nickel Beatrice, NE Weekly
Sunland Beatrice, NE Weekly
Weekend Extra Beatrice, NE Weekly
The Donaldsonville Chief Donaldsonville, LA Weekly
The Cajun Gazette Donaldsonville, LA Weekly
The Bayou Extra Donaldsonville, LA Shopper
The Bastrop Daily Enterprise Bastrop, LA Daily
The Extra Bastrop, LA Shopper
The Pratt Tribune Pratt, KS Daily
Barber County Index Pratt, KS Weekly
St. Johns News Pratt, KS Weekly
Kiowa County Signal Pratt, KS Weekly
Daily Sun Beatrice, NE Daily
Penny Press 5 Beatrice, NE Shopper
Plug Nickel Beatrice, NE Shopper
Weekender Beatrice, NE Weekly
Sunland Beatrice, NE Shopper
Lake Area News Focus Lake Ozark, MO Shopper
Tube Tab Lake Ozark, MO Shopper
Lake of the Ozarks Boats Lake Ozark, MO Shopper
Lake of the Ozarks Real Estate Lake Ozark, MO Shopper
Batavia Republican Batavia, IL Weekly
Geneva Republican Geneva, IL Weekly
St. Charles Republican St. Charles, IL Weekly
Winfield Press Winfield, IL Weekly
Warrenville Free Press Warrenville, IL Weekly
Wayne Countryside Press Wayne, IL Weekly
West Chicago Press West Chicago, IL Weekly
Glen Ellyn News Glen Ellyn, IL Weekly
Warrenville Post Warrenville, IL Weekly
Wheaton Leader Wheaton, IL Weekly
Winfield Estate Winfield, IL Weekly
Maryville Daily Forum Maryville, MO Daily
</TABLE>
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Weekly Bargain Shopper Maryville, MO Shopper
Penny Press 2 Maryville, MO Shopper
Gentry County Shopper Albany, MO Shopper
Star Courier Kewanee, IL Daily
Star Extra Kewanee, IL Shopper
Atkinson-Annawan News Kewanee, IL Weekly
Henry County Advertizer Geneseo, IL Shopper
Ottumwa Courier Ottumwa, IA Daily
Wapello County Shopper Ottumwa, IA Shopper
Forever Young Ottumwa, IA Publications
Area Visitors Guide Ottumwa, IA Publications
Neighbors Ottumwa, IA Magazine
Homes Ottumwa, IA Magazine
Times Record Aledo, IL Weekly
Town Crier Aledo, IL Shopper
Eldora Herald-Ledger Eldora, IA Weekly
Hardin County Index Eldora, IA Weekly
Times-Plain Dealer Cresco, IA Weekly
The Extra Cresco, IA Shopper
Tri-County News Cottonwood, MN Weekly
The Wabasso Standard Wabasso, MN Weekly
</TABLE>
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The following Publications with a combined total circulation of 180,000 were
disposed of by the Company during 1999:
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TITLE LOCATION TYPE OF PUBLICATION
- -------------------------------------- ----------------------------------- --------------------------------------
<S> <C> <C>
Corry Journal Corry, PA Daily
Corry Journal TMC Corry, PA Shopper
Kane Republican Kane, PA Daily
The Punxsutawney Spirit Punxsutawney, PA Daily
The (Punxsutawney) Spirit TMC Punxsutawney, PA Shopper
County Neighbors Punxsutawney, PA Shopper
The Ridgway Record Ridgway, PA Daily
Shop-Right Ridgway, PA Shopper
The Daily Press St. Mary's, PA Daily
The Daily Press TMC St. Mary's, PA Shopper
Titusville Herald Titusville, PA Daily
Titusville Herald TMC Titusville, PA Shopper
Warren County Guide Warren, PA Shopper
Daily Sun Beatrice, NE Daily
Penny Press 5 Beatrice, NE Shopper
Plug Nickel Beatrice, NE Shopper
Weekender Beatrice, NE Weekly
Sunland Beatrice, NE Shopper
The Atchison Daily Globe Atchison, KS Daily
Atchison Area Advertiser Atchison, KS Shopper
</TABLE>
SUBSEQUENT EVENTS:
In January 2000, the Company acquired the Elko (NV) Daily Free Press, a 7,000
circulation daily newspaper. The Company also acquired the New Hampton (IA)
Tribune, a 10,400 circulation weekly newspaper.
INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media industry.
Due to a focus on local news, newspapers remain the dominant medium for local
advertising. Newspapers continue to be the best medium for retail advertising
which emphasizes the price of goods, in contrast to television which is
generally used for image advertising.
Readers of daily and Sunday newspapers tend to be more highly educated and have
higher incomes than non-newspaper readers. Management believes that newspapers
continue to be the most cost-effective means for advertisers to reach this
highly targeted demographic group.
Advertising revenues are the largest component of a newspaper's revenues
followed by circulation revenues. Advertising rates at each newspaper are based
upon market size, circulation, readership, demographic makeup of the market,
and the availability of alternative advertising media in the marketplace. While
circulation revenue is not as significant as advertising revenue, circulation
trends can impact the decisions of advertisers and advertising rates.
Newspaper advertising revenues are cyclical and are generally affected by
changes in national and regional economic conditions. Classified advertising,
which makes up approximately one-third of newspaper advertising revenues, is
the most sensitive to economic improvements or slowdowns as it is primarily
affected by the demand for employment, real estate transactions and automotive
sales.
OPERATING STRATEGY
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The Company's strategy is to increase revenues and cash flows through local
news and other content leadership; revenue enhancement; strategic technological
investments; high quality editorial content and presentation; circulation
growth; geographic clustering; targeted marketing programs; and cost control,
as described below:
Local News and Other Content Leadership. The Company's newspapers generally
have the largest local news gathering resources in their markets. As a result
of emphasizing local content, including youth sports, community events,
business, politics, and entertainment, the Company's newspapers generate reader
loyalty and create franchise value. Because the Company's provision of local
news is a typically unique product in its markets, its newspapers differentiate
themselves from other forms of media and satisfy the demands of both its reader
and advertisers.
Revenue Enhancement. The Company aggressively capitalizes on the good name and
reputation it has built in each of its local communities to reach out to
non-traditional newspaper customers through the development of milestone
programs, Internet activities and other successful marketing ideas that are
constantly shared by and among the Company's newspapers.
Strategic Technological Investments. The Company has committed to develop and
maintain Internet websites for all of its daily newspapers and certain of its
weekly papers. The websites provide an Internet editorial presence and full
Internet classified services for the Company's newspapers and will allow the
Company to take advantage of the increasing use of the Internet and the
potential advertising opportunities. Although the Company believes that
providing an Internet product is important to broadening the presence of its
newspapers in their respective communities and ultimately increasing the
Company's revenues through such value added services, the Company believes
almost all of its customers prefer the newspaper in a printed form. Management
believes that by being the leading provider of local news and other content in
most of its markets, its newspapers are well positioned to enhance and expand
their leadership position among local advertisers, whether in print or
electronic form.
High Quality Editorial Content and Presentation. The Company's newspapers are
committed to editorial excellence, providing the proper mix of local and
national news to effectively serve the needs of their local markets. The
Company's newspapers often receive awards for excellence in various areas in
their respective regions and categories. In addition, the Company's newspapers
are designed to attract readers through attractive layouts and color
enhancements. Geographic clustering allows for better quality personnel
equipment than smaller markets might otherwise warrant, resulting in a
significant increase in newspaper quality.
Circulation Growth. The Company believes that circulation growth is important
to the creation of long-term franchise value at its newspapers. Accordingly,
the Company has and will continue to invest in telemarketing and promotional
campaigns to increase circulation and readership.
Geographic Clustering. The Company has acquired and assembled newspapers, and
may continue to acquire newspapers, in contiguous markets ("clustering").
Clustering enables the Company to realize operating efficiencies and economic
synergies, such as the sharing of management, accounting and production
functions. In addition, the Company seeks to increase operating cash flows at
acquired newspapers through cost reductions, including labor and web width
reductions, as well as overall improved cost management. Clustering also
enables management to maximize revenues through the cross selling of
advertising among contiguous newspaper markets. As a result of clustering,
management believes that the Company's newspapers are able to obtain higher
operating margins than they would otherwise be able to achieve on a stand-alone
basis.
Cost Control. Each of the Company's newspapers emphasizes cost control with a
particular focus on managing staffing requirements. In addition, the Company
further controls labor costs through investments in state-of-the-art production
equipment that improves production efficiencies. Management is equally focused
on newsprint cost control.
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The Company takes advantage of group discounts for its major operating and
capital costs including newsprint, ink, supplies, computers, software, and
printing equipment.
Management believes that successful implementation of the operating strategy
described above will position the Company to continue to increase its operating
cash flow. The Company also continues to seek strategic newspaper acquisitions
that would contribute to the Company's overall growth strategy, whether through
revenue growth and/or cost reduction opportunities that meet the Company's
acquisition criteria.
ADVERTISING, CIRCULATION AND PRINTING REVENUES.
Advertising revenue includes DISPLAY (local and national department stores,
specialty shops and other retailer), NATIONAL (national advertising accounts),
and CLASSIFIED advertising (employment, automotive, real estate and personals).
Management believes that classified and national advertising are more volatile
than other newspaper revenues. Classified and national advertising for the
Company represents a smaller portion of its revenues than other newspapers in
the industry. As a result, management believes its revenue stream is more
predictable than other newspaper companies. The contribution of Display,
National, Classified, Circulation, and Job Printing & Other revenue to total
revenues for fiscal years 1998 and 1999 were as follows:
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<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1999
------------ ------------
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Display 56% 54%
National 2% 3%
Classified 15% 18%
Circulation 20% 17%
Job Printing & Other 7% 8%
100% 100%
</TABLE>
Newsprint.
Newsprint represents one of the largest costs of producing a newspaper. The
Company's newspapers buy newsprint from a number of suppliers, resulting in an
adequate supply of newsprint at market prices. In 1998 and 1999, the Company
consumed approximately 17,000 and 20,300 short tons of newsprint, respectively,
and, during the same periods, incurred newsprint expense of approximately $7.2
million in both periods. Newsprint expense as a percentage of revenue for 1998
and 1999 was 6.4% and 4.4%, respectively. Newsprint expense as a percentage of
revenue declined in 1999 due to lower newsprint prices during the year.
Employee Relations. The Company employs approximately 2,300 full-time employees
and approximately 1,000 part-time employees. Less than 1% of its employees
belong to labor unions. There has never been a strike or work stoppage against
any of the Company's newspapers during the Company's ownership, and the Company
believes that its relations with its employees are generally good.
Seasonality.
Newspaper companies tend to follow a distinct and recurring seasonal pattern,
with high advertising revenues in months containing significant events or
holidays. Accordingly, due to generally poor weather and a lack of holidays,
the Company's first fiscal quarter is the Company's weakest revenue quarter of
the year.
Competition.
Each of the Company's newspapers competes to varying degrees with magazines,
radio, television and cable television, as well as with some weekly
publications and other advertising media, including electronic media, for
advertising and circulation
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revenue. Competition for newspaper advertising is largely based upon
circulation, price and the content of the newspaper. LGP's newspapers are the
dominant source for local news and other content, with strong name recognition
in their market and minimal direct competition from similar daily newspapers
published in their markets. However, as with most suburban and smaller daily
newspapers, some circulation competition exists from larger daily newspapers
which are usually published in nearby metropolitan areas. Management believes
larger daily newspapers with circulation in LGP's newspaper markets generally
do not compete in any meaningful way for local advertising revenues, a
newspaper's main source of revenues. LGP's daily newspapers capture the largest
share of local advertising as a result of their direct coverage of the market.
In addition, management believes advertisers generally regard newspaper
advertising as the most effective method of advertising promotions and pricing
as compared to television, which is generally used to advertise image. The
Company may from time to time compete with other companies, which have greater
financial resources than the Company.
Electronic Media.
Many newspaper companies are now publishing news and other content on the
Internet. In addition, there are several companies which have developed sites
on the Internet which are, by design, advertising and/or subscription
supported. Many of these sites target specific types of advertising such as
employment and automotive classified.
The Company believes it has the most effective means to gather and distribute
its local news and other content. All of the company's daily publications and
certain of the weeklies have their own web sites, numbering 70 in all.
The web sites have a consistent format providing a selection of local and other
news along with classified advertising, features and details of local events
and activities.
The Company has been able to expand the reach of its classified reader ads by
placing the ads on line as well as in the newspapers. The Company also plans
to grow its revenues by providing other on line services such as selling banner
advertising on its sites and selling space in on line business directories.
The Company believes that its ability to self-promote its websites in its
printed newspapers as portals for the community and its focus on local content
limits the competitive threat to its core newspaper business from new media
businesses. Additionally, it considers its local display advertising revenues
to be less threatened by new media than larger metropolitan newspaper
classified advertising which lends itself more to sifting and searching.
Classified advertising represents a lower proportion of the Company's revenues
(18%) than is the case for larger market publications and represent 24% of
Liberty's advertising revenues compared with 41% for the U.S newspaper industry
as a whole.
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ITEM 2. PROPERTIES
The Company's executive offices are located in an office park in
Northbrook, Illinois, where the Company leases approximately 3,000 square feet
under a lease terminating in 2001. The Company also maintains locations and
offices at numerous locations throughout the United States for its publications
and printing operations. The Company does not believe an individual property is
material to the Company's consolidated financial position or results of
operations.
The following table summarizes the publications owned by the Company as of
December 31 1999:
(D=DAILY, W=WEEKLY, S=SHOPPER, T=TOTAL MARKET COVERAGE, F=FREE,
A=ANNUAL, BI-A=BI-ANNUAL, MAG=MAGAZINE)
ARIZONA
GLOBE
ARIZONA SILVER BELT (W)
GILA COUNTY ADVANTAGE (S)
MOCCASIN (W)
ARKANSAS
HEBER SPRINGS
THE SUN TIMES (W)
HELENA
THE DAILY WORLD (D)
DAILY WORLD TMC (T)
NEWPORT
NEWPORT DAILY INDEPENDENT (D)
NEWPORT DAILY INDEPENDENT TMC (T)
STUTTGART
STUTTGART DAILY LEADER (D)
THE STUTTGART DAILY TMC (T)
CALIFORNIA
GRIDLEY
THE GRIDLEY HERALD (W)
THE GRIDLEY SHOPPING NEWS (S)
MOUNT SHASTA
DUNSMUIR NEWS (W)
MOUNT SHASTA HERALD (W)
SUPERSAVER ADVERTISER (S)
VOICE OF THE MOUNTAIN (T)
WEED PRESS (W)
TAFT
DAILY MIDWAY DRILLER (D)
THE WESTSIDE SHOPPING NEWS (T)
YREKA
SISKIYOU DAILY NEWS (D)
SISKIYOU DAILY NEWS "EXTRA" (T)
IDAHO
BURLEY
SOUTH IDAHO PRESS (D)
THE NEWS REVIEW (S)
HAILEY
WOOD RIVER JOURNAL (W)
YOUR HOME MAGAZINE (M)
WOOD RIVER JOURNAL DINING (BI-A)
EXPLORER (A)
MINODOKA
MINIDOKA COUNTY NEWS (W)
10
<PAGE> 13
ILLINOIS
ALEDO
TIMES RECORD (W)
TOWN CRIER (S)
THE RIDGE (S)
BENTON
BENTON EVENING NEWS (D)
THE BENTON STANDARD (W)
CANTON
DAILY LEDGER (D)
SPOON RIVER ADVERTISER (S)
CARMI
THE CARMI TIMES (D)
THE WEEKLY TIMES (W)
WHITE COUNTY SHOPPER NEWS (S)
CHESTER
CHESTER HERALD TRIBUNE (W)
CHRISTOPHER
CHRISTOPHER PROGRESS (W)
DUQUOIN
THE ASHLEY NEWS (W)
DUQUOIN EVENING CALL (D)
PERRY COUNTY EXTRA (S)
DWIGHT
DWIGHT STAR & HERALD (W)
THE REGISTER (S)
GARDNER CHRONICLE (W)
COURIER PRESS (HERSCHER) (W)
FAIRBURY
THE BLADE (W)
FLORA
CCAP SPECIAL (T)
DAILY ADVOCATE PRESS (D)
GALATIA
MONEY STRETCHER (S)
GALESBURG
PENNYSAVER PRESS (S)
GENESEO
HENRY COUNTY ADVERTIZER (S)
HARRISBURG
ELDORADO DAILY JOURNAL (D)
HARRISBURG DAILY REGISTER (D)
HERRIN
THE SPOKESMAN (W)
THE SPOKESMAN SUNDAY (T)
KEWANEE
STAR COURIER (D)
ATKINSON-ANNAWAN NEWS (W)
STAR EXTRA (T)
MACOMB
MACOMB JOURNAL (D)
JOURNAL EXTRA (T)
MARION
MARION DAILY REPUBLICAN (D)
MARION DAILY EXTRA (T)
MONMOUTH
DAILY REVIEW ATLAS (D)
OQUAWKA CURRENT (W)
PENNYSAVER (S)
MURPHYSBORO
MURPHYSBORO AMERICAN (W)
AMERICAN MONDAY (T)
NEWTON
NEWTON PRESS-MENTOR (W)
11
<PAGE> 14
NORRIS CITY
NORRIS CITY BANNER (W)
OLNEY
JASPER COUNTY NEWS EAGLE,
ADVANTAGE (T)
THE OLNEY DAILY MAIL (D)
THE WEEKLY MAIL (W)
PONTIAC
DAILY LEADER (D)
HOME TIMES (W)
LIVINGSTON SHOPPING NEWS (S)
SHAWNEETOWN
GALLATIN DEMOCRAT (W)
RIDGWAY NEWS (W)
SPRINGFIELD
SPRINGFIELD SHOPPER (S)
SUBURBAN CHICAGO NEWSPAPERS
BERWYN/STICKNEY/ FOREST VIEW LIFE(W)
BROOKFIELD SUBURBAN LIFE CITIZEN(W)
LAGRANGE/LAGRANGE PARK
SUBURBAN LIFE CITIZEN(W)
NORTH RIVERSIDE/RIVERSIDE
SUBURBAN LIFE CITIZEN(W)
WESTERN SPRINGS SUBURBAN LIFE
CITIZEN(W)
LAGRANGE PRESS(W)
COUNTRYSIDE/HODGKINS/INDIAN HEAD
PARK/WILLOW SPRINGS SUBURBAN
LIFE CITIZEN(W)
CICERO LIFE(W)
LEMONT METROPOLITAN(W)
LYONS/MCCOOK SUBURBAN LIFE
CITIZEN(W)
WESTCHESTER/BROADVIEW SUBURBAN
LIFE CITIZEN(W)
WESTCHESTER NEWS(W)
HILLSIDE/BERKELEY PRESS(W)
ADDISON PRESS (W)
ELMHURST PRESS (W)
OAK BROOK/OAKBROOK TERRACE
PRESS (W)
ELMHURST SUBURBAN LIFE (W)
VILLA PARK SUBURBAN LIFE (W)
DARIEN SUBURBAN LIFE (W)
HINSDALE/CLARENDON HILLS SUBURBAN
LIFE (W)
WOODRIDGE/LISLE SUBURBAN LIFE (W)
BARTLETT/HANOVER PARK/STREAMWOOD
PRESS (W)
WHEATON PRESS (W)
DARIEN METROPOLITAN (W)
WINFIELD PRESS (W)
WAYNE COUNTRYSIDE PRESS (W)
BENSENVILLE/ITASCA/WOODDALE PRESS (W)
LOMBARD SPECTATOR (W)
VILLA PARK ARGUS (W)
LOMBARD SUBURBAN LIFE (W)
BURR RIDGE/WILLOWBROOK SUBURBAN
LIFE (W)
DOWNERS GROVE SUBURBAN LIFE (W)
WESTMONT SUBURBANLIFE (W)
BLOOMINGDALE PRESS (W)
CAROL STREAM/GLENDALE HEIGHTS
PRESS (W)
12
<PAGE> 15
ROSELLE PRESS (W)
NAPERVILLE MET (W)
WEST CHICAGO PRESS (W)
WARRENVILLE PRESS (W)
LOCKPORT/HOMER TOWNSHIP
METROPOLITAN (W)
BOLINGBROOK/ROMEOVILLE
METROPOLITAN (W)
ELBURN REPUBLICAN (W)
NORTH AURORA HERALD (W)
SUGAR GROVE REPUBLICAN (W)
BATAVIA REPUBLICAN (W)
GENEVA REPUBLICAN (W)
ST. CHARLES REPUBLICAN (W)
HUNTLEY FARMSIDE (W)
MARENGO/UNION PRESS (W)
PRESS-REPUBLICAN HOMETOWN (W)
THE GLEN ELLYN NEWS (W)
THE WINFIELD ESTATE (W)
THE WARRENVILLE POST (W)
SELECT HOMES-COOK COUNTY (MAG)
CAREER MOVES (MAG)
PRIME TIMES (MAG)
SELECT HOMES-DUPAGE COUNTY (MAG)
LIFE'S EXTRA (MAG)
TEUTOPOLIS
TEUTOPOLIS PRESS (W)
WEST FRANKFORT
DAILY AMERICAN (D)
TRADER (W)
FRANKLIN PRESS (T)
IOWA
CHARLES CITY
CHARLES CITY PRESS (D)
THE EXTRA (T)
SIX COUNTY SHOPPER (T)
CRESCO
TIMES-PLAIN DEALER (W)
THE EXTRA (S)
ELDORA
ELDORA HERALD-LEDGER (W)
HARDIN COUNTY INDEX (S)
OTTUMWA
OTTUMWA COURIER(D)
WAPELLO COUNTY SHOPPER (S)
FOREVER YOUNG (MAG)
AREA VISITORS GUIDE (MAG)
NEIGHBORS (MAG)
HOMES (MAG)
KANSAS
AUGUSTA
AUGUSTA DAILY GAZETTE (D)
AUGUSTA ADVERTISER (T)
DERBY
DAILY REPORTER (D)
THE RECORD (W)
THE WICHITA JOURNAL (W)
THE WEEKLY SHOPPER (S)
EL DORADO
THE EL DORADO TIMES (D)
EL DORADO TIMES WEEKLY (T)
SHOPPERS GUIDE (S)
13
<PAGE> 16
KANSAS CITY
KANSAS CITY KANSAN (D)
KANSAS CITY KANSAN "SUNDAY" (W)
WYNADOTT COUNTY SHOPPER (S)
LEAVENWORTH
THE LEAVENWORTH TIMES (D)
THE LEAVENWORTH TIMES SUNDAY (W)
RIVER BEND JOURNAL (T)
CHRONICLE SHOPPER (S)
MCPHERSON
MCPHERSON SENTINEL (D)
THE SENTINEL AD-VISER (T)
MAC SHOPPER (S)
PRATT
THE PRATT TRIBUNE (D)
BARBER COUNTY INDEX (W)
ST. JOHNS NEWS (W)
KIOWA COUNTY SIGNAL (W)
SUNFLOWER SHOPPER TMC (T)
SHAWNEETOWN
JOURNAL-HERALD (W)
WELLINGTON
DAILY NEWS (D)
LOUISIANA
BASTROP
THE BASTROP DAILY EXPRESS (D)
THE EXTRA (T)
DERIDDER
BEAUREGARD DAILY NEWS (D)
DONALDSONVILLE
THE DONALDSONVILLE CHIEF (W)
THE CAJUN GAZETTE (W)
THE BAYOU EXTRA (T)
GONZALES
ASCENSION CITIZEN (W)
NICKEL ADS (S)
THE STAR WATCH (T)
IOWA
IOWA NEWS (W)
LEESVILLE
LEESVILLE DAILY LEADER (D)
MOSS BLUFF
MOSS BLUFF NEWS (W)
SULPHUR
SOUTHWEST DAILY NEWS (D)
GUARDIAN (S)
VINTON
VINTON NEWS (W)
WESTLAKE
WESTLAKE NEWS (W)
MICHIGAN
CHEBOYGAN
CHEBOYGAN DAILY TRIBUNE (D)
SHOPPERS FAIR (S)
IONIA
SENTINEL-STANDARD (D)
SENTINEL STANDARD TMC (T)
SAULT STE. MARIE
THE EVENING NEWS (D)
TRI COUNTY BUYERS GUIDE (T)
14
<PAGE> 17
MINNESOTA
COTTONWOOD
TRI-COUNTY NEWS (W)
CROOKSTON
CROOKSTON DAILY TIMES (D)
CROOKSTON VALLEY SHOPPER (S)
GRANITE FALLS
GRANITE FALLS/CLARKFIELD ADVOCATE-
TRIBUNE (W)
HALSTAD
THE HALSTAD SHOPPER (S)
MONTEVIDEO
MONTEVIDEO AMERICAN NEWS (W)
THE STAR ADVISOR (S)
REDWOOD FALLS
REDWOOD FALLS GAZETTE (W)
REDWOOD FALLS LIVEWIRE (S)
ST. JAMES
ST. JAMES PLAIN DEALER (W)
TOWN AND COUNTRY SHOPPER (S)
SLEEPY EYE
SLEEPY EYE HERALD DISPATCH (W)
THE SLEEPY EYE REMINDER (S)
WABASSO
THE WABASSO STANDARD (W)
MISSOURI
ALBANY
GENTRY COUNTY SHOPPER (S)
BOONVILLE
BOONVILLE DAILY NEWS (D)
THE RECORD (T)
BROOKFIELD
DAILY NEWS BULLETIN (D)
CAMDENTON
LAKE SUN LEADER (D)
CARTHAGE
THE CARTHAGE PRESS (D)
THE CARTHAGE PRESS SCOPE (T)
CHILLICOTHE
C.T. EXTRA (S)
CONSTITUTION TRIBUNE (D)
GREENFIELD
LAKE STOCKTON SHOPPER (S)
MILLER PRESS (W)
THE VEDETTE (W)
JOPLIN
BIG NICKEL (S)
KIRKSVILLE
KIRKSVILLE CRIER (S)
KIRKSVILLE DAILY EXPRESS & NEWS (D)
LAKE OZARKS
LAKE AREA NEWS FOCUS (S)
TUBE TAB (S)
LAKE OF THE OZARKS BOATS (S)
LAKE OF THE OZARKS REAL ESTATE (S)
MACON
CHRONICLE HERALD (D)
MACON JOURNAL (T)
MARCELINE
MARCELINE PRESS (W)
SHO-ME SHOPPER (T)
MARYVILLE
MARYVILLE DAILY FORUM (D)
15
<PAGE> 18
WEEKLY BARGAIN SHOPPER (S)
PENNY PRESS 2 (S)
MEXICO
THE MEXICO LEDGER (D)
THE MEXICO LEDGER TMC (T)
MOBERLY
MOBERLY MONITOR INDEX (D)
MONROE CITY
MARK TWAIN REGIONAL NEWS (F)
MONROE CITY NEWS (W)
NEOSHO
NEOSHO DAILY NEWS (D)
NEOSHO DAILY NEWS "ETC." (T)
NEOSHO DAILY NEWS "SUNDAY" (W)
OSAGE BEACH
VACATION NEWS (F)
ROLLA
ROLLA DAILY NEWS (D)
ROLLA DAILY NEWS "PLUS" (T)
SAINT JAMES
ADVERTISER (T)
ST. JAMES LEADER JOURNAL (W)
WAYNESVILLE
THE DAILY GUIDE (D)
DAILY GUIDE EXTRA (T)
FORT WOOD CONSTITUTION (F)
NEW YORK
BATH
STEUBEN COURIER ADVOCATE (F)
CANISTEO
HORNELL CANSITEO PENN-E-SAVER (S)
DANSVILLE
GENESEE COUNTY EXPRESS (W)
GENESEEWAY SHOPPER (S)
FT. PLAIN
MOHAWK VALLEY PENNYSAVER (S)
HERKIMER
THE EVENING TELEGRAM (D)
IMAGES (F)
HORNELL
EVENING TRIBUNE (D)
THE SPECTATOR (SUNDAY) (W)
THE TRIBUNE EXTRA (T)
HORSEHEADS
THE SHOPPER (S)
LIBERTY
CATSKILL SHOPPER (S)
LITTLE FALLS
THE EVENING TIMES (D)
TIMES-SAVER (T)
OSWEGO
THE PALLADIUM TIMES (D)
COMMUNITY PREVIEW TMC (T)
PAINTED POST
CORNING-ELMIRA PENNYSAVER (S)
PENN YAN
CHRONICLE AD-VISER (S)
THE CHRONICLE-EXPRESS (W)
SAUGERTIES
MOUNTAIN PENNYSAVER (F)
SAUGERTIES PENNYSAVER (S)
SAUGERTIES POST STAR (W)
16
<PAGE> 19
SYRACUSE
THE BUSINESS RECORD(W)
WELLSVILLE
ALLEGANY CO. PENNYSAVER (S)
WELLSVILLE DAILY REPORTER (D)
WELLSVILLE DAILY TMC (T)
NORTH DAKOTA
DEVILS LAKE
DEVILS LAKE DAILY JOURNAL (D)
THE COUNTY PEDDLER (W)
PENNSYLVANIA
CARBONDALE
THE CARBONDALE NEWS (W)
HONESDALE
THE INDEPENDENT EXTRA (T)
THE WAYNE INDEPENDENT (D)
MILTON
LEWISBURG DAILY JOURNAL (D)
MILTON DAILY STANDARD (D)
THE STANDARD-JOURNAL (T)
MOSCOW/HAMLIN
THE VILLAGER (W)
SAYRE
THE EVENING TIMES (D)
THE TIMES EXTRA (T)
WAYNESBORO
THE RECORD HERALD (D)
RECORD HERALD SHOPPERS EXPRESS (S)
WEST VIRGINIA
KEYSER
MINERAL DAILY NEWS TRIBUNE (D)
NEWS TRIBUNE & MOUNTAIN
ECHO (W)
TODAY'S SHOPPER (S)
17
<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of legal proceedings which have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no public market for the Company's Common Stock. As set forth in Item
12, 1,440,000 shares (92% of the total shares outstanding) are owned by Green
Equity Investors II, L.P. (GEI). The remaining shares of the Common Stock are
owned by certain officers and other management personnel of the Company, or as
treasury shares.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of the
Company. The data presented below should be read in conjunction with the
consolidated financial statements, including the notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Form 10-K.
18
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising $ 60,255 $ 67,756 $ 69,602 $ 81,554 $ 120,573
Circulation 19,058 21,064 21,451 22,844 27,543
Job printing and other 8,054 8,722 7,666 8,133 13,239
------------ ------------ ------------ ------------ ----------
Total Revenues 87,367 97,542 98,719 112,531 161,355
Operating Costs 36,429 39,660 39,309 45,976 68,351
Selling, general
and administrative 27,482 29,919 29,171 32,329 45,631
------------ ------------ ------------ ------------ ----------
Newspaper EBITDA 23,456 27,963 30,240 34,226 47,373
Corporate Expenses - - - 3,736 5,668
Non Cash Compensation - - - 238 223
------------ ------------ ------------ ------------ ----------
EBITDA 23,456 27,963 30,240 30,252 41,482
Depreciation and amortization 7,290 7,854 7,470 11,917 16,657
------------ ------------ ------------ ------------ ----------
Income from operations 16,166 20,109 22,769 18,335 24,825
Interest expense 11,195 10,961 10,551 25,234 32,313
Net gain on exchange
and disposition of properties - - - - 6,197
------------ ------------ ------------ ------------ ----------
Income (loss) before income
taxes, and extraordinary items 4,971 9,141 12,218 (6,899) (1,291)
Income taxes 2,338 4,006 5,271 - 295
------------ ------------ ------------ ------------ ----------
Income (loss) before
extraordinary item 2,633 5,135 6,949 (6,899) (1,586)
Extraordinary gain on
insurance proceeds - - - - 485
------------ ------------ ------------ ------------ ----------
Net Income (loss) $ 2,633 $ 5,135 $ 6,949 $ (6,899) $ (1,101)
------------ ------------ ------------ ------------ ----------
Dividends on preferred stock (11,152) (13,595)
------------ ----------
Net loss available to
common stockholders $ (18,051) $ (14,696)
============ ==========
</TABLE>
Newspaper EBITDA includes income from operations adjusted to exclude
depreciation and amortization expense, Corporate expenses, and non-cash
compensation.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents $ 1,929 $ 1,768 $ 1,452 $ 1,025 $ 1,860
Total assets 120,170 112,974 109,700 410,068 479,610
Total debt - - - 283,936 340,899
Senior Preferred
Stock - - - 51,460 59,481
Junior Preferred
Stock - - - 53,692 59,266
Stockholders' equity
(deficit) 106,945 102,980 99,139 (10,392) (25,087)
OTHER DATA:
Ratio of earnings
to fixed charges(1) 1.4x 1.8x 2.2x 0.8x 1.0x
</TABLE>
19
<PAGE> 22
NOTES TO SELECTED FINANCIAL DATA
(1) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, and dividends on preferred stock. The ratio of
earnings to fixed charges is helpful to investors as it provides a
measure, generally calculated consistently by all companies, of a
company's ability to meet its debt service requirements. For the year
ended December 31, 1998 earnings were insufficient to cover fixed charges
by $6.9 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of the Company, including the notes thereto. The
historical financial data of the Company for the period before January 1, 1998
refers to the operations of the Company when it was owned by American
Publishing Company or its subsidiaries ("APC"), a wholly owned subsidiary of
Hollinger International, Inc. Effective January 1, 1998 the Company purchased
substantially all of the assets and assumed certain liabilities that were used
in the business of publishing and distributing certain local newspapers ("the
Initial Acquisition"). The discussion and analysis below includes certain
forward-looking statements (as such terms are defined in Section 21E of the
Securities Exchange Act of 1934) pertaining to, among other things, competition
in its markets, availability of adequate acquisition opportunities, price and
availability of newsprint, significant use of leverage, general economic
conditions, and environmental matters. These statements are based on the
beliefs, assumptions made by, and information currently available to, the
Company's management. The Company's actual growth, results, performance and
business prospects in 2000, and beyond could differ materially from those
expressed in, or implied by, such forward-looking statements. See "Disclosure
Regarding Forward-Looking Statements" on page 1 for a discussion of features
that could cause or contribute to such material differences.
OVERVIEW
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising
in their markets. The Company's revenues are derived from advertising (75% of
1999 total revenues), circulation (17%) and job printing and other (8%).
The Company's primary costs and expenses are comprised of operating costs and
selling, general and administrative expenses. Salaries and employee benefits
are the Company's largest operating costs. The Company has been able to control
salaries and employee benefit expenses by realizing efficiencies from the
implementation of new technologies and the achievement of synergies from its
strategy of geographically clustering its newspaper operations.
Liberty Group Publishing, Inc. ("LGP") was formed for purposes of acquiring a
portion of the daily and weekly newspapers owned by American Publishing Company
or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger
International Inc.("Hollinger"). LGP is a holding company for its wholly-owned
subsidiary, Liberty Group Operating, Inc ("Operating Company"). The
consolidated financial statements include the accounts of LGP and Operating
Company and its consolidated subsidiaries (the "Company").
On January 27, 1998, the Company acquired from Hollinger virtually all of the
assets and assumed certain liabilities that were used primarily in the business
of publishing, marketing and distributing certain local newspapers (the
"Initial Acquisition"). The initial purchase price including fees and expenses
was $322.4 million. The effective date of the Initial Acquisition was January
1, 1998.
20
<PAGE> 23
In the accompanying consolidated financial statements the terms "Liberty Group
Publishing" or the "Company" when used with respect to periods prior to January
1, 1998 refer to the combined group of newspapers sold by APC and when used
with respect to periods subsequent to January 1, 1998 refers to Liberty Group
Publishing, Inc. and its consolidated subsidiaries. The combined historical
financial information of the newspapers acquired from APC prior to the Initial
Acquisition on January 1, 1998 is referred to as "Predecessor" while the
consolidated financial information of the Company subsequent to the date of the
Initial Acquisition is referred to as "Successor."
The Company has accounted for the Initial Acquisition using the purchase method
of accounting. Accordingly, the costs of the Initial Acquisition have been
allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The fair values of certain
identifiable assets acquired and goodwill of $296.5 million are being amortized
over periods ranging from 5 to 40 years. Because of the purchase price
allocation, the accompanying consolidated financial statements of Successor are
not directly comparable to those of Predecessor.
Certain administrative services, including accounting, payroll, administration,
tax services and financial reporting, were historically performed for the
Company by APC. The Company was charged directly by APC for certain of such
services and also paid a management fee to APC that was based upon a percentage
of total revenues. At the end of January 1998, the management fee to APC was
replaced by a Transitional Services Agreement that allowed for certain
administrative services to be provided by APC at cost until the Company was able
to establish capabilities to provide its administrative services in-house. The
Company terminated the Transitional Services Agreement effective March 31,
1999.
Prior to the Initial Acquisition, the Company operated as a business unit of
APC and as such did not file separate tax returns. The income tax provision
included in the Predecessor's financial statements was computed as if the
Predecessor were a separate company. Subsequent to the Initial Acquisition, the
Company has been and anticipates that it will be, for the foreseeable future,
in a tax loss position. Given the uncertainty as to the timing of the Company's
ability to utilize such losses to offset future taxable income, the Company
does not presently anticipate recording any tax benefit associated with its
pre-tax losses. In addition to the Initial Acquisition, due to the acquisition
of the Company's assets from APC, the Company's asset values and capital
structure are materially different than those set forth in the Predecessor's
financial statements for periods preceding the Initial Acquisition and,
accordingly, historical interest expense is not indicative of the interest
expense that the Company incurs as a separate company.
The results of operations and cash flows of the Predecessor have been
consolidated with those of the Company from January 1, 1998, the effective date
upon which the Company and APC agreed as to the change of control of the
newspapers to the Company.
During 1998 and 1999, the Company acquired 91 and 49 publications, respectively,
in 18 and 13 transactions, respectively, for a total acquisition cost of $61.8
and $54.8 million, respectively.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of operations
as a percentage of total revenues for the years ended December 31, 1997, 1998
and 1999.
21
<PAGE> 24
<TABLE>
<CAPTION>
YEAR TO YEAR
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
------------------------------------------- ----------------------------
1997 1998 1999 1998 1999
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) TO TO
1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising 70% 73% 75% 17% 48%
Circulation 22 20 17 6 21
Job printing and other 8 7 8 6 63
------------- ------------- ------------- ------------- -------------
Total revenues 100 100 100 14 43
Operating costs 40 41 42 17 49
Selling, general
and administrative 29 32 32 24 41
Depreciation and
amortization 8 11 10 60 40
------------- ------------- ------------- ------------- -------------
Income from operations 23 16 15 19 35
Interest expense 11 22 20 139 29
Net gain on exchange
and disposition of
properties - - 4 - *
------------- ------------- ------------- ------------- -------------
Income (loss) before
income taxes, and
extraordinary items 12 (6) (1) (156) *
Income taxes 5 - - * -
------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item 7 (6) (1) 199 84
Extraordinary gain on
insurance proceeds - - * - *
------------- ------------- ------------- ------------- -------------
Net income (loss) 7 (6) (1) 199 84
EBITDA 31% 27% 26% 0% 37%
</TABLE>
*-not meaningful
EBITDA includes income from operations adjusted to exclude income taxes,
depreciation and amortization expense.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total revenues for the year ended December 31, 1999 increased by $48.8 million,
or 43%, to $161.4 million. The increase in revenue was primarily due to
revenue from acquired properties and same store increases in advertising
partially offset by decreases in same store print revenue. The increase in
total revenues for the year ended December 31, 1999, was comprised of a $39.0
million or 48% increase in advertising revenue, a $4.7 million or 21% increase
in circulation revenue, and a $5.1 million or 63% increase in job printing and
other revenue.
Operating costs for the year ended December 31, 1999 were $68.4 million or 42%
of revenue which was an increase of $22.4 million over the year ended December
31, 1998 when operating costs were $46.0 million or 41% of revenue. The
increase in operating costs as a percentage of revenue for the year ended
December 31, 1999 was primarily due to higher cost structures of acquired
properties and higher labor costs, which is partially offset by lower newsprint
prices.
Selling, general and administrative expenses for the year ended December 31,
1999 increased by $15.2 million, to $51.5 million or 32% of revenues from $36.3
million for the year ended December 31, 1998 when expenses were 32% of
revenues. The stability in selling, general, and administrative expenses as a
percentage of revenue for the year ended December 31, 1999 was primarily due to
the implementation of cost controls at the Company's publications.
EBITDA for the year ended December 31, 1999 increased by $11.2 million, to $41.5
million from $30.3 million for the year ended December 31, 1998. The increase
was primarily driven by acquisitions, same store growth in advertising revenue,
and lower newsprint prices, which was partially offset by same store reductions
in print revenue and rising labor costs. EBITDA as a percentage of revenue
declined from 27% to 26% due to lower margins at properties acquired during
1999. Depreciation and amortization expenses for the year ended December 31,
1999 increased by $4.8 million to $16.7 million from $11.9 million for the year
ended December 31,
22
<PAGE> 25
1998. The increase was due to depreciation of assets acquired in 1999,
depreciation on capital expenditures made in 1999, and amortization of
intangibles from 1999 acquisitions.
Income from operations for the year ended December 31, 1999 increased by $6.5
million from $18.3 million or 16% of revenues to $24.8 million or 15% of
revenues. The increase was primarily driven by acquisitions, and on a same
store basis, growth in advertising revenue, and lower newsprint prices, which
was offset by same store reductions in print revenue, higher labor costs and
higher depreciation and amortization expenses.
Total interest expense (including amortization of deferred financing fees)
increased by $7.1 million to $32.3 million from $25.2 million in 1998, primarily
due to higher debt balances borrowed to fund acquisitions, higher interest rates
on bank debt, and higher accretion of the Holding Company Senior Discount
Debentures.
For the year ended December 31, 1999, the Company recognized net loss of $1.1
million compared to a net loss of $6.9 million for the same period in 1998. This
change, $5.8 million, was due primarily to acquisitions, same store growth in
advertising revenue, lower newsprint prices, a net gain from the exchange and
disposition of certain publications and an extraordinary gain on insurance
proceeds. These increases were partially offset by same store reductions in
print revenue, higher labor costs, and higher depreciation, amortization, and
interest expense.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenue for the year ended December 31, 1998 increased by $13.8 million,
or 14%, to $112.5 million. The increase in revenue was primarily due to
acquisitions with same store increases in advertising revenue offset by
declines in printing revenue. The increase in total revenues for the year
ended December 31, 1998 was comprised of a $12.0 million or 17% increase in
advertising revenue and a $1.4 million or 6% increase in circulation revenue,
and a $0.5 million or 6% increase in job printing and other revenue.
Operating costs for the year ended December 31, 1998 were $46.0 million or 41%
of revenue which was an increase of $6.7 million over the year ended December
31, 1997 when operating costs were $39.3 million or 40% of revenue. This
increase was primarily driven by higher newsprint prices, and the increase in
the minimum wage that went into effect in September of 1997.
Selling, general and administrative expenses for the year ended December 31,
1998 increased by $7.1 million, to $36.3 million or 32% of revenues from $29.2
million for the year ended December 31, 1997 when expenses were 29% of
revenues. The increase in selling, general and administrative expenses as a
percentage of revenue for the year ended December 31, 1998 was primarily due to
increases in management costs associated with becoming an independent company
including management fees paid to the controlling stockholder, and by the
increase in the minimum wage that went into effect in September of 1997.
Depreciation and amortization expense for the year ended December 31, 1998
increased by $4.4 million, to $11.9 million from $7.5 million for the year
ended December 31, 1997, as a result of the write-up in basis of assets
acquired in the Initial Acquisitions as well as subsequent acquisitions.
Income from operations for the year decreased by $4.5 million from $22.8
million or 23% of revenues to $18.3 million or 16% of revenues primarily due to
higher depreciation and amortization charges as a result of the write-up in
basis of assets acquired in the Initial Acquisition as well as subsequent
acquisitions.
EBITDA for the year ended December 31, 1998 increased by $0.1 million, to $30.3
million from $30.2 million for the year ended December 31, 1997. The decrease in
EBITDA as a percentage of revenue during the year ended December 31, 1998 was
due to higher administrative expenses, increased newsprint costs, and the effect
of the increase in the minimum wage in September of 1997.
23
<PAGE> 26
EBITDA includes income from operations adjusted to exclude income taxes,
depreciation and amortization expenses. The Company believes that EBITDA
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA is not a defined term under Generally
Accepted Accounting Principles ("GAAP") and is not indicative of operating
income or cash flow from operations as determined under GAAP.
For the year ended December 31, 1998, the Company incurred a net loss of $6.9
million which is not directly comparable to the prior year due primarily to
higher depreciation and amortization expenses, increased interest expense, and
higher administrative expenses associated with the Initial Acquisition and
subsequent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities. Cash flows provided by operating
activities for the year ended December 31, 1999 decreased by $13.4 million to
$8.5 million compared with cash provided of $21.9 million for the year ended
December 31, 1998. The decrease is primarily due to the non-cash gain on
exchange of properties, only one payment of semi-annual interest on Operating
Company's 9.375% Subordinated notes in 1998 versus two payments in 1999, an
increase in receivables, and decreases in accounts payable and accrued expenses
(net of acquisitions).
Cash Flows From Investing Activities. Net cash used in investing activities for
the year ended December 31, 1999 reflects the acquisition of an additional 49
publications (net of exchanges and divestitures) during 1999 for $54.8 million.
Acquisitions are key part of the Company's strategy and will fluctuate over
time due to the availability of publications that meet the Company's
acquisition strategy. The Company's capital expenditures consist of the
purchase of machinery, equipment, furniture and fixtures relating to its
publishing operations. The Company has no material commitments for capital
expenditures, but will continue to pursue its strategy of opportunistically
purchasing local newspapers in contiguous markets and clusters of local
newspapers in new markets. The Company will only pursue acquisitions that it
believes would contribute to the Company's overall cash flow growth.
Cash Flows From Financing Activities. Net cash flows from financing activities
for the year ended December 31, 1999 primarily reflect borrowings made under
the Company's Revolving Credit Facility to fund acquisition costs. Dividends
payable on the Senior Preferred Stock and the Junior Preferred Stock may be
paid, at the Company's option, in cash or in additional shares of the
respective Stock having a liquidation preference equal to the dividend amount.
To date, the Company has elected to pay all of its dividends in additional
shares of Preferred Stock. The Company is subject to certain covenants that
limit its ability to pay dividends and make other restricted payments and does
not expect to pay cash dividends in the foreseeable future.
Liquidity. The Company's principal sources of funds will be cash provided by
operating activities and borrowings under its Revolving Credit Facility. The
Company believes that such funds will provide the Company with sufficient
liquidity and capital resources to meet its current and financial obligations
for the foreseeable future. See Note 7 to the Consolidated Financial Statements
for a summary of the terms of the Revolving Credit Facility. The Company is
dependent upon the cash flows of the Operating Company to fund the repayment
of its borrowings and the redemption requirements under its respective
preferred stock agreements.
LGP is highly leveraged and has indebtedness that is substantial in relation to
its stockholders' deficit, tangible equity and cash flow. Total interest expense
for the year ended December 31, 1999 was $32.3 million including non-cash
interest of $6.7 million and amortization of debt issuance costs of $1.5
million. The degree to which LGP is leveraged could have important consequences,
including the following: (i) for the fiscal year ending December 31, 2000, a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the Notes and interest on its other indebtedness,
thereby reducing the funds available to the Company for other purposes; (ii)
indebtedness under the Revolving Credit Facility is
24
<PAGE> 27
at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates; (iii) the Company is substantially more leveraged
than certain of it competitors, which might place the Company at a competitive
disadvantage; (iv) the Company may be hindered in its ability to adjust rapidly
to changing market conditions; (v) the Company's substantial degree of leverage
could make it more vulnerable in the event of a downturn in general economic
condition or other adverse events in its business; and (vi) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's subsidiary, Liberty Group Operating, Inc. has a $175.0 million
Revolving Credit Facility that matures in January of 2003. Borrowings under the
Revolving Credit Facility bear interest at an annual rate, at the Company's
option equal to the Base Rate (as defined in the Credit Agreement) or the
Eurodollar Rate (as defined in the Credit Agreement) plus a margin that varies
based upon a ratio set forth in the Credit Agreement. As a result the Company's
interest expense will be affected by changes in the Base Rate or in the
Eurodollar Rate. At December 31, 1999, the Company had borrowed $99.5 million
under this Revolving Credit Facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item is included in the consolidated
financial statements and notes thereto, and related Independent Auditors'
Report, appearing on pages F-1 to F-14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
25
<PAGE> 28
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The following table sets forth the name, age and position of individuals
who serve as directors of LGP and executive officers of LGP and the Company.
Each director of LGP will hold office until the next annual meeting of the
stockholders or until his successor has been elected. Qualified officers of LGP
and the Company are elected by their respective Boards of Directors and serve
at the discretion of such Boards.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth L. Serota 38 President, CEO, and Director
Scott T. Champion 40 Executive Vice President - Operations, and Director
Kevin O'Shea 40 Executive Vice President, CFO, and Director
Larry K. Randa 51 Executive Vice President - Suburban Chicago
Gene A. Hall 48 Senior Vice President - Midwestern Region
Joseph Armenia 54 Vice President - Controller
Randy Cope 39 Vice President - Missouri, Kansas, Arkansas
Kelly Luvison 40 Vice President - Western New York Region
Ted Mike 53 Vice President - Eastern Region
Leonard I. Green 65 Chairman of the Board of Directors
Gregory J. Annick 36 Director
John G. Danhakl 44 Director
Peter J. Nolan 41 Director
</TABLE>
Kenneth L. Serota is President and Chief Executive Officer. Mr. Serota is
also a director of LGP. He served as Vice President - Law & Finance and
Secretary of Hollinger from May 1995 to December 1997 and as a director of its
APC Division, which owned the publications initially acquired by the Company,
from 1996 to 1997. Prior thereto, Mr. Serota served as Senior Vice President of
a privately held frozen food manufacturer from June 1992 through March 1995.
Previously, Mr. Serota served as an attorney and a certified public accountant
in private practice. Mr. Serota has significant experience negotiating and
closing acquisitions of newspaper publications and primarily focuses his
efforts on executing the Company's acquisition program and overseeing all
administrative functions of LGP.
Scott T. Champion is Executive Vice President - Operations and has primary
responsibility for all community newspaper publications. Prior to 1998, he
served as a Senior Vice President, Regional Manager, and District Manager of
APC and had been employed at APC since 1988. Prior to his employment at APC,
Mr. Champion served as the publisher of a group of privately owned newspaper
publications. Mr. Champion served as the publisher of the Daily Review Atlas
and Pennysaver in Monmouth, Illinois, which publications were acquired by the
Company in the Initial Acquisition, from 1984 to January 1999. Mr. Champion has
more than 18 years' experience in the newspaper industry.
Kevin O'Shea is Executive Vice President and the Chief Financial Officer.
Mr. O'Shea served as Vice President and Corporate Treasurer of Bell & Howell
Company from February 1996 to March 1998. From 1989 to 1996, Mr. O'Shea served
as Vice President and Corporate Treasurer of Spencer Stuart, a global consulting
firm. Prior thereto, Mr. O'Shea served as Vice President and treasurer/group
controller for The Pritzker Organization, a large and diversified family holding
company.
Larry K. Randa has been Executive Vice President - Chicago Suburban Group
since January 1999. Prior to that, Mr. Randa was an owner and held numerous
progressively more responsible positions including Vice President of Operations
for Life Printing & Publishing from 1974 until Life Printing & Publishing was
acquired by the Company in January 1999. Mr. Randa is currently the publisher of
55 community newspapers serving the western suburbs of Chicago.
26
<PAGE> 29
Gene A. Hall is Senior Vice President and has primary responsibility for
newspaper publications in the Midwestern region of the United States. He served
as a Senior Vice President of APC from 1992 to 1998. Prior thereto, he served
as a regional manager and had been employed at APC since 1988. Prior to his
employment at APC, Mr. Hall was the owner and publisher of the Charles City
Press, Six County Shopper and The Extra in Charles City, Iowa. Mr. Hall
currently serves as the publisher of the Charles City Press, Six County Shopper
and The Extra, which publications were acquired by the Company in the Initial
Acquisition, and has served in such positions since 1986. Mr. Hall has more
than 28 years of experience in the newspaper industry. Mr. Hall is also a
director of First Security Bank & Trust.
Joseph P. Armenia is Vice President and Controller since August of 1998.
From 1981 to 1995 and from 1996 to 1998, Mr. Armenia served as Publisher of the
Tonawanda NEWS, Kenmore Record, Grand Island Record, Wheatfield Record and the
Tonawanda NEWS Extra and Regional Manager for Liberty Group Publishing Company.
From 1995 to 1996 Mr. Armenia served as Vice President of Operations for the
Chicago Sun Times. From 1975 to 1981 he served as Business Manager, General
Manager, Publisher and Corporate Controller for Ingersoll Publications Company.
Prior to his 25 years in the newspaper industry, he served as Medicare
Statistician and Accountant for DeGraff Memorial Hospital.
Randy Cope is Vice President responsible for newspaper operations in
Missouri, Arkansas, and Kansas since December of 1998. Mr. Cope also oversees
the Company's national classified advertising network. From 1991 to 1998, Mr.
Cope was regional manager and publisher of the Northwest Arkansas Times in
Fayetteville, Arkansas, which was owned by American Publishing Company. Mr.
Cope has 19 years of experience covering all areas of newspaper operations.
Kelly M. Luvison is Vice President responsible for newspaper operations in
western New York, Pennsylvania and West Virginia, as well as Liberty Business
Development Group. Mr. Luvison has served as regional manager for the Company
since the Initial Acquisition and was appointed a Vice President in January
2000. Prior to this, was a regional manager for APC. A 17-year newspaperman,
Luvison began his career in Pennsylvania as a reporter and editor. From 1987
to 1996 he was publisher of the Company's property in Waynesboro, Pa., and
served as district manager for two other Pennsylvania newspapers. Since 1996 he
has been publisher of the Evening Tribune in Hornell, NY, in addition to his
duties as a regional manager and vice president.
Ted Mike is Vice President and has primary responsibility for many the
Company's newspaper operations in the eastern region of the United States. Mr.
Mike served as regional manager for the Company since the Initial Acquisition
and was appointed as Vice President in January 1999. Mr. Mike served as a
regional manager for American Publishing Company since 1991. Mr. Mike currently
serves as the publisher of The Evening Times and The Evening Times Extra in
Sayre, Pennsylvania, publications which were acquired by the Company in the
Initial Acquisition, and has served in such position since 1991. Mr. Mike has
more than 30 years of experience in the newspaper industry.
Leonard Green is the Chairman of the Board of Leonard Green & Partners,
L.P. ("Leonard Green Partners"), a merchant banking firm that manages Green
Equity Investors II, L.P. ("GEI") since the inception of Leonard Green Partners
and GEI in 1994. Since 1989, Mr. Green has been individually, or through a
corporation, a partner in a merchant banking firm affiliated with Leonard Green
Partners. Prior to 1989, Mr. Green had been a partner at Gibbons, Green, van
Amorongen for more than five years. Mr Green is also a director of Rite Aid
Corporation and several private companies.
Gregory J. Annick serves as a Director of the Company. He has been an
executive officer of Leonard Green Partners since the formation of Leonard Green
Partners and GEI in 1994. He joined a merchant-banking firm affiliated with
Leonard Green Partners as an associate in 1989, became a principal in 1993, and
through a corporation became a partner in 1994. From 1988 to 1989, he was an
associate with the merchant banking firm of Gibbons, Green, van Amerongen.
Before that time, Mr.
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<PAGE> 30
Annick was a financial analyst in mergers and acquisitions with Goldman, Sachs
& Co. Mr. Annick is also a director of several private companies.
John G. Danhakl serves as a Director of the Company. He has been an
executive officer of Leonard Green Partners since 1995. Mr. Danhakl had
previously been a Managing Director at Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and had been with DLJ since 1990. Prior to joining DLJ, Mr.
Danhakl was a Vice President at Drexel Burnham Lambert Incorporated ("Drexel").
Mr. Danhakl is also a director of Twinlab Corporation, The Arden Group, Inc.,
and several private companies.
Peter J. Nolan is a director of the Company. He has been an executive
officer and an equity owner of Leonard Green & Partners, L.P., a merchant
banking firm that manages GEI, since April 1997. Mr. Nolan had previously been
a Managing Director of DLJ and Co-Head of DLJ's Los Angeles Investment Banking
Division and had been with DLJ since 1990. Prior to joining DLJ, Mr. Nolan was
a First Vice President at Drexel. Mr. Nolan is also a director of several
private companies.
ITEM 11. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Annual Compensation
--------------------------------------------------------------------------------------------------
NAME AND POSITION YEAR SALARY BONUS OTHER TOTAL
----------------- ---- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Kenneth L. Serota 1998 $338,242 $150,000 $380,175(1) $868,417
President and CEO 1999 375,000 400,000 121,013(2) 896,013
Kevin O'Shea 1998 116,923 75,000 5,106 197,029
Executive V.P. - CFO 1999 171,429 200,000 18,656 390,085
Scott T. Champion 1998 58,344 94,455 26,680 179,479
Executive V.P. 1999 125,000 75,000 18,520 218,520
Gene A. Hall 1998 45,538 83,751 30,386 159,675
Senior V.P. 1999 125,000 50,000 18,723 193,723
Randy Cope 1998 10,000 0 0 10,000
Vice President 1999 120,000 45,750 5,154 170,904
Kenneth Cope 1998 184,615 30,000 33,459 235,574
Executive Vice President 1999 200,000 30,000 93,336(3) 323,336
</TABLE>
(1) Mr. Serota's 1998 other compensation consists of a transfer of 1,600 common
shares from the controlling shareholder valued at $160,000, plus the
related tax gross-up of $132,237, upon the commencement of his employment,
plus $77,169 in loan forgiveness pursuant to his employment agreement, plus
a $5,000 contribution to a deferred compensation plan and a car allowance
of $5,769.
(2) Mr. Serota's 1999 other compensation consists of $110,013 in loan
forgiveness, plus a $5,000 contribution to a deferred compensation plan and
a car allowance of $6,000.
(3) Mr. Cope terminated his employment with the Company on November
30, 1999. His other compensation consists of $3,336 in life insurance,
$40,000 in loan forgiveness, and $50,000 in finders fees related to certain
properties acquired by the Company.
The following table sets forth the number of stock options granted to the
Named Executive Officers during 1999 and information regarding stock option
exercises and exercisable and unexercisable stock options held by the Named
Executive Officers as of December 31, 1999.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Individual Grants Value At Assumed
----------------------------------------------- Annual Rates
% of Total of Stock Price
Number of Options Exercise Appreciation
Securities Granted to Or Base For Option Term(3)
Underlying Employees in Price Expiration --------------------
Name Options Granted (1) Fiscal Year (2) ($/SH) Date 5% 10%
- ---- ------------------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Randy Cope 400 5% $100 1/31/09 $25,156 $63,750
</TABLE>
(1) Options become exercisable one year after the date the options one granted.
The term of the option is ten years from the original grant date.
(2) Based on 8,000 total options granted to employees, including the Named
Executive Officers, in 1999.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated by assuming the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated
stock price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
NO.
% OWNED OF SHARES
------- ---------
<S> <C> <C>
10% Junior Mandatorily Redeemable
Preferred Stock:
Green Equity Investors II, L.P.
11111 Santa Monica Boulevard 100% 58,294
Suite 2000
Los Angeles, CA 90025
Common Stock:
Green Equity Investors II, L.P. 92% 1,440,000
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C> <C>
Kenneth L. Serota 4% 64,000
President and CEO
Scott T. Champion 1% 16,000
Executive V.P.-Operations
Kevin O'Shea 1% 16,000
Executive V.P. - CFO
Gene A. Hall 1% 16,000
Senior V.P.
Other Management Stockholders 1% 16,000
TOTAL 100% 1,568,000
</TABLE>
Directors and Executive Officers own 99% of the outstanding common
stock as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENT
LGP and Kenneth Serota have entered into an employment agreement, dated as
of November 21, 1997 (the "Employment Agreement"), whereby Mr. Serota has
agreed to serve as President and Chief Executive Officer of the Company for a
period of three years commencing January 1, 1998 and for additional successive
one-year periods thereafter, unless either party gives timely notice to the
other that the employment term shall not be so extended.
The Employment Agreement provides for a base salary of $350,000, $375,000
and $400,000 for the years 1998, 1999 and 2000, respectively, and those
benefits generally available to the employees of the Company, including life
insurance, health insurance, deferred compensation and profit sharing. In
addition to receiving a base salary, Mr. Serota is eligible to receive a bonus
based on the attainment of applicable performance standards agreeable to the
Company and Mr. Serota, including standards based on annual revenue growth,
EBITDA growth, completion of reasonably acceptable acquisitions and growth of
acquired properties. The Employment Agreement also provides, subject to certain
exceptions, that upon a termination of Mr. Serota's employment during the term
thereof (other than for "cause" as defined therein or voluntary resignation),
the Company is generally obligated to pay Mr. Serota the greater of one year's
salary or an amount equal to his base salary for the remaining term under the
Employment Agreement plus, in either case, a portion of his bonus for the year
of termination. The Company has also loaned to Mr. Serota $250,000 pursuant to
an Unsecured Promissory Note dated January 27, 1998. The amount of the loan
will be forgiven by the Company pro rata on a daily basis during the initial
three-year term of the Employment Agreement and shall be forgiven in its
entirety if Mr. Serota is terminated by the Company without cause, if Mr.
Serota terminates his employment for good reason (as defined therein), death or
disability, or upon the consummation of an initial public offering of
securities of the Company.
On January 27, 1998, in satisfaction of the Company's obligations under the
terms of the Employment Agreement, GEI transferred to Mr. Serota 2% of the
fully-diluted equity of LGP and, in addition, Mr. Serota purchased from GEI an
additional 2% of the fully-diluted equity of the Company for the price and on
the terms and conditions such equity was purchased by GEI. The Company loaned to
Mr. Serota 50% of the purchase price of such shares pursuant to a Secured
Recourse Promissory Note dated January 27, 1998. Such loan bears interest at a
rate equal to the applicable federal rate for loans of the same maturity as of
the date of the loan. The outstanding principal amount of the loan, together
with all interest accrued thereon, will be due and payable in full upon the
earlier of (i) a change in
29
<PAGE> 32
control (as defined in the Employment Agreement) or (ii) January 1, 2001. The
Employment Agreement provides certain "call" rights to the Company, which are
generally exercisable upon Mr. Serota's termination of employment with the
Company.
Subsequent to the purchase of such shares by the Management Investors (as
defined below) GEI owned 92% of the Company's Common Stock. LGP, in turn, owns
100% of the outstanding common stock of Liberty Group Operating. See "Directors
and Officers of Registrant," "Executive Compensation" and "Security Ownership of
Certain Beneficial Owners and Management."
MANAGEMENT SHARES
On January 27, 1998, GEI transferred an aggregate of 64,000 shares of
Common Stock ("Management Shares") to the Chief Executive Officer of the
Company, Mr. Serota, pursuant to a management stockholders agreement (the
"Management Stockholders Agreement"). The Management Stockholders Agreement
contains a "call" option exercisable by LGP upon termination of Mr. Serota's
employment with LGP or Liberty Group Operating, a right of first refusal in
favor of Mr. Serota, certain "piggyback" registration rights, "tag-along" sale
rights and "drag-along" sale obligations consistent with the terms of the
Employment Agreement. In addition, LGP or GEI may sell shares of LGP Common
Stock to other current or prospective officers and employees of Liberty Group
Operating (together with the Senior Management Investors, the "Management
Investors"). As of the date hereof, a total of 96,000 Management Shares have
been transferred to employees other than Mr. Serota at a price of $5 per share,
for total consideration of $480,000.
During 1999, LGP repurchased 32,000 outstanding common shares for a total
price of $250,000 from management shareholders who terminated their employment
with the Company.
Shares of LGP Common Stock were sold to Management Investors pursuant to
Management Subscription and Stockholders Agreements among LGP, GEI and the
respective Management Investor (each such agreement, a "Management Share
Agreement"). Pursuant to the Management Share Agreements, transfers of the
Management Shares (other than transfers to certain related transferees) are
subject to various restrictions, including a right of first refusal in favor of
LGP. Each Management Share Agreement also contains a "call" option exercisable
by LGP upon termination of the Management Investor's employment with LGP,
Liberty Group Operating and their subsidiaries. The Management Share Agreements
also contain certain "piggyback" registration rights, "tag-along" sale rights
and "drag-along" sale obligations. These rights and obligations lapse upon the
occurrence of certain events. Each Management Share Agreement contains a
noncompetition provision which prohibits a Management Investor from competing,
directly or indirectly, with the Company's publications located within certain
designated communities for a period of three years from the termination date of
such Management Investor's employment with the Company or its subsidiaries.
In February 2000, the Company effected a 20-to-1 stock split for its common
stock, bringing the total shares of common stock issued to 1,600,000. All share
and per share data included within this Registration Statement has been
retroactively restated to account for this stock spilt. The Company then
authorized the issuance of 55,000 additional common shares, of which 49,500
shares will be made available in the form of stock options for local publishers.
Members of the management team will also receive 5,500 of these new shares to
eliminate any dilution of their original holdings that will result from the
issuance of shares under the Company's stock option plan.
COMPENSATION OF DIRECTORS AND MANAGEMENT FEES
Individuals who are officers of Liberty Group Operating and LGP, as well as
Messrs. Green, Annick, Danhakl and Nolan, do not receive any compensation
directly for their service on LGP's and Liberty Group Operating's Boards of
Directors. Liberty Group Operating has agreed, however, to pay Leonard Green and
Partners an annual management fee of $1.0 million. Such fee is payable in equal
monthly installments, but is subordinated in right of payment to the Senior
Discount Debentures and the Senior Subordinated Notes for various management,
consulting and financial planning services, including assistance in strategic
planning, providing
30
<PAGE> 33
market and financial analyses, negotiating and structuring financing and
exploring expansion opportunities. Leonard Green and Partners also received
acquisition finders fees of $375 in 1999 and is owed $1,264 at December 31,
1999. See "Certain Relationships and Related Transactions - Management Fees".
31
<PAGE> 34
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Consolidated Financial Statements, Consolidated Financial
Statement Schedules and Exhibits.
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and
1999.
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998, and 1999.
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998, and 1999.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998, and 1999.
Notes to Consolidated Financial Statements.
2. The following consolidated financial statement schedule of
the Company and the related independent auditors' report are
included in this Form 10-K on pages S-1 and S-2: Independent
Auditors' Report - Schedule II - Valuation and Qualifying
Accounts. All other financial statement schedules are
omitted because such schedules are not required or the
information required has been presented in the
aforementioned financial statements.
32
<PAGE> 35
3. The exhibits filed as a part of this report are listed in
the accompanying Index to Exhibits.
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group included on the Company's
Operating, Inc., Hollinger International Inc., APAC-90 Inc., American Publishing Registration Statement on Form S-4
(1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.2 Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group included on the Company's
Operating, Inc., Hollinger International Inc., American Publishing Company of Registration Statement on Form S-4
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C> <C>
Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.3 Exchange Agreement, dated as of November 21, 1997, between American Incorporated by reference to exhibits
Publishing Company of Illinois and Chicago Deferred Exchange Corporation. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
2.4 Qualified Exchange Trust Agreement, dated as of November 21, 1997, among the Incorporated by reference to exhibits
Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago Deferred included on the Company's
Exchange Corporation and American Publishing Company of Illinois. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.5 Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among Incorporated by reference to exhibits
Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), included on the Company's
Liberty Group Operating, Inc., Hollinger International Inc., APAC-90 Inc., Registration Statement on Form S-4
American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.6 Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among Incorporated by reference to exhibits
Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), included on the Company's
Liberty Group Operating, Inc., Hollinger International Inc., American Publishing Registration Statement on Form S-4
Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC- (Registration No.: 333-46957)
95 Inc.
2.7 Amendment to Exchange Agreement, dated as of January 14, 1998, between Incorporated by reference to exhibits
American Publishing Company of Illinois and Chicago Deferred Exchange included on the Company's
Corporation. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.8 Amendment to Qualified Exchange Trust Agreement, dated as of January 14, 1998, Incorporated by reference to exhibits
among The Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago included on the Company's
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C> <C>
Deferred Exchange Corporation and American Publishing Company of Illinois. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.9 Agreement, dated as of January 15, 1998, among Liberty Group Publishing, Inc., Green Incorporated by reference to exhibits
Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., Hollinger included on the Company's
International Inc., American Publishing Company of Illinois, APAC-90 Inc., Registration Statement on Form S-4
American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.10 Agreement, dated as of January 23, 1998, among American Publishing Incorporated by reference to exhibits
Company of Illinois, Chicago Deferred Exchange Corporation and the Chicago Trust included on the Company's
Company. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.11 Agreement, dated as of January 26, 1998, among Liberty Group Publishing, Incorporated by reference to exhibits
Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group included on the Company's
Operating, Inc., Hollinger International Inc., American Publishing Company Registration Statement on Form S-4
of Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
3.1 Certificate of Incorporation of Liberty Group Publishing, Inc. Included herewith.
3.2 By-Laws of Liberty Group Publishing, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
4.1 Indenture, dated as of January 27, 1998, among Liberty Group Publishing, Inc. and Incorporated by reference to exhibits
State Street Bank and Trust Company, as Trustee, including form of 11-5/8% Senior included on the Company's
Discount Debentures due 2009. Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C> <C>
4.2 Indenture, dated as of January 27, 1998, among, Liberty Group Publishing, Inc. and Incorporated by reference to exhibits
State Street Bank and Trust Company, as Trustee, including form of 14-3/4% Senior included on the Company's
Mandatory Redeemable Exchangeable Cumulative Preferred Stock and 11-5/8% Registration Statement on Form S-4
Senior Discount Debentures due 2009. (Registration No.: 333-46957)
*10.1 Employment Agreement, dated as of November 27, 1997, between Liberty Group Incorporated by reference to exhibits
Publishing, Inc. and Kenneth L. Serota. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
*10.2 Management Stockholders Agreement, dated as of January 27, 1998, among Liberty Incorporated by reference to exhibits
Group Publishing, Inc., Green Equity Investors II, L.P. and Kenneth L. Serota. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
*10.3 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Scott T. Champion.
*10.4 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Kevin O'Shea.
*10.5 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Gene A. Hall.
10.6 Non-Competition Agreement, dated as of January 27, 1998, between Liberty Group Incorporated by reference to exhibits
Operating, Inc. and Hollinger International Inc. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C> <C>
10.7 Credit Agreement, dated as of January 27, 1998, among Liberty Group Operating, Incorporated by reference to exhibits
Inc. (as borrower), Liberty Group Publishing, Inc. (as parent guarantor), the included on the Company's
Subsidiary Guarantors named therein, Citicorp USA, Inc.(as administrative agent Registration Statement on Form S-4
and swingline lender), Citibank, N.A. (as issuing bank), Wells Fargo Bank, N.A. (as (Registration No.: 333-46957)
documentation agent), BT Alex. Brown Incorporated (as syndication agent), Bank
of America, NT & SA and Citicorp Securities, Inc. (as arranger).
10.8 First Amendment to Credit Agreement, dated as of May 20, 1999, by and among Included herewith.
Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc. (as
parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing bank)
and Citicorp USA, Inc. (as administrative agent and as swingline lender).
10.9 Second Amendment to Credit Agreement, dated as of September 30, 1999, by and Included herewith.
among Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc.
(as parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing
bank) and Citicorp USA, Inc. (as administrative agent and as swingline lender).
10.10 Pledge Agreement, dated as of January 27, 1998, from Liberty Group Publishing, Incorporated by reference to exhibits
Inc., Liberty Group Arizona Holdings, Inc., Liberty Group Arkansas Holdings, Inc., included on the Company's
Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings, Inc., Registration Statement on Form S-4
Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc., Liberty (Registration No.: 333-46957)
Group Michigan Holdings, Inc., Liberty Group Minnesota Holdings, Inc., Liberty
Group Missouri Holdings, Inc., Liberty Group New York Holdings, Inc., Liberty
Group Pennsylvania Holdings, Inc., Liberty Group Management Services, Inc. to
the lenders under the Credit Agreement.
10.11 Pledge Agreement, dated as of January 27, 1998, from Liberty Group Operating, Incorporated by reference to exhibits
Inc. to the lenders under the Credit Agreement. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
37
<PAGE> 40
<TABLE>
<S> <C> <C>
*10.12 Liberty Group Publishing, Inc.'s Publishers Deferred Compensation Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.13 Liberty Group Publishing, Inc.'s Executive Benefit Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.14 Liberty Group Publishing, Inc.'s Executive Deferral Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.15 1999 Stock Option Plan Included herewith.
21 Subsidiaries of Liberty Group Publishing, Inc. Included herewith.
27 Financial Data Schedule. Included herewith.
</TABLE>
- ---------------
* Management Contract/Compensatory Plan or Arrangement
The Company has agreed to furnish to the Commission, upon request, a copy of
each agreement defining the rights of holders of long-term debt not filed
herewith in reliance upon the exemption from filing applicable to any such
agreement pursuant to which the total amount of securities authorized does not
exceed 10% of the total consolidated assets of the Company.
38
<PAGE> 41
(b) Reports on Form 8-K.
On October 15, 1999, the Company filed Form 8-K to report
its exchange of assets with Lee Enterprises, Incorporated.
As part of the Asset Exchange Agreement, the Company
transferred the assets used in, and the liabilities related
to, the publication, marketing and distribution of six local
newspapers and related publications in Nebraska, together
with $8.4 million in cash. In exchange, the Company accepted
the assets used in, and the liabilities related to, the
publication, marketing and distribution of ten local
newspapers and related publications in Illinois and Iowa. On
December 14, 1999, the Company filed Form 8-K/A on which it
included the required financial statements in connection
with the exchange of assets.
On January 18, 2000, the Company filed Form 8-K to report
its acquisition of all of the issued and outstanding shares
of capital stock of Elko Daily Free Press, Inc. ("Elko"), a
Nevada corporation, and for its acquisition of certain real
property from Free Press Properties, LLC, a Nevada limited
liability company. By acquiring the Elko shares the Company
acquired substantially all of the assets owned by Elko. On
March 20, 2000, the Company filed Form 8-K/A on which it
included the required financial statements in connection
with the acquisition of shares and real property.
39
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Liberty Group Publishing, Inc.:
We have audited the accompanying consolidated balance sheets of Liberty Group
Publishing, Inc. and subsidiaries (Successor) as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended (Successor periods), and the
combined statements of operations and changes in net assets and cash flows of
the Local Newspaper Group of American Publishing Company (Predecessor) for the
year ended December 31, 1997 (Predecessor period). These consolidated and
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
and combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used in and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of Liberty
Group Publishing, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for the Successor periods,
in conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor combined financial statements present
fairly, in all material respects, and the results of their operations and their
cash flows for the Predecessor period, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
January 1, 1998, Liberty Group Publishing, Inc. and subsidiaries acquired the
assets and assumed certain liabilities of the Local Newspaper Group of American
Publishing Company in a business combination accounted for as a purchase. As a
result of the acquisition, the consolidated financial information for the
periods after the acquisition is presented on a different cost basis than for
the periods before the acquisition and, therefore, is not comparable.
/s/ KPMG LLP
Chicago, Illinois
March 27, 2000
F-1
<PAGE> 43
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $1,025 $1,860
Accounts receivable, net of allowance
for doubtful accounts of $1,182 and $1,141
in 1998 and 1999, respectively 15,021 19,561
Inventory 2,200 2,130
Prepaid expenses 240 507
Other current assets 144 306
-------- --------
Total current assets 18,630 24,364
Property, plant and equipment, net 29,283 39,356
Intangible assets, net 350,754 402,748
Deferred financing costs, net 11,347 10,475
Other assets 54 2,217
-------- --------
Total assets $410,068 $479,160
-------- --------
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Borrowings under revolving credit facility $46,000 $99,500
Current portion of long-term liabilities 388 419
Accounts payable 2,658 1,993
Accrued expenses 14,482 14,445
Deferred revenue 5,777 7,801
-------- --------
Total current liabilities 69,305 124,158
Long-term liabilities:
Senior subordinated notes 180,000 180,000
Senior discount debentures, redemption
value $89,000 56,102 62,813
Long-term liabilities, less current portion 1,446 1,499
Deferred income taxes 8,455 17,030
-------- --------
Total liabilities 315,308 385,500
Senior mandatory redeemable exchangeable
cumulative preferred stock, $0.01 par value,
21,000,000 shares authorized, 2,009,024 and
2,332,153 shares issued and outstanding at
December 31, 1998 and 1999, respectively 51,460 59,481
Aggregate involuntary liquidation preference
$25 plus accrued dividends
Junior mandatory redeemable cumulative
preferred stock, $0.01 par value, 175,000
shares authorized, 52,812 and 58,294 shares
issued and outstanding at December 31, 1998
and 1999, respectively 53,692 59,266
-------- --------
Total mandatory redeemable preferred stock 105,152 118,747
Stockholders' equity(deficit)
Common stock, $0.01 par value, 1,600,000 shares
authorized, issued and outstanding in 1998 and
1,655,000 shares authorized. 1,600,000 issued and
1,568,000 outstanding in 1999 16 16
Additional paid in capital 8,144 8,144
Subscriptions receivable (501) (250)
Accumulated deficit (18,051) (32,747)
Treasury stock at cost, 32,000 shares in 1999 - (250)
Total stockholders' equity (deficit) (10,392) (25,087)
--------- ---------
Total liabilities and stockholders' equity (deficit) $410,068 $479,160
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 44
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------- ---------- -----------
1997 1998 1999
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
<S> <C> <C> <C>
REVENUES:
Advertising $69,602 $ 81,554 $120,573
Circulation 21,451 22,844 27,543
Job printing and other 7,666 8,133 13,239
------- -------- --------
Total revenues 98,719 112,531 161,355
OPERATING COSTS AND EXPENSES:
Operating costs 39,309 45,976 68,351
Selling, general and administrative 29,171 36,303 51,522
Depreciation and amortization 7,470 11,917 16,657
------- -------- --------
Income from operations 22,769 18,335 24,825
Interest expense 10,551 25,234 32,313
Net gain on exchange and
disposition of properties - - 6,197
------- -------- --------
Income (loss) before income taxes,
and extraordinary item 12,218 (6,899) (1,291)
Income taxes 5,271 - 295
------- -------- --------
Income (loss) before extraordinary
item 6,947 (6,899) (1,586)
Extraordinary gain on
insurance proceeds - - 485
------- -------- --------
Net income (loss) $ 6,947 (6,899) (1,101)
------- -------- --------
Dividends on preferred stock (11,152) (13,595)
-------- --------
Net loss available to
common stockholders $(18,051) $(14,696)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL TREASURY
STOCK STOCK PAID-IN STOCK
SHARES AMOUNT CAPITAL SHARES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balances at 12/31/96 - $ - - -
Net income - - - -
Transfers to APC, net - - - -
Balances at 12/31/97 - - - -
Reorganization of company - - - -
Issuance of common stock 1,600,000 16 7,984 -
Common stock issued in
exchange for services - - 160 -
Dividends on senior mandatory
redeemable exchangeable
cumulative preferred stock - - - -
Dividends on junior mandatory
redeemable cumulative
preferred stock - - - -
Net loss - - - -
Subscriptions receivable - - - -
Repayment of stock
subscription through
forgiveness of debt - - - -
Balances at 12/31/98 1,600,000 $16 8,144 -
Repurchase of common shares - - - 32,000
Dividends on senior mandatory
redeemable exchangeable
cumulative preferred stock - - - -
Dividends on junior mandatory
redeemable cumulative
preferred stock - - - -
Net income - - - -
Repayment of stock
subscription through
forgiveness of debt
and cash received - - - -
Balances at 12/31/99 1,600,000 $16 8,144 32,000
<CAPTION>
TREASURY
STOCK SUBSCRIPTIONS NET ACCUMULATED
AMOUNT RECEIVABLE ASSETS DEFICIT TOTAL
--------- ------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balances at 12/31/96 $ - - 102,980 - 102,980
Net income - - 6,947 - 6,947
Transfers to APC, net - - (10,788) - (10,788)
Balances at 12/31/97 - - 99,139 - 99,139
Reorganization of company - - (99,139) - (99,139)
Issuance of common stock - - 8,000
Common stock issued in
exchange for services - - - - 160
Dividends on senior mandatory
redeemable exchangeable
cumulative preferred stock - - - (6,460) (6,460)
Dividends on junior mandatory
redeemable cumulative
preferred stock - - - (4,692) (4,692)
Net loss - - - (6,899) (6,899)
Subscriptions receivable - (579) - - (579)
Repayment of stock
subscription through
forgiveness of debt - 78 - - 78
Balances at 12/31/98 - (501) - (18,051) (10,392)
Repurchase of common shares (250) - - (250)
Dividends on senior mandatory
redeemable exchangeable
cumulative preferred stock - - - (8,021) (8,021)
Dividends on junior mandatory
redeemable cumulative
preferred stock - - - (5,574) (5,574)
Net income - - - (1,101) (1,101)
Repayment of stock
subscription through
forgiveness of debt
and cash received - 251 - - 251
Balances at 12/31/99 $ (250) (250) - (32,747) (25,087)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $6,947 $ (6,899) $(1,101)
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 7,470 11,917 16,657
Amortization of debt issue costs - 1,282 1,495
Accretion of senior discount notes - 5,580 6,711
Noncash compensation - 238 223
Net gain on exchange and
disposition of properties - - (6,197)
Extraordinary gain - - (485)
Changes in assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable, net 311 (805) (1,325)
Inventory (336) 103 139
Prepaid expenses and other assets (19) 972 (2,552)
Accounts payable (85) 292 (2,338)
Accrued expenses 207 9,072 (3,173)
Deferred revenue 82 113 445
------- -------- -------
Net cash flows provided by
operating activities 14,577 21,865 8,499
------- -------- -------
Cash flows from investing activities:
Purchases of property, plant
and equipment (1,713) (2,232) (5,687)
Acquisitions, net of cash
acquired (1,657) (386,446) (54,822)
------- -------- -------
Net cash flows used in investing
activities (3,370) (388,678) (60,509)
------- -------- -------
Cash flows from financing activities:
Net proceeds from issuing
long-term debt - 221,217 -
Net borrowings (repayments) under
revolving credit facility - 46,000 53,500
Net proceeds from issuing preferred
stock - 91,750 -
Net proceeds from issuing common
stock - 7,419 -
Repurchase of common stock - - (250)
Payments on long term liabilities (735) - (405)
Transfers to APC, net (10,788) - -
------- -------- -------
Net cash provided by (used in)
financing activities (11,523) 366,386 52,845
------- -------- -------
Net decrease in cash and cash
equivalents (316) (427) 835
Cash and cash equivalents, at
beginning of period 1,768 1,452 1,025
Cash and cash equivalents, at
end of period $1,452 $1,025 $1,860
Supplemental cash flow disclosure -
Non cash gain on exchange of properties - - 7,899
Common Stock issued in exchange
for services - 160 -
Cash interest paid - 10,913 24,107
Income taxes paid - - 130
Repayment of stock subscription through
</TABLE>
F-5
<PAGE> 47
<TABLE>
<S> <C> <C> <C>
forgiveness of debt - 78 223
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 48
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Liberty Group Publishing, Inc. and subsidiaries is a leading U.S. publisher
of local newspapers and related publications that are the dominant source of
local news and print advertising in their markets. The Company owns and operates
301 publications in 15 states. The Company's total revenues are derived from
advertising (75% of 1999 total revenues), circulation (17%) and job printing and
other (8%). Raw materials, mainly newsprint and ink, are readily available from
a number of suppliers. No single customer accounts for a significant percentage
of revenues.
(B) BASIS OF PRESENTATION
Liberty Group Publishing, Inc. ("LGP") was formed for purposes of
acquiring a portion of the daily and weekly newspapers owned by American
Publishing Company or its subsidiaries ("APC"), a wholly-owned subsidiary of
Hollinger International Inc. ("Hollinger"). LGP is a holding company for its
wholly-owned subsidiary, Liberty Group Operating, Inc. ("Operating Company").
The consolidated financial statements include the accounts of LGP and Operating
Company and their consolidated subsidiaries (the "Company").
On January 27, 1998, the Company acquired from Hollinger virtually all of
the assets and assumed certain liabilities that were used primarily in the
business of publishing, marketing and distributing certain local newspapers
(the "Initial Acquisition"). The initial purchase price including fees and
expenses was $322,378. The effective date of the Initial Acquisition was
January 1, 1998.
Prior to the Initial Acquisition, the Company's operations represented a
portion of APC and the Company's operations were financed through APC. The
accompanying consolidated financial statements represent all of the assets and
associated revenues, expenses, and cash flows of the Company, assuming that the
Company was organized for all periods as a separate legal entity. Intercompany
transactions between newspapers owned by the Company have been eliminated in
consolidation.
The historical interest expense represents an allocation of APC's interest
expense (calculated as APC's weighted average interest rate of 10.64% for the
year ended December 31, 1997, applied to the average balance of the net assets
of the Business for the period). Because the Company's capital structure
changed significantly as a result of the Initial Acquisition, historical
interest expense is not necessarily indicative of the interest expense that the
Company would have incurred as a separate independent entity.
In the accompanying consolidated financial statements the terms "Liberty
Group Publishing" or the "Company" when used with respect to periods prior to
January 1, 1998 refer to the combined group of newspapers sold by APC (the
Local Newspaper Group of American Publishing Company) and when used with
respect to periods subsequent to January 1, 1998 refers to Liberty Group
Publishing, Inc. and its consolidated subsidiaries. The combined historical
financial information of the newspapers acquired from APC prior to the Initial
Acquisition on January 1, 1998 is referred to as "Predecessor" while the
consolidated financial information of the Company subsequent to the date of the
Initial Acquisition is referred to as "Successor."
The Company has accounted for the Initial Acquistion using the purchase
method of accounting. Accordingly, the costs of the Initial Acquisition have
been allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The costs of certain
intangible assets acquired of $296,500 are being amortized over periods
ranging from 5 to 40 years. Because of the purchase price allocation, the
accompanying consolidated financial statements of Successor are not directly
comparable to those of Predecessor.
F-7
<PAGE> 49
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(D) INVENTORIES
Inventories consist principally of newsprint, which is valued at the lower
of cost or net realizable value. Cost is determined using the first-in,
first-out (FIFO) or moving-average method.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Routine maintenance and
repairs are expensed as incurred.
Depreciation is calculated under the straight-line method over the
estimated useful lives, principally 25 years for buildings and improvements and
5 to 10 years for machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
(F) INTANGIBLE ASSETS
Intangible assets consist principally of circulation-related assets,
noncompetition agreements with former owners of acquired newspapers, and the
excess of acquisition costs over estimated fair value of net assets acquired
(goodwill). The fair market value of intangible assets purchased is determined
primarily through the use of independent appraisals. Amortization is calculated
using the straight-line method over the respective estimated useful lives
ranging from 33 years for circulation related assets, up to 10 years for
noncompetition agreements depending upon the specifics of the agreement, and 40
years for advertiser lists and goodwill.
The Company assesses the recoverability of its long-lived assets, such as
property, plant and equipment and intangible assets, whenever events or changes
in business circumstances indicate the carrying amount of the assets, or
related group of assets, may not be fully recoverable. Factors leading to
impairment include a combination of historical losses, anticipated future
losses and inadequate cash flow. The assessment of recoverability is based on
management's estimate. If undiscounted operating cash flows do not exceed the
net book value of the long-lived assets, then a permanent impairment has
occurred. The Company would record the difference between the net book value of
the long-lived asset and the fair value of such asset as a charge against
income in the consolidated statement of operations if such a difference arose.
(G) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term
of the related subscription. Advertising revenue is recognized upon publication
of the advertisements. The revenue for job printing is recognized upon
delivery.
(H) INCOME TAXES
Subsequent to the Initial Acquisition, the Company has been, and
anticipates that it will be for the foreseeable future, in a tax loss position.
Given the uncertainty as to the timing of the Company's ability to utilize such
losses to offset future taxable income, the Company does not presently
anticipate recording any tax benefit associated with its pre-tax losses. Prior
to the Initial Acquisition, the Company represented a business unit of APC and
as such did not file separate income tax returns. The income tax provision
included in the accompanying consolidated statements of operations has been
computed as if the Company were a separate company.
F-8
<PAGE> 50
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Historical results of the
predecessor reflect current income taxes as transfers to APC as APC is
responsible for the payment of income tax liabilities. State income taxes were
computed utilizing a blended state rate of 6%, which is net of Federal income
tax benefit.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS AND LONG-LIVED ASSETS
The Company has reviewed the following financial instruments and
determined that their fair values approximated their carrying values as of
December 31, 1999: cash equivalents; borrowings under line of credit; accounts
receivable; accounts payable and accrued expenses; Senior subordinated notes;
Senior discount debentures; and long-term liabilities,
(J) CASH EQUIVALENTS
Cash equivalents represent highly liquid certificates of deposit with a
maximum term at origination of three months or less.
(K) RECLASSIFICATIONS
Certain amounts in prior years' financial statements and related notes
have been reclassified to conform to the 1999 presentation.
(L) STOCK OPTIONS
The Company accounts for its stock options under the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement 123). Statement 123 permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to apply the provisions of Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to "Employees" (APB 25) and provide pro forma net
income (loss) disclosures for employee stock option grants made as if the fair
value-based method defined in Statement 123 had been applied. Under APB 25,
compensation expense would be recorded on the date of the grant only if the
current market price of the underlying stock exceeded the exercise price. The
Company has elected to apply the provisions of APB 25 and provide the pro forma
disclosures of Statement 123.
(2) ACQUISITIONS
During 1998, the Company acquired substantially all of the assets of 166
newspapers for $322,378. The Company also acquired certain other newspapers for
an aggregate purchase price of approximately $61,787. The purchase prices were
allocated to the assets using the purchase method of accounting. The excess of
the purchase prices over the estimated fair value of the tangible and
identifiable intangible assets acquired (goodwill) was $125,496 for the year
ended December 31, 1998. Results of the acquired newspaper businesses have been
included in consolidated statements of operations since the dates of
acquisition.
During 1999, the Company acquired (net of exchanges and divestitures) 49
newspapers for an aggregate purchase price of approximately $54,822. The
purchase prices were allocated to the assets using the purchase method of
accounting. The excess of the purchase prices over the estimated fair value of
the tangible and identifiable intangible assets acquired (goodwill) was
approximately $48,195. Results of the acquired newspaper businesses have been
included in consolidated statements of operations since the dates of
acquisition.
The following unaudited pro forma summary presents the Company's results
of operations as if the acquisitions accounted for as purchases had occurred at
the beginning of the respective years. This summary is provided for
informational purposes only. It does not
F-9
<PAGE> 51
necessarily reflect the actual results that would have occurred had the
acquisitions been made as of the beginning of the respective years or of results
that may occur in the future.
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Revenues $139,800 $172,926
Net income (loss) (1,297) (7,040)
</TABLE>
(2) Acquisitions
In 1998, the Company acquired 91 publications in 16 transactions for a total
cash purchase cost of $61.8 million.
In 1999, the Company acquired 49 publications in 13 transactions for a total
cash purchase cost of $54.8 million, including the following acquisitions that
had a material impact on the Company's results:
<TABLE>
<CAPTION>
Purchase
Date Price Description
-----------------------------------------------------
<S> <C> <C> <C>
Suburban Life Printing and Publishing 01/17/99 $ 29.3 Purchase of stock and real estate
Asset exchange with CNHI(1) 07/01/99 49.0 Trade of assets
Asset exchange with Lee Enterprises(2) 10/01/99 22.0 Trade of assets plus cash
Other publications various 16.3 Purchases of stock and assets
------
Total purchase price paid $116.6
less:
Book value of assets exchanged $(61.8)
------
Net cash purchase price including proceeds
received from divestitures $ 54.8
</TABLE>
(1) The company traded six dailies and a shopper located in northwestern
Pennsylvania to Community News Holdings, Inc. ("CNHI") for 4 dailies, in
Beatrice, NE; Moberly, MO; Pratt, KS; Oswego, NY and 2 weeklies in
Donaldsonville, LA; and Pierre Part, LA: and a shopper in Joplin, MO. The
properties received by the Company had a fair market value of $49.0 and the
properties divested had a book value of $41.1. As a result, the Company
recorded a non-cash gain of $7.9 on this transaction.
(2) The Company traded a daily newspaper and a shopper in Beatrice, NE, plus
$9.3 in cash for 2 dailies in Ottumwa, IA and Kewanee, IL; and a weekly in
Aledo, IL; and a shopper in Geneseo, IL. The fair value of the properties
received was equal to the fair value of the property paid. No gain or loss
was recognized on this transaction.
These acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed accordingly to their fair market values at
the dates of acquisition and amortized. The results of operations are included
in the consolidated financial statements since the dates of acquisition.
<PAGE> 52
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Land $5,032 $6,891
Buildings and improvements 14,558 16,840
Machinery and equipment 9,106 17,646
Furniture and fixtures 1,905 1,832
-------- --------
30,601 43,209
Less accumulated depreciation and amortization (1,318) (3,853)
-------- --------
$29,283 $39,356
======== ========
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Non-compete agreements $18,423 $16,902
Subscriber lists 41,100 46,058
Advertiser lists 162,220 173,691
Archives 14,114 15,492
Goodwill 125,496 172,456
-------- --------
361,353 424,599
Less accumulated amortization (10,599) (21,851)
-------- --------
$350,754 $402,748
======== ========
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll $1,184 $1,182
Accrued vacation 312 476
Accrued bonus 5,452 2,458
Accrued interest 7,459 7,654
Accrued other 75 2,675
-------- --------
$14,482 $14,445
======== ========
</TABLE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
1999
<TABLE>
<S> <C>
Liberty Group Operating, Inc.
9.37% Senior Subordinated Notes
Due February 1, 2008 $180,000
Liberty Group Publishing, Inc.
11.63% Senior Discount Debentures
$89,000 Redemption Value
Due February 1, 2009 62,813
Total long-term debt 242,813
Less current installments -0-
Long-term debt, excluding current installments --------
Total $242,813
========
</TABLE>
F-11
<PAGE> 53
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows:; 2000, $0; 2001,$0; 2002, $0;
2003, $0; 2004, $0 and thereafter $242,813.
The Initial Acquisition, including the payment of related fees and expenses,
was financed in part by: (i) $180,000 from the issuance and sale by the
Operating Company of $180,000 aggregate principal amount of 9.375% Senior
Subordinated Notes (the "Notes") due February 1, 2008 and (ii) $50,500 from the
issuance and sale by LGP of $89,000 aggregate principal amount of 11.625%
Senior Discount Debentures (the "Debentures") due February 1, 2009.
The Notes were issued by the Operating Company and are general unsecured
obligations of the Operating Company. The Notes are irrevocably and
unconditionally joint and severally guaranteed by each of the Operating
Company's existing and future subsidiaries. The Notes are redeemable for cash
at the option of the Operating Company anytime after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
109.375% of their principal amount. In the event of a change in control of the
Operating Company or the Company, the Company must offer to repurchase the
Notes at 101% of their principal amount.
The Debentures issued by LGP are general unsecured obligations and pay no cash
interest until February 1, 2003. The Debentures will, however, accrete on a
semi-annual equivalent bonds basis to a full principal amount of $89,000 on
February 1, 2003. Thereafter, cash interest on the Debentures will accrue and
be payable semi-annually on February 1 and August 1 of each year. The
Debentures are redeemable for cash at the option of LGP any time after February
1, 2003 at stipulated redemption amounts or, in certain limited circumstances,
are partially redeemable on or prior to February 1, 2001 at a redemption amount
of 111.625% of their accreted value. In the event of a change in control of
LGP, LGP must offer to repurchase the Debentures at 101% of their accreted
value. LGP is dependent upon the cash flows of the Operating Company to service
these debt repayment requirements.
(7) REVOLVING CREDIT FACILITY
The Operating Company has in place a $175.0 million revolving credit facility
(the "Revolving Credit Facility"). The Revolving Credit Facility is secured by
substantially all of the tangible and intangible assets of the Operating
Company. Borrowings under the Revolving Credit Facility bear interest at an
annual rate, at the Company's option equal to the Base Rate (as defined in the
credit agreement) or the Eurodollar Rate (as defined in the credit agreement)
plus a margin that varies based upon a ratio set forth in the credit agreement
(the "Applicable Margin"). Under the terms of the Revolving Credit Facility,
the Company pays a fee equal to the Applicable Margin for Eurodollar Rate
Advances (as defined in the credit agreement) per annum on the aggregate amount
of outstanding letters of credit. The Operating Company also pays a fee on the
unused portion of the Revolving Credit Facility. No principal payments are due
on the Revolving Credit Facility until the maturity date January 27, 2003. At
December 31, 1999, the Operating Company had utilized $99.5 million of the
Revolving Credit Facility. The average interest rate on these borrowings was
8.94% at December 31, 1999.
(8) LONG-TERM LIABILITIES
Long-term liabilities principally represents amounts due under
non-interest-bearing non-compete agreements through 2008.
The aggregate amount of principal payments at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 419
2001 461
2002 368
2003 310
2004 193
Thereafter 167
------
$1,918
======
</TABLE>
(9) ISSUANCE OF COMMON STOCK
F-12
<PAGE> 54
On the date of the Initial Acquisition, the Company issued 1,600,000 shares of
Common Stock, par value $0.01 per share. No other common shares were issued in
1998 or 1999.
(10) ISSUANCE OF PREFERRED STOCK
LGP has the authority to issue up to 22,830,000 shares of capital stock, of
which 21,175,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 1,655,000 shares are designated as Common Stock, par value $0.01 per
share. The Initial Acquisition, including the payment of related fees and
expenses, was financed in part from the proceeds of (i) $45,000 from the
issuance and sale of 1,800,000 shares of 14.75% Senior Mandatory Redeemable
Exchangeable Cumulative Preferred Stock (the "Senior Preferred Stock"), (ii)
$49,000 from the issuance and sale of 49,000 shares of 10% Junior Mandatory
Redeemable Cumulative Preferred Stock (the "Junior Preferred Stock"), and (iii)
$8,000 from the issuance and sale of 1,600,000 shares of Common Stock. At
December 31, 1999, 100% of the Junior Preferred Stock and 92% of the Common
Stock is owned by Green Equity Investors II, L.P. the controlling stockholder of
the Company. 8% of the Common Stock is owned by the Company's senior management
team.
The Senior Preferred Stock issued by the Company is senior to the Common Stock
and Junior Preferred Stock of the Company, with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of the Company. Dividends may be paid, at the Company's option, at any dividend
payment date in cash or in additional shares of Senior Preferred Stock having a
liquidation preference equal to the dividend amount. The liquidation preference
of the Senior Preferred Stock is $25 per share.
The Senior Preferred Stock is redeemable at the option of the Company any time
after February 1, 1999 at stipulated redemption amounts and is mandatorily
redeemable, subject to certain conditions, on February 1, 2010 at a price equal
to 100% of its liquidation preference per share. The Company has no obligation
to redeem the preferred shares at any time prior to February 1, 2010. In the
event of a change in control of the Company, the Company must offer to
repurchase the Senior Preferred Stock at 100% of its liquidation preference per
share, plus accrued but unpaid dividends. LGP is dependent upon the cash flows
of the Operating Company to service these redemption requirements.
Except as required by law, the holders of shares of Senior Preferred Stock are
generally not entitled or permitted to vote on any matters voted upon by the
stockholders of the Company. Subject to certain conditions, the Senior Preferred
Stock is exchangeable, on any dividend payment date, in whole, but not in part,
at the option of the Company for 14.375% Senior Subordinated Debentures (the
"Exchange Debentures") of the Company maturing February 1, 2010. The Exchange
Debentures are redeemable prior to maturity on substantially the same terms as
the Senior Preferred Stock. Since inception, the Company has elected to pay all
of its Senior Preferred Dividends in additional shares of Senior Preferred
Stock. At December 31, 1999, the Company had accumulated but undeclared
dividends of $1,427.
The Junior Preferred Stock issued by LGP is senior to the Common Stock of LGP,
with respect to dividend distributions and distributions upon the liquidation,
winding up or dissolution of the Company. Dividends may be paid, at the
Company's option, at any dividend payment date in cash or in additional shares
of Junior Preferred Stock having a liquidation preference equal to the dividend
amount.
The Junior Preferred Stock is redeemable at the option of the Company at a
price equal to 100% of its liquidation preference per share and is mandatorily
redeemable on February 1, 2010 at a price equal to 100% of its Liquidation
preference per share. The Company has no obligations to redeem the preferred
shares at any time prior to February 1, 2010. In the event of a change in
control of the Company, the Company must offer to repurchase the Junior
Preferred Stock at 100% of its liquidation preference per share, plus accrued
but unpaid dividends. LGP is dependent upon the cash flows of the Operating
Company to service these redemption requirements.
Except as required by law, the holders of shares of Junior Preferred Stock are
generally not entitled or permitted to vote on any matters voted upon by the
stockholders of the Company. Since inception, the Company has elected to pay all
of its Junior Preferred Dividends in additional shares of Junior Preferred
Stock. At December 31, 1998, the Company had accumulated but undeclared
dividends of $972.
F-13
<PAGE> 55
(11) INCOME TAXES
Income taxes for the periods shown below consisted of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal $4,009 $ 659 $4,668
State and local 603 - 603
------ ------ ------
4,612 659 5,271
------ ------ ------
Year ended December 31, 1998:
U.S. Federal - - -
State and local - - -
------ ------ ------
Year ended December 31, 1999:
U.S. Federal $ - $ - $ -
State and local 295 - 295
------ ------ ------
$ 295 $ - $ 295
====== ====== ======
</TABLE>
In 1997, 1998 and 1999, income tax expense (benefit) differed from the
amounts computed by applying the U.S. Federal income tax rate of 35% in 1997
and 34% in 1998 and 1999 to income (loss) before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit) $4,276 $ (2,346) $ (274)
Increase in income taxes
resulting from:
Amortization of nondeductible
goodwill 344 89 233
State and local income taxes 651 - 195
Nondeductible meals and entertainment - 12 40
Nondeductible expenses - - 3
Change in Federal valuation allowance - 2,245 98
-------- -------- -------
$ 5,271 $ - $ 295
======== ======== =======
</TABLE>
F-14
<PAGE> 56
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at 1998 and 1999 are
presented below:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful accounts $ 473 $ 457
Accrued expenses 1,643 2,579
Net operating losses 5,573 9,230
------- -------
Gross deferred tax assets 7,689 12,265
less: valuation allowance (2,641) (2,756)
------- -------
Net deferred tax assets 5,048 9,509
------- -------
Deferred tax liabilities:
Long-lived assets, principally due
to differences in depreciation and
amortization 5,082 6,534
Intangible assets, principally
due to differences in amortization 8,421 20,005
------- -------
13,503 26,539
------- -------
Net deferred tax liability $ 8,455 $17,030
======= =======
</TABLE>
At December 31, 1999, the Company maintains net operating loss carry-forwards
for Federal and state income tax purposes of $23,074, which are available to
offset future taxable income, if any. These federal and state net operating loss
carryforwards begin to expire in 2018 and 2003, respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
lack of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes that a portion of the recorded deferred tax assets will not be
recoverable. Accordingly, the Company has recorded a valuation allowance
against certain Federal and state deferred tax assets as of December 31,1999
amounting to $2,756.
The Company acquired deferred tax liabilities of $8,455 and $8,575 in 1998 and
1999 respectively through corporate acquisitions.
(12) EMPLOYEE BENEFIT PLANS
The Company maintains certain benefit plans for its employees.
The Company maintains a defined contribution plan conforming to IRS rules
for 401(k) plans, for all of its employees satisfying minimum service
requirements as set forth under the plan. The plan allows for a discretionary
matching contribution. The Company recorded $129 in expenses related to the
plan in 1999. No matching contributions were made in 1998. $129 in matching
contributions were made in 1999.
The Company maintains three non-qualified deferred compensation plans, as
described below, for certain of its employees.
The Company maintains the Liberty Group Publishing, Inc. Publishers'
Deferred Compensation Plan ("Publishers Plan"), a non-qualified deferred
compensation plan for the benefit of certain designated publishers of the
Company's newspapers. Under the Publishers' Plan, the Company credits an amount
to a bookkeeping account established for each participating publisher pursuant
to a pre-determined formula which is based upon the gross operating profits of
each such publisher's newspaper. The bookkeeping account is credited with
earnings and losses based upon the investment choices selected by the
participant. The amounts credited to the bookkeeping account on behalf of each
participating publisher vest on an installment basis over a period of 15 years.
A participating publisher forfeits all amounts under the Publishers' Plan in the
event that the publisher's employment with the Company is terminated for "cause"
as defined in the Publishers' Plan. Amounts credited to a participating
publisher's bookkeeping account are distributable upon termination of the
F-15
<PAGE> 57
publisher's employment with the Company, and will be made in a lump sum or
installments as elected by the publisher. The Company recorded $111 and $133
of compensation expense related to the plan in 1998 and 1999, respectively.
The Company maintains the Liberty Group Publishing, Inc. Executive Benefit
Plan ("Executive Benefit Plan"), a non-qualified deferred compensation plan for
the benefit of certain key employees of the Company. Under the Executive
Benefit Plan, the Company credits an amount, determined by the Company's sole
discretion, to a bookkeeping account established for each participating key
employee. The bookkeeping account is credited with earnings and losses based
upon the investment choices selected by the participant. The amounts credited
to the bookkeeping account on behalf of each participating key employee vest on
an installment basis over a period of 5 years. A participating key employee
forfeits all amounts under the Executive Benefit Plan in the event that the key
employee's employment with the Company is terminated for "cause" as defined in
the Executive Benefit Plan. Amounts credited to a participating key employee's
bookkeeping account are distributable upon termination of the key employee's
employment with the Company, and will be made in a lump sum or installments as
elected by the key employee. The Company recorded $35 and $65 of compensation
expense related to the plan in 1998 and 1999, respectively.
The Company maintains the Liberty Group Publishing, Inc. Executive
Deferral Plan ("Executive Deferral Plan"), a non-qualified deferred
compensation plan for the benefit of certain key employees of the Company.
Under the Executive Deferral Plan, eligible key employees may elect to defer a
portion of their compensation for payment at a later date. Currently, the
Executive Deferral Plan allows a participating key employee to defer up to 100%
of his or her annual compensation until termination of employment or such
earlier period as elected by the participating key employee. Amounts deferred
are credited to a bookkeeping account established by the Company for this
purpose. The bookkeeping account is credited with earnings and losses based
upon the investment choices selected by the participant. Amounts deferred under
the Executive Deferral Plan are fully vested and nonforfeitable. The amounts in
the bookkeeping account are payable to the key employee at the time and in the
manner elected by the key employee.
(13) STOCK OPTION PLAN
In February 1999, the Company adopted an Incentive Stock Option Plan, a
Non-Qualified Stock Option Plan (for Publishers), and a Non-Qualified Stock
Option Plan (for Corporate employees) (Collectively, the "Plans") under which
certain employees may be granted the right to purchase shares of common stock.
The Company has reserved an aggregate of 49,480 shares of common stock for
issuance under the Plans. Stock options may be exercised only to the extent they
have vested in accordance with the provisions described in the Plans. Options
vest under the Incentive Stock Option Plan on the first anniversary of the grant
date. Options vest under the Non-Qualified Stock Option Plan (for Publishers) on
the eighth anniversary of the grant date, however, the vesting period may be
accelerated if certain financial targets are met. Options vest under the
Non-Qualified Stock Option Plan (for Corporate employees) on the third
anniversary of the grant date. Stock options in the Plans, may be exercised only
to the extent they have vested in accordance with the provisions in the plans.
The Company applies APB 25 in accounting for the Plans. All options under the
Plans have been granted at exercise prices not less than the market value at the
date of grant. Accordingly, no compensation expense has been recognized in the
financial statements for the Plans. Had the Company determined compensation cost
based on the fair value at the grant date for its stock option plan under
Statement 123, the Company's cost based on fair value at the grant date for its
stock option plan under Statement 123, the Company's net income (loss) for the
year ended December 31, 1999 would have been the pro forma amounts indicated
below:
<TABLE>
<S> <C> <C>
Net income (loss) As reported $ (1,101)
Pro forma (1,170)
</TABLE>
In February 2000, the Company effected a 20 for 1 stock split of its common
stock (see note 14). All share data has been retroactively restated to account
for this stock split. Under the Plans, the exercise price of each option equals
the market value of the Company's stock on the date of grant. The per share
weighted-average fair value of stock options granted during 1999 was $2.34 on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield of 0%, expected
volatility of approximately 0%, risk-free interest rate of 6.43%, and an
expected life of 10 years. Stock option activity for the year ended December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
average
exercise
Shares price
-------- --------
<S> <C> <C>
Outstanding at date of adoption - $ -
Granted 59,075 5.00
</TABLE>
F-16
<PAGE> 58
<TABLE>
<S> <C> <C>
Canceled 400 5.00
------- ------
Outstanding on December 31, 1999 58,675 $5.00
======= ======
</TABLE>
The following table summarized information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
remaining average average
Exercise Options contractual exercise Options exercise
price outstanding life price exercisable price
- --------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$5.00 58,675 9.1 years $5.00 4,396 $5.00
========= ======== ========= ======= ====== =====
</TABLE>
(14) RELATED PARTY TRANSACTIONS
Executive Stock Investments
During 1998, the majority common stockholder transferred 32,000 common shares
to the Chief Executive Officer upon the commencement of his employment. This
transaction was treated as a compensation expense and an additional
contribution to paid in capital.
Upon the commencement of his employment in January of 1998 the Company loaned
the Chief Executive Officer $250 pursuant to an Unsecured Promissory Note. The
Loan will be forgiven on a pro rata Daily Basis from January 28, 1998 to
January 28, 2001. The Loan will be forgiven in its entirety if the Chief
Executive Officer is terminated by the Company without cause or if the Chief
Executive Officer terminates his employment for good reason (as defined in the
agreement) death, disability, or upon the consummation of an initial public
offering of securities of the Company.
In addition, certain other executives were given the opportunity to purchase
common stock in the Company. Under the plan, each executive paid cash for 50%
of their stock investment and executed a five year note for the remaining 50%.
The Company has the right to repurchase the common stock at the original cost
if the executive terminates his employment or is terminated for cause.
Management Fees
The Company paid $1.0 million in management fees in 1998 and 1999 and $0 and
375, in 1998 and 1999, respectively, in acquisition finders fees to its
majority common stockholder and is obligated to pay acquisition finders fees of
$850,000 at December 31, 1999.
F-17
<PAGE> 59
(15) EXTRAORDINARY ITEM
The Company's facility in Pratt, Kansas was damaged by a severe flood. The cost
of the machinery and equipment and furniture and fixtures destroyed was $235,
net of accumulated depreciation of $18. The Company received insurance proceeds
sufficient to replace these assets in the amount of $702, and reported the
resulting gain of $485 as an extraordinary item.
(16) SUBSEQUENT EVENTS
In January 2000, the Company acquired all the issued and outstanding shares of
capital stock of Elko Daily Free Press, Inc., a 7,000 circulation daily
newspaper and certain real property from Free Press Properties, LLC. The total
cash consideration for the Nevada properties was $13,128. The Company also
acquired the New Hampton (IA) Tribune, a 10,400 circulation weekly newspaper.
In March 2000, the Company effected a 20-to-1 stock split for its common
stock, bringing the total shares of common stock authorized and issued to
1,655,000 and 1,600,000, respectively. All share and per share data has been
retroactively restated to account for this stock split. A total of 55,000
additional common shares have been made available in the form of stock options
for local publishers. Members of the management team will also receive a small
portion of these new shares to eliminate any dilution of their original holdings
that will result from the issuance of shares under the company's stock option
plan.
F-18
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Liberty Group Publishing, Inc.:
Under date of March 27, 2000, we reported on the consolidated balance sheets of
Liberty Group Publishing, Inc. and subsidiaries (Successor) as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended
(Successor periods), and the combined statements of operations and changes in
net assets and cash flows of the Local Newspaper Group of American Publishing
Company (Predecessor) for the year ended December 31, 1997 (Predecessor period),
as contained in the 1999 Form 10-K. In connection with our audits of the
aforementioned consolidated and combined financial statements, we also audited
the related financial statement schedule. The financial statement schedule is
the responsibility of the Companies' management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated and combined financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
March 30, 2000
S-1
<PAGE> 61
SCHEDULE II
LIBERTY GROUP PUBLISHING, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR
DOUBTFUL BEGINNING BAD DEBT ENDING
ACCOUNTS BALANCE EXPENSE WRITE-OFFS BALANCE
---------------------------- --------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 $1,022 $763 $(771) $1,014
Year ended December 31, 1998 $1,014 $694 $(526) $1,182
Year ended December 31, 1999 $1,182 $912 $(953) $1,141
</TABLE>
S-2
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 2000 LIBERTY GROUP PUBLISHING, INC. (Registrant)
By /s/ KENNETH L. SEROTA
Kenneth L. Serota,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities on the dates indicated.
Dated: March 30, 2000 /s/ KENNETH L. SEROTA
Kenneth L. Serota,
President and
Chief Executive Officer
and Director
Dated: March 30, 2000 /s/ KEVIN O'SHEA
Kevin O'Shea,
Executive Vice President,
Chief Financial Officer,
Secretary and Director
Dated: March 30, 2000 /s/ LEONARD GREEN
Leonard Green, Director
Dated: March 30, 2000 /s/ PETER NOLAN
Peter Nolan, Director
Dated: March 30, 2000 /s/ GREG ANNICK
Greg Annick, Director
Dated: March 30, 2000 /s/ JOHN DANHAKL
John Danhakl, Director
Dated: March 30, 2000 /s/ SCOTT T. CHAMPION
Scott T. Champion, Director
<PAGE> 63
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-----------------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group included on the Company's
Operating, Inc., Hollinger International Inc., APAC-90 Inc., American Publishing Registration Statement on Form S-4
(1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.2 Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group included on the Company's
Operating, Inc., Hollinger International Inc., American Publishing Company of Registration Statement on Form S-4
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C>
Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.3 Exchange Agreement, dated as of November 21, 1997, between American Incorporated by reference to exhibits
Publishing Company of Illinois and Chicago Deferred Exchange Corporation. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
2.4 Qualified Exchange Trust Agreement, dated as of November 21, 1997, among the Incorporated by reference to exhibits
Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago Deferred included on the Company's
Exchange Corporation and American Publishing Company of Illinois. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.5 Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among Incorporated by reference to exhibits
Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), included on the Company's
Liberty Group Operating, Inc., Hollinger International Inc., APAC-90 Inc., Registration Statement on Form S-4
American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.6 Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among Incorporated by reference to exhibits
Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), included on the Company's
Liberty Group Operating, Inc., Hollinger International Inc., American Publishing Registration Statement on Form S-4
Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC- (Registration No.: 333-46957)
95 Inc.
2.7 Amendment to Exchange Agreement, dated as of January 14, 1998, between Incorporated by reference to exhibits
American Publishing Company of Illinois and Chicago Deferred Exchange included on the Company's
Corporation. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.8 Amendment to Qualified Exchange Trust Agreement, dated as of January 14, 1998, Incorporated by reference to exhibits
among The Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago included on the Company's
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C>
Deferred Exchange Corporation and American Publishing Company of Illinois. Registration Statement on Form S-4
(Registration No.: 333-46957)
2.9 Agreement, dated January 15, 1998, among Liberty Group Publishing, Inc., Green Incorporated by reference to exhibits
Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., Hollinger included on the Company's
International Inc., American Publishing Company of Illinois, APAC-90 Inc., Registration Statement on Form S-4
American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
2.10 Agreement, dated January 23, 1998, among American Publishing Company of Incorporated by reference to exhibits
Illinois, Chicago Deferred Exchange Corporation and The Chicago Trust Company. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
2.11 Agreement, dated January 26, 1998, among Liberty Group Publishing, Inc., Green Incorporated by reference to exhibits
Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., Hollinger included on the Company's
International Inc., American Publishing Company of Illinois, APAC-90 Inc., Registration Statement on Form S-4
American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46957)
3.1 Certificate of Incorporation of Liberty Group Publishing, Inc. Included herewith.
3.2 By-Laws of Liberty Group Publishing, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
4.1 Indenture, dated as of January 27, 1998, among Liberty Group Publishing, Inc. and Incorporated by reference to exhibits
State Street Bank and Trust Company, as Trustee, including form of 11-5/8% Senior included on the Company's
Discount Debentures due 2009. Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
<PAGE> 66
<TABLE>
<S> <C> <C>
4.2 Indenture, dated as of January 27, 1998, among Liberty Group Publishing, Inc. and Incorporated by reference to exhibits
State Street Bank and Trust Company, as Trustee, including form of 14-3/4% Senior included on the Company's
Mandatory Redeemable Exchangeable Cumulative Preferred Stock and 11-5/8% Registration Statement on Form S-4
Senior Discount Debentures due 2009. (Registration No.: 333-46957)
*10.1 Employment Agreement, dated as of November 27, 1997, between Liberty Group Incorporated by reference to exhibits
Publishing, Inc. and Kenneth L. Serota. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
*10.2 Management Stockholders Agreement, dated as of January 27, 1998, among Liberty Incorporated by reference to exhibits
Group Publishing, Inc., Green Equity Investors II, L.P. and Kenneth L. Serota. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
*10.3 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Scott T. Champion.
*10.4 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Kevin O'Shea.
*10.5 Amended and Restated Management Subscription and Stockholders Agreement, Included herewith.
dated as of February 1, 2000, by and between Liberty Group Publishing, Inc., Green
Equity Investors II, L.P. and Gene A. Hall.
10.6 Non-Competition Agreement, dated as of January 27, 1998, between Liberty Group Incorporated by reference to exhibits
Operating, Inc. and Hollinger International Inc. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
<PAGE> 67
<TABLE>
<S> <C> <C>
10.7 Credit Agreement, dated as of January 27, 1998, among Liberty Group Operating, Incorporated by reference to exhibits
Inc. (as borrower), Liberty Group Publishing, Inc. (as parent guarantor), the included on the Company's
Subsidiary Guarantors named therein, Citicorp USA, Inc.(as administrative agent Registration Statement on Form S-4
and swingline lender), Citibank, N.A. (as issuing bank), Wells Fargo Bank, N.A. (as (Registration No.: 333-46957)
documentation agent), BT Alex. Brown Incorporated (as syndication agent), Bank
of America, NT & SA and Citicorp Securities, Inc. (as arranger).
10.8 First Amendment to Credit Agreement, dated as of May 20, 1999, by and among Included herewith.
Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc. (as
parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing bank)
and Citicorp USA, Inc. (as administrative agent and as swingline lender).
10.9 Second Amendment to Credit Agreement, dated as of September 30, 1999, by and Included herewith.
among Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc.
(as parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing
bank) and Citicorp USA, Inc. (as administrative agent and as swingline lender).
10.10 Pledge Agreement, dated as of January 27, 1998, from Liberty Group Publishing, Incorporated by reference to exhibits
Inc., Liberty Group Arizona Holdings, Inc., Liberty Group Arkansas Holdings, Inc., included on the Company's
Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings, Inc., Registration Statement on Form S-4
Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc., Liberty (Registration No.: 333-46957)
Group Michigan Holdings, Inc., Liberty Group Minnesota Holdings, Inc., Liberty
Group Missouri Holdings, Inc., Liberty Group New York Holdings, Inc., Liberty
Group Pennsylvania Holdings, Inc., Liberty Group Management Services, Inc. to
the lenders under the Credit Agreement.
10.11 Pledge Agreement, dated as of January 27, 1998, from Liberty Group Operating, Incorporated by reference to exhibits
Inc. to the lenders under the Credit Agreement. included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46957)
</TABLE>
<PAGE> 68
<TABLE>
<S> <C> <C>
*10.12 Liberty Group Publishing, Inc.'s Publishers Deferred Compensation Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.13 Liberty Group Publishing, Inc.'s Executive Benefit Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.14 Liberty Group Publishing, Inc.'s Executive Deferral Plan. Incorporated by reference to
exhibits included on the Company's
Annual Report on Form 10-K for the
period ended December 31, 1999.
*10.15 1999 Stock Option Plan Included herewith.
21 Subsidiaries of Liberty Group Publishing, Inc. Included herewith.
27 Financial Data Schedule. Included herewith.
</TABLE>
- ---------------------
* Management Contract/Compensatory Plan or Arrangement
The Company has agreed to furnish to the Commission, upon request, a copy of
each agreement defining the rights of holders of long-term debt not filed
herewith in reliance upon the exemption from filing applicable to any such
agreement pursuant to which the total amount of securities authorized does not
exceed 10% of the total consolidated assets of the Company.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LIBERTY GROUP PUBLISHING, INC.
Pursuant to Section 245 of the
General Corporation Law
of the State of Delaware
Liberty Group Publishing, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), hereby
certifies as follows:
1. The Company was originally incorporated under the name "LGP
Holdings Inc." The present name of the Company is Liberty Group Publishing,
Inc.
2. That the Certificate of Incorporation of the Company was filed in the
office of the Secretary of State of the State of Delaware on the 10th day of
November, 1997. A Certificate of Amendment was filed in the Office of the
Secretary of State of the State of Delaware on the 19th day of November 1997.
3. That this Amended and Restated Certificate of Incorporation amends and
restates in its entirety the Certificate of Incorporation of the Company, as
heretofore amended.
4. That the text of the Certificate of Incorporation, as
heretofore amended, is hereby amended and restated to read in its entirety as
follows:
FIRST: The name of the Company is Liberty Group Publishing,
Inc.
SECOND: The address of the registered office of the Company in Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or promoted by
the Company is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware (the "GCL").
FOURTH: [As amended on March 24, 2000]
Prior Capitalization. Immediately prior to the filing of this
amendment, the total number of shares of all classes of stock which
the Company had authority to issue was twenty-one million two hundred
fifty-five thousand (21,255,000), of which twenty-one million one
hundred seventy-five thousand (21,175,000) were designated Preferred
Stock, par value $.01 per share (hereinafter the "Preferred Stock"),
and eighty thousand (80,000) were designated Common Stock, par value
$.01 per share (hereinafter the "Common Stock")
<PAGE> 2
Current Capitalization. Effective upon the filing of this
amendment with the Secretary of State of the State of Delaware, the
total number of shares of all classes of stock which the Company
shall have authority to issue is twenty-two million eight hundred
thirty thousand (22,830,000) of which twenty-one million one hundred
seventy-five thousand (21,175,000) shall be designated Preferred
Stock and one million six hundred fifty-five thousand (1,655,000)
shall be designated Common Stock.
Conversion of Common Stock and Preferred Stock. At the time of
the filing of this amendment with the Secretary of State of the State
of Delaware, (a) each outstanding share of Common Stock (the
"Pre-Split Common Stock") shall automatically, without the necessity
of any further action on the part of the holder thereof, be changed
and reclassified into twenty (20) shares of Common Stock (the
"Post-Split Common Stock"), and (b) each outstanding share of
Preferred Stock shall remain outstanding as one share of Preferred
Stock. Upon the occurrence of the reclassifications effected by this
Section (the "Conversions"), each certificate for outstanding shares
of Pre-Split Common Stock dated prior to the effective date of the
Conversions shall evidence, and be deemed to evidence, the number of
shares of Post-Split Common Stock into which the shares previously
evidenced by such certificate shall have been reclassified in
accordance with this Section, and the Conversions shall become
effective in accordance with the terms hereof, whether or not any or
all of the certificates evidencing Pre-Split Common Stock shall have
been surrendered or new certificates evidencing the number of shares
of Post-Split Common Stock into which such shares have been
reclassified have been issued in accordance with the Subsequent
Reissuance of Certificates Section hereof.
Subsequent Reissuance of Certificates. Following the occurrence
of the Conversions, each holder of outstanding shares of Pre-Split
Common Stock shall either (a) surrender each certificate evidencing
any such shares at the office of the Corporation or (b) notify the
Corporation that such certificate has been lost, stolen or destroyed
and execute an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection with the
reissuance of such lost, stolen or destroyed certificate. The
Corporation shall thereupon issue and deliver to such holder a
certificate or certificates, in the name shown on such certificate
evidencing Pre-Split Common Stock, for the number of whole shares of
Post-Split Common Stock into which the shares of Pre-Split Common
Stock evidenced by the surrendered (or lost, stolen or destroyed)
certificate have been reclassified, dated as of the date on which the
Conversions become effective. The Corporation shall not be obligated
to issue any certificate evidencing shares of Post-Split Common Stock
in connection with the Conversions except in accordance with this
Section."
A. AUTHORITY OF BOARD OF DIRECTORS TO FIX POWERS, DESIGNATIONS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SHARES OF PREFERRED STOCK NOT FIXED HEREBY.
Shares of Preferred Stock may be issued from time to time, in one or more
series, as may from time to time be determined by the Board of Directors, each
of said series to be distinctly designated. Except for any differences provided
by the Board of Directors, all shares of any one series of Preferred Stock shall
be alike in every particular. The voting powers, designations and preferences
and the relative, participating, optional or other special rights of each such
series, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding; and,
subject to the provisions of subparagraph 1 of Paragraph C of this Article
FOURTH, the Board of Directors hereby is expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of
any shares of a particular series of Preferred Stock, the powers, designations
and preferences, the relative, participating, optional or other special rights
and the qualifications, limitations and restrictions of such series, including,
but without limiting the generality of the foregoing, the following:
(a) the distinctive designation of, and the number of shares of Preferred
Stock which shall constitute, such series, which number may be increased (except
where otherwise provided by the Board of Directors) or decreased (but not below
the number of shares thereof then outstanding) from time to time by like action
of the Board of Directors;
(b) the rate and times at which, and the terms and conditions on which,
dividends, if any, on Preferred Stock of such series shall be paid, the extent
of the preference or relation if any, of which dividends to the dividends
payable on any other class or classes or series of the same or any other class
or classes of stock of the Company and whether such dividends shall be
cumulative or non-cumulative;
(c) the right, if any, of the holders of Preferred Stock of such series to
convert the same into, or exchange the same for, shares of any other class or
classes or of any series of the same or any other class or classes of stock of
the Company and the terms and conditions of such conversion or exchange
(including without limitation the price or prices or the rate or rates of
conversion or exchange or any terms for adjustment thereof);
(d) whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices (which price or prices may be
different in different circumstances or at different redemption dates) and the
time or times at which, and the terms and conditions on which, Preferred Stock
of such series may be redeemed
-2-
<PAGE> 3
(including without limitation the dates upon or after which the shares of the
series must or may be redeemed);
(e) the restrictions, if any, on the issuance of shares of the same or any
other class or classes or of any series of the same or any other class or
classes of stock of the Company;
(f) the rights, if any, of the holders of Preferred Stock of such series
upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the Company;
(g) the voting powers, if any, of the holders of such series of Preferred
Stock which, without limiting the generality of the foregoing, may be equal to,
more than or less than one vote per share and may include the right, voting as a
series by itself or together with other series of Preferred Stock or all series
of Preferred Stock as a class, or, together with any other class or classes or
series of any other class or classes of stock of the Company, to elect one or
more directors of the Company if there shall have been a default in the payment
of dividends on any one or more series of Preferred Stock or under such other
circumstances and on such conditions as the Board of Directors may determine;
(h) whether the shares of such series of Preferred Stock shall be entitled
to the benefits of a sinking fund for the redemption or purchase of shares (the
term "sinking fund" being understood to include any similar fund or account,
howsoever designated) and the terms thereof; and
(i) any other powers, preferences, rights and limitations of the
series.
B. STATEMENT OF LIMITATIONS, RELATIVE RIGHTS AND POWERS IN
RESPECT OF COMMON STOCK.
1. After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Paragraph A of
this Article Fourth), if any, shall have been met and after the Company
shall have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts
for the Preferred Stock (fixed in accordance with the provisions of
Paragraph A of this Article Fourth), and subject further to any other
conditions which may be fixed in accordance with the provisions of
Paragraph A of this Article FOURTH, then and not otherwise the holders of
Common Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
2. After distribution in full of the preferential amount, if any, to
be distributed to the holders of Preferred Stock in the event of
voluntary or involuntary
-3-
<PAGE> 4
liquidation, dissolution or winding-up of the Company, the holders of the
Common Stock, subject to the rights, if any, of the holders of Preferred
Stock to participate therein (fixed in accordance with the provisions of
Paragraph A of this Article FOURTH), shall be entitled to receive all the
remaining assets of the Company, tangible and intangible, of whatever kind
available for distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them, respectively.
3. Except as may otherwise be required by law, by the provisions of this
Article FOURTH or by the provisions of such resolution or resolutions as
may be adopted by the Board of Directors pursuant to the provisions of
Paragraph A of this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by him on all
matters voted upon by the stockholders.
C. OTHER PROVISIONS.
1. The relative powers, preferences and rights of each series of Preferred
Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall be, in each case, as may be fixed from time
to time by the Board of Directors in such resolution or resolutions as may
be adopted pursuant to authority granted in Paragraph A of this Article
FOURTH and, except as may otherwise be provided in any resolution or
resolutions adopted pursuant to authority granted in Paragraph A of this
Article FOURTH, the consent, by class or series vote or otherwise, of the
holders of each of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the powers,
preferences and rights of such other series shall be fixed by the Board of
Directors as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided, however, that
the Board of Directors may provide in the resolution or resolutions as to
any series of Preferred Stock adopted pursuant to the provisions of
Paragraph A of this Article FOURTH that the consent of the holders of a
majority (or such greater proportion as shall be therein fixed) of the
outstanding shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.
2. Subject to the provisions of this Paragraph C of this Article FOURTH,
shares of any series of Preferred Stock may be issued from time to time as
the Board of Directors of the Company shall determine, for such
consideration and upon such terms as the Board of Directors may determine.
-4-
<PAGE> 5
3. Shares of Common Stock may be issued from time to time as the Board of
Directors of the Company shall determine, for such consideration and upon
such terms as the Board of Directors may determine.
4. The authorized amount of shares of Common Stock and of Preferred Stock
may, without a class or series vote, be increased or decreased from time to
time by the affirmative vote of the holders of a majority of the stock of
the Company entitled to vote thereon.
FIFTH: The Company is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Company is expressly authorized to make,
adopt, alter, amend or repeal the By-Laws of the Company.
SEVENTH:
(a) A director of the Company shall have no personal
liability to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law; (iii) under Section 174 of the GCL as it may from time to time be amended
or supplemented or any successor provision thereto; or (iv) for any transaction
from which a director denied an improper personal benefit.
(b) Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of any person thereunder with respect
to any act or omission occurring prior to or at the time of such repeal or
modification.
EIGHTH: Meetings of the stockholders may be held within or without the
State of Delaware, as may be designated by or in the manner provided in the
By-Laws of the Company. The books of the Company may be kept (subject to the
provisions of any law or regulation) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the By-Laws of the Company. Elections of directors need not be by written ballot
unless the By-Laws of the Company shall so provide.
NINTH: The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-5-
<PAGE> 6
TENTH: Whenever a compromise or arrangement is proposed between the Company
and its creditors or any class of them and/or between the Company and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the Company or
of any creditor or stockholder thereof, or on the application of any receiver or
receivers appointed for the Company under the provisions of Section 291 of Title
8 of the GCL, or on the application of trustees in dissolution of or any
receiver or receivers appointed for the Company under the provisions of Section
279 of Title 8 of the GCL, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the Company,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Company, as the case may be, agree to any compromise or arrangement and to any
reorganization of the Company as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Company, as the case may be, and
also on the Company.
ELEVENTH:
(a) The Company shall to the fullest extent permitted by Delaware law, as
in effect from time to time (but, in the case of any amendment of the GCL of the
State of Delaware, only to the extent that such amendment permits the Company to
provide broader indemnification rights than said law permitted the Company to
provide prior to such amendment), indemnify each person who is or was a director
or officer of the Company or of any of its wholly-owned subsidiaries who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, or was or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that on or after such date
he or she is or was a director, officer, employee or agent of the Company or of
any of its subsidiaries, or is or was at any time on or after such date serving,
at the request of the Company, as a director, officer, employee or agent of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity against all expense, liability and loss
(including, but not limited to, attorneys' fees, judgments, fines, excise taxes
or penalties (with respect to any employee benefit plan or otherwise), and
amounts paid or to be paid in settlement) incurred or suffered by such director
or officer in connection with such proceeding; provided, however, that, except
as provided in Paragraph (e) of this Article ELEVENTH, the Company shall not be
obligated to indemnify any person under this Article ELEVENTH in connection with
a proceeding (or part thereof) if such proceeding (or part thereof) was not
authorized by the Board of Directors of the Company and was initiated by such
person against (i) the Company or any of its subsidiaries, (ii) any person who
is or was a director, officer, employee or agent of the Company or any of its
subsidiaries and/or (iii) any person or entity which controlled, is or was
controlled by, or
-6-
<PAGE> 7
under common control with, the Company or has or had business relations with the
Company or any of its subsidiaries.
(b) The right to indemnification conferred in this Article ELEVENTH shall
be a contract right, shall continue as to a person who has ceased to be a
director or officer of the Company or of any of its wholly-owned subsidiaries
and shall inure to the benefit of his or her heirs, executors and
administrators, and shall include the right to be paid by the Company the
expenses incurred in connection with the defense or investigation of any such
proceeding in advance of its final disposition; provided, however, that if and
to the extent that Delaware law so requires, the payment of such expense in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such director or
officer or former director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer or former director
or officer is not entitled to be indemnified by the company.
(c) The Company's obligation to indemnify and to pay
expenses in advance of the final disposition of a proceeding under this Article
ELEVENTH shall arise, and all rights and protections granted to directors and
officers under this Article ELEVENTH shall vest, at the time of the occurrence
of the transaction or event to which any proceeding relates, or at the time that
the action or conduct to which any proceeding relates was first taken or engaged
in (or omitted to be taken or engaged in), regardless of when any Proceeding is
first threatened, commenced or completed.
(d) Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or the By-laws of the Company, no action by the
Company, either by amendment to or repeal of this Article ELEVENTH or the
By-laws of the Company or otherwise shall diminish or adversely affect any right
or protection granted under this Article ELEVENTH to any director or right of
protection granted under this Article ELEVENTH to any director or officer or
former director or officer of the Company or of any of its wholly-owned
subsidiaries which shall have become vested as aforesaid prior to the date that
any such amendment, repeal or other corporate action is taken.
(e) If a claim for indemnification and/or for payment of expenses in
advance of the final disposition of a proceeding arising under this Article
ELEVENTH is not paid in full by the Company within thirty days after a written
claim has been received by the Company, the claimant may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim.
(f) The right to indemnification of expenses incurred in connection with
the defense or investigation of a proceeding in advance of its final disposition
conferred in this Article ELEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
this Amended and Restated
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<PAGE> 8
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(g) In addition to the persons specified in subsection (a) of this Article
ELEVENTH, the Company may indemnify all other persons to the fullest extent
permitted by Delaware law.
5. This Amended and Restated Certificate of Incorporation was duly adopted
by the Board of Directors in accordance with the provisions of Sections 242 and
245 of the General Corporation Law of Delaware and it was duly adopted by the
unanimous written consent of the stockholders in accordance with the provisions
of Section 228 of the GCL.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by its President on this 23rd day of
January, 1998.
LIBERTY GROUP PUBLISHING, INC.
By: /s/ Kenneth L. Serota
------------------------------------
-9-
<PAGE> 10
LIBERTY GROUP PUBLISHING, INC.
CERTIFICATE OF DESIGNATIONS OF THE POWERS
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF
SERIES A 14 3/4% SENIOR REDEEMABLE EXCHANGEABLE
CUMULATIVE PREFERRED STOCK,
AND
SERIES B 10% JUNIOR REDEEMABLE CUMULATIVE PREFERRED STOCK,
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Liberty Group Publishing, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the board of directors of the
Company (the "Board of Directors") or any committee of the Board of Directors
(the "Board Committee") by its Certificate of Incorporation (the "Certificate of
Incorporation"), and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors, by unanimous
written consent dated as of January 22, 1998, duly approved and adopted the
following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board of Directors
by its Certificate of Incorporation, the Board of Directors does hereby
create, authorize and provide for the issue of the following series of
Preferred Stock:
(i) Series A 14 3/4% Senior Redeemable Exchangeable Cumulative
Preferred Stock (the "Series A Senior Preferred Stock"), par value $0.01
per share, with a liquidation preference of $25 per share, consisting of
21,000,000 shares; and
(ii) Series B 10% Junior Redeemable Cumulative Preferred Stock (the
"Junior Preferred Stock"), par value $0.01 per share, with a liquidation
preference of $1,000 per share, consisting of 175,000 shares;
each of the foregoing series of preferred stock to have the powers,
designations and preferences, the relative, participating, optional
and other special rights and the qualifications, limitations and
restrictions thereof that are set forth in the Certificate of
Incorporation and in this Resolution as follows:
1. DESIGNATIONS OF THE COMPANY'S SERIES A 14 3/4% SENIOR REDEEMABLE
EXCHANGEABLE CUMULATIVE PREFERRED STOCK.
(a) Designations.
There is hereby created out of the authorized and unissued shares of
preferred stock of the Company a series of preferred stock designated as
the "Series A 14 3/4% Senior Redeemable Exchangeable Cumulative Preferred
Stock". The number of shares constituting such series shall be 21,000,000
shares of Senior Preferred Stock, consisting of an initial issuance of
1,800,000 shares of Senior Preferred Stock plus additional shares of Senior
Preferred Stock which may be issued, including to pay dividends on the
Senior Preferred Stock if the Company elects to pay dividends in additional
shares of Senior Preferred Stock (in lieu of cash). The liquidation
preference of the Senior Preferred Stock shall be $25 per share.
(b) Rank.
The Senior Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up and dissolution of the
Company, rank senior to all classes of common stock of the Company, the
Junior Preferred
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<PAGE> 11
Stock and to each other class of capital stock or series of preferred stock
hereafter created by the Board of Directors the terms of which do not
expressly provide that it ranks senior to or on a parity with the Senior
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding up and dissolution of the Company (collectively
referred to with the common stock and Junior Preferred Stock of the Company
as "Junior Securities"). The Senior Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding up
and dissolution of the Company, rank on a parity with any class of capital
stock or series of preferred stock hereafter created which expressly
provides that it ranks on a parity with the Senior Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding up
and dissolution of the Company ("Parity Securities"), provided that any
such Parity Securities that were not approved by the Holders of Senior
Preferred Stock in accordance with paragraph (f)(ii)(A) hereof shall be
deemed to be Junior Securities and not Parity Securities. The Senior
Preferred Stock shall, with respect to dividend distributions and
distributions upon the liquidation, winding up and dissolution of the
Company, rank junior to each class of capital stock or series of preferred
stock hereafter created which has been approved by the Holders of Senior
Preferred Stock in accordance with paragraph (f)(ii)(B) hereof and which
expressly provides that it ranks senior to the Senior Preferred Stock as to
dividend distributions or distributions upon the liquidation, winding up
and dissolution of the Company ("Senior Securities").
(c) Dividends.
(i) Beginning on the date of issuance of shares of the Senior
Preferred Stock, the Holders of the outstanding shares of Senior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, distributions in the
form of cash dividends on each share of Senior Preferred Stock, at a rate
per annum equal to 14 3/4% of the liquidation preference per share of the
Senior Preferred Stock, payable quarterly. All dividends shall be
cumulative, whether or not earned or declared, on a daily basis from the
Preferred Stock Issue Date and shall be payable quarterly in arrears on
each Dividend Payment Date, commencing on May 1, 1998, provided that if any
dividend payable on any Dividend Payment Date is not declared and paid in
full in cash on such Dividend Payment Date, the amount payable as dividends
on such Dividend Payment Date that is not paid in cash on such Dividend
Payment Date shall be paid by the Company in additional fully paid and
non-assessable shares (including fractional shares, if applicable) of
Senior Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends (rounded to the nearest whole cent), it being
understood that dividends shall begin to accrue from such Dividend Payment
Date on such additional shares of Senior Preferred Stock whether such
additional shares of Senior Preferred Stock are issued on such date or any
later date or are never issued. The payment by the Company in such
additional shares of Senior Preferred Stock shall constitute full payment
of such dividend. Each distribution in the form of a dividend (whether in
cash or in additional shares of Senior Preferred Stock) shall be payable to
the Holders of Senior Preferred Stock of record as they appear on the stock
books of the Company on such record dates, not less than 10 nor more than
45 days preceding the related Dividend Payment Date, as shall be fixed by
the Board of Directors. Dividends shall cease to accumulate in respect of
shares of the Senior Preferred Stock on the Exchange Date or on the date of
their earlier redemption unless the Company shall have failed to issue the
appropriate aggregate principal amount of Exchange Debentures (as defined
in paragraph (g)(i)(A) hereof) in respect of the Senior Preferred Stock on
the Exchange Date or shall have failed to pay the relevant redemption price
on the date fixed for redemption.
(ii) All dividends paid with respect to shares of the Senior Preferred
Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders
thereof entitled thereto.
(iii) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Company to pay or set apart for payment, any dividends on
shares of the Senior Preferred Stock at any time.
(iv) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption pursuant to paragraph
(e)(i) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders of Senior Preferred Stock of
record on such date, not more than 45 days prior to the payment thereof, as
may be fixed by the Board of Directors.
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<PAGE> 12
(v) No full dividends shall be declared by the Board of Directors or
paid or funds set apart for payment of dividends by the Company on any
Parity Securities for any period unless full cumulative dividends shall
have been or contemporaneously are declared and paid in full, or declared
and (in the case of dividends payable in cash) a sum in cash set apart
sufficient for such payment, on the Senior Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of such full
dividends on such Parity Securities. If any dividends are not paid in full,
as aforesaid, upon the shares of the Senior Preferred Stock and any other
Parity Securities, all dividends declared upon shares of the Senior
Preferred Stock and any other Parity Securities shall be declared pro rata
based on the relative liquidation preference of the Senior Preferred Stock
and such Parity Securities. So long as any shares of the Senior Preferred
Stock are outstanding, the Company shall not make any payment on account
of, or set apart for payment money for a sinking or other similar fund for,
the purchase, redemption or other retirement of, any of the Parity
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Parity Securities, and shall not permit any
corporation or other entity directly or indirectly controlled by the
Company to purchase or redeem any of the Parity Securities or any such
warrants, rights, calls or options unless full dividends determined in
accordance herewith on the Senior Preferred Stock shall have been paid or
contemporaneously are declared and paid in full.
(vi) (A) Except as permitted by paragraph (m)(i)hereof, Holders of
shares of the Senior Preferred Stock shall be entitled to receive the
dividends provided for in paragraph (c)(i) hereof in preference to
and in priority over any dividends upon any of the Junior Securities.
(B) So long as any shares of Senior Preferred Stock are
outstanding, and except as permitted by paragraph (m)(i) hereof, the
Company shall not (1) declare, pay or set apart for payment any
dividend on any of the Junior Securities or make any payment on
account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of,
any of the Junior Securities or any warrants, rights, calls or
options exercisable for or convertible into any of the Junior
Securities (other than the repurchase, redemption or other
acquisition or retirement for value of Junior Securities (and any
warrants, rights, calls or options exercisable for or convertible
into such Junior Securities) held by certain employees of or
consultants or advisors to the Company or any of its Subsidiaries,
which repurchase, redemption or other acquisition or retirement shall
have been approved by a majority of the Board of Directors, provided
that such Junior Securities may only be repurchased, redeemed or
otherwise acquired or retired either in exchange for Junior
Securities or upon the termination, retirement, death or disability
of such employee, consultant or advisor), or (2) make any
distribution in respect thereof, either directly or indirectly, and
whether in cash, obligations or shares of the Company or other
property (other than distributions or dividends in Junior Securities
to the holders of Junior Securities), or (3) permit any corporation
or other entity directly or indirectly controlled by the Company to
purchase or redeem any of the Junior Securities or any such warrants,
rights, calls or options, unless in any such case full cumulative
dividends determined in accordance herewith have been paid in full in
cash on the Senior Preferred Stock (such payment to include the
redemption of all shares of Senior Preferred Stock previously issued
as payment for dividends) and all other redemption or repayment
obligations in respect of the Senior Preferred Stock have been paid
in full in cash.
(vii) Dividends payable on shares of the Senior Preferred Stock for
any period less than a year shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in the
period for which payable. If any Dividend Payment Date occurs on a day that
is not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day.
(d) Liquidation Preference.
(i) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the Holders of shares of Senior
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders, $25
per share of Senior Preferred Stock plus an amount in cash equal to
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding up (including an amount equal to a prorated dividend
for the period from the last Dividend Payment Date to the date fixed for
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<PAGE> 13
liquidation, dissolution or winding up) before any payment shall be made or
any assets distributed to the holders of any of the Junior Securities,
including, without limitation, common stock of the Company. Except as
provided in the preceding sentence, Holders of shares of Senior Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Company. If
the assets of the Company are not sufficient to pay in full the liquidation
payments payable to the Holders of outstanding shares of the Senior
Preferred Stock and all Parity Securities, then the holders of all such
shares shall share equally and ratably in such distribution of assets of
the Company in accordance with the amounts which would be payable on such
distribution if the amount to which the Holders of outstanding shares of
Senior Preferred Stock and the holders of outstanding shares of all Parity
Securities are entitled were paid in full.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
of the Company nor the consolidation or merger of the Company with or into
one or more corporations or other entities shall be deemed to be a
liquidation, dissolution or winding up of the affairs of the Company
(unless such sale, conveyance, exchange or transfer is in connection with a
liquidation, dissolution or winding up of the business of the Company).
(e) Redemption.
(i) Optional Redemption.
(A) The Company may (subject to contractual and other
restrictions with respect thereto, including without limitation,
restrictions imposed by the Credit Agreement and the Debenture
Indenture, and the legal availability of funds therefor), at the
option of the Company, redeem at any time or from time to time on or
after February 1, 1999, from any source of funds legally available
therefor, in whole or in part, in the manner provided in paragraph
(e)(iii) hereof, any or all of the shares of the Senior Preferred
Stock, at a redemption price equal to the following percentages of
the liquidation preference per share plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends per
share (including an amount in cash equal to a prorated dividend for
the period from the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date) (the "Optional Redemption
Price"), in each case beginning on February 1 of the year indicated:
<TABLE>
<S> <C>
1999 105%
2000 104%
2001 103%
2002 102%
2003 101%
2004 and thereafter 100%;
</TABLE>
provided that no optional redemption pursuant to this paragraph
(e)(i)(A) shall be authorized or made at any time when the Company is
making or required to make within the next 30 days, or purchasing
shares of Senior Preferred Stock under a Change of Control Offer in
accordance with the provisions of paragraph (h) hereof and provided,
further, that no optional redemption of only a portion of the then
outstanding shares of Senior Preferred Stock shall be authorized or
made at any time when full cumulative dividends on the Senior
Preferred Stock for all past Dividend Periods have not been declared
and paid in full.
(B) In the event of a redemption pursuant to paragraph (e)(i)(A)
hereof of only a portion of the then outstanding shares of the Senior
Preferred Stock, the Company shall effect such redemption as it
determines, pro rata according to the number of shares held by each
Holder of Senior Preferred Stock or by lot, as may be determined by
the Company in its sole discretion.
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<PAGE> 14
(ii) Mandatory Redemption. On February 1, 2010, the Company shall redeem,
subject to contractual and other restrictions with respect thereto, including
without limitation, restrictions imposed by the Credit Agreement and the
Debenture Indenture, from any source of funds legally available therefor, in the
manner provided in paragraph (e)(iii) hereof, all of the shares of the Senior
Preferred Stock then outstanding at a redemption price equal to 100% of the
liquidation preference per share, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends per share (including an amount
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the Redemption Date to the Redemption Date) (the "Mandatory
Redemption Price").
(iii) Procedures for Redemption.
(A) At least 15 days and not more than 60 days prior to the date fixed
for any redemption of the Senior Preferred Stock, written notice (the
"Redemption Notice") shall be given by first-class mail, postage prepaid,
to each Holder of Senior Preferred Stock of record on the record date fixed
for such redemption of the Senior Preferred Stock at such Holder's address
as the same appears on the stock register of the Company, provided that no
failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any shares of Senior
Preferred Stock to be redeemed except as to the Holder or Holders to whom
the Company has failed to give said notice or except as to the Holder or
Holders whose notice was defective. The Redemption Notice shall state: (1)
whether the redemption is pursuant to paragraph (e)(i) or (e)(ii) hereof;
(2) the Optional Redemption Price or the Mandatory Redemption Price, as the
case may be; (3) whether all or less than all the outstanding shares of the
Senior Preferred Stock are to be redeemed and the total number of shares of
the Senior Preferred Stock being redeemed; (4) the number of shares of
Senior Preferred Stock held, as of the appropriate record date, by the
Holder that the Company intends to redeem; (5) the date fixed for
redemption; (6) that the Holder is to surrender to the Company, at the
place or places where certificates for shares of Senior Preferred Stock are
to be surrendered for redemption, in the manner and at the price
designated, his certificate or certificates representing the shares of
Senior Preferred Stock to be redeemed; and (7) that dividends on the shares
of the Senior Preferred Stock to be redeemed shall cease to accrue on such
Redemption Date unless the Company defaults in the payment of the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be.
(B) Each Holder of Senior Preferred Stock shall surrender the
certificate or certificates representing such shares of Senior Preferred
Stock to the Company, duly endorsed, in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the full
Optional Redemption Price or Mandatory Redemption Price, as the case may
be, for such shares shall be payable in cash to the Person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event that
less than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares.
(C) Unless the Company defaults in the payment in full of the
applicable redemption price, dividends on the Senior Preferred Stock called
for redemption shall cease to accumulate on the Redemption Date, and the
Holders of such redemption shares shall cease to have any further rights
with respect thereto on the Redemption Date, other than the right to
receive the Optional Redemption Price or the Mandatory Redemption Price, as
the case may be, without interest.
(f) Voting Rights.
(i) The Holders of shares of the Senior Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraphs (ii) and
(iii) below, shall not be entitled or permitted to vote on any matter required
or permitted to be voted upon by the stockholders of the Company.
(ii) (A) So long as any shares of the Senior Preferred Stock are
outstanding, the Company shall not authorize any class of Parity Securities
without the affirmative vote or consent of Holders of at least a majority of the
outstanding shares of Senior Preferred Stock, voting or consenting, as the case
may be, separately as one class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting, except
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<PAGE> 15
that without the approval of Holders of Senior Preferred Stock, the
Company may authorize and issue shares of Parity Securities in
exchange for, or the proceeds of which are used to redeem or
repurchase, any or all shares of Senior Preferred Stock then
outstanding, provided that, in the case of Parity Securities issued
in exchange for, or the proceeds of which are used to redeem or
repurchase, less than all shares of Senior Preferred Stock then
outstanding, (1) the aggregate liquidation preference of such Parity
Securities shall not exceed the aggregate liquidation preference of,
premium and accrued and unpaid dividends on, and expenses in
connection with the refinancing of, the Senior Preferred Stock so
exchanged, redeemed or repurchased, (2) such Parity Securities shall
not be Disqualified Capital Stock and (3) the Company may pay
dividends on such Parity Securities in the form of cash or such
Parity Securities.
(B) So long as any shares of the Senior Preferred Stock are
outstanding, the Company shall not authorize any class of Senior
Securities without the affirmative vote or consent of Holders of at
least a majority of the outstanding shares of Senior Preferred Stock,
voting or consenting, as the case may be, separately as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting.
(C) So long as any shares of the Senior Preferred Stock are
outstanding, the Company shall not amend this Section 1 so as to
affect adversely the specified rights, preferences, privileges or
voting rights of Holders of shares of Senior Preferred Stock or to
authorize the issuance of any additional shares of Senior Preferred
Stock (other than in payment of dividends on the Senior Preferred
Stock) without the affirmative vote or consent of Holders of at least
a majority of the outstanding shares of Senior Preferred Stock,
voting or consenting, as the case may be, separately as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting. The affirmative vote or
consent of Holders of at least a majority of the outstanding shares
of Senior Preferred Stock, voting or consenting, as the case may be,
separately as one class, whether voting in person or by proxy, either
in writing or by resolution adopted at an annual or special meeting,
may waive compliance with any provision of this Section 1.
(D) Prior to the exchange of Senior Preferred Stock for Exchange
Debentures, the Company shall not amend or modify the Exchange
Indenture (except as expressly provided therein in respect of
amendments without the consent of holders of Exchange Debentures)
without the affirmative vote or consent of Holders of at least a
majority of the outstanding shares of Senior Preferred Stock, voting
or consenting, as the case may be, separately as one class, given in
person or by proxy, either in writing or by resolution adopted at an
annual or special meeting.
(E) Except as set forth in paragraphs (f)(ii)(A) and (f)(ii)(B)
above, (1) the creation, authorization or issuance of any shares of
any Junior Securities, Parity Securities or Senior Securities, or (2)
the increase or decrease in the amount of authorized capital stock of
any class, including Senior Preferred Stock, Junior Preferred Stock
or any other series of preferred stock, shall not require the consent
of Holders of Senior Preferred Stock and shall not, unless not
complying with paragraphs (f)(ii)(A) and (f)(ii)(B) above, be deemed
to affect adversely the rights, preferences, privileges or voting
rights of Holders of shares of Senior Preferred Stock.
(iii) In any case in which the Holders of shares of the Senior
Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Delaware law, each Holder of shares of the Senior Preferred
Stock shall be entitled to one vote for each share of Senior Preferred
Stock held and, except as otherwise required by Delaware law, in the event
of such a vote, the Holders of the Series A Senior Preferred Stock and the
holders of the Series B Senior Preferred Stock shall vote together as a
single class.
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<PAGE> 16
(g) Optional Exchange.
(i) Conditions.
(A) The Company may, at its option on any Dividend Payment Date
(herein the "Exchange Date"), exchange all, but not less than all, of
the then outstanding shares of Senior Preferred Stock into the
Company's 14 3/4% Senior Subordinated Debentures due 2010 (the
"Exchange Debentures") if such exchange is then permitted by the
terms of the Credit Agreement and the Debenture Indenture. To
exchange Senior Preferred Stock into Exchange Debentures, the Company
shall send a written notice (the "Exchange Notice") of exchange by
mail to each Holder of Senior Preferred Stock, which notice shall
state: (v) that the Company has elected to exchange the Senior
Preferred Stock into Exchange Debentures pursuant to this Section 1;
(w) the Exchange Date, which shall be the next succeeding Dividend
Payment Date and shall not be less than 20 days following the date on
which the Exchange Notice is mailed; (x) that the Holder is to
surrender to the Company, at the place or places where certificates
for shares of Senior Preferred Stock are to be surrendered for
exchange, in the manner designated in the Exchange Notice, his
certificate or certificates representing the shares of Senior
Preferred Stock to be exchanged (properly endorsed or assigned for
transfer); (y) that dividends on the shares of Senior Preferred Stock
to be exchanged shall cease to accrue, and the Holders of such shares
shall cease to have any further rights with respect to such shares
(other than the right to receive Exchange Debentures), on the
Exchange Date whether or not certificates for shares of Senior
Preferred Stock are surrendered for exchange on the Exchange Date
unless the Company shall default in the delivery of Exchange
Debentures; and (z) that interest on the Exchange Debentures shall
accrue from the Exchange Date whether or not certificates for shares
of Senior Preferred Stock are surrendered for exchange on the
Exchange Date. On the Exchange Date, if the conditions set forth in
clauses (I) through (V) below are satisfied and if the exchange is
then permitted under the Credit Agreement and the Debenture
Indenture, the Company shall issue Exchange Debentures in exchange
for the Senior Preferred Stock as provided in the next paragraph,
provided that on the Exchange Date: (I) there shall be legally
available funds sufficient therefor (including, without limitation,
legally available funds sufficient therefor under Sections 160 and
170 (or any successor provisions) of the Delaware General Corporation
Law); (II) either (a) a registration statement relating to the
Exchange Debentures shall have been declared effective under the
Securities Act of 1933, as amended (the "Securities Act"), prior to
such exchange and shall continue to be in effect on the Exchange Date
or (b)(i) the Company shall have obtained a written opinion of
counsel that an exemption from the registration requirements of the
Securities Act is available for such exchange and that upon receipt
of such Exchange Debentures pursuant to such exchange made in
accordance with such exemption, the holders (assuming such holder is
not an Affiliate of the Company) thereof will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof
and (ii) such exemption is relied upon by the Company for such
exchange; (III) the Exchange Indenture and the trustee thereunder
(the "Trustee") shall have been qualified under the Trust Indenture
Act of 1939, as amended, if such qualification is required; (IV)
immediately after giving effect to such exchange, no Default or Event
of Default (each as defined in the Exchange Indenture) would exist
under the Exchange Indenture; and (V) the Company shall have
delivered to the Trustee a written opinion of counsel, dated the date
of exchange, regarding the satisfaction of the conditions set forth
in clauses (I), (II) and (III).
In the event that the issuance of the Exchange Debentures is not
permitted on the Exchange Date set forth in the Exchange Notice, or
any of the conditions set forth in clauses (I) through (V) of the
preceding sentence are not satisfied on the Exchange Date set forth
in the Exchange Notice, the Exchange Date shall be deemed to be the
first business day thereafter, if any, upon which all of such
conditions are satisfied.
(B) Upon any exchange pursuant to paragraph (g)(i)(A), each Holder of
outstanding shares of Senior Preferred Stock shall be entitled to receive
Exchange Debentures in a principal amount equal to the sum of (i) the
liquidation preference of such Holder's shares of Senior Preferred Stock
and (ii) the amount of accumulated and unpaid dividends,
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<PAGE> 17
if any, thereon; provided that the Company may pay cash in lieu of issuing
an Exchange Note in a principal amount of less than $1,000.
(ii) Procedure for Exchange.
(A) On or before the Exchange Date, each Holder of Senior Preferred
Stock shall surrender the certificate or certificates representing such
shares of Senior Preferred Stock, in the manner and at the place designated
in the Exchange Notice. The Company shall cause the Exchange Debentures to
be executed on the Exchange Date and, upon surrender in accordance with the
Exchange Notice of the certificates for any shares of Senior Preferred
Stock so exchanged (properly endorsed or assigned for transfer), such
shares shall be exchanged by the Company into Exchange Debentures. The
Company shall pay interest on the Exchange Debentures at the rate and on
the dates specified therein from the Exchange Date.
(B) Subject to the conditions set forth in paragraph (g)(i), if notice
has been mailed as aforesaid, and if before the Exchange Date (1) the
Exchange Indenture shall have been duly executed and delivered by the
Company and the Trustee and (2) all Exchange Debentures necessary for such
exchange shall have been duly executed by the Company and delivered to the
Trustee with irrevocable instructions to authenticate the Exchange
Debentures necessary for such exchange, then the rights of the Holders of
shares of the Senior Preferred Stock as stockholders of the Company shall
cease (except the right to receive Exchange Debentures), and the Person or
Persons entitled to receive the Exchange Debentures issuable upon exchange
shall be treated for all purposes as the registered Holder or Holders of
such Exchange Debentures as of the date of exchange without any further
action of the Holders of Senior Preferred Stock.
(h) Change of Control Offer. Subject to contractual and other restrictions with
respect thereto, including without limitation, restrictions imposed by the
Credit Agreement and the Debenture Indenture, upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to each
Holder of Senior Preferred Stock to repurchase any or all of such Holder's
shares of Senior Preferred Stock at a purchase price in cash equal to 100.0% of
the aggregate liquidation preference thereof plus accumulated and unpaid
dividends thereon, if any, to the date of repurchase (the "Change of Control
Payment").
(A) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder of Senior Preferred Stock stating: (1) that
the Change of Control Offer is being made pursuant to this paragraph (h)
and that all shares of Senior Preferred Stock tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be no
sooner than 30 nor later than 60 days from the date such notice is mailed
(the "Change of Control Payment Date"); (3) that any shares not tendered
will continue to accumulate dividends; (4) that, unless the Company
defaults in the payment of the Change of Control Payment, all shares of
Senior Preferred Stock accepted for payment pursuant to the Change of
Control Offer shall cease to accumulate dividends after the Change of
Control Payment Date; (5) that Holders electing to have any shares of
Senior Preferred Stock repurchased pursuant to a Change of Control Offer
will be required to surrender such shares, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the shares of Senior
Preferred Stock, completed, or transfer by book-entry transfer, to the
Company or its transfer agent at the address specified in the notice prior
to the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) that Holders will be entitled to withdraw their
election if the Company or the transfer agent, as the case may be,
receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the number of
shares of Senior Preferred Stock delivered for repurchase, and a statement
that such Holder is withdrawing his election to have such shares
repurchased; and (7) that Holders whose shares of Senior Preferred Stock
are being repurchased only in part will be issued new shares of Senior
Preferred Stock equal in liquidation preference to the unpurchased portion
of the shares of Senior Preferred Stock surrendered (or transferred by
book-entry transfer), which unpurchased portion must be equal to $25 in
liquidation preference or an integral multiple thereof.
(B) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all shares of Senior Preferred Stock
or portions thereof properly tendered pursuant to the Change of Control
Offer, (2)
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<PAGE> 18
deposit with the Company or its transfer agent an amount equal to the
Change of Control Payment in respect of all shares of Senior Preferred
Stock or portions thereof so tendered, and (3) deliver or cause to be
delivered to the transfer agent the shares of Senior Preferred Stock so
accepted together with an Officers' Certificate stating the aggregate
liquidation preference of such Senior Preferred Stock or portions thereof
being repurchased by the Company. The Company or its transfer agent, as the
case may be, shall promptly mail to each Holder of shares of Senior
Preferred Stock so tendered the Change of Control Payment for such shares
or portions thereof. The Company shall promptly issue a certificate
representing shares of Senior Preferred Stock and mail (or cause to be
transferred by book entry) to each Holder a new certificate representing
shares of Senior Preferred Stock equal in liquidation preference to any
unpurchased portion of such shares surrendered by such Holder, if any;
provided, that each such certificate shall have a liquidation preference of
$25 or an integral multiple thereof. The Company shall publicly announce
the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
(C) The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with
the repurchase of shares of Senior Preferred Stock in connection with a
Change of Control.
(D) The Company's obligations with respect to a Change of Control
Offer shall be satisfied to the extent actually performed by a third party
in accordance with the terms of this paragraph (h).
(i) Conversion or Exchange.
The Holders of shares of Senior Preferred Stock shall not have any rights
hereunder to convert such shares into or exchange such shares for shares of any
other class or classes or of any other series of any class or classes of Capital
Stock of the Company.
(j) Preemptive Rights.
No shares of Senior Preferred Stock shall have any rights of preemption
whatsoever as to any securities of the Company, or any warrants, rights or
options issued or granted with respect thereto, regardless of how such
securities or such warrants, rights or options may be designated, issued or
granted.
(k) Reissuance of Senior Preferred Stock.
Shares of Senior Preferred Stock that have been issued and reacquired in
any manner, including shares purchased or redeemed or exchanged, shall (upon
compliance with any applicable provisions of the laws of Delaware) have the
status of authorized but unissued shares of preferred stock of the Company
undesignated as to series and may be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Company, provided that such shares may not in any event be reissued as Senior
Preferred Stock (other than in payment of dividends on Senior Preferred Stock).
(l) Business Day.
If any payment, redemption or exchange shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment, redemption
or exchange shall be made on the immediately succeeding Business Day.
(m) Certain Additional Provisions.
(i) Restricted Payments.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly make any Restricted Payment, unless, at the time of such
Restricted Payment: (1) no Default Event shall have occurred and be continuing
or would
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<PAGE> 19
occur as a consequence thereof; and (2) such Restricted Payment, together with
the aggregate of all other Restricted Payments made by the Company and its
Subsidiaries after the Preferred Stock Issue Date, does not exceed the sum (the
"Basket") of (a) (i) Consolidated EBITDA of the Company for the period (taken as
one accounting period), commencing on the first day of the first fiscal quarter
commencing on or prior to the Preferred Stock Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated EBITDA for such period is a deficit,
then minus such deficit) less (ii) 150% of Consolidated Fixed Charges for such
period, plus (b) the aggregate Net Cash Proceeds received by the Company from
the sale of the Company's Qualified Capital Stock (other than in each case (i)
to a Subsidiary of the Company), (ii) to the extent applied in connection with a
Qualified Exchange and (iii) to the extent applied to repurchase Capital Stock
pursuant to clause (b) of the definition of the Other Permitted Payments after
the Preferred Stock Issue Date. The foregoing provisions of this paragraph
(m)(i) shall not prohibit the following Restricted Payments: (A) a Qualified
Exchange; (B) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Section 1; and (C) Other Permitted
Payments. The full amount of any Restricted Payment made pursuant to clause (B)
of the immediately preceding sentence (but not pursuant to clauses (A) or (C))
of the immediately preceding sentence, however, will be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
pursuant to the Basket. The amount of any Restricted Payment, if other than in
cash, shall be the fair market value thereof, as determined in the good faith
reasonable judgment of the Board of Directors of the Company.
(ii) Reports.
So long as any shares of Senior Preferred Stock are outstanding, the
Company shall furnish to each Holder of Senior Preferred Stock (at such Holder's
address listed in the register of Holders maintained by the transfer agent and
registrar of the Senior Preferred Stock): (i) beginning at the end of the
Company's first fiscal year ending after the Preferred Stock Issue Date, all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants, and (ii) all current reports that would be required to be filed
with the SEC on Form 8-K if the Company were required to file such reports.
(n) Subordination.
(i) Agreement to Subordinate. Any and all payments and distributions at any
time declared or due on account of the Senior Preferred Stock, including,
without limitation, dividend, redemption and change of control payments,
("Preferred Stock Payments") shall be subordinated in right of payment to the
payment in full in cash or cash equivalents of all Senior Indebtedness whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed, and that such subordination is for the benefit of the holders of
Senior Indebtedness. For purposes of this paragraph (n), the term "Senior
Indebtedness" means (a) indebtedness of the Company arising under the Credit
Agreement and (b) the Discount Debentures.
(ii) Relative Rights. Upon any distribution of assets of the Company,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, the holders of all Senior Indebtedness shall
be entitled to receive payment on such Senior Indebtedness in full in cash or
cash equivalents before the holders of Senior Preferred Stock shall be entitled
to receive any Preferred Stock Payments. No payment (by set-off or otherwise)
may be made by or on behalf of the Company with respect to Preferred Stock
Payments for cash or property, (x) upon the maturity of any Senior Indebtedness
of the Company by lapse of time, acceleration or otherwise, unless and until all
principal of, premium, if any, and the interest on and fees in respect of such
Senior Indebtedness are paid in full in cash or cash equivalents, (y) when such
payment is prohibited by the indenture or credit agreement relating to the
Senior Indebtedness and (z) in the event of default in the payment of any
principal of, premium, if any, or interest on and fees in respect of Senior
Indebtedness of the Company when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise (a "Payment
Default"), unless and until such Payment Default has been cured or waived or
otherwise has ceased to exist.
(iii) When Amounts Must be Paid Over. In the event that, notwithstanding
the other provisions of this Certificate of Designations, a Holder receives any
Preferred Stock Payment at a time when such Holder has actual knowledge that
such
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<PAGE> 20
payment or distribution is prohibited by this paragraph (n) or the indenture or
credit agreement relating to the Senior Indebtedness, such Preferred Stock
Payment shall be held by the Holders in trust for the benefit of, and shall be
paid forthwith over and delivered, upon written request, to, the Holders of
Senior Indebtedness remaining unpaid or unprovided for, or to the trustee or
trustees under the indenture relating to the Senior Indebtedness, ratably
according to aggregate principal amounts remaining unpaid on account of such
Senior Indebtedness held or represented by such, for application to the payment
of all obligations with respect to Senior Indebtedness remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such obligations in
full in cash or cash equivalents in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for Holders of Senior
Indebtedness.
(o) Definitions and Interpretation.
(i) Definitions. As used in this Section 1, the following terms shall have
the following meanings, unless the context otherwise requires:
"Acquisition" means the acquisition of the Business by the Company and its
Subsidiaries in accordance with the provisions of the Acquisition Agreement.
"Acquisition Agreement" means, collectively: that certain Asset Purchase
Agreement dated as of November 21, 1997 by and among the Company, Green Equity
Investors, II, L.P. (for limited purposes), Liberty Group Operating, Inc.,
Hollinger International Inc., APAC-90, Inc., American Publishing (1991) Inc.
and APAC-95, Inc. and that certain Asset Purchase Agreement dated as of
November 21, 1997 among the same parties plus American Publishing Company of
Illinois.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, the term
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, provided, that, with respect to
ownership interest in the Company and its Subsidiaries, a Beneficial Owner of
10% or more of the total voting power normally entitled to vote in the election
of directors, managers or trustees, as applicable, shall for such purposes be
deemed to constitute control.
"Asset Sale" means, with respect to any specified Person, the following:
(i) (A) the sale, lease, conveyance or other disposition by such Person of any
assets (including, without limitation, by way of a sale and leaseback) or (B)
the issue or sale by such Person or any of its Subsidiaries of Equity Interests
of any of such Person's Subsidiaries, and (ii) which occurs in a single
transaction or a series of related transactions.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Preferred Stock Issue
Date), whether or not applicable.
"Board of Directors" means the Board of Directors of the Company.
"Business" means the business the assets of which were (or are to be)
purchased pursuant to the Asset Purchase Agreement (on a collective basis).
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
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<PAGE> 21
"Capitalized Lease Obligation" means, as to any person, the obligations of
such person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition thereof; (b) marketable general obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition thereof, having a
credit rating of "A" or better from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.; (c) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof of any
domestic commercial bank, the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc. and having capital and
surplus in excess of $500,000,000; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(a), (b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's
Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof; and (f) interests in any investment company which invests
solely in instruments of the type specified in clauses (a) through (e) above.
"Certificate of Incorporation" means the Company's Certificate of
Incorporation.
"Change of Control" (i) any merger or consolidation of the Company with or
into any person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction(s), any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable), other than any Excluded Person or Excluded
Persons, is or becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote in
the election of directors, managers or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (ii) any "person" or "group,"
other than any Excluded Person or Excluded Persons, becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, managers or trustees, as
applicable, of the transferee(s) or surviving entity or entities or (iii) during
any period of 12 consecutive months after the Preferred Stock Issue Date,
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of the Company (together, in each case, with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by LGP or a Related
Party of LGP or by the Excluded Persons or by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, as applicable.
"Company" means this corporation.
"consolidated" means, with respect to the Company, the consolidated
accounts of its Subsidiaries with those of the Company, all in accordance with
GAAP; provided that "consolidated" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income taxes, (ii)
consolidated depreciation and amortization (including amortization of debt
issuance costs in connection with any Indebtedness of such person and its
Subsidiaries), (iii) Consolidated
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<PAGE> 22
Fixed Charges and (iv) all other non-cash charges; provided that consolidated
income taxes, depreciation and amortization of a Subsidiary of such person that
is less than wholly owned shall only be added to the extent of the equity
interest of such person in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Discount Debentures, the Senior
Subordinated Notes or the Credit Agreement but including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of cash dividends paid by such person or any of its Consolidated
Subsidiaries in respect of preferred stock (other than by Subsidiaries of such
person to such person or such person's wholly owned Subsidiaries). For purposes
of this definition, (x) interest on a Capitalized Lease Obligation shall be
deemed to accrue at an interest rate reasonably determined by the Company to be
the rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP and (y) to the extent such expense would result in a liability upon
the consolidated balance sheet of such person in accordance with GAAP, interest
expense attributable to any Indebtedness represented by the guaranty by such
person or a Subsidiary of such person of an obligation of another person shall
be deemed to be the interest expense attributable to the Indebtedness
guaranteed. Notwithstanding the foregoing, Consolidated Fixed Charges shall not
include costs, fees and expenses incurred in connection with the Acquisition,
and any non-cash charge or expense associated with the write-off of deferred
debt issuance costs associated with the Credit Agreement, the Senior
Subordinated Notes or the Discount Debentures.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Capital Stock), (b) the net income, if positive, of any person, other than a
Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case not
in excess of such person's pro rata share of such person's net income for such
period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such Acquisition, (d)
the net income, if positive, of any of such person's Consolidated Subsidiaries
in the event and solely to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary, (e) the effects of changes in accounting principles,
(f) any non-cash compensation expense in connection with the exercise of, grant
to or repurchase from officers, directors and employees of stock, stock options
or stock equivalents, (g) any non-cash charge or expense associated with the
write-off of deferred debt issuance costs associated with the Credit Agreement,
the Senior Subordinated Notes or the Discount Debentures, and (h) costs, fees
and expenses incurred in connection with the Acquisition.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the Credit Agreement dated as of January 27, 1998 by and
among Liberty Group Operating, Inc., Liberty Group Publishing, Inc., Citicorp
USA, Inc., as administrative agent and the other parties named therein) entered
into by and among the Company, certain of its subsidiaries (if any) and certain
financial institutions, which provide for in the aggregate one or more term
loans and/or revolving credit and letter of credit facilities, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as such credit agreement and/or related
documents may be amended, restated, supplemented, renewed,
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<PAGE> 23
replaced or otherwise modified from time to time whether or not with the same
agent, trustee, representative lenders or holders, and, subject to the proviso
to the next succeeding sentence irrespective of any changes in the terms and
conditions thereof. Without limiting the generality of the foregoing, the term
"Credit Agreement" shall include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any such credit
agreement and all refundings, refinancings and replacements of any such credit
agreement, including any agreement (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, or (iv) otherwise altering
the terms and conditions thereof in a manner not prohibited by the terms hereof.
"Debenture Indenture" means the Indenture, pursuant to which the Discount
Debentures will be issued.
"Default Event" means any of the following events: (1) any time when the
Company fails to make a mandatory redemption of the Senior Preferred Stock when
required (whether or not any contractual or other restrictions apply to such
redemption) pursuant to paragraph (e)(ii) hereof; or (2) any time when the
Company fails to make an offer to repurchase all of the outstanding shares of
Senior Preferred Stock following a Change of Control, if such offer to
repurchase is required to be made pursuant to paragraph (h)(i) hereof (whether
or not any contractual or other restrictions apply to such redemption).
"Discount Debentures" means the 115/8% Senior Discount Debentures due 2009
of the Company to be issued pursuant to the Debenture Indenture.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, any Equity Interest of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Discount Debentures and (b) with
respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Company), any Equity Interests other than any common equity
with no preference, privileges, or redemption or repayment provisions and
preferred equity owned by the Company or one of its Subsidiaries.
"Dividend Payment Date" means February 1, May 1, August 1 and November 1 of
each year.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Date" means a date on which shares of Senior Preferred Stock are
exchanged by the Company for Exchange Debentures.
"Exchange Debentures" means the 14 3/4% Senior Subordinated Debentures due
2010 of the Company to be issued at the option of the Company in exchange for
the Senior Preferred Stock which are subordinated to the Discount Debentures.
"Exchange Indenture" means the Indenture between Liberty Group Publishing,
Inc. to State Street Bank and Trust Company, as trustee dated as of January 27,
1998 relating to the Exchange Debentures.
"Excluded Person" means GEI and its Related Parties.
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<PAGE> 24
"Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the employment
agreements between the Company and members of its senior management, (y) for or
in connection with services actually rendered to the Company and comparable to
those generally paid or made available by entities engaged in the same or
similar businesses (including reimbursement or advancement of reasonable
out-of-pocket expenses and loans to officers, directors and employees, (i) in
the ordinary course of business and (ii) to purchase Company Common Stock in an
amount not to exceed $1.0 million, (b) transactions, expenses and payments in
connection with the Acquisition, (c) any Restricted Payments or other payments
or transactions expressly permitted under paragraph m(i) hereof, (d) payments to
LGP for management services under the Management Services Agreement in an amount
not to exceed $1.5 million in any fiscal year, plus reimbursement of reasonable
out-of-pocket costs and expenses, (e) payments to LGP for reasonable and
customary fees and expenses for financial advisory and investment banking
services provided to the Company in connection with major financial
transactions, and (f) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company other than by virtue of the
direct or indirect ownership interest in such Subsidiary held (in the aggregate)
by the Company and/or one or more of its Subsidiaries.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Preferred Stock
Issue Date.
"GEI" means Green Equity Investors II, L.P.
"Holder" means a Person in whose name a share of Senior Preferred Stock is
registered.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such Person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clauses (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by one
or more Liens on any assets or property of such Person; provided that if the
liabilities or obligations which are secured by a Lien have not been assumed in
full by such Person or are not such Person's legal liability in full, the amount
of such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien; (e) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct or
indirect) of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (a), (b), (c) or (d), or this
clause (e), whether or not between or among the same parties; and (f) all
Disqualified Capital Stock of such person (measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends). For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Initial Dividend Period" means the dividend period commencing on the
Preferred Stock Issue Date and ending on the day before the first Dividend
Payment Date to occur thereafter.
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"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
Person of any deposit with, or advance, loan or other extension of credit to,
such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company or any Subsidiary; (d) the making
of any capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary of the Company shall be deemed an Investment valued at
its fair market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of the Company or
any of its Subsidiaries to be assumed or discharged in connection with such
Investment by an entity other than the Company or any of its Subsidiaries. For
purposes of clarification and greater certainty, the designation of a newly
formed subsidiary as an Unrestricted Subsidiary shall not constitute an
Investment.
"Junior Preferred Stock" means the Company's Series B 10% Junior Redeemable
Cumulative Preferred Stock, par value $0.01 per share, with a liquidation
preference of $1,000 per share, consisting of 175,000 shares.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New York
or at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"LGP" means Leonard Green & Partners, L.P.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Management Services Agreement" means that certain Management Services
Agreement dated as of the Closing Date by and between LGP, on the one hand, and
the Company and/or its Subsidiaries, on the other hand, providing for certain
annual fees, expenses and reimbursements to be paid to LGP, as such Management
Services Agreement may be amended from time to time.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash on or after the
Preferred Stock Issue Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and (in the case of Asset Sales,
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<PAGE> 26
reasonable and customary) expenses (including, without limitation, the fees and
expenses of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale of Qualified Capital Stock, and, in the
case of an Asset Sale only, less (i) the amount (estimated reasonably and in
good faith by the Company) of income, franchise, sales and other applicable
taxes required to be paid by the Company or any of its respective Subsidiaries
in connection with such Asset Sale, (ii) the amounts of any repayments of
Indebtedness secured, directly or indirectly, by Liens on the assets which are
the subject of such Asset Sale or Indebtedness associated with such assets which
is due by reason of such Asset Sale (i.e., such disposition is permitted by the
terms of the instruments evidencing or applicable to such Indebtedness, or by
the terms of a consent granted thereunder, on the condition that the proceeds
(or portion thereof) of such disposition be applied to such Indebtedness), and
other fees, expenses and other expenditures, in each case, reasonably incurred
as a consequence of such repayment of Indebtedness (whether or not such fees,
expenses or expenditures are then due and payable or made, as the case may be);
(iii) all amounts deemed appropriate by the Company (as evidenced by a signed
certificate of the Chief Financial Officer of the Company delivered to the
Holders) to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset
Sale; and (iv) with respect to Asset Sales by Subsidiaries of the Company, the
portion of such cash payments attributable to persons holding a minority
interest in such Subsidiary.
"obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Permitted Payments" means, without duplication, (a) the payments
provided for by clauses (a), (d) and (e) of the definition of "Exempted
Affiliate Transaction"; (b) the repurchase of common stock, stock options and
stock equivalents of the Company held by former directors, officers or employees
of the Company or any of its Subsidiaries ("Management Stock Repurchases") in an
aggregate amount not to exceed in any fiscal year $1.0 million, plus the amount
of any net cash proceeds to the Company from (I) sales of Capital Stock of the
Company to management employees subsequent to the Preferred Stock Issue Date
(provided further that the amount of any such net cash proceeds to the Company
to the extent used for Management Stock Repurchases will be excluded from the
calculation of the available Basket pursuant to paragraph (m)(i)); and (II) any
key-person life insurance policies, in either case, to the extent utilized for
Management Stock Repurchases; provided, that any amount not so paid in any
fiscal year may be paid in future fiscal years; and (c) Restricted Payments in
an aggregate amount not to exceed $4.0 million.
"Permitted Affiliate Transaction" means any Exempt Affiliate Transaction
and any other contract, agreement, arrangement or transaction between the
Company or any of its Subsidiaries with any Affiliate (an "Affiliate
Transaction") or any series of related Affiliate Transactions the terms of which
are fair and reasonable to the Company or such Subsidiary, as the case may be,
and are at least as favorable as the terms which could reasonably be expected to
be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis with persons who are not
Affiliates; provided that in connection with any Affiliate Transaction or series
of related Affiliate Transactions (other than Exempted Affiliate Transactions)
(1) involving consideration to either party in excess of $1.5 million, the
Company must deliver an Officer's Certificate to the Holders, stating that the
terms of such Affiliate Transaction are fair and reasonable to the Company, and
no less favorable to the Company than could reasonably be expected to have been
obtained in an arm's length transaction with a non-Affiliate, and (2) involving
consideration to either party in excess of $7.5 million, the Company must also,
prior to consummation thereof, obtain a favorable written opinion as to the
fairness of such transaction to the Company from a financial point of view from
an independent investment banking firm of national reputation or, if pertaining
to a matter for which such investment banking firms do not customarily render
such opinions, an appraisal or valuation firm of national reputation; provided
further, that these requirements shall not apply to the sale or purchase of
products or services by the Company or its Subsidiaries to or from any Affiliate
of LGP or any Related Party thereof, which sale or purchase is in the ordinary
course of business and in accordance with industry practice.
"Permitted Investment" means Investments in (a) any of the Discount
Debentures; (b) Cash Equivalents; (c) intercompany notes; provided that
Indebtedness under any such notes of a Subsidiary shall be deemed to be a
Restricted Investment if such person ceases to be a Subsidiary; (d) Investments
in the form of promissory notes of members of the Company's management not to
exceed $1.0 million in principal amount at any time outstanding solely in
consideration of the purchase by such persons of Qualified Capital Stock of the
Company; (e) Investments by the Company or any Subsidiary in any
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<PAGE> 27
person that is or immediately after such Investment becomes a Subsidiary, or
immediately after such Investment merges or consolidates into the Company or any
Subsidiary; provided that such person is engaged in all material respects in a
Related Business; (f) Investments in the Company by any Subsidiary; provided
that in the case of Indebtedness constituting any such Investment, such
Indebtedness shall be unsecured and subordinated in all respects to the
Company's obligations under the Discount Debentures; (g) Investments in
securities of trade creditors or customers received in settlement of obligations
that arose in the ordinary course of business or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (h) Investments by the Company outstanding on the
Preferred Stock Issue Date; (i) transactions or arrangements with officers or
directors of the Company or any Subsidiary entered into in the ordinary course
of business (including compensation or employee benefit arrangements with any
officer or director of the Company or any Subsidiary which are Permitted
Affiliate Transactions); (j) Investments in persons (other than Affiliates of
the Company) received as consideration from Asset Sales; (k) additional
Investments at any time outstanding not to exceed the sum of (i) $5.0 million
and (ii) the cumulative gain (net of taxes and all payments, fees, commissions
and expenses incurred in such sale or disposition) realized by the Company and
its Subsidiaries in cash or Cash Equivalents on the sale or other disposition
after the Preferred Stock Issue Date of Investments (including Permitted
Investments and Restricted Investments) made after the Preferred Stock Issue
Date in accordance with the Debenture Indenture (but only to the extent that
such gain is excluded from the net income of the Company and the Consolidated
Subsidiaries by the definition of Consolidated Net Income); and (l) the
acquisition of Equity Interests of a Person engaged in a Related Business, other
than a Person described in clause (e), through the issuance of Common Stock of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Preferred Stock Issue Date" means the date on which the Senior Preferred
Stock is originally issued by the Company under this Section 1.
"Qualified Capital Stock" means any Equity Interest that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Preferred Stock Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of its Qualified
Capital Stock or any exchange of Qualified Capital Stock of the Company for any
Capital Stock or Indebtedness of the Company issued on or after the Issue Date.
"Quarterly Dividend Period" shall mean the quarterly period commencing on
each February 1, May 1, August 1 and November 1 and ending on the day before the
following Dividend Payment Date.
"Redemption Date" with respect to any shares of Senior Preferred Stock,
means the date on which such shares of Senior Preferred Stock are redeemed by
the Company.
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by the
Company, as described or referred to in this Offering Memorandum) by the Company
as of the Issue Date and any and all businesses that in the good faith judgment
of the Board of Directors of the Company are reasonably related businesses,
including reasonably related extensions thereof.
"Related Party" means any partnership or corporation which is managed by or
controlled by LGP or any Affiliate thereof.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in Cash Equivalents and other Permitted
Investments; provided, however, that a merger of another person with or into the
Company or a Subsidiary in accordance with the terms of the Indenture shall not
be deemed to be a Restricted Investment so long as the surviving entity is the
Company or a direct wholly owned Subsidiary.
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"Restricted Payment" means, (a) the declaration or payment of any dividend
or other distribution in respect of Junior Securities or Equity Interests of the
Company or any of the Company's Subsidiaries, (b) any payment on account of the
purchase, redemption or other acquisition or retirement for value of Junior
Securities or Equity Interests of the Company or any of the Company's
Subsidiaries, and (c) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Equity Interests of the
Company to the extent payable solely in shares of Qualified Capital Stock of the
Company; (ii) any dividend, distribution or other payment to the Company, or to
any of its Subsidiaries , by the Company or any of its Subsidiaries; (iii)
payments made pursuant to the Acquisition; (iv) Permitted Investments; or (v)
pro rata dividends and other distributions on Equity Interests of any Subsidiary
by such Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Senior Preferred Stock" means the Company's Series A 14 3/4% Senior
Redeemable Exchangeable Cumulative Preferred Stock, par value $0.01 per share,
with a liquidation preference of $25 per share, consisting of 21,000,000 shares.
"Senior Subordinated Notes" means the 93/8% Senior Subordinated Notes due
2008 of Liberty Group Operating, Inc., a subsidiary of the Company.
"Stated Maturity," when used with respect to any Discount Debenture, means
February 1, 2009.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50.0% of the total
voting power of the Equity Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of the Company
or any other Subsidiary of the Company and that, at the time of determination,
shall be an Unrestricted Subsidiary (as designated by the Board of Directors of
the Company); provided, that (i) such subsidiary shall not engage, to any
substantial extent, in any line or lines of business activity other than a
Related Business and (ii) neither immediately prior thereto nor after giving pro
forma effect to such designation would there exist a Default Event. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, provided that no Default Event is existing or will occur as a
consequence thereof. Each such designation shall be evidenced by delivering to
the Holders a certified copy of the resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"wholly owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock, Equity Interests or other ownership
interests of which (other than directors' qualifying shares and shares in
non-U.S. companies required by local law to be owned by local residents) shall
at the time be owned (i) by such Person, (ii) by one or more wholly owned
Subsidiaries of such Person or (iii) by such Person and one or more wholly owned
Subsidiaries of such Person.
(ii) Interpretation. For the purposes of this Certificate of Designations:
(x) words in the singular shall be held to include the plural and vice versa and
words of one gender shall be held to include the other gender as the context
requires and (y) the word "including" and words of similar import shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified.
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(p) Transfer Restrictions.
The certificates evidencing shares of Senior Preferred Stock shall, until
the second anniversary of the date of original issuance of such shares, unless
otherwise agreed by the Company and the holders of any such certificates, bear a
legend substantially to the following effect:
"The Senior Preferred Stock evidenced hereby was originally issued in a
transaction exempt from registration under Section 5 of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the Senior
Preferred Stock evidenced hereby may not be offered, sold or otherwise
transferred in the absence of such registration or an applicable exemption
therefrom. Each purchaser of the Senior Preferred Stock evidenced hereby is
hereby notified that the seller may be relying on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A
thereunder. The holder of the Senior Preferred Stock evidenced hereby
agrees for the benefit of the Company that (A) such Senior Preferred Stock
may be offered, resold, pledged or otherwise transferred, only (a) inside
the United States to a person whom the seller reasonably believes is a
qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (b) outside
the United States to a foreign person in a transaction meeting the
requirements of Rule 903 or Rule 904 of Regulation S under the Securities
Act, (c) in a transaction meeting the requirements of Rule 144 under the
Securities Act, (d) to the Company, (e) pursuant to an effective
registration statement or (f) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion
of counsel if the company so requests), and, in each case, in accordance
with any applicable securities laws of any state of the United States or
any other applicable jurisdiction and (B) the holder will, and each
subsequent holder is required to, notify any purchaser from it of the
Senior Preferred Stock evidenced hereby of the resale restrictions set
forth in (A) above."
The shares of Senior Preferred Stock not otherwise registered
pursuant to an effective registration statement under the Securities
Act shall be subject to the restrictions on transfer set forth in the
legend referred to above until the second anniversary of the date of
original issuance of such shares of Senior Preferred Stock.
2. DESIGNATION OF THE COMPANY'S SERIES B 10% JUNIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK.
(a) Designation.
There is hereby created out of the authorized and unissued shares of
preferred stock of the Company a series of preferred stock designated as
the "Series B 10% Junior Redeemable Cumulative Preferred Stock". The number
of shares constituting such series shall be 175,000 shares of Junior
Preferred Stock, consisting of an initial issuance of 49,000 shares of
Junior Preferred Stock plus additional shares of Junior Preferred Stock
which may be issued, including to pay dividends on the Junior Preferred
Stock if the Company is required or permitted to pay dividends in
additional shares of Junior Preferred Stock. The liquidation preference of
the Junior Preferred Stock shall be $1,000 per share.
(b) Rank.
The Junior Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank senior to all classes of common stock of
the Company, and to each other class of capital stock or series of
preferred stock hereafter created by the Board of Directors the terms of
which do not expressly provide that it ranks senior to or on a parity with
the Junior Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding up and dissolution of the Company
(collectively referred to with the common stock of the Company as "Junior
Securities"). The Junior Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank on a parity with any class of capital
stock or series of preferred stock hereafter created which expressly
provides that it ranks on a parity with the Junior Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding up
and dissolution of the Company ("Parity Securities"), provided that any
such Parity Securities that were not approved by the Holders in accordance
with paragraph (f)(ii)(A) hereof shall be deemed to be Junior Securities
and not Parity
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Securities. The Junior Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank junior to the Senior Preferred Stock and
to each class of capital stock or series of preferred stock hereafter
created which has been approved by the Holders of the Junior Preferred
Stock in accordance with paragraph (f)(ii)(B) and which expressly provides
that it ranks senior to the Junior Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up and
dissolution of the Company (collectively referred to with the Senior
Preferred Stock as "Senior Securities").
(c) Dividends.
(i) Beginning on the date of issuance of shares of the Junior
Preferred Stock, the Holders of the outstanding shares of Junior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, distributions in the
form of cash dividends on each share of Junior Preferred Stock, at a rate
per annum equal to 10% of the liquidation preference per share of the
Junior Preferred Stock, payable quarterly, provided that if any dividend
payable on any Dividend Payment Date is not declared and paid in full in
cash on such Dividend Payment Date, the amount payable as dividends on such
Dividend Payment Date that is not paid in cash on such Dividend Payment
Date shall be paid by the Company in additional fully paid and
non-assessable shares (including fractional shares, if applicable) of
Junior Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends (rounded to the nearest whole cent), it being
understood that dividends shall begin to accrue from such Dividend Payment
Date on such additional shares of Junior Preferred Stock whether such
additional shares of Junior Preferred Stock are issued on such date or any
later date or are never issued. The payment of a dividend by the Company in
such additional shares of Junior Preferred Stock shall constitute full
payment of such dividend. All dividends shall be cumulative, whether or not
earned or declared, on a daily basis from the Preferred Stock Issue Date
and shall be payable quarterly in arrears on each Dividend Payment Date,
commencing on May 1, 1998. Each distribution in the form of a dividend
(whether in cash or in additional shares of Junior Preferred Stock) shall
be payable to Holders of record as they appear on the stock books of the
Company on such record dates, not less than 10 nor more than 45 days
preceding the related Dividend Payment Date, as shall be fixed by the Board
of Directors.
(ii) All dividends paid with respect to shares of the Junior Preferred
Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders
entitled thereto.
(iii) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Company to pay or set apart for payment, any dividends on
shares of the Junior Preferred Stock at any time.
(iv) Dividends on account of arrears for any past Dividend Period may
be declared and paid at any time, without reference to any regular Dividend
Payment Date, to Holders of record on such date, not more than 45 days
prior to the payment thereof, as may be fixed by the Board of Directors.
(v) No full dividends shall be declared by the Board of Directors or
paid or funds set apart for payment of dividends by the Company on any
Parity Securities for any period unless full cumulative dividends shall
have been or contemporaneously are declared and paid in full, or declared
and (in the case of dividends payable in cash) a sum in cash set apart
sufficient for such payment, on the Junior Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of such full
dividends on such Parity Securities. If any dividends are not paid in full,
as aforesaid, upon the shares of the Junior Preferred Stock and any other
Parity Securities, all dividends declared upon shares of the Junior
Preferred Stock and any other Parity Securities shall be declared pro rata
based on the relative liquidation preference of the Junior Preferred Stock
and such Parity Securities.
(vi) (A) Except as permitted by paragraph (l)(i) hereof, Holders of
shares of the Junior Preferred Stock shall be entitled to receive the
dividends provided for in paragraph (c)(i) hereof in preference to
and in priority over any dividends upon any of the Junior Securities.
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(B) So long as any shares of Junior Preferred Stock are
outstanding and except as permitted by paragraph (l)(i) hereof, the
Company shall not (1) declare, pay or set apart for payment any
dividend on any of the Junior Securities or make any payment on
account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of,
any of the Junior Securities or any warrants, rights, calls or
options exercisable for or convertible into any of the Junior
Securities, or (2) make any distribution in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of
the Company or other property (other than distributions or dividends
in Junior Securities to the holders of Junior Securities), or (3)
permit any corporation or other entity directly or indirectly
controlled by the Company to purchase or redeem any of the Junior
Securities or any such warrants, rights, calls or options unless full
cumulative dividends determined in accordance herewith have been paid
in full on the Junior Preferred Stock.
(vii) Dividends payable on shares of the Junior Preferred Stock for
any period less than a year shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in the
period for which payable. If any Dividend Payment Date occurs on a day that
is not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day.
(d) Liquidation Preference.
(i) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the Holders of shares of Junior
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders,
$1,000 per share of Junior Preferred Stock, plus an amount in cash equal to
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding up (including an amount equal to a prorated dividend
for the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding up) before any payment shall be made or
any assets distributed to the holders of any of the Junior Securities,
including, without limitation, common stock of the Company. Except as
provided in the preceding sentence, Holders of shares of Junior Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Company. If
the assets of the Company are not sufficient to pay in full the liquidation
payments payable to the Holders of outstanding shares of the Junior
Preferred Stock and all Parity Securities, then the holders of all such
shares shall share equally and ratably in such distribution of assets of
the Company in accordance with the amounts which would be payable on such
distribution if the amount to which the Holders of outstanding shares of
Junior Preferred Stock and the holders of outstanding shares of all Parity
Securities are entitled were paid in full.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
of the Company nor the consolidation or merger of the Company with or into
one or more corporations or other entities shall be deemed to be a
liquidation, dissolution or winding up of the affairs of the Company
(unless such sale, conveyance, exchange or transfer is in connection with a
liquidation, dissolution or winding up of the business of the Company).
(e) Redemption
(i) Optional Redemption.
(A) The Company may (subject to contractual and other
restrictions with respect thereto, including, without limitation,
restrictions imposed by the Credit Agreement and the Debenture
Indenture, and the legal availability of funds therefor), at the
option of the Company, redeem at any time or from time to time, from
any source of funds legally available therefor, in whole or in part,
in the manner provided in paragraph (e)(iii) hereof, any or all of
the shares of the Junior Preferred Stock, at a redemption price equal
to 100% of the liquidation preference per share plus, without
duplication, an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount in cash equal to a prorated
dividend for the period from the
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Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date) (the "Optional Redemption Price"), provided that no
optional redemption pursuant to this paragraph (e)(i)(A) shall be
authorized or made at any time when the Company is making or required
to make within the next 30 days, or purchasing shares of Junior
Preferred Stock under, a Change of Control Offer in accordance with
the provisions of paragraph (h) of this Section 2 and provided,
further, that no optional redemption of only a portion of the then
outstanding shares of Junior Preferred Stock shall be authorized or
made at any time when full cumulative dividends on the Junior
Preferred Stock for all past Dividend Periods have not been declared
and paid in full.
(B) In the event of a redemption pursuant to this paragraph
(e)(i) of only a portion of the then outstanding shares of the Junior
Preferred Stock, the Company shall effect such redemption as it
determines, pro rata according to the number of shares held by each
Holder of Junior Preferred Stock or by lot, as may be determined by
the Company in its sole discretion.
(ii) Mandatory Redemption. On February 1, 2010, the Company shall
redeem, subject to contractual and other restrictions with respect thereto,
including, without limitation, restrictions imposed by the Credit Agreement
and the Debenture Indenture, from any source of funds legally available
therefor, in the manner provided in paragraph (e)(iii) hereof, all of the
shares of the Junior Preferred Stock then outstanding at a redemption price
equal to 100% of the liquidation preference per share, plus, without
duplication, an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount equal to a prorated dividend for
the period from the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date) (the "Mandatory Redemption Price").
(iii) Procedures for Redemption.
(A) At least 15 days and not more than 60 days prior to the date
fixed for any redemption of the Junior Preferred Stock, written
notice (the "Redemption Notice") shall be given by first-class mail,
postage prepaid, to each Holder of Junior Preferred Stock of record
on the record date fixed for such redemption of the Junior Preferred
Stock at such Holder's address as the same appears on the stock
register of the Company, provided that no failure to give such notice
nor any deficiency therein shall affect the validity of the procedure
for the redemption of any shares of Junior Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company has
failed to give said notice or except as to the Holder or Holders
whose notice was defective. The Redemption Notice shall state: (1)
that whether the redemption is pursuant to paragraph (e)(i) or
(e)(ii) hereof; (2) the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be; (3) whether all or less than
all the outstanding shares of the Junior Preferred Stock are to be
redeemed and the total number of shares of the Junior Preferred Stock
being redeemed; (4) the number of shares of Junior Preferred Stock
held, as of the appropriate record date, by the Holder that the
Company intends to redeem; (5) the date fixed for redemption; (6)
that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Junior Preferred Stock are to
be surrendered for redemption, in the manner and at the price
designated, his certificate or certificates representing the shares
of Junior Preferred Stock to be redeemed; and (7) that dividends on
the shares of the Junior Preferred Stock to be redeemed shall cease
to accrue on such Redemption Date unless the Company defaults in the
payment of the Optional Redemption Price or the Mandatory Redemption
Price, as the case may be.
(B) Each Holder of Junior Preferred Stock shall surrender the
certificate or certificates representing such shares of Junior Preferred
Stock to the Company, duly endorsed, in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the full
Optional Redemption Price or the Mandatory Redemption Price, as the case
may be, for such shares shall be payable in cash to the Person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event that
less than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares.
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(C) Unless the Company defaults in the payment in full of the
applicable redemption price, dividends on the Junior Preferred Stock called
for redemption shall cease to accumulate on the Redemption Date, and the
Holders of such redemption shares shall cease to have any further rights
with respect thereto on the Redemption Date, other than the right to
receive the Optional Redemption Price or the Mandatory Redemption Price, as
the case may be, without interest.
(f) Voting Rights.
(i) The Holders of shares of the Junior Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraphs (ii)
and (iii) below, shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of the Company.
(ii) (A) So long as any shares of the Junior Preferred Stock are
outstanding, the Company shall not authorize any class of Parity Securities
without the affirmative vote or consent of Holders of at least a majority
of the outstanding shares of Junior Preferred Stock, voting or consenting,
as the case may be, separately as one class, given in person or by proxy,
either in writing or by resolution adopted at an annual or special meeting,
except that without the approval of Holders of the Junior Preferred Stock,
the Company may authorize and issue shares of Parity Securities in exchange
for, or the proceeds of which are used to redeem or repurchase, any or all
shares of Junior Preferred Stock then outstanding, provided that, in the
case of Parity Securities issued in exchange for, or the proceeds of which
are used to redeem or repurchase, less than all shares of Junior Preferred
Stock then outstanding, (1) the aggregate liquidation preference of such
Parity Securities shall not exceed the aggregate liquidation preference of,
and accrued and unpaid dividends on, and expenses in connection with the
refinancing of, the Junior Preferred Stock so exchanged, redeemed or
repurchased, (2) such Parity Securities shall not be Disqualified Capital
Stock and (3) such Parity Securities shall not be entitled to the payment
of cash dividends prior to the time at which cash dividends would be
permitted to be paid on the Junior Preferred Stock.
(B) So long as any shares of the Junior Preferred Stock are
outstanding, the Company shall not authorize any class of Senior
Securities (other than the Senior Preferred Stock) without the
affirmative vote or consent of Holders of at least a majority of the
outstanding shares of Junior Preferred Stock, voting or consenting,
as the case may be, separately as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting; provided that nothing in the foregoing shall require
the approval of Holders of Junior Preferred Stock in connection with
the issuance of shares of Senior Preferred Stock in payment of
dividends on Senior Preferred Stock.
(C) So long as any shares of the Junior Preferred Stock are
outstanding, the Company shall not amend this Section 2 so as to
affect adversely the specified rights, preferences, privileges or
voting rights of Holders of shares of Junior Preferred Stock or to
authorize the issuance of any additional shares of Junior Preferred
Stock (other than in payment of dividends on Junior Preferred Stock)
without the affirmative vote or consent of Holders of at least a
majority of the outstanding shares of Junior Preferred Stock, voting
or consenting, as the case may be, separately as one class, given in
person or by proxy, either in writing or by resolution adopted at an
annual or special meeting. The affirmative vote or consent of Holders
of at least a majority of the outstanding shares of Junior Preferred
Stock, voting or consenting, as the case may be, separately as one
class, whether voting in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting, may waive
compliance with any provision of this Section 2.
(D) Except as set forth in paragraphs (f)(ii)(A) and (f)(ii)(B)
above, (1) the creation, authorization or issuance of any shares of
any Junior Securities, Parity Securities or Senior Securities, or (2)
the increase or decrease in the amount of authorized capital stock of
any class, including Senior Preferred Stock, Junior Preferred Stock
or any other series of any preferred stock, shall not require the
consent of Holders of Junior Preferred Stock and shall not, unless
not complying with paragraphs (f)(ii)(A) and (f)(ii)(B) above, be
deemed to affect adversely the rights, preferences, privileges or
voting rights of Holders of shares of Junior Preferred Stock.
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(iii) In any case in which the Holders of shares of the Junior
Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Delaware law, each Holder of shares of the Junior Preferred
Stock shall be entitled to one vote for each share of Junior Preferred
Stock held.
(g) Change of Control Offer. Subject to contractual and other restrictions
with respect thereto, including, without limitation, restrictions imposed
by the Credit Agreement and the Debenture Indenture, upon the occurrence of
a Change of Control, the Company shall make an offer (a "Change of Control
Offer") to each Holder of Junior Preferred Stock to repurchase any or all
of such Holder's shares of Junior Preferred Stock at a purchase price in
cash equal to 100.0% of the aggregate liquidation preference thereof plus
accumulated and unpaid dividends thereon, if any, to the date of repurchase
(the "Change of Control Payment").
(A) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder of Junior Preferred Stock stating:
(1) that the Change of Control Offer is being made pursuant to this
paragraph (g) and that all shares of Junior Preferred Stock tendered
will be accepted for payment; (2) the purchase price and the purchase
date, which shall be no sooner than 30 nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment
Date"); (3) that any shares not tendered will continue to accumulate
dividends; (4) that, unless the Company defaults in the payment of
the Change of Control Payment, all shares of Junior Preferred Stock
accepted for payment pursuant to the Change of Control Offer shall
cease to accumulate dividends after the Change of Control Payment
Date; (5) that Holders electing to have any shares of Junior
Preferred Stock repurchased pursuant to a Change of Control Offer
will be required to surrender such shares, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the shares of
Junior Preferred Stock, completed, or transfer by book-entry
transfer, to the Company or its transfer agent at the address
specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that
Holders will be entitled to withdraw their election if the Company or
the transfer agent, as the case may be, receives, not later than the
close of business on the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the number of shares of
Junior Preferred Stock delivered for repurchase, and a statement that
such Holder is withdrawing his election to have such shares
repurchased; and (7) that Holders whose shares of Junior Preferred
Stock are being repurchased only in part will be issued new shares of
Junior Preferred Stock equal in liquidation preference to the
unpurchased portion of the shares of Junior Preferred Stock
surrendered (or transferred by book-entry transfer), which
unpurchased portion must be equal to $1,000 in liquidation preference
or an integral multiple thereof.
(B) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (1) accept for payment all shares of Junior
Preferred Stock or portions thereof properly tendered pursuant to the
Change of Control Offer, (2) deposit with the Company or its transfer
agent an amount equal to the Change of Control Payment in respect of
all shares of Junior Preferred Stock or portions thereof so tendered,
and (3) deliver or cause to be delivered to the transfer agent the
shares of Junior Preferred Stock so accepted together with an
Officers' Certificate stating the aggregate liquidation preference of
such Junior Preferred Stock or portions thereof being repurchased by
the Company. The Company or its transfer agent, as the case may be,
shall promptly mail to each Holder of shares of Junior Preferred
Stock so tendered the Change of Control Payment for such shares or
portions thereof. The Company shall promptly issue a certificate
representing shares of Junior Preferred Stock and mail (or cause to
be transferred by book entry) to each Holder a new certificate
representing shares of Junior Preferred Stock equal in liquidation
preference to any unpurchased portion of such shares surrendered by
such Holder, if any; provided, that each such certificate shall have
a liquidation preference of $1,000 or an integral multiple thereof.
The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(C) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of shares of Junior Preferred Stock in
connection with a Change of Control.
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<PAGE> 35
(D) The Company's obligations with respect to a Change of
Control Offer shall be satisfied to the extent actually performed by
a third party in accordance with the terms of this paragraph (g).
(h) Conversion or Exchange.
The Holders of shares of Junior Preferred Stock shall not have any
rights hereunder to convert such shares into or exchange such shares for
shares of any other class or classes or of any other series of any class or
classes of Capital Stock of the Company.
(i) Preemptive Rights.
No shares of Junior Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Company, or any warrants,
rights or options issued or granted with respect thereto, regardless of how
such securities or such warrants, rights or options may be designated,
issued or granted.
(j) Reissuance of Junior Preferred Stock.
Shares of Junior Preferred Stock that have been issued and reacquired
in any manner, including shares purchased or redeemed or exchanged, shall
(upon compliance with any applicable provisions of the laws of Delaware)
have the status of authorized but unissued shares of preferred stock of the
Company undesignated as to series and may be designated or redesignated and
issued or reissued, as the case may be, as part of any series of preferred
stock of the Company (including without limitation as Junior Preferred
Stock).
(k) Business Day.
If any payment, redemption or exchange shall be required by the terms
of this Section 2 to be made on a day that is not a Business Day, such
payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(l) Certain Additional Provisions.
(i) Restricted Payments.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly make any Restricted Payment, unless, at the time
of such Restricted Payment: (1) no Default Event shall have occurred and be
continuing or would occur as a consequence thereof; and (2) such Restricted
Payment, together with the aggregate of all other Restricted Payments made
by the Company and its Subsidiaries after the Preferred Stock Issue Date,
does not exceed the sum (the "Basket") of (a) (i) Consolidated EBITDA of
the Company for the period (taken as one accounting period), commencing on
the first day of the first fiscal quarter commencing on or prior to the
Preferred Stock Issue Date, to and including the last day of the fiscal
quarter ended immediately prior to the date of each such calculation (or,
in the event Consolidated EBITDA for such period is a deficit, then minus
such deficit) less (ii) 150% of Consolidated Fixed Charges for such period,
plus (b) the aggregate Net Cash Proceeds received by the Company from the
sale of the Company's Qualified Capital Stock (other than in each case (i)
to a Subsidiary of the Company), (ii) to the extent applied in connection
with a Qualified Exchange and (iii) to the extent applied to repurchase
Capital Stock pursuant to clause (b) of the definition of Other Permitted
Payments after the Preferred Stock Issue Date. The foregoing provisions of
this paragraph (m)(i) shall not prohibit the following Restricted Payments:
(A) a Qualified Exchange; (B) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of this Section 1; and (C)
Other Permitted Payments. The full amount of any Restricted Payment made
pursuant to clause (B) of the immediately preceding sentence (but not
pursuant to clauses (A) or (C)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made pursuant to the Basket.
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(ii) Reports.
So long as any shares of Junior Preferred Stock are outstanding, the
Company shall furnish to each Holder (at such Holder's address listed in
register of Junior Preferred Stock maintained by the transfer agent and
registrar of the Junior Preferred Stock): (i) beginning at the end of the
Company's first fiscal year ending after the Preferred Stock Issue Date,
all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants, and (ii) all current reports that would
be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports.
(m) Subordination.
(i) Agreement to Subordinate. Any and all payments and distributions
at any time declared or due on account of the Junior Preferred Stock,
including, without limitation, dividend, redemption and change of control
payments ("Preferred Stock Payments") shall be subordinated in right of
payment to the payment in full in cash or cash equivalents of all Senior
Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, and that such subordination is for the
benefit of the holders of Senior Indebtedness. For purposes of this
paragraph (m), the term "Senior Indebtedness" means (a) indebtedness of the
Company arising under the Credit Agreement and (b) the Discount Debentures.
(ii) Relative Rights. Upon any distribution of assets of the Company,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, the holders of all Senior Indebtedness
shall be entitled to receive payment on such Senior Indebtedness in full in
cash or cash equivalents before the holders of Junior Preferred Stock shall
be entitled to receive any Preferred Stock Payments. No payment (by set-off
or otherwise) may be made by or on behalf of the Company with respect to
Preferred Stock Payments for cash or property, (x) upon the maturity of any
Senior Indebtedness of the Company by lapse of time, acceleration or
otherwise, unless and until all principal of, premium, if any, and the
interest on and fees in respect of such Senior Indebtedness are paid in
full in cash or cash equivalents, (y) when such payment is prohibited by
the indenture or credit agreement relating to the Senior Indebtedness and
(z) in the event of default in the payment of any principal of, premium, if
any, or interest on and fees in respect of Senior Indebtedness of the
Company when it becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise (a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise
has ceased to exist.
(iii) When Amounts Must be Paid Over. In the event that,
notwithstanding the other provisions of this Certificate of Designations, a
Holder receives any Preferred Stock Payment at a time when such Holder has
actual knowledge that such payment or distribution is prohibited by this
paragraph (m) or the indenture or credit agreement relating to the Senior
Indebtedness, such Preferred Stock Payment shall be held by the Holders in
trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the Holders of Senior Indebtedness remaining
unpaid or unprovided for, or to the trustee or trustees under the indenture
relating to the Senior Indebtedness, ratably according to aggregate
principal amounts remaining unpaid on account of such Senior Indebtedness
held or represented by such, for application to the payment of all
obligations with respect to Senior Indebtedness remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such
obligations in full in cash or cash equivalents in accordance with their
terms, after giving effect to any concurrent payment or distribution to or
for Holders of Senior Indebtedness.
(n) Definitions and Interpretation.
(i) Definitions. As used in this Section 2, the following terms shall
have the following meanings, unless the context otherwise requires:
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"Acquisition" means the acquisition of the Business by the Company and
its Subsidiaries in accordance with the provisions of the Acquisition
Agreement.
"Acquisition Agreement" means, collectively: that certain Asset
Purchase Agreement dated as of November 21, 1997 by and among the Company,
Green Equity Investors, II, L.P., (for limited purposes) Liberty Group
Operating, Inc., Hollinger International Inc., APAC-90, Inc., American
Publishing (1991) Inc. and APAC-95, Inc. and that certain Asset Purchase
Agreement dated as of November 21, 1997 among the same parties plus
American Publishing Company of Illinois.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, the
term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of such Person, directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or
otherwise, provided, that, with respect to ownership interest in the
Company and its Subsidiaries, a Beneficial Owner of 10% or more of the
total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"Asset Sale" means, with respect to any specified Person, the
following: (i) (A) the sale, lease, conveyance or other disposition by such
Person of any assets (including, without limitation, by way of a sale and
leaseback) or (B) the issue or sale by such Person or any of its
Subsidiaries of Equity Interests of any of such Person's Subsidiaries, and
(ii) which occurs in a single transaction or a series of related
transactions.
"Beneficial Owner" or "beneficial owner" for purposes of the
definition of Change of Control and Affiliate has the meaning attributed to
it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the
Preferred Stock Issue Date), whether or not applicable.
"Board of Directors" means the Board of Directors of the Company.
"Business" means the business the assets of which were (or are to be)
purchased pursuant to the Asset Purchase Agreement (on a collective basis).
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or
exchangeable Indebtedness that is not itself otherwise capital stock),
warrants, options, participations or other equivalents of or interests
(however designated) in stock issued by that corporation.
"Capitalized Lease Obligation" means, as to any person, the
obligations of such person under a lease that are required to be classified
and accounted for as capital lease obligations under GAAP and, for purposes
of this definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States government, or any agency or
instrumentality thereof, having maturities of not more than one year from
the date of acquisition thereof; (b) marketable general obligations issued
by any state of the United States of America or any political subdivision
of any such state or any public instrumentality thereof maturing within one
year from the date of acquisition thereof and, at the time of acquisition
thereof, having a credit rating of "A" or better from either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc.; (c) certificates
of deposit, time deposits, eurodollar time deposits, overnight bank
deposits or bankers' acceptances having maturities of not more than one
year from the date of acquisition thereof of any domestic commercial bank,
the long-term debt of which is rated at the time of acquisition
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thereof at least "A" or the equivalent thereof by either Standard & Poor's
Ratings Group or Moody's Investors Service, Inc. and having capital and
surplus in excess of $500,000,000; (d) repurchase obligations with a term
of not more than seven days for underlying securities of the types
described in clauses (a), (b) and (c) above entered into with any bank
meeting the qualifications specified in clause (c) above; (e) commercial
paper rated at the time of acquisition thereof at least A-2 or the
equivalent thereof by Standard & Poor's Ratings Group or P-2 or the
equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the
two named rating agencies cease publishing ratings of investments, and in
either case maturing within 270 days after the date of acquisition thereof;
and (f) interests in any investment company which invests solely in
instruments of the type specified in clauses (a) through (e) above.
"Certificate of Incorporation" means the Company's Certificate of
Incorporation.
"Change of Control" (i) any merger or consolidation of the Company
with or into any person or any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of the
Company on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s),
any "person" or "group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable), other than
any Excluded Person or Excluded Persons, is or becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the total voting power
in the aggregate normally entitled to vote in the election of directors,
managers or trustees, as applicable, of the transferee(s) or surviving
entity or entities, (ii) any "person" or "group," other than any Excluded
Person or Excluded Persons, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate of
all classes of Capital Stock of the Company then outstanding normally
entitled to vote in elections of directors, or (iii) during any period of
12 consecutive months after the Preferred Stock Issue Date, individuals who
at the beginning of any such 12-month period constituted the Board of
Directors of the Company (together, in each case, with any new directors
whose election by such Board of Directors or whose nomination for election
by the shareholders of the Company was approved by LGP or a Related Party
of LGP or by the Excluded Persons or by a vote of a majority of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, as applicable.
"Company" means this corporation.
"consolidated" means, with respect to the Company, the consolidated
accounts of its Subsidiaries with those of the Company, all in accordance
with GAAP; provided that "consolidated" will not include consolidation of
the accounts of any Unrestricted Subsidiary with the accounts of the
Company.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted
to add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) consolidated
income taxes, (ii) consolidated depreciation and amortization (including
amortization of debt issuance costs in connection with any Indebtedness of
such person and its Subsidiaries), (iii) Consolidated Fixed Charges and
(iv) all other non-cash charges; provided that consolidated income taxes,
depreciation and amortization of a Subsidiary of such person that is less
than wholly owned shall only be added to the extent of the equity interest
of such person in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid,
accrued, or scheduled to be paid or accrued (including, in accordance with
the following sentence, interest attributable to Capitalized Lease
Obligations) of such person and its Consolidated Subsidiaries during such
period, excluding amortization of debt issuance costs incurred in
connection with the Discount Debentures, the Senior Subordinated Notes or
the Credit Agreement but including (i) original issue discount and non-cash
interest payments or accruals on any Indebtedness, (ii) the interest
portion of all deferred payment obligations, and (iii) all commissions,
discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap
and
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Hedging Obligations, in each case to the extent attributable to such
period, and (b) the amount of cash dividends paid by such person or any of
its Consolidated Subsidiaries in respect of preferred stock (other than by
Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP and (y) to the
extent such expense would result in a liability upon the consolidated
balance sheet of such person in accordance with GAAP, interest expense
attributable to any Indebtedness represented by the guaranty by such person
or a Subsidiary of such person of an obligation of another person shall be
deemed to be the interest expense attributable to the Indebtedness
guaranteed. Notwithstanding the foregoing, Consolidated Fixed Charges shall
not include costs, fees and expenses incurred in connection with the
Acquisition, and any non-cash charge or expense associated with the
write-off of deferred debt issuance costs associated with the Credit
Agreement, the Senior Subordinated Notes or the Discount Debentures.
"Consolidated Net Income" means, with respect to any Person for any
period, the net income (or loss) of such Person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP)
for such period, adjusted to exclude (only to the extent included in
computing such net income (or loss) and without duplication): (a) all gains
and losses which are either extraordinary (as determined in accordance with
GAAP) or are either unusual or nonrecurring (including any gain from the
sale or other disposition of assets outside the ordinary course of business
or from the issuance or sale of any Capital Stock), (b) the net income, if
positive, of any person, other than a Consolidated Subsidiary, in which
such person or any of its Consolidated Subsidiaries has an interest, except
to the extent of the amount of any dividends or distributions actually paid
in cash to such person or a Consolidated Subsidiary of such person during
such period, but in any case not in excess of such person's pro rata share
of such person's net income for such period, (c) the net income or loss of
any person acquired in a pooling of interests transaction for any period
prior to the date of such Acquisition, (d) the net income, if positive, of
any of such person's Consolidated Subsidiaries in the event and solely to
the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary, (e) the effects of changes in accounting
principles, (f) any non-cash compensation expense in connection with the
exercise of, grant to or repurchase from officers, directors and employees
of stock, stock options or stock equivalents, (g) any non-cash charge or
expense associated with the write-off of deferred debt issuance costs
associated with the Credit Agreement, the Senior Subordinated Notes or the
Discount Debentures, and (h) costs, fees and expenses incurred in
connection with the Acquisition.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement
reporting purposes with the financial statements of such person in
accordance with GAAP.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the Credit Agreement dated as of January 27, 1998 by
and among Liberty Group Operating, Inc., Liberty Group Publishing, Inc.,
Citicorp USA, Inc., as administrative agent and the other parties named
therein) entered into by and among the Company, certain of its subsidiaries
(if any) and certain financial institutions, which provide for in the
aggregate one or more term loans and/or revolving credit and letter of
credit facilities, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as
such credit agreement and/or related documents may be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time
whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any such credit agreement and
all refundings, refinancings and replacements of any such credit agreement,
including any agreement (i) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (ii) adding or deleting
borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their
respective successors and
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assigns, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, or (iv) otherwise altering the terms
and conditions thereof in a manner not prohibited by the terms hereof.
"Debenture Indenture" means the Indenture, pursuant to which the
Discount Debentures will be issued.
"Default Event" means any of the following events: (1) any time when
the Company fails to make a mandatory redemption of the Senior Preferred
Stock when required (whether or not any contractual or other restrictions
apply to such redemption) pursuant to paragraph (e)(ii) hereof; or (2) any
time when the Company fails to make an offer to repurchase all of the
outstanding shares of Senior Preferred Stock following a Change of Control,
if such offer to repurchase is required to be made pursuant to paragraph
(g)(i) hereof (whether or not any contractual or other restrictions apply
to such redemption).
"Discount Debentures" means the 115/8% Senior Discount Debentures due
2009 of the Company to be issued pursuant to the Debenture Indenture.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any person, any Equity Interest of such person that, by its
terms or by the terms of any security into which it is convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time or both would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such person or any of
its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Discount Debentures and (b) with respect to any Subsidiary of such
person (including with respect to any Subsidiary of the Company), any
Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions and preferred equity
owned by the Company or one of its Subsidiaries.
"Dividend Payment Date" means February 1, May 1, August 1 and
November 1.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"Equity Interest" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership or membership interests in, such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Excluded Person" means GEI and its Related Parties.
"Exempted Affiliate Transaction" means (a) compensation,
indemnification and other benefits paid or made available (x) pursuant to
the employment agreements between the Company and members of its senior
management, (y) for or in connection with services actually rendered to the
Company and comparable to those generally paid or made available by
entities engaged in the same or similar businesses (including reimbursement
or advancement of reasonable out-of-pocket expenses and loans to officers,
directors and employees (i) in the ordinary course of business and (ii) to
purchase Company Common Stock in an amount not to exceed $1.0 million, (b)
transactions, expenses and payments in connection with the Acquisition, (c)
any Restricted Payments or other payments or transactions expressly
permitted under paragraph l(i) hereof, (d) payments to LGP for management
services under the Management Services Agreement in an amount not to exceed
$1.5 million in any fiscal year, plus reimbursement of reasonable
out-of-pocket costs and expenses, (e) payments to LGP for reasonable and
customary fees and expenses for financial advisory and investment banking
services provided to the Company in connection with major financial
transactions, and (f) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that
any ownership interest in any such Subsidiary which is not beneficially
owned directly or indirectly by the Company or any
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<PAGE> 41
of its Subsidiaries is not beneficially owned by an Affiliate of the
Company other than by virtue of the direct or indirect ownership interest
in such Subsidiary held (in the aggregate) by the Company and/or one or
more of its Subsidiaries.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
or in such other statements by such other entity as approved by a
significant segment of the accounting profession in the United States as in
effect on the Preferred Stock Issue Date.
"GEI" means Green Equity Investors II, L.P.
"Holder" means a Person in whose name a share of Junior Preferred
Stock is registered.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such Person,
to the extent such liabilities and obligations would appear as a liability
upon the consolidated balance sheet of such person in accordance with GAAP,
(i) in respect of borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such person or only to a portion thereof),
(ii) evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except those incurred in the ordinary course of its
business that would constitute ordinarily a trade payable to trade
creditors; (b) all liabilities and obligations, contingent or otherwise, of
such person (i) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (ii) relating to any Capitalized Lease
Obligation, or (iii) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (c) all net
obligations of such person under Interest Swap and Hedging Obligations; (d)
all liabilities and obligations of others of the kind described in the
preceding clauses (a), (b) or (c) that such person has guaranteed or that
is otherwise its legal liability or which are secured by one or more Liens
on any assets or property of such Person; provided that if the liabilities
or obligations which are secured by a Lien have not been assumed in full by
such Person or are not such Person's legal liability in full, the amount of
such Indebtedness for the purposes of this definition shall be limited to
the lesser of the amount of such Indebtedness secured by such Lien or the
fair market value of the assets or property securing such Lien; (e) any and
all deferrals, renewals, extensions, refinancing and refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b),
(c) or (d), or this clause (e), whether or not between or among the same
parties; and (f) all Disqualified Capital Stock of such person (measured at
the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such
fair market value to be determined in good faith by the board of directors
of the issuer (or managing general partner of the issuer) of such
Disqualified Capital Stock.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange
agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency values, including, without limitation, any arrangement whereby,
directly or indirectly, such person is entitled to receive from time to
time periodic payments calculated by applying either a fixed or floating
rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or floating
rate of interest on the same notional amount.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether by purchase, merger,
consolidation or otherwise) by such Person (whether for cash, property,
services, securities or otherwise) of capital stock, bonds, notes,
debentures, partnership or other ownership interests or other securities,
including any options or warrants, of such other person or any agreement to
make any such acquisition; (b) the making
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by such Person of any deposit with, or advance, loan or other extension of
credit to, such other Person (including the purchase of property from
another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person) or any commitment
to make any such advance, loan or extension (but excluding accounts
receivable, endorsements for collection or deposits arising in the ordinary
course of business); (c) other than guarantees of Indebtedness of the
Company or any Subsidiary; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary.
The Company shall be deemed to make an Investment in an amount equal to the
fair market value of the net assets of any subsidiary (or, if neither the
Company nor any of its Subsidiaries has theretofore made an Investment in
such subsidiary, in an amount equal to the Investments being made), at the
time that such subsidiary is designated an Unrestricted Subsidiary, and any
property transferred to an Unrestricted Subsidiary from the Company or a
Subsidiary of the Company shall be deemed an Investment valued at its fair
market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of the
Company or any of its Subsidiaries to be assumed or discharged in
connection with such Investment by an entity other than the Company or any
of its Subsidiaries. For purposes of clarification and greater certainty,
the designation of a newly formed subsidiary as an Unrestricted Subsidiary
shall not constitute an Investment.
"Junior Preferred Stock" means the Company's Series B 10% Junior
Redeemable Cumulative Preferred Stock, par value $0.01 per share, with a
liquidation preference of $1,000 per share, consisting of 175,000 shares.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New
York or at a place of payment are authorized by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
"LGP" means Leonard Green & Partners, L.P.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other
encumbrance upon or with respect to any property of any kind, real or
personal, movable or immovable, now owned or hereafter acquired.
"Management Services Agreement" means that certain Management Services
Agreement dated as of the Closing Date by and between LGP, on the one hand,
and the Company and/or its Subsidiaries, on the other hand, providing for
certain annual fees, expenses and reimbursements to be paid to LGP, as such
Management Services Agreement may be amended from time to time.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale of Qualified
Capital Stock and by the Company and its Subsidiaries in respect of an
Asset Sale plus, in the case of an issuance of Qualified Capital Stock upon
any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of the Company that
were issued for cash on or after the Preferred Stock Issue Date, the amount
of cash originally received by the Company upon the issuance of such
securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal
counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale or sale of Qualified Capital Stock, and, in the case
of an Asset Sale only, less (i) the amount (estimated reasonably and in
good faith by the Company) of income, franchise, sales and other applicable
taxes required to be paid by the Company or any of its respective
Subsidiaries in connection with such Asset Sale, (ii) the amounts of any
repayments of Indebtedness secured, directly or indirectly, by Liens on the
assets which are the subject of such Asset Sale or Indebtedness associated
with such assets which is due by reason of such Asset Sale (i.e., such
disposition is permitted by the terms of the instruments evidencing or
applicable to such Indebtedness, or by the terms of a consent granted
thereunder, on the condition that the proceeds (or portion thereof) of such
disposition be applied to such Indebtedness), and other fees, expenses and
other expenditures, in each case, reasonably incurred as a consequence of
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such repayment of Indebtedness (whether or not such fees, expenses or
expenditures are then due and payable or made, as the case may be); (iii)
all amounts deemed appropriate by the Company (as evidenced by a signed
certificate of the Chief Financial Officer of the Company delivered to the
Holders) to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset
Sale; and (iv) with respect to Asset Sales by Subsidiaries of the Company,
the portion of such cash payments attributable to persons holding a
minority interest in such Subsidiary.
"obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Other Permitted Payments" means, without duplication, (a) the
payments provided for by clauses (a), (d) and (e) of the definition of
"Exempted Affiliate Transaction"; (b) the repurchase of common stock, stock
options and stock equivalents of the Company held by former directors,
officers or employees of the Company or any of its Subsidiaries
("Management Stock Repurchases") in an aggregate amount not to exceed in
any fiscal year $1.0 million, plus the amount of any net cash proceeds to
the Company from (I) sales of Capital Stock of the Company to management
employees subsequent to the Preferred Stock Issue Date (provided further
that the amount of any such net cash proceeds to the Company to the extent
used for Management Stock Repurchases will be excluded from the calculation
of the available Basket pursuant to paragraph (l)(i)); and (II) any
key-person life insurance policies, in either case, to the extent utilized
for Management Stock Repurchases; provided, that any amount not so paid in
any fiscal year may be paid in future fiscal years; and (c) Restricted
Payments in an aggregate amount not to exceed $4.0 million.
"Permitted Affiliate Transaction" means any Exempt Affiliate
Transaction and any other contract, agreement, arrangement or transaction
between the Company or any of its Subsidiaries with any Affiliate (an
"Affiliate Transaction") or any series of related Affiliate Transactions
the terms of which are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are at least as favorable as the terms
which could reasonably be expected to be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's length basis with persons who are not Affiliates; provided that in
connection with any Affiliate Transaction or series of related Affiliate
Transactions (other than Exempted Affiliate Transactions) (1) involving
consideration to either party in excess of $1.5 million, the Company must
deliver an Officer's Certificate to the Holders, stating that the terms of
such Affiliate Transaction are fair and reasonable to the Company, and no
less favorable to the Company than could reasonably be expected to have
been obtained in an arm's length transaction with a non-Affiliate, and (2)
involving consideration to either party in excess of $7.5 million, the
Company must also, prior to consummation thereof, obtain a favorable
written opinion as to the fairness of such transaction to the Company from
a financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or
valuation firm of national reputation; provided further, that these
requirements shall not apply to the sale or purchase of products or
services by the Company or its Subsidiaries to or from any Affiliate of LGP
or any Related Party thereof, which sale or purchase is in the ordinary
course of business and in accordance with industry practice.
"Permitted Investment" means Investments in (a) any of the Discount
Debentures; (b) Cash Equivalents; (c) intercompany notes, provided that
Indebtedness under any such notes of a Subsidiary shall be deemed to be a
Restricted Investment if such person ceases to be a Subsidiary; (d)
Investments in the form of promissory notes of members of the Company's
management not to exceed $1.0 million in principal amount at any time
outstanding solely in consideration of the purchase by such persons of
Qualified Capital Stock of the Company; (e) Investments by the Company or
any Subsidiary in any person that is or immediately after such Investment
becomes a Subsidiary, or immediately after such Investment merges or
consolidates into the Company or any Subsidiary, provided that such person
is engaged in all material respects in a Related Business; (f) Investments
in the Company by any Subsidiary, provided that in the case of Indebtedness
constituting any such Investment, such Indebtedness shall be unsecured and
subordinated in all respects to the Company's obligations under the
Discount Debentures; (g) Investments in securities of trade creditors or
customers received in settlement of obligations that arose in the ordinary
course of business or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors
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or customers; (h) Investments by the Company outstanding on the Preferred
Stock Issue Date; (i) transactions or arrangements with officers or
directors of the Company or any Subsidiary entered into in the ordinary
course of business (including compensation or employee benefit arrangements
with any officer or director of the Company or any Subsidiary which are
Permitted Affiliate Transactions); (j) Investments in persons (other than
Affiliates of the Company) received as consideration from Asset Sales; (k)
additional Investments at any time outstanding not to exceed the sum of (i)
$5.0 million and (ii) the cumulative gain (net of taxes and all payments,
fees, commissions and expenses incurred in such sale or disposition)
realized by the Company and its Subsidiaries in cash or Cash Equivalents on
the sale or other disposition after the Preferred Stock Issue Date of
Investments (including Permitted Investments and Restricted Investments)
made after the Preferred Stock Issue Date in accordance with the Indenture
(but only to the extent that such gain is excluded from the net income of
the Company and the Consolidated Subsidiaries by the definition of
Consolidated Net Income); and (l) the acquisition of Equity Interests of a
Person engaged in a Related Business, other than a Person described in
clause (e), through the issuance of Common Stock of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any
such entity or substantially all of the assets of any such entity,
subdivision or business).
"Preferred Stock Issue Date" means the date on which the Junior
Preferred Stock is originally issued by the Company under this Section 2.
"Qualified Capital Stock" means any Equity Interest that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or
Indebtedness of the Company issued on or after the Preferred Stock Issue
Date with the Net Cash Proceeds received by the Company from the
substantially concurrent sale of its Qualified Capital Stock or any
exchange of Qualified Capital Stock of the Company for any Capital Stock or
Indebtedness of the Company issued on or after the Issue Date.
"Quarterly Dividend Period" shall mean the quarterly period commencing
on each February 1, May 1, August 1 and November 1 and ending on the day
before the following Dividend Payment Date.
"Redemption Date" with respect to any shares of Junior Preferred
Stock, means the date on which such shares of Junior Preferred Stock are
redeemed by the Company.
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by
the Company, as described or referred to in this Offering Memorandum) by
the Company as of the Issue Date and any and all businesses that in the
good faith judgment of the Board of Directors of the Company are reasonably
related businesses, including reasonably related extensions thereof.
"Related Party" means any partnership or corporation which is managed
by or controlled by LGP or any Affiliate thereof.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than investments in Cash Equivalents
and other Permitted Investments; provided, however, that a merger of
another person with or into the Company or a Subsidiary in accordance with
the terms of the Indenture shall not be deemed to be a Restricted
Investment so long as the surviving entity is the Company or a direct
wholly owned Subsidiary.
"Restricted Payment" means, (a) the declaration or payment of any
dividend or other distribution in respect of Junior Securities or Equity
Interests of the Company or any of the Company's Subsidiaries, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Junior Securities or Equity Interests
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<PAGE> 45
of the Company or any of the Company's Subsidiaries, and (c) any Restricted
Investment by such person; provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment
on or with respect to Equity Interests of the Company to the extent payable
solely in shares of Qualified Capital Stock of the Company; (ii) any
dividend, distribution or other payment to the Company, or to any of its
Subsidiaries , by the Company or any of its Subsidiaries; (iii) payments
made pursuant to the Acquisition; (iv) Permitted Investments; or (v) pro
rata dividends and other distributions on Equity Interests of any
Subsidiary by such Subsidiary.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Senior Subordinated Notes" means the 9 3/8% Senior Subordinated Notes
due 2008 of Liberty Group Operating, Inc., a subsidiary of the Company.
"Senior Preferred Stock" means the Company's Series A 14 3/4% Senior
Redeemable Exchangeable Cumulative Preferred Stock, par value $0.01 per
share, with a liquidation preference of $25 per share, consisting of
21,000,000 shares.
"Stated Maturity," when used with respect to any Discount Debenture,
means February 1, 2009.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50.0% of the total
voting power of the Equity Interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof) and (ii) any partnership (a) the
sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"Unrestricted Subsidiary" means any subsidiary of the Company that
does not own any Capital Stock of, or own or hold any Lien on any property
of the Company or any other Subsidiary of the Company and that, at the time
of determination, shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company); provided, that (i) such subsidiary
shall not engage, to any substantial extent, in any line or lines of
business activity other than a Related Business and (ii) neither
immediately prior thereto nor after giving pro forma effect to such
designation would there exist a Default Event. The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Subsidiary,
provided that no Default Event is existing or will occur as a consequence
thereof. Each such designation shall be evidenced by delivering to the
Holders a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"wholly owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares and shares in non-U.S.
companies required by local law to be owned by local residents) shall at
the time be owned (i) by such Person, (ii) by one or more wholly owned
Subsidiaries of such Person or (iii) by such Person and one or more wholly
owned Subsidiaries of such Person.
(ii) Interpretation. For the purposes of this Certificate of
Designations: (x) words in the singular shall be held to include the plural
and vice versa and words of one gender shall be held to include the other
gender as the context requires and (y) the word "including" and words of
similar import shall mean "including, without limitation," unless the
context otherwise requires or unless otherwise specified.
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<PAGE> 46
(o) Transfer Restrictions.
If certificated, the certificates evidencing shares of Junior
Preferred Stock shall, until the second anniversary of the date of original
issuance of such shares, unless otherwise agreed by the Company and the
holders of any such certificates, bear a legend substantially to the
following effect:
"The Junior Preferred Stock evidenced hereby was originally
issued in a transaction exempt from registration under Section
5 of the United States Securities Act of 1933, as amended (the
"Securities Act"), and the Junior Preferred Stock evidenced
hereby may not be offered, sold or otherwise transferred in the
absence of such registration or an applicable exemption
therefrom. In connection with any transfer, the holder will
deliver to the registrar and transfer agent such certificates
and other information as it may reasonably require to confirm
that the transfer complies with the foregoing restrictions."
The shares of Junior Preferred Stock not otherwise registered pursuant to
an effective registration statement under the Securities Act shall be
subject to the restrictions on transfer set forth in the legend referred to
above until the second anniversary of the date of original issuance of such
shares of Junior Preferred Stock.
IN WITNESS WHEREOF, Liberty Group Publishing, Inc. has caused this
Certificate to be executed by its President and Secretary this ___ day of
January, 1998.
LIBERTY GROUP PUBLISHING, INC.
By: /s/ KENNETH L. SEROTA
--------------------------------
Kenneth L. Serota
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<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED MANAGEMENT SUBSCRIPTION
AND STOCKHOLDERS AGREEMENT
This Amended and Restated Management Subscription and Stockholders
Agreement (the "Agreement") is entered into as of February 1, 2000, by and
between Liberty Group Publishing, Inc., a Delaware corporation (the "Company"),
Green Equity Investors II, L.P., a Delaware limited partnership ("GEI"), and the
person identified on Annex A attached hereto (hereinafter referred to as the
"Management Investor"), with reference to the following facts:
WHEREAS, GEI is the principal shareholder of the Company;
WHEREAS, Management Investor is a key employee of the Company or one of its
subsidiaries and, accordingly, as an incentive to the Management Investor, the
Company has previously issued, and may from time to time hereafter desire to
issue, uncertificated shares of the Company's common stock (collectively, the
"Common Stock") to the Management Investor as set forth herein;
WHEREAS, the Company, GEI and the Management Investor are parties to that
certain Management Subscription and Stockholders Agreement entered into as of
March ___, 1998 (the "Original Agreement"); and
WHEREAS, the Company, GEI and the Management Investor desire to amend and
restate the Original Agreement in its entirety to be in the form of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Management Investor Representations.
(a) Investment Risk. The Management Investor represents and
acknowledges that (i) as a result of the Management Investor's (A) existing
relationship with the Company and by virtue of being an executive of business
enterprises acquired by the Company, and (B) experience in financial matters,
the Management Investor is properly able to evaluate the capital structure of
the Company, the business of the Company and its subsidiaries and the risks
inherent therein; (ii) the Management Investor has been given the opportunity to
obtain any additional information or documents from and to ask questions, and
receive answers of, the officers and representatives of the Company and its
subsidiaries to the extent necessary to evaluate the merits and risks related to
an investment in the Company; (iii) the Management Investor has been and will
be, to the extent the Management Investor deems necessary, advised by legal
counsel of the Management Investor's choice at Management Investor's expense in
connection with this Agreement and the issuance and sale of Common Stock
hereunder and (iv) the purchase or issuance of Common Stock hereunder will be
consistent, in both nature
<PAGE> 2
and amount, with the Management Investor's overall investment program and
financial condition, and the Management Investor's financial condition will be
such that the Management Investor will be able to bear the economic risk of
holding unregistered Common Stock for which there is no market and to suffer a
complete loss of the Management Investor's investment therein. The Management
Investor further acknowledges that investment in the Common Stock hereunder
involves significant risks and that these risks include, without limitation, the
facts that the Company is a relatively newly-formed holding company and that the
Company will have a leveraged financial structure.
(b) Purchase for Investment.
(1) The Management Investor represents and warrants that: (A)
the Common Stock acquired by the Management Investor hereunder will be acquired
for the Management Investor's own account for investment, without any present
intention of selling or further distributing the same and the Management
Investor will not have any reason to anticipate any change in the Management
Investor's circumstances or any other particular occasion or event which would
cause the Management Investor to sell any of such Common Stock and (B) the
Management Investor is fully aware that in agreeing to sell or issue such Common
Stock to the Management Investor the Company will be relying upon the truth and
accuracy of these representations and warranties. The Management Investor agrees
that the Management Investor will not sell or otherwise dispose of any Common
Stock except in compliance with the Securities Act of 1933, as amended (the
"Act"), the rules and regulations of the Securities and Exchange Commission
thereunder, the relevant state securities laws applicable to the Management
Investor's action and the terms of this Agreement.
(2) Subject to Section 6 below, in addition to the other
restrictions provided in this Agreement, the Management Investor agrees that
prior to making any disposition of any Common Stock acquired hereunder (other
than a disposition to the Company), the Management Investor will give not less
than 10 days' advance written notice to the Company describing the manner of
such proposed disposition. The Management Investor further agrees that the
Management Investor will not effect such proposed disposition until either (A)
the Management Investor has provided to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form and substance to
the Company that such proposed disposition is exempt from registration under the
Act and any applicable state securities laws or (B) a registration statement
under the Act covering such proposed disposition has been filed by the Company
under the Act and has become effective and compliance with applicable state
securities laws has been effected.
(3) The Management Investor acknowledges that no trading market
for the Common Stock exists currently or is expected to exist at any time in the
foreseeable future and that, as a result, the Management Investor may be unable
to sell any of the Common Stock acquired hereunder for an indefinite period.
Further, the Company has no obligation to register any of the Common Stock,
except as expressly provided in Section 7 of this Agreement.
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<PAGE> 3
(4) The Management Investor acknowledges and agrees that nothing
herein, including the opportunity to make any equity investment in the Company,
shall be deemed to create any implication concerning the adequacy of the
Management Investor's services to any of the Company or its subsidiaries or
shall be construed as an agreement by the Company or its subsidiaries, express
or implied, to employ the Management Investor or contract for the Management
Investor's services, to restrict the right of the Company or its subsidiaries to
discharge the Management Investor or cease contracting for the Management
Investor's services or to modify, extend or otherwise affect in any manner
whatsoever the terms of any employment agreement or contract for services which
may exist between the Management Investor and the Company or its subsidiaries.
2. Grant of Management Shares and Legend on Certificates.
(a) Grant of Management Shares. The Company hereby grants to the
Management Investor the right to purchase, on the terms and conditions set forth
in this Agreement, all or any part of the number of shares of Common Stock
indicated on Annex A hereto (the "Initial Purchased Shares") at the purchase
price of $100 (the "Purchase Price") per share. In addition, the Company hereby
grants to the Management Investor the number of shares of Common Stock indicated
in Annex B hereto (the "Grant Shares"). All shares of Common Stock issued
hereunder (including, but not limited to, the Initial Purchased Shares, the
Grant Shares and any additional shares of Common Stock issued to the Management
Investor from time to time hereafter, whether as a dividend or other
distribution with respect to or in replacement of shares of Common Stock, as a
result of a stock dividend, stock split or subdivision, stock combination or
recapitalization, upon the exercise or conversion of other securities issued to
the Management Investor or otherwise) shall be subject to all of the terms and
restrictions contained in this Agreement, including, without limitation, those
in Sections 1(b), 3, 4, 8 and 9, and shall be uncertificated shares. Subject to
the limitations set forth in Section 2(b), the Management Investor shall be
entitled, upon written request to the Company, to have a certificate issued to
him or her representing Common Stock issued hereunder.
(b) Legend on Certificates. Each stock certificate issued to the
Management Investor upon written request to the Company representing Common
Stock issued hereunder shall bear the following (or substantially equivalent)
legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR ANY SUCCESSOR RULE UNDER THE ACT OR
LIBERTY GROUP PUBLISHING, INC. (THE "COMPANY") RECEIVES AN
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<PAGE> 4
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AN AMENDED AND RESTATED MANAGEMENT
SUBSCRIPTION AND STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY ___,
2000, BETWEEN THE PURCHASER PARTY THERETO AND THE COMPANY, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, AND THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOTED, TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
VOTING, TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH THE PROVISIONS OF SUCH AGREEMENT.
Any stock certificate issued at any time in exchange or substitution for any
certificates bearing such legends (except a new certificate issued upon the
completion of a public distribution of Common Stock represented thereby) shall
also bear such (or substantially equivalent) legends, unless the Common Stock
represented by such certificate is no longer subject to the provisions of this
Agreement and, in the opinion of counsel for the Company, the Common Stock
represented thereby need no longer be subject to restrictions pursuant to the
Act or applicable state securities law. The Company shall not be required to
transfer on its books any certificate for Common Stock in violation of the
provisions of this Agreement.
3. Transfer of Stock.
(a) Prohibition on Transfer. Subject to the provisions of Section 6,
the Management Investor agrees that the Management Investor will not, on or
prior to the tenth anniversary of this Agreement, directly or indirectly, sell,
pledge, give, bequeath, transfer, assign or in any other way whatsoever encumber
or dispose of (a "transfer') any Common Stock (or any interest therein)
acquired hereunder, except for transfers (i) pursuant to this Section 3 or
Sections 4, 7, 8, or 9 of this Agreement or (ii) as may be specifically
authorized by the Board of Directors of the Company in its sole discretion
(either of (i) or (ii), a "Permitted Transfer").
(b) Transfer Procedure; Right of First Refusal. The Management
Investor agrees that the Management Investor will not, after the lapse of the
restriction in clause (a) of this Section 3, transfer any Common Stock (or
interest therein) acquired hereunder, except for Permitted Transfers or
transfers in accordance with the following:
(1) If the Management Investor shall have received a bona fide
arm's length written offer (a "Bona Fide Offer") which the Management
Investor desires to
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<PAGE> 5
accept from an independent party unrelated to the Management Investor
(the "Outside Party") for the purchase of such Common Stock for
consideration consisting entirely of cash, then the Management Investor
shall give a notice in writing (the "Option Notice") to the Company
setting forth such desire, which notice shall set forth at least the
name and address of the Outside Party and the price and terms of the
Bona Fide Offer and be accompanied by a copy of the Bona Fide Offer.
(2) Upon the giving of such Option Notice, the Company shall
have an option (transferable, in the sole discretion of the Board of
Directors of the Company, to GEI or to a subsidiary) to purchase all of the
Common Stock specified in the Option Notice, said option to be exercised
within thirty (30) days after the giving of such Option Notice, by giving a
counter-notice (the "Election Notice") to the Management Investor.
(3) If the Company (or GEI or a subsidiary, if applicable)
elects to purchase all of such Common Stock, it shall be obligated to
purchase, and the Management Investor shall be obligated to sell, such
Common Stock at the cash price and terms indicated in the Bona Fide Offer,
except that the closing of the purchase by the Company (or GEI or a
subsidiary, if applicable) shall be held on a business day within sixty
(60) days after the giving of the Election Notice at 10:30 a.m., Central
Standard Time, at the principal executive office of the Company, or at such
other time and place as may be mutually agreed to by the Company (or GEI or
a subsidiary) and the Management Investor.
(4) If an Election Notice is not delivered by the Company (or
GEI or a subsidiary, if applicable) within the period specified above,
the Management Investor thereafter, at any time within a period of
sixty (60) days from the giving of said Option Notice, may transfer
all of the provisions of this Agreement and, as a condition precedent
to the completion of such transfer of Common Stock to such Outside
Party, shall execute and deliver to the Company a written consent to
such effect in form and substance satisfactory to the Company;
provided, however, that in the event the Management Investor has not
so transferred said Common Stock to the Outside Party within said
three-month period, then said Common Stock thereafter shall continue
to be subject to all of the restrictions contained in this Agreement.
(b) No Waiver by Company. Any election in any instance by the
Company (or GEI or a subsidiary, if applicable) not to exercise its rights of
first refusal under this Section 3 shall not constitute a waiver of such rights
with respect to any other proposed transfer of Common Stock.
(c) Transfer to Related Transferees. Notwithstanding anything to the
contrary contained in clauses (a) through (c) of this Section 3, the Management
Investor may transfer the Management Investor's Common Stock without restriction
to the Management Investor's Related Transferees (as defined below) provided
that each such Related Transferee shall first (i) execute a written consent in
form and substance satisfactory to the Company to be
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<PAGE> 6
bound by all of the provisions of this Agreement and (ii) give a duplicate
original of such consent to the Company. The "Related Transferee" of the
Management Investor shall consist of the Management Investor's spouse, the
Management Investor's adult lineal descendants, the adult spouses of such lineal
descendants, trusts solely for the benefit of the Management Investor's spouse
or the Management Investor's minor or adult lineal descendants and, in the event
of death, the Management Investor's personal representatives (in their
capacities as such), estate and named beneficiaries. In the event of any
transfer by the Management Investor to his Related Transferees of all or any
part of the Management Investor's Common Stock (or in the event of any
subsequent transfer by any such Related Transferee to another Related Transferee
of the Management Investor), such Related Transferees shall receive and hold
said Common Stock subject to the terms of this Agreement and the rights and
obligations hereunder of the Management Investor from whom such Common Stock was
originally transferred as though said Common Stock was still owned by the
Management Investor, and such Related Transferees shall be deemed Management
Investors for the purposes of this Agreement (except as stated in Sections 13(b)
and (c) hereof). There shall be no further transfer of such Common Stock by a
Related Transferee except between and among such Related Transferee, the
Management Investor to whom such Related Transferee is related and the other
Related Transferees of the Management Investor, or except as permitted by this
Agreement.
4. Company "Call" Option.
(a) Upon the termination of the Management Investor's employment or
cessation of services as director with the Company or any of its subsidiaries
for any reason (including without limitation Voluntary Termination, a Just Cause
Dismissal, Involuntary Termination Without Cause or the Retirement, death or
Permanent Disability of the Management Investor (as such terms are defined in
Section 5 below)) (a "Call Purchase Event"), subject to the provisions of
Section 6 and this Section 4, the Company may, at its option exercisable by
written notice (a "Purchase Notice") delivered to the Management Investor (or in
the case of a deceased Management Investor, the Management Investor's personal
representative) within ninety (90) days after the applicable Call Purchase Event
(or, in the event the applicable Call Purchase Event is the death of the
Management Investor, within thirty (30) days after the appointment and
qualification of the deceased Management Investor's personal representative, if
later), elect to purchase and, upon the giving of such notice, the Company
shall be obligated to purchase and the Management Investor (and the Related
Transferees, if any, of the Management Investor or, in the case of a deceased
Management Investor, his personal representative) (the "Seller" shall be
obligated to sell, all, or any lesser portion indicated in the Purchase Notice,
of the Common Stock held by the Management Investor (and his Related
Transferees, if any) at a per share price equal to:
(1) in the case of Voluntary Termination or a Just Cause
Dismissal, the lower of the Purchase Price or the Fair Market Value
(as such term is defined in Section 5 below); or
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<PAGE> 7
(2) in the case of any other termination (including without
limitation Involuntary Termination Without Cause, death Retirement or
Permanent Disability), the Fair Market Value.
(b) If the Company does not elect to exercise its option set forth in
paragraph (a) of this Section 4, the Company shall give written notice that it
is not so electing to GEI within the time periods specified in paragraph (a) of
this Section 4 for the giving of the Purchase Notice. Upon receipt of such
notice from the Company, GEI shall have the option, exercisable by written
notice (a "GEI Purchase Notice") delivered to the Management Investor (or, in
the case of a deceased Management Investor, the Management Investor's personal
representative) within fifteen (15) days after receipt of such notice from the
Company, to purchase from the Seller (and, upon the giving of the GEI Purchase
Notice, GEI shall be obligated to purchase and the Seller shall be obligated to
sell) all, or any lesser portion indicated in the GEI Purchase Notice, of the
Common Stock held by the Seller at the per share price set forth in paragraph
(a) of this Section 4.
(c) In the event a purchase of shares of Common Stock pursuant to
this Section 4 shall be prohibited by law or would cause a default under the
terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party, the obligations of the Seller
and the Company pursuant to this Section 4 shall be suspended and no such
default would be caused; provided, however, that (x) the purchase price to be
paid by the Company for the shares shall accrue interest at the lowest rate
necessary to prevent the imputation of interest or original issue discount under
the Internal Revenue Code of 1986, as amended, reduced by any dividends or
distributions on such Common Stock during the period of such suspension, which
interest shall likewise be paid when such prohibition first lapses or is waived
and no such default would be caused and (y) in the event of any such suspension,
if GEI so elects and no violation of law would be caused and no default under
the terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party would result, the Company
shall transfer its obligations under this Section 4 to GEI or to a subsidiary,
in which case GEI or the subsidiary (as the case may be) and the Management
Investor (and the Related Transferees, if any, of the Management Investor) shall
be obligated to complete the purchase of shares of Common Stock pursuant to this
Section 4.
5. Purchase Price, Closing and Terms of Payment for "Call"
Sales.
(a) For purposes of this Agreement, the "Fair Market Value" of
each share of Common Stock shall be determined as of the time of the Call
Purchase Event by the Board of Directors of the Company in the exercise of its
reasonable discretion; provided, however, that such determination shall be based
upon the Company as a going concern and shall not discount the value of such
shares either because they are subject to the restrictions set forth in this
Agreement or because they constitute only a minority interest in the Company.
Upon delivery of notice of such Fair Market Value to the Seller of Common Stock
pursuant to Section 4 (which shall indicate, in a general fashion, the factors
considered by the Board of Directors in determining such amount), such Seller
shall have ten (10) business days in which
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<PAGE> 8
to notify the Company in writing of any disagreement. If no written notice of
disagreement is given, the Fair Market Value as determined by the Board of
Directors of the Company shall be conclusive. If written notice is given of a
disagreement, the Company and such Seller shall mutually agree upon an
independent appraiser experienced in making valuations of such sort which shall
make a determination of the Fair Market Value. Such determination shall be
final, binding and nonappealable upon the Company and such Seller. The costs and
expenses incurred in connection with the determination made by the independent
appraiser shall be borne equally by the Company and by the Seller.
(b) For purposes of this Agreement, the Management Investor shall be
deemed to be "Permanently Disabled" if the Management Investor becomes unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Company, at its option and expense, shall
be entitled to retain a physician to confirm the existence of such incapacity or
disability and the determination of such physician shall be binding upon the
Company and the Management Investor; provided, however, that if the Management
Investor disagrees with such determination of Permanent Disability within
fifteen (15) days of being notified of it, the Management Investor and the
Company shall jointly agree upon an independent physician (or, if they are
unable to agree upon such physician, they shall each select a physician and
those two physicians shall select the independent physician) who shall make the
determination, whose decision shall be binding upon the Company and the
Management Investor.
(c) For the purposes of this Agreement, the Management Investor shall
be deemed to be "Involuntarily Terminated Without Cause" upon the
later of the termination of the Management Investor's employment by, or removal
or failure to be reelected as a director of, the Company or any of its
subsidiaries, unless such termination, removal or failure to be reelected is due
to Retirement, death, Permanent Disability or a Just Cause Dismissal.
"Retirement" shall mean retirement in accordance with the retirement policies or
practices of the Company or its subsidiaries applicable to executives or
directors, as the case may be, but in no event at an age of less than seventy
(70). "Voluntary Termination" shall mean the termination by the Management
Investor of his employment with, or his resignation or refusal to stand for
reelection as a director of, the Company or any of its subsidiaries, for any
reason other than death, Permanent Disability, or Retirement. A "Just Cause
Dismissal" shall mean termination of the Management Investor's employment with,
or service as a director of, the Company or any of its subsidiaries as a result
of any of the following (each, a "Cause"):
(1) the Management Investor commits any act of fraud,
intentional misrepresentation or serious misconduct in connection with the
business of the Company or its subsidiaries, including but not limited to,
falsifying any documents or agreements (regardless of form); or
(2) the Management Investor materially violates any rule or
policy of the Company or its subsidiaries (A) for which violation an
employee may be terminated pursuant to the written policies of the Company
or its subsidiaries reasonably applicable
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<PAGE> 9
to an executive employee, or (B) which violation results in material
damage to the Company or its subsidiaries, or (C) which, after written
notice to do so, the Management Investor fails to correct within a
reasonable time; or
(3) the Management Investor willfully breaches or habitually
neglects any material aspect of the Management Investor's duties (A) as
described in the Management Investor's employment contract, or (B) in the
ordinary course of the Management Investor's employment or service as a
director, or (C) assigned to the Management Investor by the Company or its
subsidiaries, which assignment was reasonable in light of the Management
Investor's position with the Company or its subsidiaries (all of the
foregoing duties, "Duties"); or
(4) the Management Investor fails, after written notice,
adequately to perform any Duties and such failure is reasonably likely to
have an adverse impact upon the Company, its subsidiaries or the operations
of any of them; or
(5) the Management Investor materially fails to comply with a
direction from the Board of Directors of the Company or its subsidiaries
with respect to a material matter, which direction was reasonable in light
of the Management Investor's position with the Company or its subsidiaries;
or
(6) while employed by the Company or its subsidiaries, and
without the written approval of the Chief Executive Officer of the Company
(or, in case the Management Investor is such Chief Executive Officer,
approval of the Company's Board of Directors), the Management Investor
performs services for any other corporation or person which competes with
the Company or its subsidiaries; or
(7) the Management Investor is convicted by a court of competent
jurisdiction of a felony (other than a traffic or moving violation) or any
crime involving dishonesty; or
(8) any other action or condition that may result in
termination of an employee for cause pursuant to any generally applied
standard, of which standard the Management Investor knew or reasonably
should have known, adopted in good faith by the Board of Directors of
the Company or its subsidiaries from time to time but prior to such
action or condition; or
(9) any willful breach by the Management Investor of his or her
fiduciary duties as a director of the Company or any of its subsidiaries.
In the event that there is a dispute between the Management Investor and the
Company as to whether "Cause" for termination exists: (x) such termination shall
nonetheless be effective, (y) such dispute shall be subject to arbitration
pursuant to Section 13(f) hereof and (z) the payments or deliveries, if any, to
be made by the Company or GEI or any subsidiary in connection with a sale or
purchase of the Common Stock held by the Management Investor
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pursuant to Section 4 shall be delayed until the final resolution of such
dispute in such arbitration.
(b) The closing for all purchases and sales of Common Stock provided
for in Section 4 hereof shall be at the principal executive offices of the
Company at 10:30 a.m., Central Standard Time, on the later of (A) the sixtieth
day after the giving of the applicable Purchase Notice or GEI Purchase Notice
and (B) the thirtieth day after the final determination of the Fair Market Value
of the Common Stock as set forth above; provided, however, that if the
Management Investor (or a Related Transferee) who has become obligated to sell
shares of Common Stock hereunder is deceased on the closing date and such
deceased person's personal representative shall not have been appointed and
qualified by such date, then the closing shall be postponed until the tenth day
after the appointment and qualification of such personal representative. If the
aforesaid closing date falls on a day which is not a business day, then the
closing shall be held on the next succeeding business day.
(c) The purchase price for the purchase and sale of Common Stock
pursuant to the provisions hereof shall be paid in cash, by certified or by
official bank check.
(d) The Seller or Sellers of shares of Common Stock sold
pursuant to Section 4 hereof, if such shares are represented by one or more
certificates issued by the Company, shall cause such certificated shares to be
delivered to the Company at the closing free and clear of all liens, charges or
encumbrances of any kind. Such Seller or Sellers shall take all actions as the
Company shall request as necessary to vest in the Company at such closing all
shares sold pursuant to Section 4 hereof, whether in certificated or
uncertificated form, free and clear of all liens, charges and encumbrances
incurred, voluntarily or involuntarily, by or through Seller. At each closing
pursuant to Section 4, the Company shall deliver to the Seller reasonable
assurances to the effect that the Company's or a subsidiary's purchase of shares
thereat has been duly and validly authorized and complies with applicable state
securities laws.
6. Termination and Lapse of Rights and Restrictions;
Application to Other Stock.
(a) The provisions of Sections 1(b) (ii), 3(a), 3(b), 4, 8 and 9 of
this Agreement shall lapse and be of no further effect with respect to shares of
Common Stock upon the commencement of the public trading of the Company's Common
Stock (or any capital stock exchanged for or distributed upon such Common Stock
as described in paragraph (b) of this Section 6) on any national securities
exchange, on the NASDAQ National Market System or on the NASDAQ "Small Cap"
Issues System.
(b) In the event any capital stock of the Company or any other
corporation shall be distributed on, with respect to, or in exchange for shares
of Common Stock of the Company as a stock dividend, stock split, spin-off,
reclassification or recapitalization in connection with any merger or
reorganization, the restrictions, rights and options set forth in Sections 3, 4,
8 and 9 shall apply with respect to such other capital stock to the same extent
as
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they are, or would have been applicable, to the Common Stock acquired hereunder
on, or with respect to, which such other capital stock was distributed.
7. Piggyback Registration Rights.
(a) As used in this Agreement, the term "Holder" means the
Management Investor, a Related Transferee of the Management Investor or an
Outside Party.
(b) Subject to the provisions herein, if the Company at any time
proposes to include all or any part of GEI's Common Stock in a public offering
of Common Stock registered under the Act (other than registration (x) on Forms
S-4 or S-8 or any successor forms thereto or (y) filed in connection with an
exchange offer), the Company shall give written notice of the proposed
registration to each Holder at least thirty (30) days prior to the filing
thereof, and each Holder shall have the right to request that all or any part of
its shares of Common Stock be included in such registration by giving written
notice to the Company within fifteen (15) days after the giving of such notice
by the Company (any Holder giving the Company a notice requesting that shares of
Common Stock owned by it be included in such proposed registration being
hereinafter referred to in this Section 7 as a "Registering Holder"); provided,
however, that (i) if the registration is in whole or in part an underwritten
primary registration on behalf of the Company and the managing underwriters of
such offering determine that the aggregate amount of securities of the Company
which all Registering Holders and all other security holders of the Company,
pursuant to contractual rights to participate in such registration ("Other
Holder"), propose to include in such registration statement exceeds the maximum
amount of securities that should be included therein, the Company will include
in such registration, first, the shares which the Company proposes to sell and,
second, the shares of such Registering Holders and other securities to be sold
for the account of Other Holders, pro rata among all such Registering Holders
and Other Holders, taken together, on the basis of the relative equity interests
in the Company of all Registering Holders and Other Holders who have requested
that securities owned by them be so included (it being agreed and understood,
however, that such underwriters shall have the right to eliminate entirely the
participation in such registration of all Registering Holders and Other
Holders), and (ii) if the registration is an underwritten secondary registration
on behalf of any of the Other Holders pursuant to demand registration rights
(other than such right of GEI or its Affiliates (defined below)) and the
managing underwriters determine that the aggregate amount of securities which
all Registering Holders and all Other Holders propose to include in such
registration exceeds the maximum amount of securities that should be included
therein, the Company will include in such registration, first, the securities to
be sold for the account of the Other Holders demanding registration (but only to
the extent such Other Holders are entitled to demand inclusion thereof) second,
any securities to be sold for the account of the Company, and, third, the shares
of such Registering Holders and other securities to be sold for the account of
the Other Holders electing to include (but not being entitled to demand
inclusion of) securities in such registration, pro rata among all such
Registering Holders and Other Holders, taken together, on the basis of relative
equity interests in the Company of all Registering Holders and such Other
Holders who have requested that securities owned by them be included (it being
agreed and understood, however, that such underwriters shall have the right to
eliminate entirely the participation therein of all
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<PAGE> 12
such Registering Holders and Other Holders not entitled to demand inclusion of
securities in such registration). Shares of Common Stock proposed to be
registered and sold for the account of any Registering Holder shall be sold to
prospective underwriters selected or approved by the Company on the terms and
subject to the conditions of one or more underwriting agreements negotiated
between the Company and/or Other Holders demanding registration and the
prospective underwriters. For the purposes hereof, an "Affiliate" of any person
or entity means any other person or entity controlling, controlled by or under
common control with such person or entity; provided, however, that none of the
Management Stockholders (defined below) or any of their Affiliates shall be
deemed to be an Affiliate of GEI. "Management Stockholders" means, collectively,
all holders of capital stock or other securities issued by the Company who are
also employees of the Company or its subsidiaries.
In the event the Company proposes to register any of its Common Stock under
the Act on Form S-8 (or any successor thereto), if the Company determines that
it is permissible to do so and will not result in material added costs to the
Company from such registration, the Company shall, at a Registering Holder's
request, include in such registration a portion of such Registering Holder's
shares of Common Stock equal to the portion, if any, of GEI's shares of Common
Stock held as of the date of this Agreement sold by GEI in private transactions
from the date hereof to the date of such request.
The Registering Holders shall be permitted to withdraw all or a part of the
shares of Common Stock held by such Registering Holders which were to be
included in such registration at any time prior to the effective date of such
registration. The Company shall not be required to maintain the effectiveness of
the registration statement for such registration beyond the earlier to occur of
120 days after the effective date thereof or consummation of the distribution by
the Registering Holders included in such registration statement. The Company may
withdraw any registration statement at any time before it becomes effective, or
postpone the offering of securities, without obligation or liability to any
Holder.
(c) The registration rights sets forth in this Section 7 shall
terminate and be of no further effect with respect to the Common Stock held by a
Holder: (i) at such time as the Company has filed, and there has become
effective, one registration statement in which all Registering Holders have been
afforded the opportunity to include all shares of such class of securities held
by them or (ii) if earlier, after an initial public offering, all shares of
Common Stock acquired hereunder and held by the Management Investor are eligible
for sale pursuant to the provisions of Rule 144 under the Act.
(d) In connection with any registration of shares under the Act
pursuant to this Section 7, the Company will furnish each Holder whose shares of
Common Stock are registered thereunder with a copy of the registration statement
and all amendments thereto and will supply each such Holder with copies of any
prospectus included therein (including a preliminary prospectus and all
amendments and supplements thereto), in such quantities as may be reasonably
necessary for the purpose of the proposed sale or distribution covered by such
registration. The Company shall not, however, be required to maintain the
registration statement and to supply copies of a prospectus for a period beyond
120 days after the effective
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<PAGE> 13
date of such registration statement, at the end of such period, the Company may
deregister any shares of Common Stock covered by such registration statement and
not then sold or distributed. In connection with any such registration of shares
of Common Stock, the Company will, at the request of the managing underwriter
with respect thereto, use its best efforts to qualify such registered shares for
sale under the securities laws of such state as is reasonably required to permit
the distribution of such registered shares; provided, however, that the Company
shall not be required in connection therewith or as condition thereof to qualify
as a foreign corporation or to execute a general consent to service of process
in any jurisdiction or become subject to taxation in any jurisdiction.
(e) Notwithstanding any other provision of this Section 7, Holder
agrees that in the event of an underwritten public offering of Common Stock for
the account of the Company, such Holder will not offer for public sale (other
than as part of such underwritten public offering) any shares of Common Stock
during the ten (10) days prior to, and such number of days (not in excess of
180) after, the effective date of the registration statement in connection
with such public offering as the underwriters and the Company may request in
writing, without the consent of the underwriters; provided, however, that, in
the case of death of a Holder, if consented to by the underwriters, a Holder
shall be permitted to offer for public sale prior to the expiration of such
period shares of Common Stock reasonably necessary to generate funds of the
payment of estate taxes.
(f) Except as otherwise required by state securities laws or the
rules and regulations promulgated thereunder, all expenses, disbursements and
fees incurred by the Company in connection with carrying out its obligations
under this Section 7 shall be borne by the Company; provided, however, that each
Holder shall pay (i) all costs and expenses of counsel for such Holder, if such
counsel is not also counsel for the Company, (ii) all underwriting discounts,
commissions and expenses and all transfer taxes with respect to the shares of
Common Stock sold by such Holder and (iii) all other expenses incurred by such
Holder and incidental to the sale and delivery of the shares of Common Stock to
be sold by such Holder.
(g) It shall be a condition of each Holder's rights hereunder to have
shares of Common Stock owned by such Holder registered that:
(1) such Holder shall cooperate with the Company by supplying
information and executing documents relating to such Holder or the
securities of the Company owned by such Holder in connection with such
registration;
(2) such Holder shall enter into any undertakings and take such
other action relating to the conduct of the proposed offering which the
Company or the underwriters may reasonably request as being necessary to
insure compliance with federal and state securities laws and the rules or
other requirements of the National Association of Securities Dealers, Inc.
or which the Company or the underwriters may reasonably request to
otherwise effectuate the offering; and
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<PAGE> 14
(3) such Holder shall execute and deliver an agreement to
indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, any
underwriter (as defined in the Act) and each person, if any who
controls the Company or such underwriter within the meaning of the
Act, against such losses, claims, damages or liabilities (including
reimbursement for legal and other expenses) to which the Company or
any such director, officer, underwriter or controlling person may
become subject under the Act or otherwise, in such manner as is
customary for registration of the type then proposed and, in any
event, equivalent in scope to indemnities given by the Company in
connection with such registration, but only with respect to written
information furnished by such Holder in his or her capacity as a
selling shareholder in connection with such registration.
(h) In the event of any registration under the Act of any
shares of Common Stock pursuant to this Section 7, the Company hereby agrees to
indemnify and hold harmless each Holder disposing of such shares against such
losses, claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such Holder may become subject under the Act or
otherwise, in such manner as is customary for registrations of the type then
proposed, but not with respect to written information furnished by such Holder
in his capacity as a selling shareholder in connection with such registration.
8. Tag-Along Rights.
(a) Right to Participate in Sale. If GEI enters into an agreement to
transfer, sell or otherwise dispose of (such transfer, sale or other disposition
being referred to as a "Tag-Along Sale") a majority of its shares of Common
Stock of the Company held on the date hereof, then GEI shall afford the Holder
the opportunity to participate proportionately in such Tag-Along Sale in
accordance with this Section 8. The Holder shall have the right, but not the
obligation (except as provided in Section 9), to participate in such Tag-Along
Sale. The number of shares of Common Stock that the Holder will be entitled to
include in such Tag-Along Sale (the "Management Investor's Allotment") shall be
determined by multiplying (i) the number of shares of Common Stock held by the
Holder on the Tag-Along Sale Date (as defined below), by (ii) a fraction, the
numerator or which shall equal the number of shares of Common Stock proposed by
GEI to be sold or otherwise disposed of pursuant to the Tag-Along Sale and the
denominator of which shall equal the total number of shares of Common Stock that
are beneficially owned by (a) GEI and (b) any holder of shares of Common Stock
(including the Holder) that has the right to "tag-along" in the Tag-Along Sale
on the Tag-Along Sale Date. The "Tag Along Notice Date" shall be the date that
the Tag-Along Sale Notice (as defined below) is first delivered, mailed or sent
by courier, Telex or telecopy to the Holder.
(b) Limitation on Management Investor Representations; Indemnity.
Any sales of shares of Common Stock by a Holder as a result of the "Tag-Along
Rights" granted to the Holder pursuant to this agreement shall be on the same
terms and conditions as the proposed Tag-Along Sale by GEI; provided, however,
that in negotiating a Tag-Along Sale, GEI shall use its reasonable, good faith
efforts to provide (i) that the only representation and warranty which the
Holder shall be required to make in connection with any transfer is a warranty
with
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<PAGE> 15
respect to the Holder's own ability to convey title thereto free and clear of
liens, encumbrances or adverse claims and (ii) that the warranty made in
connection with any transfer is the several liability of the Holder (and not
joint with any other person) and that such liability is limited to the amount of
proceeds actually received by such Holder.
(c) Sale Notice. GEI shall provide the Holder with written notice
(the Tag-Along Sale Notice") not more than sixty (60) nor less than twenty (20)
days prior to the proposed date of the Tag-Along Sale (the "Tag-Along Sale
Date"). Each Tag-Along Sale Notice shall set forth: (i) the name and address of
each proposed transferee or purchaser of shares in the Tag-Along Sale; (ii) the
number of shares proposed to be transferred or sold by GEI; (iii) the proposed
amount and form of consideration to be paid for such shares and the terms and
conditions of payment offered by each proposed transferee or purchaser; (iv) the
aggregate number of shares of Common Stock held of record as of the close of
business on the day immediately preceding the Tag-Along Notice Date by GEI; (v)
the Management Investor's Allotment assuming the Holder elected to sell the
maximum number of shares of Common Stock possible; (vi) confirmation that the
proposed purchaser or transferee has been informed of the "Tag-Along Rights"
provided for herein and has agreed to purchase shares of Common Stock (including
Vested Shares) in accordance with the terms hereof and (vii) the Tag-Along Sale
Date.
(d) Tag-Along Notice. If the Holder wishes to participate in the
Tag-Along Sale, the Holder shall provide written notice (the "Tag-Along Notice")
to GEI no less than ten (10) days prior to the Tag-Along Sale Date. The
Tag-Along Notice shall set forth the number of shares of Common Stock that such
Holder elects to include in the Tag-Along Sale, which shall not exceed the
Management Investor's Allotment. The Tag-Along Notice shall also specify the
aggregate number of additional shares of Common Stock owned of record as of the
close of business on the day immediately preceding the Tag-Along Notice Date by
such Holder, if any, which such Holder desires also to include in the Tag-Along
Sale ("Additional Shares") in the event there is any undersubscription for the
entire amount of all Management Investors' Allotments of all shares that may be
included by persons having, and pursuant to, tag-along rights relative to GEI
(collectively, the "Management Investors' Allotments"). In the event there is an
under-subscription by all holders of Management Investors' Allotments for the
entire amount of the Management Investors' Allotments, GEI shall apportion the
unsubscribed Management Investors' Allotments to such holders whose tag-along
apportionment shall be on a pro rata basis among such holders in accordance with
the number of Additional Shares specified by all such holders in their Tag-Along
Notice. The Tag-Along Notices given by the Holder shall constitute the Holder's
binding agreement to sell such shares of Common Stock on the terms and
conditions applicable to the Tag-Along Sale, subject to the provisions of
Section 8(b) above; provided, however, that in the event that there is any
material change in the terms and conditions of such Tag-Along Sale applicable to
the Holder after the Holder gives the Tag-Along Notice, then, notwithstanding
anything herein to the contrary, the Holder shall have the right to withdraw
from participation in the Tag-Along Sale with respect to all of its shares of
Common Stock affected thereby. If the purchaser does not consummate the purchase
of all of such shares on the same terms and conditions applicable to GEI (except
as otherwise provided herein) then GEI shall not consummate the Tag-Along Sale
of any of its shares to such
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transferee or purchaser, unless the shares of the Holder and GEI are reduced or
limited pro rata in proportion to the respective number of shares actually sold
in any such Tag-Along Sale.
If a Tag-Along Notice is not received by GEI from the Holder prior to the
ten-day period specified above, GEI shall have the right to sell or otherwise
transfer the number of shares specified in the Tag-Along Notice to the proposed
purchaser or transferee without any participation by such Holder, but only on
terms and conditions which are no more favorable in any material respect to GEI
than as stated in the Tag-Along Notice to the Holder and only if such Tag-Along
Sale occurs on a date within sixty (60) business days of the Tag-Along Sale
Date.
(e) Authority to Record Transfer/Delivery of Certificates. On
the Tag-Along Sale Date, the Holder, if a participant therein, authorizes the
Company (or the Company's transfer agent, if any) to record in the Company's
books and records the transfer of all of the Holder's shares of Common Stock
which are not represented by one or more certificates issued by the Company,
from the Holder to the purchaser in the Tag-Along Sale. On the Tag-Along Sale
Date, the Holder, if a participant therein, shall also deliver all certificates,
if any, issued by the Company which represent shares of the Company's Common
Stock, duly endorsed for transfer with signatures guaranteed, to the purchaser
in the Tag-Along Sale, in the manner and at the address indicated in the
Tag-Along Notice against delivery of the purchase price for such shares;
provided, however, that in the event the Company has possession of any such
certificate(s) pursuant to this Agreement, upon the written request of the
Holder at least five (5) business days in advance of the Tag-Along Sale Date,
the Company shall deliver such certificate(s) to the purchaser at the time and
in the manner described above.
(f) Exempt Transfers. The provisions of this Section 8 shall not
apply to (i) any bona fide underwritten offering of Common Stock pursuant to
an effective registration statement under the Act or any bona fide public
distribution of Common Stock pursuant to Rule 144 thereunder, provided that any
such sale complies with the provisions of this Agreement; (ii) any transfer,
sale or other disposition by GEI to one of its Affiliates (except that (A) prior
to any such disposition, the party receiving such shares of Common Stock shall
agree in writing to be bound by the terms of this Agreement applicable to GEI as
if such transferee were an original party hereto and (B) any such shares of
Common Stock shall continue to be subject to this Agreement); (iii) any
redemption by the Company of its Common Stock or (iv) any GEI Distribution (as
defined in Section 14).
9. Drag-Along Sales.
(a) Right to Require Sale. Notwithstanding any other provision
hereof, if GEI agrees to sell 100% of the shares of Common Stock held by it to a
third person who is not an affiliate of GEI (a "Third Party") or if GEI agrees
to sell a portion of its shares pursuant to a transaction in which more than 50%
of the total Common Stock of the Company will be sold to a Third Party (either
of such sales, a "Drag-Along Sale"), then, upon the demand of GEI, each Holder
hereby agrees to sell to such Third Party the same percentage of the total
number of shares of Common Stock held by such Holder on the date of the
Drag-Along Notice, as the
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<PAGE> 17
number of shares GEI is selling in the Drag-Along Sales bears to the total
number of shares held be GEI as of the date of the Drag-Along Notice (the "Sale
Percentage"), at the same price and on the same terms and conditions as GEI has
agreed to with such Third Party; provided, however, that GEI shall use its
reasonable, good faith efforts to provide that (i) the only representation and
warranty which the Holder shall be required to make in connection with the
Drag-Along Sale is a representation and warranty with respect to the Holder's
own ownership of the shares of Common Stock to be sold by it and its ability to
convey title thereto free and clear of liens, encumbrances or adverse claims and
(ii) that the liability of any other Holder with respect to any representation
and warranty made in connection with the Drag-Along Sale is the several
liability of such other Holder (and not joint with any other person) and that
such liability is limited to the amount of proceeds actually received by such
other Holder in the Drag-Along Sale; provided further, that the Holder shall not
be obligated to participate in any Drag-Along Sale unless the Holder is provided
an opinion of counsel to the effect that the Drag-Along Sale is not in violation
of applicable federal or state securities or other laws or, if the Holder is not
provided with an opinion with respect to any matters contemplated by this
proviso, GEI shall (in addition to the indemnification contemplated below)
indemnify the Holder for any violation. If the Drag-Along Sale is in the form of
a merger transaction, the Holder agrees to vote his or her shares of Common
Stock in favor of such merger and not to exercise any rights of appraisal or
dissent afforded under applicable law.
(b) Drag-Along Notice. Prior to making any Drag-Along Sale, if GEI
elects to exercise the option described in this Section 9, GEI shall provide
the Holder with written notice (the "Drag-Along Notice") not more than sixty
(60) nor less than twenty (20) days prior to the proposed date of the Drag-Along
Sale (the "Drag-Along Sale Date"). The Drag-Along Notice shall set forth: (i)
the name and address of the Third Party; (ii) the proposed amount and form of
consideration to be paid per share and the terms and conditions of payment
offered by the Third Party; (iii) the aggregate number of shares of Common Stock
held by GEI as of the date that the Drag-Along Notice is first delivered, mailed
or sent by courier, telex or telecopy to the Holder; (iv) the sale percentage;
(v) the Drag-Along Sale Date and (vi) confirmation that the proposed Third Party
has agreed to purchase the Management Investor's shares of Common Stock in
accordance with the terms hereof.
(c) Authority to Record Transfer/Delivery of Certificates. The
Company (or the Company's transfer agent, if any) shall record in the Company's
books and records the transfer of the Sale Percentage of the Holder's shares of
Common Stock which is not represented by one or more certificates issued by the
Company, from the Holder to the Third Party, on the Drag-Along Sale Date. If any
part of the Sale Percentage of the Holder's shares of Common Stock is
represented by one or more certificates issued by the Company, the Holder shall
deliver such certificate or certificates for such shares, duly endorsed for
transfer with signatures guaranteed, to such Third Party on the Drag-Along Sale
Date in the manner and at the address indicated in the Drag-Along Notice against
delivery of the purchase price for the shares; provided, however, that in the
event the Company has possession of any such certificate(s) pursuant to this
Agreement, upon the written request of the Holder at least five (5) business
days in advance of the Drag-Along Sale Date, the Company shall deliver such
certificate(s) to the purchaser at the time and in the manner described above.
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(d) Consideration. The provisions of this Section 9 shall apply
regardless of the form of consideration received in the Drag-Along Sale.
10. Noncompetition.
(a) Management Investor covenants and agrees that Management
Investor will not, during the period of his employment with the Company or any
of the Company's subsidiaries, and for a period of three (3) years after the
termination of such employment, without the prior written consent of the
Company, individually or in partnership or in conjunction with or as an
employee, officer, director, manager or agent of any other person, firm,
corporation or other entity, either directly or indirectly, undertake or carry
on or be engaged or have any financial or other interest in, or in any other
manner advise or assist any person, firm, corporation or other entity engaged or
interested in, any newspaper publishing business or any other business involving
the printing or publication of any newspaper, flyer, shopper, circular or other
publication carrying advertising, or any other business involving the
solicitation of local advertising, or any advertising agency business, or any
job printing business, carried on in any community or communities described in
Annex C attached hereto or within a radius of fifty (50) miles of the center
point of any such community.
(b) Management Investor further covenants and agrees to
refrain, for a period of three (3) years following the termination of Management
Investor's employment by or on behalf of the Company or any of the Company's
subsidiaries, for whatever reason, from (i) selling, or attempting to sell, any
advertising which is or is intended to be distributed or disseminated within any
community or communities listed in Annex C hereto or within a fifty (50) mile
radius of the center point of any such community to any person, firm,
corporation or other entity which, at the termination of such employment, was a
purchaser of advertising from one or more of the newspapers or other
publications of the Company or any of the Company's subsidiaries; (ii) inducing,
or attempting to induce, any person, firm or corporation to cease, discontinue
or fail to renew any advertising contract, agreement or arrangement with one or
more of the newspapers or other publications of the Company or any of the
Company's subsidiaries; and (iii) soliciting, employing, diverting or taking
away, or attempting to solicit, employ, divert or take away, any person who, at
the time of such termination or at any time during the six (6) month period
prior to such termination, was employed by or on behalf of the Company or any of
the Company's subsidiaries.
(c) Management Investor further agrees and warrants that the
covenants contained in this Section 10 are reasonable, that valid consideration
has been and will be received therefor and that the agreements set forth herein
are the result of arm's length negotiation between the parties hereto.
Management Investor believes that he will be able to earn an adequate livelihood
for himself and his dependents if the covenants contained in this Section 10 are
enforced against him.
(d) If any of the provisions of or covenants contained in
this Section 10 is hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which
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shall be given full force and effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of or
covenants contained in this Section 10 is held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the parties
agree (i) that the court making such determination shall have the power to
reduce the duration and/or geographical scope of such provision or covenant and,
in its reduced form, said provision or covenant shall be enforceable, provided,
however, that the determination of such court shall not affect the
enforceability of this Section 10 in any other jurisdiction, and (ii) that if
the court making such determination shall not have the power, or shall refuse to
exercise its power, to reduce the duration and/or geographical scope of such
provision or covenant, then the Management Investor shall, in further
consideration of stock sold pursuant to this Agreement, and without the
requirement of any further consideration, enter into a new Noncompetition
Agreement substantially in the form of this Section 10 but containing such
reduced duration and/or geographical scope as shall be determined by the
Company, in its sole discretion.
11. Notices. All notices or other communications under this
Agreement shall be given in writing and shall be deemed duly given and received
on the third full business day following the day of the mailing thereof by
registered or certified mail or when delivered personally or sent by facsimile
transmission as follows:
(a) if to the Company, at its principal executive offices at the time
of the giving of such notice, or at such other place as the Company shall have
designated by notice as herein provided to the Management Investor, Attention:
Kenneth L. Serota;
(b) if to the Management Investor, at the address of the
Management Investor as it appears in Annex A or at such other place as the
Management Investor shall have designated by notice as herein provided to the
Company;
(c) if to GEI, at its principal executive offices at the time
of the giving of such notice, or at such other place as GEI shall have
designated by notice as herein provided to the Company.
12. Specific Performance. Due to the fact that the securities of the
Company cannot be readily purchased or sold in the open market and because
damages to the Company and its Subsidiaries will be difficult to ascertain and
remedies at law to the Company and its Subsidiaries will be inadequate and for
other reasons, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforced. In the event of a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by any of the
parties hereto, the other parties shall, in addition to all other remedies, be
entitled (without any bond or other security being required) to a temporary
and/or permanent injunction, without showing any actual damage or that monetary
damages would not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
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<PAGE> 20
13. Miscellaneous.
(a) Except as provided in the last sentence of this paragraph,
this writing constitutes the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except by a written
agreement signed by the Company, GEI and the Management Investor; provided,
however, that any of the provisions of this Agreement (except as hereinafter
provided) may be modified, amended or eliminated by agreement of the Company,
GEI and a majority in interest (on the basis of the number of shares of Common
Stock then owned by the Management Investor and/or his Related Transferees) of
all of the Management Investors and all holders of securities pursuant to
agreements in forms substantially similar to this Agreement, which agreement
shall bind the Management Investor whether or not the Management Investor has
agreed thereto; provided, further, that no modification or amendment which would
materially adversely affect the rights of the Management Investor under Sections
3, 4, 5, 6, 7, 8, 9, 10 or 13(a) of this Agreement shall be effective as to the
Management Investor if the Management Investor shall not have consented in
writing thereto. Anything in this Agreement to the contrary notwithstanding, any
modification or amendment of this Agreement by a written agreement signed by, or
binding upon, the Management Investor shall be valid and binding upon any and
all persons or entities who may, at any time, have or claim any rights under or
pursuant to this Agreement in respect of Common Stock acquired hereunder is
subject to, and the Company and the Management Investor agree to be bound by,
all of the terms and conditions of this Agreement.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature. Anything in
this Agreement to the contrary notwithstanding, any waiver, consent or other
instrument under or pursuant to this Agreement signed by, or binding upon, the
Management Investor shall be valid and binding upon any and all persons or
entities (other than the Company) who may, at any time, have or claim any rights
under or pursuant to this Agreement in respect of the Common Stock acquired
hereunder.
(c) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns and the Management Investor and the Management Investor's
heirs, personal representatives, successors and assigns; provided, however, that
nothing contained herein shall be construed as granting the Management Investor
the right to transfer any Common Stock acquired hereunder except in accordance
with this Agreement and any transferee shall hold such Common Stock having only
those rights and being subject to the restrictions provided for in this
Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
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<PAGE> 21
(e) The provisions of this Agreement shall apply to all shares
of Common Stock acquired hereunder by the Management Investor (including the
Management Investor's Related Transferees and any Outside Parties).
(f) Except as set forth in Section 12, arbitration shall be
the exclusive remedy for resolving any dispute or controversy between the
Company, any of its subsidiaries or GEI and any Management Investor, personal
representative of an Management Investor, Related Transferee, Holder or Outside
Party. Such arbitration shall be conducted in accordance with the then most
applicable rules of the American Arbitration Association. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
In the event of any conflict between this Agreement and the rules of the
American Arbitration Association, the provisions of this Agreement shall be
determinative. If the parties are unable to agree upon an arbitrator, they shall
select a single arbitrator from a list of seven arbitrators designated by the
office of the American Arbitration Association having responsibility for the
city in which the Management Investor last resided while employed by the Company
or its subsidiaries, all of whom shall be retired judges who are actively
involved in hearing private cases or members of the National Academy of
Arbitrators. If the parties are unable to agree upon an arbitrator from such
list, they shall each strike names alternatively from the list, with the first
to strike being determined by lot. After each party has used three strikes, the
remaining name on the list shall be the arbitrator. The fees and expenses of the
arbitrator shall initially be borne equally by the parties; provided, however,
that each party shall initially be responsible for the fees and expenses of its
own representatives and witnesses. If the parties cannot agree upon a location
for the arbitration, the arbitrator shall determine the location. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction. The
prevailing party in the arbitration proceeding, as determined by the arbitrator,
and in any enforcement or other court proceedings, shall be entitled to the
extent provided by law to reimbursement from the other party for all of the
prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses and reasonable attorneys' fees.
(g) Should any party to this Agreement be required to commence
any litigation concerning any provision of this Agreement or the rights and
duties of the parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted, to the
reasonable attorneys' fees and court costs incurred by reason of such
litigation.
(h) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
sections.
(i) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(j) The Management Investor represents that, if the Management
Investor is married, the Management Investor's spouse has signed the
Acknowledgment and Agreement of Spouse relating to the Management Investor at
the end of this Agreement.
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<PAGE> 22
(k) Words in the singular shall be read and construed as though in
the plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
(l) This Agreement may be executed in one or more counterparts, all
of which taken together shall be deemed one original.
(m) The Management Investor hereby irrevocably and
unconditionally consents to the jurisdiction of any Delaware State court or
federal court of the United States sitting in the State of Delaware in any
action or proceeding relating to this Agreement and consents to service of
process in connection therewith by the delivery of notice to such Management
Investor's address set forth in this Agreement.
(n) This Agreement shall be deemed to be a contract under the
laws of the State of Delaware and for all purposes shall be construed and
enforced in accordance with the internal laws of said state without regard to
the principles of conflicts of law.
14. GEI Distributions Exempt.
It is expressly understood and agreed that GEI may distribute
to its partners or equity participants, in accordance with the terms of its
limited partnership agreement, all or any part of the shares of the Company's
capital stock or other Company securities held by it (any such distribution, a
"GEI Distribution"). Notwithstanding anything to the contrary contained in this
Agreement, any GEI distribution shall not constitute a "sale," "transfer" or
"disposition" for any purpose under this Agreement and shall be exempt in all
respects from the terms and conditions of this Agreement. As an example, and
without limiting the generality of the foregoing, it is expressly understood and
agreed that a GEI Distribution shall not constitute a Tag-Along Sale for the
purposes of Section 8 hereof. Further, it is also expressly understood and
agreed that, following a GEI Distribution (i) the shares of the Company's
capital stock or other Company securities distributed to the partners or equity
participants of GEI shall in no way be subject to this Agreement and (ii) any
partner or equity participant of GEI which receives shares of the Company's
capital stock or other Company securities pursuant to a GEI Distribution shall
not be required or deemed to become a party to this Agreement or otherwise be
subject to this Agreement.
15. Original Agreement.
This Agreement amends and restates the Original Agreement in its
entirety.
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Management
Stockholders Agreement as of the first date written above.
LIBERTY GROUP PUBLISHING, INC.
By: _________________________________________
Name: _______________________________________
Its: ________________________________________
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, LLP
By: Grand Avenue Capital Corporation,
its general partner
By: _________________________________________
Name: _______________________________________
Management Investor
By: _________________________________________
Name: Scott Champion
<PAGE> 24
Acknowledgment and Agreement of Spouse
The undersigned, being the spouse of the Management Investor listed on
Annex A hereto, hereby agrees to be bound by the provisions of this Agreement.
By: _________________________________________
Name: _______________________________________
<PAGE> 25
Annex A
- -------------------------------------- --------------------------------------
Name and Address Number of Initial Purchased Shares
of Management Investor
- -------------------------------------- --------------------------------------
Scott Champion 800
15 Fairway Drive
Monmouth, Illinois
- -------------------------------------- --------------------------------------
<PAGE> 26
Annex B
- -------------------------------------- --------------------------------------
Name and Address Number of Grant Shares
of Management Investor
- -------------------------------------- --------------------------------------
Scott Champion 27.5
15 Fairway Drive
Monmouth, Illinois
- -------------------------------------- --------------------------------------
<PAGE> 27
Annex C
Communities Subject to Noncompetition Provisions
Benton, IL
Chester IL
Christopher, IL
DuQuoin, IL
Galatia, IL
Shawneetown, IL
Harrisburg, IL
Herrin, IL
Galesburg, IL
Marion, IL Monmouth, IL
Murphysboro, IL
West Frankfort, IL
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED MANAGEMENT SUBSCRIPTION
AND STOCKHOLDERS AGREEMENT
This Amended and Restated Management Subscription and Stockholders
Agreement (the "Agreement") is entered into as of February 1, 2000, by and
between Liberty Group Publishing, Inc., a Delaware corporation (the "Company"),
Green Equity Investors II, L.P., a Delaware limited partnership ("GEI"), and the
person identified on Annex A attached hereto (hereinafter referred to as the
"Management Investor"), with reference to the following facts:
WHEREAS, GEI is the principal shareholder of the Company;
WHEREAS, Management Investor is a key employee of the Company or one of
its subsidiaries and, accordingly, as an incentive to the Management Investor,
the Company has previously issued, and may from time to time hereafter desire to
issue, uncertificated shares of the Company's common stock (collectively, the
"Common Stock") to the Management Investor as set forth herein;
WHEREAS, the Company, GEI and the Management Investor are parties to
that certain Management Subscription and Stockholders Agreement entered into as
of March ___, 1998 (the "Original Agreement"); and
WHEREAS, the Company, GEI and the Management Investor desire to amend
and restate the Original Agreement in its entirety to be in the form of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Management Investor Representations.
(a) Investment Risk. The Management Investor represents and
acknowledges that (i) as a result of the Management Investor's (A) existing
relationship with the Company and by virtue of being an executive of business
enterprises acquired by the Company, and (B) experience in financial matters,
the Management Investor is properly able to evaluate the capital structure of
the Company, the business of the Company and its subsidiaries and the risks
inherent therein; (ii) the Management Investor has been given the opportunity to
obtain any additional information or documents from and to ask questions, and
receive answers of, the officers and representatives of the Company and its
subsidiaries to the extent necessary to evaluate the merits and risks related to
an investment in the Company; (iii) the Management Investor has been and will
be, to the extent the Management Investor deems necessary, advised by legal
counsel of the Management Investor's choice at Management Investor's expense in
connection with this Agreement and the issuance and sale of Common Stock
hereunder and (iv) the purchase or issuance of Common Stock hereunder will be
consistent, in both nature and amount, with the Management Investor's overall
investment
<PAGE> 2
program and financial condition, and the Management Investor's financial
condition will be such that the Management Investor will be able to bear the
economic risk of holding unregistered Common Stock for which there is no market
and to suffer a complete loss of the Management Investor's investment therein.
The Management Investor further acknowledges that investment in the Common Stock
hereunder involves significant risks and that these risks include, without
limitation, the facts that the Company is a relatively newly-formed holding
company and that the Company will have a leveraged financial structure.
(b) Purchase for Investment.
(1) The Management Investor represents and warrants
that: (A) the Common Stock acquired by the Management Investor hereunder will be
acquired for the Management Investor's own account for investment, without any
present intention of selling or further distributing the same and the Management
Investor will not have any reason to anticipate any change in the Management
Investor's circumstances or any other particular occasion or event which would
cause the Management Investor to sell any of such Common Stock and (B) the
Management Investor is fully aware that in agreeing to sell or issue such Common
Stock to the Management Investor the Company will be relying upon the truth and
accuracy of these representations and warranties. The Management Investor agrees
that the Management Investor will not sell or otherwise dispose of any Common
Stock except in compliance with the Securities Act of 1933, as amended (the
"Act"), the rules and regulations of the Securities and Exchange Commission
thereunder, the relevant state securities laws applicable to the Management
Investor's action and the terms of this Agreement.
(2) Subject to Section 6 below, in addition to the
other restrictions provided in this Agreement, the Management Investor agrees
that prior to making any disposition of any Common Stock acquired hereunder
(other than a disposition to the Company), the Management Investor will give not
less than 10 days' advance written notice to the Company describing the manner
of such proposed disposition. The Management Investor further agrees that the
Management Investor will not effect such proposed disposition until either (A)
the Management Investor has provided to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form and substance to
the Company that such proposed disposition is exempt from registration under the
Act and any applicable state securities laws or (B) a registration statement
under the Act covering such proposed disposition has been filed by the Company
under the Act and has become effective and compliance with applicable state
securities laws has been effected.
(3) The Management Investor acknowledges that no
trading market for the Common Stock exists currently or is expected to exist at
any time in the foreseeable future and that, as a result, the Management
Investor may be unable to sell any of the Common Stock acquired hereunder for an
indefinite period. Further, the Company has no obligation to register any of the
Common Stock, except as expressly provided in Section 7 of this Agreement.
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<PAGE> 3
(4) The Management Investor acknowledges and agrees
that nothing herein, including the opportunity to make any equity investment in
the Company, shall be deemed to create any implication concerning the adequacy
of the Management Investor's services to any of the Company or its subsidiaries
or shall be construed as an agreement by the Company or its subsidiaries,
express or implied, to employ the Management Investor or contract for the
Management Investor's services, to restrict the right of the Company or its
subsidiaries to discharge the Management Investor or cease contracting for the
Management Investor's services or to modify, extend or otherwise affect in any
manner whatsoever the terms of any employment agreement or contract for services
which may exist between the Management Investor and the Company or its
subsidiaries.
2. Grant of Management Shares and Legend on Certificates.
(a) Grant of Management Shares. The Company hereby grants to
the Management Investor the right to purchase, on the terms and conditions set
forth in this Agreement, all or any part of the number of shares of Common Stock
indicated on Annex A hereto (the "Initial Purchased Shares") at the purchase
price of $100 (the "Purchase Price") per share. In addition, the Company hereby
grants to the Management Investor the number of shares of Common Stock indicated
in Annex B hereto (the "Grant Shares"). All shares of Common Stock issued
hereunder (including, but not limited to, the Initial Purchased Shares, the
Grant Shares and any additional shares of Common Stock issued to the Management
Investor from time to time hereafter, whether as a dividend or other
distribution with respect to or in replacement of shares of Common Stock, as a
result of a stock dividend, stock split or subdivision, stock combination or
recapitalization, upon the exercise or conversion of other securities issued to
the Management Investor or otherwise) shall be subject to all of the terms and
restrictions contained in this Agreement, including, without limitation, those
in Sections 1(b), 3, 4, 8 and 9, and shall be uncertificated shares. Subject to
the limitations set forth in Section 2(b), the Management Investor shall be
entitled, upon written request to the Company, to have a certificate issued to
him or her representing Common Stock issued hereunder.
(b) Legend on Certificates. Each stock certificate issued to
the Management Investor upon written request to the Company representing Common
Stock issued hereunder shall bear the following (or substantially equivalent)
legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR ANY SUCCESSOR RULE UNDER
THE ACT OR LIBERTY GROUP PUBLISHING, INC. (THE "COMPANY")
RECEIVES AN
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<PAGE> 4
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AMENDED AND
RESTATED MANAGEMENT SUBSCRIPTION AND STOCKHOLDERS AGREEMENT
DATED AS OF FEBRUARY ___, 2000, BETWEEN THE PURCHASER PARTY
THERETO AND THE COMPANY, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY, AND THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE VOTED, TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH VOTING, TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE
PROVISIONS OF SUCH AGREEMENT.
Any stock certificate issued at any time in exchange or substitution for any
certificates bearing such legends (except a new certificate issued upon the
completion of a public distribution of Common Stock represented thereby) shall
also bear such (or substantially equivalent) legends, unless the Common Stock
represented by such certificate is no longer subject to the provisions of this
Agreement and, in the opinion of counsel for the Company, the Common Stock
represented thereby need no longer be subject to restrictions pursuant to the
Act or applicable state securities law. The Company shall not be required to
transfer on its books any certificate for Common Stock in violation of the
provisions of this Agreement.
3. Transfer of Stock.
(a) Prohibition on Transfer. Subject to the provisions of
Section 6, the Management Investor agrees that the Management Investor will not,
on or prior to the tenth anniversary of this Agreement, directly or indirectly,
sell, pledge, give, bequeath, transfer, assign or in any other way whatsoever
encumber or dispose of (a "transfer") any Common Stock (or any interest therein)
acquired hereunder, except for transfers (i) pursuant to this Section 3 or
Sections 4, 7, 8, or 9 of this Agreement or (ii) as may be specifically
authorized by the Board of Directors of the Company in its sole discretion
(either of (i) or (ii), a "Permitted Transfer").
(b) Transfer Procedure; Right of First Refusal. The Management
Investor agrees that the Management Investor will not, after the lapse of the
restriction in clause (a) of this Section 3, transfer any Common Stock (or
interest therein) acquired hereunder, except for Permitted Transfers or
transfers in accordance with the following:
(1) If the Management Investor shall have received a
bona fide arm's length written offer (a "Bona Fide Offer") which the
Management Investor desires to
4
<PAGE> 5
accept from an independent party unrelated to the Management Investor
(the "Outside Party") for the purchase of such Common Stock for
consideration consisting entirely of cash, then the Management Investor
shall give a notice in writing (the "Option Notice") to the Company
setting forth such desire, which notice shall set forth at least the
name and address of the Outside Party and the price and terms of the
Bona Fide Offer and be accompanied by a copy of the Bona Fide Offer.
(2) Upon the giving of such Option Notice, the
Company shall have an option (transferable, in the sole discretion of
the Board of Directors of the Company, to GEI or to a subsidiary) to
purchase all of the Common Stock specified in the Option Notice, said
option to be exercised within thirty (30) days after the giving of such
Option Notice, by giving a counter-notice (the "Election Notice") to
the Management Investor.
(3) If the Company (or GEI or a subsidiary, if
applicable) elects to purchase all of such Common Stock, it shall be
obligated to purchase, and the Management Investor shall be obligated
to sell, such Common Stock at the cash price and terms indicated in the
Bona Fide Offer, except that the closing of the purchase by the Company
(or GEI or a subsidiary, if applicable) shall be held on a business day
within sixty (60) days after the giving of the Election Notice at 10:30
a.m., Central Standard Time, at the principal executive office of the
Company, or at such other time and place as may be mutually agreed to
by the Company (or GEI or a subsidiary) and the Management Investor.
(4) If an Election Notice is not delivered by the
Company (or GEI or a subsidiary, if applicable) within the period
specified above, the Management Investor thereafter, at any time within
a period of sixty (60) days from the giving of said Option Notice, may
transfer all of the provisions of this Agreement and, as a condition
precedent to the completion of such transfer of Common Stock to such
Outside Party, shall execute and deliver to the Company a written
consent to such effect in form and substance satisfactory to the
Company; provided, however, that in the event the Management Investor
has not so transferred said Common Stock to the Outside Party within
said three-month period, then said Common Stock thereafter shall
continue to be subject to all of the restrictions contained in this
Agreement.
(b) No Waiver by Company. Any election in any instance by the
Company (or GEI or a subsidiary, if applicable) not to exercise its rights of
first refusal under this Section 3 shall not constitute a waiver of such rights
with respect to any other proposed transfer of Common Stock.
(c) Transfer to Related Transferees. Notwithstanding anything
to the contrary contained in clauses (a) through (c) of this Section 3, the
Management Investor may transfer the Management Investor's Common Stock without
restriction to the Management Investor's Related Transferees (as defined below)
provided that each such Related Transferee shall first (i) execute a written
consent in form and substance satisfactory to the Company to be
5
<PAGE> 6
bound by all of the provisions of this Agreement and (ii) give a duplicate
original of such consent to the Company. The "Related Transferee" of the
Management Investor shall consist of the Management Investor's spouse, the
Management Investor's adult lineal descendants, the adult spouses of such lineal
descendants, trusts solely for the benefit of the Management Investor's spouse
or the Management Investor's minor or adult lineal descendants and, in the event
of death, the Management Investor's personal representatives (in their
capacities as such), estate and named beneficiaries. In the event of any
transfer by the Management Investor to his Related Transferees of all or any
part of the Management Investor's Common Stock (or in the event of any
subsequent transfer by any such Related Transferee to another Related Transferee
of the Management Investor), such Related Transferees shall receive and hold
said Common Stock subject to the terms of this Agreement and the rights and
obligations hereunder of the Management Investor from whom such Common Stock was
originally transferred as though said Common Stock was still owned by the
Management Investor, and such Related Transferees shall be deemed Management
Investors for the purposes of this Agreement (except as stated in Sections 13(b)
and (c) hereof). There shall be no further transfer of such Common Stock by a
Related Transferee except between and among such Related Transferee, the
Management Investor to whom such Related Transferee is related and the other
Related Transferees of the Management Investor, or except as permitted by this
Agreement.
4. Company "Call" Option.
(a) Upon the termination of the Management Investor's
employment or cessation of services as director with the Company or any of its
subsidiaries for any reason (including without limitation Voluntary Termination,
a Just Cause Dismissal, Involuntary Termination Without Cause or the Retirement,
death or Permanent Disability of the Management Investor (as such terms are
defined in Section 5 below)) (a "Call Purchase Event"), subject to the
provisions of Section 6 and this Section 4, the Company may, at its option
exercisable by written notice (a "Purchase Notice") delivered to the Management
Investor (or in the case of a deceased Management Investor, the Management
Investor's personal representative) within ninety (90) days after the applicable
Call Purchase Event (or, in the event the applicable Call Purchase Event is the
death of the Management Investor, within thirty (30) days after the appointment
and qualification of the deceased Management Investor's personal representative,
if later), elect to purchase and, upon the giving of such notice, the Company
shall be obligated to purchase and the Management Investor (and the Related
Transferees, if any, of the Management Investor or, in the case of a deceased
Management Investor, his personal representative) (the "Seller" shall be
obligated to sell, all, or any lesser portion indicated in the Purchase Notice,
of the Common Stock held by the Management Investor (and his Related
Transferees, if any) at a per share price equal to:
(1) in the case of Voluntary Termination or a Just
Cause Dismissal, the lower of the Purchase Price or the Fair Market
Value (as such term is defined in Section 5 below); or
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<PAGE> 7
(2) in the case of any other termination (including
without limitation Involuntary Termination Without Cause, death,
Retirement or Permanent Disability), the Fair Market Value.
(b) If the Company does not elect to exercise its option set
forth in paragraph (a) of this Section 4, the Company shall give written notice
that it is not so electing to GEI within the time periods specified in paragraph
(a) of this Section 4 for the giving of the Purchase Notice. Upon receipt of
such notice from the Company, GEI shall have the option, exercisable by written
notice (a "GEI Purchase Notice") delivered to the Management Investor (or, in
the case of a deceased Management Investor, the Management Investor's personal
representative) within fifteen (15) days after receipt of such notice from the
Company, to purchase from the Seller (and, upon the giving of the GEI Purchase
Notice, GEI shall be obligated to purchase and the Seller shall be obligated to
sell) all, or any lesser portion indicated in the GEI Purchase Notice, of the
Common Stock held by the Seller at the per share price set forth in paragraph
(a) of this Section 4.
(c) In the event a purchase of shares of Common Stock pursuant
to this Section 4 shall be prohibited by law or would cause a default under the
terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party, the obligations of the Seller
and the Company pursuant to this Section 4 shall be suspended and no such
default would be caused; provided, however, that (x) the purchase price to be
paid by the Company for the shares shall accrue interest at the lowest rate
necessary to prevent the imputation of interest or original issue discount under
the Internal Revenue Code of 1986, as amended, reduced by any dividends or
distributions on such Common Stock during the period of such suspension, which
interest shall likewise be paid when such prohibition first lapses or is waived
and no such default would be caused and (y) in the event of any such suspension,
if GEI so elects and no violation of law would be caused and no default under
the terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party would result, the Company
shall transfer its obligations under this Section 4 to GEI or to a subsidiary,
in which case GEI or the subsidiary (as the case may be) and the Management
Investor (and the Related Transferees, if any, of the Management Investor) shall
be obligated to complete the purchase of shares of Common Stock pursuant to this
Section 4.
5. Purchase Price, Closing and Terms of Payment for "Call" Sales.
(a) For purposes of this Agreement, the "Fair Market Value" of
each share of Common Stock shall be determined as of the time of the Call
Purchase Event by the Board of Directors of the Company in the exercise of its
reasonable discretion; provided, however, that such determination shall be based
upon the Company as a going concern and shall not discount the value of such
shares either because they are subject to the restrictions set forth in this
Agreement or because they constitute only a minority interest in the Company.
Upon delivery of notice of such Fair Market Value to the Seller of Common Stock
pursuant to Section 4 (which shall indicate, in a general fashion, the factors
considered by the Board of Directors in determining such amount), such Seller
shall have ten (10) business days in which
7
<PAGE> 8
to notify the Company in writing of any disagreement. If no written notice of
disagreement is given, the Fair Market Value as determined by the Board of
Directors of the Company shall be conclusive. If written notice is given of a
disagreement, the Company and such Seller shall mutually agree upon an
independent appraiser experienced in making valuations of such sort which shall
make a determination of the Fair Market Value. Such determination shall be
final, binding and nonappealable upon the Company and such Seller. The costs and
expenses incurred in connection with the determination made by the independent
appraiser shall be borne equally by the Company and by the Seller.
(b) For purposes of this Agreement, the Management Investor
shall be deemed to be "Permanently Disabled" if the Management Investor becomes
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Company, at its option and expense, shall
be entitled to retain a physician to confirm the existence of such incapacity or
disability and the determination of such physician shall be binding upon the
Company and the Management Investor; provided, however, that if the Management
Investor disagrees with such determination of Permanent Disability within
fifteen (15) days of being notified of it, the Management Investor and the
Company shall jointly agree upon an independent physician (or, if they are
unable to agree upon such physician, they shall each select a physician and
those two physicians shall select the independent physician) who shall make the
determination, whose decision shall be binding upon the Company and the
Management Investor.
(c) For the purposes of this Agreement, the Management
Investor shall be deemed to be "Involuntarily Terminated Without Cause" upon the
later of the termination of the Management Investor's employment by, or removal
or failure to be reelected as a director of, the Company or any of its
subsidiaries, unless such termination, removal or failure to be reelected is due
to Retirement, death, Permanent Disability or a Just Cause Dismissal.
"Retirement" shall mean retirement in accordance with the retirement policies or
practices of the Company or its subsidiaries applicable to executives or
directors, as the case may be, but in no event at an age of less than seventy
(70). "Voluntary Termination" shall mean the termination by the Management
Investor of his employment with, or his resignation or refusal to stand for
reelection as a director of, the Company or any of its subsidiaries, for any
reason other than death, Permanent Disability, or Retirement. A "Just Cause
Dismissal" shall mean termination of the Management Investor's employment with,
or service as a director of, the Company or any of its subsidiaries as a result
of any of the following (each, a "Cause"):
(1) the Management Investor commits any act of fraud,
intentional misrepresentation or serious misconduct in connection with
the business of the Company or its subsidiaries, including but not
limited to, falsifying any documents or agreements (regardless of
form); or
(2) the Management Investor materially violates any
rule or policy of the Company or its subsidiaries (A) for which
violation an employee may be terminated pursuant to the written
policies of the Company or its subsidiaries reasonably applicable
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<PAGE> 9
to an executive employee, or (B) which violation results in material
damage to the Company or its subsidiaries, or (C) which, after written
notice to do so, the Management Investor fails to correct within a
reasonable time; or
(3) the Management Investor willfully breaches or
habitually neglects any material aspect of the Management Investor's
duties (A) as described in the Management Investor's employment
contract, or (B) in the ordinary course of the Management Investor's
employment or service as a director, or (C) assigned to the Management
Investor by the Company or its subsidiaries, which assignment was
reasonable in light of the Management Investor's position with the
Company or its subsidiaries (all of the foregoing duties, "Duties"); or
(4) the Management Investor fails, after written
notice, adequately to perform any Duties and such failure is reasonably
likely to have an adverse impact upon the Company, its subsidiaries or
the operations of any of them; or
(5) the Management Investor materially fails to
comply with a direction from the Board of Directors of the Company or
its subsidiaries with respect to a material matter, which direction was
reasonable in light of the Management Investor's position with the
Company or its subsidiaries; or
(6) while employed by the Company or its
subsidiaries, and without the written approval of the Chief Executive
Officer of the Company (or, in case the Management Investor is such
Chief Executive Officer, approval of the Company's Board of Directors),
the Management Investor performs services for any other corporation or
person which competes with the Company or its subsidiaries; or
(7) the Management Investor is convicted by a court
of competent jurisdiction of a felony (other than a traffic or moving
violation) or any crime involving dishonesty; or
(8) any other action or condition that may result in
termination of an employee for cause pursuant to any generally applied
standard, of which standard the Management Investor knew or reasonably
should have known, adopted in good faith by the Board of Directors of
the Company or its subsidiaries from time to time but prior to such
action or condition; or
(9) any willful breach by the Management Investor of
his or her fiduciary duties as a director of the Company or any of its
subsidiaries.
In the event that there is a dispute between the Management Investor and the
Company as to whether "Cause" for termination exists: (x) such termination shall
nonetheless be effective, (y) such dispute shall be subject to arbitration
pursuant to Section 13(f) hereof and (z) the payments or deliveries, if any, to
be made by the Company or GEI or any subsidiary in connection with a sale or
purchase of the Common Stock held by the Management Investor
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<PAGE> 10
pursuant to Section 4 shall be delayed until the final resolution of such
dispute in such arbitration.
(b) The closing for all purchases and sales of Common Stock
provided for in Section 4 hereof shall be at the principal executive offices of
the Company at 10:30 a.m., Central Standard Time, on the later of (A) the
sixtieth day after the giving of the applicable Purchase Notice or GEI Purchase
Notice and (B) the thirtieth day after the final determination of the Fair
Market Value of the Common Stock as set forth above; provided, however, that if
the Management Investor (or a Related Transferee) who has become obligated to
sell shares of Common Stock hereunder is deceased on the closing date and such
deceased person's personal representative shall not have been appointed and
qualified by such date, then the closing shall be postponed until the tenth day
after the appointment and qualification of such personal representative. If the
aforesaid closing date falls on a day which is not a business day, then the
closing shall be held on the next succeeding business day.
(c) The purchase price for the purchase and sale of Common
Stock pursuant to the provisions hereof shall be paid in cash, by certified or
by official bank check.
(d) The Seller or Sellers of shares of Common Stock sold
pursuant to Section 4 hereof, if such shares are represented by one or more
certificates issued by the Company, shall cause such certificated shares to be
delivered to the Company at the closing free and clear of all liens, charges or
encumbrances of any kind. Such Seller or Sellers shall take all actions as the
Company shall request as necessary to vest in the Company at such closing all
shares sold pursuant to Section 4 hereof, whether in certificated or
uncertificated form, free and clear of all liens, charges and encumbrances
incurred, voluntarily or involuntarily, by or through Seller. At each closing
pursuant to Section 4, the Company shall deliver to the Seller reasonable
assurances to the effect that the Company's or a subsidiary's purchase of shares
thereat has been duly and validly authorized and complies with applicable state
securities laws.
6. Termination and Lapse of Rights and Restrictions; Application
to Other Stock.
(a) The provisions of Sections 1(b) (ii), 3(a), 3(b), 4, 8 and
9 of this Agreement shall lapse and be of no further effect with respect to
shares of Common Stock upon the commencement of the public trading of the
Company's Common Stock (or any capital stock exchanged for or distributed upon
such Common Stock as described in paragraph (b) of this Section 6) on any
national securities exchange, on the NASDAQ National Market System or on the
NASDAQ "Small Cap" Issues System.
(b) In the event any capital stock of the Company or any other
corporation shall be distributed on, with respect to, or in exchange for shares
of Common Stock of the Company as a stock dividend, stock split, spin-off,
reclassification or recapitalization in connection with any merger or
reorganization, the restrictions, rights and options set forth in Sections 3, 4,
8 and 9 shall apply with respect to such other capital stock to the same extent
as
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they are, or would have been applicable, to the Common Stock acquired hereunder
on, or with respect to, which such other capital stock was distributed.
7. Piggyback Registration Rights.
(a) As used in this Agreement, the term "Holder" means the
Management Investor, a Related Transferee of the Management Investor or an
Outside Party.
(b) Subject to the provisions herein, if the Company at any
time proposes to include all or any part of GEI's Common Stock in a public
offering of Common Stock registered under the Act (other than registration (x)
on Forms S-4 or S-8 or any successor forms thereto or (y) filed in connection
with an exchange offer), the Company shall give written notice of the proposed
registration to each Holder at least thirty (30) days prior to the filing
thereof, and each Holder shall have the right to request that all or any part of
its shares of Common Stock be included in such registration by giving written
notice to the Company within fifteen (15) days after the giving of such notice
by the Company (any Holder giving the Company a notice requesting that shares of
Common Stock owned by it be included in such proposed registration being
hereinafter referred to in this Section 7 as a "Registering Holder"); provided,
however, that (i) if the registration is in whole or in part an underwritten
primary registration on behalf of the Company and the managing underwriters of
such offering determine that the aggregate amount of securities of the Company
which all Registering Holders and all other security holders of the Company,
pursuant to contractual rights to participate in such registration ("Other
Holder"), propose to include in such registration statement exceeds the maximum
amount of securities that should be included therein, the Company will include
in such registration, first, the shares which the Company proposes to sell and,
second, the shares of such Registering Holders and other securities to be sold
for the account of Other Holders, pro rata among all such Registering Holders
and Other Holders, taken together, on the basis of the relative equity interests
in the Company of all Registering Holders and Other Holders who have requested
that securities owned by them be so included (it being agreed and understood,
however, that such underwriters shall have the right to eliminate entirely the
participation in such registration of all Registering Holders and Other
Holders), and (ii) if the registration is an underwritten secondary registration
on behalf of any of the Other Holders pursuant to demand registration rights
(other than such right of GEI or its Affiliates (defined below)) and the
managing underwriters determine that the aggregate amount of securities which
all Registering Holders and all Other Holders propose to include in such
registration exceeds the maximum amount of securities that should be included
therein, the Company will include in such registration, first, the securities to
be sold for the account of the Other Holders demanding registration (but only to
the extent such Other Holders are entitled to demand inclusion thereof) second,
any securities to be sold for the account of the Company, and, third, the shares
of such Registering Holders and other securities to be sold for the account of
the Other Holders electing to include (but not being entitled to demand
inclusion of) securities in such registration, pro rata among all such
Registering Holders and Other Holders, taken together, on the basis of relative
equity interests in the Company of all Registering Holders and such Other
Holders who have requested that securities owned by them be included (it being
agreed and understood, however, that such underwriters shall have the right to
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<PAGE> 12
eliminate entirely the participation therein of all such Registering Holders and
Other Holders not entitled to demand inclusion of securities in such
registration). Shares of Common Stock proposed to be registered and sold for the
account of any Registering Holder shall be sold to prospective underwriters
selected or approved by the Company on the terms and subject to the conditions
of one or more underwriting agreements negotiated between the Company and/or
Other Holders demanding registration and the prospective underwriters. For the
purposes hereof, an "Affiliate" of any person or entity means any other person
or entity controlling, controlled by or under common control with such person or
entity; provided, however, that none of the Management Stockholders (defined
below) or any of their Affiliates shall be deemed to be an Affiliate of GEI.
"Management Stockholders" means, collectively, all holders of capital stock or
other securities issued by the Company who are also employees of the Company or
its subsidiaries.
In the event the Company proposes to register any of its Common Stock
under the Act on Form S-8 (or any successor thereto), if the Company determines
that it is permissible to do so and will not result in material added costs to
the Company from such registration, the Company shall, at a Registering Holder's
request, include in such registration a portion of such Registering Holder's
shares of Common Stock equal to the portion, if any, of GEI's shares of Common
Stock held as of the date of this Agreement sold by GEI in private transactions
from the date hereof to the date of such request.
The Registering Holders shall be permitted to withdraw all or a part of
the shares of Common Stock held by such Registering Holders which were to be
included in such registration at any time prior to the effective date of such
registration. The Company shall not be required to maintain the effectiveness of
the registration statement for such registration beyond the earlier to occur of
120 days after the effective date thereof or consummation of the distribution by
the Registering Holders included in such registration statement. The Company may
withdraw any registration statement at any time before it becomes effective, or
postpone the offering of securities, without obligation or liability to any
Holder.
(c) The registration rights sets forth in this Section 7 shall
terminate and be of no further effect with respect to the Common Stock held by a
Holder: (i) at such time as the Company has filed, and there has become
effective, one registration statement in which all Registering Holders have been
afforded the opportunity to include all shares of such class of securities held
by them or (ii) if earlier, after an initial public offering, all shares of
Common Stock acquired hereunder and held by the Management Investor are eligible
for sale pursuant to the provisions of Rule 144 under the Act.
(d) In connection with any registration of shares under the
Act pursuant to this Section 7, the Company will furnish each Holder whose
shares of Common Stock are registered thereunder with a copy of the registration
statement and all amendments thereto and will supply each such Holder with
copies of any prospectus included therein (including a preliminary prospectus
and all amendments and supplements thereto), in such quantities as may be
reasonably necessary for the purpose of the proposed sale or distribution
covered by such registration. The Company shall not, however, be required to
maintain the registration statement and to supply copies of a prospectus for a
period beyond 120 days after the effective date of such registration statement,
at the end of such period, the Company may deregister any shares of Common Stock
covered by such registration
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<PAGE> 13
statement and not then sold or distributed. In connection with any such
registration of shares of Common Stock, the Company will, at the request of the
managing underwriter with respect thereto, use its best efforts to qualify such
registered shares for sale under the securities laws of such state as is
reasonably required to permit the distribution of such registered shares;
provided, however, that the Company shall not be required in connection
therewith or as condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or become
subject to taxation in any jurisdiction.
(e) Notwithstanding any other provision of this Section 7,
Holder agrees that in the event of an underwritten public offering of Common
Stock for the account of the Company, such Holder will not offer for public sale
(other than as part of such underwritten public offering) any shares of Common
Stock during the ten (10) days prior to, and such number of days (not in excess
of 180) after, the effective date of the registration statement in connection
with such public offering as the underwriters and the Company may request in
writing, without the consent of the underwriters; provided, however, that, in
the case of death of a Holder, if consented to by the underwriters, a Holder
shall be permitted to offer for public sale prior to the expiration of such
period shares of Common Stock reasonably necessary to generate funds of the
payment of estate taxes.
(f) Except as otherwise required by state securities laws or
the rules and regulations promulgated thereunder, all expenses, disbursements
and fees incurred by the Company in connection with carrying out its obligations
under this Section 7 shall be borne by the Company; provided, however, that each
Holder shall pay (i) all costs and expenses of counsel for such Holder, if such
counsel is not also counsel for the Company, (ii) all underwriting discounts,
commissions and expenses and all transfer taxes with respect to the shares of
Common Stock sold by such Holder and (iii) all other expenses incurred by such
Holder and incidental to the sale and delivery of the shares of Common Stock to
be sold by such Holder.
(g) It shall be a condition of each Holder's rights hereunder
to have shares of Common Stock owned by such Holder registered that:
(1) such Holder shall cooperate with the Company by
supplying information and executing documents relating to such Holder
or the securities of the Company owned by such Holder in connection
with such registration;
(2) such Holder shall enter into any undertakings and
take such other action relating to the conduct of the proposed offering
which the Company or the underwriters may reasonably request as being
necessary to insure compliance with federal and state securities laws
and the rules or other requirements of the National Association of
Securities Dealers, Inc. or which the Company or the underwriters may
reasonably request to otherwise effectuate the offering; and
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<PAGE> 14
(3) such Holder shall execute and deliver an
agreement to indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration
statement, any underwriter (as defined in the Act) and each person, if
any who controls the Company or such underwriter within the meaning of
the Act, against such losses, claims, damages or liabilities (including
reimbursement for legal and other expenses) to which the Company or any
such director, officer, underwriter or controlling person may become
subject under the Act or otherwise, in such manner as is customary for
registration of the type then proposed and, in any event, equivalent in
scope to indemnities given by the Company in connection with such
registration, but only with respect to written information furnished by
such Holder in his or her capacity as a selling shareholder in
connection with such registration.
(h) In the event of any registration under the Act of any
shares of Common Stock pursuant to this Section 7, the Company hereby agrees to
indemnify and hold harmless each Holder disposing of such shares against such
losses, claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such Holder may become subject under the Act or
otherwise, in such manner as is customary for registrations of the type then
proposed, but not with respect to written information furnished by such Holder
in his capacity as a selling shareholder in connection with such registration.
8. Tag-Along Rights.
(a) Right to Participate in Sale. If GEI enters into an
agreement to transfer, sell or otherwise dispose of (such transfer, sale or
other disposition being referred to as a "Tag-Along Sale") a majority of its
shares of Common Stock of the Company held on the date hereof, then GEI shall
afford the Holder the opportunity to participate proportionately in such
Tag-Along Sale in accordance with this Section 8. The Holder shall have the
right, but not the obligation (except as provided in Section 9), to participate
in such Tag-Along Sale. The number of shares of Common Stock that the Holder
will be entitled to include in such Tag-Along Sale (the "Management Investor's
Allotment") shall be determined by multiplying (i) the number of shares of
Common Stock held by the Holder on the Tag-Along Sale Date (as defined below),
by (ii) a fraction, the numerator or which shall equal the number of shares of
Common Stock proposed by GEI to be sold or otherwise disposed of pursuant to the
Tag-Along Sale and the denominator of which shall equal the total number of
shares of Common Stock that are beneficially owned by (a) GEI and (b) any holder
of shares of Common Stock (including the Holder) that has the right to
"tag-along" in the Tag-Along Sale on the Tag-Along Sale Date. The "Tag Along
Notice Date" shall be the date that the Tag-Along Sale Notice (as defined below)
is first delivered, mailed or sent by courier, Telex or telecopy to the Holder.
(b) Limitation on Management Investor Representations;
Indemnity. Any sales of shares of Common Stock by a Holder as a result of the
"Tag-Along Rights" granted to the Holder pursuant to this agreement shall be on
the same terms and conditions as the proposed Tag-Along Sale by GEI; provided,
however, that in negotiating a Tag-Along Sale, GEI shall use its reasonable,
good faith efforts to provide (i) that the only representation and warranty
which the Holder shall be required to make in connection with any transfer is a
warranty with
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<PAGE> 15
respect to the Holder's own ability to convey title thereto free and clear of
liens, encumbrances or adverse claims and (ii) that the warranty made in
connection with any transfer is the several liability of the Holder (and not
joint with any other person) and that such liability is limited to the amount of
proceeds actually received by such Holder.
(c) Sale Notice. GEI shall provide the Holder with written
notice (the "Tag-Along Sale Notice") not more than sixty (60) nor less than
twenty (20) days prior to the proposed date of the Tag-Along Sale (the
"Tag-Along Sale Date"). Each Tag-Along Sale Notice shall set forth: (i) the name
and address of each proposed transferee or purchaser of shares in the Tag-Along
Sale; (ii) the number of shares proposed to be transferred or sold by GEI; (iii)
the proposed amount and form of consideration to be paid for such shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser; (iv) the aggregate number of shares of Common Stock held of record as
of the close of business on the day immediately preceding the Tag-Along Notice
Date by GEI; (v) the Management Investor's Allotment assuming the Holder elected
to sell the maximum number of shares of Common Stock possible; (vi) confirmation
that the proposed purchaser or transferee has been informed of the "Tag-Along
Rights" provided for herein and has agreed to purchase shares of Common Stock
(including Vested Shares) in accordance with the terms hereof and (vii) the
Tag-Along Sale Date.
(d) Tag-Along Notice. If the Holder wishes to participate in
the Tag-Along Sale, the Holder shall provide written notice (the "Tag-Along
Notice") to GEI no less than ten (10) days prior to the Tag-Along Sale Date. The
Tag-Along Notice shall set forth the number of shares of Common Stock that such
Holder elects to include in the Tag-Along Sale, which shall not exceed the
Management Investor's Allotment. The Tag-Along Notice shall also specify the
aggregate number of additional shares of Common Stock owned of record as of the
close of business on the day immediately preceding the Tag-Along Notice Date by
such Holder, if any, which such Holder desires also to include in the Tag-Along
Sale ("Additional Shares") in the event there is any undersubscription for the
entire amount of all Management Investors' Allotments of all shares that may be
included by persons having, and pursuant to, tag-along rights relative to GEI
(collectively, the "Management Investors' Allotments"). In the event there is an
under-subscription by all holders of Management Investors' Allotments for the
entire amount of the Management Investors' Allotments, GEI shall apportion the
unsubscribed Management Investors' Allotments to such holders whose tag-along
apportionment shall be on a pro rata basis among such holders in accordance with
the number of Additional Shares specified by all such holders in their Tag-Along
Notice. The Tag-Along Notices given by the Holder shall constitute the Holder's
binding agreement to sell such shares of Common Stock on the terms and
conditions applicable to the Tag-Along Sale, subject to the provisions of
Section 8(b) above; provided, however, that in the event that there is any
material change in the terms and conditions of such Tag-Along Sale applicable to
the Holder after the Holder gives the Tag-Along Notice, then, notwithstanding
anything herein to the contrary, the Holder shall have the right to withdraw
from participation in the Tag-Along Sale with respect to all of its shares of
Common Stock affected thereby. If the purchaser does not consummate the purchase
of all of such shares on the same terms and conditions applicable to GEI (except
as otherwise provided herein) then GEI shall not consummate the Tag-Along Sale
of any of its shares to such
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transferee or purchaser, unless the shares of the Holder and GEI are reduced or
limited pro rata in proportion to the respective number of shares actually sold
in any such Tag-Along Sale.
If a Tag-Along Notice is not received by GEI from the Holder prior to
the ten-day period specified above, GEI shall have the right to sell or
otherwise transfer the number of shares specified in the Tag-Along Notice to the
proposed purchaser or transferee without any participation by such Holder, but
only on terms and conditions which are no more favorable in any material respect
to GEI than as stated in the Tag-Along Notice to the Holder and only if such
Tag-Along Sale occurs on a date within sixty (60) business days of the Tag-Along
Sale Date.
(e) Authority to Record Transfer/Delivery of Certificates. On
the Tag-Along Sale Date, the Holder, if a participant therein, authorizes the
Company (or the Company's transfer agent, if any) to record in the Company's
books and records the transfer of all of the Holder's shares of Common Stock
which are not represented by one or more certificates issued by the Company,
from the Holder to the purchaser in the Tag-Along Sale. On the Tag-Along Sale
Date, the Holder, if a participant therein, shall also deliver all certificates,
if any, issued by the Company which represent shares of the Company's Common
Stock, duly endorsed for transfer with signatures guaranteed, to the purchaser
in the Tag-Along Sale, in the manner and at the address indicated in the
Tag-Along Notice against delivery of the purchase price for such shares;
provided, however, that in the event the Company has possession of any such
certificate(s) pursuant to this Agreement, upon the written request of the
Holder at least five (5) business days in advance of the Tag-Along Sale Date,
the Company shall deliver such certificate(s) to the purchaser at the time and
in the manner described above.
(f) Exempt Transfers. The provisions of this Section 8 shall
not apply to (i) any bona fide underwritten offering of Common Stock pursuant to
an effective registration statement under the Act or any bona fide public
distribution of Common Stock pursuant to Rule 144 thereunder, provided that any
such sale complies with the provisions of this Agreement; (ii) any transfer,
sale or other disposition by GEI to one of its Affiliates (except that (A) prior
to any such disposition, the party receiving such shares of Common Stock shall
agree in writing to be bound by the terms of this Agreement applicable to GEI as
if such transferee were an original party hereto and (B) any such shares of
Common Stock shall continue to be subject to this Agreement); (iii) any
redemption by the Company of its Common Stock or (iv) any GEI Distribution (as
defined in Section 14).
9. Drag-Along Sales.
(a) Right to Require Sale. Notwithstanding any other provision
hereof, if GEI agrees to sell 100% of the shares of Common Stock held by it to a
third person who is not an affiliate of GEI (a "Third Party") or if GEI agrees
to sell a portion of its shares pursuant to a transaction in which more than 50%
of the total Common Stock of the Company will be sold to a Third Party (either
of such sales, a "Drag-Along Sale"), then, upon the demand of GEI, each Holder
hereby agrees to sell to such Third Party the same percentage of the total
number of shares of Common Stock held by such Holder on the date of the
Drag-Along Notice, as the
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number of shares GEI is selling in the Drag-Along Sales bears to the total
number of shares held be GEI as of the date of the Drag-Along Notice (the "Sale
Percentage"), at the same price and on the same terms and conditions as GEI has
agreed to with such Third Party; provided, however, that GEI shall use its
reasonable, good faith efforts to provide that (i) the only representation and
warranty which the Holder shall be required to make in connection with the
Drag-Along Sale is a representation and warranty with respect to the Holder's
own ownership of the shares of Common Stock to be sold by it and its ability to
convey title thereto free and clear of liens, encumbrances or adverse claims and
(ii) that the liability of any other Holder with respect to any representation
and warranty made in connection with the Drag-Along Sale is the several
liability of such other Holder (and not joint with any other person) and that
such liability is limited to the amount of proceeds actually received by such
other Holder in the Drag-Along Sale; provided further, that the Holder shall not
be obligated to participate in any Drag-Along Sale unless the Holder is provided
an opinion of counsel to the effect that the Drag-Along Sale is not in violation
of applicable federal or state securities or other laws or, if the Holder is not
provided with an opinion with respect to any matters contemplated by this
proviso, GEI shall (in addition to the indemnification contemplated below)
indemnify the Holder for any violation. If the Drag-Along Sale is in the form of
a merger transaction, the Holder agrees to vote his or her shares of Common
Stock in favor of such merger and not to exercise any rights of appraisal or
dissent afforded under applicable law.
(b) Drag-Along Notice. Prior to making any Drag-Along Sale, if
GEI elects to exercise the option described in this Section 9, GEI shall provide
the Holder with written notice (the "Drag-Along Notice") not more than sixty
(60) nor less than twenty (20) days prior to the proposed date of the Drag-Along
Sale (the "Drag-Along Sale Date"). The Drag-Along Notice shall set forth: (i)
the name and address of the Third Party; (ii) the proposed amount and form of
consideration to be paid per share and the terms and conditions of payment
offered by the Third Party; (iii) the aggregate number of shares of Common Stock
held by GEI as of the date that the Drag-Along Notice is first delivered, mailed
or sent by courier, telex or telecopy to the Holder; (iv) the sale percentage;
(v) the Drag-Along Sale Date and (vi) confirmation that the proposed Third Party
has agreed to purchase the Management Investor's shares of Common Stock in
accordance with the terms hereof.
(c) Authority to Record Transfer/Delivery of Certificates. The
Company (or the Company's transfer agent, if any) shall record in the Company's
books and records the transfer of the Sale Percentage of the Holder's shares of
Common Stock which is not represented by one or more certificates issued by the
Company, from the Holder to the Third Party, on the Drag-Along Sale Date. If any
part of the Sale Percentage of the Holder's shares of Common Stock is
represented by one or more certificates issued by the Company, the Holder shall
deliver such certificate or certificates for such shares, duly endorsed for
transfer with signatures guaranteed, to such Third Party on the Drag-Along Sale
Date in the manner and at the address indicated in the Drag-Along Notice against
delivery of the purchase price for the shares; provided, however, that in the
event the Company has possession of any such certificate(s) pursuant to this
Agreement, upon the written request of the Holder at least five (5) business
days in advance of the Drag-Along Sale Date, the Company shall deliver such
certificate(s) to the purchaser at the time and in the manner described above.
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(d) Consideration. The provisions of this Section 9 shall
apply regardless of the form of consideration received in the Drag-Along Sale.
10. Noncompetition.
(a) Management Investor covenants and agrees that Management
Investor will not, during the period of his employment with the Company or any
of the Company's subsidiaries, and for a period of three (3) years after the
termination of such employment, without the prior written consent of the
Company, individually or in partnership or in conjunction with or as an
employee, officer, director, manager or agent of any other person, firm,
corporation or other entity, either directly or indirectly, undertake or carry
on or be engaged or have any financial or other interest in, or in any other
manner advise or assist any person, firm, corporation or other entity engaged or
interested in, any newspaper publishing business or any other business involving
the printing or publication of any newspaper, flyer, shopper, circular or other
publication carrying advertising, or any other business involving the
solicitation of local advertising, or any advertising agency business, or any
job printing business, carried on in any community or communities described in
Annex C attached hereto or within a radius of fifty (50) miles of the center
point of any such community.
(b) Management Investor further covenants and agrees to
refrain, for a period of three (3) years following the termination of Management
Investor's employment by or on behalf of the Company or any of the Company's
subsidiaries, for whatever reason, from (i) selling, or attempting to sell, any
advertising which is or is intended to be distributed or disseminated within any
community or communities listed in Annex B hereto or within a fifty (50) mile
radius of the center point of any such community to any person, firm,
corporation or other entity which, at the termination of such employment, was a
purchaser of advertising from one or more of the newspapers or other
publications of the Company or any of the Company's subsidiaries; (ii) inducing,
or attempting to induce, any person, firm or corporation to cease, discontinue
or fail to renew any advertising contract, agreement or arrangement with one or
more of the newspapers or other publications of the Company or any of the
Company's subsidiaries; and (iii) soliciting, employing, diverting or taking
away, or attempting to solicit, employ, divert or take away, any person who, at
the time of such termination or at any time during the six (6) month period
prior to such termination, was employed by or on behalf of the Company or any of
the Company's subsidiaries.
(c) Management Investor further agrees and warrants that the
covenants contained in this Section 10 are reasonable, that valid consideration
has been and will be received therefor and that the agreements set forth herein
are the result of arm's length negotiation between the parties hereto.
Management Investor believes that he will be able to earn an adequate livelihood
for himself and his dependents if the covenants contained in this Section 10 are
enforced against him.
(d) If any of the provisions of or covenants contained in this
Section 10 is hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which
18
<PAGE> 19
shall be given full force and effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of or
covenants contained in this Section 10 is held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the parties
agree (i) that the court making such determination shall have the power to
reduce the duration and/or geographical scope of such provision or covenant and,
in its reduced form, said provision or covenant shall be enforceable, provided,
however, that the determination of such court shall not affect the
enforceability of this Section 10 in any other jurisdiction, and (ii) that if
the court making such determination shall not have the power, or shall refuse to
exercise its power, to reduce the duration and/or geographical scope of such
provision or covenant, then the Management Investor shall, in further
consideration of stock sold pursuant to this Agreement, and without the
requirement of any further consideration, enter into a new Noncompetition
Agreement substantially in the form of this Section 10 but containing such
reduced duration and/or geographical scope as shall be determined by the
Company, in its sole discretion.
11. Notices. All notices or other communications under this Agreement
shall be given in writing and shall be deemed duly given and received on the
third full business day following the day of the mailing thereof by registered
or certified mail or when delivered personally or sent by facsimile transmission
as follows:
(a) if to the Company, at its principal executive offices at
the time of the giving of such notice, or at such other place as the Company
shall have designated by notice as herein provided to the Management Investor,
Attention: Kenneth L. Serota;
(b) if to the Management Investor, at the address of the
Management Investor as it appears in Annex A or at such other place as the
Management Investor shall have designated by notice as herein provided to the
Company;
(c) if to GEI, at its principal executive offices at the time
of the giving of such notice, or at such other place as GEI shall have
designated by notice as herein provided to the Company.
12. Specific Performance. Due to the fact that the securities of the
Company cannot be readily purchased or sold in the open market and because
damages to the Company and its Subsidiaries will be difficult to ascertain and
remedies at law to the Company and its Subsidiaries will be inadequate and for
other reasons, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforced. In the event of a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by any of the
parties hereto, the other parties shall, in addition to all other remedies, be
entitled (without any bond or other security being required) to a temporary
and/or permanent injunction, without showing any actual damage or that monetary
damages would not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
19
<PAGE> 20
13. Miscellaneous.
(a) Except as provided in the last sentence of this paragraph,
this writing constitutes the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except by a written
agreement signed by the Company, GEI and the Management Investor; provided,
however, that any of the provisions of this Agreement (except as hereinafter
provided) may be modified, amended or eliminated by agreement of the Company,
GEI and a majority in interest (on the basis of the number of shares of Common
Stock then owned by the Management Investor and/or his Related Transferees) of
all of the Management Investors and all holders of securities pursuant to
agreements in forms substantially similar to this Agreement, which agreement
shall bind the Management Investor whether or not the Management Investor has
agreed thereto; provided, further, that no modification or amendment which would
materially adversely affect the rights of the Management Investor under Sections
3, 4, 5, 6, 7, 8, 9, 10 or 13(a) of this Agreement shall be effective as to the
Management Investor if the Management Investor shall not have consented in
writing thereto. Anything in this Agreement to the contrary notwithstanding, any
modification or amendment of this Agreement by a written agreement signed by, or
binding upon, the Management Investor shall be valid and binding upon any and
all persons or entities who may, at any time, have or claim any rights under or
pursuant to this Agreement in respect of Common Stock acquired hereunder is
subject to, and the Company and the Management Investor agree to be bound by,
all of the terms and conditions of this Agreement.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature. Anything in
this Agreement to the contrary notwithstanding, any waiver, consent or other
instrument under or pursuant to this Agreement signed by, or binding upon, the
Management Investor shall be valid and binding upon any and all persons or
entities (other than the Company) who may, at any time, have or claim any rights
under or pursuant to this Agreement in respect of the Common Stock acquired
hereunder.
(c) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns and the Management Investor and the Management Investor's
heirs, personal representatives, successors and assigns; provided, however, that
nothing contained herein shall be construed as granting the Management Investor
the right to transfer any Common Stock acquired hereunder except in accordance
with this Agreement and any transferee shall hold such Common Stock having only
those rights and being subject to the restrictions provided for in this
Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
20
<PAGE> 21
(e) The provisions of this Agreement shall apply to all shares
of Common Stock acquired hereunder by the Management Investor (including the
Management Investor's Related Transferees and any Outside Parties).
(f) Except as set forth in Section 12, arbitration shall be
the exclusive remedy for resolving any dispute or controversy between the
Company, any of its subsidiaries or GEI and any Management Investor, personal
representative of an Management Investor, Related Transferee, Holder or Outside
Party. Such arbitration shall be conducted in accordance with the then most
applicable rules of the American Arbitration Association. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
In the event of any conflict between this Agreement and the rules of the
American Arbitration Association, the provisions of this Agreement shall be
determinative. If the parties are unable to agree upon an arbitrator, they shall
select a single arbitrator from a list of seven arbitrators designated by the
office of the American Arbitration Association having responsibility for the
city in which the Management Investor last resided while employed by the Company
or its subsidiaries, all of whom shall be retired judges who are actively
involved in hearing private cases or members of the National Academy of
Arbitrators. If the parties are unable to agree upon an arbitrator from such
list, they shall each strike names alternatively from the list, with the first
to strike being determined by lot. After each party has used three strikes, the
remaining name on the list shall be the arbitrator. The fees and expenses of the
arbitrator shall initially be borne equally by the parties; provided, however,
that each party shall initially be responsible for the fees and expenses of its
own representatives and witnesses. If the parties cannot agree upon a location
for the arbitration, the arbitrator shall determine the location. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction. The
prevailing party in the arbitration proceeding, as determined by the arbitrator,
and in any enforcement or other court proceedings, shall be entitled to the
extent provided by law to reimbursement from the other party for all of the
prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses and reasonable attorneys' fees.
(g) Should any party to this Agreement be required to commence
any litigation concerning any provision of this Agreement or the rights and
duties of the parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted, to the
reasonable attorneys' fees and court costs incurred by reason of such
litigation.
(h) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
sections.
(i) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(j) The Management Investor represents that, if the Management
Investor is married, the Management Investor's spouse has signed the
Acknowledgment and Agreement of Spouse relating to the Management Investor at
the end of this Agreement.
21
<PAGE> 22
(k) Words in the singular shall be read and construed as
though in the plural and words in the plural shall be read and construed as
though in the singular in all cases where they would so apply.
(l) This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
(m) The Management Investor hereby irrevocably and
unconditionally consents to the jurisdiction of any Delaware State court or
federal court of the United States sitting in the State of Delaware in any
action or proceeding relating to this Agreement and consents to service of
process in connection therewith by the delivery of notice to such Management
Investor's address set forth in this Agreement.
(n) This Agreement shall be deemed to be a contract under the
laws of the State of Delaware and for all purposes shall be construed and
enforced in accordance with the internal laws of said state without regard to
the principles of conflicts of law.
14. GEI Distributions Exempt.
It is expressly understood and agreed that GEI may distribute
to its partners or equity participants, in accordance with the terms of its
limited partnership agreement, all or any part of the shares of the Company's
capital stock or other Company securities held by it (any such distribution, a
"GEI Distribution"). Notwithstanding anything to the contrary contained in this
Agreement, any GEI distribution shall not constitute a "sale," "transfer" or
"disposition" for any purpose under this Agreement and shall be exempt in all
respects from the terms and conditions of this Agreement. As an example, and
without limiting the generality of the foregoing, it is expressly understood and
agreed that a GEI Distribution shall not constitute a Tag-Along Sale for the
purposes of Section 8 hereof. Further, it is also expressly understood and
agreed that, following a GEI Distribution (i) the shares of the Company's
capital stock or other Company securities distributed to the partners or equity
participants of GEI shall in no way be subject to this Agreement and (ii) any
partner or equity participant of GEI which receives shares of the Company's
capital stock or other Company securities pursuant to a GEI Distribution shall
not be required or deemed to become a party to this Agreement or otherwise be
subject to this Agreement.
15. Original Agreement.
This Agreement amends and restates the Original Agreement in its
entirety.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Management Stockholders Agreement as of the first date written above.
LIBERTY GROUP PUBLISHING, INC.
By: _________________________________________
Name: _______________________________________
Its: ________________________________________
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.,
its General Partner
By: Grand Avenue Capital Corporation,
its General Partner
By: _________________________________________
Name: _______________________________________
Management Investor
By: _________________________________________
Name: Kevin B. O'Shea
<PAGE> 24
Acknowledgment and Agreement of Spouse
The undersigned, being the spouse of the Management Investor listed on
Annex A hereto, hereby agrees to be bound by the provisions of this Agreement.
By: _____________________________________
Name: ___________________________________
<PAGE> 25
Annex A
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Initial Purchased Shares
- ---------------------- ----------------------------------
<S> <C>
Kevin B. O'Shea 800
123 Myrtle
Elmhurst, IL 60126
</TABLE>
<PAGE> 26
Annex B
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Grant Shares
- ---------------------- ----------------------
<S> <C>
Kevin B. O'Shea 27.5
123 Myrtle
Elmhurst, IL 60126
</TABLE>
<PAGE> 27
Annex C
Communities Subject to Noncompetition Provisions
None
<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED MANAGEMENT SUBSCRIPTION
AND STOCKHOLDERS AGREEMENT
This Amended and Restated Management Subscription and Stockholders
Agreement (the "Agreement") is entered into as of February 1, 2000, by and
between Liberty Group Publishing, Inc., a Delaware corporation (the "Company"),
Green Equity Investors II, L.P., a Delaware limited partnership ("GEI"), and the
person identified on Annex A attached hereto (hereinafter referred to as the
"Management Investor"), with reference to the following facts:
WHEREAS, GEI is the principal shareholder of the Company;
WHEREAS, Management Investor is a key employee of the Company or one of
its subsidiaries and, accordingly, as an incentive to the Management Investor,
the Company has previously issued, and may from time to time hereafter desire to
issue, uncertificated shares of the Company's common stock (collectively, the
"Common Stock") to the Management Investor as set forth herein;
WHEREAS, the Company, GEI and the Management Investor are parties to
that certain Management Subscription and Stockholders Agreement entered into as
of March ___, 1998 (the "Original Agreement"); and
WHEREAS, the Company, GEI and the Management Investor desire to amend
and restate the Original Agreement in its entirety to be in the form of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Management Investor Representations.
(a) Investment Risk. The Management Investor represents and
acknowledges that (i) as a result of the Management Investor's (A) existing
relationship with the Company and by virtue of being an executive of business
enterprises acquired by the Company, and (B) experience in financial matters,
the Management Investor is properly able to evaluate the capital structure of
the Company, the business of the Company and its subsidiaries and the risks
inherent therein; (ii) the Management Investor has been given the opportunity to
obtain any additional information or documents from and to ask questions, and
receive answers of, the officers and representatives of the Company and its
subsidiaries to the extent necessary to evaluate the merits and risks related to
an investment in the Company; (iii) the Management Investor has been and will
be, to the extent the Management Investor deems necessary, advised by legal
counsel of the Management Investor's choice at Management Investor's expense in
connection with this Agreement and the issuance and sale of Common Stock
hereunder and
<PAGE> 2
(iv) the purchase or issuance of Common Stock hereunder will be consistent, in
both nature and amount, with the Management Investor's overall investment
program and financial condition, and the Management Investor's financial
condition will be such that the Management Investor will be able to bear the
economic risk of holding unregistered Common Stock for which there is no market
and to suffer a complete loss of the Management Investor's investment therein.
The Management Investor further acknowledges that investment in the Common Stock
hereunder involves significant risks and that these risks include, without
limitation, the facts that the Company is a relatively newly-formed holding
company and that the Company will have a leveraged financial structure.
(b) Purchase for Investment.
(1) The Management Investor represents and warrants that: (A)
the Common Stock acquired by the Management Investor hereunder will be acquired
for the Management Investor's own account for investment, without any present
intention of selling or further distributing the same and the Management
Investor will not have any reason to anticipate any change in the Management
Investor's circumstances or any other particular occasion or event which would
cause the Management Investor to sell any of such Common Stock and (B) the
Management Investor is fully aware that in agreeing to sell or issue such Common
Stock to the Management Investor the Company will be relying upon the truth and
accuracy of these representations and warranties. The Management Investor agrees
that the Management Investor will not sell or otherwise dispose of any Common
Stock except in compliance with the Securities Act of 1933, as amended (the
"Act"), the rules and regulations of the Securities and Exchange Commission
thereunder, the relevant state securities laws applicable to the Management
Investor's action and the terms of this Agreement.
(2) Subject to Section 6 below, in addition to the other
restrictions provided in this Agreement, the Management Investor agrees that
prior to making any disposition of any Common Stock acquired hereunder (other
than a disposition to the Company), the Management Investor will give not less
than 10 days' advance written notice to the Company describing the manner of
such proposed disposition. The Management Investor further agrees that the
Management Investor will not effect such proposed disposition until either (A)
the Management Investor has provided to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form and substance to
the Company that such proposed disposition is exempt from registration under the
Act and any applicable state securities laws or (B) a registration statement
under the Act covering such proposed disposition has been filed by the Company
under the Act and has become effective and compliance with applicable state
securities laws has been effected.
(3) The Management Investor acknowledges that no trading
market for the Common Stock exists currently or is expected to exist at any time
in the foreseeable future and that, as a result, the Management Investor may be
unable to sell any of the Common Stock acquired hereunder for an indefinite
period. Further, the Company has no obligation to register any of the Common
Stock, except as expressly provided in Section 7 of this Agreement.
2
<PAGE> 3
(4) The Management Investor acknowledges and agrees that
nothing herein, including the opportunity to make any equity investment in the
Company, shall be deemed to create any implication concerning the adequacy of
the Management Investor's services to any of the Company or its subsidiaries or
shall be construed as an agreement by the Company or its subsidiaries, express
or implied, to employ the Management Investor or contract for the Management
Investor's services, to restrict the right of the Company or its subsidiaries to
discharge the Management Investor or cease contracting for the Management
Investor's services or to modify, extend or otherwise affect in any manner
whatsoever the terms of any employment agreement or contract for services which
may exist between the Management Investor and the Company or its subsidiaries.
2. Grant of Management Shares and Legend on Certificates.
(a) Grant of Management Shares. The Company hereby grants to
the Management Investor the right to purchase, on the terms and conditions set
forth in this Agreement, all or any part of the number of shares of Common Stock
indicated on Annex A hereto (the "Initial Purchased Shares") at the purchase
price of $100 (the "Purchase Price") per share. In addition, the Company hereby
grants to the Management Investor the number of shares of Common Stock indicated
in Annex B hereto (the "Grant Shares"). All shares of Common Stock issued
hereunder (including, but not limited to, the Initial Purchased Shares, the
Grant Shares and any additional shares of Common Stock issued to the Management
Investor from time to time hereafter, whether as a dividend or other
distribution with respect to or in replacement of shares of Common Stock, as a
result of a stock dividend, stock split or subdivision, stock combination or
recapitalization, upon the exercise or conversion of other securities issued to
the Management Investor or otherwise) shall be subject to all of the terms and
restrictions contained in this Agreement, including, without limitation, those
in Sections 1(b), 3, 4, 8 and 9, and shall be uncertificated shares. Subject to
the limitations set forth in Section 2(b), the Management Investor shall be
entitled, upon written request to the Company, to have a certificate issued to
him or her representing Common Stock issued hereunder.
(b) Legend on Certificates. Each stock certificate issued to
the Management Investor upon written request to the Company representing Common
Stock issued hereunder shall bear the following (or substantially equivalent)
legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR ANY SUCCESSOR RULE UNDER
THE ACT OR LIBERTY GROUP PUBLISHING, INC. (THE
"COMPANY") RECEIVES AN
3
<PAGE> 4
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN AMENDED AND RESTATED MANAGEMENT SUBSCRIPTION AND
STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY ___, 2000,
BETWEEN THE PURCHASER PARTY THERETO AND THE COMPANY, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY, AND THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOTED, TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS SUCH VOTING, TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES
WITH THE PROVISIONS OF SUCH AGREEMENT.
Any stock certificate issued at any time in exchange or substitution for any
certificates bearing such legends (except a new certificate issued upon the
completion of a public distribution of Common Stock represented thereby) shall
also bear such (or substantially equivalent) legends, unless the Common Stock
represented by such certificate is no longer subject to the provisions of this
Agreement and, in the opinion of counsel for the Company, the Common Stock
represented thereby need no longer be subject to restrictions pursuant to the
Act or applicable state securities law. The Company shall not be required to
transfer on its books any certificate for Common Stock in violation of the
provisions of this Agreement.
3. Transfer of Stock.
(a) Prohibition on Transfer. Subject to the provisions of
Section 6, the Management Investor agrees that the Management Investor will not,
on or prior to the tenth anniversary of this Agreement, directly or indirectly,
sell, pledge, give, bequeath, transfer, assign or in any other way whatsoever
encumber or dispose of (a "transfer") any Common Stock (or any interest therein)
acquired hereunder, except for transfers (i) pursuant to this Section 3 or
Sections 4, 7, 8, or 9 of this Agreement or (ii) as may be specifically
authorized by the Board of Directors of the Company in its sole discretion
(either of (i) or (ii), a "Permitted Transfer").
(b) Transfer Procedure; Right of First Refusal. The Management
Investor agrees that the Management Investor will not, after the lapse of the
restriction in clause (a) of this Section 3, transfer any Common Stock (or
interest therein) acquired hereunder, except for Permitted Transfers or
transfers in accordance with the following:
(1) If the Management Investor shall have received a
bona fide arm's length written offer (a "Bona Fide Offer") which the
Management Investor desires to
4
<PAGE> 5
accept from an independent party unrelated to the Management Investor
(the "Outside Party") for the purchase of such Common Stock for
consideration consisting entirely of cash, then the Management Investor
shall give a notice in writing (the "Option Notice") to the Company
setting forth such desire, which notice shall set forth at least the
name and address of the Outside Party and the price and terms of the
Bona Fide Offer and be accompanied by a copy of the Bona Fide Offer.
(2) Upon the giving of such Option Notice, the
Company shall have an option (transferable, in the sole discretion of
the Board of Directors of the Company, to GEI or to a subsidiary) to
purchase all of the Common Stock specified in the Option Notice, said
option to be exercised within thirty (30) days after the giving of such
Option Notice, by giving a counter-notice (the "Election Notice") to
the Management Investor.
(3) If the Company (or GEI or a subsidiary, if
applicable) elects to purchase all of such Common Stock, it shall be
obligated to purchase, and the Management Investor shall be obligated
to sell, such Common Stock at the cash price and terms indicated in the
Bona Fide Offer, except that the closing of the purchase by the Company
(or GEI or a subsidiary, if applicable) shall be held on a business day
within sixty (60) days after the giving of the Election Notice at 10:30
a.m., Central Standard Time, at the principal executive office of the
Company, or at such other time and place as may be mutually agreed to
by the Company (or GEI or a subsidiary) and the Management Investor.
(4) If an Election Notice is not delivered by the
Company (or GEI or a subsidiary, if applicable) within the period
specified above, the Management Investor thereafter, at any time within
a period of sixty (60) days from the giving of said Option Notice, may
transfer all of the provisions of this Agreement and, as a condition
precedent to the completion of such transfer of Common Stock to such
Outside Party, shall execute and deliver to the Company a written
consent to such effect in form and substance satisfactory to the
Company; provided, however, that in the event the Management Investor
has not so transferred said Common Stock to the Outside Party within
said three-month period, then said Common Stock thereafter shall
continue to be subject to all of the restrictions contained in this
Agreement.
(b) No Waiver by Company. Any election in any instance by the
Company (or GEI or a subsidiary, if applicable) not to exercise its rights of
first refusal under this Section 3 shall not constitute a waiver of such rights
with respect to any other proposed transfer of Common Stock.
(c) Transfer to Related Transferees. Notwithstanding anything
to the contrary contained in clauses (a) through (c) of this Section 3, the
Management Investor may transfer the Management Investor's Common Stock without
restriction to the Management Investor's Related Transferees (as defined below)
provided that each such Related Transferee shall first (i) execute a written
consent in form and substance satisfactory to the Company to be
5
<PAGE> 6
bound by all of the provisions of this Agreement and (ii) give a duplicate
original of such consent to the Company. The "Related Transferee" of the
Management Investor shall consist of the Management Investor's spouse, the
Management Investor's adult lineal descendants, the adult spouses of such lineal
descendants, trusts solely for the benefit of the Management Investor's spouse
or the Management Investor's minor or adult lineal descendants and, in the event
of death, the Management Investor's personal representatives (in their
capacities as such), estate and named beneficiaries. In the event of any
transfer by the Management Investor to his Related Transferees of all or any
part of the Management Investor's Common Stock (or in the event of any
subsequent transfer by any such Related Transferee to another Related Transferee
of the Management Investor), such Related Transferees shall receive and hold
said Common Stock subject to the terms of this Agreement and the rights and
obligations hereunder of the Management Investor from whom such Common Stock was
originally transferred as though said Common Stock was still owned by the
Management Investor, and such Related Transferees shall be deemed Management
Investors for the purposes of this Agreement (except as stated in Sections 13(b)
and (c) hereof). There shall be no further transfer of such Common Stock by a
Related Transferee except between and among such Related Transferee, the
Management Investor to whom such Related Transferee is related and the other
Related Transferees of the Management Investor, or except as permitted by this
Agreement.
4. Company "Call" Option.
(a) Upon the termination of the Management Investor's
employment or cessation of services as director with the Company or any of its
subsidiaries for any reason (including without limitation Voluntary Termination,
a Just Cause Dismissal, Involuntary Termination Without Cause or the Retirement,
death or Permanent Disability of the Management Investor (as such terms are
defined in Section 5 below)) (a "Call Purchase Event"), subject to the
provisions of Section 6 and this Section 4, the Company may, at its option
exercisable by written notice (a "Purchase Notice") delivered to the Management
Investor (or in the case of a deceased Management Investor, the Management
Investor's personal representative) within ninety (90) days after the applicable
Call Purchase Event (or, in the event the applicable Call Purchase Event is the
death of the Management Investor, within thirty (30) days after the appointment
and qualification of the deceased Management Investor's personal representative,
if later), elect to purchase and, upon the giving of such notice, the Company
shall be obligated to purchase and the Management Investor (and the Related
Transferees, if any, of the Management Investor or, in the case of a deceased
Management Investor, his personal representative) (the "Seller" shall be
obligated to sell, all, or any lesser portion indicated in the Purchase Notice,
of the Common Stock held by the Management Investor (and his Related
Transferees, if any) at a per share price equal to:
(1) in the case of Voluntary Termination or a Just
Cause Dismissal, the lower of the Purchase Price or the Fair Market
Value (as such term is defined in Section 5 below); or
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(2) in the case of any other termination (including
without limitation Involuntary Termination Without Cause, death,
Retirement or Permanent Disability), the Fair Market Value.
(b) If the Company does not elect to exercise its option set
forth in paragraph (a) of this Section 4, the Company shall give written notice
that it is not so electing to GEI within the time periods specified in paragraph
(a) of this Section 4 for the giving of the Purchase Notice. Upon receipt of
such notice from the Company, GEI shall have the option, exercisable by written
notice (a "GEI Purchase Notice") delivered to the Management Investor (or, in
the case of a deceased Management Investor, the Management Investor's personal
representative) within fifteen (15) days after receipt of such notice from the
Company, to purchase from the Seller (and, upon the giving of the GEI Purchase
Notice, GEI shall be obligated to purchase and the Seller shall be obligated to
sell) all, or any lesser portion indicated in the GEI Purchase Notice, of the
Common Stock held by the Seller at the per share price set forth in paragraph
(a) of this Section 4.
(c) In the event a purchase of shares of Common Stock pursuant
to this Section 4 shall be prohibited by law or would cause a default under the
terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party, the obligations of the Seller
and the Company pursuant to this Section 4 shall be suspended and no such
default would be caused; provided, however, that (x) the purchase price to be
paid by the Company for the shares shall accrue interest at the lowest rate
necessary to prevent the imputation of interest or original issue discount under
the Internal Revenue Code of 1986, as amended, reduced by any dividends or
distributions on such Common Stock during the period of such suspension, which
interest shall likewise be paid when such prohibition first lapses or is waived
and no such default would be caused and (y) in the event of any such suspension,
if GEI so elects and no violation of law would be caused and no default under
the terms of any indenture or loan agreement or other instrument to which the
Company or any of its subsidiaries may be a party would result, the Company
shall transfer its obligations under this Section 4 to GEI or to a subsidiary,
in which case GEI or the subsidiary (as the case may be) and the Management
Investor (and the Related Transferees, if any, of the Management Investor) shall
be obligated to complete the purchase of shares of Common Stock pursuant to this
Section 4.
5. Purchase Price, Closing and Terms of Payment for "Call" Sales.
(a) For purposes of this Agreement, the "Fair Market Value" of
each share of Common Stock shall be determined as of the time of the Call
Purchase Event by the Board of Directors of the Company in the exercise of its
reasonable discretion; provided, however, that such determination shall be based
upon the Company as a going concern and shall not discount the value of such
shares either because they are subject to the restrictions set forth in this
Agreement or because they constitute only a minority interest in the Company.
Upon delivery of notice of such Fair Market Value to the Seller of Common Stock
pursuant to Section 4 (which shall indicate, in a general fashion, the factors
considered by the Board of Directors in determining such amount), such Seller
shall have ten (10) business days in which
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<PAGE> 8
to notify the Company in writing of any disagreement. If no written notice of
disagreement is given, the Fair Market Value as determined by the Board of
Directors of the Company shall be conclusive. If written notice is given of a
disagreement, the Company and such Seller shall mutually agree upon an
independent appraiser experienced in making valuations of such sort which shall
make a determination of the Fair Market Value. Such determination shall be
final, binding and nonappealable upon the Company and such Seller. The costs and
expenses incurred in connection with the determination made by the independent
appraiser shall be borne equally by the Company and by the Seller.
(b) For purposes of this Agreement, the Management Investor
shall be deemed to be "Permanently Disabled" if the Management Investor becomes
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Company, at its option and expense, shall
be entitled to retain a physician to confirm the existence of such incapacity or
disability and the determination of such physician shall be binding upon the
Company and the Management Investor; provided, however, that if the Management
Investor disagrees with such determination of Permanent Disability within
fifteen (15) days of being notified of it, the Management Investor and the
Company shall jointly agree upon an independent physician (or, if they are
unable to agree upon such physician, they shall each select a physician and
those two physicians shall select the independent physician) who shall make the
determination, whose decision shall be binding upon the Company and the
Management Investor.
(c) For the purposes of this Agreement, the Management
Investor shall be deemed to be "Involuntarily Terminated Without Cause" upon the
later of the termination of the Management Investor's employment by, or removal
or failure to be reelected as a director of, the Company or any of its
subsidiaries, unless such termination, removal or failure to be reelected is due
to Retirement, death, Permanent Disability or a Just Cause Dismissal.
"Retirement" shall mean retirement in accordance with the retirement policies or
practices of the Company or its subsidiaries applicable to executives or
directors, as the case may be, but in no event at an age of less than seventy
(70). "Voluntary Termination" shall mean the termination by the Management
Investor of his employment with, or his resignation or refusal to stand for
reelection as a director of, the Company or any of its subsidiaries, for any
reason other than death, Permanent Disability, or Retirement. A "Just Cause
Dismissal" shall mean termination of the Management Investor's employment with,
or service as a director of, the Company or any of its subsidiaries as a result
of any of the following (each, a "Cause"):
(1) the Management Investor commits any act of fraud,
intentional misrepresentation or serious misconduct in connection with
the business of the Company or its subsidiaries, including but not
limited to, falsifying any documents or agreements (regardless of
form); or
(2) the Management Investor materially violates any
rule or policy of the Company or its subsidiaries (A) for which
violation an employee may be terminated pursuant to the written
policies of the Company or its subsidiaries reasonably applicable
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<PAGE> 9
to an executive employee, or (B) which violation results in material
damage to the Company or its subsidiaries, or (C) which, after written
notice to do so, the Management Investor fails to correct within a
reasonable time; or
(3) the Management Investor willfully breaches or
habitually neglects any material aspect of the Management Investor's
duties (A) as described in the Management Investor's employment
contract, or (B) in the ordinary course of the Management Investor's
employment or service as a director, or (C) assigned to the Management
Investor by the Company or its subsidiaries, which assignment was
reasonable in light of the Management Investor's position with the
Company or its subsidiaries (all of the foregoing duties, "Duties"); or
(4) the Management Investor fails, after written
notice, adequately to perform any Duties and such failure is reasonably
likely to have an adverse impact upon the Company, its subsidiaries or
the operations of any of them; or
(5) the Management Investor materially fails to
comply with a direction from the Board of Directors of the Company or
its subsidiaries with respect to a material matter, which direction was
reasonable in light of the Management Investor's position with the
Company or its subsidiaries; or
(6) while employed by the Company or its
subsidiaries, and without the written approval of the Chief Executive
Officer of the Company (or, in case the Management Investor is such
Chief Executive Officer, approval of the Company's Board of Directors),
the Management Investor performs services for any other corporation or
person which competes with the Company or its subsidiaries; or
(7) the Management Investor is convicted by a
court of competent jurisdiction of a felony (other than a traffic or
moving violation) or any crime involving dishonesty; or
(8) any other action or condition that may result in
termination of an employee for cause pursuant to any generally applied
standard, of which standard the Management Investor knew or reasonably
should have known, adopted in good faith by the Board of Directors of
the Company or its subsidiaries from time to time but prior to such
action or condition; or
(9) any willful breach by the Management Investor of
his or her fiduciary duties as a director of the Company or any of its
subsidiaries.
In the event that there is a dispute between the Management Investor and the
Company as to whether "Cause" for termination exists: (x) such termination shall
nonetheless be effective, (y) such dispute shall be subject to arbitration
pursuant to Section 13(f) hereof and (z) the payments or deliveries, if any, to
be made by the Company or GEI or any subsidiary in connection with a sale or
purchase of the Common Stock held by the Management Investor
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<PAGE> 10
pursuant to Section 4 shall be delayed until the final resolution of such
dispute in such arbitration.
(b) The closing for all purchases and sales of Common Stock
provided for in Section 4 hereof shall be at the principal executive offices of
the Company at 10:30 a.m., Central Standard Time, on the later of (A) the
sixtieth day after the giving of the applicable Purchase Notice or GEI Purchase
Notice and (B) the thirtieth day after the final determination of the Fair
Market Value of the Common Stock as set forth above; provided, however, that if
the Management Investor (or a Related Transferee) who has become obligated to
sell shares of Common Stock hereunder is deceased on the closing date and such
deceased person's personal representative shall not have been appointed and
qualified by such date, then the closing shall be postponed until the tenth day
after the appointment and qualification of such personal representative. If the
aforesaid closing date falls on a day which is not a business day, then the
closing shall be held on the next succeeding business day.
(c) The purchase price for the purchase and sale of Common
Stock pursuant to the provisions hereof shall be paid in cash, by certified or
by official bank check.
(d) The Seller or Sellers of shares of Common Stock sold
pursuant to Section 4 hereof, if such shares are represented by one or more
certificates issued by the Company, shall cause such certificated shares to be
delivered to the Company at the closing free and clear of all liens, charges or
encumbrances of any kind. Such Seller or Sellers shall take all actions as the
Company shall request as necessary to vest in the Company at such closing all
shares sold pursuant to Section 4 hereof, whether in certificated or
uncertificated form, free and clear of all liens, charges and encumbrances
incurred, voluntarily or involuntarily, by or through Seller. At each closing
pursuant to Section 4, the Company shall deliver to the Seller reasonable
assurances to the effect that the Company's or a subsidiary's purchase of shares
thereat has been duly and validly authorized and complies with applicable state
securities laws.
6. Termination and Lapse of Rights and Restrictions; Application
to Other Stock.
(a) The provisions of Sections 1(b) (ii), 3(a), 3(b), 4, 8 and
9 of this Agreement shall lapse and be of no further effect with respect to
shares of Common Stock upon the commencement of the public trading of the
Company's Common Stock (or any capital stock exchanged for or distributed upon
such Common Stock as described in paragraph (b) of this Section 6) on any
national securities exchange, on the NASDAQ National Market System or on the
NASDAQ "Small Cap" Issues System.
(b) In the event any capital stock of the Company or any other
corporation shall be distributed on, with respect to, or in exchange for shares
of Common Stock of the Company as a stock dividend, stock split, spin-off,
reclassification or recapitalization in connection with any merger or
reorganization, the restrictions, rights and options set forth in Sections 3, 4,
8 and 9 shall apply with respect to such other capital stock to the same extent
as
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they are, or would have been applicable, to the Common Stock acquired hereunder
on, or with respect to, which such other capital stock was distributed.
7. Piggyback Registration Rights.
(a) As used in this Agreement, the term "Holder" means the
Management Investor, a Related Transferee of the Management Investor or an
Outside Party.
(b) Subject to the provisions herein, if the Company at any
time proposes to include all or any part of GEI's Common Stock in a public
offering of Common Stock registered under the Act (other than registration (x)
on Forms S-4 or S-8 or any successor forms thereto or (y) filed in connection
with an exchange offer), the Company shall give written notice of the proposed
registration to each Holder at least thirty (30) days prior to the filing
thereof, and each Holder shall have the right to request that all or any part of
its shares of Common Stock be included in such registration by giving written
notice to the Company within fifteen (15) days after the giving of such notice
by the Company (any Holder giving the Company a notice requesting that shares of
Common Stock owned by it be included in such proposed registration being
hereinafter referred to in this Section 7 as a "Registering Holder"); provided,
however, that (i) if the registration is in whole or in part an underwritten
primary registration on behalf of the Company and the managing underwriters of
such offering determine that the aggregate amount of securities of the Company
which all Registering Holders and all other security holders of the Company,
pursuant to contractual rights to participate in such registration ("Other
Holder"), propose to include in such registration statement exceeds the maximum
amount of securities that should be included therein, the Company will include
in such registration, first, the shares which the Company proposes to sell and,
second, the shares of such Registering Holders and other securities to be sold
for the account of Other Holders, pro rata among all such Registering Holders
and Other Holders, taken together, on the basis of the relative equity interests
in the Company of all Registering Holders and Other Holders who have requested
that securities owned by them be so included (it being agreed and understood,
however, that such underwriters shall have the right to eliminate entirely the
participation in such registration of all Registering Holders and Other
Holders), and (ii) if the registration is an underwritten secondary registration
on behalf of any of the Other Holders pursuant to demand registration rights
(other than such right of GEI or its Affiliates (defined below)) and the
managing underwriters determine that the aggregate amount of securities which
all Registering Holders and all Other Holders propose to include in such
registration exceeds the maximum amount of securities that should be included
therein, the Company will include in such registration, first, the securities to
be sold for the account of the Other Holders demanding registration (but only to
the extent such Other Holders are entitled to demand inclusion thereof) second,
any securities to be sold for the account of the Company, and, third, the shares
of such Registering Holders and other securities to be sold for the account of
the Other Holders electing to include (but not being entitled to demand
inclusion of) securities in such registration, pro rata among all such
Registering Holders and Other Holders, taken together, on the basis of relative
equity interests in the Company of all Registering Holders and such Other
Holders who have requested that securities owned by them be included (it being
agreed and understood, however, that such underwriters shall have the right to
eliminate entirely the participation therein of all
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<PAGE> 12
such Registering Holders and Other Holders not entitled to demand inclusion of
securities in such registration). Shares of Common Stock proposed to be
registered and sold for the account of any Registering Holder shall be sold to
prospective underwriters selected or approved by the Company on the terms and
subject to the conditions of one or more underwriting agreements negotiated
between the Company and/or Other Holders demanding registration and the
prospective underwriters. For the purposes hereof, an "Affiliate" of any person
or entity means any other person or entity controlling, controlled by or under
common control with such person or entity; provided, however, that none of the
Management Stockholders (defined below) or any of their Affiliates shall be
deemed to be an Affiliate of GEI. "Management Stockholders" means, collectively,
all holders of capital stock or other securities issued by the Company who are
also employees of the Company or its subsidiaries.
In the event the Company proposes to register any of its Common Stock
under the Act on Form S-8 (or any successor thereto), if the Company determines
that it is permissible to do so and will not result in material added costs to
the Company from such registration, the Company shall, at a Registering Holder's
request, include in such registration a portion of such Registering Holder's
shares of Common Stock equal to the portion, if any, of GEI's shares of Common
Stock held as of the date of this Agreement sold by GEI in private transactions
from the date hereof to the date of such request.
The Registering Holders shall be permitted to withdraw all or a part of
the shares of Common Stock held by such Registering Holders which were to be
included in such registration at any time prior to the effective date of such
registration. The Company shall not be required to maintain the effectiveness of
the registration statement for such registration beyond the earlier to occur of
120 days after the effective date thereof or consummation of the distribution by
the Registering Holders included in such registration statement. The Company may
withdraw any registration statement at any time before it becomes effective, or
postpone the offering of securities, without obligation or liability to any
Holder.
(c) The registration rights sets forth in this Section 7 shall
terminate and be of no further effect with respect to the Common Stock held by a
Holder: (i) at such time as the Company has filed, and there has become
effective, one registration statement in which all Registering Holders have been
afforded the opportunity to include all shares of such class of securities held
by them or (ii) if earlier, after an initial public offering, all shares of
Common Stock acquired hereunder and held by the Management Investor are eligible
for sale pursuant to the provisions of Rule 144 under the Act.
(d) In connection with any registration of shares under the
Act pursuant to this Section 7, the Company will furnish each Holder whose
shares of Common Stock are registered thereunder with a copy of the registration
statement and all amendments thereto and will supply each such Holder with
copies of any prospectus included therein (including a preliminary prospectus
and all amendments and supplements thereto), in such quantities as may be
reasonably necessary for the purpose of the proposed sale or distribution
covered by such registration. The Company shall not, however, be required to
maintain the registration statement and to supply copies of a prospectus for a
period beyond 120 days after the effective
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date of such registration statement, at the end of such period, the Company may
deregister any shares of Common Stock covered by such registration statement and
not then sold or distributed. In connection with any such registration of shares
of Common Stock, the Company will, at the request of the managing underwriter
with respect thereto, use its best efforts to qualify such registered shares for
sale under the securities laws of such state as is reasonably required to permit
the distribution of such registered shares; provided, however, that the Company
shall not be required in connection therewith or as condition thereof to qualify
as a foreign corporation or to execute a general consent to service of process
in any jurisdiction or become subject to taxation in any jurisdiction.
(e) Notwithstanding any other provision of this Section 7,
Holder agrees that in the event of an underwritten public offering of Common
Stock for the account of the Company, such Holder will not offer for public sale
(other than as part of such underwritten public offering) any shares of Common
Stock during the ten (10) days prior to, and such number of days (not in excess
of 180) after, the effective date of the registration statement in connection
with such public offering as the underwriters and the Company may request in
writing, without the consent of the underwriters; provided, however, that, in
the case of death of a Holder, if consented to by the underwriters, a Holder
shall be permitted to offer for public sale prior to the expiration of such
period shares of Common Stock reasonably necessary to generate funds of the
payment of estate taxes.
(f) Except as otherwise required by state securities laws or
the rules and regulations promulgated thereunder, all expenses, disbursements
and fees incurred by the Company in connection with carrying out its obligations
under this Section 7 shall be borne by the Company; provided, however, that each
Holder shall pay (i) all costs and expenses of counsel for such Holder, if such
counsel is not also counsel for the Company, (ii) all underwriting discounts,
commissions and expenses and all transfer taxes with respect to the shares of
Common Stock sold by such Holder and (iii) all other expenses incurred by such
Holder and incidental to the sale and delivery of the shares of Common Stock to
be sold by such Holder.
(g) It shall be a condition of each Holder's rights hereunder
to have shares of Common Stock owned by such Holder registered that:
(1) such Holder shall cooperate with the Company by
supplying information and executing documents relating to such Holder
or the securities of the Company owned by such Holder in connection
with such registration;
(2) such Holder shall enter into any undertakings and
take such other action relating to the conduct of the proposed offering
which the Company or the underwriters may reasonably request as being
necessary to insure compliance with federal and state securities laws
and the rules or other requirements of the National Association of
Securities Dealers, Inc. or which the Company or the underwriters may
reasonably request to otherwise effectuate the offering; and
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(3) such Holder shall execute and deliver an
agreement to indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration
statement, any underwriter (as defined in the Act) and each person, if
any who controls the Company or such underwriter within the meaning of
the Act, against such losses, claims, damages or liabilities (including
reimbursement for legal and other expenses) to which the Company or any
such director, officer, underwriter or controlling person may become
subject under the Act or otherwise, in such manner as is customary for
registration of the type then proposed and, in any event, equivalent in
scope to indemnities given by the Company in connection with such
registration, but only with respect to written information furnished by
such Holder in his or her capacity as a selling shareholder in
connection with such registration.
(h) In the event of any registration under the Act of any
shares of Common Stock pursuant to this Section 7, the Company hereby agrees to
indemnify and hold harmless each Holder disposing of such shares against such
losses, claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such Holder may become subject under the Act or
otherwise, in such manner as is customary for registrations of the type then
proposed, but not with respect to written information furnished by such Holder
in his capacity as a selling shareholder in connection with such registration.
8. Tag-Along Rights.
(a) Right to Participate in Sale. If GEI enters into an
agreement to transfer, sell or otherwise dispose of (such transfer, sale or
other disposition being referred to as a "Tag-Along Sale") a majority of its
shares of Common Stock of the Company held on the date hereof, then GEI shall
afford the Holder the opportunity to participate proportionately in such
Tag-Along Sale in accordance with this Section 8. The Holder shall have the
right, but not the obligation (except as provided in Section 9), to participate
in such Tag-Along Sale. The number of shares of Common Stock that the Holder
will be entitled to include in such Tag-Along Sale (the "Management Investor's
Allotment") shall be determined by multiplying (i) the number of shares of
Common Stock held by the Holder on the Tag-Along Sale Date (as defined below),
by (ii) a fraction, the numerator or which shall equal the number of shares of
Common Stock proposed by GEI to be sold or otherwise disposed of pursuant to the
Tag-Along Sale and the denominator of which shall equal the total number of
shares of Common Stock that are beneficially owned by (a) GEI and (b) any holder
of shares of Common Stock (including the Holder) that has the right to
"tag-along" in the Tag-Along Sale on the Tag-Along Sale Date. The "Tag Along
Notice Date" shall be the date that the Tag-Along Sale Notice (as defined below)
is first delivered, mailed or sent by courier, Telex or telecopy to the Holder.
(b) Limitation on Management Investor Representations;
Indemnity. Any sales of shares of Common Stock by a Holder as a result of the
"Tag-Along Rights" granted to the Holder pursuant to this agreement shall be on
the same terms and conditions as the proposed Tag-Along Sale by GEI; provided,
however, that in negotiating a Tag-Along Sale, GEI shall use its reasonable,
good faith efforts to provide (i) that the only representation and warranty
which the Holder shall be required to make in connection with any transfer is a
warranty with
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respect to the Holder's own ability to convey title thereto free and clear of
liens, encumbrances or adverse claims and (ii) that the warranty made in
connection with any transfer is the several liability of the Holder (and not
joint with any other person) and that such liability is limited to the amount of
proceeds actually received by such Holder.
(c) Sale Notice. GEI shall provide the Holder with written
notice (the Tag-Along Sale Notice") not more than sixty (60) nor less than
twenty (20) days prior to the proposed date of the Tag-Along Sale (the
"Tag-Along Sale Date"). Each Tag-Along Sale Notice shall set forth: (i) the name
and address of each proposed transferee or purchaser of shares in the Tag-Along
Sale; (ii) the number of shares proposed to be transferred or sold by GEI; (iii)
the proposed amount and form of consideration to be paid for such shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser; (iv) the aggregate number of shares of Common Stock held of record as
of the close of business on the day immediately preceding the Tag-Along Notice
Date by GEI; (v) the Management Investor's Allotment assuming the Holder elected
to sell the maximum number of shares of Common Stock possible; (vi) confirmation
that the proposed purchaser or transferee has been informed of the "Tag-Along
Rights" provided for herein and has agreed to purchase shares of Common Stock
(including Vested Shares) in accordance with the terms hereof and (vii) the
Tag-Along Sale Date.
(d) Tag-Along Notice. If the Holder wishes to participate in
the Tag-Along Sale, the Holder shall provide written notice (the "Tag-Along
Notice") to GEI no less than ten (10) days prior to the Tag-Along Sale Date. The
Tag-Along Notice shall set forth the number of shares of Common Stock that such
Holder elects to include in the Tag-Along Sale, which shall not exceed the
Management Investor's Allotment. The Tag-Along Notice shall also specify the
aggregate number of additional shares of Common Stock owned of record as of the
close of business on the day immediately preceding the Tag-Along Notice Date by
such Holder, if any, which such Holder desires also to include in the Tag-Along
Sale ("Additional Shares") in the event there is any undersubscription for the
entire amount of all Management Investors' Allotments of all shares that may be
included by persons having, and pursuant to, tag-along rights relative to GEI
(collectively, the "Management Investors' Allotments"). In the event there is an
under-subscription by all holders of Management Investors' Allotments for the
entire amount of the Management Investors' Allotments, GEI shall apportion the
unsubscribed Management Investors' Allotments to such holders whose tag-along
apportionment shall be on a pro rata basis among such holders in accordance with
the number of Additional Shares specified by all such holders in their Tag-Along
Notice. The Tag-Along Notices given by the Holder shall constitute the Holder's
binding agreement to sell such shares of Common Stock on the terms and
conditions applicable to the Tag-Along Sale, subject to the provisions of
Section 8(b) above; provided, however, that in the event that there is any
material change in the terms and conditions of such Tag-Along Sale applicable to
the Holder after the Holder gives the Tag-Along Notice, then, notwithstanding
anything herein to the contrary, the Holder shall have the right to withdraw
from participation in the Tag-Along Sale with respect to all of its shares of
Common Stock affected thereby. If the purchaser does not consummate the purchase
of all of such shares on the same terms and conditions applicable to GEI (except
as otherwise provided herein) then GEI shall not consummate the Tag-Along Sale
of any of its shares to such
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transferee or purchaser, unless the shares of the Holder and GEI are reduced or
limited pro rata in proportion to the respective number of shares actually sold
in any such Tag-Along Sale.
If a Tag-Along Notice is not received by GEI from the Holder prior to
the ten-day period specified above, GEI shall have the right to sell or
otherwise transfer the number of shares specified in the Tag-Along Notice to the
proposed purchaser or transferee without any participation by such Holder, but
only on terms and conditions which are no more favorable in any material respect
to GEI than as stated in the Tag-Along Notice to the Holder and only if such
Tag-Along Sale occurs on a date within sixty (60) business days of the Tag-Along
Sale Date.
(e) Authority to Record Transfer/Delivery of Certificates. On
the Tag-Along Sale Date, the Holder, if a participant therein, authorizes the
Company (or the Company's transfer agent, if any) to record in the Company's
books and records the transfer of all of the Holder's shares of Common Stock
which are not represented by one or more certificates issued by the Company,
from the Holder to the purchaser in the Tag-Along Sale. On the Tag-Along Sale
Date, the Holder, if a participant therein, shall also deliver all certificates,
if any, issued by the Company which represent shares of the Company's Common
Stock, duly endorsed for transfer with signatures guaranteed, to the purchaser
in the Tag-Along Sale, in the manner and at the address indicated in the
Tag-Along Notice against delivery of the purchase price for such shares;
provided, however, that in the event the Company has possession of any such
certificate(s) pursuant to this Agreement, upon the written request of the
Holder at least five (5) business days in advance of the Tag-Along Sale Date,
the Company shall deliver such certificate(s) to the purchaser at the time and
in the manner described above.
(f) Exempt Transfers. The provisions of this Section 8 shall
not apply to (i) any bona fide underwritten offering of Common Stock pursuant to
an effective registration statement under the Act or any bona fide public
distribution of Common Stock pursuant to Rule 144 thereunder, provided that any
such sale complies with the provisions of this Agreement; (ii) any transfer,
sale or other disposition by GEI to one of its Affiliates (except that (A) prior
to any such disposition, the party receiving such shares of Common Stock shall
agree in writing to be bound by the terms of this Agreement applicable to GEI as
if such transferee were an original party hereto and (B) any such shares of
Common Stock shall continue to be subject to this Agreement); (iii) any
redemption by the Company of its Common Stock or (iv) any GEI Distribution (as
defined in Section 14).
9. Drag-Along Sales.
(a) Right to Require Sale. Notwithstanding any other provision
hereof, if GEI agrees to sell 100% of the shares of Common Stock held by it to a
third person who is not an affiliate of GEI (a "Third Party") or if GEI agrees
to sell a portion of its shares pursuant to a transaction in which more than 50%
of the total Common Stock of the Company will be sold to a Third Party (either
of such sales, a "Drag-Along Sale"), then, upon the demand of GEI, each Holder
hereby agrees to sell to such Third Party the same percentage of the total
number of shares of Common Stock held by such Holder on the date of the
Drag-Along Notice, as the
16
<PAGE> 17
number of shares GEI is selling in the Drag-Along Sales bears to the total
number of shares held be GEI as of the date of the Drag-Along Notice (the "Sale
Percentage"), at the same price and on the same terms and conditions as GEI has
agreed to with such Third Party; provided, however, that GEI shall use its
reasonable, good faith efforts to provide that (i) the only representation and
warranty which the Holder shall be required to make in connection with the
Drag-Along Sale is a representation and warranty with respect to the Holder's
own ownership of the shares of Common Stock to be sold by it and its ability to
convey title thereto free and clear of liens, encumbrances or adverse claims and
(ii) that the liability of any other Holder with respect to any representation
and warranty made in connection with the Drag-Along Sale is the several
liability of such other Holder (and not joint with any other person) and that
such liability is limited to the amount of proceeds actually received by such
other Holder in the Drag-Along Sale; provided further, that the Holder shall not
be obligated to participate in any Drag-Along Sale unless the Holder is provided
an opinion of counsel to the effect that the Drag-Along Sale is not in violation
of applicable federal or state securities or other laws or, if the Holder is not
provided with an opinion with respect to any matters contemplated by this
proviso, GEI shall (in addition to the indemnification contemplated below)
indemnify the Holder for any violation. If the Drag-Along Sale is in the form of
a merger transaction, the Holder agrees to vote his or her shares of Common
Stock in favor of such merger and not to exercise any rights of appraisal or
dissent afforded under applicable law.
(b) Drag-Along Notice. Prior to making any Drag-Along Sale, if
GEI elects to exercise the option described in this Section 9, GEI shall provide
the Holder with written notice (the "Drag-Along Notice") not more than sixty
(60) nor less than twenty (20) days prior to the proposed date of the Drag-Along
Sale (the "Drag-Along Sale Date"). The Drag-Along Notice shall set forth: (i)
the name and address of the Third Party; (ii) the proposed amount and form of
consideration to be paid per share and the terms and conditions of payment
offered by the Third Party; (iii) the aggregate number of shares of Common Stock
held by GEI as of the date that the Drag-Along Notice is first delivered, mailed
or sent by courier, telex or telecopy to the Holder; (iv) the sale percentage;
(v) the Drag-Along Sale Date and (vi) confirmation that the proposed Third Party
has agreed to purchase the Management Investor's shares of Common Stock in
accordance with the terms hereof.
(c) Authority to Record Transfer/Delivery of Certificates. The
Company (or the Company's transfer agent, if any) shall record in the Company's
books and records the transfer of the Sale Percentage of the Holder's shares of
Common Stock which is not represented by one or more certificates issued by the
Company, from the Holder to the Third Party, on the Drag-Along Sale Date. If any
part of the Sale Percentage of the Holder's shares of Common Stock is
represented by one or more certificates issued by the Company, the Holder shall
deliver such certificate or certificates for such shares, duly endorsed for
transfer with signatures guaranteed, to such Third Party on the Drag-Along Sale
Date in the manner and at the address indicated in the Drag-Along Notice against
delivery of the purchase price for the shares; provided, however, that in the
event the Company has possession of any such certificate(s) pursuant to this
Agreement, upon the written request of the Holder at least five (5) business
days in advance of the Drag-Along Sale Date, the Company shall deliver such
certificate(s) to the purchaser at the time and in the manner described above.
17
<PAGE> 18
(d) Consideration. The provisions of this Section 9 shall
apply regardless of the form of consideration received in the Drag-Along Sale.
10. Noncompetition.
(a) Management Investor covenants and agrees that Management
Investor will not, during the period of his employment with the Company or any
of the Company's subsidiaries, and for a period of three (3) years after the
termination of such employment, without the prior written consent of the
Company, individually or in partnership or in conjunction with or as an
employee, officer, director, manager or agent of any other person, firm,
corporation or other entity, either directly or indirectly, undertake or carry
on or be engaged or have any financial or other interest in, or in any other
manner advise or assist any person, firm, corporation or other entity engaged or
interested in, any newspaper publishing business or any other business involving
the printing or publication of any newspaper, flyer, shopper, circular or other
publication carrying advertising, or any other business involving the
solicitation of local advertising, or any advertising agency business, or any
job printing business, carried on in any community or communities described in
Annex B attached hereto or within a radius of fifty (50) miles of the center
point of any such community.
(b) Management Investor further covenants and agrees to
refrain, for a period of three (3) years following the termination of Management
Investor's employment by or on behalf of the Company or any of the Company's
subsidiaries, for whatever reason, from (i) selling, or attempting to sell, any
advertising which is or is intended to be distributed or disseminated within any
community or communities listed in Annex C hereto or within a fifty (50) mile
radius of the center point of any such community to any person, firm,
corporation or other entity which, at the termination of such employment, was a
purchaser of advertising from one or more of the newspapers or other
publications of the Company or any of the Company's subsidiaries; (ii) inducing,
or attempting to induce, any person, firm or corporation to cease, discontinue
or fail to renew any advertising contract, agreement or arrangement with one or
more of the newspapers or other publications of the Company or any of the
Company's subsidiaries; and (iii) soliciting, employing, diverting or taking
away, or attempting to solicit, employ, divert or take away, any person who, at
the time of such termination or at any time during the six (6) month period
prior to such termination, was employed by or on behalf of the Company or any of
the Company's subsidiaries.
(c) Management Investor further agrees and warrants that the
covenants contained in this Section 10 are reasonable, that valid consideration
has been and will be received therefor and that the agreements set forth herein
are the result of arm's length negotiation between the parties hereto.
Management Investor believes that he will be able to earn an adequate livelihood
for himself and his dependents if the covenants contained in this Section 10 are
enforced against him.
(d) If any of the provisions of or covenants contained in this
Section 10 is hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which
18
<PAGE> 19
shall be given full force and effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions of or
covenants contained in this Section 10 is held to be unenforceable in any
jurisdiction because of the duration or geographical scope thereof, the parties
agree (i) that the court making such determination shall have the power to
reduce the duration and/or geographical scope of such provision or covenant and,
in its reduced form, said provision or covenant shall be enforceable, provided,
however, that the determination of such court shall not affect the
enforceability of this Section 10 in any other jurisdiction, and (ii) that if
the court making such determination shall not have the power, or shall refuse to
exercise its power, to reduce the duration and/or geographical scope of such
provision or covenant, then the Management Investor shall, in further
consideration of stock sold pursuant to this Agreement, and without the
requirement of any further consideration, enter into a new Noncompetition
Agreement substantially in the form of this Section 10 but containing such
reduced duration and/or geographical scope as shall be determined by the
Company, in its sole discretion.
11. Notices. All notices or other communications under this Agreement
shall be given in writing and shall be deemed duly given and received on the
third full business day following the day of the mailing thereof by registered
or certified mail or when delivered personally or sent by facsimile transmission
as follows:
(a) if to the Company, at its principal executive offices at
the time of the giving of such notice, or at such other place as the Company
shall have designated by notice as herein provided to the Management Investor,
Attention: Kenneth L. Serota;
(b) if to the Management Investor, at the address of the
Management Investor as it appears in Annex A or at such other place as the
Management Investor shall have designated by notice as herein provided to the
Company;
(c) if to GEI, at its principal executive offices at the time
of the giving of such notice, or at such other place as GEI shall have
designated by notice as herein provided to the Company.
12. Specific Performance. Due to the fact that the securities of the
Company cannot be readily purchased or sold in the open market and because
damages to the Company and its Subsidiaries will be difficult to ascertain and
remedies at law to the Company and its Subsidiaries will be inadequate and for
other reasons, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforced. In the event of a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by any of the
parties hereto, the other parties shall, in addition to all other remedies, be
entitled (without any bond or other security being required) to a temporary
and/or permanent injunction, without showing any actual damage or that monetary
damages would not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
19
<PAGE> 20
13. Miscellaneous.
(a) Except as provided in the last sentence of this paragraph,
this writing constitutes the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except by a written
agreement signed by the Company, GEI and the Management Investor; provided,
however, that any of the provisions of this Agreement (except as hereinafter
provided) may be modified, amended or eliminated by agreement of the Company,
GEI and a majority in interest (on the basis of the number of shares of Common
Stock then owned by the Management Investor and/or his Related Transferees) of
all of the Management Investors and all holders of securities pursuant to
agreements in forms substantially similar to this Agreement, which agreement
shall bind the Management Investor whether or not the Management Investor has
agreed thereto; provided, further, that no modification or amendment which would
materially adversely affect the rights of the Management Investor under Sections
3, 4, 5, 6, 7, 8, 9, 10 or 13(a) of this Agreement shall be effective as to the
Management Investor if the Management Investor shall not have consented in
writing thereto. Anything in this Agreement to the contrary notwithstanding, any
modification or amendment of this Agreement by a written agreement signed by, or
binding upon, the Management Investor shall be valid and binding upon any and
all persons or entities who may, at any time, have or claim any rights under or
pursuant to this Agreement in respect of Common Stock acquired hereunder is
subject to, and the Company and the Management Investor agree to be bound by,
all of the terms and conditions of this Agreement.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature. Anything in
this Agreement to the contrary notwithstanding, any waiver, consent or other
instrument under or pursuant to this Agreement signed by, or binding upon, the
Management Investor shall be valid and binding upon any and all persons or
entities (other than the Company) who may, at any time, have or claim any rights
under or pursuant to this Agreement in respect of the Common Stock acquired
hereunder.
(c) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns and the Management Investor and the Management Investor's
heirs, personal representatives, successors and assigns; provided, however, that
nothing contained herein shall be construed as granting the Management Investor
the right to transfer any Common Stock acquired hereunder except in accordance
with this Agreement and any transferee shall hold such Common Stock having only
those rights and being subject to the restrictions provided for in this
Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
20
<PAGE> 21
(e) The provisions of this Agreement shall apply to all shares
of Common Stock acquired hereunder by the Management Investor (including the
Management Investor's Related Transferees and any Outside Parties).
(f) Except as set forth in Section 12, arbitration shall be
the exclusive remedy for resolving any dispute or controversy between the
Company, any of its subsidiaries or GEI and any Management Investor, personal
representative of an Management Investor, Related Transferee, Holder or Outside
Party. Such arbitration shall be conducted in accordance with the then most
applicable rules of the American Arbitration Association. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
In the event of any conflict between this Agreement and the rules of the
American Arbitration Association, the provisions of this Agreement shall be
determinative. If the parties are unable to agree upon an arbitrator, they shall
select a single arbitrator from a list of seven arbitrators designated by the
office of the American Arbitration Association having responsibility for the
city in which the Management Investor last resided while employed by the Company
or its subsidiaries, all of whom shall be retired judges who are actively
involved in hearing private cases or members of the National Academy of
Arbitrators. If the parties are unable to agree upon an arbitrator from such
list, they shall each strike names alternatively from the list, with the first
to strike being determined by lot. After each party has used three strikes, the
remaining name on the list shall be the arbitrator. The fees and expenses of the
arbitrator shall initially be borne equally by the parties; provided, however,
that each party shall initially be responsible for the fees and expenses of its
own representatives and witnesses. If the parties cannot agree upon a location
for the arbitration, the arbitrator shall determine the location. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction. The
prevailing party in the arbitration proceeding, as determined by the arbitrator,
and in any enforcement or other court proceedings, shall be entitled to the
extent provided by law to reimbursement from the other party for all of the
prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses and reasonable attorneys' fees.
(g) Should any party to this Agreement be required to commence
any litigation concerning any provision of this Agreement or the rights and
duties of the parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted, to the
reasonable attorneys' fees and court costs incurred by reason of such
litigation.
(h) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
sections.
(i) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(j) The Management Investor represents that, if the Management
Investor is married, the Management Investor's spouse has signed the
Acknowledgment and Agreement of Spouse relating to the Management Investor at
the end of this Agreement.
21
<PAGE> 22
(k) Words in the singular shall be read and construed as
though in the plural and words in the plural shall be read and construed as
though in the singular in all cases where they would so apply.
(l) This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
(m) The Management Investor hereby irrevocably and
unconditionally consents to the jurisdiction of any Delaware State court or
federal court of the United States sitting in the State of Delaware in any
action or proceeding relating to this Agreement and consents to service of
process in connection therewith by the delivery of notice to such Management
Investor's address set forth in this Agreement.
(n) This Agreement shall be deemed to be a contract under the
laws of the State of Delaware and for all purposes shall be construed and
enforced in accordance with the internal laws of said state without regard to
the principles of conflicts of law.
14. GEI Distributions Exempt.
It is expressly understood and agreed that GEI may distribute
to its partners or equity participants, in accordance with the terms of its
limited partnership agreement, all or any part of the shares of the Company's
capital stock or other Company securities held by it (any such distribution, a
"GEI Distribution"). Notwithstanding anything to the contrary contained in this
Agreement, any GEI distribution shall not constitute a "sale," "transfer" or
"disposition" for any purpose under this Agreement and shall be exempt in all
respects from the terms and conditions of this Agreement. As an example, and
without limiting the generality of the foregoing, it is expressly understood and
agreed that a GEI Distribution shall not constitute a Tag-Along Sale for the
purposes of Section 8 hereof. Further, it is also expressly understood and
agreed that, following a GEI Distribution (i) the shares of the Company's
capital stock or other Company securities distributed to the partners or equity
participants of GEI shall in no way be subject to this Agreement and (ii) any
partner or equity participant of GEI which receives shares of the Company's
capital stock or other Company securities pursuant to a GEI Distribution shall
not be required or deemed to become a party to this Agreement or otherwise be
subject to this Agreement.
15. Original Agreement.
This Agreement amends and restates the Original Agreement in its
entirety.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Management Stockholders Agreement as of the first date written above.
LIBERTY GROUP PUBLISHING, INC.
By: __________________________________________
Name: ________________________________________
Its: _________________________________________
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.,
its General Partner
By: Grand Avenue Capital Corporation,
its General Partner
By: __________________________________________
Name: ________________________________________
Management Investor
By: __________________________________________
Name: Gene Hall
<PAGE> 24
Acknowledgment and Agreement of Spouse
The undersigned, being the spouse of the Management Investor listed on
Annex A hereto, hereby agrees to be bound by the provisions of this Agreement.
By: __________________________________________
Name: ________________________________________
<PAGE> 25
Annex A
- -------------------------------------------------------------------------------
Name and Address Number of Initial Purchased Shares
of Management Investor
- -------------------------------------------------------------------------------
Gene Hall 800
2157 Pin Oak Estates Lane
Charles City, IA 50616
- -------------------------------------------------------------------------------
<PAGE> 26
Annex B
- -------------------------------------------------------------------------------
Name and Address Number of Grant Shares
of Management Investor
- -------------------------------------------------------------------------------
Gene Hall 27.5
2157 Pin Oak Estates Lane
Charles City, IA 50616
- -------------------------------------------------------------------------------
<PAGE> 27
Annex C
Communities Subject to Noncompetition Provisions
Charles City, IA
Atchison, KS
Leavenworth, KS
Crookston, MN
Camdenton, MO
Rolla, MO
St. James, MO
Osage Beach, MO
Waynesville, MO
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT
TO
CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "First
Amendment") is dated as of May 20, 1999 and is by and among LIBERTY GROUP
OPERATING, INC., as Borrower, LIBERTY GROUP PUBLISHING, INC. ("Holdings"), the
LENDERS (as defined in the Credit Agreement referred to below) party hereto,
CITIBANK, N.A., as Issuing Bank, and CITICORP USA, INC., as Administrative Agent
and as Swingline Lender.
RECITALS
1. The Borrower and Holdings have previously entered into that certain
Credit Agreement dated as of January 27, 1998 (as amended to date, the "Credit
Agreement") with the Lenders from time to time party thereto, CITICORP USA,
INC., as Administrative Agent and Swingline Lender, CITIBANK, N.A., as Issuing
Bank, BT ALEX BROWN INCORPORATED, as Syndication Agent, WELLS FARGO BANK, N.A.,
as Documentation Agent, and BANK OF AMERICA NT&SA, as Co-Agent.
2. The Borrower has requested that the Lenders consent to an increase
in the aggregate amount of the Revolving Commitments available under the Credit
Agreement from $125,000,000 to $175,000,000, and the Lenders are willing to
grant such consent on the terms and conditions set forth herein.
3. Certain of the Lenders and certain additional lenders party hereto
(such additional lenders being referred to herein as the "New Lenders") are
willing to provide $50,000,000 in additional Revolving Commitments under the
Credit Agreement and such New Lenders shall become Lenders under and parties to
the Credit Agreement pursuant to this Agreement.
AGREEMENT
I.
DEFINITIONS
1.1. Defined Terms. Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to such terms in the Credit
Agreement.
II.
AMENDMENTS
2.1. Amendments to Credit Agreement; Schedules; Exhibits. As of the
First Amendment Effective Date, the Credit Agreement shall be amended as
follows:
<PAGE> 2
2.1.1. Section 1.1. Section 1.1 of the Credit Agreement is
hereby amended by:
(a) adding thereto in appropriate alphabetical order
the following definitions:
"'FIRST AMENDMENT' means the First Amendment
to Credit Agreement dated as of May 20, 1999 among the
Borrower, Holdings, the Lenders and the Administrative Agent.
'FIRST AMENDMENT EFFECTIVE DATE' has the
meaning set forth in the First Amendment."
(b) deleting the pricing grid set forth in the
definition of "Applicable ABR Margin" and "Applicable Eurodollar Margin" and
replacing such pricing grid with the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
TOTAL LEVERAGE RATIO: ABR SPREAD EURODOLLAR SPREAD (P.A.)
(P.A.)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CATEGORY 1
Greater than 6.75 to 1.00 1.75% 3.00%
- -----------------------------------------------------------------------------------------------------------
CATEGORY 2
Greater than 6.25 to 1.00 but less than or equal 1.50% 2.75%
to 6.75 to 1.00
- -----------------------------------------------------------------------------------------------------------
CATEGORY 3
Greater than 5.50 to 1.00 but less than or equal 1.25% 2.50%
to 6.25 to 1.00
- -----------------------------------------------------------------------------------------------------------
CATEGORY 4
Greater than 4.50 to 1.00 but less than or equal 1.125% 2.375%
to 5.50 to 1.00
- -----------------------------------------------------------------------------------------------------------
CATEGORY 5
Less than or equal to 4.50 to 1.00 1.00% 2.25%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(c) adding the words "the First Amendment or"
immediately after the words "become a party hereto pursuant to" appearing in the
second line of the definition of "LENDERS";
(d) deleting the final sentence of the definition of
"REVOLVING COMMITMENT" and substituting the following therefor:
"The initial amount of each Lender's Revolving Commitment
(after giving effect to the First Amendment) is set forth on
Schedule 2.1, or in the Assignment and Acceptance pursuant to
which such Lender shall have assumed its Revolving Commitment,
as applicable (and the initial aggregate amount of the
Lenders' Revolving Commitments (after giving effect to the
First Amendment) is $175,000,000)."
2.1.2. Section 2.1(b). The text (including the Section
heading) of Section 2.1(b) of the Credit Agreement is hereby deleted in its
entirety and the following substituted therefor:
2
<PAGE> 3
"[reserved]"
2.1.3. New Section 4.16. Article IV of the Credit Agreement is
hereby amended by adding thereto a new Section 4.16 to read as follows:
"SECTION 4.16 YEAR 2000. Any reprogramming
required to permit the proper functioning, in and following
the year 2000, of (i) each Loan Party's computer systems and
(ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which any
Loan Party's systems interface) and the testing of all such
systems and equipment (except systems and equipment acquired
in Acquisitions consummated after the date of the First
Amendment), as so reprogrammed, will be completed by August
31, 1999. The cost to the Loan Parties of such reprogramming
and testing (including with respect to systems and equipment
acquired in Acquisitions consummated after the date of the
First Amendment) of the reasonably foreseeable consequences of
year 2000 to the Loan Parties (including, without limitation,
reprogramming errors and the failure of others' systems or
equipment) will not result in a Default or a Material Adverse
Effect. Except for such of the reprogramming referred to in
the preceding sentence as may be necessary, each Loan Party's
computer and management information systems are sufficient to
permit such Loan Party to conduct its business as presently
conducted without Material Adverse Effect. Each Loan Party
represents and warrants that it has a reasonable basis to
believe that no year 2000 problem will cause a Material
Adverse Effect.
2.1.4. New Section 5.15. Article V of the Credit Agreement is
hereby amended by adding thereto a new Section 5.15 to read as follows:
"SECTION 5.15 YEAR 2000 MATTERS. Each of
Holdings, the Borrower and each of its Subsidiaries shall take
all action necessary and commit adequate resources to assure
that their respective computer-based and other systems are
able to effectively process data including dates before, on
and after January 1, 2000 without experiencing any year 2000
problem that could cause a Material Adverse Effect. At the
request of the Administrative Agent or any Lender, the
Borrower shall use commercially reasonable efforts to provide
or cause to be provided to the Administrative Agent or such
Lender, as the case may be, with assurance and substantiation
(including, but not limited to, the results of internal or
external audit reports prepared in the ordinary course of
business) reasonably acceptable to the Administrative Agent or
such Lender, as the case may be, as to the year 2000
capability of Holdings, the Borrower and its Subsidiaries and
their respective abilities to conduct their respective
businesses and operations before, on and after January 1, 2000
without experiencing a year 2000 problem causing a Material
Adverse Effect.
3
<PAGE> 4
2.1.5. Schedule 2.1. Schedule 2.1 to the Credit Agreement is
hereby deleted in its entirety and replaced for all purposes of the Credit
Agreement and the other Loan Documents with Schedule 2.1 attached hereto.
III.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties. Each of the Borrower and Holdings
hereby represents and warrants to each Agent, each Lender (including, without
limitation, each New Lender) and the Issuing Bank as follows:
3.1.1. Such party is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with all
requisite power and authority to carry on its business as now conducted and to
enter into and perform its obligations under this First Amendment (and the
Credit Agreement as amended hereby) and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
3.1.2. Such party has taken all necessary corporate action to
authorize the execution, delivery and performance of this First Amendment (and
the Credit Agreement as amended hereby).
3.1.3. The execution, delivery and performance of this First
Amendment and the performance of each of the Loan Documents as amended hereby
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of any member of the Holdings Group or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument governing Material Indebtedness of, or any other
material agreement binding upon, any member of the Holdings Group or its assets,
or give rise to a right thereunder to require any payment to be made by any
member of the Holdings Group, and (d) will not result in the creation or
imposition of any Lien on any asset of any member of the Holdings Group, except
Liens created under the Loan Documents.
3.1.4. This First Amendment has been duly executed and
delivered by such party and each of this First Amendment and the Credit
Agreement as amended hereby constitutes the legal, valid and binding obligation
of such party, enforceable against such party in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
4
<PAGE> 5
3.1.5. Before and after giving effect to this First Amendment,
no event has occurred and is continuing, or would result from the execution and
delivery of this First Amendment that would constitute a Default.
3.1.6. Each of the representations and warranties contained in
this First Amendment and the Credit Agreement as amended hereby and in each of
the other Loan Documents is true, correct and complete in all material respects
as if set forth in full herein and made on the date this First Amendment becomes
effective, except to the extent that any such representation and warranty
specifically relates to an earlier date, in which case it was true, correct and
complete as of such earlier date.
3.1.7. Attached hereto as Exhibit A are true and correct
copies of (i) Schedules 4.5(b), 4.5(c), 4.14(b) and 4.14(c) to the Credit
Agreement, (ii) Schedules 3.1(b), 3.1(c), 3.1(e), 3.1(g), 3.1(h) and 3.1(i) to
the Guarantor Pledge and Security Agreement, (iii) Schedules 3.1(b), 3.1(c),
3.1(e) and 3.1(h) to the Borrower Pledge and Security Agreement, (iv) Schedule
I(b) to the Trademark Collateral Assignment, and (v) Schedule I to the Copyright
Security Agreement, in each case as revised as of April 2, 1999 and as in effect
as of the date of this First Amendment.
IV.
CONDITIONS TO EFFECTIVENESS
4.1. Conditions to Effectiveness. The amendments effected by this First
Amendment shall not become effective until the date (the "First Amendment
Effective Date"), not later than May 31, 1999 on which the following conditions
precedent are satisfied or waived in writing by the Lenders (including, without
limitation, each New Lender):
4.1.1. Execution of this Agreement; Revolving Notes. Holdings,
the Borrower, the Administrative Agent, the Issuing Bank and each Lender
(including, without limitation, each New Lender) shall have executed and
delivered this First Amendment to the Administrative Agent and each other
Guarantor shall have executed and delivered the Consent attached hereto to the
Administrative Agent. The Borrower shall have executed and delivered to the
Administrative Agent a new Revolving Note in favor of any Lender with an
increased Revolving Commitment and any New Lender, in each case to the extent
such Lender or New Lender has requested the same, and each such Lender (other
than a New Lender) shall have delivered to the Administrative Agent for
cancellation and return to the Borrower the outstanding Revolving Notes, if any,
being replaced thereby.
4.1.2. Opinions of Counsel. The Administrative Agent shall
have received favorable written opinions (addressed to the Administrative Agent,
the Issuing Bank and the Lenders) of (i) Katten Muchin & Zavis, counsel for the
Loan Parties, covering such matters relating to the Loan Parties and the First
Amendment as the Administrative Agent or the Required Lenders shall
5
<PAGE> 6
reasonably request (and the Borrower hereby requests such counsel to deliver
such opinions), and (ii) Latham & Watkins, counsel to the Administrative Agent,
in form and substance satisfactory to the Administrative Agent.
4.1.3. Organizational Documents. The Administrative Agent
shall have received certified copies of resolutions of the Borrower's board of
directors authorizing this First Amendment and such other documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of each Loan Party,
the authorization of this First Amendment and any other legal matters relating
to the Loan Parties and this First Amendment, all in form and substance
satisfactory to the Administrative Agent and its counsel.
4.1.3.1. The Administrative Agent shall have received a
certificate of the Borrower, certifying as to (A) the names and true signatures
of the officers of the Borrower and each other Loan Party authorized to sign
this First Amendment or the Consent, (B) the truth in all material respects of
the representations and warranties contained in the Loan Documents as though
made on and as of the First Amendment Effective Date, other than any such
representations or warranties that by their terms refer to a date other than the
First Amendment Effective Date, in which case such representations and
warranties shall be true and correct as of such other date, and (C) the absence
of any event occurring and continuing that constitutes a Default.
4.1.4. Payment of Interest, Fees, Etc. The Administrative
Agent shall have received payment of (a) all accrued interest, commitment fees
and breakage costs, if any, in connection with the reallocation of the Revolving
Commitments of the Lenders as set forth in Article V of this First Amendment,
and (b) all fees and other amounts due and payable on or prior to the date
hereof, including, to the extent invoiced, reimbursement or payment of all
expenses required to be reimbursed or paid by any Loan Party hereunder or under
the Credit Agreement.
V.
NEW LENDERS; REALLOCATION OF PRO RATA SHARES
5.1. New Lenders. Each New Lender (a) confirms that it has received a
copy of the Credit Agreement, together with copies of the financial statements
referred to in Section 5.1 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this First Amendment and become a Lender under the Credit Agreement; (b)
agrees that it will, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (c) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan Documents as are
delegated to the Administrative Agent by the terms thereof, together with such
powers and discretion as are reasonably incidental thereto; and (d) agrees that
it will be bound by the Credit Agreement, as amended hereby, as a "Lender"
thereunder and will perform in accordance with their terms all of
6
<PAGE> 7
the obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender. As of the First Amendment Effective Date, each New
Lender shall be a party to the Credit Agreement and shall have the rights and
obligations of a Lender thereunder.
5.2. Realignment of the Loans. In order to effect a realignment of each
Lender's pro rata share of the aggregate principal amount of all outstanding
Loans after giving effect to the increased Revolving Commitments of certain
Lenders as reflected in Schedule 2.1 hereto, the Borrower and each Lender
(including, without limitation, each New Lender) agree as follows
notwithstanding any contrary provision of any Loan Document:
(a) Simultaneously with the effectiveness of this First
Amendment, each outstanding Eurodollar Borrowing owing to each Lender shall be
converted to an ABR Borrowing and the Borrower agrees to pay to each Lender any
amount that may be owing to such Lender pursuant to Section 2.14(e) of the
Credit Agreement as a result of such conversion. All accrued and unpaid interest
in respect of all Eurodollar Borrowings so converted shall be due and payable by
the Borrower on the First Amendment Effective Date.
(b) Upon satisfaction of each of the conditions to the
effectiveness of this First Amendment as set forth in Article IV, each New
Lender and each other Lender listed on Schedule I hereto under the heading
"Increased Share Lenders" (such New Lenders and other Lenders, each an
"Increased Share Lender") shall pay to the Administrative Agent for the account
of the Lenders listed on Schedule I hereto under the heading "Reduced Share
Lenders" (each, a "Reduced Share Lender"), by depositing same day funds to the
account of the Administrative Agent specified by the Administrative Agent, an
amount (such Lender's "Increased Share Amount") equal to the product of (i) such
Increased Share Lender's Increased Share Percentage (as set forth opposite such
Increased Share Lender's name on Schedule I hereto), and (ii) the aggregate
principal amount of all outstanding Revolving Loans.
(c) Upon receipt of all payments due under Section 5.2.(b)
hereof, the Administrative Agent shall promptly (and if practicable on the same
Business Day as such payments are received) distribute such payments as
appropriate to each Reduced Share Lender so that each Reduced Share Lender
receives an amount (such Lender's "Reduced Share Amount") equal to the product
of (i) such Reduced Share Lender's Reduced Share Percentage (as set forth
opposite such Reduced Share Lender's name on Schedule I hereto), and (ii) the
aggregate principal amount of all outstanding Revolving Loans.
7
<PAGE> 8
(d) Upon receipt by the Administrative Agent of all payments
required under Section 5.2.(b) hereof and the distribution of such payments to
the Lenders as provided in Section 5.2.(c) hereof, each outstanding Revolving
Borrowing shall be a Revolving Borrowing outstanding under the Credit Agreement
as amended by this First Amendment and shall be comprised of Revolving Loans
made by each Lender in an amount equal to such Lender's Applicable Percentage
(after giving effect to this First Amendment) of the aggregate principal amount
outstanding of all such Revolving Borrowings.
VI.
MISCELLANEOUS
6.1. Effect of Amendment; No Waiver.
(a) Upon and after the effectiveness of this First Amendment,
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement as modified hereby.
(b) Except as specifically modified above, the Credit
Agreement and the other Loan Documents are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Security Documents and all of the
Collateral described therein do and shall continue to secure the payment of all
Secured Obligations under and as defined therein, in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this First
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender, the Issuing Bank or any Agent under
any of the Loan Documents, nor constitute a waiver or amendment of any provision
of any of the Loan Documents.
6.2. Expenses. Without limiting any provision of the First Amendment or
Section 9.3 of the Credit Agreement, each of the Borrower and Holdings jointly
and severally agrees to pay promptly all reasonable and documented out-of-pocket
costs and expenses of the Administrative Agent and the reasonable and documented
costs and expenses of the Administrative Agent's legal counsel in connection
with the preparation, negotiation, execution, delivery and administration of
this First Amendment and the transactions contemplated hereby.
6.3. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles. The provisions of Sections 9.9(b)-(d) and 9.10
of the Credit Agreement shall apply hereto.
8
<PAGE> 9
6.4. Severability. The illegality or unenforceability of any provision
of this First Amendment, the Credit Agreement (including as amended hereby) or
any other document or any other instrument or agreement required hereunder or
thereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this First Amendment, the Credit Agreement
(including as amended hereby) or such other document or any other instrument or
agreement required hereunder or thereunder.
6.5. Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this First Amendment and shall
not affect the construction of, or be taken into consideration in interpreting,
this First Amendment (or the Credit Agreement as amended hereby).
6.6. Counterparts. This First Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, each of which,
when so executed shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Credit Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date first above
written.
LIBERTY GROUP OPERATING, INC., as Borrower
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
LIBERTY GROUP PUBLISHING, INC., as a Guarantor
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
CITICORP USA, INC., as Administrative Agent,
Lender and Swingline Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
CITIBANK, N.A., as Issuing Bank
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
BT ALEX. BROWN INCORPORATED, as Syndication Agent
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-1
<PAGE> 11
BANKERS TRUST COMPANY, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
WELLS FARGO BANK, N.A., as Documentation Agent
and as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
BANK OF AMERICA NT & SA, as Co-Agent and as a
Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
THE CHASE MANHATTAN BANK, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
THE PROVIDENT BANK, as a Lender
By: __________________________________________
Name: ____________________________________
S-2
<PAGE> 12
Title: ___________________________________
S-3
<PAGE> 13
SUNTRUST BANK, CENTRAL FLORIDA, N.A.,
as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-4
<PAGE> 14
CONSENT
DATED AS OF MAY 20, 1999
The undersigned, as Subsidiary Guarantors under the "Guaranty
Agreement" and as Subsidiary Grantors under the "Guarantor Pledge and Security
Agreement" (as such terms are defined in and under the Credit Agreement referred
to in the foregoing First Amendment to Credit Agreement), each hereby consents
and agrees to the foregoing First Amendment to Credit Agreement and hereby
confirms and agrees that (i) the Guaranty Agreement and the Guarantor Pledge and
Security Agreement are, and shall continue to be, in full force and effect and
are hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of, said First Amendment, each
reference in the Guaranty Agreement and the Guarantor Pledge and Security
Agreement to the "Credit Agreement," "thereunder," "thereof" and words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended by said First Amendment, and (ii) the Guarantor
Pledge and Security Agreement and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Secured Obligations as
defined in the Guarantor Pledge and Security Agreement.
LIBERTY GROUP ARIZONA HOLDINGS, INC.
LIBERTY GROUP ARKANSAS HOLDINGS, INC.
LIBERTY GROUP CALIFORNIA HOLDINGS, INC.
LIBERTY GROUP IDAHO HOLDINGS, INC.
LIBERTY GROUP ILLINOIS HOLDINGS, INC.
LIBERTY GROUP IOWA HOLDINGS, INC.
LIBERTY GROUP KANSAS HOLDINGS, INC.
LIBERTY GROUP LOUISIANA HOLDINGS, INC.
LIBERTY GROUP MICHIGAN HOLDINGS, INC.
LIBERTY GROUP MINNESOTA HOLDINGS, INC.
LIBERTY GROUP MISSOURI HOLDINGS, INC.
LIBERTY GROUP NEW YORK HOLDINGS, INC.
LIBERTY GROUP NORTH DAKOTA HOLDINGS, INC.
LIBERTY GROUP PENNSYLVANIA HOLDINGS, INC.
LIBERTY GROUP MANAGEMENT SERVICES, INC.
MITCHELL PUBLICATIONS, INC.
NEW LEADER, INC.
THE SCHUELER GROUP, INC.
PRESS PUBLICATIONS, INC.
ASCENSION CITIZEN, INC.
MINERAL DAILY NEW TRIBUNE, INC.
LIFE PRINTING AND PUBLISHING CO., INC.
DIVERSIFIED PRINTERS OF HALSTAD, INC.
By:______________________________________________
Name:
Title:
Acting for and on behalf of each of the entities
named above
<PAGE> 15
SCHEDULE I
INCREASED SHARE LENDERS INCREASED SHARE PERCENTAGE
U.S. Bank National Association 2.28571429%
The Provident Bank 5.71428571%
Suntrust Bank, Central Florida, N.A. 5.71428571%
REDUCED SHARE LENDERS REDUCED SHARE PERCENTAGE
Citicorp USA, Inc. 4.22857143%
Bankers Trust Company 2.97142857%
Wells Fargo Bank, N.A. 2.97142857%
Bank of America NT & SA 2.97142857%
Chase Securities Inc. 0.57142857%
-2-
<PAGE> 16
SCHEDULE 2.1
REVOLVING COMMITMENTS
<TABLE>
<CAPTION>
Lender Revolving % of Total Commitments
- ------ Commitment ----------------------
----------
<S> <C> <C>
Citicorp USA, Inc. $ 29,000,000 16.57142857%
Bank of America NT & SA $ 27,000,000 15.42857143%
Wells Fargo Bank, N.A $ 27,000,000 15.42857143%
Bankers Trust Company $ 27,000,000 15.42857143%
Chase Securities Inc. $ 20,000,000 11.42857143%
U.S. Bank National Association $ 25,000,000 14.28571429%
The Provident Bank $ 10,000,000 5.71428571%
Suntrust Bank, Central Florida, N.A. $ 10,000,000 5.71428571%
------------ ------------
TOTAL: $175,000,000 100.0%
</TABLE>
<PAGE> 1
EXHIBIT 10.9
SECOND AMENDMENT
TO
CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment")
is dated as of September 30, 1999 and is by and among LIBERTY GROUP OPERATING,
INC., as Borrower, LIBERTY GROUP PUBLISHING, INC. ("Holdings"), the LENDERS (as
defined in the Credit Agreement referred to below) party hereto, CITIBANK, N.A.,
as Issuing Bank, and CITICORP USA, INC., as Administrative Agent and as
Swingline Lender.
RECITALS
1. The Borrower and Holdings have previously entered into that certain
Credit Agreement dated as of January 27, 1998 with the Lenders from time to time
party thereto, CITICORP USA, INC., as Administrative Agent and Swingline Lender,
CITIBANK, N.A., as Issuing Bank, BT ALEX BROWN INCORPORATED, as Syndication
Agent, WELLS FARGO BANK, N.A., as Documentation Agent, and BANK OF AMERICA, N.A.
(formerly known as Bank of America, NT&SA), as Co-Agent, as amended by that
certain First Amendment to Credit Agreement dated as of May 20, 1999 (as so
amended, the "Credit Agreement").
2. The Borrower has requested that the Lenders (i) amend the definition
of Capital Expenditures to exclude certain expenditures made with the proceeds
of certain asset sales and certain other specified capital expenditures and (ii)
consent to certain specified asset sales.
3. The Lenders are willing to agree to such amendment and grant such
consent on the terms and conditions set forth herein.
AGREEMENT
I.
DEFINITIONS
1.1. Defined Terms. Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to such terms in the Credit
Agreement.
II.
AMENDMENTS AND CONSENT
2.1. Amendments to Credit Agreement. As of the Second Amendment
Effective Date, the Credit Agreement shall be amended as follows:
<PAGE> 2
2.1.1. Section 1.1. Section 1.1 of the Credit Agreement is hereby
amended by:
(a) adding thereto in appropriate alphabetical
order the following definitions:
"'SECOND AMENDMENT' means the Second
Amendment to Credit Agreement dated as of September 30, 1999
among the Borrower, Holdings, the Lenders and the
Administrative Agent.
'SECOND AMENDMENT EFFECTIVE DATE' has the
meaning set forth in the Second Amendment.
'SPECIFIED CHICAGO ASSETS' means the assets
described on Schedule I to the Second Amendment. For purposes
of determining compliance with Section 6.6 hereof, the sale of
the Specified Chicago Assets shall be excluded.
'SPECIFIED CHICAGO CAPITAL EXPENDITURES'
means Capital Expenditures, to the extent actually made and in
any event not exceeding $5,000,000, consisting of the purchase
and improvement of a building and related real property
located at 7545 Santa Fe Drive, Hodgkins, Illinois and the
purchase of a printing press and other equipment to be located
therein and other Capital Expenditures necessary to prepare
such building, printing press and other equipment for use by
Borrower or its Subsidiaries."
(b) amending the definition of "CAPITAL
EXPENDITURES" by adding thereto, immediately prior to the period at the
end of such definition, the following:
"and except any such expenditure made with (or in the amount
of) the proceeds of disposition of real property, printing
presses or other assets (other than the Specified Chicago
Assets) otherwise permitted hereunder (but in each case only
if such disposition results in receipt by the Borrower or a
Wholly-Owned Subsidiary of Borrower of gross cash proceeds of
at least $250,000) so long as such expenditures are made
within 18 months of such disposition and except that, for
purposes of determining compliance with Section 6.12 hereof,
the amount of any Specified Chicago Capital Expenditures shall
be excluded"
2.2. Consent. Notwithstanding the provisions of Section 6.6 of the
Credit Agreement, as of the Second Amendment Effective Date, the Required
Lenders hereby consent to the sale by the Borrower and its subsidiaries of the
Specified Chicago Assets at fair value for cash consideration.
2
<PAGE> 3
III.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties. Each of the Borrower and Holdings
hereby represents and warrants to each Agent, each Lender and the Issuing Bank
as follows:
3.1.1. Such party is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with all
requisite power and authority to carry on its business as now conducted and to
enter into and perform its obligations under this Second Amendment (and the
Credit Agreement as amended hereby) and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
3.1.2. Such party has taken all necessary corporate action to
authorize the execution, delivery and performance of this Second Amendment (and
the Credit Agreement as amended hereby).
3.1.3. The execution, delivery and performance of this Second
Amendment and the performance of each of the Loan Documents as amended hereby
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of any member of the Holdings Group or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument governing Material Indebtedness of, or any other
material agreement binding upon, any member of the Holdings Group or its assets,
or give rise to a right thereunder to require any payment to be made by any
member of the Holdings Group, and (d) will not result in the creation or
imposition of any Lien on any asset of any member of the Holdings Group, except
Liens created under the Loan Documents.
3.1.4. This Second Amendment has been duly executed and
delivered by such party and each of this Second Amendment and the Credit
Agreement as amended hereby constitutes the legal, valid and binding obligation
of such party, enforceable against such party in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
3.1.5. Before and after giving effect to this Second
Amendment, no event has occurred and is continuing, or would result from the
execution and delivery of this Second Amendments that would constitute a
Default.
3.1.6. Each of the representations and warranties contained in
this Second Amendment and the Credit Agreement as amended hereby and in each of
the other Loan Documents is true, correct and complete in all material respects
as if set forth in full herein and made on the date this Second Amendment
becomes effective, except to the extent that any such representation and
warranty specifically relates to an earlier date, in which case it was true,
correct and complete as of such earlier date.
3
<PAGE> 4
IV.
CONDITIONS TO EFFECTIVENESS
4.1. Conditions to Effectiveness. The amendments effected by this
Second Amendment shall not become effective until the date (the "Second
Amendment Effective Date") on which the following conditions precedent are
satisfied or waived in writing by the Required Lenders:
4.1.1. Execution of this Agreement. Holdings, the Borrower,
the Administrative Agent and the Required Lenders shall have executed and
delivered this Second Amendment to the Administrative Agent and each other
Guarantor shall have executed and delivered the Consent attached hereto to the
Administrative Agent.
4.1.2. Officer's Certificate. The Administrative Agent shall
have received a certificate of the Borrower, certifying as to (A) the names and
true signatures of the officers of the Borrower and each other Loan Party
authorized to sign this Second Amendment or the Consent, (B) the truth in all
material respects of the representations and warranties contained in the Loan
Documents as though made on and as of the Second Amendment Effective Date, other
than any such representations or warranties that by their terms refer to a date
other than the Second Amendment Effective Date, in which case such
representations and warranties shall be true and correct as of such other date,
and (C) the absence of any event occurring and continuing that constitutes a
Default.
V.
MISCELLANEOUS
5.1. Effect of Amendment; No Waiver.
(a) Upon and after the effectiveness of this Second Amendment,
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement as modified hereby.
(b) Except as specifically modified above, the Credit
Agreement and the other Loan Documents are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Security Documents and all of the
Collateral described therein do and shall continue to secure the payment of all
Secured Obligations under and as defined therein, in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this Second
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender, the Issuing Bank or any Agent under
any of the Loan Documents, nor constitute a waiver or amendment of any provision
of any of the Loan Documents.
4
<PAGE> 5
5.2. Expenses. Without limiting any provision of the Second Amendment
or Section 9.3 of the Credit Agreement, each of the Borrower and Holdings
jointly and severally agrees to pay promptly all reasonable and documented
out-of-pocket costs and expenses of the Administrative Agent and the reasonable
and documented costs and expenses of the Administrative Agent's legal counsel in
connection with the preparation, negotiation, execution, delivery and
administration of this Second Amendment and the transactions contemplated
hereby.
5.3. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles. The provisions of Sections 9.9(b)-(d) and 9.10
of the Credit Agreement shall apply hereto.
5.4. Severability. The illegality or unenforceability of any provision
of this Second Amendment, the Credit Agreement (including as amended hereby) or
any other document or any other instrument or agreement required hereunder or
thereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this Second Amendment, the Credit Agreement
(including as amended hereby) or such other document or any other instrument or
agreement required hereunder or thereunder.
5.5. Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this Second Amendment and shall
not affect the construction of, or be taken into consideration in interpreting,
this Second Amendment (or the Credit Agreement as amended hereby).
5.6. Counterparts. This Second Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, each of which,
when so executed shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same instrument. Delivery
of an executed counterpart of a signature page to this Second Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Second Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Credit Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date first above
written.
LIBERTY GROUP OPERATING, INC., as Borrower
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
LIBERTY GROUP PUBLISHING, INC., as a Guarantor
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
CITICORP USA, INC., as Administrative Agent,
Lender and Swingline Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
CITIBANK, N.A., as Issuing Bank
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-1
<PAGE> 7
BT ALEX. BROWN INCORPORATED, as
Syndication Agent
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-2
<PAGE> 8
BANKERS TRUST COMPANY, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-3
<PAGE> 9
WELLS FARGO BANK, N.A., as Documentation
Agent and as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-4
<PAGE> 10
BANK OF AMERICA, N.A., as Co-Agent and as
a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-5
<PAGE> 11
THE CHASE MANHATTAN BANK, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-6
<PAGE> 12
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-7
<PAGE> 13
THE PROVIDENT BANK, as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-8
<PAGE> 14
SUNTRUST BANK, CENTRAL FLORIDA, N.A.,
as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-9
<PAGE> 15
NATIONAL CITY BANK OF MICHIGAN/ILLINOIS,
as a Lender
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
S-10
<PAGE> 16
CONSENT
DATED AS OF SEPTEMBER 30, 1999
The undersigned, as Subsidiary Guarantors under the "Guaranty
Agreement" and as Subsidiary Grantors under the "Guarantor Pledge and Security
Agreement" (as such terms are defined in and under the Credit Agreement referred
to in the foregoing Second Amendment to Credit Agreement), each hereby consents
and agrees to the foregoing Second Amendment to Credit Agreement and hereby
confirms and agrees that (i) the Guaranty Agreement and the Guarantor Pledge and
Security Agreement are, and shall continue to be, in full force and effect and
are hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of, said Second Amendment, each
reference in the Guaranty Agreement and the Guarantor Pledge and Security
Agreement to the "Credit Agreement," "thereunder," "thereof" and words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended by said Second Amendment, and (ii) the Guarantor
Pledge and Security Agreement and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Secured Obligations as
defined in the Guarantor Pledge and Security Agreement.
LIBERTY GROUP ARIZONA HOLDINGS, INC.
LIBERTY GROUP ARKANSAS HOLDINGS, INC.
LIBERTY GROUP CALIFORNIA HOLDINGS, INC.
LIBERTY GROUP IDAHO HOLDINGS, INC.
LIBERTY GROUP ILLINOIS HOLDINGS, INC.
LIBERTY GROUP IOWA HOLDINGS, INC.
LIBERTY GROUP KANSAS HOLDINGS, INC.
LIBERTY GROUP LOUISIANA HOLDINGS, INC.
LIBERTY GROUP MICHIGAN HOLDINGS, INC.
LIBERTY GROUP MINNESOTA HOLDINGS, INC.
LIBERTY GROUP MISSOURI HOLDINGS, INC.
LIBERTY GROUP NEW YORK HOLDINGS, INC.
LIBERTY GROUP NORTH DAKOTA HOLDINGS, INC.
LIBERTY GROUP PENNSYLVANIA HOLDINGS, INC.
LIBERTY GROUP MANAGEMENT SERVICES, INC.
NEW LEADER, INC.
THE SCHUELER GROUP, INC.
PRESS PUBLICATIONS, INC.
ASCENSION CITIZEN, INC.
MINERAL DAILY NEW TRIBUNE, INC.
LIFE PRINTING AND PUBLISHING CO., INC.
DIVERSIFIED PRINTERS OF HALSTAD, INC.
LIBERTY GROUP NEBRASKA HOLDINGS, INC.
LIBERTY SUBURBAN NEWSPAPERS, INC.
PRESS-REPUBLICAN NEWSPAPERS, INC.
GLEN NEWS PRINTING COMPANY
By:__________________________________________________________
Name:
Title:
Acting for and on behalf of each of the entities named above
<PAGE> 17
SCHEDULE I
1) Real Property located at 112 South York, Emhurst, Illinois 60126.
2) Real Property located at 2601 South Haelem Avenue, Berwyn, Illinois.
<PAGE> 1
EXHIBIT 10.15
LIBERTY GROUP PUBLISHING, INC.
1999 STOCK OPTION PLAN
ARTICLE 1 - PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of the Plan are to aid Liberty Group
Publishing, Inc. ("Liberty") and its Subsidiaries (Liberty and its Subsidiaries
collectively being referred to herein as the "Company") in attracting and
retaining Key Employees through a competitive compensation package, to stimulate
the efforts of such Key Employees, to strengthen their desire to remain with the
Company, to aid the Company in attracting superior individuals to serve as
Nonemployee Directors and to provide appropriate compensation to such
Nonemployee Directors for their service. Toward these objectives, the Board may
grant Options to Key Employees and Nonemployee Directors on the terms and
subject to the conditions set forth in the Plan.
1.2 Term. The Plan shall become effective as of February 1, 1999,
subject to its approval by the stockholders of Liberty. No Options shall be
exercisable or payable before approval of the Plan has been obtained from
Liberty's stockholders. Options shall not be granted pursuant to the Plan after
December 31, 2008.
ARTICLE 2 - DEFINED TERMS
Certain capitalized terms used herein shall have the meaning given such
terms in Section 8.12.
ARTICLE 3 - ELIGIBILITY
Only Key Employees and Nonemployee Directors are eligible to receive
Options under the Plan. For purposes of the Plan, the Board shall select, from
time to time, Participants from those Key Employees and Nonemployee Directors,
respectively, who, in the opinion of the Board, can further the Plan's purposes.
Once a Participant is so selected, the Board shall establish in the related
Agreements the terms, conditions, restrictions, and limitations, if any,
applicable to the Options in addition to those set forth in this Plan and the
administrative rules and regulations issued by the Board.
ARTICLE 4 - PLAN ADMINISTRATION
4.1 Responsibility. The Board shall have total and exclusive
responsibility to control, operate, manage, and administer the Plan in
accordance with its terms.
<PAGE> 2
4.2 Authority of the Board. The Board shall have all the authority that
may be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the preceding sentence,
the Board shall have the exclusive right:
(a) to select those persons to whom Options may be granted from time
to time;
(b) to determine whether and to what extent Options are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Option granted hereunder;
(d) to determine the terms and conditions of any Option granted
hereunder (including, but not limited to, the option price, the
option period, any exercise restriction or limitation, any
exercise acceleration or forfeiture waiver or any performance
criteria regarding an Option and the shares of Common Stock
relating thereto);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 8.3;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Option shall be
deferred;
(g) to determine under what circumstances an Option may be settled in
cash or Common Stock;
(h) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
this Plan, the grant or exercise of Options, and the issuance of
shares of Common Stock and to require of a Participant that
appropriate action be taken with respect to such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in this Plan or an Agreement, outstanding Options;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this
Plan;
(m) to require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the
withholding from a Participant of the
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<PAGE> 3
amount of any federal, state or local taxes as may be necessary in
order for the Company or any other employer to obtain a deduction
or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a termination of employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if
so, the terms and conditions on which such Common Stock is to be
purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under this Plan or
the terms of an Agreement;
(r) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;
(s) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions, and limitations;
(t) accelerate the vesting or exercise of an Option when such action
or actions would be in the best interest of the Company;
(u) take any and all other action it deems necessary or advisable for
the proper operation or administration of the Plan;
(v) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(w) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of this
Plan and any Option issued under this Plan (and any Agreement) and to otherwise
supervise the administration of this Plan. The Board's policies and procedures
may differ with respect to Options granted at difference times or to different
Participants.
4.3 Discretionary Authority. The Board shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan, including without limitation its
construction of the terms of the Plan and its determination of eligibility for
participation and the grant of Options under the Plan. It is the
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<PAGE> 4
intent of the Plan that the decisions of the Board and its action with respect
to the Plan shall be final, binding and conclusive upon all persons having or
claiming to have any right or interest in or under the Plan.
4.4 Section 162(m) of the Code. With regard to all Covered Employees,
the Plan shall, for all purposes, be interpreted and construed in accordance
with Section 162(m) of the Code.
4.5 Action by the Board. The Board may act only by (i) a majority of
its members or (ii) the unanimous consent of the Executive Committee of the
Board. Any determination of the Board may be made, without a meeting, by a
writing or writings signed by all of the members of the Board. In addition, the
Board may authorize any one or more of its members to execute and deliver
documents on behalf of the Board.
4.6 Delegation of Authority. The Board may delegate some or all of its
authority under the Plan to any person or persons, including the President or
Chief Executive Officer of Liberty, provided that any such delegation be in
writing; provided, however, that only the Board may select and grant Options to
Participants who are subject to Section 16 of the Exchange Act or are Covered
Employees.
ARTICLE 5 - SHARES SUBJECT TO PLAN
5.1 Available Shares. The maximum number of shares of Common Stock that
shall be available for issuance pursuant to the grant of Options under the Plan
(including incentive stock options) during the term of the Plan shall be 2,474.
Such number shall be subject to adjustment as provided in Section 5.2.) Any
shares of Common Stock related to Options that terminate by expiration,
forfeiture, cancellation, or otherwise without the issuance of such shares shall
be available once again for grant under the Plan. The shares of Common Stock
available for issuance under the Plan may be authorized and unissued shares,
treasury shares, shares issued and outstanding or shares owned by a Subsidiary.
5.2 Adjustment to Shares.
5.2.1 In General. The provisions of this Subsection 5.2.1 are
subject to the limitation contained in Subsection 5.2.2. If there is
any change in the number of outstanding shares of Common Stock through
the declaration of stock dividends, stock splits or the like at any
time after February 1, 1999, the maximum number of shares available for
Options, the shares subject to any Option and the exercise prices of
Options may be adjusted. If there is any change in the number of
outstanding shares of Common Stock through a merger, consolidation,
separation (including a spin-off or other distribution of stock or
property), reorganization (whether or not such reorganization comes
within the meaning of such term in Section 368(a) of the Code) or
partial or complete liquidation, the Board may make appropriate
adjustments in the maximum number of shares of Common Stock that may be
issued under the Plan and
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<PAGE> 5
any adjustments and/or modifications to outstanding Options as it, in
its sole discretion, deems appropriate. In event of any other change in
the capital structure or in the Common Stock of Liberty, the Board
shall also be authorized to make such appropriate adjustments in the
maximum number of shares of Common Stock available for issuance under
the Plan and any adjustments and/or modifications to outstanding
Options as it, in its sole discretion, deems appropriate.
5.2.2 Covered Employees. In no event shall the Option of any
Participant who is a Covered Employee be adjusted pursuant to this
Subsection 5.2 to the extent it would cause such Option to fail to
qualify as "performance-based compensation" under Section 162(m) of the
Code or cause the Plan to fail to comply with (i) Section 422 of the
Code or (ii) Section 16 of the Exchange Act.
5.2.3 Board Authority to Make Adjustments. Any adjustments
pursuant to this Subsection 5.2 shall be made by the Board, whose
determination as to what adjustments, if any, will be made and the
extent thereof will be final, binding and conclusive.
ARTICLE 6 - STOCK OPTION PROGRAM
6.1 In General. Options may be granted to Key Employees and Nonemployee
Directors. These Options may be incentive stock options within the meaning of
Section 422 of the Code or non-qualified stock options (i.e., stock options that
are not incentive stock options), or a combination of both. All Options under
the Plan issued to Covered Employees shall qualify as "performance-based
compensation" under Section 162(m) of the Code.
6.2 Terms and Conditions of Stock Options. An Option shall be
exercisable in whole or in such installments and at such times as may be
determined by the Board. The price at which Common Stock may be purchased upon
exercise of an Option shall not be less than 100% of the closing price at which
a share of Common Stock trades on the date of the grant's Effective Date, or the
next preceding trading day if such date was not a trading date, on the primary
securities exchange or quotation system on which the Common Stock is then
traded, or, if the Common Stock is not then traded on a securities exchange or
quotation system, the fair market value of such Common Stock as determined on an
annual basis by an independent expert hired for such purpose (the "Fair Market
Value"). Moreover, all Options shall expire not later than 10 years from the
date the Option is granted. Options shall not be repriced, i.e., there shall be
no grant of an Option(s) to a Participant in exchange for a Participant's
agreement to cancellation of a higher-priced Option(s) that was previously
granted to such Participant.
6.3 Restrictions Relating to Incentive Stock Options. Options issued in
the form of incentive stock options shall, in addition to being subject to the
terms and conditions of Section 6.2, comply with Section 422 of the Code.
Accordingly, the aggregate fair market value (determined at the time the option
was granted) of the Common Stock with respect to which
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<PAGE> 6
incentive stock options are exercisable for the first time by a Participant
during any calendar year (under this Plan or any other plan of the Company)
shall not exceed $100,000 (or such other limit as may be required by the Code).
The price at which Common Stock may be purchased upon exercise of an incentive
stock option shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the grant's Effective Date. Notwithstanding the foregoing in the
case of an incentive stock option granted to a Key Employee who at the time of
grant owns (as is defined in Section 424(d) of the Code) stock of the Company,
its parent or the Subsidiaries, possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of the Subsidiaries,
the price at which Common Stock may be purchased upon exercise of such incentive
stock option shall be not less than 110% of the Fair Market Value of a share of
Common Stock on the grant's Effective Date, and the Option shall expire not
later than 5 years from the date such Option is granted. In no event may the
price at which Common Stock may be purchased upon exercise of such incentive
stock option be less than the par value of the Common Stock subject to such
incentive stock option. From the maximum number of shares available for issuance
under the Plan under Section 5.1, the maximum number of shares of Common Stock
that shall be available for incentive stock options granted under the Plan
shall be 2,474 (such number shall be subject to adjustment as provided in
Section 5.2).
6.4 Additional Terms and Conditions. The Board may, by way of the
Agreement or otherwise, establish such other terms, conditions, restrictions,
and limitations, if any, of any Option, provided they are not inconsistent with
the Plan.
6.5 Manner of Exercise. A participant may pay to the Company the option
price of an Option (i) in cash, (ii) shares of Common Stock, (iii) a combination
of the foregoing, or (iv) such other consideration as the Board may deem
appropriate. The Board shall establish appropriate methods for accepting Common
Stock, whether restricted or unrestricted, and may impose such conditions as it
deems appropriate on the use of such Common Stock to exercise an Option. The
Board may permit a Participant to satisfy any amounts required to be withheld
under the applicable Federal, state and local tax laws, in effect from time to
time, by electing to have the Company withhold a portion of the shares of Common
Stock to be delivered for the payment of such taxes.
6.6 Nontransferability of Options. No Option granted pursuant to the
Plan shall be transferable otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code. During the lifetime of an optionee, the Option shall be exercisable
only by the optionee personally or by the optionee's legal representative.
6.7 Vesting of Options.
6.7.1 Each Option granted pursuant to this Plan shall be
vested and exercisable as set forth in the relevant Agreement. No
Option shall be exercisable prior to the time at which it becomes
vested.
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<PAGE> 7
6.7.2 Unless provided otherwise in an Agreement, the rules in
this Subsection 6.7.2 shall apply. In the event the Participant's
employment with the Company terminates because of the Participant's
death, Disability or Retirement, the Option shall remain exercisable,
in whole but not in part, to the extent vested and exercisable on the
date the Participant's employment terminates, for the period ending one
(1) year from the date of termination. In the event the Participant's
employment with the Company terminates for any other reason, other than
for Cause, the Option shall remain exercisable, in whole but not in
part, to the extent vested and exercisable on the date the
Participant's employment terminates, for the period ending thirty (30)
days from the date of termination. In the event the Participant's
employment is terminated by the Company for Cause, the Option shall
terminate, expire and be forfeited on the date the Participant's
employment terminates.
6.7.3 The right to exercise any Option granted pursuant to
this Plan shall be cumulative during the term thereof. Not less than 10
shares of Common Stock may be purchased upon the exercise of any part
of the Option at any one time unless the number of shares of Common
Stock purchased is the total number at the time purchased under the
Option. No Option may be exercised for any fraction of a share of
Common Stock.
6.8 Maximum Option Payable. Notwithstanding any provision contained in
the Plan to the contrary, following an initial public offering the maximum
number of shares for which Options may be granted under the Plan to any one
Participant for a calendar year is 494 (such number shall be subject to
adjustment as provided in Section 5.2).
6.9 Noncompetition. As to all Options granted hereunder unless the
Agreement specifically provides otherwise, a Participant shall forfeit all
unexercised Options if, (i) in the opinion of the Board, the Participant,
without the prior written consent of the Company, engages directly or indirectly
in any manner or capacity as principal, agent, partner, officer, director,
stockholder, employee, or otherwise, in any business or activity competitive
with the business conducted by the Company; (ii) at any time divulges to any
person or any entity other than the Company any trade secrets, methods,
processes or the proprietary or confidential information of the Company; or
(iii) the Participant performs any act or engages in any activity that the Board
determines is contrary to the best interests of the Company. For purposes of
this Section 6.9, a Participant shall not be deemed a stockholder if the
Participant's record and beneficial ownership amount to not more than 1% of the
outstanding capital stock of any company subject to the periodic and other
reporting requirements of the Exchange Act.
6.10 Evidence of Ownership of Common Stock. Upon exercise of an Option,
ownership of Common Stock shall be evidenced by uncertificated shares as
provided by Section 158 of the General Corporation Law of the state of Delaware
or certificated shares, as the Board may determine. The Company shall take all
appropriate steps to properly register shares of Common Stock issued pursuant to
the Plan in the name of such Participant. Any
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<PAGE> 8
evidence of ownership of shares shall bear an appropriate notification or other
legend referring to the terms, conditions, and restrictions applicable to such
Common Stock, if any.
ARTICLE 7 - CHANGE IN CONTROL
In the event of a Change In Control, the Board, or the board of
directors of any corporation assuming the obligations of Liberty, may, in its
sole discretion, take any one or more of the following actions, as to
outstanding Options: (a) provide that such Options shall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation or entity (or an affiliate thereof), provided, however, that any
such options substituted for incentive stock options shall meet the requirements
of Section 424(a) of the Code, (b) upon written notice to the Participants,
provide that (i) all exercisable but unexercised Options will terminate
immediately prior to the consummation of such Change In Control unless exercised
by the Participant within a specified period following the date of such notice
and prior to the consummation of such Change In Control and (ii) all
unexercisable Options will terminate upon consummation of such Change In
Control, (c) in the event of a merger or consolidation under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a payment for each share surrendered in the merger or consolidation (the
"Merger Price"), make or provide for a payment to the Participants equal to the
difference between (i) the Merger Price times the number of shares of Common
Stock subject to such outstanding Options (to the extent then exercisable at
prices not in excess of the Merger Price) and (ii) the aggregate exercise price
of all such outstanding Options, in exchange for the termination of such
Options, (d) provide that all or any outstanding Options shall become
exercisable in full immediately prior to such Change In Control and shall cease
to be exercisable at any time after such Change In Control, or (e) take any
other action with respect to outstanding Options that is not prohibited by (i)
any other term or condition of this Plan, (ii) such terms and provisions of the
Exchange Act (and the rules promulgated thereunder) that bear upon this Plan or
the Options authorized or granted under it and (iii) in the case of incentive
stock options, such terms and provisions of the Code (and the rules promulgated
thereunder) that apply to such incentive stock options.
ARTICLE 8 - MISCELLANEOUS
8.1 Nonassignability. No Options rights shall be subject in any manner
to alienation, anticipation, sale, transfer (except by will or the laws of
descent and distribution), assignment, pledge, or encumbrance.
8.2 Withholding Taxes. The Company shall be entitled to deduct from any
payment under the Plan, regardless of the form of such payment, the amount of
all applicable income and employment taxes required by law to be withheld with
respect to such payment or may require the Participant to pay to it such tax
prior to and as a condition of the making of such payment. In accordance with
any applicable administrative guidelines it establishes, the Board may allow a
Participant to pay the amount of taxes required by law to be withheld with
respect
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<PAGE> 9
to an Option by withholding from any payment of Common Stock due as a result of
the exercise of such Option, or by permitting the Participant to deliver to the
Company, shares of Common Stock having a fair-market value, as determined by the
Board, equal to the amount of such required withholding taxes.
8.3 Amendments to Options. The Board may at any time unilaterally amend
any unexercised Option; provided, however, that any such amendment which, in the
opinion of the Board, is adverse to the Participant shall require the
Participant's consent.
8.4 No Right to Continued Employment or Grants. Participation in the
Plan shall not give any Employee any right to remain in the employ of Liberty or
any Subsidiary. Liberty, or, in the case of employment with a Subsidiary, the
Subsidiary, reserves the right to terminate any Employee at any time. Further,
the adoption of this Plan shall not be deemed to give any Employee or any other
individual any right to be selected as a Participant or to be granted an Option.
8.5 Amendment/Termination. The Board may suspend or terminate the Plan
at any time with or without prior notice. In addition, the Board may, from time
to time and with or without prior notice, amend the Plan in any manner, but may
not without stockholder approval adopt any amendment that would require the vote
of the stockholders of Liberty pursuant to Section 16 of the Exchange Act,
Section 162(m) of the Code (but only insofar as such amendment affects Covered
Employees), or Section 422 of the Code.
8.6 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware (other than its laws
respecting choice of law), except as superseded by applicable Federal law.
8.7 No Right, Title, or Interest in Company Assets. No Participant
shall have any rights as a stockholder as a result of participation in the Plan
until the date of issuance of stock in his or her name.
8.8 No Guarantee of Tax Consequences. The Company shall not be liable
or responsible in any way for the Option constituting or failing to constitute
an incentive stock option for any reason, and Participant agrees to undertake to
determine and be responsible for any and all tax consequences to himself or
herself with respect to the Option's constituting or failing to constitute an
incentive stock option.
8.9 Compliance with Section 162(m). If any provision of the Plan, other
than the application of those contained in Article 7 hereof, would cause the
Options granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.
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<PAGE> 10
8.10 Other Benefits. No Option granted under the Plan shall be
considered compensation for purposes of computing benefits under any retirement
plan of the Company nor affect any benefits or compensation under any other
benefit or compensation plan of the Company now or subsequently in effect.
8.11 Common Stock Issued Pursuant to Plan Subject to Stockholders'
Agreement. Common Stock at any time and from time to time issued upon exercise
of an Option granted pursuant to the Plan shall be subject to a Stockholders'
Agreement to the extent set forth in the Agreement with respect to such Option.
In such case, all evidence of ownership of the Common Stock issued under the
Plan shall be appropriately noted so as to comply with the Stockholders'
Agreement.
8.12 Definitions. For purposes of this Plan, the following terms shall
have the meaning set forth below:
Agreement. "Agreement" means any agreement entered into pursuant
to this Plan pursuant to which an Option is granted to a Participant.
Approved Reason. "Approved Reason" means a reason for terminating
employment with the Company that, in the opinion of the Board, is in the best
interests of the Company, as determined by the Board on a case-by-case basis in
its sole discretion. Notwithstanding the foregoing, the President of Liberty,
and with respect to a Participant, any Vice-President or Regional Manager with
supervisory responsibility for such Participant, may determine that a
termination of employment for an Approved Reason has occurred with respect to
such Participant.
Board. "Board" means the Board of Directors of Liberty.
Cause. "Cause" means theft from the Company, embezzlement of the
Company's funds, falsification of the Company's records, fraud committed against
the Company, commission of a felonious criminal act involving the Company or
while engaged in conduct of the Company's business, incompetence due to the use
of or reporting to work under the influence of alcohol, narcotics, other
unlawful drugs or controlled substances, legal incapacity, insanity, act or acts
involving dishonesty or misconduct which have or may reasonably be expected to
have a material adverse effect on the business or reputation of the Company,
breach of fiduciary duty to the Company, willful and substantial failure to
perform stated duties or lawful directives of the Board or of management of the
Company, unless provided otherwise in an Agreement.
Change In Control. "Change In Control" occurs if and when (a) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
other than (i) a person who is a stockholder of Liberty as of the effective date
of the Plan, and (ii) a person who becomes a stockholder of Liberty as a result
of the exercise of Options granted under the Plan, becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Liberty representing 50.1% or more of the combined voting power
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of Liberty's then outstanding equity securities; provided that a Change In
Control shall not be deemed to occur as a result of a change of ownership
resulting from the death of a stockholder, (b) individuals who constitute the
Board on December 31, 1998 (the "Incumbent Board") have ceased for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to December 31, 1998 whose election, or nomination for
election by Liberty's stockholders, was approved by a vote of at least
three-quarters (3/4) of the directors comprising the Incumbent Board (either by
a specific vote or by approval of the nomination of such person for election as
Director without objection) shall be, for purposes of the Plan, considered as
though such person were a member of the Incumbent Board, or (c) stockholders of
Liberty approve (or, if stockholder approval is not required, the Board
approves) (i) a merger or consolidation of Liberty with another corporation
where those who are the stockholders of Liberty immediately prior to the merger
or consolidation will not beneficially own, immediately after the merger or
consolidation shares entitling such stockholders to vote 50.1% or more of all
votes to which all stockholders of the surviving corporation would be entitled
in the election of directors, (ii) the sale or disposition of all or
substantially all of Liberty's assets, or (iii) a plan of partial or complete
liquidation of Liberty. Notwithstanding anything herein to the contrary, a
Change In Control shall not take place upon the initial public offering of
Liberty's Common Stock, or any other class of its securities (unless provided
otherwise in an Agreement), except to the extent provided in an Agreement.
Code. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
Common Stock. "Common Stock" means Common Stock of Liberty, which
may be newly issued, treasury stock, shares issued and outstanding or shares
owned by a Subsidiary.
Company. "Company" means Liberty and its Subsidiaries.
Covered Employee. "Covered Employee" means an Employee who is a
"Covered Employee" within the meaning of Section 162(m) of the Code.
Director. "Director" means a director of Liberty.
Disability. "Disability," in the case of a Key Employee or a
Nonemployee Director, means the permanent and lasting inability, by reason of
physical or mental infirmity, or both, of a person to perform his or her duties
as as an Employee or Director, as the case may be. Such Disability shall be
determined exclusively by the Board, with or without reference to the
certificate of a qualified physician. No Director whose Disability is to be
determined shall participate in such determination.
Effective Date. "Effective Date" means the date an Option is
determined to be effective by the Board upon its grant of such Option.
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Employee. "Employee" means either (a) a salaried employee of
Liberty or (b) a salaried employee of a Subsidiary.
Exchange Act. "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
Key Employee. "Key Employee" means an Employee who holds a
position of responsibility in a managerial, technical, production, or
administrative capacity, including but not limited to a publisher of any
newspaper owned by the Company.
Nonemployee Director. "Nonemployee Director" means a Director who
is not an Employee.
Option. "Option" means a right to purchase Common Stock issued to
a Participant by the Board pursuant to such terms, conditions, restrictions, and
limitations, if any, as the Board may establish by the Agreement or otherwise.
Participant. "Participant" means any Key Employee or Nonemployee
Director who has been selected for a grant of stock options pursuant to
Article 6.
Plan. "Plan" means this Liberty Group Publishing, Inc. 1999 Stock
Option Plan, as amended or modified from time to time.
Retirement. "Retirement" means, in the case of a Key Employee, for
all Plan purposes other than Section 8.10, a termination of employment from the
Company on or after attainment of Normal Retirement Age as defined under the
Liberty Group Group Publishing, Inc. 401(k) Profit Sharing Plan. "Retirement"
means, in the case of a Nonemployee Director, for all Plan purposes other than
Section 8.10, the termination of such Nonemployee Director's service as a
Nonemployee Director on or after age 70, or at any earlier age with the consent
of the Board.
Stockholders' Agreement. "Stockholders' Agreement" means a
stockholders' or subscription agreement containing repurchase rights, voting
agreements and other restrictions on transfer substantially similar to those
contained in the stockholder or subscription agreements executed by management
stockholders of the Company except that, with respect to the repurchase rights
set forth in the Stockholders' Agreement relating to the termination of a
Participant's employment with the Company, the periods during which the Company
will have the right to repurchase shares of Common Stock will extend until sixty
(60) days after a Participant exercises the Option and purchases shares of
Common Stock pursuant thereto.
Subsidiary. "Subsidiary" means a corporation or other business
entity in which Liberty directly or indirectly has an ownership interest of 80
percent or more.
12
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF LIBERTY GROUP PUBLISHING, INC.
LIBERTY GROUP PUBLISHING, INC.
o Liberty Group Operating, Inc.
o Liberty Group Arkansas Holdings, Inc.
o Liberty Group Arizona Holdings, Inc.
o Liberty Group California Holdings, Inc.
o Liberty Group Illinois Holdings, Inc.
o Liberty Group Iowa Holdings, Inc.
o Liberty Group Kansas Holdings, Inc.
o Liberty Group Michigan Holdings, Inc.
o Liberty Group Minnesota Holdings, Inc.
o Liberty Group Missouri Holdings, Inc.
o Liberty Group Nebraska Holdings, Inc.
o Liberty Group Nevada Holdings, Inc.
o Elko Daily Free Press, Inc.
o Liberty Group New York Holdings, Inc.
o Liberty Group Pennsylvania Holdings, Inc.
o Liberty Group Management Services, Inc.
o Liberty Group Louisiana Holdings, Inc.
o News Leader, Inc.
Plaquemine Publishing, Inc. (in process)
o Liberty Group Idaho Holdings, Inc.
o Magic Valley Publishing Co.
o Liberty Group North Dakota Holdings, Inc.
o Liberty Group Suburban Newspapers, Inc.
o Mineral Daily News Tribune, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,860
<SECURITIES> 0
<RECEIVABLES> 20,702
<ALLOWANCES> (1,141)
<INVENTORY> 2,130
<CURRENT-ASSETS> 24,364
<PP&E> 43,209
<DEPRECIATION> (3,853)
<TOTAL-ASSETS> 479,160
<CURRENT-LIABILITIES> 124,158
<BONDS> 343,812
59,481
59,266
<COMMON> 1
<OTHER-SE> 32,747
<TOTAL-LIABILITY-AND-EQUITY> 479,160
<SALES> 161,355
<TOTAL-REVENUES> 161,355
<CGS> 119,873
<TOTAL-COSTS> 119,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 912
<INTEREST-EXPENSE> 32,313
<INCOME-PRETAX> (1,291)
<INCOME-TAX> 295
<INCOME-CONTINUING> (1,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 485
<CHANGES> 0
<NET-INCOME> (1,101)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
