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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 333-46959
LIBERTY GROUP OPERATING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4197636
(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:
9 3/8% SENIOR SUBORDINATED NOTES DUE 2008
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 100. 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 OPERATING, 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 Operating Company and its
consolidated subsidiaries (the "Company").
On January 27, 1998, the Company's parent 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
Operating" 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 Operating, 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's parent effected a 20-to-1 stock split at 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's parent
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 LGP stock option plan.
All of the Operating Comany's issued and outstanding Capital Stock is owned by
LGP. The Operating Company has no outstanding capital stock other than common
stock, nor are there any outstanding options, warrants, or other rights to
purchase the Operating Company's capital stock.
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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
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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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YEARS ENDED DECEMBER 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
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)
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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. All of the Company's
issued and outstanding common stock is owned by LGP. The Company has no
outstanding capital stock other than common stock nor are there any outstanding
options, warrants, or other rights to purchase the Operating Company's capital
stock.
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 10,968 10,551 19,300 25,216
Net Gain on Exchange
and Disposition of
Properties - - - - 6,197
------------ ------------ ------------ ------------ ------------
Income (Loss) before
income taxes, and
extraordinary item 4,971 9,141 12,218 (965) 5,806
Income taxes 2,338 4,006 5,271 - 295
------------ ------------ ------------ ------------ ------------
Income (Loss) before
extraordinary item 2,633 5,135 6,947 (965) 5,511
------------ ------------ ------------ ------------ ------------
Extraordinary Gain on
insurance proceeds - - - - 485
------------ ------------ ------------ ------------ ------------
Net Income (loss) $ 2,633 $ 5,135 $ 6,947 $ (965) $ 5,996
============ ============ ============ ============ ============
</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 120,170 112,974 109,700 406,401 475,881
Total debt - - - 227,834 281,418
Stockholders' equity
(deficit) 106,945 102,980 99,139 147,696 150,985
OTHER DATA:
Ratio of earnings
to fixed charges(1) 1.4x 1.8x 2.2x 1.0x 1.2x
</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 $1.0 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's parent 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 Operating Company and its
consolidated subsidiaries (the "Company").
On January 27, 1998, the Company's parent 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
Operating" 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
Operating, 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 17 16 83 31
Net gain on exchange
and disposition of
properties - - 4 - *
------------- ------------- ------------- ------------- -------------
Income (Loss) before income
taxes and extraordinary
item 12 (1) 4 (108) 705
Income taxes 5 - - (100) -
------------- ------------- ------------- ------------- -------------
Income (Loss) before
extraordinary item 7 (1) 4 (114) 721
Extraordinary gain on
insurance proceeds - - * - *
------------- ------------- ------------- ------------- -------------
Net Income (Loss) 7 (1) 4 (114) 721
*-not meaningful
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 $5.9 million to $25.2 million from $19.3 million in 1998, primarily
due to higher debt balances borrowed to fund acquisitions and higher interest
rates on bank debt.
For the year ended December 31, 1999, the Company recognized net income of $3.5
million compared to a net loss of $1.0 million for the same period in 1998. This
change, $4.5 million, was due primarily to a net gain from the exchange and
disposition of certain publications and an extraordinary gain on insurance
proceeds.
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 $1.0
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 $12.9 million to
$8.5 million compared with cash provided of $21.4 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.
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's
parent, LGP, 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.
The Company 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 $25.2 million
including amortization of debt issuance costs of $1.1 million. The degree to
which the Company 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 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-17 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 the Company and executive officers of 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 -----------------------------------------
PRINCIPAL 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 30,386 159,672
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 23,459 238,574
Executive V.P. 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 $50,000 in finders fees related to certain
properties acquired by the Company.
The following table sets forth the number of stock options granted to the
Named Executive Officers during 1999 and information regarding stock option
exercises and exercisable and unexercisable stock options held by the Named
Executive Officers as of December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
----------------------------------------------------------- ANNUAL RATES
% OF TOTAL OF STOCK PRICE
NUMBER OF OPTIONS EXERCISE APPRECIATION
SECURITIES GRANTED TO OR BASE FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ------------------
NAME OPTIONS GRANTED(1) FISCAL YEAR(2) ($/SH) DATE 5% 10%
- - ----- ------------------ -------------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
RANDY COPE 400 5% $100 01/31/09 $25,156 $63,750
</TABLE>
(1) Options become exercisable one year after the date the options are 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>
Common Stock:
Liberty Group Publishing, Inc. 100% 100
3000 Dundee Rd., Suite #203
Northbrook, IL 60062
</TABLE>
28
<PAGE> 31
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.
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.
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.
During 1999, the Company's parent repurchased 32,000 outstanding common shares
for a total of $250,000 from management shareholders who terminated their
employment with the Company.
In February 2000, the Company's parent effected a 20-to-1 stock split of its
common stock, bringing the total shares of common stock issued to 1,600,000. The
Company's parent 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 LGP 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.
3. The exhibits filed as a part of this report are listed in the
accompanying Index to Exhibits.
32
<PAGE> 35
<TABLE>
<CAPTION>
<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.: 333-46959)
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
Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
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.: 333-46959)
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.: 333-46959)
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.: 333-46959)
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.: 333-46959)
95 Inc.
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C> <C>
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.: 333-46959)
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, included on the Company's
Chicago Deferred Exchange Corporation and American Publishing Company of Registration Statement on Form S-4
Illinois. (Registration No.: 333-46959)
2.9 Agreement, dated as of January 15, 1998, among Liberty GroupPublishing, Incorporated by reference to exhibits
Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., included on the Company's
Hollinger International Inc., American Publishing Company of Illinois, Registration Statement on Form S-4
APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
2.10 Agreement, dated as of 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.: 333-46959)
2.11 Agreement, dated as of January 26, 1998, among Liberty Group Publishing, Inc., Incorporated by reference to exhibits
Green Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., included on the Company's
Hollinger International Inc., American Publishing Company of Illinois, Registration Statement on Form S-4
APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
3.1 Certificate of Incorporation of Liberty Group Operating, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46959)
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C> <C>
3.2 By-Laws of Liberty Group Operating, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46959)
4.1 Indenture, dated as of January 27, 1998, among Liberty Group Operating, Inc., the Incorporated by reference to exhibits
Subsidiary Guarantors named therein and State Street Bank and Trust Company, as included on the Company's
Trustee, including form of 9-3/8% Senior Discount Debentures due 2008. Registration Statement on Form S-4
(Registration No.: 333-46959)
*10.1 Employment Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Liberty Group Operating, Inc. and Kenneth included on the Company's
L. Serota. Registration Statement on Form S-4
(Registration No.: 333-46959)
*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.: 333-46959)
*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.
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C> <C>
*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.: 333-46959)
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. (Registration No.: 333-46959)
(as 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, included on the Company's
Inc., Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings, Registration Statement on Form S-4
Inc., Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc., (Registration No.: 333-46959)
Liberty 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.
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C> <C>
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.: 333-46959)
*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 Operating, Inc. Included herewith.
</TABLE>
37
<PAGE> 40
<TABLE>
<S> <C> <C>
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.
(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.
38
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
The Stockholder and Board of Directors
Liberty Group Operating, Inc.:
We have audited the accompanying consolidated balance sheets of Liberty Group
Operating, Inc. and subsidiaries (Successor) as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity, 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 Operating, 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, 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 Operating, 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> 42
LIBERTY GROUP OPERATING, 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 7,680 7,196
Other assets 54 2,217
-------- --------
Total assets $406,401 $475,881
-------- --------
Liabilities and stockholders' equity
Current Liabilities:
Borrowings under revolving credit facility $46,000 $99,500
Current portion of long-term liabilities 388 419
Accounts payable 2,157 1,744
Accrued expenses 14,482 14,445
Deferred revenue 5,777 7,801
-------- --------
Total current liabilities 68,804 123,909
Long-term liabilities:
Senior subordinated notes 180,000 180,000
Long-term liabilities, less current portion 1,446 1,499
Deferred income taxes 8,455 19,488
-------- --------
Total liabilities 258,705 324,896
Stockholders' equity
Common stock, $0.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding
at December 31, 1998 and 1999 - -
Additional paid in capital 148,661 148,661
Accumulated deficit (965) 2,324
-------- --------
Total stockholders' equity 147,696 150,985
-------- --------
Total liabilities and stockholders' equity $406,401 $475,881
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 43
LIBERTY GROUP OPERATING, 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 19,300 25,216
Net gain on exchange and
disposition of properties - - 6,197
------- -------- --------
Income (loss) before income taxes,
and extraordinary item 12,218 (965) 5,806
Income taxes 5,271 - 2,752
------- -------- --------
Income (loss) before extraordinary item 6,947 (965) 3,054
Extraordinary gain on insurance proceeds - - 485
------- -------- --------
Net income (loss) $ 6,947 $ (965) $ 3,539
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 44
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN NET ACCUMULATED
SHARES AMOUNT CAPITAL ASSETS DEFICIT TOTAL
-------- --------- ---------- -------- ----------- -----
<S> <C> <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 100 - 148,501 - - 148,501
Common stock issued in
exchange for services - - 160 - - 160
Net loss - - - - (965) (965)
------ ------ ------- ------- ------ -------
Balances at 12/31/98 100 - 148,661 - (965) 147,696
Dividend paid
to Company's parent - - - - (250) (250)
Net loss - - - - 3,539 3,539
------ ------ ------- ------- ------ -------
Balances at 12/31/99 100 $ - 148,411 - 2,324 150,985
====== ====== ======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
LIBERTY GROUP OPERATING, 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 $ (965) $ 5,996
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 - 928 1,109
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) (209) (2,338)
Accrued expenses 207 9,072 (3,173)
Deferred revenue 82 113 445
------- -------- -------
Net cash flows provided by
operating activities 14,577 21,364 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 - 172,464 -
Net borrowings (repayments) under
revolving credit facility - 46,000 53,500
Net proceeds from issuing common
stock - 148,423 -
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) 366,887 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> 46
<TABLE>
<S> <C> <C> <C>
forgiveness of debt - 78 223
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 47
LIBERTY GROUP OPERATING, 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
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 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 Operating, Inc. 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"). Its parent, Liberty Group Publishing, Inc.
(LGP), is a holding company for its wholly-owned subsidiary Liberty Group
Operating, Inc. ("Operating Company"). The consolidated financial statements
include the accounts of Operating Company and its consolidated subsidiaries (the
"Company").
On January 27, 1998, the Company's parent 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 Operating" 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 Operating, 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> 48
(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's parent 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 parent's ability to
utilize such losses to offset future taxable income, the Company's parent 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> 49
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;
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. 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> 50
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) 4,583
</TABLE>
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>
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
------
$116.6
Total purchase price including proceeds
received from divestitures less: $(61.8)
------
Book value of assets exchanged $ 54.8
Net cash purchase price
</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 according 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.
F-10
<PAGE> 51
(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
Less current installments -0-
Long-term debt, excluding current installments
Total $180,000
========
</TABLE>
F-11
<PAGE> 52
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 $180,000.
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.
(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> 53
On the date of the Initial Acquisition, the Company issued 100 shares of
Common Stock, par value $0.01 per share, to LGP. No other common shares were
issued in 1998 or 1999.
F-13
<PAGE> 54
(10) 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 $ - $2,089 $2,089
State and local 295 368 663
------ ------ ------
295 2,457 2,752
====== ====== ======
</TABLE>
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 $ (328) $2,139
Increase (decrease) in income taxes
resulting from:
Amortization of nondeductible
goodwill 344 89 233
State and local income taxes 651 - 438
Nondeductible meals and entertainment - 12 40
Nondeductible expenses - - 3
Other - - 125
Change in Federal valuation allowance - 227 (226)
-------- -------- --------
$ 5,271 $ - $2,752
======== ======== ========
</TABLE>
F-14
<PAGE> 55
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 $456
Accrued expenses 1,643 2,579
Net operating losses 3,198 4,016
------- -------
Gross deferred tax assets 5,314 7,051
less: valuation allowance (266) --
------- -------
Net deferred tax assets 5,048 7,051
------- -------
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 $19,488
======= =======
</TABLE>
The Company is included in the consolidated income tax return of its
parent, LGP. At December 31, 1999, the Company's proportionate share of the net
operating loss carry-forwards for Federal and state income tax purposes
amounted to $10,040 are available to offset future taxable income of LGP, if
any. These federal and state operating losses begin to expire in 2018 and 2003,
respectively. The Company's tax position is computed as if it filed a separate
return.
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. Accordingly, the Company
has recorded no valuation allowance against certain Federal and state deferred
tax assets as of December 31,1999.
The Company acquired deferred tax liabilities of $8,455 and $8,575 in 1998 and
1999 respectively through corporate acquisitions.
(11) EMPLOYEE BENEFIT PLANS
The Company's Parent maintains certain benefit plans for employees of the
Company and its subsidiaries.
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 matching contributions in
1999.
LGP maintains three non-qualified deferred compensation plans, as described
below, for certain employees of the Company and its subsidiaries.
LGP 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> 56
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.
LGP 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.
LGP 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.
(12) STOCK OPTION PLAN
In February 1999, LGP 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. LGP 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 net income (loss) for the year ended December 31,
1999 would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
Net income (loss) As reported $ 3,539
Pro forma $ 3,470
</TABLE>
In February 2000, Company's parent effected a 20 for 1 stock split of the
Company's parent's common stock (see note 15.) 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 parent'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>
exercise
Shares price
-------- --------
<S> <C> <C>
Outstanding at date of adoption -- $ --
Granted 59,075 5.00
</TABLE>
F-16
<PAGE> 57
<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>
(13) 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
In each of 1998 and 1999, the Company paid $1.0 million in management fees and
paid $0 and $375 in 1998 and 1999, respectively in acquisition finders fees to
the majority common stockholder of its parent, and is obligated to pay
acquisition finders fees of $850,000 at December 31, 1999.
F-17
<PAGE> 58
(14) 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.
(15) 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 on 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> 59
INDEPENDENT AUDITORS' REPORT
The Stockholder and Board of Directors
Liberty Group Operating, Inc.:
Under date of March 27, 2000, we reported on the consolidated balance sheets of
Liberty Group Operating, Inc. and subsidiaries (Successor) as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity 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> 60
SCHEDULE II
LIBERTY GROUP OPERATING, 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> 61
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 OPERATING, 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> 62
<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.: 333-46959)
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
Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
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.: 333-46959)
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.: 333-46959)
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.: 333-46959)
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.: 333-46959)
95 Inc.
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C>
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.: 333-46959)
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, included on the Company's
Chicago Deferred Exchange Corporation and American Publishing Company of Registration Statement on Form S-4
Illinois. (Registration No.: 333-46959)
2.9 Agreement, dated as of January 15, 1998, among Liberty Group Publishing Incorporated by reference to exhibits
Inc., Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., included on the Company's
Hollinger International Inc., American Publishing Company of Illinois, Registration Statement on Form S-4
APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
2.10 Agreement, dated as of 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.: 333-46959)
2.11 Agreement, dated as of January 26, 1998, among Liberty Group Publishing, Inc., Incorporated by reference to exhibits
Green Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc., included on the Company's
Hollinger International Inc., American Publishing Company of Illinois, Registration Statement on Form S-4
APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc. (Registration No.: 333-46959)
3.1 Certificate of Incorporation of Liberty Group Operating, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46959)
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C>
3.2 By-Laws of Liberty Group Operating, Inc. Incorporated by reference to exhibits
included on the Company's
Registration Statement on Form S-4
(Registration No.: 333-46959)
4.1 Indenture, dated as of January 27, 1998, among Liberty Group Operating, Inc., the Incorporated by reference to exhibits
Subsidiary Guarantors named therein and State Street Bank and Trust Company, as included on the Company's
Trustee, including form of 9-3/8% Senior Discount Debentures due 2008. Registration Statement on Form S-4
(Registration No.: 333-46959)
*10.1 Employment Agreement, dated as of November 21, 1997, among Liberty Group Incorporated by reference to exhibits
Publishing, Inc., Liberty Group Operating, Inc. and Kenneth included on the Company's
L. Serota. Registration Statement on Form S-4
(Registration No.: 333-46959)
*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.: 333-46959)
*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.
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C>
*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.: 333-46959)
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. (Registration No.: 333-46959)
(as 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, included on the Company's
Inc., Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings, Registration Statement on Form S-4
Inc., Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc., (Registration No.: 333-46959)
Liberty 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.
</TABLE>
5
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<TABLE>
<S> <C> <C>
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.: 333-46959)
*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 Operating, Inc. Included herewith.
</TABLE>
<PAGE> 67
<TABLE>
<S> <C> <C>
27 Financial Data Schedule. Included herewith.
- - ---------------------------------
* 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.
</TABLE>
<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 and amount, with the Management Investor's overall
investment program and financial
<PAGE> 2
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
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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<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
8
<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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<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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<PAGE> 16
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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<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 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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<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.
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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 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
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Initial Purchased Shares
---------------------- ----------------------------------
<S> <C>
Scott Champion 800
15 Fairway Drive
Monmouth, Illinois
</TABLE>
<PAGE> 26
Annex B
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Grant Shares
---------------------- ----------------------
<S> <C>
Scott Champion 27.5
15 Fairway Drive
Monmouth, Illinois
</TABLE>
<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.
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
6
<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
8
<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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<PAGE> 11
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
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<PAGE> 13
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 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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<PAGE> 16
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 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
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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.
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 (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.
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
6
<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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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
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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.
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
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Initial Purchased Shares
---------------------- ----------------------------------
<S> <C>
Gene Hall 800
2157 Pin Oak Estates Lane
Charles City, IA 50616
</TABLE>
<PAGE> 26
Annex B
<TABLE>
<CAPTION>
Name and Address
of Management Investor Number of Grant Shares
---------------------- ----------------------
<S> <C>
Gene Hall 27.5
2157 Pin Oak Estates Lane
Charles City, IA 50616
</TABLE>
<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:
--------------------------------
Title:
-------------------------------
S-2
<PAGE> 12
SUNTRUST BANK, CENTRAL FLORIDA, N.A., as
a Lender
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
S-3
<PAGE> 13
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> 14
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> 15
SCHEDULE 2.1
REVOLVING COMMITMENTS
<TABLE>
<CAPTION>
Revolving
Lender Commitment % of Total Commitments
- - ------ ---------- ----------------------
<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.
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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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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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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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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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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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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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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.
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EXHIBIT 21
LIST OF SUBSIDIARIES OF LIBERTY GROUP OPERATING, INC.
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> 475,881
<CURRENT-LIABILITIES> 123,909
<BONDS> 280,999
0
0
<COMMON> 0
<OTHER-SE> 150,985
<TOTAL-LIABILITY-AND-EQUITY> 475,881
<SALES> 161,355
<TOTAL-REVENUES> 161,355
<CGS> 119,873
<TOTAL-COSTS> 119,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 912
<INTEREST-EXPENSE> 25,217
<INCOME-PRETAX> 5,806
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,054
<DISCONTINUED> 0
<EXTRAORDINARY> 485
<CHANGES> 0
<NET-INCOME> 3,539
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
