<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE FARM JOURNAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<S> <C> <C>
DELAWARE 2721 13-3938061
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZA-
TION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1500 MARKET STREET
CENTRE SQUARE WEST
PHILADELPHIA, PA 19102
(215) 557-8900
ATTN: MR. STANFORD A. ERICKSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
<TABLE>
<S> <C>
DONALD B. BRANT, JR. R.W. SMITH, JR.
MILBANK, TWEED, HADLEY & MCCLOY PIPER & MARBURY L.L.P.
ONE CHASE MANHATTAN PLAZA CHARLES CENTER SOUTH
NEW YORK, NEW YORK 10005 36 SOUTH CHARLES STREET
(212) 530-5000 BALTIMORE, MARYLAND 21201
(410) 539-2530
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the Securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock ................................. $35,000,000 $10,325
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED , 1998
[LOGO]
Shares
THE FARM JOURNAL CORPORATION
Class A Common Stock
(par value $.01 per share)
--------
All of the shares of Class A Common Stock, par value $0.01 per share
("Class A Common Stock"), offered hereby are being sold by The Farm Journal
Corporation ("Farm Journal" or the "Company"). Prior to this offering (the
"Offering"), there has been no public market for the Class A Common Stock of
Farm Journal. It is anticipated that the initial public offering
price will be between $ and $ per share. For information relating to
the factors considered in determining the initial public offering price,
see "Underwriting."
The Company's Common Stock ("Common Stock") consists of Class A Common Stock
and Class B Common Stock, par value $0.01 per share ("Class B Common Stock").
The holders of Class A Common Stock, voting as a class, have the right to
elect that minimum number of directors constituting 25% of the members of Farm
Journal's Board of Directors. Other than such right to elect directors,
unless all of the shares of Class B Common Stock are converted into shares of
Class A Common Stock or otherwise cease to be outstanding and except as
required by the laws of the State of Delaware, holders of the Class A Common
Stock have no voting rights. Subject to the foregoing limitation on voting
rights and certain other exceptions, the rights and privileges of each
class of Common Stock are substantially identical. See "Description of
Capital Stock" and "Risk Factors--Control of the Company; Anti-Takeover
Impact."
Application has been made to have the Class A Common Stock approved for
quotation on The Nasdaq
Stock Market's National Market under the symbol "FJCO".
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 11 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS
TO AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
------ ------------ -----------
<C> <S> <C> <C>
Per Share.................................. $ $ $
Total(2)................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of additional
shares to cover over-allotments of shares. If the option is exercised in
full, the total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ , and Proceeds to Company will be $ .
The Class A Common Stock is offered by the several Underwriters, when, as and
if issued by the Company, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that the shares of Class A Common Stock will be ready for delivery on or about
, 1998 against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
FURMAN SELZ
MORGAN SCHIFF & CO., INC.
Prospectus dated , 1998
<PAGE>
[Artwork]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
----------------
The Company's logo and each of the titles of the Company's publications
referenced herein are trademarks of the Company. Each trade name, trademark or
service mark of any other company appearing in this Prospectus is the property
of its holder.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated or where the context
otherwise requires, the information contained in this Prospectus gives effect
to the recapitalization described in "Description of Capital Stock--
Recapitalization" and assumes no exercise of the Underwriters' over-allotment
option. The Farm Journal Corporation ("FJC") is a holding company conducting
business through its wholly-owned subsidiaries, including Farm Journal, Inc.
("FJI"), which was acquired in April 1997 (the "Management Purchase"). See
"Management Purchase." The term "Farm Journal" or the "Company" shall refer to
FJC and its consolidated subsidiaries subsequent to the Management Purchase and
FJI and its consolidated subsidiaries prior to the Management Purchase.
Market data used throughout this Prospectus was obtained from surveys
conducted by the Company and from industry publications. These industry
publications generally indicate that the information contained therein has been
obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. The Company has not
independently verified such market data. These publications were not
commissioned by, or prepared at the request of, the Company or any of its
affiliates. Similarly, surveys conducted by the Company, while believed to be
reliable, have not been verified by an independent source.
THE COMPANY
Farm Journal is one of the country's oldest and largest providers of
agricultural information, principally through print and electronic publishing,
data management and related information services. The Company's publishing
operations include its 121 year old flagship publication, Farm Journal, one of
the largest circulation agriculture magazines in the United States; Pro Farmer,
the largest circulation newsletter devoted to the agricultural commodity
markets; several specialty agribusiness magazines, including Top Producer and
the Today livestock publications; the Links business, a satellite-delivered
agricultural commodity news and analysis service; and several agriculture-
oriented Internet sites. The Company's data management and information services
businesses, conducted through the Company's Farm Journal Information Resources
division ("FJIR"), provide proprietary data and analysis about commercial
farming and ranching operations to leading agricultural industry suppliers,
such as equipment manufacturers, seed producers and crop protection suppliers.
The Company believes that the Farm Journal brand is among the most trusted,
respected and authoritative names in American agriculture and that the
Company's database, created through over 30 years of direct communication with
American farmers and ranchers, is unique in its depth and accuracy.
In April 1997, management and an investor group purchased FJI from Tribune
Company. Since the Management Purchase, the Company has begun implementing a
strategy to build on the Farm Journal brand and the Company's unique database
and sophisticated data analysis capabilities to become the worldwide market
leader for serving the large and growing need for quality information by
farmers and ranchers and the businesses that serve them. For the three months
ended March 31, 1998, the Company had pro forma net revenues and EBITDA of
$14.4 million and $4.1 million, respectively. For a description of the pro
forma adjustments and the components of EBITDA, see Notes 1, 2 and 8 to the
Summary Combined Financial Data.
MARKET OPPORTUNITY
The United States Department of Agriculture ("USDA") estimates that in 1997
approximately $213 billion of agricultural products were sold in the United
States alone. Management believes worldwide agricultural sales are a multiple
of domestic sales. The size and increasing sophistication and complexity of the
global agricultural business has created a substantial and growing need for
quality information among farmers and ranchers. Farm businesses, to remain
competitive, must understand and adapt to rapid technological advancements,
curtailment
3
<PAGE>
of government subsidies and other policy changes, volatile commodities markets,
globalization of agricultural trade and other industry developments. Management
believes that the market for information and analysis needed by farm businesses
to address these issues is significant and underserved given the overall size
of the market for agricultural products.
Management also believes that there is a related large and growing need for
quality information and information services among businesses that supply
farmers and ranchers. The increasing complexity of the industry, as well as its
capital intensive nature, has, among other things, resulted in the
consolidation of farms and purchasing power. According to the USDA,
approximately $133 billion of the estimated total of $174 billion in farm
supplies sold in 1996 were purchased by the 18% of all farms that generate
$100,000 or more in annual revenues, farms which the USDA classifies as "Class
1A farms." To reach these largest purchasers, agricultural product suppliers
increasingly are using targeted relationship marketing techniques which require
more detailed information about the most successful farmers and ranchers. Farm
Journal believes it is effectively positioned to satisfy the large and growing
domestic and worldwide demand for such information with the Company's database,
data services expertise and longstanding relationships with farmers and
ranchers.
GROWTH STRATEGY
Farm Journal's objective is to aggressively grow revenues and improve
profitability while becoming the leading worldwide provider of agricultural
information and information services to farmers, ranchers, agricultural
suppliers and related constituencies. Farm Journal will continue to pursue
growth through numerous internal initiatives and strategic acquisitions that
leverage the Farm Journal brand and the Company's longstanding relationships in
the agricultural community and that build on the Company's other competitive
strengths, including content development and data services. The elements of
this strategy are set forth below:
Increase Revenues from Existing Business. Management believes that there is
substantial opportunity to increase revenues from existing business and has
commenced a variety of revenue-enhancing initiatives. These initiatives have
included combining data management and market research operations and adding
sales and marketing directors to create new product and cross-selling
opportunities, increasing subscription rates and converting controlled-
circulation publications to partially-paid status, increasing the Company's
sales force, implementing performance-based compensation and emphasizing
classified advertising sales. In addition, management anticipates expanding its
Globalink and FutureLink commodity news and analysis businesses with new
marketing relationships and product introductions.
Develop Related Revenue Opportunities. Farm Journal believes there are
numerous opportunities to develop additional revenues by leveraging the
Company's strong brand identity, data management capabilities and customer and
reader relationships. These opportunities include organization of conferences
and seminars; direct sales of books, videos and other merchandise; event
marketing; custom publishing for agricultural suppliers, trade groups and other
agricultural related constituencies; development of farm management services;
and the launch of new publications, including newsletters, directories, other
agricultural related business-to-business magazines and certain rural-oriented
titles. In launching new publications, management intends to build on its
strong customer relationships by seeking full or partial sponsorship to
minimize start-up costs.
Pursue Strategic Acquisitions. Farm Journal intends to pursue strategic
acquisitions of agricultural related media and information businesses. The
Company's initial strategy will be to focus on acquisitions that will
immediately expand the Company's product and media offerings as well as create
benefits from cross-selling of advertisers, cross-promotion of readership and
expansion of the Farm Journal database. Emphasis will be placed on acquiring
companies that serve the Class 1A farm market. The Company intends to pursue
acquisitions of companies that operate in different media, such as television,
radio and the Internet; that provide coverage of those segments of the
agricultural industry not well-penetrated by Farm Journal, such as fruits,
vegetables and
4
<PAGE>
nuts; that address agricultural related businesses, such as food processing,
governmental regulation and shipping; and that target interests of rural
readers, such as hunting, gardening and crafts.
Create Co-Branding and Affinity Programs. Management believes that, through
the extension of the Farm Journal brand, there are substantial opportunities to
serve its target audience (as well as other rural residents) through co-
branding and other joint ventures that offer value alternatives to products and
services that have traditionally been unavailable, not competitively priced or
not ideally structured for farmers, ranchers or other residents of rural
communities. Farm Journal has formed and is pursuing several strategic
alliances with selected financial services and consumer products companies to
co-brand and offer tailored or value-priced products and services to its rural
constituency. Initially these offers will include insurance, credit and
investment products and selected consumer items, such as home computers. Farm
Journal intends to expand into other areas in which the Company is able to
identify and offer products and services of superior value to the farming and
rural communities.
Expand Internationally. The United States agricultural industry is the most
productive and technically sophisticated in the world, exporting its technology
and an estimated $57 billion of product in 1997. Given the Company's position
as a leading provider of agricultural information in the United States
agricultural industry and given a trend toward the globalization of
agricultural technology and trade, management believes that there is a
substantial long-term opportunity to expand its business activities overseas.
Initially, Farm Journal will launch a fully sponsored, custom published
international magazine targeted to selected agricultural decision-makers
worldwide and pursue joint ventures and other relationships with foreign
agribusiness information providers.
RECENT DEVELOPMENTS
Since the Management Purchase, the Company has taken the following actions to
implement its growth strategy:
PFA Acquisition. In April 1998, the Company acquired Professional Farmers of
America, Inc. and a related company (the "PFA Acquisition"). The businesses
acquired in the PFA Acquisition ("PFA") included the leading agricultural
commodity markets newsletter, Pro Farmer, and a satellite-delivered commodity
news and analysis service marketed under the Globalink and FutureLink brand
names.
Livestock Publication Revenue Increases. Management has achieved significant
advertising sales increases in the Today livestock magazines following several
advertising sales initiatives, including a restructuring of the magazines'
sales force and the naming of a livestock publisher. During the first quarter
of 1998, revenues from these magazines were up more than 12% over the
comparable period in 1997.
New Information Services Product. In November 1997, the Company was awarded a
contract for a new data management product that FJIR designed for a consortium
of members of the American Crop Protection Association. This project ("RAPID")
will result in a comprehensive farmer directory that will provide the
foundation of a system to capture point-of-sale information for manufacturers.
The Company also has realized incremental sales through leads initiated from
RAPID. The Company anticipates that technologies utilized for RAPID can be
applied to additional directory development projects.
Co-Branding Agreements. In March 1998, the Company entered into an agreement
with The Member Companies of American International Group, Inc. to jointly
market private passenger automobile insurance to the Company's subscriber base.
Most recently, Farm Journal entered into an agreement with CIGNA Property and
Casualty to explore the sale of a variety of insurance products through a
cooperative marketing effort. Services that could be incorporated in such
marketing effort include data management, product advertising and the
organization of farmer seminars.
5
<PAGE>
Policy Conferences. In November 1997, Farm Journal organized a trade policy
conference in Washington, D.C. Speakers at the conference included Unites
States government cabinet members, members of the United States Congress and
several chief executives of major agricultural companies. The Company held a
second conference on clean water and food quality legislation in March 1998.
These conferences were sponsored and profitable.
Top Producer Seminar Series. In the first quarter of 1998, the Company held
its first two Top Producer Executive Farmer Seminars targeted at farmers and
ranchers who generate high annual revenues. Each seminar featured high-profile
Top Producer columnists and large-scale farmers previously featured in the
magazine. Seminar revenue was generated through admission fees and
sponsorships. Each seminar attracted approximately 100 attendees whose average
annual sales of over $1.0 million placed them in the top 1% of commercial
farmers and ranchers. The Company intends to offer this seminar series at
additional locations as well as to expand its seminar offerings.
International Developments. In January 1998, Farm Journal retained JFA
International Marketing Services, an international agribusiness consulting
firm, to launch a sponsored international magazine targeted to agricultural
decision-makers worldwide. In November 1997, the Company entered into an
editorial agreement with a Japanese publication to reprint Dairy Today
editorial in Dairy Japan. Recently, the Company's Rockwood Research unit
participated in a joint project with German-based Kleffman Market Research on a
project which assessed agricultural technology adaptation in various countries.
MANAGEMENT
The Company believes that one of its most important assets is its experienced
and aggressive, growth-oriented management team. Stanford Erickson, Chairman
and Chief Executive Officer, has over 30 years of publishing and advertising
experience. Prior to joining Farm Journal in 1997, Mr. Erickson was President
and Chief Operating Officer of the Journal of Commerce magazine group where he
acquired or launched six business-to-business trade publications. Roger
Randall, President and Chief Operating Officer, has over 22 years of experience
in the agrimedia business and 13 years of experience at Farm Journal. Sonja
Hillgren, editor of Farm Journal, has over 20 years experience in agricultural
journalism and is a past President of the National Press Club. Each of the
other senior managers of Farm Journal has on average over 20 years of
experience in such areas as publishing, marketing and finance.
The Farm Journal Corporation is a Delaware corporation, its executive offices
are located at 1500 Market Street, Centre Square West, Philadelphia,
Pennsylvania 19102 and its telephone number is (215) 557-8900. The Farm Journal
Internet site can be found at www.farmjournal.com.
6
<PAGE>
THE OFFERING
Common Stock offered........ shares of Class A Common Stock
Common Stock to be
outstanding after the shares of Class A Common Stock (1)(2)
Offering................... shares of Class B Common Stock
total shares of Common Stock
Use of proceeds............. To repay indebtedness and to fund the Company's
business expansion plans, including
acquisitions, and for working capital and other
general corporate purposes.
Voting rights............... Holders of Class A Common Stock, voting as a
class, are entitled to elect that minimum number
of directors constituting 25% of the members of
the Company's Board of Directors. Other than
such right to elect directors, unless all of the
shares of Class B Common Stock are converted
into shares of Class A Common Stock or otherwise
cease to be issued and outstanding and except as
required by the laws of the State of Delaware,
holders of Class A Common Stock have no voting
rights. See "Description of Capital Stock."
Proposed Nasdaq National
Market symbol.............. FJCO
- --------
(1) Excludes shares of Class A Common Stock issuable upon exercise of
outstanding options granted pursuant to the Company's Stock Option Plan.
See "Management" and "Principal Stockholders."
(2) Includes shares of Class A Common Stock issuable upon conversion of the
preferred stock issued in connection with the PFA Acquisition (the "PFA
Preferred Stock"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--PFA Acquisition."
7
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
HISTORICAL DATA:
The following table presents summary combined historical financial and other
data derived (a) from the audited consolidated financial statements of: (i)
Farm Journal, Inc., a predecessor corporation (the "Prior Predecessor"), for
the year ended December 31, 1993 and the period from January 1, 1994 to June
24, 1994, (ii) Farm Journal, Inc., a subsidiary of Tribune Company and a
predecessor corporation (the "Predecessor"), for the period from June 25, 1994
to December 31, 1994, the two years in the period ended December 29, 1996 and
the period from December 30, 1996 to March 31, 1997 and (iii) the Company for
the period from April 1, 1997 to December 31, 1997; and (b) from the unaudited
consolidated financial statements of the Company for the three months ended
March 31, 1998. The summary combined historical financial data for the year
ended December 31, 1994 represent the combined financial data of the Prior
Predecessor for the period from January 1, 1994 to June 24, 1994 and the
Predecessor for the period from June 25, 1994 to December 31, 1994. The summary
combined historical data for the year ended December 31, 1997 represents the
combined financial data of the Predecessor for the period from December 30,
1996 to March 31, 1997 and the Company for the period from April 1, 1997 to
December 31, 1997. The changes in ownership that occurred in 1994 and 1997 were
accounted for using the purchase method of accounting; accordingly, certain of
the historical financial data of the Predecessor and Prior Predecessor are not
comparable to that of the Company.
PRO FORMA DATA:
The following table also presents (a) certain unaudited pro forma combined
financial and other data giving effect to the Management Purchase, the PFA
Acquisition and certain related operational changes, and (b) certain unaudited
pro forma as adjusted data giving effect to such pro forma adjustments and the
following adjustments (the "Offering Adjustments"): (i) the completion of the
Offering and application of the estimated net proceeds as described under "Use
of Proceeds," and (ii) the conversion of the PFA Preferred Stock described
under "Capitalization."
The unaudited pro forma financial data may not be indicative of the results
that actually would have occurred if these transactions had been effected on
the dates indicated or the results that may be obtained in the future. This
data is qualified in its entirety by, and should be read in conjunction with,
"Unaudited Pro Forma Combined Financial Data," "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company and Predecessor Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
8
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED
PRIOR COMBINED
PREDECESSOR PREDECESSOR
PRIOR AND AND THE THE
PREDECESSOR PREDECESSOR PREDECESSOR COMPANY PRO PREDECESSOR COMPANY
----------- ----------- ----------------- ----------- FORMA ----------- -------
YEAR YEAR PRO FORMA
ENDED YEAR ENDED ENDED THREE MONTHS
DECEMBER DECEMBER DECEMBER THREE MONTHS ENDED ENDED MARCH
YEAR ENDED DECEMBER 31, 29, 31, 31, MARCH 31, 31,
------------------------------- -------- ----------- -------- ------------------- ----------------
1993 1994 1995 1996 1997 1997(1) 1997 1998 1997(1) 1998(2)
----------- ----------- ------- -------- ----------- -------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Publishing....... $23,812 $22,191 $20,639 $20,526 $19,440 $28,544 $8,985 $9,471 $11,219 $11,882
Information
services........ 2,703 4,871 5,617 6,049 5,230 5,230 1,428 2,434 1,428 2,434
Other............ 367 489 319 199 338 338 61 103 61 103
------- ------- ------- ------- ------- ------- ------ ------ ------- -------
Total revenues.. 26,882 27,551 26,575 26,774 25,008 34,112 10,474 12,008 12,708 14,419
Operating
expenses:
Cost of
publishing (3).. 15,145 15,104 15,394 14,228 11,805 13,972 4,578 5,145 5,140 5,685
Cost of
information
services (4).... 1,887 2,108 2,273 2,543 2,135 2,135 527 627 527 627
Selling, general
and
administrative.. 7,330 8,280 8,970 9,250 8,612 12,511 2,161 2,728 3,151 3,852
Depreciation and
amortization.... 586 803 1,056 1,060 1,098 4,790 280 274 1,213 1,306
------- ------- ------- ------- ------- ------- ------ ------ ------- -------
Operating income
(loss)........... 1,934 1,256 (1,118) (307) 1,358 704 2,928 3,234 2,677 2,949
Interest income.. 63 76 195 20 228 228 4 70 21 70
Interest
expense......... (32) (54) (853) (1,761) (38) (262) (432) (433)
------- ------- ------- ------- ------- ------- ------ ------ ------- -------
Income (loss)
before income
taxes........... 1,965 1,332 (923) (341) 733 (829) 2,894 3,042 2,266 2,586
Income tax
provision
(benefit)....... 498 623 (166) 67 528 (150) 1,208 1,390 1,001 1,207
------- ------- ------- ------- ------- ------- ------ ------ ------- -------
Net income
(loss)........... $ 1,467 $ 709 $ (757) $ (408) $ 205 $ (679) $1,686 $1,652 $ 1,265 $ 1,379
======= ======= ======= ======= ======= ======= ====== ====== ======= =======
Basic net income
(loss) per common $ $ $
share............ ======= ====== =======
Diluted net income
(loss) per common $ $ $
share............ ======= ====== =======
Weighted average
number of common
shares
outstanding (5).. ======= ====== =======
PRO FORMA AS
ADJUSTED DATA:
Interest expense
(6).............. $ (554) $ (131)
Income tax
provision........ 153 1,283
Net income (loss)
(6).............. (225) 1,492
Basic net income
(loss) per common $ $
share (6)........ ======= =======
Diluted net income
(loss) per common $ $
share (6)........ ======= =======
Weighted average
number of common
shares
outstanding(7)... ======= =======
OTHER DATA:
EBITDA (8)....... $ 2,520 $ 2,059 $ (62) $ 753 $ 2,456 $ 5,494 $3,208 $3,508 $ 3,890 $ 4,255
Capital
expenditures.... 251 232 2,411 554 357 386 179 145 183 263
Cash flow
information:
Operating cash
flows........... 148 232 321 1,150 1,408 2,152 571 353 997 427
Investing cash
flows........... (251) (232) (2,411) (554) (16,012) (26,304) 741 (145) (10,760) (10,881)
Financing cash
flows........... (215) 79 1,819 (1,474) 19,169 26,117 (1,488) 6,512 7,948
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED(9)
------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 8,249 $1,215 $18,915
Total assets...................................... 27,946 42,457 59,809
Total long-term debt, including current portion... 11,000 19,632 5,832
Preferred stock................................... -- 1,000 --
Total shareholders' equity........................ 10,464 10,464 42,964
</TABLE>
9
<PAGE>
NOTES TO SUMMARY COMBINED FINANCIAL DATA
(1) Presented to give pro forma effect to the Management Purchase, the PFA
Acquisition, the related financings and certain related operational changes
as if such transactions had been consummated on December 30, 1996. The
unaudited pro forma data give effect to the following adjustments (the "Pro
Forma Adjustments") as of the beginning of each period presented: (i) an
increase in interest expense attributable to financings related to the
Management Purchase and PFA Acquisition; (ii) the elimination of
compensation expense to certain officers of the Company that will no longer
be incurred after February 26, 1998; and (iii) an adjustment to the pro
forma provision (benefit) for income taxes to reflect the tax effect of the
adjustments described in clauses (i) and (ii).
(2) Presented to give pro forma effect to the PFA Acquisition, the related
financings and certain related operational changes as if they had occurred
on December 30, 1996. The unaudited pro forma data also give effect to the
Pro Forma Adjustments as of the beginning of each period presented.
(3) Cost of publishing includes paper, printing, postage, editorial and
circulation.
(4) Cost of information services includes account service, programming and
demographic updates.
(5) Based on the weighted average number of shares of Common Stock outstanding
for the periods presented after giving effect to the Recapitalization. See
"Description of Capital Stock--Recapitalization."
(6) The pro forma as adjusted interest expense, net income (loss) and the per
share amounts reflect the reduction of interest expense as a result of the
reduced level of borrowings due to the application of the net proceeds of
the Offering as described under "Use of Proceeds."
(7) Based on the weighted average number of shares of Common Stock, including
Common Stock equivalents outstanding, and includes (i) 7,892 additional
shares representing stock options issued on February 26, 1998, (ii) the
conversion of the PFA Preferred Stock and (iii) the shares of Class A
Common Stock to be issued by the Company in the Offering.
(8) EBITDA represents income (loss) before provision (benefit) for income taxes
plus depreciation and amortization plus net interest (income) expense.
EBITDA is not intended to represent cash flows from operations and should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
The Company believes that EBITDA is a standard measure commonly reported
and widely used by analysts, investors and other interested parties in the
publishing industry. Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
performance relative to other companies in the industry. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies and, therefore, may not necessarily be an accurate basis of
comparison.
(9) The pro forma as adjusted balance sheet data reflects the application of
the net proceeds of the Offering as described under "Use of Proceeds."
10
<PAGE>
RISK FACTORS
Certain statements concerning the Company's operations, economic performance
and financial condition including, without limitation, those concerning the
Company's business and operating strategy, contained herein under the captions
"Prospectus Summary," "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" are forward-
looking statements. While the Company believes these statements are
reasonable, prospective purchasers of the Class A Common Stock offered hereby
should be aware that actual results could differ materially from those stated
or suggested by such forward-looking statements as a result of the risk
factors set forth below or other factors. In addition to the other information
in this Prospectus, the following factors should be considered carefully in
evaluating an investment in the Class A Common Stock offered hereby.
HISTORICAL FINANCIAL PERFORMANCE
The Company has experienced variations in revenues and net income as a
result of a variety of factors. Annual revenues of the Company declined from
$26.9 million in 1993 to $25.0 million in 1997 while net income declined from
$1.5 million to $0.2 million over the same period. In addition, EBITDA
fluctuated from a high of $2.5 million in 1993 to a low of $(0.1) million in
1995, before increasing to $2.5 million in 1997. Although the Company has
developed and is implementing a strategic plan designed to improve its
operating performance, no assurance can be given that this declining trend in
revenues and net income and erratic EBITDA performance can be reversed.
Improved future performance will be dependent upon, among other things, the
Company's successful expansion of its existing business and development of new
sources of revenues.
DEPENDENCE UPON ADVERTISING REVENUES
Advertising revenues comprised approximately 73% of the Company's revenues
in 1997. Advertising in Farm Journal contributed 65% of total advertising
revenues in 1997. Although the Company's advertising revenues will decline as
a percentage of total revenues as a result of the PFA Acquisition, advertising
revenues will continue to be a significant component of the Company's total
revenues. The Company's advertising sales are not subject to long-term
contracts. Advertising revenues of the Company are cyclical and dependent upon
general economic conditions as well as factors specific to the Company.
Historically, increases in advertising revenues have corresponded with
economic recoveries, while decreases and changes in advertising mix have
corresponded with economic downturns and regional and local economic
recessions. It is, therefore, difficult to project anticipated future
advertising revenues.
Competition for advertising dollars is primarily based on advertising rates,
the nature and scope of readership, reader response to advertisers' products
and services and the effectiveness of sales efforts. If the Company is unable
to compete successfully for advertisers and readers or its advertising
revenues are negatively impacted by general economic conditions or otherwise,
the Company's business, financial condition and results of operations would be
adversely affected.
DEPENDENCE UPON KEY CUSTOMERS
The Company's ten largest advertisers accounted for approximately 49% of
advertising revenues in 1997. Such advertisers are also customers of the
Company's FJIR division, its market research and data management business,
accounting for approximately 35% of the revenues of FJIR in 1997. Although no
single customer was responsible for more than 10% of the Company's revenues,
the Company is currently highly dependent upon its largest advertisers, the
loss of any of which would have a material adverse effect on its business,
financial condition and results of operations. In 1997, the decision of one
advertiser to redirect advertising expenditures reduced that advertiser's
expenditures with the Company by $344,000 compared with the prior year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that similar adverse changes will not
occur in future years.
11
<PAGE>
CONTROL OF THE COMPANY; ANTI-TAKEOVER IMPACT
MS Farm International Limited Partnership (the "Partnership") will
beneficially own 100% of the outstanding shares of the Class B Common Stock
immediately after the Offering. So long as any shares of Class B Common Stock
are outstanding, the Class B Common Stock will represent 100% of the Company's
total voting power (other than with respect to the election of directors)
after giving effect to the Offering. The Partnership is controlled by Phillip
Ean Cohen through his sole ownership of the general partner. See "Management
Purchase." Other than the right of the holders of the Class A Common Stock to
elect 25% of the members of the Company's Board of Directors, unless all of
the shares of Class B Common Stock are converted into Class A Common Stock or
otherwise cease to be outstanding and except as may be required by the laws of
the State of Delaware, holders of Class A Common Stock have no voting rights.
Consequently, the Partnership and Mr. Cohen control the outcome of
substantially all matters submitted to a vote of the Company's stockholders.
There are no restrictions on the Partnership's ability to transfer shares of
Class B Common Stock. So long as any shares of Class B Common Stock are
outstanding, the Partnership and Mr. Cohen have the right to transfer control
of the Company to a third party by transferring the Partnership's shares of
Class B Common Stock, and any such transfer could be effected at a premium
without such premium being shared with or paid to holders of Class A Common
Stock.
The disproportionate voting rights between the Class A Common Stock and the
Class B Common Stock could have an adverse effect on the market price of the
Class A Common Stock. Such disproportionate voting rights may make the Company
a less attractive target for a takeover than it otherwise might be, or render
more difficult or discourage a merger proposal, a tender offer or a proxy
contest, even if such actions were favored by holders of the Company's Class A
Common Stock. Such disproportionate voting rights may also deprive holders of
Class A Common Stock of an opportunity to sell their shares at a premium over
then prevailing market prices for the Class A Common Stock. There also is no
prohibition or limitation on the Partnership's ownership of Class A Common
Stock. If, following the Offering, all of the outstanding shares of Class B
Common Stock were converted into shares of Class A Common Stock, the
Partnership would own approximately % of the Class A Common Stock. In that
event, the Partnership would continue to control the outcome of virtually all
matters submitted to a vote of the Company's stockholders, including the
election of all of the Company's directors.
UNPROVEN GROWTH OPPORTUNITIES
The Company's business strategy contemplates growth through the development
of a variety of new sources of revenue, including through the sale of products
and services to its publication subscriber base, the participation in new
media, the substantial increase in paid circulation and subscription rates of
certain magazines, acquisitions and other ventures, new publications and
international expansion. There can be no assurance that the Company can
generate revenues or profits from any of its new revenue initiatives, or do so
within the time frame contemplated by the Company. Failure to successfully
develop and implement a revenue growth strategy, or to do so in a timely
manner, may materially and adversely affect the ability of the Company to
achieve an attractive rate of return for its equity investors.
A component of the Company's growth strategy is expansion into international
markets. The Company has limited experience in developing foreign publications
and services and in marketing and distributing them internationally. In
addition, there are certain risks inherent in doing business in international
markets, such as the uncertainty of product acceptance by different cultures,
the risks of divergent business expectations or cultural incompatibility
inherent in establishing joint ventures with foreign partners, difficulties in
staffing and managing multinational operations, currency fluctuations, state-
imposed restrictions on the repatriation of funds and potentially adverse tax
consequences. There can be no assurance that one or more of such factors will
not have a material adverse effect on the Company's future international
operations. See "Business--Growth Strategy."
12
<PAGE>
CHALLENGE OF GROWTH THROUGH ACQUISITIONS
The Company intends to pursue growth through acquisitions. There can be no
assurance, however, that suitable acquisition candidates will be identified
or, if identified, that such acquisitions will be consummated. Further, there
can be no assurance that any newly-acquired businesses will be successfully
integrated into the Company's operations. The Company may face competing
offers for acquisition candidates identified by it, which the Company may be
unable to match or which may result in higher acquisition costs. There can be
no assurance that companies that may be acquired will achieve sales and
profitability that justify the investment in them. Acquisitions may involve a
number of risks, including adverse short-term effects on the Company's
reported operating results; diversion of management's attention; dependence on
retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets, some or all of which could have a material adverse effect
on the Company's operations and financial performance. The Company may issue
additional shares of Class A Common Stock (which could result in dilution to
the purchasers of the Class A Common Stock offered hereby) or may incur
substantial additional indebtedness, or a combination thereof, to fund future
acquisitions. There can be no assurance that the Company will be able to
obtain any such additional equity or debt financing or do so within the time
frame contemplated by the Company.
FLUCTUATIONS IN PAPER COSTS AND POSTAL RATES
Paper is the principal raw material for the Company's publishing operations.
The Company purchases paper from R.R. Donnelley and Sons Company ("Donnelley")
pursuant to a long-term printing contract. Donnelley purchases the paper in
the spot market and passes on that cost to the Company. Paper costs
represented approximately 21%, 22% and 18% of the Company's cost of publishing
for each of the fiscal years ended December 31, 1995, 1996 and 1997,
respectively. During those three years, total expenditures by the Company for
paper were $3.3 million, $3.2 million and $2.1 million, respectively. Although
paper prices have experienced long periods of stability, the price of paper
stock used in all the Company's publications has experienced substantial
volatility since January 1994. Multiple increases in the price of the
Company's body stock (#36) paper resulted in an overall increase of 10% in
1994 and another 34% in 1995, materially and adversely affecting the Company's
results of operations in 1995.
Postage is also a significant cost of the Company's publishing operations.
Postage costs represented approximately 18%, 18% and 19% of total costs of
publishing for each of the fiscal years ended December 31, 1995, 1996 and
1997, respectively. During those same years, total expenditures by the Company
for postage were $2.8 million, $2.6 million and $2.2 million, respectively. In
May 1998, the United States Postal Rate Commission authorized a 4.5% rate
increase that is expected to become effective later in 1998.
No assurance can be given that the price of paper or postage will not
increase, substantially or otherwise, or that the Company will be able to
recoup any such paper or postage cost increases by passing them through to its
customers. Any substantial cost increase in paper or postage will have a
material adverse affect on the results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Raw Materials."
CYCLICALITY AND SEASONALITY OF REVENUE
The Company's business is highly seasonal, resulting in a disproportionate
share of revenues and net income being generated in the first fiscal quarter.
For example, net revenues for the three-month period ended March 31, 1997
accounted for 42% of the Company's total 1997 net revenues. This seasonality
is primarily due to the high level of advertising revenues generated by the
increased number of issues published by the Company during the winter (crop
planning) months as well as the greater number of advertising pages per issue
carried during those months. The seasonality of the Company's business places
a significant demand for cash in the latter part of the fourth quarter to
support production and sales costs and a buildup in customer receivables. Any
substantial decrease in first quarter net revenues could have a material
adverse effect on the Company's profitability for the
13
<PAGE>
entire fiscal year or its ability to fund its operations during the remainder
of such fiscal year. The Company has incurred and may in the future incur
losses during the second and third quarters of its fiscal year. In addition,
there can be no assurance that the Company will be able to finance its
seasonal working capital needs or balance efficiently the seasonal
requirements of its business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON KEY SUPPLIER
The Company's magazines are printed, bound and organized for shipment
pursuant to a multi-year contract with Donnelley which is currently scheduled
to expire in 2001. In addition, Donnelley provides specialized binding
services to the Company and purchases all of the Company's paper needs through
a consortium of other Donnelley customers. Although the Company believes that
other printers of similar quality could be engaged on similar terms, engaging
a replacement printer could cause delays in the Company's operations. Any
interruption or delay in printing the Company's periodicals, the loss of
purchasing power afforded to the Company through Donnelley's paper purchases
or the loss of access at reasonable prices to the binding process may have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The domestic market for agricultural print advertising is mature and there
is substantial competition for advertising revenue among farming periodicals.
In addition, paid circulation farming periodicals must compete with a variety
of free alternatives. Most of the Company's significant competitors are units
of large publishing groups which have substantially greater financial and
other resources than the Company. In addition, the Company is subject to
competition in its data management business, where competitors have and may
continue to offer services similar to those offered by the Company. As a
result of such competition and the Company's comparatively limited resources,
there can be no assurance that competitive factors will not impair the ability
of the Company to pursue its growth initiatives or maintain its existing
market share in its respective businesses.
RISKS ASSOCIATED WITH POTENTIAL SIGNIFICANT INDEBTEDNESS AND COVENANT
RESTRICTIONS
Although the Company is not currently highly leveraged, the Company may
incur additional indebtedness to fund its growth strategy, including the
financing of future acquisitions. If the Company were to incur substantial
additional indebtedness, the Company would become exposed to certain risks,
including reduced financial flexibility, greater vulnerability to economic
downturns and competitive pressures and diversion of cash flow from the
implementation of its growth strategy to debt service. The agreements
governing the outstanding indebtedness of the Company's operating subsidiary,
FJI, impose, and agreements covering future indebtedness would likely contain,
operating and financial restrictions. Specifically, the note purchase
agreement (the "Note Purchase Agreement") pursuant to which the 9.5% Senior
Subordinated Notes due 2007 of FJI (the "Senior Subordinated Notes") were
issued, and FJI's $15,000,000 Reducing Revolving Credit Facility (the "Bank
Facility") with First Union National Bank, contain certain restrictive
covenants, including, but not limited to, restrictions on incurrence of debt,
dividend payments, certain asset sales, transactions with affiliates, liens
and investments. A failure to comply with the obligations in the Note Purchase
Agreement, the Bank Facility or agreements covering future indebtedness could
result in an event of default under such agreements, which, if not cured or
waived, would permit acceleration of the indebtedness thereunder and
acceleration of indebtedness under any other instruments then in effect that
may contain cross-acceleration or cross-default provisions, resulting in a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its executive
officers. The loss of any of these key personnel could have a material adverse
effect on the Company. The Company does not expect to maintain key person life
insurance for any of its key personnel. See "Management."
14
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET; MARKET PRICE FLUCTUATIONS
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock
will be determined by negotiation among the Company and the representatives of
the several Underwriters (see "Underwriting") and may not be indicative of the
market price for shares of the Class A Common Stock after the Offering. While
application has been made for the listing of the Class A Common Stock on
Nasdaq's National Market, there can be no assurance that an active trading
market for the Class A Common Stock will develop or that any such market will
be sustained. The market price for shares of the Class A Common Stock may be
significantly affected by numerous factors, including quarter-to-quarter
variations in the Company's results of operations, announcements by the
Company or others and developments affecting the Company and its industry. In
addition, broad market fluctuations and general economic and political
conditions may adversely affect the market price of the Class A Common Stock,
regardless of the Company's actual performance or circumstance.
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock into the public
market could adversely affect the market price for the Class A Common Stock.
Upon completion of the Offering, the Company expects to have shares of
Common Stock outstanding. Of these shares, the shares of Class A Common
Stock sold in the Offering will be freely tradable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), except for any
such shares which may be acquired by an "affiliate" of the Company within the
meaning of the Securities Act. In addition, million shares of Class B
Common Stock may be converted on a one-for-one basis into an aggregate of
million shares of Class A Common Stock at any time and shares of Class A
Common Stock may be issued upon exercise of vested options. Commencing 180
days after the closing of the Offering (or sooner with the consent of the
Underwriters), any of such shares so converted or issued will be eligible for
sale in the public market, subject to compliance with the resale volume
limitations and other restrictions of Rule 144 under the Securities Act.
Moreover, on April 2, 1999, an additional shares of Class A Common Stock,
to be issued upon conversion of the PFA Preferred Stock, will also be eligible
for sale in the public market, subject to compliance with the restrictions of
Rule 144. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--PFA Acquisition." Future sales of the shares of Common
Stock held by existing stockholders could have an adverse effect on the price
of the Class A Common Stock. See "Shares Eligible for Future Sale."
SUBSTANTIAL AND IMMEDIATE DILUTION
Based upon the Company's pro forma net tangible book value deficit as of
December 31, 1997, purchasers of the Class A Common Stock offered hereby will
experience an immediate dilution of $ in the tangible net book value per
share of Class A Common Stock from the initial public offering price of $
per share. See "Dilution."
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900
rather than the Year 2000. Such misrecognition could result in system failures
or miscalculations causing disruptions of operations, including, among others,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
The Company has identified all of its significant internal software
applications which contain source code that may be unable to appropriately
interpret the Year 2000 and has already begun to modify or replace those
applications. The Company has determined that its accounting system and
employee network system are Year 2000 compliant. The Company's advertising
acknowledgment system is the only operating program that is
15
<PAGE>
not Year 2000 compliant. Management believes that the estimated costs to
modify or replace this system are not material to the Company.
In addition, the Company has inquired of its major suppliers about their
progress in identifying and addressing problems related to the Year 2000.
Certain of the Company's major suppliers have informed the Company that such
suppliers do not anticipate problems in their business operations due to Year
2000 compliance issues. The Company is currently unable to determine the
extent to which Year 2000 issues will affect its other suppliers, or the
extent to which it would be vulnerable to the suppliers' failure to remediate
any of their Year 2000 problems. Although no assurance can be given that all
of the Company's major suppliers' systems will be Year 2000 compliant, the
Company believes that the risk is not significant.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A
Common Stock in the Offering after payment of expenses of the Offering are
estimated to be approximately $ million ($ if the Underwriters' over-
allotment option is exercised in full), assuming an initial public offering
price of $ per share, the midpoint of the range set forth on the cover
page of this Prospectus. The Company intends to apply a portion of the net
proceeds to prepay $5.5 million of principal, plus accrued interest, of the
$11 million outstanding principal amount of the Senior Subordinated Notes and
to repay the outstanding borrowings under FJI's Bank Facility. As of April 2,
1998, the outstanding balance under the Bank Facility was $8.3 million and the
interest rate was 8.2% per annum. The Company intends to use the remaining net
proceeds for the implementation of the Company's growth strategy, including
the cost of acquisitions, and for working capital and other general corporate
purposes. Pending such uses the Company intends to invest the net proceeds in
an institutional money market fund investing in short-term debt securities and
other money market instruments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
MANAGEMENT PURCHASE
In April 1997, the Partnership, whose investors include members of the
Company's current management and individuals associated with Morgan Schiff &
Co., Inc. ("Morgan Schiff"), organized FJC for the purpose of purchasing FJI
from Tribune Company. The purchase price of $17.0 million (prior to giving
effect to $0.3 million of working capital adjustments and $0.2 million of
transaction costs) was financed through the issuance by FJI of $11.0 million
of Senior Subordinated Notes unconditionally guaranteed by FJC and the
issuance by FJC of its Class B Common Stock to the Partnership. The
Partnership invested approximately $10.1 million in the purchase of shares of
Class B Common Stock. Proceeds of such investment in excess of the purchase
price, or approximately $4.4 million, were retained for the working capital of
the Company and to finance expansion of the business. Phillip Ean Cohen wholly
owns the general partner of the Partnership (the "General Partner") and is the
sole owner of Morgan Schiff. See "Certain Relationships and Related
Transactions," "Principal Stockholders" and "Underwriting."
17
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1998: (i) the actual
capitalization of the Company after giving effect to the recapitalization
(the "Recapitalization") described in "Description of Capital Stock--
Recapitalization," (ii) the pro forma capitalization of the Company after
giving effect to the PFA Acquisition and the financing thereof and (iii) the
pro forma capitalization of the Company as adjusted to reflect the sale by the
Company of shares of Class A Common Stock pursuant to the Offering,
assuming an initial public offering price of $ per share (the midpoint of
the range set forth on the cover page of this Prospectus), the application of
the net proceeds therefrom as described under "Use of Proceeds" and the
conversion of Convertible Redeemable Preferred Stock issued in connection with
the PFA Acquisition (the "PFA Preferred Stock") into shares of Class A
Common Stock at such assumed initial public offering price (the "Offering
Adjustments"). This table should be read in conjunction with "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Combined Financial
Data" and the audited financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(1) AS ADJUSTED
--------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Note payable............................. $ -- $ 332 $ 332
Senior Subordinated Notes................ 11,000 11,000 5,500
Bank Facility............................ -- 8,300 --
Convertible Redeemable Preferred Stock, par
value $.01 per share, 2,725 shares autho-
rized, 2,725 issued and outstanding....... -- 1,000 --
Shareholders' equity:
Class A Common Stock, par value $0.01 per
share, shares
authorized, shares issued and out-
standing actual and pro forma;
shares authorized, shares issued and
outstanding pro forma as adjusted....... -- --
Class B Common Stock, par value $0.01 per
share, shares authorized,
shares issued and outstanding actual and
pro forma; shares authorized,
shares issued and outstanding pro forma
as adjusted............................. 1 1 1
Additional paid-in capital............... 10,292 10,292 42,792
Retained earnings........................ 171 171 171
------- ------- -------
Total shareholders' equity............. 10,464 10,464 42,964
------- ------- -------
Total capitalization................... $21,464 $31,096 $48,796
======= ======= =======
</TABLE>
18
<PAGE>
DIVIDEND POLICY
Since the Management Purchase, the Company has not declared or paid any cash
or other dividends on its capital stock and does not expect to pay dividends
for the foreseeable future. The Company anticipates that all of its earnings
in the foreseeable future will be used for the operation of its business, to
support its growth strategy and reduce indebtedness. Any future determination
to pay dividends will be at the discretion of the Board of Directors and will
depend upon, among other factors, the Company's results of operations,
financial condition and capital requirements. In addition, as a holding
company, the ability of the Company to pay dividends in the future is
dependent upon the receipt of dividends or other payments from its operating
subsidiary, FJI. The Note Purchase Agreement and the Bank Facility contain
certain restrictions on the payment of dividends by FJI. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
after giving effect to the Recapitalization, the PFA Acquisition and the
conversion of the PFA Preferred Stock into shares of Class A Common Stock
was $ million, or $ per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the tangible net worth of the
Company (total assets less intangible assets and total liabilities) by the
aggregate number of shares of Common Stock outstanding. After giving effect to
the sale of shares of Class A Common Stock offered hereby (at an assumed
initial public offering price of $ per share, the midpoint of the range
set forth on the cover page of this Prospectus), and the application of the
net proceeds therefrom, pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to the current stockholders of the Company and an
immediate dilution in pro forma net tangible book value of $ per share to
purchasers of Class A Common Stock in the Offering. The following table
illustrates this per share dilution.
<TABLE>
<S> <C>
Assumed initial public offering price per share.................... $
------
Pro forma net tangible book value per share of Common Stock at
March 31, 1998....................................................
Increase in pro forma net tangible book value per share of Common
Stock attributable to purchasers in the Offering..................
Pro forma net tangible book value per share of Common Stock after
the Offering...................................................... ( )
------
Dilution in pro forma net tangible book value per share to purchas-
ers of Class A Common Stock in the Offering(1).................... $
======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the initial public offering price per
share.
The following table summarizes, on the pro forma basis described above, as
of March 31, 1998, the number of shares purchased, the total consideration
paid (or to be paid) and the average price per share paid (or to be paid) by
the existing stockholders and the purchasers of Class A Common Stock in the
Offering, at an assumed initial public offering price of $ per share (the
midpoint of the range set forth on the cover page of this Prospectus), before
deducting the estimated offering expenses and underwriting discounts and
commissions:
<TABLE>
<CAPTION>
SHARES
PURCHASED AVERAGE
-------------- TOTAL CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing common stock-
holders.................
Holders of Class A Common
Stock issued upon con-
version of PFA Preferred
Stock...................
Purchasers of Class A
Common Stock in the Of-
fering..................
Total..................
</TABLE>
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following Unaudited Pro Forma Combined Financial Data sets forth the pro
forma combined statements of operations of the Company for the year ended
December 31, 1997 and the three months ended March 31, 1998 and 1997 and the
pro forma combined balance sheet as of March 31, 1998. The pro forma combined
statement of operations data for the three months ended March 31, 1998 give
effect to the PFA Acquisition, and certain related operational changes as if
such transactions had occurred on December 30, 1996. The pro forma combined
statements of operations data for the year ended December 31, 1997 and the
three months ended March 31, 1997 give effect to the Management Purchase the
PFA Acquisition and certain related operational changes as if such
transactions had occurred on December 30, 1996. The pro forma combined balance
sheet data give effect to such transactions as if they occurred on March 31,
1998.
The pro forma combined financial data for the year ended December 31, 1997
and for the three months ended March 31, 1997 includes the results of
operations of the Company, the Predecessor and PFA. The pro forma combined
financial data for the three months ended March 31, 1998 includes the results
of the Company and PFA. The consolidated financial information with respect to
the Predecessor and the Company has been derived from their audited
consolidated financial statements for the three months ended March 31, 1997
and for the nine months ended December 31, 1997, respectively. The Predecessor
was acquired on April 1, 1997. All operating results from the time of
acquisition are included in the Company's historical financial statements. The
financial information with respect to PFA has been derived from its audited
financial statements for the year ended December 31, 1997. PFA was acquired on
April 2, 1998. The pro forma combined financial data as of and for the three
months ended March 31, 1998 includes the results of operations of the Company
and PFA. The financial information has been derived from their unaudited
consolidated financial statements.
The pro forma, as adjusted, combined data for the year ended December 31,
1997 and the three months ended March 31, 1997 and 1998 give effect to the
acquisitions discussed above, the conversion of the PFA Preferred Stock and
the application of the net proceeds to the Company from the Offering. See "Use
of Proceeds."
The unaudited pro forma financial data may not be indicative of the results
that actually would have occurred if these transactions had been effected on
the dates indicated or the results that may be obtained in the future. The
adjustments are based on available information and upon certain assumptions
that the Company believes are reasonable in the circumstances. The pro forma
combined statements of operations, balance sheet and accompanying notes should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company and Predecessor
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
20
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PFA ACQUISITION PRO OFFERING PRO FORMA
COMPANY ACQUISITION ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $ 4,949 $(3,030)(1) $ 1,919 $31,500 (2) $19,271
(13,800)(4)
(348)(4)
Accounts receivable.... 8,796 $ 360 9,156 9,156
Inventories............ 121 121 121
Prepaid and other
current assets........ 552 241 (162)(1) 631 631
------- ------ ------- ------- ------- -------
Total current assets.. 14,418 601 (3,192) 11,827 17,352 29,179
DUE FROM RELATED
PARTIES................ 3,919 (3,919)(1)
PROPERTY AND EQUIPMENT,
NET.................... 2,221 182 2,403 2,403
DEFERRED CUSTOMER
ACQUISITION COSTS,
NET.................... 1,312 1,312 1,312
INTANGIBLE ASSETS, NET.. 10,648 15,402 (1) 26,050 26,050
OTHER ASSETS............ 206 206 206
DEFERRED TAX ASSETS..... 659 659 659
------- ------ ------- ------- ------- -------
TOTAL............... $27,946 $6,220 $ 8,291 $42,457 $17,352 $59,809
======= ====== ======= ======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....... $ 1,833 $ 283 $ 2,116 $ 2,116
Accrued expenses and
other liabilities..... 2,008 467 2,475 $(348)(4) 2,127
Income taxes payable... 1,390 1,390 1,390
Current portion of
long-term debt........ 56 56 56
Current portion of
deferred subscription
income................ 938 3,637 4,575 4,575
------- ------ ------- ------- -------
Total current
liabilities......... 6,169 4,443 10,612 (348) 10,264
DEFERRED SUBSCRIPTION
INCOME,
Less current portion... 313 492 805 805
LONG-TERM DEBT.......... 11,000 276 $ 8,300 (3) 19,576 (13,800)(4) 5,776
PREFERRED STOCK......... 1,000 (1) 1,000 (1,000)(5)
SHAREHOLDERS' EQUITY:
Class A Common Stock... 1 87 (87)(1) 1 1
Additional paid-in
capital............... 10,292 10,292 31,500 (2) 42,792
1,000 (5)
Retained earnings...... 171 922 (922)(1) 171 171
------- ------ ------- ------- ------- -------
Total shareholders'
equity.............. 10,464 1,009 (1,009) 10,464 32,500 42,964
------- ------ ------- ------- ------- -------
TOTAL................ $27,946 $6,220 $ 8,291 $42,457 $17,352 $59,809
======= ====== ======= ======= ======= =======
</TABLE>
(1) Represents the PFA Acquisition based on a purchase price of $12,000. The
PFA Acquisition has been accounted for using the purchase method. The
purchase price has been allocated on a preliminary basis to the tangible
assets acquired based on the fair values of such assets, which are
estimated to equal their book value. The balance of the purchase price was
preliminarily allocated as follows: $3,366 to subscriber lists, $4,000 to
covenant not-to-compete, $2,232 to trademarks and $5,804 to goodwill. The
intangible assets will be amortized on a straight-line basis over periods
ranging from 5-15 years and goodwill will be amortized on a straight-line
basis over 15 years.
(2) Represents net proceeds from the Offering as described under "Use of
Proceeds."
(3) Represents borrowings of $8,300 under the Bank Facility used to effect the
PFA Acquisition as if it had occurred on March 31, 1998.
(4) Represents the payment of $13,800 of the Company's borrowings and $348 of
accrued interest with proceeds from the Offering. See "Use of Proceeds."
(5) Represents conversion of the PFA Preferred Stock. See "Capitalization."
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL RESULTS
---------------------------
THE ACQUISITION PRO OFFERING PRO FORMA
COMPANY PREDECESSOR PFA ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------- ----------- ------ ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Publishing............ $10,455 $8,985 $9,104 $28,544 $28,544
Information services.. 3,802 1,428 5,230 5,230
Other................. 277 61 338 338
------- ------ ------ ------- -------
Total revenues...... 14,534 10,474 9,104 34,112 34,112
Operating expenses:
Cost of publishing.... 7,227 4,578 2,167 13,972 13,972
Cost of information
services............. 1,608 527 2,135 2,135
Selling, general and
administrative....... 6,451 2,161 4,984 $ (107)(2) 12,511 $ 450 (1) 12,961
(978)(3)
Depreciation and amor-
tization............. 818 280 1,820 (18)(4) 4,790 4,790
1,890 (5)
------- ------ ------ ------- ------- ----- -------
Operating income
(loss)................. (1,570) 2,928 133 (787) 704 (450) 254
Interest income......... 224 4 444 (444)(6) 228 228
Interest expense........ (815) (38) (20) (223)(7) (1,761) 1,207 (9) (554)
(665)(8)
------- ------ ------ ------- ------- ----- -------
Income (loss) before in-
come taxes............. (2,161) 2,894 557 (2,119) (829) 757 (72)
Income tax provision
(benefit).............. (680) 1,208 (678)(10) (150) 303 (10) 153
------- ------ ------ ------- ------- ----- -------
Net income (loss)....... $(1,481) $1,686 $ 557 $(1,441) $ (679) $ 454 $ (225)
======= ====== ====== ======= ======= ===== =======
Basic and diluted income
(loss) per common
share.................. $
=======
Weighted average number
of common shares out-
standing(11)...........
=======
</TABLE>
22
<PAGE>
NOTES TO PRO FORMA
STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1997
(1) Represents the incremental cost associated with being a public reporting
company.
(2) Represents compensation expense incurred under the Equity Incentive
Awards, which were replaced on February 26, 1998 with an incentive stock
option plan. See Note 19 of the Notes to the Consolidated Financial
Statements.
(3) Represents: (i) $572 of management fees and $95 of excess general and
administrative costs paid by PFA to its former owner; (ii) $107 of
reduction in rent expense related to PFA entering into a new lease with
its former owner; and (iii) $204 of compensation, bonuses and fringe
benefit packages paid to employees of Pro Farmer who were terminated
after the PFA Acquisition.
(4) Represents reduction in amortization expense recorded in the Predecessor
financial statements as a result of fewer intangible assets recorded in
conjunction with the Management Purchase.
(5) Represents an increase in amortization expense of goodwill and other
intangible assets acquired by the Company in the PFA Acquisition.
(6) Represents the reduction of interest income earned on PFA amounts due
from related parties.
(7) Represents additional interest expense of $261 associated with the Senior
Subordinated Notes used to finance the Management Purchase and reflects
elimination of $38 of intercompany interest expense charged by Tribune
Company, as if the Management Purchase had occurred on December 30, 1996.
(8) Represents the increase in interest expense as a result of bank
borrowings of $8.3 million under a new credit agreement bearing interest
at 8.2%, as if the PFA Acquisition had occurred on December 30, 1996.
(9) Represents reduction in interest expense resulting from the assumed use
of Offering proceeds to repay $13.8 million of the Company's borrowings,
including $8.3 million incurred after December 31, 1997 in conjunction
with the PFA Acquisition.
(10) Prior to the PFA Acquisition, PFA had elected to be taxed as a Subchapter
S corporation for federal and state income tax purposes. Pro forma
information has been subject to federal and state corporate income taxes
for each period presented.
(11) Based on the weighted average number of shares of Common Stock, including
Common Stock equivalents outstanding, and (i) 7,892 additional shares
representing stock options issued on February 26, 1998, (ii) the
conversion of the PFA Preferred Stock and (iii) the shares of Class A
Common Stock to be issued by the Company in the Offering.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS
---------------
THE ACQUISITION PRO OFFERING PRO FORMA
COMPANY PFA ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------- ------ ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Publishing............ $9,471 $2,411 $11,882 $11,882
Information services.. 2,434 2,434 2,434
Other................. 103 103 103
------ ------ ------- -------
Total revenues...... 12,008 2,411 14,419 14,419
Operating expenses:
Cost of publishing.... 5,145 540 5,685 5,685
Cost of information
services............. 627 627 627
Selling, general and
administrative....... 2,728 1,539 $(157)(2) 3,852 $ 113 (1) 3,965
(258)(3)
Depreciation and amor-
tization............. 274 559 473 (4) 1,306 1,306
------ ------ ----- ------- ----- -------
Operating income
(loss)................. 3,234 (227) (58) 2,949 (113) 2,836
Interest income......... 70 112 (112)(5) 70 70
Interest expense........ (262) (171)(6) (433) 302 (7) (131)
------ ------ ----- ------- ----- -------
Income (loss) before in-
come taxes............. 3,042 (115) (341) 2,586 189 2,775
Income tax provision
(benefit).............. 1,390 (183)(8) 1,207 76 (8) 1,283
------ ------ ----- ------- ----- -------
Net income (loss)....... $1,652 $ (115) $(158) $ 1,379 $ 113 $ 1,492
====== ====== ===== ======= ===== =======
Basic and diluted income
(loss) per common
share.................. $
=======
Weighted average number
of common shares out-
standing(9)............
=======
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA
STATEMENT OF OPERATIONS DATA
QUARTER ENDED MARCH 31, 1998
(1) Represents the incremental cost associated with being a public reporting
company.
(2) Represents compensation expense incurred under the Equity Incentive
Awards, which were replaced on February 26, 1998 with an incentive stock
option plan. See Note 19 of the Notes to the Consolidated Financial
Statements.
(3) Represents: (i) $150 of management fees and $47 of excess general and
administrative costs paid by PFA to its former owner; (ii) $29 of
reduction in rent expense related to PFA entering into new lease with its
former owner; and (iii) $32 of compensation, bonuses and fringe benefit
packages paid to employees of PFA who were terminated after the PFA
Acquisition.
(4) Represents an increase in amortization expense of goodwill and other
intangible assets acquired by the Company in the PFA Acquisition.
(5) Represents the reduction of interest income earned on PFA's amounts due
from related parties.
(6) Represents the increase in interest expense as a result of borrowings of
$8.3 million under the Bank Facility credit agreement bearing interest at
8.2%, as if the PFA Acquisition had occurred on December 30, 1996.
(7) Represents reduction in interest expense resulting from the assumed use of
Offering proceeds to repay $13.8 million of the Company's borrowings
including $8.3 million incurred after December 31, 1997 in conjunction
with the PFA Acquisition.
(8) Prior to the PFA Acquisition, PFA had elected to be taxed as a Subchapter
S corporation for federal and state income tax purposes. Pro forma
information has been subject to federal and state corporate income taxes
for each period presented.
(9) Based on the weighted average number of shares of Common Stock, including
Common Stock equivalents outstanding, and (i) 7,892 additional shares
representing stock options issued on February 26, 1998, (ii) the
conversion of the PFA Preferred Stock and (iii) the shares of Class A
Common Stock to be issued by the Company in the Offering.
25
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL RESULTS
------------------
ACQUISITION PRO OFFERING PRO FORMA
PREDECESSOR PFA ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
----------- ------ ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Publishing............ $8,985 $2,234 $11,219 $11,219
Information services.. 1,428 1,428 1,428
Other................. 61 61 61
------ ------ ------- -------
Total revenues...... 10,474 2,234 12,708 12,708
Operating expenses:
Cost of publishing.... 4,578 562 5,140 5,140
Cost of information
services............. 527 527 527
Selling, general and
administrative....... 2,161 1,228 $(238)(2) 3,151 $ 113 (1) 3,264
Depreciation and
amortization........... 280 478 (18)(3) 1,213 1,213
473 (4)
------ ------ ----- ------- ----- -------
Operating income
(loss)................. 2,928 (34) (217) 2,677 (113) 2,564
Interest income......... 4 122 (105)(5) 21 21
Interest expense........ (38) (223)(6) (432) 302 (8) (130)
(171)(7)
------ ------ ----- ------- ----- -------
Income (loss) before in-
come taxes............. 2,894 88 (716) 2,266 189 2,455
Income tax provision
(benefit).............. 1,208 (207)(9) 1,001 76 (9) 1,077
------ ------ ----- ------- ----- -------
Net income (loss)....... $1,686 $ 88 $(509) $ 1,265 $ 113 $ 1,378
====== ====== ===== ======= ===== =======
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA
STATEMENT OF OPERATIONS DATA
QUARTER ENDED MARCH 31, 1997
(1) Represents the incremental cost associated with being a public reporting
company.
(2) Represents: (i) $143 of management fees and $24 of excess general and
administrative costs paid by PFA to its former owner; (ii) $20 of
reduction in rent expense related to PFA entering into new lease with its
former owner; and (iii) $51 of compensation, bonuses and fringe benefit
packages paid to employees who were terminated after the PFA Acquisition.
(3) Represents reduction in amortization expense recorded in the Predecessor
financial statements as a result of fewer intangible assets recorded in
conjunction with the Management Purchase.
(4) Represents an increase in amortization expense of goodwill and other
intangible assets acquired by the Company in the PFA Acquisition.
(5) Represents the reduction of interest income earned on PFA's amounts due
from related parties.
(6) Represents additional interest expense of $261 associated with the Senior
Subordinated Notes used to finance the Management Purchase and reflects
elimination of $38 of intercompany interest expense charged by Tribune
Company, as if the Management Purchase had occurred on December 30, 1996.
(7) Represents the increase in interest expense as a result of bank borrowings
of $8.3 million under a new credit agreement bearing interest at 8.2% as
if the PFA Acquisition had occurred on December 30, 1996.
(8) Represents reduction in interest expense resulting from the assumed use of
Offering proceeds to retire $13.8 million of the Company's borrowings
including $8.3 million incurred after December 31, 1997 in conjunction
with the PFA Acquisition.
(9) Prior to the PFA Acquisition, PFA had elected to be taxed as a Subchapter
S corporation for federal and state income tax purposes. Pro forma
information has been subject to federal and state corporate income taxes
for each period presented.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected combined historical financial and
other data derived (a) from the audited consolidated financial statements of:
(i) Farm Journal, Inc., a predecessor corporation (the "Prior Predecessor"),
for the year ended December 31, 1993 and the period from January 1, 1994 to
June 24, 1994, (ii) Farm Journal, Inc., a subsidiary of Tribune Company and a
predecessor corporation (the "Predecessor"), for the period from June 25, 1994
to December 31, 1994, the two years in the period ended December 29, 1996 and
the period from December 30, 1996 to March 31, 1997 and (iii) the Company for
the period from April 1, 1997 to December 31, 1997; and (b) from the unaudited
consolidated financial statements of the Company for the three months ended
March 31, 1998. The summary historical combined financial data for the year
ended December 31, 1994 represent the combined financial data of the Prior
Predecessor for the period from January 1, 1994 to June 24, 1994 and the
Predecessor for the period from June 25, 1994 to December 31, 1994. The
summary historical combined data for the year ended December 31, 1997
represent the combined financial data of the Predecessor for the period from
December 30, 1996 to March 31, 1997 and the Company for the period from April
1, 1997 to December 31, 1997. The audited financial statements of the
Predecessor for each of the two years in the period ended December 29, 1996
and for the period from December 30, 1996 to March 31, 1997 and of the Company
for the period from April 1, 1997 to December 31, 1997 (collectively, the
"Company and Predecessor Consolidated Financial Statements"), and the
unaudited consolidated financial statements of the Company for the three
months ended March 31, 1998, appear elsewhere in this Prospectus. The
unaudited historical consolidated financial data reflects all adjustments
(consisting of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair summary of the Company's financial position,
results of operations and cash flows for and as of the end of the periods
presented. The historical consolidated results of operations of the Company
for the three months ended March 31, 1998 are unaudited and not necessarily
indicative of the results of operations for the full year. The changes in
ownership that occurred in 1994 and 1997 were accounted for using the purchase
method of accounting; accordingly, certain of the historical financial data of
Predecessor and Prior Predecessor are not comparable to that of the Company.
The selected consolidated financial data set forth below are qualified by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company
and Predecessor Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
28
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRIOR HISTORICAL THE HISTORICAL
PREDECESSOR PREDECESSOR COMBINED PREDECESSOR COMPANY COMBINED
----------------- ----------- ---------- ---------------------------- -------- ----------
JANUARY
YEAR 1, 1994 JUNE 25, JANUARY 1, YEAR YEAR DECEMBER APRIL 1, JANUARY 1,
ENDED TO JUNE 1994 TO 1994 TO ENDED ENDED 30, 1996 1997 TO 1997 TO
DECEMBER 24, DECEMBER DECEMBER DECEMBER DECEMBER TO MARCH DECEMBER DECEMBER
31, 1993 1994 31, 1994 31, 1994 31, 1995 29, 1996 31, 1997 31, 1997 31, 1997
-------- ------- ----------- ---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Publishing....... $23,812 $15,286 $ 6,905 $22,191 $20,639 $20,526 $8,985 $10,455 $19,440
Information
services........ 2,703 2,142 2,729 4,871 5,617 6,049 1,428 3,802 5,230
Other............ 367 214 275 489 319 199 61 277 338
------- ------- ------- ------- ------- ------- ------ ------- -------
Total revenues.. 26,882 17,642 9,909 27,551 26,575 26,774 10,474 14,534 25,008
Operating
expenses:
Cost of
publishing...... 15,145 9,255 5,849 15,104 15,394 14,228 4,578 7,227 11,805
Cost of
information
services........ 1,887 760 1,348 2,108 2,273 2,543 527 1,608 2,135
Selling, general
and
administrative.. 7,330 4,139 4,141 8,280 8,970 9,250 2,161 6,451 8,612
Depreciation and
amortization.... 586 289 514 803 1,056 1,060 280 818 1,098
------- ------- ------- ------- ------- ------- ------ ------- -------
Operating income
(loss)........... 1,934 3,199 (1,943) 1,256 (1,118) (307) 2,928 (1,570) 1,358
Interest income.. 63 33 43 76 195 20 4 224 228
Interest
expense......... (32) (54) (38) (815) (853)
------- ------- ------- ------- ------- ------- ------ ------- -------
Income (loss)
before income
taxes........... 1,965 3,232 (1,900) 1,332 (923) (341) 2,894 (2,161) 733
Income tax
provision
(benefit)....... 498 1,281 (658) 623 (166) 67 1,208 (680) 528
------- ------- ------- ------- ------- ------- ------ ------- -------
Net income
(loss)........... $ 1,467 $ 1,951 $(1,242) $ 709 $ (757) $ (408) $1,686 $(1,481) $ 205
======= ======= ======= ======= ======= ======= ====== ======= =======
Basic net income
(loss) per common $
share............ =======
Diluted net income
(loss) per common $
share............ =======
Weighted average
number of common
shares 107,318
outstanding (1).. =======
OTHER DATA:
EBITDA (2)....... $ 2,520 $ 3,488 $(1,429) $ 2,059 $ (62) $ 753 $3,208 $ (752) $ 2,456
Capital
expenditures.... 251 96 136 232 2,411 554 179 178 357
Cash flow
information:
Operating cash
flows........... 148 2,049 (1,817) 232 321 1,150 571 837 1,408
Investing cash
flows........... (251) (96) (136) (232) (2,411) (554) 741 (16,753) (16,012)
Financing cash
flows........... (215) 79 79 1,819 (1,474) (1,488) 20,657 19,169
<CAPTION>
THE
PREDECESSOR COMPANY
----------- --------
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
----------- --------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Publishing....... $8,985 $9,471
Information
services........ 1,428 2,434
Other............ 61 103
----------- --------
Total revenues.. 10,474 12,008
Operating
expenses:
Cost of
publishing...... 4,578 5,145
Cost of
information
services........ 527 627
Selling, general
and
administrative.. 2,161 2,728
Depreciation and
amortization.... 280 274
----------- --------
Operating income
(loss)........... 2,928 3,234
Interest income.. 4 70
Interest
expense......... (38) (262)
----------- --------
Income (loss)
before income
taxes........... 2,894 3,042
Income tax
provision
(benefit)....... 1,208 1,390
----------- --------
Net income
(loss)........... $1,686 $1,652
=========== ========
Basic net income
(loss) per common $
share............ ========
Diluted net income
(loss) per common $
share............ ========
Weighted average
number of common
shares
outstanding (1).. ========
OTHER DATA:
EBITDA (2)....... $3,208 $3,508
Capital
expenditures.... 179 145
Cash flow
information:
Operating cash
flows........... 571 353
Investing cash
flows........... 741 (145)
Financing cash
flows........... (1,488)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER DECEMBER
DECEMBER 31, 29, 31, MARCH 31,
---------------------- -------- -------- ---------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $1,887 $ 4,184 $ 1,061 $ 1,507 $ 6,126 $ 7,502 $ 8,249
Total assets...................... 7,714 21,357 22,923 21,069 22,508 24,732 27,946
Total long-term debt.............. 11,000 11,000 11,000
Total shareholders' equity........ 3,803 16,399 15,642 15,234 8,449 9,849 10,464
</TABLE>
29
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(1) Based on the weighted average number of shares of Common Stock outstanding
for the periods presented after giving effect to the Recapitalization. See
"Description of Capital Stock--Recapitalization."
(2) EBITDA represents income (loss) before provision (benefit) for income
taxes plus depreciation and amortization plus net interest (income)
expense. EBITDA is not intended to represent cash flows from operations
and should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company believes that EBITDA is a standard
measure commonly reported and widely used by analysts, investors and other
interested parties in the publishing industry. Accordingly, this
information has been disclosed herein to permit a more complete
comparative analysis of the Company's performance relative to other
companies in the industry. The Company's definition of EBITDA may not be
identical to similarly titled measures of other companies and, therefore,
may not necessarily be an accurate basis of comparison.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements and
Notes thereto included in this Prospectus.
OVERVIEW
Farm Journal is one of the country's oldest and largest providers of
agricultural information, principally through print and electronic publishing,
data management and related information services. The Company's publishing
operations include its 121 year old flagship publication, Farm Journal, one of
the largest circulation agriculture magazines in the United States; Pro
Farmer, the largest circulation newsletter devoted to the agricultural
commodity markets; several specialty agribusiness magazines; the Links
business, a satellite-delivered commodity news and analysis service; and
several agriculture-oriented Internet sites. The Company's data management and
information services businesses provide proprietary data and analysis about
commercial farming and ranching operations to leading agricultural industry
suppliers, such as equipment manufacturers, seed producers and crop protection
suppliers.
The Company's principal sources of revenue have been advertising sales,
subscription sales, data management fees and market research sales. For the
year ended December 31, 1997, $18.2 million, or 72.8%, of the Company's
revenues were from advertising and $1.2 million, or 5.0%, were from
circulation, principally Farm Journal subscriptions. The Company's data
management fees represented $2.6 million, or approximately 10.5%, of 1997
revenues and market research sales represented $2.6 million, or approximately
10.5%, of 1997 revenues. Miscellaneous sales accounted for $338,000, or 1.2%,
of 1997 revenues.
The Company's five largest customers accounted for approximately 23% of the
Company's revenues in 1997. Such customers generated revenues for the Company
not only by advertising but also by utilizing the Company's data management
and market research services. Over the past five years, approximately 66% of
the Company's advertising revenues per year has been derived from 20
customers.
The Company anticipates that its revenue mix and customer concentration will
change as it implements its growth strategy. Initiatives that may change the
composition of the Company's revenues and customer base include the
development of new businesses, such as conferences and seminars; farm
management services; new subscription-based publications; strategic
acquisitions; co-branding and affinity ventures; and international expansion.
See "--PFA Acquisition."
In addition to revenue initiatives, the Company also has identified and
implemented operational changes that have resulted in significant savings and
efficiency improvements since 1996, shortly after the appointment of Roger
Randall as President of FJI. Certain of these changes, such as the
consolidation and regionalization of certain issues of its publications, have
had a negative effect on total advertising revenues. Other changes have
included a staff reduction resulting in an approximately 14% decrease in
salary and related expenses from 1996 to 1997. Together, these changes have
enhanced operating margins and increased EBITDA through reduced production and
distribution costs. In addition, the Company has recently retained the
services of a consulting firm to recommend additional efficiencies and cost
reduction measures.
The Company's cost of revenues for the year ended December 31, 1997
consisted of $11.8 million in publishing costs and $2.1 million in cost of
information services provided. The principal components of the Company's
publishing costs, and the approximate percentage each represented of total
publishing costs for the year ended December 31, 1997, were paper (18%),
printing and binding (29%), postage (19%), editorial expense (29%), and in-
house production and other product development costs (6%). The cost of
information services is predominantly staff-related labor and associated
fringe benefit and payroll tax expenses.
The Company's principal publishing-related raw material is paper. Although
paper prices have experienced long periods of stability, the price of paper
stock used in all the Company's publications has experienced
31
<PAGE>
substantial volatility since January 1994. Multiple increases in the price of
the Company's body stock (#36) paper resulted in an overall increase of 10% in
1994 and another 34% in 1995, materially and adversely affecting the Company's
results of operations in 1995. Editorial costs include: (i) internal staff
expenses for content development and art services; (ii) the cost of purchased
content, such as freelance articles, engravings and photos; (iii) preliminary
offset production costs; and (iv) other editorial-related expenses such as
travel, entertainment and supplies. These costs represented approximately 52%,
28%, 5% and 15%, respectively, of total 1997 editorial cost.
The principal components of the Company's selling, general and
administrative expenses include salaries, travel and entertainment, rent,
direct mail material and postage. Most administrative costs are shared
expenses of the publishing and information services businesses.
PFA ACQUISITION
On April 2, 1998, Farm Journal acquired all of the outstanding stock of PFA
and PFA's affiliate, Professional Market Management, Inc. ("PMM"). For the
twelve months ended December 31, 1997, PFA and PMM generated pro forma EBITDA
of approximately $3.0 million after giving effect, as of December 31, 1996, to
continuing operational changes related to the PFA Acquisition. The purchase
price of the PFA Acquisition consisted of $11.0 million in cash and $1.0
million in PFA Preferred Stock that converts automatically at the closing of
this Offering into $1.0 million in Class A Common Stock valued at the price
offered to the public in this Offering. See "--Liquidity and Capital
Resources" for a description of the financing of the PFA Acquisition.
The consummation of the PFA Acquisition affected the Company's results of
operations in certain significant respects. The PFA Acquisition will be
reflected using purchase accounting. Accordingly, the depreciation and
amortization expense of the Company will be significantly higher than the
corresponding amounts were for the Company prior to the PFA Acquisition.
Additionally, interest expense will increase due to debt used to finance the
PFA Acquisition. Management anticipates that the PFA Acquisition will result
in some moderation of the seasonality of the Company's future results of
operations. See "--Seasonality." Furthermore, PFA's revenues are predominantly
subscription-derived and, therefore, are expected to increase the Company's
subscription revenues. In addition, the PFA Acquisition is expected to
increase the Company's promotion, production and editorial costs.
The Company's results of operations may be affected by a number of risks and
uncertainties, including changes in advertising, customer purchasing patterns,
consolidation among advertisers, increases in paper and postage prices (which
in certain years have exceeded amounts which could reasonably be passed along
to customers), competitive pressures from similar businesses and other
businesses advertising to the Company's magazine readership, the ability of
management to execute its business plan, and business conditions in the
agriculture industry and the general economy.
32
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items within the
Company's consolidated statements of income as a percentage of revenues for
each period.
<TABLE>
<CAPTION>
COMBINED
COMPANY AND
PREDECESSOR PREDECESSOR PREDECESSOR COMPANY
------------------------- ------------ ----------- -------
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
-------------------------------------- MARCH 31,
DECEMBER 31, DECEMBER 29, DECEMBER 31, -------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Publishing.............. 77.7% 76.7% 77.7% 85.8% 78.9%
Information services.... 21.1 22.6 20.9 13.6 20.3
Other................... 1.2 0.7 1.4 0.6 0.8
----- ----- ----- ----- -----
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses(1):
Cost of revenues...... 66.4% 62.7% 55.8% 48.8% 48.1%
Selling, general and
administrative....... 33.8 34.5 34.4 20.6 22.7
Depreciation and amor-
tization............. 4.0 4.0 4.4 2.7 2.3
----- ----- ----- ----- -----
Total operating
expenses............... 104.2% 101.2% 94.6% 72.1% 73.1%
Operating income
(loss)................. (4.2)% (1.2)% 5.4% 27.9% 26.9%
Interest income (ex-
pense)................. 0.7 (0.1) (2.5) (0.3) (1.6)
----- ----- ----- ----- -----
Income (loss) before in-
come taxes............. (3.5)% (1.3)% 2.9% 27.6% 25.3%
Income tax provision
(benefit).............. (0.7) 0.2 2.1 11.5 11.5
----- ----- ----- ----- -----
Net income (loss)....... (2.8)% (1.5)% 0.8% 16.1% 13.8%
===== ===== ===== ===== =====
EBITDA.................. (0.2)% 2.8% 9.8% 30.6% 29.2%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) All expenses are a percentage of total revenues.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Revenues. Revenues for the three months ended March 31, 1998 increased by
$1.5 million, or 14.6%, to $12.0 million from $10.5 million for the three
months ended March 31, 1997. Publishing revenues increased by $486,000, or
5.4%, due principally to an increase in advertising pages sold in Farm
Journal. Information services revenues increased over the comparable period by
$1.0 million, or 70.4%, which was attributable to revenue recognized on the
completion of the first milestone of RAPID. No revenues for RAPID was reported
in the comparable quarter of 1997.
Operating Expenses. Cost of publishing increased by $567,000, or 12.4%, from
$4.6 million for the three months ended March 31, 1997 to $5.1 million for the
three months ended March 31, 1998. This increase was principally due to
$372,000 of costs relating to a higher number of advertising pages sold (with
an unusual concentration in a single issue that further increased production
costs) and to $195,000 in additional paper expenses resulting from a 20.3%
increase in paper prices. The cost of information services increased by
$100,000, or 19.0%, over the comparable period principally due to the
recognition of certain costs relating to RAPID.
Selling, general and administrative expense increased by $567,000, or 26.2%,
from $2.2 million for the three months ended March 31, 1997 to $2.7 million
for the three months ended March 31, 1998. This increase reflects the lower
administrative expenses of the comparable period when certain senior
management positions remained open prior to the Management Purchase, a non-
cash charge for stock-based compensation of $178,000 incurred in the 1998
period and a cost of $252,000 for the hiring of additional sales associates in
1998 with the restructuring and refocusing of the Company's sales efforts.
33
<PAGE>
Operating Income. Operating income increased by approximately $306,000, or
10.5%, from $2.9 million for the three months ended March 31, 1997 to $3.2
million for the three months ended March 31, 1998. The increase in operating
income was due to the recognition during the 1998 period of a substantial
portion of the profit generated by RAPID, offset by an increase in paper costs
and the increase in sales, general and administrative expense discussed above.
Interest Expense. Net interest expense increased by $158,000 from $34,000
for the three months ended March 31, 1997 to $192,000 for the three months
ended March 31, 1998. This increase was due to interest expense arising from
the debt incurred in connection with the Management Purchase.
Income Tax Provision. Income tax provision increased by $182,000 from $1.2
million for the three months ended March 31, 1997 to $1.4 million for the
three months ended March 31, 1998. This increase was due to an increase in
income before income taxes and to an increase in certain non-deductible
expenses.
Net Income. Net income decreased by $34,000, or 2.0%, from $1.69 million for
the three months ended March 31, 1997 to $1.65 million for the three months
ended March 31, 1998 for the reasons set forth above. Net income as a
percentage of net revenues decreased 2.3% from 16.1% for the three months
ended March 31, 1997 to 13.8% for the three months ended March 31, 1998,
reflecting, among other things, costs incurred in implementing the Company's
business strategy.
1997 COMPARED WITH 1996
Revenues. Revenues for 1997 decreased $1.8 million, or 6.6%, to $25.0
million from $26.8 million in 1996. The $1.1 million, or 5.3%, reduction in
publishing revenues was due principally to initiatives taken to increase
operating margins and to enhance the Company's competitive position. These
initiatives included the repositioning of three Farm Journal mid-month issues
from national to regional publications, the elimination of one issue of Top
Producer and an average reduction of 4% in Farm Journal advertising rates in
order to increase advertising sales. Publishing revenues in 1997 also
reflected the decision of a key customer to shift its advertising from a
product focus to a national image focus, resulting in a reduction in
publishing revenue of $344,000. The $819,000, or 13.5%, reduction in
information services revenues in 1997 was principally a result of a decline in
market research sales reflecting a decision to eliminate certain low margin
market research projects and the loss of sales management personnel prior to
the Management Purchase.
Operating Expenses. Cost of publishing for 1997 decreased by $2.4 million,
or 17.0%, to $11.8 million compared with $14.2 million for 1996. This decrease
was predominantly due to the initiatives taken to increase operating margins
discussed above, lower paper costs in 1997 and the full year impact of
editorial staff reductions made in 1996. Cost of information services
decreased by $408,000, or 16.0%, to $2.1 million compared with $2.5 million
for 1996, principally due to a reduction in marketing research costs
consistent with lower sales. Cost of publishing and information services as a
percentage of total revenues decreased to 55.8% in 1997 from 62.7% in 1996 due
to a greater reduction of costs than revenue decline.
Selling, general and administrative expense for 1997 decreased $638,000, or
6.9%, to $8.6 million. This decrease was primarily attributable to lower costs
associated with the full year impact of support staff reductions and office
expense savings from the consolidation of the Chicago, Minneapolis and New
York satellite offices, offset by $195,000 in non-cash stock based
compensation costs. Selling, general and administrative expense as a
percentage of sales remained constant at 34.4%.
Operating Income. Operating income increased $1.7 million to $1.4 million
for 1997 from a loss of $307,000 for the year ended December 29, 1996 for the
reasons stated above. Operating income as a percentage of net revenues
increased to 5.4% from (1.1%) for the same period.
Interest Expense. Net interest expense was $625,000 in 1997 compared with
net interest expense of $34,000 in 1996 resulting from interest expense
incurred on the Senior Subordinated Notes issued on April 1, 1997 to finance
the Management Purchase.
34
<PAGE>
Income Tax Provision. From June 25, 1994 through March 30, 1997, the Company
was a party to a tax-sharing agreement with Tribune Company and was included
in the consolidated tax returns of Tribune Company. Under the agreement, the
Company was required to pay Tribune Company an amount equal to the amount of
tax the Company would have paid if it had filed a separate federal income tax
return.
Net Income. Net income increased $613,000 to $205,000 for 1997 from a loss
of $408,000 for the year ended December 29, 1996 for the reasons stated above.
Net income as a percentage of net revenues increased to 0.8% from (1.5%) for
the same period.
1996 COMPARED WITH 1995
Revenues. Revenues for 1996 increased $199,000, or 0.7%, to $26.8 million
compared with $26.6 million for 1995. This improvement was attributable to an
increase in information services revenue of $432,000 principally as a result
of database management contracts with new clients. This increase was offset
slightly by declines in publishing revenues of $113,000, principally due to a
decline in Farm Journal circulation revenues. Circulation revenues was
adversely affected by a decision to pursue renewals without circulation agency
support. Advertising revenues was stable in both the number of advertising
pages sold and per page price.
Operating Expenses. Cost of publishing for 1996 decreased by $1.2 million,
or 7.6%, to $14.2 million compared with $15.4 million for 1995. This decrease
was due to lower paper, printing and postage costs of $800,000 attributable to
planned declines in circulation copies and lower editorial costs of $365,000
attributable to staff reductions and a reduction in purchased content (such as
freelance copy and photographs). Cost of information services increased by
$270,000 consistent with increased sales. Cost of publishing and information
services as a percentage of total revenues decreased to 62.7% in 1996 from
66.4% in 1995 due to a decline in costs and an increase in sales.
Selling, general and administrative expense for 1996 increased $280,000, or
3.1%, to $9.3 million compared with $9.0 million for 1995. This increase was
primarily attributable to increased general and administrative expenses of
$514,000 associated with the full-year impact of rental charges at the
Company's new location offset by $269,000 in lower sales expenses due to
support staff reductions and satellite office consolidations.
Operating Loss. Operating loss improved $811,000 to a loss of $307,000 for
1996 from a loss of $1.1 million for 1995. The improvement was the result of
cost reduction measures and revenue improvements discussed above. Operating
loss as a percentage of net revenues improved to (1.1%) from (4.2%) for the
same period.
Interest Expense. Net interest expense was $34,000 in 1996 compared with
interest income of $195,000 in 1995, reflecting lower cash levels in 1996 due
to higher capital expenditures for computer and leasehold improvements
incurred throughout 1995.
Income Tax Provision. Income tax provision increased by $233,000 from a
benefit of $166,000 to a provision of $67,000 due to the earnings improvement
in 1996 over 1995.
Net Loss. Net loss improved $349,000 to a loss of $408,000 for 1996 from a
loss of $757,000 for 1995 for the reasons stated above. Net loss as a
percentage of net revenues improved to (1.5%) from (2.8%) for the same period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (including cash) totaled $8.2 million as of March 31, 1998,
$6.1 million as of December 31, 1997, and $1.5 million as of December 29,
1996. The increase in working capital from December 29, 1996 to December 31,
1997 resulted primarily from the contribution of $4.4 million in cash for
working capital purposes as part of the Management Purchase. The increase in
working capital from December 31, 1997 to March 31,
35
<PAGE>
1998 was primarily due to the build-up of accounts receivable that typically
occurs during the winter months, reflecting an increase in publications issued
during this period.
Cash and cash equivalents totaled $4.9 million as of March 31, 1998, $4.7
million at December 31, 1997, and $277,000 as of December 29, 1996.
Cash provided from operations was $353,000 for the three months ended March
31, 1998, as compared to $571,000 for the three months ended March 31, 1997.
More cash was required in the first quarter of 1998 to support higher
receivables resulting from higher sales and slower collections than in the
comparable period immediately before the Management Purchase. The Company's
net cash provided by operations was approximately $1.4 million for the year
ended December 31, 1997, as compared to $1.1 million for the year ended
December 29, 1996. Of this difference, $612,000 was related to an increase in
net income.
Cash used for investing activities was $145,000 for the three months ended
March 31, 1998, representing the purchase of office equipment, furniture and
leasehold improvements. This compares to $741,000 in cash provided by
investing activities for the three months ended March 31, 1997 resulting
predominantly from the receipt of $920,000 from the sale of the Company's
former headquarters building. The Company's net cash provided by investing
activities for the year ended December 31, 1997 was $523,000 (excluding the
use of $16.5 million relating to the Management Purchase), as compared to a
use of cash for the year ended December 29, 1996 of $554,000. Cash increased
in 1997 due to the receipt at the beginning of the year of $920,000 from the
sale of the Company's former headquarters building.
There were no financing activities in the quarter ended March 31, 1998. The
Company's net cash provided by financing activities for the year ended
December 31, 1997 was $19.2 million compared to a use of cash of $1.5 million
for the year ended December 29, 1996. Of the amount provided in 1997, $11.0
million represented proceeds of the Senior Subordinated Notes and $10.1
million represented proceeds from the issuance of equity, such amounts being
offset by $424,000 of related financing costs.
Financing Arrangements
The Senior Subordinated Notes provided partial financing for the Management
Purchase. See "Management Purchase." Interest on the Senior Subordinated Notes
is payable semi-annually in arrears on June 1 and December 1 of each year
commencing December 1, 1997. Principal payments of $2.2 million are due on
June 1 of each year from 2003 through 2006, with the entire remaining unpaid
principal amount of the notes together with interest accrued thereon due April
1, 2007. The Note Purchase Agreement includes requirements as to the
maintenance of financial ratios and tangible net worth and certain other
financial restrictions. The agreement also has dividend restriction covenants
that limit dividend payments by FJI based upon calculations described in the
agreement.
The Bank Facility provides FJI with a revolving facility of up to $15.0
million, reducing annually commencing in 1999 by $1.5 million through 2001 and
by $2.25 million from 2002 through 2004 and terminating in 2005. Amounts
outstanding are guaranteed by FJC and its subsidiaries, are secured by certain
of FJI's assets and bear interest at either the London Interbank Offered Rate
plus from 1.75% to 2.50% or the greater of the lending bank's prime rate and
the federal funds rate plus 0.5%, depending on a leverage ratio formula. The
facility also requires the Company to comply with certain financial covenants,
including with respect to limitations on funded debt and minimum levels of
interest and fixed charge coverage, and with certain other affirmative and
negative covenants customary for similar transactions. The Company borrowed
$8.3 million under the Bank Facility and used $3.1 million of cash to fund the
$11.0 million cash portion of the purchase price of the PFA Acquisition and to
pay related expenses. The Company has no other cash borrowings under the Bank
Facility and will pay down outstanding cash borrowings with the proceeds of
the Offering. See "Use of Proceeds." The Company also has an outstanding
$300,000 letter of credit under the Bank Facility.
36
<PAGE>
The Company believes that the net proceeds of the Offering together with
internally generated cash will be sufficient to satisfy its funding
requirements for the forseeable future, excluding possible needs relating to
significant acquisitions or other expansion activities. Additional funds may
be required to finance acquisitions or other expansion activities of the
Company. Such funds may be obtained through bank borrowings and the issuance
of debt or equity securities. There can be no assurance that such additional
funds can be obtained or, if so, at what cost.
SEASONALITY
The Company's business historically has been seasonal. During 1997, revenues
were $10.5 million in the first quarter (representing 42% of annual revenues),
$3.8 million in the second quarter, $4.4 million in the third quarter and $6.3
million in the fourth quarter. In addition, 46% of total 1997 advertising
revenues were recorded in the first quarter of the year. This seasonality is
primarily due to the increased number of issues published by the Company
during the winter (crop planning) months as well as the greater number of
advertising pages sold per issue during those months. The Company's profits
follow the seasonality of revenues. The seasonality of the Company's business
places a peak demand on cash requirements during the fourth quarter of each
year to support production and sales costs and a buildup in customer
receivables. Any substantial decrease in first quarter advertising revenues
could have a material adverse effect on the Company's profitability for the
entire fiscal year.
The following table sets forth the unaudited revenues, operating costs and
expenses, net income (loss) and EBITDA of the Company for the four quarters of
1997.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
1997 1997 1997 1997 1997
--------- -------- ------------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.............. $10,474 $3,799 $4,371 $6,364 $25,008
Operating expenses.... $ 7,546 $5,046 $4,976 $6,082 $23,650
Net income (loss)..... $ 1,686 $ (891) $ (463) $ (127) $ 205
EBITDA................ $ 3,208 $ (972) $ (330) $ 550 $ 2,456
</TABLE>
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the periods discussed herein.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS No. 129"), which
establishes new standards for disclosing information about an entity's capital
structure. Adoption of SFAS No. 129 did not have a significant impact on the
Company's financial statements.
In June 1997, the FASB issued Statement of Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130"). This statement, which
establishes standards for reporting and disclosure of comprehensive income, is
effective for interim and annual periods beginning after December 15, 1997,
although earlier adoption is permitted. Reclassification of financial
information for earlier periods presented for comparative purposes is required
under SFAS No. 130. As this statement only requires additional disclosures in
the Company's consolidated financial statements, its adoption will not have
any impact on the Company's consolidated financial position or results of
operations. The Company has adopted SFAS No. 130 effective January 1, 1998.
In June 1997, the FASB issued Statement of Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS No.
131"). This statement, which establishes standards for the
37
<PAGE>
reporting of information about operating segments and requires the reporting
of selected information about operating segments in interim financial
statements, is effective for fiscal years beginning after December 15, 1997,
although earlier application is permitted. Reclassification of segment
information for earlier periods presented for comparative purposes is required
under SFAS No. 131. The Company does not expect adoption of this statement to
result in significant changes to its presentation of financial data by
business segment. The Company adopted SFAS No. 131 effective January 1, 1998.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900
rather than the Year 2000. Such misrecognition could result in system failures
or miscalculations causing disruptions of operations, including, among others,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
The Company has established a committee to develop a comprehensive Year 2000
plan with the goal of completing updates to key systems by December 31, 1998.
The Company has assessed the scope of the Company's risks related to problems
its computer systems may have in processing date information related to the
Year 2000 and believes such risks are not significant.
The Company has identified all of its significant internal software
applications which contain source code that may be unable to appropriately
interpret the Year 2000 and has already begun to modify or replace those
applications. The Company has determined that its accounting system and
employee network system are Year 2000 compliant. The Company's advertising
acknowledgment system is the only operating program that is not Year 2000
compliant. Management believes that the estimated costs to modify or replace
this system are not material to the Company.
In addition, the Company has inquired of its major suppliers about their
progress in identifying and addressing problems related to the Year 2000.
Certain of the Company's major suppliers have informed the Company that such
suppliers do not anticipate problems in their business operations due to Year
2000 compliance issues. The Company is currently unable to determine the
extent to which Year 2000 issues will affect its other suppliers, or the
extent to which it would be vulnerable to the suppliers' failure to remediate
any of their Year 2000 problems. Although no assurance can be given that all
of the Company's major suppliers' systems will be Year 2000 compliant, the
Company believes that the risk is not significant.
38
<PAGE>
BUSINESS
Farm Journal is one of the country's oldest and largest providers of
agricultural information, principally through print and electronic publishing,
data management and related information services. The Company's publishing
operations include its 121 year old flagship publication, Farm Journal, one of
the largest circulation agriculture magazines in the United States; Pro
Farmer, the largest circulation newsletter devoted to the agricultural
commodity markets; several specialty agribusiness magazines, including Top
Producer and the Today livestock publications; the Links business, a
satellite-delivered agricultural commodity news and analysis service; and
several agriculture-oriented Internet sites. The Company's data management and
information services businesses, conducted through the Company's FJIR
division, provide proprietary data and analysis about commercial farming and
ranching operations to leading agricultural industry suppliers, such as
equipment manufacturers, seed producers and crop protection suppliers. The
Company believes that the Farm Journal brand is among the most trusted,
respected and authoritative names in American agriculture and that the
Company's database, created through over 30 years of direct communication with
American farmers and ranchers, is unique in its depth and accuracy.
In April 1997, management and an investor group purchased FJI from Tribune
Company. Since the Management Purchase, the Company has begun implementing a
strategy to build on the Farm Journal brand and the Company's unique database
and sophisticated data analysis capabilities to become the worldwide market
leader for serving the large and growing need for quality information by
farmers and ranchers and the businesses that serve them.
MARKET OPPORTUNITY
The USDA estimates that in 1997, approximately $213 billion of agricultural
products were sold in the United States alone. Management believes worldwide
agricultural sales figures are a multiple of domestic sales. The size and
increasing sophistication and complexity of the global agricultural business
has created a substantial and growing need for quality information among
farmers and ranchers. Farm businesses, to remain competitive, must understand
and adapt to rapid technological advancements, curtailment of government
subsidies and other policy changes, volatile commodities markets,
globalization of agricultural trade and other industry developments.
Management believes that the market for information and analysis needed by
farm businesses to address these issues is significant and underserved given
the overall size of the market for agricultural products.
Management also believes that there is a related large and growing need for
quality information and information services among businesses that supply
farmers and ranchers. The increasing complexity of the industry, as well as
its capital intensive nature, has, among other things, resulted in the
consolidation of farms and purchasing power. According to the USDA,
approximately $133 billion of the estimated total of $170 billion in farm
supplies sold in 1996 were purchased by the 18% of all farms that generate
$100,000 or more in annual revenues,farms which the USDA classifies as "Class
1A farms." To reach these largest purchasers, agricultural product suppliers
increasingly are using targeted relationship marketing techniques which
require more detailed information about the most successful farmers and
ranchers. Farm Journal believes it is effectively positioned to satisfy the
large and growing domestic and worldwide demand for such information services
with the Company's database, data services expertise and longstanding
relationships with farmers and ranchers.
GROWTH STRATEGY
Farm Journal's objective is to aggressively grow revenues and improve
profitability while becoming the leading worldwide provider of agricultural
information and information services to farmers, ranchers, agricultural
suppliers and related constituencies. Farm Journal will continue to pursue
growth through numerous internal initiatives and strategic acquisitions that
leverage the Farm Journal brand and the Company's longstanding relationships
in the agricultural community and that build on the Company's other
competitive strengths, including content development and data services. The
elements of this strategy are set forth below:
Increase Revenue from Existing Business. Management believes that there is
substantial opportunity to increase revenues from existing business and has
commenced a variety of revenue-enhancing initiatives. These initiatives have
included combining data management and market research operations and adding
sales and
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marketing directors to create new product and cross-selling opportunities,
increasing subscription rates and converting controlled-circulation
publications to partially-paid status, increasing the Company's sales force,
implementing performance-based compensation and emphasizing classified
advertising sales. In addition, management anticipates expanding its Links
commodity news and analysis businesses with new marketing relationships and
product introductions.
Develop Related Revenue Opportunities. Farm Journal believes there are
numerous opportunities to develop additional revenues by leveraging the
Company's strong brand identity, data management capabilities and customer and
reader relationships. These opportunities include organization of conferences
and seminars; direct sales of books, videos and other merchandise; event
marketing; custom publishing for agricultural suppliers, trade groups and
other agricultural related constituencies; development of farm management
services; and the launch of new publications, including newsletters,
directories, other agricultural related business-to-business magazines and
certain rural-oriented titles. In launching new publications, management
intends to build on its strong customer relationships by seeking full or
partial sponsorship to minimize start-up costs.
Pursue Strategic Acquisitions. Farm Journal intends to pursue strategic
acquisitions of agricultural related media and information businesses. The
Company's initial strategy will be to focus on acquisitions that will
immediately expand the Company's product and media offerings as well as create
benefits from cross-selling of advertisers, cross-promotion of readership and
expansion of the Farm Journal database. Emphasis will be placed on acquiring
companies that serve the Class 1A farm market. The Company intends to pursue
acquisitions of companies that operate in different media, such as television,
radio and the Internet; that provide coverage of those segments of the
agricultural industry not well-penetrated by Farm Journal, such as fruits,
vegetables and nuts; that address agricultural related businesses, such as
food processing, governmental regulation and shipping; and that target
interests of rural readers, such as hunting, gardening and crafts.
Create Co-Branding and Affinity Programs. Management believes that, through
the extension of the Farm Journal brand, there are substantial opportunities
to serve its target audience (as well as other rural residents) through co-
branding and other joint ventures that offer value alternatives to products
and services that have traditionally been unavailable, not competitively
priced or not ideally structured for farmers, ranchers or other residents of
rural communities. Farm Journal has formed and is pursuing several strategic
alliances with selected financial services and consumer products companies to
co-brand and offer tailored or value-priced products and services to its rural
constituency. Initially these offers will include insurance, credit and
investment products and selected consumer items, such as home computers. Farm
Journal intends to expand into other areas in which the Company is able to
identify and offer products and services of superior value to the farming and
rural communities.
Expand Internationally. The United States agricultural industry is the most
productive and technically sophisticated in the world, exporting its
technology and an estimated $57 billion of product in 1997. Given the
Company's position as a leading provider of agricultural information in the
United States agricultural industry and given a trend toward the globalization
of agricultural technology and trade, management believes that there is a
substantial long-term opportunity to expand its business activities overseas.
Initially, Farm Journal will launch a fully sponsored, custom published
international magazine targeted to selected agricultural decision-makers
worldwide and pursue joint ventures and other relationships with foreign
agribusiness information providers.
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PUBLISHING OPERATIONS
The following table sets forth selected information relating to the
Company's current portfolio of print and electronic publications as of
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
ISSUES
CIRCULATION PER YEAR
--------------------------- --------- 1997
FIRST ADVERTISING
PRINT PUBLICATIONS ISSUE TYPE(1) AMOUNT PAGES
- ------------------ ----- ------------------- ------- -----------
<S> <C> <C> <C> <C> <C>
Farm Journal............ 1877 Controlled and Paid 630,266 13 381
Top Producer............ 1984 Controlled 221,015 9 295
Beef Today.............. 1964 Controlled 135,956 10 259
Dairy Today............. 1964 Controlled 99,997 10 204
Hogs Today.............. 1962 Controlled 73,557 10 188
Pro Farmer.............. 1973 Paid 21,484 50 N/A
LandOwner............... 1979 Paid 2,683 24 N/A
ELECTRONIC PUBLICATIONS
- -----------------------
FutureLink.............. 1988 Paid 3,654
Globalink............... 1988 Paid 1,840
Farm Journal Today at
www.farmjournal.com.... 1995 Free N/A
Pro Farmer at
www.profarmer.com...... 1996 Free N/A
</TABLE>
- --------
(1) Controlled circulation refers to a pre-determined limited number of
subscribers who have certified to the publisher that their job functions
include purchasing authority in the particular market served by the
publication. The Company collects subscriber demographics to verify such
purchasing authority. See "--Circulation."
Print Publications
Farm Journal
The Company's flagship publication is Farm Journal, which is published 13
times annually and is the largest circulation farm magazine in the United
States. Farm Journal was first published in 1877. Based on FARMS '97 data from
Roper Starch Worldwide ("Roper"), the Company estimates that Farm Journal's
average issue readership is composed of 59% of all domestic farmers and 70% of
all domestic farmers on Class 1A farms. In addition, based on such Roper data,
the Company estimates that 89% of all American farmers read at least one out
of every five issues of the magazine. The magazine's circulation, comprised of
paid and controlled subscribers, was 630,266 as of December 31, 1997, with
readers in all fifty states. In addition to farmers and ranchers, Farm
Journal's subscribers consist of members of related professional groups,
including, professional farm managers, agricultural bankers, farm supply
dealers, educators and government officials.
In 1996, Farm Journal had an estimated 23% advertising market share among
competing magazines. Management believes that among the magazine's principal
competitive strengths are its editorial quality and integrity and its
reputation as a prominent policy leader among farmers and ranchers, government
officials, rural bankers and other professionals involved in the domestic
agricultural business. Farm Journal is the only agricultural magazine to have
won the prestigious "Calder Award" from the American Society of Magazine
Editors, which it received in 1986. In 1997, Farm Journal won first place in
four out of nine categories, including "Story of the Year," in the American
Agricultural Editors Association's annual journalism awards program. The
current editor of Farm Journal is also a past president of the National Press
Club. Farm Journal has been a leading advocate of numerous successful
agricultural policy initiatives, such as livestock quarantine procedures and
farm tax benefits. The magazine's position on various legislative matters is
frequently cited in legislative hearings and quoted in the
Congressional Record.
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Top Producer
The Company also publishes Top Producer, a magazine published nine times per
year and targeted to the managers of American farms ranking in the top 20%
based on sales. Since the Management Purchase, the Company has redesigned this
magazine to further differentiate it from Farm Journal and to transform it
into a partially paid circulation magazine. As of December 31, 1997, the
magazine's controlled circulation was 221,015. Top Producer focuses on farming
as a business, concentrating on management and business strategies. In
contrast to Farm Journal's editorial focus on production and policy issues,
Top Producer explores such topics as running a small business, planning for
retirement and managing crop risk. The magazine often uses personal profiles
to demonstrate successful farming business strategies. Top Producer also
retains the services of some of the country's foremost tax, law and finance
experts as regular contributors. In 1998, the magazine began a series of
sponsored seminars for farmers.
Pro Farmer
PFA's newsletter, Pro Farmer, is the largest circulation agricultural
commodity markets newsletter in the United States. The newsletter provides
specific concise news on major agricultural commodities and includes commodity
market forecasts applying both fundamental and technical analysis. Pro Farmer
is published fifty times per year and has over 20,000 subscribers to its
printed version, which currently sells for $119 annually. Approximately 3,760
additional subscribers obtain summary Pro Farmer content from the Data
Transmission Network Corporation ("DTN"), from whom PFA receives a royalty.
Pro Farmer's annual renewal rate for readers who have subscribed for at least
two years is currently approximately 90% and the number of subscribers has
grown approximately 5% per year over the last three years. Merrill Lynch,
which annually assesses commodity newsletters, has generally ranked Pro Farmer
as one of the top three advisory services for "advisory quality" and has
similarly ranked the newsletter number one in certain specialty crop areas.
Pro Farmer currently has nine editors whose sources for the newsletter's
content include, in addition to publicly available information, contacts
developed over the years among its readership base, at the USDA and in the
grain-export merchandising system. Ancillary Pro Farmer services include
reader access to a 900 number hotline where subscribers may receive
agriculture information tips and answers to their questions, distributions of
special reports on important changes in farming or marketing strategies, and
financial institution-sponsored agriculture seminars for farmers. The seminars
provide the editors of Pro Farmer an opportunity to interact with their
readership, who pay a fee to attend such seminars.
Today Magazines
Other periodicals published by the Company include the controlled
circulation Today series of magazines that focus on the livestock markets.
This series includes Beef Today, Dairy Today and Hogs Today, each of which is
published ten times per year. Beef Today, originally a beef producer
demographic section of Farm Journal, was first published as an individual
magazine in 1985. As of December 31, 1997, the magazine had a controlled
circulation of 135,956 readers, each of whom is a cattle producer who meets
certain qualifications regarding beef sold or cattle ownership. The
publication's editorial content includes contributions from columnists writing
on topics such as animal health, market outlook and regulatory issues. Dairy
Today, originally a dairy producer demographic section of Farm Journal, was
first published separately in 1985. As of December 31, 1997, the magazine's
controlled circulation of 99,997 readers was comprised of dairy producers
meeting certain milk production qualifications. The publication's editorial
content includes contributions from columnists writing on topics such as
nutrition, genetics and economics. As with Beef Today and Dairy Today, Hogs
Today was originally introduced as a pork producer demographic section of Farm
Journal. Hogs Today was first published separately in 1985. As of December 31,
1997, the magazine was sent to 73,557 pork producers, each of whom met certain
qualifications regarding ownership and marketing of hogs. The magazine's
content includes production, marketing and management stories, including
contributions from columnists writing on herd health, nutrition and marketing.
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Electronic Publishing
Globalink and FutureLink
The Company provides two satellite-delivered information services for
personal computer users: (i) Globalink, which provides farmers and ranchers
with commodity and agribusiness news and weather forecasts, and (ii)
FutureLink, which delivers agricultural commodity news to non-farmers who
trade in commodities markets but are not professional traders.
In 1988, PFA launched a satellite-transmitted version of Globalink.
Approximately 1,850 farmers currently subscribe to Globalink, which is sold
through direct mail and telemarketing efforts targeting the top revenue-
producing Pro Farmer subscribers. New subscribers buy and install the
satellite dish and pay the Company a monthly fee of $54.95 for ongoing
service. If a subscriber does not own a computer, the Company facilitates its
acquisition and financing. Principal features of Globalink include: (i)
snapshot futures and options quotations available every ten minutes from a
former affiliate of the business, FutureSource Information Systems, Inc.
("FutureSource"); (ii) real-time market news that covers all North American
and major international exchanges from a division of FutureSource, Future
World News; (iii) weather forecasts from Strategic Weather Services; and (iv)
the entire package of Pro Farmer news.
In response to increased use of the Internet, the Company plans to offer
Globalink over a combined service that enables subscribers to receive data
both via satellite and over the Internet. In this hybrid system, both the
satellite and Internet transmitted data will contain "hyperlinks" that enable
the user to explore related topics of interest. Information received from
hyperlinking will be delivered directly from the Internet. PFA plans to
implement the new hybrid system during 1998 as part of an upgrade written for
use with Windows. The Company expects that this upgrade will also
substantially improve Globalink's ease of use.
FutureLink provides snapshot futures and options quotations every ten
minutes. FutureLink subscribers are primarily non-farmer commodity traders.
Currently there are approximately 3,650 subscribers to FutureLink. The data
service is largely sold through endorsements by third party commodity advisors
who receive a $20 per month royalty for each subscription sold. FutureLink
users pay $115 per month for the service. FutureLink has all the features of
Globalink but contains certain differences in format and substance to make it
more appealing to commodity traders. The Company also plans to upgrade
Futurelink to the Windows based hybrid architecture currently in development.
Internet
Farm Journal Today is the Company's Internet site on the World Wide Web,
accessible at www.farmjournal.com. The site was introduced in 1995 and
attracted more than 2,500,000 hits and over 50,000 user sessions in March
1998. In 1996 the site was designated as a "partner site" by Microsoft
Corporation when it introduced its Internet Explorer World Wide Web browser. A
regular feature on the site includes stories abstracted from the Company's
magazines. The site provides updates of breaking agriculture news stories and
a forum for farmer and rancher communications through bulletin board postings
and live chat sessions. A regular program on the site, First Tuesday, features
leading agribusiness executives and provides an opportunity for live chat
questions and answers.
Commercial activity on the site includes banner advertising which allows
visitors to link with agribusiness companies' home pages. The Company is
introducing a store on its Web site which will provide customers the
opportunity to order a wide variety of Farm Journal merchandise. Farm Journal
Today is actively promoted through cross-references in the Company's
publications.
The Company's Pro Farmer newsletter also maintains an active Internet site
at www.profarmer.com. The site averages 17,000 hits per day and serves both
existing and prospective Pro Farmer subscribers. Visitors receive story
abstracts and the opportunity to order subscriptions. Future plans include
offering users the ability to run personalized news searches based on a
particular profile of interest to the user. The Company will explore
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<PAGE>
positioning the site as a global trading post where commodity buyers and
sellers can meet and evaluate bids and offers. The Company intends to explore
a commission arrangement for providing this service.
Other Publications and Publishing Related Services
The Company is in the process of developing several new publications as well
as certain publishing and publishing related services, such as custom
publishing, conferences and seminars.
LandOwner and Land Stewardship
As part of the PFA Acquisition, Farm Journal acquired LandOwner, a
newsletter covering investments in real property, international agriculture
and land use. LandOwner sells for $84 for a one-year subscription and has a
subscriber base of 2,600. The Company plans to publish part of the content of
LandOwner in a new publication, Land Stewardship. Land Stewardship will be
directed at individuals interested in environmental land protection.
Management is currently planning to publish 12 issues of each of the two
newsletters annually.
Other New Publications
The Company is also developing several other new publications, including
those in the areas of agricultural commodities and rural lifestyles. Part of
the Company's strategy for new publications includes seeking immediate
profitability through subscription fees and, as necessary, full or partial
sponsorship. The Company anticipates that such sponsorship will ultimately be
replaced by an established advertising base.
Custom Publishing
The Company also recently began a focused approach to generating sponsored
custom publishing programs, which includes publishing journals for trade shows
and conferences, translation of agricultural articles for international
distribution and corporate newsletters and customer service material for the
Company's corporate advertisers. Additional areas to be targeted include
creating special focus publications for customers.
Conferences and Seminars
Recently, the Company has organized several sponsored conferences and
seminars that build on the editorial positions of Farm Journal, Top Producer
and Pro Farmer.
In November 1997 and March 1998, the Company organized policy conferences in
Washington, D.C. on the topics of trade policy and food quality legislation.
Speakers at the conferences included United States government cabinet members,
members of Congress and several chief executives of major agricultural
companies and associations. The conferences generated over $100,000 in
revenues and were profitable. The Company intends to implement additional
conferences on agricultural policy issues in the future.
The Company also organized two Top Producer Executive Farmer Seminars which
were held in January and March 1998. The seminars, which were sponsored and
required registration fees, featured high-profile Top Producer columnists and
large-scale farmers that had been featured in the magazine. The initial two
seminars were profitable and the Company intends to offer this seminar series
at additional locations as well as to expand its seminar offerings.
A third series of seminars is being re-introduced under the Pro Farmer
brand. These seminars focus on the strategies for marketing farm products and
feature Pro Farmer market analysts. Revenues are generated from both seminar
sponsors as well as registration sales.
Cash Master
In conjunction with its Pro Farmer newsletter, the Company is also
developing an agricultural marketing service for grain farmers under the brand
Cash Master. Under this service, a Company subsidiary executes spot
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<PAGE>
market crop sales for participating farmers according to advice given via Pro
Farmer electronic services in the Pro Farmer newsletter. This enables farmers
who wish to focus on production to use an agent to market a specific portion
of their crop.
Editorial
Farm Journal believes that its publications have a reputation among their
readers and within the agricultural industry for authoritative and reliable
journalism. One of the former owners of the Company was a foundation which was
committed to public service and the needs of domestic farmers. This commitment
was reflected in Farm Journal's editorial content and quality. The Company's
magazines are among the most frequent recipients of editorial awards in
agricultural journalism. Farm Journal is the only agricultural magazine to
have won the prestigious "Calder Award" from the American Society of Magazine
Editors, which it received in 1986. Each year the Company's magazines are
cited in various categories of excellence by the American Agricultural Editors
Association and by the Livestock Publications Council, organizations which
recognize outstanding editorial achievement.
Farm Journal's editorial staff currently includes editors, designers and
production personnel. The editorial staff makes significant efforts to
understand the information needs and interests of its readers and thereby
serve them more effectively. The Company devotes considerable resources to the
study of trends in its readership communities and strives to make its
publications the most widely read amongst its target audiences. The Company
also uses high-quality design graphics, illustrations, photography and other
artistic elements to make its publications visually attractive and accessible
to readers. The Company believes that its reputation for objective, fair and
credible editorial content contributes significantly to Farm Journal's
success.
Advertising
Farm Journal has a strong market position with nearly all major agricultural
product advertisers in such areas as seed, automotive products, crop
protection chemicals and equipment. The largest advertisers in the Company's
publications are major agriculture suppliers, including American Cyanamid,
Asgrow Seed, BASF, Bayer, Case, Caterpillar, Chevrolet, Deere & Company,
Dodge, Dow AgroSciences, DuPont, Farm Credit Services, FMC, Ford, Hoechst
Roussell, Monsanto, Novartis, Pharmacia & Upjohn, Pioneer Hi-Bred
International, Terra International and Zeneca Ag Products. Several of these
advertisers have had relationships with the Company for over 50 years. Through
acquisitions, strategic alliances and co-branding, the Company expects to
increase the number and type of its advertising relationships.
Advertising sales accounted for approximately 73% of the Company's total
revenues in 1997. The suppliers and purchasers of agricultural print
advertising are a highly concentrated group. Six publishers currently account
for approximately two-thirds of the market. Fifteen companies in the general
farm interest category have accounted for approximately 35% of all advertising
expenditures. The Company estimates that it commands on average a 27% market
share of advertising expenditures by its top 15 advertisers compared with
approximately 23% market share in the general farm interest category. Farm
Journal advertisers represent approximately 110 companies, many working
through advertising agencies, with the Company's 50 largest customers
representing nearly 90% of total Company advertising revenues. Customer
duplication between Farm Journal and Top Producer is quite extensive while
minimal duplication exists between advertisers in those two publications and
advertisers in Beef Today, Dairy Today and Hogs Today.
The Company's unique and extensive subscriber database enables the Company
to sell advertising space by offering a target audience to the advertiser
through varying versions of its publications. The Company uses its subscriber
database to tailor editorial content and advertising to specific reader
interests. Farm Journal uses computerized binding technology to create
multiple versions of an individual issue, enabling it to target editorial
content and advertisements to distinct subgroups of subscribers.
Management believes that the continued increase in agricultural production
and productivity will lead to increased agricultural advertising expenditures,
including expenditures for print, direct, Internet, radio and
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television. The Company expects to profit from its ability to enable
advertisers to reach end product buyers through the Company's publication and
information services product offerings.
The Company's advertising sales strategy also includes an initiative
designed to increase revenues from box display and classified advertising.
Both categories represent markets that the Company has not actively pursued in
recent years. Farm Journal added three sales positions in these areas during
1997. The Company believes that relative to its market share in other
categories, box display and classified advertising present significant
opportunity to increase its advertising revenues.
The Company's advertising is sold through an internal sales organization and
a customer support group. Although some account and territory overlap exists,
the sales organization is divided between crop (Farm Journal and Top Producer)
and livestock (Beef Today, Dairy Today and Hogs Today). The Company employs 20
sales and customer support personnel. In order to increase accountability, the
Company has decentralized sales responsibilities for its crop and livestock
magazines under three publishers.
Circulation
The Company's magazines are primarily controlled-circulation, business-to-
business publications which are distributed free of charge to qualified
subscribers. Subscribers must provide production information (crops by acre
size and livestock by herd size, in addition to various production data) in
order to receive the publications. Demographic information and subscription
requests are collected both in written form, including cover wraps and direct
mail solicitations, and through the Company's telemarketing center located in
Webster City, Iowa. Once Farm Journal accepts a potential subscriber as a
qualified recipient for a controlled circulation publication, that reader
receives the particular publication for up to three years. The process of
updating demographic data and collecting reader requests, however, occurs on a
more frequent cycle. The Company currently updates demographic data for over
70% of its subscribers each year and updates data for 94% at least every two
years.
Circulation information for Farm Journal and Top Producer is audited each
year by the Audit Bureau of Circulations ("ABC") and circulation information
for Beef Today, Dairy Today and Hogs Today is audited by BPA International
("BPA"). ABC and BPA audits verify that the Company's subscription information
accurately identifies the number and demographic characteristics of qualified
recipients and that the qualified recipients are in fact eligible to receive
the relevant publication under the standards established by Farm Journal for
such publication. Both ABC and BPA are nationally recognized auditors of
periodical subscription lists.
Although Farm Journal is primarily a controlled circulation publication, 32%
of its subscriber base is paid. In recent years, the Company has pursued an
aggressive program to increase subscription rates on the paid circulation
segment. Those initiatives, which increased average issue sale prices by
approximately 11% in first-quarter 1997 solicitations and by approximately 29%
in fourth-quarter 1997 solicitations, each over the comparable prior year
period, have not negatively affected either renewal rates or subscription term
periods.
The Company is currently in the process of converting Top Producer from a
controlled-circulation publication to a partially-paid subscription magazine.
Subscription revenues will be generated through a mix of direct mail marketing
programs, on-line promotions and other promotional methods. The Company does
not employ a field-based subscription sales organization.
Pro Farmer and LandOwner are paid circulation newsletters that do not
contain advertising. Subscription sales are procured through a number of
methods with emphasis on direct marketing solicitations. Direct mail
promotions often feature publication samples and extend trial subscription
programs. The Company also promotes subscription sales on its Internet sites
and in the Company's other magazines.
Production, Distribution and Fulfillment
The Company currently employs a staff of seven professionals to manage the
production and oversee the printing, distribution and fulfillment of its
periodicals.
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For the last 60 years, the Company has outsourced magazine printing services
to Donnelley. The Company's magazines are printed, bound and organized for
shipment pursuant to a contract with Donnelley which is currently scheduled to
expire in 2001. Printing of magazines is performed in Donnelley's facilities
in Danville, Kentucky. In addition, Donnelley purchases most of the Company's
paper needs through a consortium that includes other Donnelley customers.
Paper is purchased principally on the spot market. Donnelley binds certain of
the Company's magazines using a sophisticated binding process that allows
individual issues to be custom-tailored for readers based on geographic and
demographic information from the Company's circulation database. Using this
form of selective binding enables the Company's advertisers to create
advertisements directed only to those readers identified as probable
customers. The Company also outsources the printing of its newsletters to a
commercial printer in Cedar Falls, Iowa.
The Company believes that its relationship with Donnelley is good and that
its high volume of printing with Donnelley enables the Company to receive
favorable printing rates. The Company believes, however, that other printers
of similar quality could be engaged on similar terms.
The Company maintains numerous circulation and fulfillment processes,
including: (i) the receipt, verification, and deposit of payments from
subscribers; (ii) the maintenance of master files on all subscribers by
publication and the issuance of invoices and renewal notices to subscribers;
and (iii) the issuance of address labels for individual publications.
Farm Journal has a contract with ACS Advantage Computing Systems ("ACS")
which provides licensing, support and upgrades for the Company's magazine
circulation fulfillment software. The Company's existing agreement with ACS
may be terminated by either party after 2000.
Raw Materials
The Company's principal raw material is paper. Paper costs represented
approximately 30% and 25% of the Company's manufacturing costs for 1996 and
1997, respectively. The Company believes that its arrangement with Donnelley
enables it to obtain favorable pricing as a result of Donnelley's large volume
of paper purchasing. The available sources of paper have been, and the Company
believes will continue to be, adequate to supply the Company's needs. Certain
commodity grades of paper have shown considerable price volatility over the
last decade, including the commodity grade used by the Company. The price of
the Company's primary paper increased 10% in 1994 and another 34% in 1995, to
its high in October of that year. From October 1995 to the end of 1996, the
price of the Company's primary paper declined 34%. See "Risk Factors--
Fluctuations in Paper Costs and Postal Rates" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
FARM JOURNAL INFORMATION RESOURCES
In addition to its publishing operations, Farm Journal provides data
management and related information services, including market research
services, through its FJIR division. FJIR's customers include each of the
Company's top five advertisers and many of the other leading agricultural
industry suppliers.
Database
The foundation of the FJIR business is the Company's unique database of over
3.8 million records. The Company believes that its database, which contains
demographic and production information for most United States farmers and
ranchers, is the most accurate and comprehensive database in the agricultural
industry. Unlike competing databases, information in the Company's database is
obtained directly from farmers and ranchers rather than through lists obtained
or purchased from other sources. The Company's magazine subscribers must fill
out a written survey packaged with the magazine in order to receive the
publication. Subscribers who do not respond to the written survey are called
by one of the Company's 82 telephone operators located at its in-house
telemarketing facility in Webster City, Iowa. The telephone interview response
rate is nearly 97%. Over 70% of the Company's magazine subscribers are
contacted through these methods once a year and 94% are contacted
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every two years, with each contact resulting in a complete record update.
Information collected includes demographic, management, crop production,
livestock ownership, cropping practices and similar data. The Company also
retains record histories that confirm and enhance the data with respect to
current farmers and ranchers names. In 1997, the Company updated over 700,000
of the records in its database.
Data Management and Other Services
FJIR uses the Farm Journal database in a variety of ways. FJIR analyzes and
categorizes the information on the basis of farmer demographics, crops grown
and livestock raised. The information can be sorted, filtered or otherwise
organized to provide meaningful data for licensing to advertisers and other
companies targeting the agricultural industry. FJIR also offers data
maintenance and enhancement services to agricultural suppliers. In one
arrangement, the FJIR client will provide its customer database to the Company
pursuant to a licensing and maintenance agreement. Updated production
demographics from Farm Journal's database are appended to clients' databases
containing proprietary customer purchase information. This service allows
marketers to obtain information about existing and potential customers. FJIR's
relationships range from data licensing and warehousing to full service
agreements in which a client's own customer database is updated, enhanced and
maintained by FJIR. Many FJIR clients have multi-year agreements with the
Company. Income is derived on a "fee for services" or "fee for data" basis.
Ultimately, access to client customer databases provides Farm Journal with an
additional means to increase circulation for its publications.
FJIR is also actively pursuing new data services products and relationships
that leverage the Farm Journal brand and its unique circulation database.
A significant product is a multi-client survey referred to as Smart Market
Database Enhancement ("Smart Market(TM)"). FJIR clients pay the Company to
gather specific information from farmers and ranchers that will be used in the
client's marketing programs. Smart Market(TM) surveys combine several clients'
information requests in a single mailing to target farmers and ranchers,
thereby reducing data collection costs, reducing survey target fatigue and,
management believes, producing greater customer response. Management believes
the relatively high response rates for Smart Market(TM), which are generally
in excess of 20%, are the result of association with the Farm Journal name and
recognition of the technique's efficiency. The Company maintains all
information obtained in its database and can respond to an individual client's
needs while maintaining confidentiality about other client requests and
information. The information gathered is the property of Farm Journal and may
be used to enhance the Farm Journal database.
In addition, in November 1997, Farm Journal was awarded a contract to
develop a North American Purchaser Directory (the "Directory") for a
consortium of members of the American Crop Protection Association. This
project, referred to as RAPID, will result in a comprehensive farmer directory
that will provide the foundation for a system to capture point-of-sale
information for manufacturing members. The directory will be a single list
resource for use throughout the agricultural industry and will provide for
every commercial farmer a common set of data elements, including
identification number, owner/operator name, business name and address. This
information may be used by the participating members of the consortium to
facilitate accurate and timely electronic information exchange and processing
among such members, retailers and distributors. Planned enhancements to RAPID
include a product directory, material and safety information, and a retailer
database. In addition to an initial development fee, Farm Journal anticipates
ongoing revenues from RAPID in the form of user fees, database licensing and
advertising contracts. The Directory is expected to include information on
approximately 1.5 million farmers and 14,000 agricultural product retail
outlets located throughout the United States, Canada and Mexico. Management
believes that development of the Directory will substantially increase the
size of the Company's database, expand its coverage into foreign markets and
provide additional opportunities for database development and management in
other agricultural sectors.
Market Research
The Company offers market research through Rockwood Research, a division of
FJIR ("Rockwood"). Rockwood, located in New Brighton, Minnesota, is a full-
service marketing research organization specializing in
48
<PAGE>
agricultural research. Rockwood conducts focus groups, performs telephone and
mail surveys and creates on-line market research projects. Rockwood's products
include both proprietary and syndicated research studies, including
SmartShare(TM) brand share studies. Rockwood's primary focus is on
psychographic segmentation, customer satisfaction, price sensitivity and
awareness-tracking studies.
ACQUISITION STRATEGY
Farm Journal intends to pursue strategic acquisitions of agricultural and
related media and information services businesses. The Company's initial
strategy will be to focus on acquisitions that will complement or extend Farm
Journal's existing publications and information services businesses, as well
as create benefits from cross-selling to advertisers, cross-promotion of
readership and expansion of the Farm Journal database. Management has
identified several categories of acquisition candidates, each one of which it
believes offers the potential for significant growth.
Management believes the highly fragmented agricultural publishing category
offers a number of acquisition candidates. In the United States there are over
270 agricultural publications. A number of these would provide geographic or
market segment enhancements to the Company's current publications and
database. Over 40% of these magazines are owned by small or family-owned
publishing companies which serve niche agricultural markets, such as fruit,
vegetable, poultry and other specialty crop and livestock producers. The
Company believes that many of these smaller participants would also complement
and extend Farm Journal's existing publications and data management services
and offer compatibility in subscribers, advertisers and content.
Another category of acquisitions includes companies that would extend the
communications media used by the Company. These companies are involved in,
among other things, television or radio production, newsletter publishing,
trade show organization, event marketing and internet site development. The
Links business acquired in the PFA Acquisition is an example of an acquisition
in this category.
Farm Journal will also target rural-related consumer publications and media
that overlap with the reader profile of the farm audience and cover such
subjects as hunting, fishing, gardening, crafts, sewing and baking. Management
believes that certain publications in this area, as in others, would benefit
from the Farm Journal's premier brand name, quality editorial content and
industry or subscriber relationships. Operational savings, such as in overhead
and publishing costs, should also be achievable and the addition of such
titles should mitigate seasonal fluctuations in the Company's revenues.
Another category of acquisition includes other business-to-business
publications in fields within or directly related to the agricultural
industry. This category would include publications in areas such as food
processing, governmental regulation, health sciences, international trade and
commerce and shipping and transportation. The Company's Chairman and Chief
Executive Officer, Mr. Erickson, brings extensive acquisition experience in
certain of these areas. Prior to joining Farm Journal in April 1997, Mr.
Erickson was President and Publisher of the Journal of Commerce magazine
group, where over a six-year period he acquired or started six publications
and an electronic information services in the areas of transportation and
international commerce.
Finally, other categories of strategic acquisitions would include selected
market research and data management businesses. Management also believes there
are many opportunities to pursue its acquisition strategy overseas. See "--
International Publications and Data Management."
CO-BRANDING AND AFFINITY MARKETING
Management believes that it will be able to increase revenues by utilizing
Farm Journal's reputation to market, in conjunction with other companies, a
broad range of high-quality, specifically tailored products and services to
its circulation base at favorable prices. Management believes that its
extensive database and data management capabilities, in combination with the
name recognition and reputation for quality it has with its subscriber base,
make the Company a particularly effective affinity marketing and co-branding
partner for
49
<PAGE>
providers of products and services desiring to target the rural marketplace.
Through co-branding and affinity marketing arrangements, the Company will be
able to offer at a discount services such as credit cards, insurance and other
financial services to its customer base. In such co-branding joint ventures,
the Company expects to increase its name recognition in another medium and
thereby expand the depth and breadth of its relationship with members of the
agricultural community. In addition, because participating in the delivery of
these services will result in additional "data-capture" by the Company, these
initiatives should augment its FJIR division.
In March 1998, the Company entered into an agreement with The Member
Companies of American International Group, Inc. to jointly market private
passenger automobile insurance to the Company's subscriber base. Under the
long-term agreement Farm Journal will receive marketing royalties for policy
sales and renewals.
The Company recently entered into an agreement with CIGNA Property &
Casualty to explore the sale of a variety of insurance products through a
cooperative marketing effort. A number of the Company's services could be
incorporated in potential marketing approaches, including data management
services, product advertising and farmer seminar sponsorship.
The Company has also retained Kessler Financial Services, a leading
marketing consultant of affinity credit cards, to design and introduce a
credit card program which will offer special value for farmers and ranchers.
The Company expects that the credit card would include a "club" approach
offering a variety of products and services at group discount prices. As with
other affinity group sponsors, the Company would receive income from the
acquisition of cardholders by its affinity group, fees for activating card-
holding members and commissions on purchases made with the Farm Journal card.
The Company anticipates expanding activities to include a broad range of
consumer and small business products and services targeted at the agricultural
and rural communities. Such offerings may include mutual funds and other
financial products, computer and telecommunications equipment and other
products and services characteristically used by small business owners.
INTERNATIONAL PUBLICATIONS AND DATA MANAGEMENT
Given its position as a leading provider of agricultural information in the
United States and the trend toward the globalization of agricultural
technology and trade, management believes that there are substantial long-term
opportunities to expand its business overseas. The Company is involved in a
number of initiatives to capitalize on international market opportunities.
In January 1998, Farm Journal retained JFA International Marketing Services,
an international agribusiness consulting firm, to launch a sponsored
international magazine targeted to agricultural decision-makers worldwide. In
November 1997, the Company entered into an editorial agreement with a Japanese
publication to reprint Dairy Today editorial in Dairy Japan. Recently, the
Company's Rockwood unit participated in a joint project with German-based
Kleffman Market Research on a project which assessed agricultural technology
adaptation in various countries. The Company has also held initial discussions
with a European publisher with respect to joint venture publishing and
international data management projects. Most recently, several FJIR clients
have discussed obtaining data management services for their foreign databases.
Management also believes there are various opportunities for expansion
through acquisitions of foreign agricultural media companies. The Company
intends to explore these opportunities initially in North America and has held
initial discussions with a potential strategic partner in that regard.
COMPETITION
According to AGRICOM, Farm Journal had an advertising revenue market share
at the beginning of 1997 of approximately 23% among the geographic and market
category farm magazines with which it competes.
50
<PAGE>
Farm Journal's principal competitors include Successful Farming (published by
Meredith Corporation), Progressive Farmer (published by Time Warner) and
certain state specific magazines published by Rural Press USA.
Also based on data available from AGRICOM, Top Producer had at that time an
advertising market share of approximately 24% among selective large-acreage
publications, including Farm Industry News and Soybean Digest (published by
PRIMEDIA) and Farm Futures (published by Rural Press USA). In their respective
livestock categories the advertising market share for Beef Today was 25%,
Dairy Today was 19% and Hogs Today was 17%. In each of the livestock species
areas, the Company evaluates market share as compared with the leading
publications in each category.
The primary competitors to the Pro Farmer newsletter are the Doanes Report,
the Kiplinger Agriculture Letter and the Brock Report. Farm Journal believes
that Pro Farmer compares favorably with those competitors on the basis of
depth, breadth and quality of editorial product.
The principal competitor to the Links business is DTN. DTN offers general
commodity information and also distributes certain Pro Farmer information
services. DTN has a significantly larger subscription base than Globalink. DTN
distributes, through dedicated terminals that it supplies, general commodity
market information and other news, reports on weather and commodity quotes for
a basic fee and offers a variety of services for additional fees.
Other publishers maintain farmer demographic information databases. The
Company believes, however, that its database contains more developed and
detailed information than its competitors due to its direct communication with
the reader. The majority of the Company's competitors in this field maintain
data management services solely on an in-house basis, as opposed to the
Company which offers its services to third parties.
INTELLECTUAL PROPERTY
The Company believes that it has developed strong brand awareness for its
magazines and newsletters. The Company regards its titles and logos as
valuable assets, and the Company has registered certain trademarks, service
marks and logos used in its publishing business. In addition, each one of the
Company's publications is protected under United States copyright laws. The
Company believes that it owns or licenses all the intellectual property rights
necessary to conduct its business.
PROPERTIES
All of the Company's properties are leased. The Company has a lease for its
headquarters facilities in Philadelphia, Pennsylvania which expires in 2005.
The Farm Journal facilities consist of approximately 48,000 square feet and
were improved in 1995. The Company also leases the headquarters for Rockwood
Research, an FJIR facility, in New Brighton, Minnesota, space in Mexico,
Missouri for its crops and equipment editorial field office and in Monticello,
Minnesota for its dairy editorial office. Telephone center space for
circulation and FJIR calling operations are in Webster City, Iowa and River
Falls, Wisconsin.
EMPLOYEES
As of May 29, 1998, the Company had 177 full-time employees and 222 part-
time employees. Part-time employees are primarily telephone operators who
conduct demographic surveys and data entry personnel. In addition to the
Company's employees, the Company relies on a network of freelance and contract
writers to provide additional editorial content. All work done by such writers
is on an independent contractor basis. None of the Company's employees are
members of unions. The Company believes that its relations with its employees
are good.
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of June , 1998 with
respect to the persons who are members of the Board of Directors, executive
officers or key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Stanford A.
Erickson(1)............ 59 Chairman of the Board and Chief Executive Officer
Roger D. Randall(1)..... 44 President, Chief Operating Officer and Director
Richard K. Stanislaw.... 48 Chief Financial Officer, Vice President and Treasurer
John E. Lafferty........ 46 President, FJIR
Earl P. Ainsworth....... 50 Publisher, Farm Journal and Top Producer
Sonja Hillgren.......... 49 Editor of Farm Journal
David J. Joerger........ 35 General Manager of Professional Farmers of America
J. Carr Gamble, III(1).. 44 Secretary and Director
Sterling B. Brinkley,
Jr.(1)................. 46 Director
Mark C. Pickup(2)(3).... 47 Director
David J. Bates(3)....... 51 Director
Richard S.
Werdiger(2)(3)......... 50 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
DIRECTORS AND EXECUTIVE OFFICERS
STANFORD A. ERICKSON--Mr. Erickson has served as Chairman of the Board and
Chief Executive Officer of the Company since the Management Purchase in April
1997. Mr. Erickson was the President and Chief Operating Officer from 1991 to
1997 of the Journal of Commerce which is publisher of The Journal of Commerce
and a division of the Economist Group, publisher of Economist magazine. At the
Journal of Commerce, Mr. Erickson acquired or started six business-to-business
publications in the transportation and commerce industries. Prior to 1991, Mr.
Erickson held various positions with the Journal of Commerce, including
editor, publisher and President of the Journal of Commerce. Mr. Erickson
received a B.A. from the University of California, Berkeley, an M.A. from San
Francisco State University and an M.S. from Columbia University Graduate
Business School.
ROGER D. RANDALL--Mr. Randall has served as President and Chief Operating
Officer and a Director of the Company since the Management Purchase in April
1997. He is currently the President of FJI, having assumed that position in
late 1995. Mr. Randall has been an employee of the Company since 1984 serving
in various marketing and sales management positions. As President and Chief
Operating Officer of the Company, he manages, among other things, the
Company's external sales programs and various internal growth initiatives. Mr.
Randall received his B.A. in Art and Political Science from Morningside
College.
RICHARD K. STANISLAW--Mr. Stanislaw joined the Company as Chief Financial
Officer, Vice President and Treasurer in June 1997. Prior to joining the
Company, Mr. Stanislaw served as President of The Rose Corporation, a heavy
steel industrial equipment builder, metal service, machinery and mechanical
contracting business, from August 1995 to June 1997, and as a financial
consultant to The Rose Corporation (including Chief Financial Officer
responsibilities) from October 1994 to August 1995. Mr. Stanislaw was employed
by Collegeville Imagineering Inc., a manufacturer of seasonal consumer goods,
from August 1991 to October 1994,
52
<PAGE>
serving as Chief Financial Officer from August 1991 to July 1992 and as
Executive Vice President and General Manager from July 1992 to October 1994.
Prior to August 1991, Mr. Stanislaw served in various capacities including
Vice President, Finance and Vice President Group Controller of public
companies. Mr. Stanislaw is also a certified public accountant and a graduate
of Pennsylvania State University, where he earned his M.S. and B.S. in
business and accounting.
JOHN E. LAFFERTY--Mr. Lafferty has served as President of FJIR since the
group was formed in 1997. Mr. Lafferty joined the Company in 1992 as Vice
President of Marketing and served from 1994 to 1997 as Senior Vice President
of Marketing. Prior to joining the Company, he was Senior Vice President and
Account Supervisor for Richardson, Myers and Donofrio, a Baltimore-based
advertising agency, from 1985 to 1991. Mr. Lafferty received his B.A. from the
University of Delaware.
EARL P. AINSWORTH--Mr. Ainsworth has served as Publisher of Farm Journal and
Top Producer since 1995. Prior to being named to that position he served for
20 years in various editorial capacities at the Company, including as
Editorial Director for the Company's five magazines and Editor of Farm
Journal. Mr. Ainsworth has served as President of the American Agricultural
Editors Association and is a graduate of Cornell University.
SONJA HILLGREN--Ms. Hillgren has been the Editor of Farm Journal since 1995
and served as its Washington Editor from 1990 to 1995. Ms. Hillgren is a
prominent figure in the agricultural community. She is currently a director of
the Winrock Foundation, a charitable foundation, and a recent past President
of the National Press Club. Ms. Hillgren received her M.S. and B.S. from the
University of Missouri. Ms. Hillgren was a Nieman Fellow at Harvard University
from 1982 to 1983.
DAVID J. JOERGER--Mr. Joerger has served as General Manager and Chief
Financial Officer of PFA since the PFA Acquisition. Prior to the PFA
Acquisition, Mr. Joerger served as Chief Financial Officer of Oster
Communications, Inc., a privately-held international communications company
specializing in the futures industry, from June 1996 to April 1998, and as its
Treasurer from March 1990 to June 1996. Prior to March 1990, Mr. Joerger was
employed in public accounting, serving clients in the food processing,
technology, financial services and agriculture industries. Mr. Joerger
received a B.A. from the University of Northern Iowa and is a certified public
accountant.
J. CARR GAMBLE, III--Mr. Gamble has been the Secretary and a Director of the
Company since June 1997. Since 1994, Mr. Gamble has been a Managing Director
of Morgan Schiff, and serves as a consultant to various companies that are
affiliates of Morgan Schiff. From 1989 to 1994, Mr. Gamble was Of Counsel to
the law firm of Milbank, Tweed, Hadley & McCloy and from 1981 to 1989 was
associated with the law firm of Cravath, Swaine & Moore. Mr. Gamble received a
B.A. from Amherst College, an M.S. in mathematics from the University of
California at Berkeley and a J.D. from the University of Virginia School of
Law.
STERLING B. BRINKLEY, JR.--Mr. Brinkley serves as a Director of the Company
and is Chairman of the Executive Committee. Mr. Brinkley was a Managing
Director of Morgan Schiff from 1986 to 1990. Since 1990, Mr. Brinkley has been
a consultant to Morgan Schiff. Prior to 1986, Mr. Brinkley was a Managing
Director in the Corporate Finance Department of Shearson Lehman Brothers, Inc.
Mr. Brinkley is also Chairman of the Board of Directors of EZCORP, Inc., a
publicly-traded pawnshop chain, and Chairman of the Executive Committee of the
Board of Directors of Friedman's Inc., a publicly-traded retail jewelry chain.
Both companies are affiliates of the Company and Morgan Schiff. Mr. Brinkley
also serves on the boards of directors of various privately held companies
that are affiliates of Morgan Schiff. Mr. Brinkley received a B.A. from Yale
University and an M.B.A. from the Stanford Graduate School of Business.
MARK C. PICKUP--Mr. Pickup serves as a Director of the Company and is
Chairman of the Audit Committee. Mr. Pickup is also a director of EZCORP, Inc.
and Friedman's Inc. Since 1995 he has served as an independent business
consultant with a variety of companies. Mr. Pickup served as Vice Chairman of
Crescent Jewelers, a privately-held retail jewelry chain which is an affiliate
of Morgan Schiff and the Company, from December 1994 until February 1995, and
served as President and Chief Executive Officer of Crescent Jewelers
53
<PAGE>
from August 1993 to December 1994. From October 1992 until August 1993, Mr.
Pickup served as the Senior Vice President and Chief Financial Officer for
Crescent Jewelers. For more than five years prior to October 1992, Mr. Pickup
held various positions with the predecessors of Ernst & Young LLP, leaving as
a partner in its San Francisco, California office in October 1992. Mr. Pickup
received a B.S. in mathematics from Brigham Young University.
DAVID J. BATES--Mr. Bates became a Director of the Company in June 1998.
Since 1994, he has been a self-employed private investor and businessman and
is President of Casey Enterprises, Inc., a privately-held business consulting
firm which he founded in 1994. From 1983 to 1993, he was a Senior Investment
Officer at International Finance Corporation ("IFC"), the private sector
affiliate of the World Bank Group headquartered in Washington, D.C. where he
specialized in project finance (including agribusiness projects) with area
responsibilities in Europe, the Middle East and Eastern Europe. Prior to
joining IFC, Mr. Bates held various positions in the Agriculture Department of
the World Bank involved in global agricultural development policies and
investment. He received a B.A. and an M. Phil. (Economics) from George
Washington University and an M.B.A. from the University of Pennsylvania,
Wharton Business School.
RICHARD S. WERDIGER--Mr. Werdiger became a Director of the Company in June
1998. Since 1980, Mr. Werdiger has served as President and Chief Executive
Officer of Michael Werdiger, Inc., a wholesale diamond company. Since 1980, he
has also served as Chairman of the Board and Vice President of Diamond
Abrasives Corporation, a distributor of industrial abrasives. Mr. Werdiger is
currently on the board of a privately-held company which is an affiliate of
Morgan Schiff. He received a B.A. in Economics from Middlebury College.
Directors of the Company are currently elected annually by its stockholders
to serve during the ensuing year or until their respective successors are duly
elected and qualified. Officers of the Company serve at the discretion of the
Board of Directors (the "Board"). For a description of class voting rights see
"Description of Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has three committees: (i) an Audit Committee; (ii) an
Executive Committee; and (iii) a Compensation Committee.
The Audit Committee is comprised of Messrs. Bates, Werdiger and Pickup, with
Mr. Pickup as Chairman. The Audit Committee recommends the independent
accountants appointed by the Board to audit the financial statements of the
Company, which includes an inspection of the books and accounts of the
Company, and reviews with such accountants the scope of their audit and their
report thereon, including any questions and recommendations that may arise
relating to such audit and report or the Company's internal accounting and
auditing procedures. The composition of the Audit Committee complies with the
independent director requirements of Nasdaq.
The Executive Committee is comprised of Messrs. Erickson, Randall, Gamble
and Brinkley, with Mr. Brinkley as Chairman. The Executive Committee exercises
the authority of the Board, to the extent permitted by law, in the management
of the business of the Company between meetings of the Board. The Executive
Committee of the Board also serves as the nominating committee in connection
with annual meetings of stockholders.
The Compensation Committee is comprised of Messrs. Werdiger and Pickup, with
Mr. Werdiger as Chairman. The function of the Compensation Committee is to
review and approve the compensation of executive officers and establish
targets and incentive awards under incentive compensation plans of the
Company. The Compensation Committee reports to the Board.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are not current employees of the Company will receive
directors fees of $8,000 per year. Committee Chairmen who are not current
employees of the Company will receive an additional $2,000 per year.
54
<PAGE>
The Company will reimburse directors for travel and other out-of-pocket
expenses incurred in connection with their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal year ended December 31, 1997 for (i) the Chairman
of the Board and Chief Executive Officer of the Company; (ii) the President
and Chief Operating Officer; and (iii) the two other executive officers of the
Company (determined as of the end of the last fiscal year) whose total annual
salary and bonus for the fiscal year ended December 31, 1997 exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------- ------------
NAME AND PRINCIPAL RESTRICTED ALL OTHER
POSITION YEAR SALARY BONUS STOCK AWARDS COMPENSATION
------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stanford A. Erickson.... 1997 $127,500(2) $55,159(3) $10,911(4) $297(5)
Chairman and Chief Ex-
ecutive Officer
Roger D. Randall........ 1997 $163,750 $20,159 $ 8,730(4) $57,767(6)(7)
President and Chief Op-
erating Officer
John E. Lafferty........ 1997 $117,167 $15,157 -- $5,843(7)
President of Farm Jour-
nal Information Re-
sources
Earl P. Ainsworth....... 1997 $115,000 $10,238 -- $5,616(7)
Publisher of Farm Jour-
nal and Top Producer
</TABLE>
- --------
(1) No Named Executive Officer received perquisites and other personal
benefits valued in excess of the lesser of $50,000 or 10% of such
officer's total salary and bonus reported for fiscal 1997.
(2) Mr. Erickson commenced employment with the Company in April 1997 at an
annual base salary of $170,000.
(3) Includes a $25,000 bonus paid by the Company upon the consummation of the
Management Purchase.
(4) Represents the value of partnership interests issued to Messrs. Erickson
and Randall in connection with their employment by the Company. Subsequent
to December 31, 1997, Messrs. Erickson and Randall received a Partnership
distribution of $ and $ , respectively, and currently have an
indirect interest in 1,098 and 879 shares of Class B Common Stock,
respectively.
(5) Includes cost of life insurance premium paid by the Company.
(6) Includes a $50,000 severance payment from Tribune Company in connection
with the Management Purchase.
(7) Includes cost of life insurance premium paid by the Company and
contributions made by the Company under the Company's retirement savings
plan.
OPTIONS/STOCK APPRECIATION RIGHTS EXERCISES
No options to purchase Common Stock were outstanding and no stock
appreciation rights were exercised by the Named Executive Officers during the
year ended December 31, 1997.
EMPLOYMENT AGREEMENTS
Mr. Erickson, Chairman of the Board and Chief Executive Officer, and Mr.
Randall, President and Chief Operating Officer, are each a party to a written
employment agreement with FJI having a term of five years (the
55
<PAGE>
"Employment Agreements"). The Employment Agreements include annual base
compensation of $170,000 in the case of Mr. Erickson and $160,000 in the case
of Mr. Randall and provide for an annual performance-based incentive bonus.
The Employment Agreements require such officers to maintain the
confidentiality of the Company's proprietary information and to refrain from
competing with the Company for specified periods after termination of
employment for any reason. If the officer is terminated by the Company without
cause (as defined in the Employment Agreements) or at such officer's election
due to the Company's material breach of the Employment Agreement, such officer
is entitled to receive his base salary for a period of three months following
the date of such termination, provided that such number of months shall
increase by one month for each completed full year of such officer's
employment with the Company.
As permitted under the Employment Agreements, Messrs. Erickson and Randall
also purchased 5.483 and 4.387 Class B limited partnership units,
respectively, in the Partnership. These units provide Messrs. Erickson and
Randall with an indirect beneficial ownership interest, through the
Partnership, in 2,098 and 2,879 shares of the Class B Common Stock,
respectively. As a result of and subject to the terms of the Partnership
Agreement, any income, gain or loss to the Partnership generated by or
attributable to these shares will inure and be allocated to the benefit of
Messrs. Erickson and Randall.
In addition, pursuant to the Employment Agreements, Mr. Erickson and Mr.
Randall each purchased Class A limited partnership units in the Partnership
(the "Class A Units"). Mr. Erickson purchased one Class A Unit for a purchase
price of $25,000 in cash and delivery of a full recourse promissory note to
the Partnership in the amount of $75,000 (the "Note") bearing interest at the
prime rate and secured by Mr. Erickson's primary residence. Mr. Erickson has
fully paid the amount due on the Note. Mr. Randall purchased two Class A Units
for a purchase price of $200,000.
Under the Company's Incentive Stock Option Plan, Messrs. Erickson and
Randall have been granted options expiring on April 1, 2007 (the "Options") to
acquire and shares of the Class A Common Stock, respectively, at a
price per share equal to $ . Options to purchase and shares are
currently exercisable by each of Messrs. Erickson and Randall, respectively.
The balance of the Options will become exercisable by Messrs. Erickson and
Randall in four equal installments on each of April 1, 1999, 2000, 2001 and
2002. The exercise of any vested options requires that such executives
continue to be employed on the date of exercise.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is controlled by Phillip Ean Cohen through his sole ownership of
MS Farm Journal Corporation, the General Partner of the Partnership. Morgan
Schiff, which is owned by Mr. Cohen, is one of the managing underwriters of
the Offering. FJI reimbursed the Partnership and the General Partner for out-
of-pocket expenses, principally for legal and accounting services, in
connection with FJI's formation and the Management Purchase and will continue
to reimburse the Partnership and the General Partner for ongoing
administrative expenses, principally legal and accounting services. In the
future, the Company may engage Morgan Schiff for business and financial
advisory services. Subsequent to June 1997, Mr. Gamble, an affiliate of Morgan
Schiff, accepted a position with the Company.
Teachers Insurance and Annuity Association of America ("Teachers") has an
indirect interest in 17,400 shares of Class B Common Stock through its
ownership of limited partnership interests in the Partnership. As part of the
financing of the Management Purchase, Teachers purchased $11.0 million of
Senior Subordinated Notes pursuant to a Note Purchase Agreement. The Senior
Subordinated Notes bear interest at a rate of 9.5% per annum and are due April
1, 2007. The interest rate on the Senior Subordinated Notes was based upon
negotiations with Teachers as well as the market rate for senior subordinated
debt of comparable borrowers at the time of the Management Purchase. Interest
on the Senior Subordinated Notes is payable semi-annually on June 1 and
December 1. The Company has the option to prepay $5.5 million principal amount
plus accrued interest thereon of the Senior Subordinated Notes in part, at any
time after an initial public offering.
The terms of the Note Purchase Agreement impose restrictions that affect,
among other things, the Company's ability to (i) engage in certain
transactions with affiliates, (ii) effect a merger, consolidation or transfer
or sale of assets, (iii) create liens on assets, (iv) engage in any line of
business substantially different than that currently carried on by the
Partnership, (v) incur certain additional indebtedness, (vi) make certain
restricted payments, including dividends, and (vii) amend or modify certain
agreements executed in connection with the Management Purchase. The terms of
the Note Purchase Agreement also require that the Company maintain at least
two independent directors on its Board of Directors (defined as a person who
does not own, directly or indirectly, more than 5% of the outstanding capital
stock or partnership interests of the Partnership or the General Partner or
any affiliate thereof, and who is not an officer, director, partner,
principal, associate, employee or consultant, or a family member of any of the
foregoing, of Morgan Schiff, the General Partner or any of their affiliates),
and require the Company to comply with certain financial ratios relating to
funded indebtedness, minimum net worth and interest coverage.
See also "Management," "Principal Stockholders," "Management Purchase" and
"Underwriting."
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of June 1, 1998 regarding
the beneficial ownership of Class A Common Stock and Class B Common Stock as
well as the percentage ownership of all of the capital stock of the Company
(Class A Common Stock and Class B Common Stock), assuming the recapitalization
and the conversion of the PFA Preferred Stock to Class A Common Stock as
described in "Description of Capital Stock." Information is provided as to each
of the Company's Directors, the Named Executive Officers, each person known to
the Company to own beneficially more than 5% of the outstanding shares of Class
A Common Stock and Class B Common Stock and all Directors and executive
officers of the Company as a group. Except as noted below, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B
COMMON STOCK COMMON STOCK PERCENTAGE OF
-------------------- --------------------- CLASS A
NAME AND ADDRESS OF AND CLASS B
BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE COMMON STOCK(1)
------------------- ------ ---------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
MS Farm International
Limited............... (2) --% 102,786 --% --
Partnership
MS Farm Journal Corpo-
ration(3)
Phillip Ean Cohen
350 Park Avenue
8th Floor
New York, New York
10022
Teachers Insurance and
Annuity............... -- -- 17,500(4) -- --
Association of America
730 Third Avenue
New York, New York
10017
Stanford A. Erickson... 1,533(5) -- 2,098(4) -- --
1500 Market Street
Centre Square West
28th Floor
Philadelphia, Pennsyl-
vania 19102
Roger D. Randall....... 1,227(5) -- 2,879(4) -- --
1500 Market Street
Centre Square West
28th Floor
Philadelphia, Pennsyl-
vania 19102
John E. Lafferty....... -- -- 250(4) -- --
1500 Market Street
Centre Square West
28th Floor
Philadelphia, Pennsyl-
vania 19102
Earl Ainsworth......... -- -- 100(4) -- --
1500 Market Street
Centre Square West
28th Floor
Philadelphia, Pennsyl-
vania 19102
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B
COMMON STOCK COMMON STOCK
----------------- --------------------
PERCENTAGE OF
CLASS A
NAME AND ADDRESS OF AND CLASS B
BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE COMMON STOCK(1)
------------------- ------ ---------- ------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Sonja Hillgren.............. -- -- 350(4) -- --
1500 Market Street
Centre Square West
28th Floor
Philadelphia, Pennsylvania
19102
J. Carr Gamble, III......... -- -- 3,250(4) -- --
350 Park Avenue
8th Floor
New York, New York 10022
Sterling B. Brinkley........ -- -- 7,500(4) -- --
350 Park Avenue
8th Floor
New York, New York 10022
Mark C. Pickup.............. -- -- 250(4) -- --
6734 Coret Segunda
Martinez, CA 94553
Richard S. Werdiger......... -- 5,000(4)
Walled Brook Farm
8 Cottage Avenue
Purchase, New York 10577
All executive officers and
directors
as a group (12 persons)(6).. -- -- -- -- --
</TABLE>
- --------
(1) Based upon shares of Class A Common Stock outstanding immediately
following the Offering and shares of Class B Common Stock outstanding
prior to and immediately following the Offering.
(2) Shares of Class B Common Stock are convertible into an equal number of
shares of Class A Common Stock at any time. See "Description of Capital
Stock."
(3) MS Farm Journal Corporation is the General Partner of the Partnership and
has the sole right to vote the shares of Class B Common Stock and to
direct their disposition. Mr. Phillip Ean Cohen is the sole stockholder of
MS Farm Journal Corporation.
(4) Represents shares of Class B Common Stock which Teachers, Messrs.
Erickson, Randall, Lafferty, Ainsworth, Gamble, Brinkley, Pickup and
Werdiger and Ms. Hillgren, respectively, have an indirect interest through
their ownership of limited partnership interests in the Partnership. Such
persons have no right to vote or to direct the disposition of these shares
. For a description of certain rights of a limited partner to withdraw
from the Partnership and to obtain Class A Common Stock upon such
withdrawal, see "Shares Eligible for Future Sale."
(5) Represents shares underlying options which are exercisable within sixty
days. Does not include shares underlying options which are not
exercisable within sixty days.
(6) Includes shares of Class B Common Stock held indirectly through
ownership of limited partnership interests in the Partnership.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary of certain provisions of the FJC's capital stock
describes all material provisions, but does not purport to be complete and is
subject to, and qualified in its entirety by, the Amended and Restated
Certificate of Incorporation and the By-laws of the FJC (the "By-laws") that
are included as exhibits to the Registration Statement of which this
Prospectus is a part and by the provisions of applicable law.
RECAPITALIZATION
FJC has amended and restated its Certificate of Incorporation (the "Amended
and Restated Certificate of Incorporation") to (i) change the authorized
capital stock of the FJC to shares of Class A Common Stock, par value
$0.01 per share, shares of Class B Common Stock, par value $0.01 per
share, and 2,725 shares of Convertible Redeemable Preferred Stock, par value
$0.01 per share; (ii) reclassify each outstanding share of original Class A
Common Stock into shares of its newly created Class B Common Stock; (iii)
reclassify each outstanding share of original Class B Common Stock into
shares of its newly created Class A Common Stock; and (iv) change the rights
and privileges of the Class A Common Stock and Class B Common Stock to those
described below. The Amended and Restated Certificate of Incorporation also
provides that upon the conversion of the PFA Preferred Stock following the
Offering, the Convertible Redeemable Preferred Stock will be eliminated. Upon
completion of the Offering, shares of Class A Common Stock and
shares of Class B Common Stock will be issued and outstanding, including
shares of Class A Common Stock into which all 2,725 outstanding shares of PFA
Preferred Stock will be converted. The discussion herein describes the FJC's
capital stock, the Amended and Restated Certificate of Incorporation and the
By-laws in effect upon effectiveness of the Registration Statement of which
this Prospectus is a part and assuming conversion of the Preferred Stock.
CLASS A AND CLASS B COMMON STOCK
The holders of shares of Class A Common Stock and Class B Common Stock have
identical rights and privileges on a per share basis, except as set forth
below. The holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage ownership interest in FJC or other
subscription rights for other securities of FJC. Shares of Common Stock are
not redeemable or subject to further calls or assessments. The shares of
Common Stock to be outstanding after the Offering, including the shares of
Class A Common Stock to be issued hereby when paid for and issued, will be
fully paid and non-assessable. Holders of shares of Common Stock are entitled
to share pro rata in such dividends, if any, as may be declared by the Board
out of funds legally available therefor; provided, however, that any dividend
upon the Common Stock that is payable in Common Stock shall be paid only in
Class A Common Stock to the holders of Class A Common Stock, but is payable in
Class A or Class B Common Stock to the holders of Class B Common Stock. Upon
liquidation, dissolution and winding up of the FJC, holders of shares of
Common Stock are entitled to share ratably in the net assets available for
distribution to such holders. The consent of the holder or holders of a
majority of the Class B Common Stock is required to authorize the issuance of
Class B Common Stock.
Limited Voting Rights. The holders of Class A Common Stock have the right as
a class to elect that minimum number of directors constituting 25% of the
members of the Board (rounding the number of such directors to the next
highest whole number if such percentage is not equal to a whole number of
directors), which presently represents two of the seven directors. Directors
elected by the holders of Class A Common Stock will first be elected at the
annual meeting of stockholders to be held in 1999.
Except as stated above and as otherwise required by the laws of the State of
Delaware, holders of shares of Class A Common Stock have no voting rights;
provided, however, that from and after the time that all of the outstanding
shares of Class B Common Stock are converted into shares of Class A Common
Stock or are
60
<PAGE>
otherwise no longer outstanding, the holders of Class A Common Stock shall be
entitled to vote on all matters submitted to a vote of the stockholders of FJC
and shall be entitled to one vote per share held. Generally, the vote of the
majority of the shares represented at a meeting of the stockholders and
entitled to vote is sufficient for actions that require a vote of the
stockholders. The Amended and Restated Certificate of Incorporation does not
provide for cumulative voting. Because sole voting power has been granted to
the Class B Common Stock, except as stated above and as otherwise required by
the laws of the State of Delaware, substantially all corporate actions can be
taken without any vote by the holders of the Class A Common Stock including,
without limitation, amending the Amended and Restated Certificate of
Incorporation or By-laws of FJC (including authorizing more shares of Class A
Common Stock); authorizing stock options, restricted stock and other
compensation plans for employees, executives and directors; authorizing a
merger or disposition of FJC or change in control of FJC; approving
indemnification of directors, officers and employees (and related parties) of
FJC; and approving conflict of interest transactions involving affiliates of
FJC. The holders of the outstanding shares of Class A Common Stock will be
entitled, however, to vote as a class upon any proposed amendment to the
Amended and Restated Certificate of Incorporation which would increase or
decrease the par value of the shares of Class A Common Stock, or alter or
change the powers, preferences or special rights of the shares of the Class A
Common Stock so as to affect them adversely. See "Risk Factors--Control of the
Company; Anti-Takeover Impact."
Immediately following the Offering, all of the shares of the Class B Common
Stock will be owned by the Partnership and can be voted by the General
Partner, which is wholly-owned by Mr. Cohen. See "Principal Stockholders" and
"Underwriting."
Conversion Rights. At the option of any holder of shares of Class B Common
Stock, which option may be exercised at any time and from time to time, such
holder may convert all or part of such holder's shares of Class B Common Stock
into an equal number of shares of Class A Common Stock. The Shares of Class B
Common Stock are also subject to mandatory conversion into an equal number of
shares of Class A Common Stock, in whole or in part, at any time and from time
to time, at the option of the holder or holders of a majority of the shares of
Class B Common Stock. If, and only if, all the outstanding shares of Class B
Common Stock were converted into Class A Common Stock or otherwise were no
longer outstanding, the holders of the Class A Common Stock would have general
voting power in the election of all members of the Board and in all other
matters upon which stockholders of FJC are entitled to vote. Holders of shares
of Class A Common Stock have no right to convert Class A Common Stock into any
other securities of FJC.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law as currently or
hereafter in effect. Delaware law provides that directors of a corporation
will not be personally liable for monetary damages for breach of their
fiduciary duty as a director, except for liability (i) for breach of their
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the General
Corporation Law of the State of Delaware (the "DGCL"); or (iv) for any
transaction from which the director derives an improper personal benefit.
The Amended and Restated Certificate of Incorporation provides for the
mandatory indemnification of, and advancement of expenses to, directors and
officers of FJC.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
FJC is subject to Section 203 of the DGCL, which prevents an "interested
stockholder" (defined in Section 203, generally, as a person owning 15% or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" with a publicly-held Delaware corporation for three years
following the date such
61
<PAGE>
person became an interested stockholder, unless (i) before such person became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (iii) following the transaction
in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. A "business combination" includes mergers, stock or
asset sales and other transactions resulting in a financial benefit to the
interested stockholder.
The disproportionate voting rights between the Class A Common Stock and the
Class B Common Stock and the provisions of Section 203 of the DGCL could have
the effect of delaying, deferring or preventing a change in control of FJC.
See "Risk Factors--Control of the Company; Anti-Takeover Impact."
TRANSFER AGENT
The transfer agent and registrar for the Class A Common Stock is First Union
National Bank, Charlotte, North Carolina.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of
shares of Class A Common Stock outstanding. All shares of Class A Common Stock
sold in the Offering will be freely tradable by persons other than
"affiliates" of the Company without restriction under the Securities Act. All
other shares of Class A Common Stock and all shares of Class B Common Stock,
and any shares of Class A Common Stock issued upon conversion of shares of
Class B Common Stock, will be "restricted" securities within the meaning of
Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned "restricted" shares for at least one year,
including a person who may be deemed an affiliate of the Company, is entitled
to sell within any three-month period a number of shares of Class A Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Class A Common Stock of the Company or the average weekly trading volume of
the Class A Common Stock on Nasdaq during the four calendar weeks preceding
such sale. Sales under Rule 144 are subject to certain restrictions relating
to manner of sale, notice and the availability of current public information
about the Company. A person who is not an affiliate of the Company and has not
been such at any time during the 90 days preceding a sale, and who has
beneficially owned "restricted" shares for at least two years, would be
entitled to sell such shares immediately following the Offering without regard
to the volume limitations, manner of sale provisions or notice or other
requirements of Rule 144 of the Securities Act. However, the transfer agent
may require an opinion of counsel that a proposed sale of "restricted" shares
comes within the terms of Rule 144 of the Securities Act prior to effecting a
transfer of such shares. Such opinion would be provided by and at the cost of
the transferor.
Any employee of the Company who purchased his or her shares of Class A
Common Stock or received an option to purchase Class A Common Stock pursuant
to a written compensation plan or contract while the Company was not subject
to the reporting requirements of the Exchange Act may be entitled to rely on
the resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitations or notice
provision of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period provision of Rule 144, in
each case beginning 90 days after the date of this Prospectus. Upon completion
of the Offering, there will be outstanding options to purchase shares of
Class A Common Stock, which shares may, upon exercise, be resold pursuant to
Rule 701.
The Company and its existing stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any shares
of capital stock of the Company, either publicly or privately, without the
prior consent of the Representatives (as defined in "Underwriting") for a
period of 180 days from the date of this Prospectus (the "Lock-Up Period").
See "Underwriting."
The Partnership has offered its limited partners the right to withdraw from
the Partnership under the Agreement of Limited Partnership dated April 1, 1997
(the "Limited Partnership Agreement") and receive a distribution of Class A
Common Stock (a "Withdrawal Election"). Such Withdrawal Election may be made
at any time between the consummation of the Offering and fourteen days before
the expiration of the Lock-Up Period. The Withdrawal Election will be
effective at the end of the month in which the Lock-Up Period expires. The
shares acquired through a limited partner's Withdrawal Election will be
subject to the resale limitations under Rule 144.
Limited partners making a Withdrawal Election will generally be deemed to
have held the shares of Class A Common Stock distributed to them from the date
they acquired their partnership interest. Accordingly, original investors in
the Partnership will be entitled to sell such shares pursuant to the volume
and other limitation of Rule 144 immediately upon distribution of such shares
from the Partnership. Shares of Class A Common Stock distributed upon
conversion of the PFA Preferred Stock will be similarly saleable on April 2,
1999.
63
<PAGE>
Prior to the Offering, there has been no public market for either class of
Common Stock of the Company and no predictions can be made of the effect, if
any, that the sale or availability for sale of additional shares of Common
Stock, or the development of a public trading market for the Class B Common
Stock, will have on the market price of the Class A Common Stock.
Nevertheless, sales of substantial amounts of shares of Class A Common Stock
in the public market, the perception that such sales could occur, or the
development of a public trading market for the Class B Common Stock, could
adversely affect the market price of the Class A Common Stock and could impair
the Company's future ability to raise capital through an offering of its
equity securities.
64
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Furman Selz LLC and Morgan Schiff & Co., Inc. are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Company the following respective numbers of shares of
Class A Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation...........................
Furman Selz LLC..................................................
Morgan Schiff & Co., Inc. .......................................
----
Total..........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Class A Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event
of a default by an Underwriter, in certain circumstances the purchase
commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to additional shares of the Class A Common Stock at the initial public
offering price less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. Such option may be exercised only
to cover over-allotments in the sale of the shares of Class A Common Stock. To
the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of Class A Common Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Class A Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a
concession of $ per share, and the Underwriters and such dealers may allow
a discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
The Company and its existing shareholders have agreed that they will not
offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file or cause to be filed
with the Securities and Exchange Commission (the "Commission") a registration
statement under the Securities Act relating to, any additional shares of the
Company's Class A Common Stock or securities convertible into or exchangeable
or exercisable for any shares of the Company's Class A Common Stock without
the prior written consent of Credit Suisse First Boston Corporation for a
period of 180 days after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
Application has been made to list the shares of Class A Common Stock on The
Nasdaq Stock Market's National Market.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
65
<PAGE>
Prior to this Offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price for the Class A
Common Stock will be determined by negotiations among the Company and the
Representatives. Among the factors which will be considered in such
negotiations will be the prevailing market conditions, the results of
operations of the Company in recent periods, the market capitalizations and
stages of development of other companies which the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors which may be deemed relevant by the Company and
the Representatives.
One of the Representatives, Morgan Schiff, may be deemed to be an affiliate
(as defined in Rule 2710(b)(1) of the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "Conduct Rules")) of the Company
because, among other things, the Partnership owns 100% of the outstanding
Class B Common Stock of the Company and the sole stockholder of the General
Partner controls Morgan Schiff. See "Principal Stockholders" and "Certain
Relationships and Related Transactions." Accordingly, the shares of Class A
Common Stock being offered hereby are being offered in accordance with the
provisions of Rule 2710(c)(8) of the Conduct Rules. In accordance with such
provisions. Credit Suisse First Boston Corporation has agreed to act as
qualified independent underwriter (as defined in Rule 2720(b)(15) of the
Conduct Rules) for the Offering and has agreed to assume the responsibilities
of acting as qualified independent underwriter in pricing the Offering and
conducting due diligence. The initial public offering price of the Class A
Common Stock will not be higher than the maximum initial public offering price
recommended by such qualified independent underwriter.
Morgan Schiff has acted as financial advisor to the Company for which it
received fees. See "Certain Relationships and Related Transactions."
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the Class A Common Stock being offered so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the Class A Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim
a selling concession from a syndicate member when the Class A Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Class A Common Stock to be higher than it would otherwise be in the absence of
such transactions. These transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only on
a private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Common Stock are effected. Accordingly, any resale of
the Class A Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Class A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such
66
<PAGE>
purchaser is entitled under applicable provincial securities laws to purchase
such Class A Common Stock without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has
reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to this Offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from the
Company. Only one such report must be filed in respect of Class A Common Stock
acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A Common Stock in their particular circumstances and with respect to the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian Legislation.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Milbank, Tweed, Hadley & McCloy. Certain legal matters will
be passed upon for the Underwriters by Piper & Marbury L.L.P.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1997
and for the period from April 1, 1997 through December 31, 1997 and the
Consolidated Financial Statements of the Predecessor as of December 31, 1995
and December 30, 1996 and for the years ended December 31, 1995 and December
29, 1996 and the period from January 1, 1997 through March 31, 1997 included
elsewhere in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement have been audited by
67
<PAGE>
Deloitte & Touche LLP, independent auditors, as stated in their reports (which
express an unqualified opinion and include an explanatory paragraph relating
to the new cost basis for assets and liabilities when the Company acquired the
Predecessor), appearing herein and elsewhere in the registration statement,
and are included in reliance upon the reports of such firm, given upon their
authority as experts in accounting and auditing. The financial statements of
PFA, as of December 31, 1996 and 1997 and for each of the two years in the
period ended December 31, 1997 included in this Prospectus and in the
Registration Statement are included in reliance upon the report of McGladrey &
Pullen, LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of that firm as experts in accounting auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, with respect to the Class A
Common Stock being offered in the Offering. This Prospectus does not contain
all the information set forth in the Registration Statement. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement shall be deemed qualified
in its entirety by such reference. The Registration Statement, may be
inspected, without charge, and copies may be obtained, at prescribed rates, at
the public reference facilities of the Commission maintained at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of
the Registration Statement may also be inspected, without charge, at the
Commission's regional office at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. In addition, copies of the Registration Statement may be
obtained by mail at prescribed rates, from the Commission's Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a Web site at www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
Upon completion of the Offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will be required to file periodic reports and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities,
regional offices and Web site referred to above.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by independent certified
public accountants.
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<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FARM JOURNAL CORPORATION (Formerly Farm Journal Holdings Inc.)
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 29, 1996 of the Predecessor
and
December 31, 1997 and (Unaudited) March 31, 1998 of the Company......... F-3
Consolidated Statements of Operations for the Two Years Ended December
29, 1996 and the Period from December 30, 1996 to March 31, 1997 of the
Predecessor and the Period from April 1, 1997 to December 31, 1997 and
(Unaudited) for the Three Months Ended March 31, 1998 of the Company.... F-4
Consolidated Statements of Shareholder's Equity for the Two Years Ended
December 29, 1996 and the Period from December 30, 1996 to March 31,
1997 of the Predecessor and the Period from April 1, 1997 to December
31, 1997 and (Unaudited) for the Three Months Ended March 31, 1998 of
the Company............................................................. F-5
Consolidated Statements of Cash Flows for the Two Years Ended December
29, 1996 and the Period from December 30, 1996 to March 31, 1997 of the
Predecessor and the Period from April 1, 1997 to December 31, 1997 and
(Unaudited) for the Three Months Ended March 31, 1998 of the Company.... F-6
Notes to Consolidated Financial Statements............................... F-7
PROFESSIONAL FARMERS OF AMERICA, INC. AND PROFESSIONAL MARKET MANAGEMENT,
INC.
Independent Auditor's Report............................................. F-19
Combined Balance Sheets as of December 31, 1996 and 1997 and (Unaudited)
March 31, 1998.......................................................... F-20
Combined Statements of Income for the Years Ended December 31, 1996 and
1997 and (Unaudited) for the Three Months Ended March 31, 1997 and
1998.................................................................... F-21
Combined Statements of Stockholder's Equity for the Years Ended December
31, 1996 and 1997 and (Unaudited) for the Three Months Ended March 31,
1997 and 1998........................................................... F-22
Combined Statements of Cash Flows for the Years Ended December 31, 1996
and 1997 and (Unaudited) for the Three Months Ended March 31, 1997 and
1998.................................................................... F-23
Notes to Combined Financial Statements................................... F-24
</TABLE>
F-1
<PAGE>
THE ACCOMPANYING FINANCIAL STATEMENTS REFLECT CHANGES TO THE TYPE AND NUMBER
OF COMMON SHARES AUTHORIZED AND A CONVERSION OF PREVIOUSLY OUTSTANDING COMMON
STOCK INTO NEWLY CREATED CLASSES OF COMMON STOCK, ALL OF WHICH IS TO BE
EFFECTED PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE
FOLLOWING OPINION IS IN THE FORM WHICH WILL BE SIGNED BY DELOITTE & TOUCHE LLP
UPON CONSUMMATION OF THE ABOVE EVENTS, WHICH ARE DESCRIBED IN NOTE 19 OF NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND ASSUMING THAT FROM JANUARY 23, 1998
TO THE DATE OF SUCH EVENTS, NO OTHER EVENTS HAVE OCCURRED WHICH WOULD AFFECT
THE ACCOMPANYING FINANCIAL STATEMENTS AND NOTES THERETO.
Deloitte & Touche llp
Philadelphia, Pennsylvania
June 10, 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Farm Journal Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of the Farm
Journal Corporation (formerly Farm Journal Holdings, Inc.) and subsidiaries
(the "Company") as of December 31, 1997 and the related consolidated
statements of operations, shareholder's equity, and of cash flows for the
period from April 1, 1997 to December 31, 1997, as well as the consolidated
balance sheet of the Predecessor (see Note 1), as of December 29, 1996 and the
consolidated related statements of operations, shareholder's equity, and of
cash flows for the years ended December 31, 1995 and December 29, 1996 and the
period from December 30, 1996 to March 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and the Predecessor
as of December 29, 1996 and December 31, 1997, and the results of their
operations and their cash flows for the periods stated above.
As discussed in Note 2 to the consolidated financial statements, on April 1,
1997, the Company acquired the Predecessor which resulted in the establishment
of a new cost basis for the assets and liabilities of the acquired entity.
Philadelphia, Pennsylvania
January 23, 1998
( , 1998 as to Note 19)
F-2
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR
CORPORATION
------------
DECEMBER 29, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................. $ 276,622 $ 4,741,380 $ 4,949,325
Accounts receivable, less allowances for doubtful accounts of $116,000 in 1996,
$148,000 in 1997 and $227,000 in 1998................................................. 3,183,279 3,506,670 8,796,079
Inventories............................................................................ 197,391 150,354 120,997
Prepaid and other current assets....................................................... 129,676 453,771 551,813
Assets held for sale................................................................... 919,949
----------- ----------- -----------
Total current assets................................................................. 4,706,917 8,852,175 14,418,214
PROPERTY AND EQUIPMENT, Net............................................................. 2,527,982 2,241,940 2,220,593
INTANGIBLE ASSETS, Net.................................................................. 12,985,382 10,755,429 10,648,096
DEFERRED TAX ASSETS..................................................................... 848,932 658,681 658,681
----------- ----------- -----------
TOTAL................................................................................... $21,069,213 $22,508,225 $27,945,584
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................................... $ 417,327 $ 529,090 $ 1,832,663
Accrued expenses and other liabilities................................................. 1,222,868 1,202,399 2,008,121
Income taxes payable................................................................... 195,794 1,390,371
Current portion of deferred subscription income........................................ 940,157 994,251 937,633
Due to Tribune......................................................................... 423,901
----------- ----------- -----------
Total current liabilities............................................................ 3,200,047 2,725,740 6,168,788
DEFERRED SUBSCRIPTION INCOME, Less current portion...................................... 305,971 333,729 312,544
SENIOR SUBORDINATED NOTES............................................................... 11,000,000 11,000,000
RETIREMENT BENEFITS OTHER THAN PENSIONS................................................. 2,328,744
COMMITMENTS AND CONTINGENCIES (Note 16).................................................
PREFERRED STOCK, $.01 par value, 2,725 shares authorized, none issued and outstanding...
SHAREHOLDER'S EQUITY:
Common Stock:
Class A, $.01 par value, shares authorized, issued and outstanding..........
Class B, $.01 par value, shares authorized, 102,786 issued and outstanding........ 1,028
Class A, $.01 par value; 111,000 shares authorized; 100,808 issued and outstanding at
December 31, 1997 and none at March 31, 1998.......................................... 1,008
Class B, convertible into Class A common stock, $.01 par value, 99,000 shares
authorized, 9,870 issued and outstanding at December 31, 1997 and none at March 31,
1998.................................................................................. 99
Common stock of Predecessor Corporation, $.01 par value, 100 shares authorized, issued
and outstanding....................................................................... 1
Additional paid-in capital.............................................................. 17,639,987 9,928,533 10,291,722
Retained earnings (Accumulated deficit)................................................. (2,405,537) (1,480,884) 171,502
----------- ----------- -----------
Total shareholder's equity........................................................... 15,234,451 8,448,756 10,464,252
----------- ----------- -----------
TOTAL................................................................................... $21,069,213 $22,508,225 $27,945,584
- --------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR CORPORATION
--------------------------------------
PERIOD
FROM PERIOD FROM PERIOD FROM
DECEMBER APRIL 1, JANUARY 1,
30, 1996 1997 TO 1998 TO
DECEMBER 31, DECEMBER 29, TO MARCH DECEMBER 31, MARCH 31,
1995 1996 31, 1997 1997 1998
------------ ------------ ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising, Net...... $19,333,079 $19,371,898 $8,430,871 $ 9,764,636 $8,939,617
Subscription income... 1,305,541 1,154,421 554,243 690,555 531,822
Information services.. 5,617,253 6,048,772 1,428,387 3,801,602 2,433,571
Other................. 318,648 199,034 60,558 277,278 103,376
----------- ----------- ---------- ----------- ----------
Total revenues...... 26,574,521 26,774,125 10,474,059 14,534,071 12,008,386
----------- ----------- ---------- ----------- ----------
OPERATING EXPENSES:
Cost of publishing.... 15,393,878 14,228,486 4,578,127 7,227,012 5,145,018
Cost of information
services............. 2,273,510 2,542,657 527,194 1,607,539 627,377
Selling, general and
administrative....... 8,969,847 9,250,310 2,160,573 6,451,313 2,728,105
Depreciation and amor-
tization............. 1,055,545 1,060,079 279,996 818,336 273,671
----------- ----------- ---------- ----------- ----------
Total operating ex-
penses............. 27,692,780 27,081,532 7,545,890 16,104,200 8,774,171
----------- ----------- ---------- ----------- ----------
OPERATING INCOME (LOSS) (1,118,259) (307,407) 2,928,169 (1,570,129) 3,234,215
OTHER INCOME (EXPENSE):
Interest income....... 195,537 19,983 3,921 224,217 70,060
Interest expense...... (53,525) (38,106) (814,800) (261,518)
----------- ----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE IN-
COME TAXES ............ (922,722) (340,949) 2,893,984 (2,160,712) 3,042,757
INCOME TAX PROVISION
(BENEFIT).............. (166,013) 66,696 1,208,362 (679,828) 1,390,371
----------- ----------- ---------- ----------- ----------
NET INCOME (LOSS)....... $ (756,709) $ (407,645) $1,685,622 $(1,480,884) $1,652,386
=========== =========== ========== =========== ==========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE.. $ (13.80) $
=========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING............... 107,318
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
NUMBER PAID-IN ACCUMULATED
PREDECESSOR OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1995.......... 100 $ 1 $17,639,987 $(1,241,183) $16,398,805
Net loss........ (756,709) (756,709)
------ ---- ----------- ----------- -----------
BALANCE, DECEMBER
31, 1995......... 100 1 17,639,987 (1,997,892) 15,642,096
Net loss........ (407,645) (407,645)
------ ---- ----------- ----------- -----------
BALANCE, DECEMBER
29, 1996......... 100 1 17,639,987 (2,405,537) 15,234,451
Net income...... 1,685,622 1,685,622
------ ---- ----------- ----------- -----------
BALANCE, MARCH
31, 1997......... 100 $ 1 $17,639,987 $ (719,915) $16,920,073
====== ==== =========== =========== ===========
<CAPTION>
NEWLY CREATED COMMON STOCK COMMON STOCK
---------------------------------- -----------------------------------
CLASS A CLASS B CLASS A CLASS B RETAINED
----------------- ---------------- ----------------- ---------------- ADDITIONAL EARNINGS
NUMBER NUMBER NUMBER NUMBER PAID-IN (ACCUMULATED
THE COMPANY OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT) TOTAL
----------- --------- ------- --------- ------ --------- ------ --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Class A Common
Stock........... 100,808 $1,008 $ 9,928,533 $ 9,929,541
Issuance of
Class B Common
Stock........... 9,870 $ 99 99
Net loss........ $(1,480,884) (1,480,884)
------ ------- ------- ------ -------- ------ ------ ---- ----------- ----------- -----------
BALANCE, DECEMBER
31, 1997......... 100,808 1,008 9,870 99 9,928,533 (1,480,884) 8,448,756
Conversion of
Class B Common
Stock to Class A
Common Stock
(Unaudited)..... 1,978 20 (4,738) (48) 373,402 373,374
Redemption of
Class B Common
Stock
(Unaudited)..... (5,132) (51) (10,213) (10,264)
Net income
(Unaudited)..... 1,652,386 1,652,386
Recapitalization
and conversion
of Common Stock
(Unaudited)..... 102,786 $1,028 (102,786) (1,028) --
------ ------- ------- ------ -------- ------ ------ ---- ----------- ----------- -----------
BALANCE, MARCH
31, 1998
(Unaudited)...... $ 102,786 $1,028 -- $ -- -- $ -- $10,291,722 $ 171,502 $10,464,252
====== ======= ======= ====== ======== ====== ====== ==== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR CORPORATION
-------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
FISCAL YEARS ENDED DECEMBER APRIL 1, JANUARY 1,
------------------------- 30, 1996 TO 1997 TO 1998 TO
DECEMBER 31, DECEMBER 29, MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------ ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (756,709) $ (407,645) $1,685,622 $(1,480,884) $1,652,386
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of fixed assets.............. 547,856 552,389 153,074 490,331 166,338
Amortization of intangibles................................ 507,689 507,690 126,922 328,005 107,333
Provision for postretirement benefits...................... 74,354 94,390 22,497
Changes in assets and liabilities which provided (used)
cash:
Accounts receivable....................................... (721,116) 71,935 (2,868,567) 2,545,176 (5,289,409)
Other receivables......................................... (172,563) 172,563
Inventories............................................... 28,771 (51,752) 69,336 (22,299) 29,357
Prepaid and other current assets.......................... 1,386,887 121,751 (244,669) (4,426) (98,042)
Deferred taxes............................................ (1,003,492) 154,560 948,342 (679,828)
Accounts payable.......................................... 800,438 (1,023,392) 549,834 453,600 1,293,309
Accrued expenses and other liabilities.................... 193,094 512,823 420,728 (530,152) 1,179,096
Income taxes payable...................................... (375,430) 189,358 (120,857) (515,421) 1,390,371
Deferred subscription income.............................. (188,882) 255,075 (171,545) 253,397 (77,803)
---------- ---------- ---------- ----------- ----------
Net cash provided by operating activities................. 320,897 1,149,745 570,717 837,499 352,936
---------- ---------- ---------- ----------- ----------
INVESTING ACTIVITIES:
Purchase of assets, net of disposals........................ (2,410,924) (553,535) (178,896) (178,467) (144,991)
Acquisition of stock of Farm Journal, Inc., net of cash re-
ceived..................................................... (16,534,613)
Organization costs.......................................... (40,000)
Sale of assets held for sale................................ 919,949
---------- ---------- ---------- ----------- ----------
Net cash provided by (used in) investing activities......... (2,410,924) (553,535) 741,053 (16,753,080) (144,991)
---------- ---------- ---------- ----------- ----------
FINANCING ACTIVITIES:
Due to Tribune.............................................. 1,819,110 (1,473,978) (1,488,013)
Proceeds from issuance of Class A Common Stock.............. 9,929,541
Proceeds from issuance of Class B Common Stock.............. 99
Deferred financing costs.................................... (272,679)
Borrowings from senior subordinated notes................... 11,000,000
---------- ---------- ---------- -----------
Net cash provided by (used in) financing activities......... 1,819,110 (1,473,978) (1,488,013) 20,656,961
---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (270,917) (877,768) (176,243) 4,741,380 207,945
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 1,425,307 1,154,390 276,622 -- 4,741,380
---------- ---------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $1,154,390 $ 276,622 $ 100,379 $ 4,741,380 $4,949,325
========== ========== ========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during period for taxes................ $ 60,451 $ (272,685) $ 248,729 $ 515,421 $ --
========== ========== ========== =========== ==========
Cash paid during period for interest........................ $ -- $ 53,525 $ 38,106 $ 727,192 $ --
- --------------------------------------------------
========== ========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996, AND
THE PERIODS FROM DECEMBER 30, 1996 TO MARCH 31, 1997
AND APRIL 1, 1997 TO DECEMBER 31, 1997 AND (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
1. ORGANIZATION
The Farm Journal Corporation ("FJC") was incorporated on March 25, 1997 as
a Delaware corporation and is owned by MS Farm International Limited
Partnership. FJC is a holding company conducting business through its
wholly-owned subsidiary, Farm Journal, Inc. ("FJI"). Prior to April 1,
1997, FJI was a wholly- owned subsidiary of Tribune Company ("Tribune").
During the periods that FJI was owned by Tribune, it is referred to as the
"Predecessor." The term "Company" shall refer to FJC and its subsidiary,
FJI, subsequent to the Management Purchase (defined below).
The Company and the Predecessor are primarily publishers of magazines
devoted to various aspects of the farming industry. The Company's and the
Predecessor's businesses also include a proprietary market research
organization and agricultural data management business.
The Company's and the Predecessor's flagship publication is the Farm
Journal. In addition, the Company and the Predecessor publish Top Producer
and the Today series of magazines that focus on the livestock markets. The
series include Beef Today, Dairy Today and Hogs Today. The Company's and
the Predecessor's market research organization uses the Company's and the
Predecessor's readership to create and conduct demographic studies for
agricultural product producers and other businesses. The Company's and the
Predecessor's data services business is principally conducted through
licensing agreements with a number of major agricultural marketers.
2. ACQUISITION OF FARM JOURNAL
Effective April 1, 1997, the Company entered into a Stock Purchase
Agreement (the "Agreement") with Tribune whereby the Company acquired FJI,
a wholly-owned subsidiary of Tribune. Under the terms of the Agreement, FJI
repurchased 65 of its own shares of common stock from Tribune for
$11,000,000. The repurchase was funded with the proceeds from the issuance
of $11,000,000 of senior subordinated notes (see Note 8). Simultaneously,
the Company acquired the remaining 35 shares of FJI common stock for
approximately $5,635,000 in cash. The acquisition of FJI is referred to as
the "Management Purchase." The acquisition was accounted for using the
purchase method of accounting with the purchase price allocated to the
assets acquired and liabilities assumed based on their respective fair
values at the date of acquisition.
The following summarized unaudited pro forma financial information shows
the results of the Company's operations for each of the fiscal years
presented assuming that the Management Purchase occurred as of January 1,
1995. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the significant acquisitions been in
effect on the dates indicated or which may result in the future.
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------------------------- -----------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 26,574,521 $ 26,774,125 $ 25,008,130
Operating income (loss)
....................... (1,047,910) (237,057) 1,375,627
Net income (loss)....... (1,284,159) (915,686) 40,675
Basic and diluted net
income (loss)
per common share....... $ (11.60) $ (8.27) $ 0.37
Number of common
shares................. 110,678 110,678 110,678
</TABLE>
F-7
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The consolidated balance sheet as of December 31,
1997 and the consolidated statements of operations, cash flows and
shareholder's equity for the period from April 1, 1997 to December 31, 1997
represent the consolidated financial position, results of operations,
changes in shareholder's equity and cash flows of the Company subsequent to
the Management Purchase. The consolidated balance sheet as of December 29,
1996 and the related statements of operations, shareholder's equity and
cash flows for the years ended December 31, 1995 and December 29, 1996 and
the period December 30, 1996 to March 31, 1997 represent the consolidated
financial position, results of operations, changes in shareholder's equity
and cash flows of the Predecessor. All significant intercompany accounts
and transactions among consolidated entities have been eliminated.
UNAUDITED INTERIM FINANCIAL INFORMATION--The consolidated financial
statements and related notes for the three months ended March 31, 1998 are
unaudited, but include all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
for the interim periods. The results of operations for the three-month
periods ended March 31, 1997 and 1998 are not necessarily indicative of the
operating results to be expected for the full fiscal year.
PURCHASE ACCOUNTING--With respect to the Management Purchase, the total
purchase price has been allocated to the tangible and intangible assets and
liabilities based on their respective fair values.
CASH AND CASH EQUIVALENTS--The Company and the Predecessor consider all
highly liquid investments with original maturities of three months or less
to be cash and cash equivalents.
INVENTORIES--Inventories, including purchased manuscripts, photographs and
art, are valued at the lower of cost or market principally on a first-in,
first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment and the amortization of leasehold improvements are provided at
rates based on the estimated useful lives or lease terms, if shorter, using
primarily the straight-line and a declining balance method. Improvements
are capitalized while maintenance and repairs are expensed as incurred.
INTANGIBLE ASSETS--Intangible assets are comprised of subscription lists,
excess purchase price over net assets acquired ("goodwill"), deferred
financing costs and organization costs.
The subscription list is being amortized on a straight-line basis over a
life of 25 years. Goodwill is being amortized on a straight-line basis over
a life of 40 years. Organization costs are amortized on a straight-line
basis over their estimated useful life of 5 years. Deferred financing costs
are stated at cost and amortized by the straight-line method over the life
of the related debt from 3.25 to 10 years.
LONG-LIVED ASSETS--In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of ("SFAS No. 121"), which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 specifies the recognition
and measurement criteria for such impairments. Adoption of SFAS No. 121 on
January 1, 1996 had no impact on the Predecessor's financial position,
results of operations or cash flows.
INCOME TAXES--The Company and the Predecessor account for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No.
109, the deferred tax provision is determined under
F-8
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the liability method. Under this method, deferred tax assets and
liabilities are recognized based on differences between financial statement
and tax bases of assets and liabilities using presently enacted tax rates.
REVENUE RECOGNITION--Advertising revenues for all magazines are recognized
as income when the magazines are published and distributed, net of
provisions for estimated rebates, adjustments and discounts. Subscriptions
are recorded as deferred revenue when received and recognized as income
over the term of the subscription. Information service revenues are
recognized either when the finished product is delivered or based on
contractually agreed-upon terms.
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.
FAIR VALUES--The estimated fair value amounts presented in these notes to
consolidated financial statements have been determined by the Company and
the Predecessor using available market information and appropriate
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. The estimates presented
herein are not necessarily indicative of the amounts that the Company and
the Predecessor could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Such fair value
estimates are based on pertinent information available to management as of
December 29, 1996 and December 31, 1997, and have not been comprehensively
revalued for purposes of these consolidated financial statements since such
date. Current estimates of fair value may differ significantly from the
amounts presented herein.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the provisions of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments:
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Other Current Assets and Liabilities--The carrying amounts of these items
approximate fair value because of the short maturity of these
instruments.
Senior Subordinated Notes--Rates currently available to the Company for
debt with similar terms and maturity are used to estimate the fair value
of the debt issued. Accordingly, the fair value of the senior
subordinated notes approximates the carrying value of $11,000,000.
POSTRETIREMENT BENEFIT PLAN--Some former employees participated in a
postretirement benefit plan sponsored by Tribune for the period from June
25, 1994 to December 31, 1994 and for the years ended December 31, 1995,
December 29, 1996 and the period from December 30, 1996 to March 31, 1997.
Amounts contributed by the Farm Journal were determined by Tribune based
principally on the aggregate cost method. Tribune assumed all liabilities
accrued under the plan as of March 31, 1997.
STOCK-BASED COMPENSATION--SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
EARNINGS PER SHARE--In February 1997, the FASB issued SFAS No. 128,
Earnings Per Share. This new standard requires dual presentation of basic
and diluted earnings per share ("EPS") on the face of the
F-9
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
statement of operations and the reconciliation of the numerators and
denominators of the basic and diluted EPS calculations. The Company adopted
this standard in the period ended December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS--In February 1997, the FASB issued SFAS No.
129, Disclosure of Information About Capital Structure, which establishes
new standards for disclosing information about an entity's capital
structure. Adoption of SFAS No. 129 did not have a significant impact on
the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's consolidated financial
statements, its adoption did not have any impact on the Company's
consolidated financial position or results of operations. The Company will
adopt SFAS No. 130 effective January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement, which establishes
standards for the reporting of information about operating segments and
requires the reporting of selected information about operating segments in
interim financial statements, is effective for fiscal years beginning after
December 15, 1997, although earlier application is permitted.
Reclassification of segment information for earlier periods presented for
comparative purposes is required under SFAS No. 131. The Company has
adopted SFAS No. 131 effective January 1, 1998; adoption of this statement
did not result in significant changes to the presentation of financial data
by business segment.
4.INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
CORPORATION
------------
DECEMBER 29, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Art work and manuscripts............... $ 88,250 $ 93,600 $ 78,045
Work-in-process........................ 109,141 56,754 42,952
--------- --------- ---------
$ 197,391 $ 150,354 $ 120,997
========= ========= =========
</TABLE>
5. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
CORPORATION
------------
DECEMBER 29, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment and furniture............... $ 1,416,851 $ 1,013,726 $ 1,011,212
Computer.............................. 2,170,005 1,340,177 1,416,694
Leasehold improvements................ 177,022 378,368 449,356
----------- ----------- -----------
3,763,878 2,732,271 2,877,262
Less accumulated depreciation
and amortization..................... (1,235,896) (490,331) (656,669)
----------- ----------- -----------
$ 2,527,982 $ 2,241,940 $ 2,220,593
=========== =========== ===========
</TABLE>
F-10
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR
CORPORATION
------------
AMORTIZATION
PERIOD DECEMBER 29, DECEMBER 31, MARCH 31,
(YEARS) 1996 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Subscription list.... 25 $ 7,850,000 $ 7,131,000 $ 7,131,000
Goodwill............. 40 6,404,606 3,639,755 3,639,755
Deferred financing
costs................ 3.25 to 10 272,679 272,679
Organization costs... 5 40,000 40,000
------------ ------------ ------------
14,254,606 11,083,434 11,083,434
Less accumulated
amortization......... (1,269,224) (328,005) (435,338)
------------ ------------ ------------
$ 12,985,382 $ 10,755,429 $ 10,648,096
============ ============ ============
</TABLE>
The Company and the Predecessor periodically evaluate the fair value of
goodwill and other intangible assets and recognize an impairment when it is
probable that estimated future undiscounted cash flows will be less than
the carrying value of the asset. No writedowns of goodwill or other
intangible assets were made in any of the periods presented.
7.REVOLVING CREDIT AGREEMENT
FJI entered into a revolving credit and security agreement with its bank
which provides for aggregate collateralized borrowings of up to $3,000,000
which mature June 30, 2000. Interest shall accrue at the prime based rate,
as defined in the agreement, provided however, that FJI by giving
notification may have all or a portion of the outstanding principal accrue
interest at the LIBOR based rate, as defined in the agreement. FJI had no
amounts outstanding under the agreement at December 31, 1997. The borrower
under the revolving credit and security agreement is FJI. Repayment of the
debt is guaranteed by FJC.
The agreement includes requirements as to the maintenance of financial
ratios and tangible net worth and restrictions of certain financial
conditions. The agreement also includes certain dividend restrictions as
part of its covenants that prohibit dividend payments as well as other
restrictions.
8.SENIOR SUBORDINATED NOTES
The senior subordinated notes bear interest at 9.5% and mature April 1,
2007. Interest is payable semi-annually in arrears on June 1 and December 1
of each year commencing with December 1, 1997. Aggregate maturities of debt
are $2,200,000 each year payable June 1, 2003 through June 1, 2006, with
the entire remaining unpaid principal amount of notes together with
interest accrued thereon due April 1, 2007. The borrower under the senior
subordinated notes is FJI. Repayment of the debt is guaranteed by FJC.
The note agreement includes requirements as to the maintenance of financial
ratios and minimum tangible net worth amounts and restrictions of certain
asset sales, mergers and other significant transactions, as well as certain
reporting requirements. As of October 1, 1997, FJI was in violation of the
agreement because it did not deliver audited financial statements to the
note holder until after that date. On March 27, 1998, FJI received a waiver
of this debt covenant violation. As a result, the entire balance has been
reflected as a long-term liability in the accompanying consolidated
financial statements.
F-11
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The ability of the Company to pay dividends is dependent upon the receipt
of dividends or other payments from FJI. However, the senior subordinated
notes and the revolving credit agreement described in Note 7 have certain
dividend restrictions as part of their covenants that prohibit dividend
payments on or prior to April 1, 1998. Thereafter, FJI will not authorize,
declare, pay, or make any restricted payment unless no event of default
shall have occurred and be continuing and the aggregate amount of all sums
and property included in all restricted payments, plus the total of all
payments made to the general partner of MS Farm International Limited
Partnership by FJI shall not exceed the sum of 50% (or 100% in the case of
a deficit) of adjusted consolidated net income (as defined in the note
agreement) plus an amount equal to the net proceeds received by FJI from
the sale of capital stock of FJI.
9.INCOME TAXES
FJC and FJI will file a consolidated federal income tax return for the
period from April 1, 1997 through December 31, 1997. From June 25, 1994
through March 31, 1997, the Predecessor was a party to a tax-sharing
agreement with Tribune and was included in the consolidated tax returns of
Tribune. Tribune allocated income tax expense or benefit to the Predecessor
as if the Predecessor was filing a separate federal income tax return. Tax
benefits from losses were made available to the Predecessor as it is able
to realize such benefits on a separate return basis. The Predecessor was
required to pay to Tribune, for income taxes, an amount equal to that
amount of tax the Predecessor would pay if it filed a separate federal
income tax return.
Components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------
PERIOD FROM
DECEMBER PERIOD FROM
FISCAL YEARS ENDED 30, APRIL 1,
---------------------------- 1996 TO 1997 TO
DECEMBER 31, DECEMBER 29, MARCH 31, DECEMBER 31,
1995 1996 1997 1997
<S> <C> <C> <C> <C> <C> <C>
--------- -------- ---------- --------- ---
Current:
Federal............ $(221,013) $(87,304) $1,089,000
State and local.... -- -- 189,362
--------- -------- ----------
(221,013) (87,304) 1,278,362
Deferred:
Federal............ 93,000 139,000 (140,000) $(516,014)
State and local.... (38,000) 15,000 70,000 (163,814)
--------- -------- ---------- ---------
55,000 154,000 (70,000) (679,828)
--------- -------- ---------- ---------
Income tax provision
(benefit)............ $(166,013) $ 66,696 $1,208,362 $(679,828)
========= ======== ========== =========
</TABLE>
F-12
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation from the statutory federal income tax rate is as
follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------
PERIOD FROM
DECEMBER PERIOD FROM
FISCAL YEARS ENDED 30, APRIL 1,
------------------------- 1996 TO 1997 TO
DECEMBER 31, DECEMBER 29, MARCH 31, DECEMBER 31,
1995 1996 1997 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax pro-
vision
(benefit) at statutory
rate................... (34.0)% (34.0)% 34.0% (34.0)%
State income taxes, net
of federal income tax
benefit................ (2.7) 2.9 6.3 (5.0)
Amortization of excess
cost
of net assets ac-
quired................. 18.7 50.6 1.5 4.5
Stock-based compensation
and other.............. 3.0
----- ----- ---- -----
Income tax provision
(benefit).............. (18.0)% 19.5 % 41.8% (31.5)%
===== ===== ==== =====
</TABLE>
Components of the net deferred tax assets and liability are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
------------
DECEMBER 29, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Retirement benefits............................... $ 931,600 $ --
Accruals and reserves............................. 338,000 133,468
Inventories....................................... 37,600 50,170
Operating loss carryforward....................... -- 654,704
Other............................................. 37,332 7,739
--------- ---------
Total.............................................. 1,344,532 846,081
Deferred tax liability - property and equipment.... 495,600 187,400
--------- ---------
Net deferred tax assets............................ $ 848,932 $ 658,681
========= =========
</TABLE>
Management does not believe that a valuation allowance on its deferred tax
assets is necessary because it is more likely than not that the deferred
tax assets will be realized.
As of December 31, 1997, the Company has a net operating loss carryforward
of approximately $1,600,000 for federal income tax purposes which expires
in 2012.
The Company has recorded a provision for income taxes for the period from
January 1, 1998 to March 31, 1998 (unaudited) in an amount equal to the
anticipated effective tax rate of the Company for the year ending December
31, 1998.
F-13
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10.LEASES
The Company leases its corporate office and computer equipment. Future
minimum lease payments under noncancellable operating leases with initial
or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998...................................................... $ 787,618
1999...................................................... 785,434
2000...................................................... 863,957
2001...................................................... 944,305
2002...................................................... 944,305
Thereafter................................................ 2,220,698
----------
$6,546,317
==========
</TABLE>
Rental expense under operating leases was $432,820, $923,621, $214,977,
$700,458 and $235,413 (unaudited) for the years ended December 31, 1995 and
December 29, 1996, and the periods from December 30, 1996 to March 31,
1997, April 1, 1997 to December 31, 1997 and January 1, 1998 to March 31,
1998 (unaudited).
11.BENEFIT PLANS
401(K) SAVINGS PLAN--The Company has a 401(k) retirement plan for the
benefit of qualified employees. Those employees who have completed one year
of service and have attained age 21 are eligible to participate and may
contribute a portion of their compensation to the plan. The Company makes
matching contributions at the rate of 100% of the first 3% of each
participant's elective deferral and 50% of the next 3% of such elective
deferral. The Company's expense related to the plan amounted to $302,344,
$447,764, $46,028, $148,045 and $58,321 for the years ended December 31,
1995 and December 29, 1996, and the periods from December 30, 1996 to March
31, 1997, April 1, 1997 to December 31, 1997 and January 1, 1998 to March
31, 1998 (unaudited), respectively.
RETIREMENT BENEFITS OTHER THAN PENSIONS--For some former employees of the
Predecessor, retirement benefits other than pensions are paid. SFAS No. 106
Employers' Accounting for Postretirement Benefits Other Than Pensions,
requires disclosure of the net periodic postretirement benefit cost
separately showing the service cost component, the interest cost component,
the actual return on plan assets for the period, a reconciliation of the
funded status of the plan with amounts reported in the consolidated balance
sheets, the assumed health trend rates, and the effect of a one-percentage-
point increase in the assumed health care cost trend rates for each future
year. Such disclosures are not presented for the Predecessor because the
structure of the plan does not allow for determination of this information
on an individual company basis. No contributions were made by the
Predecessor in fiscal year ended December 31, 1995. For the fiscal year
ended December 29, 1996, contributions totaled $73,610. For the period from
December 30, 1996 to March 31, 1997, contributions totaled $18,403.
As part of the Management Purchase, Tribune assumed all liabilities accrued
under the plan. The Company has no additional liability under that
postretirement plan.
12.EQUITY INCENTIVE AWARDS
On April 1, 1997, the Company established an equity appreciation plan
("Equity Incentives") for certain key employees. The Equity Incentives
provide the employees an opportunity to realize the appreciation over up to
a 10-year period on 9,870 shares of the Company's Class B Common Stock
which approximates 10% of the Company's outstanding Common Stock. The
employees' interest in the Class B Common Stock vest
F-14
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
based upon the achievement of certain performance goals. The vested shares
of Class B Common Stock are convertible into the Company's Class A Common
Stock pursuant to a formula contained in the Equity Incentives agreement at
the election of the employee, at any time up to April 1, 2007. Based on the
conversion formula, the Class B Common Stock will convert to Class A Common
Stock at a rate of less than 1:1. If all Class B Common Stock are converted
to Class A Common Stock, the key employees will hold a combined total of
approximately 10% of the Company's Class A Common Stock. The Company
applies Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for the
Equity Incentives. Accordingly, $194,565 of compensation expense, based on
a third-party independent appraisal at the measurement date, was charged to
operations in the period from April 1, 1997 to December 31, 1997. As of
December 31, 1997, $194,565 has been accrued for payment related to the
Equity Incentives. Had compensation cost for the Equity Incentives been
determined consistent with SFAS No. 123, the Company's net loss and net
loss per share would have remained unchanged as the variable nature of the
Equity Incentives required the use of intrinsic value. As described in Note
19, the Equity Incentives were terminated in February 1998, a stock option
plan was adopted and the employees were awarded stock options. (See Note
19).
13.EARNINGS PER SHARE
The numerator and denominator for the basic and diluted earnings per share
calculation were the same because of the absence of dilutive securities at
December 31, 1997. The options issued in February 1998, described in Note
19, would have had an antidilutive impact on the earnings per share
calculation.
14.SALES TO MAJOR CUSTOMERS
Sales to the five largest unaffiliated customers totaled $6,612,287 or
24.9%, $6,281,115 or 23.5%, and $3,239,679 or 30.9% of the Predecessor's
revenues for fiscal years 1995 and 1996, and for the period from December
30, 1996 to March 31, 1997 and $2,423,000 or 16.7% and $3,778,422 or 31.5%
of the Company's revenues for the period from April 1, 1997 to December 31,
1997 and the period from January 1, 1998 to March 31, 1998 (unaudited),
respectively.
SEASONALITY--Revenues of the Company and the Predecessor tend to be
seasonal, with higher sales in the first and fourth fiscal quarters,
corresponding with the winter planning season.
CYCLICALITY--Revenues of the Company and Predecessor are subject to changes
in the overall level of domestic economic activity and changes in certain
sectors of the agricultural economy, which may be influenced by climate
changes and governmental policy.
15.COMMON STOCK
The Company has authorized 111,000 shares of Class A Common Stock, $.01 par
value, with a liquidation preference of $100 per share and 99,000 shares of
Class B Common Stock, $.01 par value, convertible into Class A Common Stock
in the event of the Company's achievement of certain financial results.
Holders of Class A or Class B Common Stock are each entitled to one vote
for each share held and both classes vote as if there is one class. (See
Note 19).
F-15
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16.COMMITMENTS AND CONTINGENCIES
The Company has commitment letters of credit amounting to approximately
$300,000 at December 31, 1997. The letters of credit are maintained as
guarantees to the landlord from whom the Company has leased its corporate
offices.
EMPLOYMENT AGREEMENTS--The Company has entered into employment agreements
with its Chief Executive Officer and Chief Operating Officer. The terms of
these agreements extend through 2002 and provide for a base salary plus
annual bonus payments at the discretion of the Compensation Committee of
the Board.
17.RELATED PARTY TRANSACTIONS
Due to Tribune--The Predecessor was part of Tribune's cash management
system. As a result, the Due to Tribune amount fluctuated due to timing of
cash payments and receipts.
F-16
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18.SEGMENT INFORMATION
The operations of the Company and the Predecessor have been classified into
two business segments: publishing and information services. The publishing
segment includes Farm Journal, Top Producer, Beef Today, Dairy Today and
Hogs Today which publishes articles appealing to farmers. The information
services segment performs studies for agricultural product producers and
other businesses and provides specialized information. Summarized financial
information by business segment is set forth below:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
PERIOD FROM
DECEMBER PERIOD FROM PERIOD FROM
FISCAL YEARS ENDED 30, APRIL 1, JANUARY 1,
-------------------------- 1996 TO 1997 TO 1998 TO
DECEMBER 31, DECEMBER 29, MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------- ----------- ---------- ----------- ----------
Revenues, Net
Publishing.......... $20,957,268 $20,725,353 $9,045,672 $10,732,469 $9,574,815
Information servic-
es.................. 5,617,253 6,048,772 1,428,387 3,801,602 2,433,571
----------- ----------- ---------- ----------- ----------
Total............ 26,574,521 26,774,125 10,474,059 14,534,071 12,008,386
Operating income
(loss):
Publishing.......... (886,807) (282,381) 2,844,962 (1,398,099) 2,268,948
Information servic-
es.................. (231,452) (25,026) 83,207 (172,030) 965,267
----------- ----------- ---------- ----------- ----------
Total............ (1,118,259) (307,407) 2,928,169 (1,570,129) 3,234,215
Total assets:
Publishing.......... 17,936,882 16,181,689 21,093,629 16,884,593 22,353,227
Information servic-
es.................. 4,985,700 4,887,524 3,638,242 5,623,632 5,592,357
----------- ----------- ---------- ----------- ----------
Total............ 22,922,582 21,069,213 24,731,871 22,508,225 27,945,584
Depreciation and am-
ortization:
Publishing.......... 868,984 842,597 236,406 653,455 226,433
Information servic-
es.................. 186,561 217,482 43,590 164,881 47,238
----------- ----------- ---------- ----------- ----------
Total............ 1,055,545 1,060,079 279,996 818,336 273,671
Capital expenditures:
Publishing.......... 2,192,981 503,408 28,604 149,734 129,374
Information servic-
es.................. 217,943 50,127 150,292 28,733 15,617
----------- ----------- ---------- ----------- ----------
Total............ $ 2,410,924 $ 553,535 $ 178,896 $ 178,467 $ 144,991
=========== =========== ========== =========== ==========
</TABLE>
There were no significant intersegment sales or transfers during these
periods. Operating income (loss) by business segment excludes interest
income and interest expense.
19.SUBSEQUENT EVENTS
EQUITY INCENTIVES--On February 26, 1998, the shareholder of the Company and
the executives agreed to convert the 4,738 vested Class B Common Stock into
1,978 shares of Class A Common Stock using the conversion formula contained
in the Equity Incentives agreement, redeem the remaining 5,132 shares of
F-17
<PAGE>
THE FARM JOURNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Class B Common Stock for $10,264 and terminate the Equity Incentives. A
stock option plan (the "1998 Stock Option Plan") was adopted and the
executives were awarded options to purchase 7,892 shares of Class A Common
Stock for $171.67 per share. The exercise price of $171.67 per share was
based on a third-party independent appraisal as of the date of grant. The
termination of the Equity Incentives resulted in a charge to compensation
expense of $178,809 in the three month period ended March 31, 1998. In
addition, $344,730 of compensation expense will be recognized ratably over
the four-year vesting period of the stock options in the amount of $22,982
per fiscal quarter.
DEBT WAIVER--On March 27, 1998 the Company obtained a waiver of the debt
covenant violation described in Note 8.
ACQUISITION AND RELATED FINANCING--On April 1, 1998, the Company entered
into a $15,000,000 Reducing Revolving Credit Facility (the "Bank
Facility"). The interest rate on the Bank Facility is 8.2% annually subject
to adjustment from time to time, with a term that expires in 2005. The Bank
Facility includes requirements as to the maintenance of financial ratios
and minimum tangible net worth amounts and restrictions of certain asset
sales, other significant transactions, as well as certain reporting
requirements. On April 2, 1998, the Company consummated an acquisition of
the assets of Professional Farmers of America, Inc. and Professional Market
Management, Inc. (collectively, the "PFA Acquisition"). The total
consideration paid for the PFA Acquisition included $11,000,000 in cash and
$1,000,000 in liquidation value of an issue of preferred stock of the
Company that was approved by the Board of Directors on March 17, 1998. The
preferred stock is cumulative, non-voting, convertible automatically into
shares of common stock issued by the Company through an initial public
offering, and if outstanding at the time, putable to the Company during a
30-day period beginning on the third anniversary of issuance for
$1,100,000. The conversion feature provides that the preferred stock will
be converted at the closing of an initial public offering into $1,000,000
of shares of the class of common stock issued to the public at the price
sold to the public. The acquisition was completed with a cash payment of
$3,000,000 and an $8,000,000 drawdown of the Bank Facility.
LETTER OF INTENT--On June 2, 1998 FJC entered into a letter of intent to
purchase the assets of another media company for $4,750,000, including
$1,000,000 of shares of the class of common stock issued to the public at
the price sold to the public. The consummation of the acquisition is
dependent upon the satisfaction of certain significant contingencies.
NAME CHANGE--On June 5, 1998, FJC amended its Certificate of Incorporation
to change its name to The Farm Journal Corporation.
INITIAL PUBLIC OFFERING--The Company has entered into a letter of intent
with representatives of underwriters to sell in an Offering shares of its
common stock. The proceeds of the Offering will be used to repay
$13,800,000 of debt and to fund the Company's business expansion plans,
including acquisitions, and for working capital and other general corporate
purposes.
RECAPITALIZATION--On 1998, FJC amended and restated its Certificate
of Incorporation to (i) change the authorized capital stock of FJC to
shares of Class A Common Stock, par value $0.01 per share, shares of
Class B Common Stock, par value $0.01 per share and 2,725 shares of
Convertible Redeemable Preferred Stock, par value $0.01 per share; (ii)
reclassify each outstanding share of original Class A Common Stock into
shares of its newly-created Class B Common Stock; (iii) reclassify each
outstanding share of original Class B Common Stock into shares of its
newly created Class A Common Stock; and (iv) change the rights and
privileges of the Class A Common Stock and Class B Common Stock. This stock
conversion has been given retroactive recognition in the accompanying
financial statements as of March 31, 1998.
*****
F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Professional Farmers of America, Inc. and
Professional Market Management, Inc.
Cedar Falls, Iowa
We have audited the accompanying combined balance sheets of Professional
Farmers of America, Inc. and Professional Market Management, Inc. as of
December 31, 1996 and 1997, and the related combined statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Professional
Farmers of America, Inc. and Professional Market Management, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
McGLADREY & PULLEN, LLP
Des Moines, Iowa
January 20, 1998, except for Note 7
as to which the date is April 2, 1998
F-19
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash....................................... $ 350 $ 350 $ 450
Certificate of deposit..................... 200,000 -- --
Accounts receivable, net of allowance for
doubtful accounts December 31, 1996
$65,000; 1997 $75,000..................... 321,392 451,256 360,216
Prepaid expenses........................... 54,772 228,638 240,646
---------- ----------- ----------
Total current assets.................... 576,514 680,244 601,312
---------- ----------- ----------
DUE FROM RELATED PARTY (Note 3)............. 3,797,410 4,330,548 3,918,829
---------- ----------- ----------
IMPROVEMENTS AND EQUIPMENT, at cost
Leasehold improvements..................... 128,742 128,742 128,742
Production equipment....................... 445,103 462,493 580,707
Transportation equipment................... 8,937 8,937 8,937
---------- ----------- ----------
582,782 600,172 718,386
Less accumulated depreciation.............. 509,232 528,112 536,385
---------- ----------- ----------
73,550 72,060 182,001
---------- ----------- ----------
INVESTMENT AND OTHER ASSETS
Certificate of deposit..................... 1,100,000 -- --
Deferred customer acquisition costs, net of
accumulated amortization December 31, 1996
$5,904,605; 1997 $7,693,883............... 1,286,365 1,457,301 1,311,902
Prepaid advertising........................ -- 248,114 205,849
---------- ----------- ----------
2,386,365 1,705,415 1,517,751
---------- ----------- ----------
$6,833,839 $ 6,788,267 $6,219,893
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note
3)........................................ $ -- $ 95,242 $ 56,340
Accounts payable........................... 437,663 273,586 282,876
Accrued expenses........................... 340,787 200,674 183,559
Unearned subscription revenue.............. 4,000,034 4,066,968 3,637,096
Customer deposits.......................... 325,521 318,414 282,790
---------- ----------- ----------
Total current liabilities............... 5,104,005 4,954,884 4,442,661
---------- ----------- ----------
LONG-TERM DEBT, less current maturities
(Note 3)................................... -- 289,467 276,403
---------- ----------- ----------
DEFERRED COMPENSATION (Note 6).............. 92,713 125,001 --
---------- ----------- ----------
UNEARNED SUBSCRIPTION REVENUE............... 69,608 294,683 491,662
---------- ----------- ----------
CONTINGENT LIABILITIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized
10,000 shares; issued 2,725 shares (Note
3)........................................ 85,829 85,829 85,829
Common stock, no par value; authorized
1,000 shares; issued 500 shares........... 1,000 1,000 1,000
Retained earnings.......................... 1,480,684 1,037,403 922,338
---------- ----------- ----------
1,567,513 1,124,232 1,009,167
---------- ----------- ----------
$6,833,839 $ 6,788,267 $6,219,893
========== =========== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-20
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
(NOTE 7) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.................. $8,040,629 $9,103,607 $2,234,039 $2,410,671
---------- ---------- ---------- ----------
Operating expenses (Note 3):
Production................... 1,823,376 2,166,995 562,310 540,127
Promotion and sales.......... 2,981,871 3,166,243 807,462 967,481
Circulation.................. 529,515 600,666 165,486 143,585
General and administrative... 2,386,920 3,036,530 733,113 986,527
---------- ---------- ---------- ----------
7,721,682 8,970,434 2,268,371 2,637,720
---------- ---------- ---------- ----------
Operating income (loss)... 318,947 133,173 (34,332) (227,049)
---------- ---------- ---------- ----------
Financial income (expense)
(Note 3):
Interest income.............. 375,377 443,565 122,462 111,995
Interest expense............. (20,019) (11)
---------- ---------- ---------- ----------
375,377 423,546 122,462 111,984
---------- ---------- ---------- ----------
Net income (loss)......... 694,324 556,719 88,130 (115,065)
Pro forma taxes on income.... 304,000 250,000 35,000 (33,000)
---------- ---------- ---------- ----------
Pro forma net income
(loss)................... $ 390,324 $ 306,719 $ 53,130 $ (82,065)
========== ========== ========== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-21
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PROFESSIONAL PROFESSIONAL
FARMERS OF MARKET
AMERICA, INC. MANAGEMENT, INC. COMBINED
------------- ---------------- -----------
<S> <C> <C> <C>
Common stock, no par value:
Authorized 10,000 shares; issued
December 31, 1995, 1996 and 1997
and March 31, 1998 (unaudited)
2,725 shares..................... $ 85,829 $ -- $ 85,829
=========== ========== ===========
Common stock, no par value:
Authorized 1,000 shares;
Issued December 31, 1995, none... $ -- $ -- $ --
Issuance of 500 shares........... -- 1,000 1,000
----------- ---------- -----------
Issued December 31, 1996, 1997
and March 31, 1998 (unaudited)
500 shares...................... $ -- $ 1,000 $ 1,000
=========== ========== ===========
Retained earnings (deficit):
Balance, December 31, 1995........ $ 1,016,360 $ -- $1,016,360
Net income (loss)................ 760,469 (66,145) 694,324
Dividends on common stock, $84.40
per share....................... (230,000) -- (230,000)
----------- ---------- -----------
Balance, December 31, 1996........ 1,546,829 (66,145) 1,480,684
Net income (loss)................ 625,009 (68,290) 556,719
Dividends on common stock,
$366.97 per share............... (1,000,000) -- (1,000,000)
----------- ---------- -----------
Balance, December 31, 1997........ 1,171,838 (134,435) 1,037,403
Net (loss) (unaudited)........... (108,979) (6,086) (115,065)
----------- ---------- -----------
Balance, March 31, 1998 (unau-
dited)........................... $ 1,062,859 $ (140,521) $ 922,338
=========== ========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-22
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ------------------------------
1996 1997 1997 1998
---------- ---------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES
Net income (loss)...... $ 694,324 $ 556,719 $ 88,130 $ (115,065)
Adjustments to recon-
cile net income (loss)
to net cash
provided by (used in)
operating activities:
Depreciation.......... 39,906 30,525 7,940 8,273
Amortization.......... 1,884,519 1,789,278 469,969 550,942
Provision for doubtful
accounts............. 62,325 55,989 19,237 21,836
Deferred compensa-
tion................. 30,112 32,288 7,862 (125,001)
Change in operating
assets and liabili-
ties:
Accounts receivable.. (17,434) (185,853) (78,723) 69,204
Prepaid expenses..... 16,818 14,468 (24,249) 30,257
Deferred customer ac-
quisition costs..... (1,915,482) (1,960,214) (664,864) (405,543)
Accounts payable and
accrued expenses.... 107,026 (304,190) (13,013) (7,825)
Unearned subscription
revenue............. 809,029 292,009 641,071 (232,893)
Customer deposit..... 74,994 (7,107) 28,110 (35,624)
---------- ---------- ------------ --------------
Net cash provided by
(used in) operating
activities......... 1,786,137 313,912 481,470 (241,439)
---------- ---------- ------------ --------------
CASH FLOWS FROM INVEST-
ING ACTIVITIES
Purchase of improve-
ments and equipment... (3,813) (29,035) (4,414) (118,214)
Redemption of certifi-
cate of deposit....... 200,000 1,300,000 50,000 --
(Increase) decrease in
due from related par-
ty.................... (1,752,324) (533,138) (516,448) 411,719
---------- ---------- ------------ --------------
Net cash provided by
(used in) investing
activities......... (1,556,137) 737,827 (470,862) 293,505
---------- ---------- ------------ --------------
CASH FLOWS FROM FINANC-
ING ACTIVITIES
Principal payments on
long-term debt........ -- (51,739) -- (51,966)
Cash dividends paid.... (230,000) (1,000,000) -- --
---------- ---------- ------------ --------------
Net cash (used in)
financing activi-
ties............... (230,000) (1,051,739) -- (51,966)
---------- ---------- ------------ --------------
Net increase in
cash............... -- -- 10,608 100
CASH
Beginning.............. 350 350 350 350
---------- ---------- ------------ --------------
Ending................. $ 350 $ 350 $ 10,958 $ 450
========== ========== ============ ==============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION, cash pay-
ments for interest..... $ -- $ 20,019 $ -- $ --
SUPPLEMENTAL SCHEDULE OF
NONCASH
INVESTING AND FINANCING
ACTIVITIES,
Prepaid advertising ac-
quired in exchange for
long-term debt (Note
3)..................... $ -- $ 436,448 $ -- $ --
</TABLE>
See Notes to Combined Financial Statements.
F-23
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Professional Farmers of America, Inc. provides
agricultural market and management advisory news services through printed and
electronic media to agribusiness and futures industry clients located
primarily in the United States and Canada. Professional Market Management,
Inc. coordinates the marketing of producers' grain through local elevators
executing Professional Farmers of America, Inc.'s grain marketing advice for
the producers.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION: The accompanying combined financial statements
include the accounts of Professional Farmers of America, Inc. ("PFA") and
Professional Market Management, Inc. ("PMM"), which are each owned by the same
individual stockholder. All material related party balances and transactions
have been eliminated in combination.
ACCOUNTING ESTIMATES AND ASSUMPTIONS: 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 revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
DEPRECIATION: Depreciation is computed principally by accelerated methods over
estimated useful lives.
DEFERRED CUSTOMER ACQUISITION COSTS: Deferred customer acquisition costs
consist of direct response advertising costs and other direct costs associated
with the acquisition of a customer. Direct response advertising costs consist
primarily of the costs of direct mail promotional pieces incurred to acquire
new subscribers to PFA's printed products. Other customer acquisition costs
consist of hardware and software costs and sales commissionS incurred to
acquire new subscribers to PFA's electronic products. These costs are
capitalized and amortized using the straight-line method over the initial
subscription period of twelve months.
The capitalized costs are amortized using the revenue forecast method over the
estimated renewal lives. Lives are determined using PFA's historical
subscriber renewal data which indicates that approximately 20% (one-half year
convention), 35%, 25% and 20% of the revenues are generated in years one
through four, respectively, after a customer is acquired. Costs and related
accumulated amortization are eliminated as they become fully amortized.
PFA's policy is to evaluate the remaining life and recoverability of these
costs in light of current conditions and estimates of future cash flows. Based
on these evaluations, PFA has concluded that it is reasonably possible that
those estimates will change in the near term, particularly with respect to
more recently incurred customer acquisition costs which tend to have less
historical customer retention data and thus require more subjectivity in
estimating future activity.
PREPAID ADVERTISING: PFA has purchased advertising rights in an industry
magazine and recognizes expense as the magazine is published. The portion to
be expensed in the next twelve months is included in current assets.
SUBSCRIPTION REVENUE: Subscription revenue is recognized as publications and
services are delivered to subscribers. Unearned subscription revenue
represents paid subscriptions from publications and services to be delivered
in future periods.
F-24
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS: The accompanying unaudited combined
financial statements have been prepared in accordance with the requirements
for presentation of interim financial statements and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, that are
necessary for a fair presentation for interim periods presented have been
reflected. The results of operations for interim periods are not necessarily
indicative of the results of operations for the entire year.
PRO FORMA INCOME TAXES: The Companies, with the consent of their stockholders,
have elected to be taxed as an S Corporation under Section 1372 of the
Internal Revenue Code and a similar section of the state income tax law, which
provide that, in lieu of corporate income taxes, the stockholders separately
account for their proportionate share of the Companies' items of income, gain,
losses, deductions and credits. The financial statements include pro forma
provisions for corporate income taxes as if the Companies were taxable C
Corporations.
NOTE 2. ADVERTISING COSTS
At December 31, 1996 and 1997, $688,842 and $1,087,159, respectively, of
advertising costs were reported as assets. Advertising expense for the years
ended December 31, 1996 and 1997, was approximately $631,000 and $774,000,
including amortization of direct response advertising of approximately
$401,000 and $449,000, respectively.
NOTE 3. RELATED PARTY TRANSACTIONS, LONG-TERM DEBT AND COMMON STOCK PLEDGED
The Companies are affiliated with Oster Communications, Inc., FutureSource
Information Systems, Inc. and several other entities through a common
stockholder group and common management. The companies in the group provide
certain services to one another and to stockholders at cost. Approximately 25%
and 27% of 1996 and 1997 operating expenses, respectively, represent cost
allocations from related parties for these services. Balances due from Oster
Communications, Inc. bear interest at 10%. Interest income on the amounts due
from Oster Communications, Inc. for the years ended December 31, 1996 and 1997
was $300,497 and $418,081, respectively.
PFA, Oster Communications, Inc., FutureSource Information Systems, Inc. and a
stockholder have jointly entered into a credit agreement with a bank for the
following revolving credit loans.
Loan A: $1,000,000 line of credit facility. Interest is payable monthly
through June 30, 1998 when all remaining principal and interest is due.
This loan bears interest at the bank's prime rate (8.5% at December 31,
1997). Oster Communications, Inc. had outstanding borrowings of $1,000,000
at December 31, 1997.
Loan B: $3,750,000 line of credit facility. Interest is payable monthly
through June 30, 1998 when all remaining principal and interest are due.
This loan bears interest at the bank's prime rate plus 1% (9.5% at December
31, 1997). Oster Communications, Inc. had outstanding borrowings of
$685,000 at December 31, 1997.
All of PFA's common stock has been pledged as collateral on these outstanding
borrowings and the Company has guaranteed repayment of all outstanding
borrowings.
F-25
<PAGE>
PROFESSIONAL FARMERS OF AMERICA, INC. AND
PROFESSIONAL MARKET MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PFA entered into an agreement with its stockholder to purchase advertising
rights in an industry magazine. PFA recorded a $436,448 note payable to the
stockholder as well as prepaid advertising expense. The note is unsecured and
requires monthly payments of $10,500 including interest at 9% through July
2001.
Aggregate maturities by year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 95,242
1999................................................................ 104,176
2000................................................................ 113,948
2001................................................................ 71,343
--------
$384,709
========
</TABLE>
NOTE 4. LEASE AGREEMENTS AND RENT EXPENSE
PFA leases certain communication services used to transmit information to its
customers under noncancelable operating lease agreements expiring from
December 31, 1999 to March 2001. PFA also leases equipment under noncancelable
operating lease agreements expiring in December 1999.
Following are approximate future minimum payments required under the
agreements as of December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998.............................................................. $246,000
1999.............................................................. 228,000
2000.............................................................. 143,000
2001.............................................................. 29,000
--------
$646,000
========
</TABLE>
Total rental expense was $175,931 and $190,130 for the years ended December
31, 1996 and 1997, respectively.
NOTE 5. 401(K) PLAN
Substantially all employees of the Companies may participate in Oster
Communications, Inc.'s 401(k) plan. Contributions by the Companies are made at
the discretion of their Boards of Directors. Contributions by the Companies to
the plan for the years ended December 31, 1996 and 1997 were $3,569 and
$4,654, respectively.
NOTE 6. DEFERRED COMPENSATION AGREEMENT
PFA has entered into a deferred compensation agreement with an employee which
provides benefits payable at age 65 or if he becomes totally disabled. Under
certain circumstances, benefits are payable to his designated beneficiary. The
deferred compensation charged to expense totaled $30,112 and $32,288 for the
years ended December 31, 1996 and 1997, respectively.
NOTE 7. SUBSEQUENT EVENT
On April 2, 1998, the Companies' stockholder sold his shares of the Companies'
stock for $10,900,000 in cash plus approximately $1,000,000 of preferred stock
of the acquiring Company.
F-26
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 17
Management Purchase....................................................... 17
Capitalization............................................................ 18
Dividend Policy........................................................... 19
Dilution.................................................................. 19
Unaudited Pro Forma Combined Financial Data............................... 20
Selected Consolidated Financial Data...................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 39
Management................................................................ 52
Certain Relationships and Related Transactions............................ 57
Principal Stockholders.................................................... 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Underwriting.............................................................. 65
Notice to Canadian Residents.............................................. 66
Legal Matters............................................................. 67
Experts................................................................... 67
Additional Information.................................................... 68
Index to Financial Statements............................................. F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
THE FARM JOURNAL CORPORATION
Class A Common Stock
(par value $0.01 per share)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
FURMAN SELZ
MORGAN SCHIFF & CO., INC.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than
underwriting discounts and commissions.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ---------
<S> <C>
SEC Registration Fee.............................................. $ 10,325
NASD Filing Fee................................................... 4,000
Nasdaq Listing Fee................................................ *
Blue Sky Fees and Expenses........................................ 5,000
Printing and Engraving Costs...................................... 250,000
Transfer Agent Fees............................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Miscellaneous..................................................... *
---------
Total........................................................... $ *
=========
</TABLE>
- --------
*To be filed by amendment.
All amounts are estimated except for the SEC Registration Fee and the NASD
filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation provides for
the indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145. In that regard, the Amended and Restated
Certificate of Incorporation provides that the Company shall indemnify any
person who was or is a
II-1
<PAGE>
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director or officer of such
corporation, or is or was serving at the request of such corporation as a
director, officer or member of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of such corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Indemnification in connection with an action or suit by or in the
right of such corporation to procure a judgment in its favor is limited to
payment of settlement of such an action or suit except that no such
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the indemnifying corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in consideration of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
In addition, the By-laws of the Company provide that the Company shall
indemnify to the full extent authorized by law any person made or threatened
to be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator
or intestate is or was a director, officer, employee or agent of the Company
or is or was serving, at the request of the Company, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
The Company has purchased an insurance policy effective upon consummation of
the Offering covering indemnification of directors and officers of the
Registrant against certain liabilities arising under the Securities Act that
might be incurred by them in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company issued the following securities (not adjusted for the
Recapitalization):
<TABLE>
<CAPTION>
NO. OF
PURCHASER SHARES DATE CLASS/TYPE PAR VALUE
--------- ------ ---- ---------- ---------
<S> <C> <C> <C> <C>
MS Farm International
Limited Partnership.... 92,800 April 1, 1997 Class A Common Stock $0.01
MS Farm International
Limited Partnership.... 9,079 July 15, 1997 Class B Common Stock $0.01
MS Farm International
Limited Partnership.... 8,008 April 1, 1997 Class A Common Stock $0.01
MS Farm International
Limited Partnership.... 791 July 15, 1997 Class B Common Stock $0.01
Professional Farmers of
America, Inc. ......... 2,725 April 2, 1998 Preferred Stock $0.01
</TABLE>
The issuances cited above were exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*1 Form of Underwriting Agreement
2.1 Stock Purchase Agreement dated as of January 23, 1997 between MS Farm
Journal Corporation and Tribune Company
2.2 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal Holdings Inc.
2.3 Note Purchase Agreement dated as of April 1, 1997 among Farm Journal,
Inc., Farm Journal Holdings Inc. and Teachers Insurance and Annuity
Association of America
2.4 Stock Purchase Agreement dated as of March 17, 1998 among Farm Journal
Holdings Inc. and the Stockholders of Professional Farmers of America,
Inc
2.5 Stock Purchase Agreement dated as of March 17, 1998 among Farm Journal
Holdings Inc. and Professional Market Management, Inc.
*3.1 Articles of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4 Form of Common Stock Certificate
*5 Opinion of Milbank, Tweed, Hadley & McCloy
10.1 Employment Agreement dated as of March 28, 1997 between MS Farm Journal
Corporation and Stanford Erickson
10.2 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal, Inc. relating to Stanford
Erickson Employment Agreement
10.3 Employment Agreement dated as of March 27, 1997 between MS Farm Journal
Corporation and Roger Randall
10.4 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal, Inc. relating to Roger
Randall Employment Agreement
10.5 $15,000,000 Credit Facility Agreement dated as of April 2, 1998 among
Farm Journal, Inc., Farm Journal Holdings Inc. and First Union National
Bank
10.6 Lease dated July 17, 1995 for property located in Centre Square
Complex, Philadelphia, PA
10.7 Farm Journal Holdings Inc. Incentive Stock Option Plan
*11 Statement re computation of per share earnings
21 Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McGladrey & Pullen, LLP
*23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in its opinion
filed as Exhibit 5 hereto)
24 Power of Attorney (included on signature pages hereto)
27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules.
Schedule I--Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted as they are inapplicable, or the other
information is included in the financial statements.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide the Underwriters
at the Closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel that matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Philadelphia,
Pennsylvania on this 10th day of June, 1998.
THE FARM JOURNAL CORPORATION
/s/ Stanford A. Erickson
By: _________________________________
Name: Stanford A. Erickson
Title: Chairman of the Board,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stanford A. Erickson and Richard K.
Stanislaw and each or any of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or post-
effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto, which amendments may make such changes in this
Registration Statement as such agent deems appropriate, and to file any new
registration statement (and any post-effective amendment thereto) which
registers additional securities of the same class and for the same offering as
this Registration Statement in accordance with Rule 462(b) under the
Securities Act (each, a "462(b) Registration Statement"), and the Registrant
and each such person hereby appoints each such Agent as attorney-in-fact to
execute in the name and on behalf of the Registrant and each such person,
individually and in each capacity stated below, any such amendments to this
registration statement and any such 462(b) Registration Statements, and other
documents in connection therewith, with the Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Stanford A. Erickson Chairman of the Board and June 10, 1998
____________________________________ Chief Executive Officer
Stanford A. Erickson (Principal
Executive Officer)
/s/ Roger D. Randall President and Chief June 10, 1998
____________________________________ Operating Officer and
Roger D. Randall Director
/s/ Richard K. Stanislaw Chief Financial Officer June 10, 1998
____________________________________ (Principal Financial and
Richard K. Stanislaw Accounting Officer)
/s/ J. Carr Gamble, III Secretary and Director June 10, 1998
____________________________________
J. Carr Gamble, III
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Sterling B. Brinkley, Jr. Director June 10, 1998
____________________________________
Sterling B. Brinkley, Jr.
Director , 1998
____________________________________
Mark C. Pickup
Director , 1998
____________________________________
David J. Bates
Director , 1998
____________________________________
Richard S. Werdiger
</TABLE>
II-6
<PAGE>
THE ACCOMPANYING FINANCIAL STATEMENTS REFLECT CHANGES TO THE TYPE AND NUMBER
OF COMMON SHARES AUTHORIZED AND A CONVERSION OF PREVIOUSLY OUTSTANDING COMMON
STOCK INTO NEWLY CREATED CLASSES OF COMMON STOCK, ALL OF WHICH IS TO BE
EFFECTED PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE
FOLLOWING OPINION IS IN THE FORM WHICH WILL BE SIGNED BY DELOITTE & TOUCHE LLP
UPON CONSUMMATION OF THE ABOVE EVENTS, WHICH ARE DESCRIBED IN NOTE 19 OF NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND ASSUMING THAT FROM JANUARY 23, 1998
TO THE DATE OF SUCH EVENTS, NO OTHER EVENTS HAVE OCCURRED WHICH WOULD AFFECT
THE ACCOMPANYING FINANCIAL STATEMENTS AND NOTES THERETO.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
June 10, 1998
INDEPENDENT AUDITORS' REPORT
The Farm Journal Corporation
We have audited the consolidated financial statements of the Farm Journal
Corporation and Subsidiaries as of December 29, 1996 and December 31, 1997 and
for each of the three years in the period ended December 31, 1997 and have
issued our report thereon dated January 23, 1998, except for Note 19 as to
which the date is , 1998, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed
in Item 21 of this Registration Statement. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Philadelphia, Pennsylvania
January 23, 1998
( as to Note 19)
S-1
<PAGE>
THE FARM JOURNAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
SCHEDULE I
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS--Investment in equity of subsidiaries.......... $ 8,448,756 $10,464,252
=========== ===========
TOTAL................................................. $ 8,448,756 $10,464,252
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Preferred Stock $.01 par value, 2,725 shares
authorized issued and outstanding at March 31,
1998.................................................
Shareholders' equity:
Common Stock:
Class A, $.01 par value, shares authorized,
issued and outstanding.............................
Class B, $.01 par value, shares authorized,
102,786 issued and outstanding..................... $ 1,028
Class A, $.01 par value, 111,000 shares authorized;
issued and outstanding 100,808 shares in 1997, none
at March 31 1998................................... $ 1,008
Class B, convertible into Class A common stock, $.01
par value, 99,000 shares authorized, 9,870 shares
issued and outstanding 1997, none at March 31,
1998............................................... 99
Additional paid-in capital............................ 9,928,533 10,291,722
Retained earnings..................................... (1,480,884) 171,502
----------- -----------
Total shareholders' equity........................ 8,448,756 10,464,252
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $ 8,448,756 $10,464,252
=========== ===========
</TABLE>
See notes to financial statements.
S-2
<PAGE>
THE FARM JOURNAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY ONLY)
SCHEDULE I
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Equity in net income (loss) of subsidiaries.......... $(1,480,884) $1,652,386
----------- ----------
NET INCOME (LOSS).................................... $(1,480,884) $1,652,386
=========== ==========
</TABLE>
See notes to financial statements.
S-3
<PAGE>
THE FARM JOURNAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
SCHEDULE I
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $(1,480,884) $1,652,386
Adjustment to reconcile net income to net cash pro-
vided by operating activities..................... 1,480,884 (1,652,386)
----------- ----------
Net cash provided by operating activities........ -- --
----------- ----------
INVESTING ACTIVITIES:
Contribution of capital to subsidiaries............ (4,445,808)
Acquisition of stock of Farm Journal, Inc. net of
acquisition costs................................. (5,483,832)
-----------
Net cash used in investing activities............ (9,929,640)
-----------
FINANCIAL ACTIVITIES:
Proceeds from issuance of Class A stock............ 9,929,541
Proceeds from issuance of Class B stock............ 99
-----------
Net cash provided by financing activities........ 9,929,640
----------- ----------
NET CHANGE IN CASH................................... $ -- $ --
=========== ==========
</TABLE>
See notes to financial statements.
S-4
<PAGE>
SCHEDULE I
THE FARM JOURNAL CORPORATION
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of The
Farm Journal Corporation (the Parent) and on an equity basis its
subsidiaries and should be read in conjunction with the consolidated
financial statements of The Farm Journal Corporation and Subsidiaries (the
"Company") and the notes thereto.
2. SUBSEQUENT EVENT
DEBT WAIVER--On March 27, 1998 the Company obtained a waiver of the debt
covenant violation described in Note 8.
ACQUISITION AND RELATED FINANCING--On April 1, 1998, the Company entered
into a $15,000,000 Reducing Revolving Credit Facility (the "Bank
Facility"). The interest rate on the Bank Facility is 8.5% annually,
subject to adjustment from time to time with a term that expires in 2005.
The Bank Facility includes requirements as to the maintenance of financial
ratios and minimum tangible net worth amounts and restrictions of certain
asset sales, other significant transactions, as well as certain reporting
requirements. On April 2, 1998, the Company consummated an acquisition of
the assets of Professional Farmers of America, Inc. and Professional Market
Management, Inc. (collectively, the "PFA Acquisition"). The total
consideration paid for the PFA Acquisition included $11,000,000 in cash and
$1,000,000 in liquidation value of an issue of preferred stock of the
Company that was approved by the Board of Directors on March 17, 1998. The
preferred stock is cumulative, non-voting, convertible automatically into
shares of common stock issued by the Company through an initial public
offering, and if outstanding at the time, putable to the Company during a
30-day period beginning on the third anniversary of issuance for
$1,100,000. The conversion feature provides that the preferred stock will
be converted at the closing of an initial public offering into $1,000,000
of common stock at the price sold to the public. The acquisition was
completed with a cash payment of $3,000,000 and an $8,000,000 drawdown of
the Bank Facility.
LETTER OF INTENT--On June 2, 1998 the Company entered into a letter of
intent to purchase the assets of another media company for $4,750,000,
including $1,000,000 of shares of the class of common stock issued to the
public at the price sold to the public.
NAME CHANGE--On June 5, 1998, FJC amended its Certificate of Incorporation
to change its name to The Farm Journal Corporation.
INITIAL PUBLIC OFFERING--The Company has entered into a letter of intent
with representatives of underwriters to sell in an Offering shares of its
common stock. The proceeds of the Offering will be used to repay
$13,800,000 of debt and to find the Company's business expansion plans,
including acquisitions, and for working capital and other general corporate
purposes.
RECAPITALIZATION--On 1998, FJC amended and restated its Certificate of
Incorporation to (i) change the authorized capital stock of FJC to
shares of Class A Common Stock, par value $0.01 per share, shares of
Class B Common Stock, par value $0.01 per share and 2,725 shares of
Convertible Redeemable Preferred Stock, par value $0.01 per share; (ii)
reclassify each outstanding share of original Class A Common Stock into
shares of its newly created Class B Common Stock; (iii) reclassify each
outstanding share of original Class B Common Stock into shares of its
newly created Class A Common Stock; and (iv) change the rights and
privileges of the Class A Common Stock and Class B Common Stock. This stock
conversion has been given retroactive recognition in the accompanying
financial statements as of March 31, 1998.
*****
S-5
<PAGE>
THE FARM JOURNAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE
BALANCE AT CHARGED TO AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES DEDUCTIONS (A) PERIOD
------------ ---------- -------------- ---------
<S> <C> <C> <C> <C>
For the year ended December
31, 1995
Accounts receivable allow-
ances...................... $163,653 $121,541 $(125,289) $ 159,905
For the year ended December
29, 1996
Accounts receivable allow-
ances...................... 159,905 55,001 (98,551) 116,355
For the year ended December
31, 1997
Accounts receivable allow-
ances...................... 116,355 74,206 (42,731) 147,830
For the three months ended
March 31, 1998
Accounts receivable allow-
ances (Unaudited).......... 147,830 79,032 226,862
</TABLE>
- --------
(a) Amounts written off against related assets
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*1 Form of Underwriting Agreement
2.1 Stock Purchase Agreement dated as of January 23, 1997 between MS Farm
Journal Corporation and Tribune Company
2.2 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal Holdings Inc.
2.3 Note Purchase Agreement dated as of April 1, 1997 among Farm Journal,
Inc., Farm Journal Holdings Inc. and Teachers Insurance and Annuity
Association of America
2.4 Stock Purchase Agreement dated as of March 17, 1998 among Farm Journal
Holdings Inc. and the Stockholders of Professional Farmers of America,
Inc.
2.5 Stock Purchase Agreement dated as of March 17, 1998 among Farm Journal
Holdings Inc. and Professional Market Management, Inc.
*3.1 Articles of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4 Form of Common Stock Certificate
*5 Opinion of Milbank, Tweed, Hadley & McCloy
10.1 Employment Agreement dated as of March 28, 1997 between MS Farm Journal
Corporation and Stanford Erickson
10.2 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal, Inc. relating to Stanford
Erickson Employment Agreement
10.3 Employment Agreement dated as of March 27, 1997 between MS Farm Journal
Corporation and Roger Randall
10.4 Assignment and Assumption Agreement dated as of April 1, 1997 between
MS Farm Journal Corporation and Farm Journal, Inc. relating to Roger
Randall Employment Agreement
10.5 $15,000,000 Credit Facility Agreement dated as of April 2, 1998 among
Farm Journal, Inc., Farm Journal Holdings Inc. and First Union National
Bank
10.6 Lease dated July 17, 1995 for property located in Centre Square
Complex, Philadelphia, PA
10.7 Farm Journal Holdings Inc. Incentive Stock Option Plan
*11 Statement re computation of per share earnings
21 Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McGladrey & Pullen, LLP
*23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in its opinion
filed as Exhibit 5 hereto)
24 Power of Attorney (included on signature pages hereto)
27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of January 23, 1997
BETWEEN
MS FARM JOURNAL CORPORATION
AND
TRIBUNE COMPANY
RELATING TO THE CAPITAL STOCK OF
FARM JOURNAL, INC.
<PAGE>
<TABLE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<S> <C>
1.1. Definitions......................................................................... 1
ARTICLE II
PURCHASE AND SALE
2.1. Purchase and Sale of the Company Shares............................................. 5
ARTICLE III
PURCHASE PRICE
3.1. Purchase Price; Calculation of Estimated Purchase Price............................. 5
ARTICLE IV
CLOSING
4.1. Closing Date........................................................................ 5
4.2. Payment of Purchase Price........................................................... 5
4.3. Buyer's Additional Closing Date Deliveries.......................................... 5
4.4. Tribune's Closing Date Deliveries................................................... 6
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TRIBUNE
5.1. Organization of Tribune............................................................. 7
5.2. Organization and Capital Structure of the Company................................... 7
5.3. Subsidiaries........................................................................ 7
5.4. Authority of Tribune................................................................ 8
5.5. Financial Statements................................................................ 9
5.6. Operations Since Balance Sheet Date................................................. 9
5.7. Condition of Assets; Availability of Assets........................................ 10
5.8. Governmental Permits................................................................ 10
5.9. Real Property....................................................................... 10
5.10. Real Property Leases................................................................ 10
5.11. Condemnation........................................................................ 10
5.12. Personal Property Leases............................................................ 11
5.13. Patents and Trademarks.............................................................. 11
5.14. Title to Property................................................................... 12
5.15. No Violation, Litigation or Regulatory Action....................................... 12
5.16. Insurance........................................................................... 12
5.17. Contracts........................................................................... 12
5.18. Status of Contracts................................................................. 13
5.19. Environmental Matters............................................................... 13
5.20. Taxes............................................................................... 14
5.21. Employee Benefits................................................................... 14
5.22. Employee Relations.................................................................. 15
5.23. Directors and Officers.............................................................. 15
5.24. No Finder........................................................................... 15
5.25. Circulation......................................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
<S> <C>
6.1. Organization of Buyer..............................................................15
6.2. Authority of Buyer.................................................................15
6.3. Investment Intent..................................................................16
6.4. No Finder..........................................................................16
6.5. HSR Act............................................................................16
ARTICLE VII
ACTION PRIOR TO THE CLOSING DATE
7.1. Investigation......................................................................16
7.2. Preserve Accuracy of Representations and Warranties................................17
7.3. Consents of Third Parties; Governmental Approvals..................................17
7.4. Operations Prior to the Closing Date...............................................17
7.5. Cancellation of Intercompany Debt Owed to Tribune..................................18
7.6. Financing; Superior Proposal.......................................................18
7.7. HSR Act Filing.....................................................................19
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1. Use of Names.......................................................................20
8.2. Employee Matters...................................................................20
8.3. Retired Employees..................................................................20
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
9.1. No Misrepresentation or Breach of Covenants and Warranties.........................20
9.2. Necessary Approvals................................................................21
9.3. Necessary Consents.................................................................21
9.4. Closing Deliveries.................................................................21
9.5. Financing..........................................................................21
9.6 Executive Committee Approval.......................................................21
9.7. HSR Act............................................................................21
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF TRIBUNE
10.1. No Misrepresentation or Breach of Covenants and Warranties.........................22
10.2. Necessary Consents.................................................................22
10.3. Letter of Credit...................................................................22
10.4. Closing Deliveries.................................................................22
10.5. Executive Committee Approval.......................................................22
10.6. HSR Act............................................................................22
ARTICLE XI
TAX MATTERS
11.1. Liability for Taxes................................................................23
11.2. Tax Returns........................................................................24
11.3. Contest Provisions.................................................................25
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
11.4. Assistance and Cooperation........................................................26
ARTICLE XII
INDEMNIFICATION
12.1. Indemnification by Tribune........................................................26
12.2. Indemnification by Buyer..........................................................28
12.3. Notice of Claims..................................................................29
12.4. Third Person Claims...............................................................30
12.5. Exclusive Remedy..................................................................31
ARTICLE XIII
TERMINATION
13.1. Termination.......................................................................31
13.2. Notice of Termination.............................................................31
13.3. Non-Solicitation..................................................................31
13.4. Effect of Termination.............................................................32
ARTICLE XIV
GENERAL PROVISIONS
14.1. Survival of Obligations............................................................32
14.2. Confidential Nature of Information.................................................32
14.3. No Public Announcement.............................................................33
14.4. Notices............................................................................33
14.5. Successors and Assigns.............................................................34
14.6. Access to Records after Closing....................................................34
14.7. Entire Agreement; Amendments.......................................................34
14.8. Interpretation.....................................................................34
14.9. Waivers............................................................................35
14.10. Expenses..........................................................................35
14.11. Partial Invalidity................................................................35
14.12. Execution in Counterparts.........................................................35
14.13. Further Assurances................................................................36
14.14. Governing Law.....................................................................36
14.15. Disclaimer of Warranties..........................................................36
14.16. Mediation; Submission to Jurisdiction.............................................36
</TABLE>
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of January 23, 1997 ("Agreement")
---------
between MS Farm Journal Corporation, a Delaware corporation ("Buyer"), and
-----
Tribune Company, a Delaware corporation ("Tribune").
-------
WHEREAS, Tribune is the owner of all the outstanding shares of common
stock of Farm Journal, Inc., a Pennsylvania corporation (the "Company");
-------
WHEREAS, the Company publishes Farm Journal magazine and other
------------
agricultural magazines and engages in the market research and data service
businesses (collectively, the "Business"); and
--------
WHEREAS, Tribune desires to sell to Buyer, and Buyer desires to
purchase from Tribune, all of the common stock of the Company, all on the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed between Tribune and Buyer
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1. DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person which
---------
directly or indirectly controls, is controlled by or is under common control
with such Person.
"BALANCE SHEET" has the meaning specified in Section 5.5.
------------- -----------
"BALANCE SHEET DATE" means December 29, 1996.
------------------
"BUSINESS" has the meaning specified in the third paragraph to this
--------
Agreement.
"BUYER" has the meaning specified in the first paragraph of this
-----
Agreement.
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
--------------------------
documents being or to be executed and delivered by Buyer under this Agreement or
in connection herewith.
"BUYER GROUP MEMBER" means Buyer and its Affiliates, directors,
------------------
officers, employees, agents, attorneys and consultants and their respective
successors and assigns.
<PAGE>
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments thereto, any
-- ---
successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Company Shares from
-------
Tribune to Buyer pursuant to this Agreement.
"CLOSING DATE" has the meaning specified in Section 4.1.
------------ -----------
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
----
"COMPANY" has the meaning specified in the second paragraph of this
-------
Agreement.
"COMPANY AGREEMENTS" has the meaning specified in Section 5.18.
------------------ ------------
"COMPANY SHARES" has the meaning specified in Section 2.1.
-------------- -----------
"CONTAMINANT" means any waste, pollutant, hazardous, noxious or toxic
-----------
substance or waste, petroleum, petroleum-based substance or waste, special
waste, or any constituent of any such substance or waste, whether solid, liquid
or gas.
"COURT ORDER" means any judgment, order, award or decree of any
-----------
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
-----------
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"ENVIRONMENTAL LAW" means all Requirements of Law derived from or
-----------------
relating to all federal, state and local laws or regulations relating to or
addressing the environment, health or safety, including but not limited to
CERCLA, OSHA and RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"EXCLUDED TAXES" has the meaning set forth in Section 11.1(a).
-------------- ---------------
"EXECUTIVE COMMITTEE" has the meaning set forth in Section 5.4.
------------------- -----------
"EXPENSES" means any and all reasonable expenses incurred in
--------
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against hereunder (including,
without limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, accountants and other professionals).
- -2-
<PAGE>
"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
-----------------
governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has the meaning specified in Section 5.8.
-------------------- -----------
"GUARANTY" has the meaning specified in Section 7.3.
-------- -----------
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"KNOWLEDGE OF TRIBUNE" means the actual knowledge of the following
--------------------
persons: Gerald W. Agema, Earl Ainsworth, Michael Gart, Soyna Hillgren, Howard
McQueen, Andrew J. Oleszczuk, Roger Randall, Kenneth J. Venuti, Lisa Wiersma
and, solely with respect to Section 5.25, Elma J. Rittersbach.
------------
"LOSSES" means any and all losses, costs, obligations, liabilities,
------
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)
----
651 et seq., any amendment thereto, any successor statute, and any regulations
-- ---
promulgated thereunder.
"PERMITTED ENCUMBRANCES" means (a) liens for taxes and other
----------------------
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable and (c) other liens or imperfections on property
which are not material in amount or do not materially detract from the value of
or materially impair the existing use of the property affected by such lien or
imperfection.
"PERSON" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PURCHASE PRICE" has the meaning specified in Section 3.1.
-------------- -----------
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
----
(S)(S) 6901 et seq., and any successor statute, and any regulations promulgated
-- ---
thereunder.
"REAL PROPERTY" has the meaning specified in Schedule 5.6.
------------- ------------
"REAL PROPERTY INDEMNIFICATION AGREEMENT" means the Release and
---------------------------------------
Indemnification Agreement dated December 30, 1996 among Ronald Caplan, Max M.
Berger, 230 Washington Square Partners, a Pennsylvania limited partnership, and
the Company.
"REAL PROPERTY PURCHASERS" means Ronald Caplan, Max M. Berger and 230
------------------------
Washington Square Partners, a Pennsylvania limited partnership.
"RELEASE" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or
- -3-
<PAGE>
outdoor environment or into or out of any real property previously owned by the
Company or any Subsidiary, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or any real property previously owned
by the Company or any Subsidiary.
"REMEDIAL ACTION" means actions required to (i) clean up, remove,
---------------
treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threatened Release or minimize the
further Release of Contaminants or (iii) investigate and determine if a remedial
response is needed and to design such a response and post-remedial
investigation, monitoring, operation and maintenance and care.
"REQUIREMENTS OF LAW" means any foreign, federal, state and local
-------------------
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body.
"RETIRED EMPLOYEES" has the meaning specified in Schedule 5.21(c).
----------------- ----------------
"STRADDLE PERIOD" shall mean any taxable year or period beginning
---------------
before and ending after the Closing Date.
"SUBSIDIARIES" has the meaning specified in Section 5.3.
------------ -----------
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") shall
--- ----- -------
mean any federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value added, transfer or excise tax,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or penalty, imposed by
any Governmental Body.
"TAX PACKAGE" has the meaning set forth in Section 11.2(c).
----------- ---------------
"TAX RETURN" shall mean any return, report or similar statement
----------
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"TRIBUNE" has the meaning specified in the first paragraph of this
-------
Agreement.
"TRIBUNE ANCILLARY AGREEMENTS" means all agreements, instruments and
----------------------------
documents being or to be executed and delivered by Tribune under this Agreement
or in connection herewith.
"TRIBUNE'S GROUP" shall mean any "affiliated group" (as defined in
---------------
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that includes Tribune.
"TRIBUNE GROUP MEMBER" means Tribune and its Affiliates, directors,
--------------------
officers, employees, agents, attorneys and consultants and their respective
successors and assigns.
- -4-
<PAGE>
ARTICLE II
PURCHASE AND SALE
-----------------
2.1. PURCHASE AND SALE OF THE COMPANY SHARES. Upon the terms and
---------------------------------------
subject to the conditions of this Agreement, on the Closing Date, Tribune shall
sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase
from Tribune, all of the issued and outstanding shares of common stock of the
Company (the "Company Shares"), free and clear of all
--------------
Encumbrances.
ARTICLE III
PURCHASE PRICE
--------------
3.1. PURCHASE PRICE; CALCULATION OF ESTIMATED PURCHASE PRICE.
-------------------------------------------------------
The purchase price for the Company Shares (the "Purchase Price") shall be
--------------
$17,000,000. The Purchase Price shall be payable in the manner set forth in
Section 4.2.
- -----------
ARTICLE IV
CLOSING
-------
4.1. CLOSING DATE. The Closing shall be consummated at 1:00 P.M.,
------------
Chicago time, as soon as practicable after the conditions set forth in Articles
--------
IX and X have been satisfied, at such place as shall be agreed upon by Buyer and
- -- -
Tribune. The time and date on which the Closing is actually held is referred to
herein as the "Closing Date."
-------------
4.2. PAYMENT OF PURCHASE PRICE. Subject to fulfillment or waiver of
-------------------------
the conditions set forth in Article IX, at Closing Buyer shall pay Tribune, by
----------
wire transfer of immediately available funds to such account specified by
Tribune to Buyer at least two business days prior to the Closing Date, an amount
equal to the Purchase Price.
4.3. BUYER'S ADDITIONAL CLOSING DATE DELIVERIES. Subject to
------------------------------------------
fulfillment or waiver of the conditions set forth in Article IX, at Closing
----------
Buyer shall deliver to Tribune all the following:
(a) Copies of Buyer's Certificate of Incorporation certified as of a
recent date by the Secretary of State of the State of Delaware;
(b) Certificate of good standing of Buyer issued as of a recent date
by the Secretary of State of the Secretary of State of Delaware;
(c) Certificate of the secretary or assistant secretary of Buyer,
dated the Closing Date, in form and substance reasonably satisfactory to
Tribune, as to (i) no amendments to the Certificate of Incorporation of Buyer
since a specified date; (ii) the by-laws of Buyer; (iii) the resolutions of the
Board of Directors of Buyer authorizing the execution and performance of
- -5-
<PAGE>
this Agreement and the transactions contemplated by this Agreement; and (iv)
incumbency and signatures of the officers of Buyer executing this Agreement and
any Buyer Ancillary Agreement;
(d) Opinion of counsel to Buyer substantially in the form contained in
Exhibit I; and
- ---------
(e) The certificate contemplated by Section 10.1, duly executed by the
------------
President or any Vice President of Buyer.
4.4. TRIBUNE'S CLOSING DATE DELIVERIES. Subject to fulfillment or
---------------------------------
waiver of the conditions set forth in Article X, at Closing Tribune shall
---------
deliver to Buyer all the following:
(a) Copies of the Restated Certificate of Incorporation of Tribune
certified as of a recent date by the Secretary of State of the State of
Delaware;
(b) Certificate of good standing of Tribune issued as of a recent date
by the Secretary of State of the State of Delaware;
(c) Certificate of the secretary or an assistant secretary of Tribune,
dated the Closing Date, in form and substance reasonably satisfactory to Buyer,
as to (i) no amendments to the Restated Certificate of Incorporation of Tribune
since a specified date; (ii) the by-laws of Tribune; (iii) the resolutions of
the Board of Directors of Tribune authorizing the execution and performance of
this Agreement and the transactions contemplated by this Agreement; and (iv)
incumbency and signatures of the officers of Tribune executing this Agreement
and any Tribune Ancillary Agreement;
(d) Opinion of counsel to Tribune substantially in the form contained
in Exhibit II;
----------
(e) The certificates representing all of the Company Shares, duly
endorsed to Buyer or accompanied by duly executed stock powers and with all
required stamp taxes affixed thereto;
(f) A signed resignation by each of the directors and officers of the
Company and each Subsidiary;
(g) All consents, waivers or approvals obtained by Tribune or the
Company with respect to the consummation of the transactions contemplated by
this Agreement;
(h) The certificate contemplated by Section 9.1, duly executed by the
-----------
President or any Vice President of Tribune; and
(i) The minute books, stock ledgers and corporate seal of the Company.
- -6-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TRIBUNE
-----------------------------------------
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, Tribune represents and warrants
to Buyer:
5.1. ORGANIZATION OF TRIBUNE. Tribune is a corporation duly organized,
-----------------------
validly existing and in good standing under the laws of the State of Delaware.
5.2. ORGANIZATION AND CAPITAL STRUCTURE OF THE COMPANY. (a) The
-------------------------------------------------
Company is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania. The Company is duly
qualified to transact business as a foreign corporation and is in good standing
in all jurisdictions which are material to the operation of the Business. The
Company has the power and authority to own or lease and to operate and use its
assets and to carry on the Business as now conducted.
(b) The authorized capital stock of the Company consists solely of 100
shares of Common Stock, $.01 par value per share, of which 100 shares are issued
and outstanding. Except for this Agreement, there are no agreements,
arrangements, options, warrants, calls, rights or commitments of any character
relating to the issuance, sale, purchase or redemption of any shares of capital
stock of the Company. All of the outstanding shares of common stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are owned by Tribune of record and beneficially free from all Encumbrances.
(c) True and complete copies of the Amended and Restated Articles of
Incorporation and of the Amended and Restated By-laws of the Company have been
made available to Buyer.
5.3. SUBSIDIARIES. (a) Except as set forth in Schedule 5.3, the
------------ ------------
Company does not, directly or indirectly, own, of record or beneficially, any
outstanding voting securities or other equity interests in any Person.
(b) Schedule 5.3 sets forth the authorized capital stock of each
-------------
corporation listed in Schedule 5.3 (the "Subsidiaries") and indicates the number
------------ ------------
of issued and outstanding shares of capital stock. Except as set forth in
Schedule 5.3, there are no agreements, arrangements, options, warrants, calls,
- ------------
rights or commitments of any character relating to the issuance, sale, purchase
or redemption of any shares of capital stock of any of the Subsidiaries. All of
the outstanding shares of capital stock of each of the Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable. All of the
outstanding shares of capital stock of each of the Subsidiaries are owned by the
Company or one of the Subsidiaries of record and beneficially free from all
Encumbrances, except as set forth in Schedule 5.3.
------------
(c) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Each Subsidiary is duly qualified to transact business as a foreign corporation
and is in good standing in each of the jurisdictions listed in Schedule 5.3.
------------
- -7-
<PAGE>
(d) True and complete copies of the certificate or articles of
incorporation and all amendments thereto and of the By-laws, as amended to date,
of each of the Subsidiaries have been made available to Buyer.
5.4. AUTHORITY OF TRIBUNE. (a) Tribune has the corporate power and
--------------------
authority to execute, deliver and perform this Agreement (except with respect to
the consummation of the sale of the Company Shares to Buyer and the Closing,
both of which are subject to the approval of the Board of Directors of Tribune
or the Executive Committee of the Board of Directors of Tribune (the "Executive
Committee")) and all of the Tribune Ancillary Agreements and to consummate the
transactions contemplated hereby and or thereby (except with respect to the
consummation of the sale of the Company Shares to Buyer and the Closing, both of
which are subject to the approval of the Board of Directors of Tribune or the
Executive Committee). The execution, delivery and performance of this Agreement
(except, with respect to the consummation of the sale of the Company Shares to
Buyer and the Closing, both of which are subject to the approval of the Board of
Directors of Tribune or the Executive Committee) and the Tribune Ancillary
Agreements by Tribune have been duly authorized and approved and will not
require any further authorization or consent of Tribune or its stockholders.
This Agreement has been duly authorized, executed and delivered by Tribune
(except with respect to the consummation of the sale of the Company Shares to
Buyer and the Closing, both of which are subject to the approval of the Board of
Directors of Tribune or the Executive Committee) and is the legal, valid and
binding obligation of Tribune enforceable in accordance with its terms (except
with respect to the consummation of the sale of the Company Shares to Buyer and
the Closing, both of which are subject to the approval of the Board of Directors
of Tribune or the Executive Committee), and each of the other Tribune Ancillary
Agreements will have been duly authorized by Tribune and upon execution and
delivery by Tribune will be a legal, valid and binding obligation of Tribune
enforceable in accordance with its terms, in each case subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general equity principles.
(b) Except as set forth in Schedule 5.4, neither the execution and
------------
delivery of this Agreement or any of the Tribune Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of the Company Shares or any of the assets of the Company, under
(1) the Restated Certificate of Incorporation or By-laws of Tribune, (2)
any material note, instrument, agreement, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or obligation
to which Tribune or the Company is a party or by which Tribune or the
Company is bound, (3) the Amended and Restated Articles of Incorporation of
the Company, (4) any Company Agreement, (5) any Court Order to which
Tribune or the Company is a party or by which Tribune or the Company is
bound, or (6) any Requirements of Laws affecting Tribune or the Company,
except for such conflicts, breaches, defaults, events or Encumbrances which
would not have a
- -8-
<PAGE>
material adverse effect on the assets, Business, results of operations or
financial condition of the Company and the Subsidiaries, taken as a whole;
or
(ii) require the approval, consent, authorization or act of, or the
making by Tribune or the Company of any declaration, filing or registration
with, any Person, except for such approvals, consents, authorizations,
acts, declarations, filings or registrations which, if not obtained or
made, would not have a material adverse effect on the assets, Business,
results of operations or financial condition of the Company and the
Subsidiaries, taken as a whole.
5.5. FINANCIAL STATEMENTS. Schedule 5.5(a) contains (a) the unaudited
--------------------
consolidated balance sheet of the Company as of December 31, 1995 and the
related consolidated statement of income for the year then ended and (b) the
unaudited consolidated balance sheet (the "Balance Sheet") of the Company as of
-------------
December 29, 1996 (the "Balance Sheet Date") and the related consolidated
------------------
statement of income for the year then ended. Except as set forth in Schedule
--------
5.5(a), such balance sheets and statements of income have been prepared in
- ------
accordance with generally accepted accounting principles consistently applied
and present fairly, in all material respects, the consolidated financial
position and results of operations of the Company as of their respective dates
and for the respective periods covered thereby subject to the absence of
footnotes. Except as set forth in Schedule 5.S(a) and as reflected on the
---------------
Balance Sheet, there are no material liabilities of the Company or the
Subsidiaries (whether matured or unmatured, contingent or absolute) which would
have been required to be reflected on an audited balance sheet of the Company
and its Subsidiaries, or the footnotes thereto, as of the Balance Sheet Date,
and the only liabilities which have been incurred since such date are
liabilities incurred in the ordinary course of business that are of a nature and
amount consistent with past practices. Schedule 5.5(b) contains the unaudited
---------------
monthly consolidated balance sheet of the Company for each of the periods
indicated thereon. Such monthly balance sheets were based on the books and
records of the Company, prepared in accordance with the internal accounting
policies of the Company, at each respective date and were generated for internal
use only.
5.6. OPERATIONS SINCE BALANCE SHEET DATE. Except as set forth in
-----------------------------------
Schedule 5.6, since the Balance Sheet Date, the Company and the Subsidiaries
have conducted the Business only in the ordinary course, and there has been no
material adverse change in the assets, Business, results of operations or
financial condition of the Company and the Subsidiaries, taken as a whole.
5.7. CONDITION OF ASSETS; AVAILABILITY OF ASSETS. (a) The equipment
-------------------------------------------
and other tangible personal property which is material to the Business of the
Company and the Subsidiaries, taken as a whole, and the buildings and structures
located on any real property currently leased, used or occupied by the Company
or any Subsidiary are in all material respects in serviceable condition.
(b) Except as set forth in Schedule 5.7, the assets owned or leased by
------------
the Company constitute all the assets and properties used in, or necessary for,
the operation of the Business of the Company.
- -9-
<PAGE>
5.8. GOVERNMENTAL PERMITS. (a) The Company and the Subsidiaries own,
--------------------
hold or possess all licenses, franchises, permits, privileges, immunities,
approvals and other authorizations from each Governmental Body which are
necessary to entitle them to own or lease, operate and use their assets and to
carry on and conduct the Business substantially as currently conducted (herein
collectively called "Governmental Permits"), except for such Governmental
--------------------
Permits as to which the failure to so own, hold or possess would not have a
material adverse effect on the assets, the Business or the operations or
financial condition of the Company and the Subsidiaries, taken as a whole.
(b) To the knowledge of Tribune (i) no event has occurred or condition
or state of facts exists which constitutes or, after notice or lapse of time or
both, would constitute a material breach or default under any such Governmental
Permit or which permits or, after notice or lapse of time or both, would permit
revocation or termination of any such Governmental Permit; and (ii) no notice of
cancellation, of default or of any material dispute concerning any Governmental
Permit, or of any event, condition or state of facts described in the preceding
clause, has been received by the Company or any Subsidiary.
5.9. REAL PROPERTY. Neither the Company nor any Subsidiary owns any
-------------
real property or holds an option to acquire any real property.
5.10. REAL PROPERTY LEASES. Schedule 5.10 sets forth a list and brief
--------------------
description of each lease or similar agreement under which the Company or any
Subsidiary is lessee of, or holds or operates, any real property owned by any
third Person.
5.11. CONDEMNATION. As of the date of this Agreement, neither the
------------
whole nor any part of any real property leased, used or occupied by the Company
or any Subsidiary is subject to any pending suit for condemnation or other
taking by any Governmental Body, and, to the knowledge of Tribune, no such
condemnation or other taking is threatened or contemplated.
5.12. PERSONAL PROPERTY LEASES. Schedule 5.12 contains as of the date
------------------------
of this Agreement a brief description of each lease or other agreement or right,
whether written or oral, under which the Company or any Subsidiary is lessee of,
or holds or operates, any machinery, equipment or other tangible personal
property owned by a third Person, except those which are terminable by the
Company or a Subsidiary without penalty on 60 days' or less notice or which
provide for annual rentals of less than $25,000.
5.13. PATENTS AND TRADEMARKS. (a) Schedule 5.13 contains as of the
----------------------
date of this Agreement a list and description of:
(i) all United States and foreign patents and patent applications, all
United States, state and foreign trademarks, service marks and trade names
for which registrations have been issued or applied for, and all other
United States, state and foreign trademarks, service marks and trade names,
owned by the Company or any Subsidiary or in which the Company or any
Subsidiary holds any right, license or interest used in or relating to the
Business (other than such patents, trademarks, service marks and trade
names which have not been used by the Company or any Subsidiary since
January 1, 1995), showing in each case the product, device, process,
service or business covered
- -10-
<PAGE>
thereby, the registered or other owner, expiration date and number, if any,
and, in the case of any such right, license or interest, a brief
description thereof;
(ii) all United States and foreign copyrights, registered or
unregistered, copyright works and copyright applications owned or
controlled by the Company or any of its subsidiaries (other than copyrights
and copyright works which have not been used by the Company or any
Subsidiary since January 1, 1995) showing in each case: the title to the
copyright or copyright work; the product, work product, device, process,
service, business or publication to which the same relates; the application
and/or registration date, number and country (if any); the registered or
other owner; and each author to any of the foregoing;
(iii) all agreements, commitments, contracts, understandings,
licenses, assignments and indemnities relating or pertaining to any asset,
property or right of the character described in clause (i) and (ii) to
which the Company or any Subsidiary is a party, showing in each case the
parties thereto and the material terms thereof; and
(iv) all licenses or agreements pertaining to know-how, trade
secrets, inventions, disclosures or uses of ideas used in or relating to
the Business to which the Company or any Subsidiary is a party, showing in
each case the parties thereto and the material terms thereof.
(b) Except as set forth in Schedule 5.13, as of the date hereof, no
-------------
proceedings are pending or, to the knowledge of Tribune, threatened against the
Company or any Subsidiary which challenge the validity or ownership of any
patent, trademark, trade name, service mark or copyright or the ownership of any
other right or property described in Schedule 5.13, and to the knowledge of
-------------
Tribune there is not any infringing use of any of the same by any other Person.
(c) To the knowledge of Tribune, the operations, activities, products,
equipment, machinery or processes of the Business do not infringe the patents,
trademarks, service marks, trade names, copyrights or other property rights of
any other Person.
5.14. TITLE TO PROPERTY. Except for assets disposed of in the ordinary
-----------------
course of business, either the Company or a Subsidiary has good and marketable
title to each item of equipment and other tangible personal property reflected
on the Balance Sheet, free and clear of all Encumbrances, except for Permitted
Encumbrances.
5.15. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as
---------------------------------------------
set forth in Schedule 5.15:
-------------
(i) to the knowledge of Tribune, the Company and the Subsidiaries
have complied with all applicable Requirements of Laws and Court Orders,
except where failure to so comply would not have a material adverse effect
on the assets, Business, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole;
(ii) as of the date hereof, there are no lawsuits, claims, suits,
proceedings or investigations pending or, to the knowledge of Tribune,
threatened against the Company
- -11-
<PAGE>
or a Subsidiary which are reasonably expected to have a material adverse
effect on the assets, Business, results of operations or financial
condition of the Company and the Subsidiaries, taken as a whole or involve
a claim in excess of $50,000; and
(iii) as of the date of hereof, there is no action, suit or
proceeding pending or, to the knowledge of Tribune, threatened against
Tribune or the Company which questions the legality or propriety of the
transactions contemplated by this Agreement.
5.16. INSURANCE. Tribune or its Affiliates maintain, with respect to
---------
the Company and the Subsidiaries, policies of fire and extended coverage and
casualty, liability and other forms of insurance in such amounts and against
such risks and losses as are in its reasonable judgment prudent and shall use
reasonable efforts to keep such insurance or comparable insurance in full force
and effect through the Closing Date.
5.17. CONTRACTS. Except as set forth in Schedule 5.17 or any other
--------- -------------
Schedule hereto, as of the date of this Agreement, neither the Company nor any
Subsidiary is a party to or bound by:
(i) any contract for the purchase or sale of real property;
(ii) any contract for the purchase by the Company or a Subsidiary of
supplies, raw materials or equipment which Tribune reasonably anticipates
will involve the payment of more than $25,000 after the date hereof or
which extends beyond September 30, 1997;
(iii) any purchase order, agreement or commitment obligating the
Company or any of the Subsidiaries, individually or taken together, to
purchase or sell any products, publications or services or to provide any
advertising in the Company's publications and which (A) is not terminable
by the Company or one of the Subsidiaries without payment or penalty upon
60 days' (or less) notice, (B) relates to purchases or sales in an
aggregate amount exceeding $25,000 or (C) is presently expected to result
in a loss upon completion or performance thereof in an amount in excess of
$25,000;
(iv) any agreements or arrangements with the Tribune or any of its
other Affiliates;
(v) any guarantee of the obligations of customers, suppliers,
officers, directors, employees, Affiliates or others; or
(vi) any agreement which provides for the incurrence by the Company or
a Subsidiary of debt for borrowed money.
5.18. STATUS OF CONTRACTS. Except as set forth in Schedule 5.18 or in
------------------- -------------
any other Schedule hereto, each of the leases, contracts and other agreements
listed in Schedules 5.10, 5.12, 5.13 or 5.17 (collectively, the "Company
-------------- ---- ---- ---- -------
Agreements") constitutes a valid and binding obligation of the Company or a
- ----------
Subsidiary and, to the knowledge of Tribune, the other parties thereto (subject
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general application relating to or affecting creditors' rights and to general
equity principles) and
- -12-
<PAGE>
is in full force and effect. Neither the Company nor any Subsidiary is in, or,
to the knowledge of Tribune, alleged to be in, material breach or material
default under, any of the Company Agreements and, to the knowledge of Tribune,
no other party to any of the Company Agreements is in material breach or
material default thereunder, and, to the knowledge of Tribune, no event has
occurred and no condition or state of facts exists which, with the passage of
time or the giving of notice or both, would constitute such a default or breach
by the Company or, to the knowledge of Tribune, by any such other party.
Complete and correct copies of each of the Company Agreements have heretofore
been made available to Buyer by Tribune.
5.19. ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.19:
--------------------- -------------
(i) applicable Environmental Laws, except for such noncompliance
which would not have a material adverse effect on the assets, business,
operations or financial condition of the Company and the Subsidiaries,
taken as a whole;
(ii) to the knowledge of Tribune, neither the Company or any
Subsidiary nor any real property previously owned by the Company or any
Subsidiaries is subject to any investigation by, order from or written
agreement with any Person (including without limitation any prior owner or
operator of any real property previously owned by the Company or any
Subsidiary) respecting (A) any Environmental Law, (B) any Remedial Action
or (C) any claim of Losses and Expenses arising from the Release or
threatened Release of a Contaminant into the environment;
(iii) neither the Company nor any Subsidiary is a party to or
otherwise subject to any judicial or administrative proceeding, order,
judgment, decree or settlement alleging or addressing a violation of or
liability under any Environmental Law, which proceeding, order, judgment,
decree or settlement is reasonably expected to have a material adverse
effect on the assets, the Business or the operations or financial condition
of the Company and the Subsidiaries, taken as a whole; and
(iv) to the knowledge of Tribune, since June 30, 1994, neither the
Company nor any Subsidiary has received any written notice or claim to the
effect that it is or may be liable to any Person as a result of the Release
of a Contaminant into the environment from or on any real property owned by
the Company or any Subsidiary or any third party disposal site, which
notice or claim is reasonably expected to have a material adverse effect on
the assets, Business, operations or financial condition of the Company and
the Subsidiaries, taken as whole.
5.20. TAXES. Except as set forth on Schedule 5.20, (i) the Company and
----- -------------
each Subsidiary has filed all material Tax Returns required to have been filed
on or before the date hereof, (ii) all Taxes shown to be due on the Tax Returns
referred to in clause (i) have been timely paid and all such Tax Returns that
have been filed were when filed, and continue to be, true, correct and accurate
in all material respects; (iii) neither the Company nor any Subsidiary has
waived in writing any statute of limitations in respect of Taxes of the Company
or such Subsidiary; (iv) the Tax Returns referred to in clause (i) relating to
federal and state income Taxes have been examined by the Internal Revenue
Service or the appropriate state taxing authority or the period for assessment
of the Taxes in respect of which such Tax Returns were
- -13-
<PAGE>
required to be filed has expired; (v) no issues that have been raised in writing
by the relevant taxing authority in connection with the examination of the Tax
Returns referred to in clause (i) are currently pending; and (vi) all
deficiencies asserted or assessments made as a result of any examination of the
Tax Returns referred to in clause (i) by a taxing authority have been paid in
full or adequately reserved for. Notwithstanding anything to the contrary in
this Agreement, nothing in this Section 5.20 shall cause Tribune to be liable
------------
for any Taxes for which Tribune is not expressly liable pursuant to Section
-------
11.1(a) (relating to Tax matters).
- -------
5.21. EMPLOYEE BENEFITS. (a) Schedule 5.21(a) sets forth a true and
----------------- ----------------
complete list of each "employee pension benefit plan" (as such term is defined
in Section 3(2) of ERISA) and each "employee welfare benefit plan" (as such term
is defined in Section 3(1) of ERISA) covering any employee or former employee of
any Company (the "Welfare Plans") (collectively the "Plans"). Except as
------------- -----
disclosed on Schedule 5.21(a): neither Tribune nor the Company has ever (i)
----------------
maintained any employee pension benefit plan, or (ii) been required to
contribute to any "multiemployer plan'' (as such term is defined in Section
3(37) of ERISA).
(b) Tribune has caused the Company to deliver to Buyer with respect to
each Plan, correct and complete copies, where applicable, of (i) all Plan
documents and amendments, trust agreements and insurance and annuity contracts
and policies, (ii) the most recent IRS determination letter, (iii) the Annual
Reports (Form 5500 Series) and accompanying schedules, as filed, for the most
recently completed Plan year, and (iv) the current summary plan description.
(c) To the knowledge of Tribune, each Plan complies, and has been
administered to comply, in all material respects with all requirements of law
and regulations applicable thereto, and there has been no notice issued by any
governmental authority questioning or challenging such compliance. There are no
actions, suits or claims (other than routine claims for benefits) pending or, to
Tribune's knowledge, threatened involving such Plans or the assets of such Plans
which, in the aggregate, would have a material impact on the financial position
of the Company. Except as disclosed on Section 5.21(c), the Company has no
---------------
obligations under any of the Welfare Plans or otherwise to provide health or
death benefits to or in respect of former employees, except as specifically
required by the continuation requirements of Part 6 of Title I of ERISA.
5.22. EMPLOYEE RELATIONS. (a) The Company and each of the
------------------
Subsidiaries has complied in all material respects with all applicable laws,
rules and regulations which relate to prices, wages, hours, discrimination in
employment and collective bargaining and to the operation of the Business and is
not liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing.
(b) As of the date of this Agreement, there is no (i) unfair labor
practice charge or complaint against the Company or any of the Subsidiaries
pending before the National Labor Relations Board, any state labor relations
board or any court or tribunal and, to the knowledge of Tribune, none is or has
been threatened, (ii) employee grievance pending against the Company or any of
the Subsidiaries and, to the knowledge of the Tribune, none is or has been
threatened which, in any such case, if adversely determined in respect of the
Company or any of the Subsidiaries, would have a material adverse effect on the
Business or the results of
- -14-
<PAGE>
operations, properties or condition (financial or otherwise) of the Company and
the Subsidiaries considered as a whole or (iii) arbitration proceeding arising
out of or under any collective bargaining agreement pending against the Company
or any of the Subsidiaries and, to the knowledge of the Tribune, none is or has
been threatened.
5.23. DIRECTORS AND OFFICERS. Schedule 5.23 sets forth an accurate
---------------------- -------------
and complete list as of the date of this Agreement of:
(i) the names of all directors of the Company and each Subsidiary; and
(ii) the names of all officers of the Company and each Subsidiary.
5.24. NO FINDER. Neither Tribune nor any Person acting on its behalf
---------
has paid or become obligated to pay any fee or commission to any broker, finder
or intermediary for or on account of the transactions contemplated by this
Agreement.
5.25. CIRCULATION. The circulation base information, including,
-----------
without limitation, with respect to paid, qualified and non-qualified
circulation, of Farm Journal, Top Producer, the Today magazines and the other
publications of the Company as set forth in the applicable Publisher's
Statements for the year ended December 31, 1996 attached hereto as Schedule 5.25
is accurate in all material respects and since such date there has been no
material decrease in such circulation numbers.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As an inducement to Tribune to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer hereby represents and
warrants to Tribune:
6.1. ORGANIZATION OF BUYER. Buyer is a corporation, duly organized,
---------------------
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.
6.2. AUTHORITY OF BUYER. (a) Buyer has full power and authority to
------------------
execute, deliver and perform this Agreement and all of the Buyer Ancillary
Agreements and to consummate the transactions contemplated hereby or thereby.
The execution, delivery and performance of this Agreement and the Buyer
Ancillary Agreements by Buyer have been duly authorized and approved by Buyer's
board of directors and stockholders and do not require any further authorization
or consent of Buyer or its stockholders. This Agreement has been duly
authorized, executed and delivered by Buyer and is the legal, valid and binding
agreement of Buyer enforceable in accordance with its terms, and each of the
other Buyer Ancillary Agreements has been duly authorized by Buyer and upon
execution and delivery by Buyer will be a legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, in each case subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equity
principles.
- -15-
<PAGE>
(b) Neither the execution and delivery of this Agreement or any of the
Buyer Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under (1) the Certificate of Incorporation or By-laws of Buyer, (2)
any material note, instrument, agreement, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or obligation
to which Buyer is a party or any of its properties is subject or by which
Buyer is bound, (3) any Court Order to which Buyer is a party or by which
it is bound or (4) any Requirements of Laws affecting Buyer, except for
such conflicts, breaches, defaults, events or Encumbrances which would not
have a material adverse effect on the assets, business, results of
operations or financial condition of Buyer and its subsidiaries, taken as a
whole, or
(ii) require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, filing or registration with, any
Person, except for such approvals, consents, authorizations, acts,
declarations, filings or registrations which, if not obtained or made,
would not have a material adverse effect on the assets, business, results
of operations or financial condition of Buyer and its subsidiaries, taken
as a whole.
6.3. INVESTMENT INTENT. Buyer is acquiring the Company Shares as an
-----------------
investment for its own account and not with a view to the distribution or sale
thereof. Buyer shall not sell, transfer, assign, pledge or hypothecate any of
the Company Shares in the absence of registration under, or pursuant to an
applicable exemption from, federal and all applicable state securities laws.
6.4. NO FINDER. Neither Buyer nor any Person acting on its behalf has
---------
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
6.5. HSR ACT. The formation of Buyer is not subject to the reporting
-------
requirements of the HSR Act.
ARTICLE VII
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
7.1. INVESTIGATION. Tribune shall cause the Company to afford to the
-------------
officers, employees and authorized representatives of Buyer (including, without
limitation, independent public accountants and attorneys) reasonable access
during normal business hours upon reasonable advance notice to the offices,
properties, employees and business and financial records (including computer
files, retrieval programs and similar documentation) of the
- -16-
<PAGE>
Company and the Subsidiaries to the extent Buyer shall reasonably deem necessary
or desirable and shall furnish to Buyer or its authorized representatives such
additional information concerning the Company as shall be reasonably requested;
provided, however, that the Company shall not be required to violate any
- -------- -------
obligation of confidentiality to which it is subject in discharging its
obligations pursuant to this Section 7.1. Buyer agrees that such investigation
-----------
shall be conducted in such a manner as not to interfere unreasonably with the
operations of the Company.
7.2. PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
---------------------------------------------------
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in this Agreement inaccurate as of the
Closing Date. Each party shall promptly notify the other of any action, suit or
proceeding that shall be instituted or threatened against such party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement.
7.3. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS. (a) Tribune
-------------------------------------------------
and Buyer will act diligently and reasonably to (i) secure, before the Closing
Dace, the consent., approval or waiver, in form and substance reasonably
satisfactory to Buyer, from any party to any Company Agreement required to be
obtained to satisfy the conditions set forth in Section 9.3 or Section 10.2 and,
----------- ------------
(ii) cause Buyer to be substituted for Tribune or any of its Affiliates,
effective as of the Closing, in respect of all obligations of Tribune or any of
its Affiliates under each of the guaranties set forth in Schedule 7.3 (the
------------
"Guaranties"); provided that neither Tribune nor Buyer shall have any obligation
----------
to offer or pay any consideration in order to obtain any such consents or
approvals.
(b) During the period prior to the Closing Date, Tribune and Buyer
shall act diligently and reasonably, and shall cooperate with each other, to
secure any consents and approvals of any Governmental Body required to be
obtained by them in order to permit the consummation of the transactions
contemplated by this Agreement, or to otherwise satisfy the conditions set forth
in Sections 9.2 and 10.2.
------------ ----
7.4. OPERATIONS PRIOR TO THE CLOSING DATE. (a) Tribune shall cause
------------------------------------
the Company to operate and carry on the Business only in the ordinary course and
substantially as presently operated. Consistent with the foregoing, Tribune
shall cause the Company and the Subsidiaries to use its reasonable efforts
consistent with good business practice to preserve the goodwill of the
suppliers, employees, customers and others having business relations with the
Company and the Subsidiaries.
(b) Notwithstanding Section 7.4(a), except as expressly contemplated
--------------
by this Agreement or except with the express written approval of Buyer (which
Buyer agrees shall not be unreasonably withheld or delayed), from and after the
Balance Sheet Date, Tribune shall cause the Company and the Subsidiaries to not:
(i) make any material change in the Business or the operations of the
Company and the Subsidiaries;
- -17-
<PAGE>
(ii) enter into any contract, agreement, undertaking or commitment
which would have been required to be set forth in Schedule 5.17 if in
-------------
effect on the date hereof;
(iii) enter into any contract for the purchase of real property or
any option to extend a lease listed in Schedule 5.10;
-------------
(iv) create, incur or assume, or agree to create, incur or assume, any
indebtedness for borrowed money (other than money borrowed from or advances
from Tribune or any of its Affiliates in the ordinary course of business)
or enter into, as lessee, any capitalized lease obligations (as defined in
Statement of Financial Accounting Standards No. 13);
(v) institute any material increase in any profit-sharing, bonus,
incentive, deferred compensation. insurance, pension, retirement, medical,
hospital, disability, welfare or other employee benefit plan with respect
to its employees of the Company or any Subsidiary or declare or pay any
dividend or redeem any capital stock or repay any intercompany
indebtedness; provided, however, that the restrictions set forth in this
-------- -------
clause (v) shall not prohibit the Company from (i) distributing to Tribune
or an Affiliate of Tribune prior to the Closing Date the proceeds from the
sale of the Real Property and (ii) repaying to Tribune or an Affiliate of
Tribune prior to the Closing Date intercompany indebtedness owed to Tribune
or an Affiliate of Tribune in an amount not to exceed actual cash advances
made by Tribune or an Affiliate of Tribune to the Company from and after
January 1, 1997;
(vi) make any material change in the compensation of employees of the
Company or any Subsidiary, other than changes made in accordance with
normal compensation practices and consistent with past compensation
practices; or
(vii) make any material change in the accounting policies applied in
the preparation of the Balance Sheet.
7.5. CANCELLATION OF INTERCOMPANY DEBT OWED TO TRIBUNE. At or prior
-------------------------------------------------
to the Closing Date Tribune shall cancel all intercompany debt owed by the
Company or any Subsidiary to Tribune or any Affiliate of Tribune so that as of
Closing no amounts shall be owed to Tribune or its Affiliates by the Company or
the Subsidiaries.
7.6. FINANCING; SUPERIOR PROPOSAL. (a) From the date of this
----------------------------
Agreement to and including February 19, 1997, Tribune and its officers,
employees, representatives, agents and Affiliates shall not solicit, initiate,
encourage, facilitate, entertain (including by way of furnishing information
relating to the Company) or respond to proposals for (i) the purchase of the
Company Shares by a Person other than Buyer or (ii) the purchase of any material
assets of the Company by a Person other than Buyer.
(b) Commencing on February 19, 1997, Tribune and its officers,
employees, representatives, agents and Affiliates are expressly permitted to
solicit, initiate, encourage, facilitate, entertain (including by way of
furnishing information relating to the Company) and respond to proposals for (i)
the purchase of the Company Shares by a Person other than Buyer or (ii) the
exchange of the Company's assets pursuant to (S)1031 of the Code. If Tribune
receives a
- -18-
<PAGE>
Superior Proposal (as hereinafter defined), Tribune must deliver a notice
(the "Superior Proposal Notice") to Buyer specifying the material terms and
------------------------
conditions of such Superior Proposal. Tribune may terminate this Agreement
on or after 5:00 p.m., Chicago time, on the third business day after delivering
the Superior Proposal Notice to Buyer unless, prior to such time, Buyer deposits
$170,000 (the "Deposit Amount") in an account designated by Tribune. If the
--------------
Closing occurs, then the Deposit Amount and all earnings thereon shall be
retained by Tribune and applied to the payment of the Purchase Price to be paid
to Tribune by Buyer at Closing. If the Closing does not occur solely because of
(A) the failure of Buyer to satisfy the condition precedent set forth in Section
-------
9.5 on or prior to February 28, 1996 or (B) a material breach by Buyer in the
- ---
performance of any of its covenants and agreements contained herein or a
material breach of its representations and warranties contained herein (and
provided that Tribune is not in material breach in the performance of any of its
covenants or agreements contained herein or of any of its representations and
warranties contained herein), then Tribune shall retain the Deposit Amount and
all earnings thereon and the retention of the Deposit Amount and all earnings
thereon by Tribune shall be Tribune's sole remedy for any such breach by Buyer;
provided, however, that Tribune shall return to Buyer the Deposit Amount and all
- -------- -------
earnings thereon upon (A) the closing of the transaction specified in the
Superior Proposal Notice or (B) the closing of another transaction meeting the
criteria of a Superior Proposal. If the Closing does not occur for any other
reason, then the Deposit Amount and all earnings thereon are to be delivered to
Buyer. For purposes of this Agreement, a "Superior Proposal" means any bona
-----------------
fide written proposal made by a third party to acquire, directly or indirectly,
all of the Company Shares for a purchase price in excess of $18 million or to
exchange substantially all of the assets of the Company for the assets of such
third party pursuant to (S)1031 of the Code on terms which Tribune determines in
its good faith judgment to be more favorable to Tribune than the transaction
contemplated by this Agreement. In determining whether a Superior Proposal is
more favorable to Tribune, Tribune may take into account non-economic factors
and shall not be precluded from accepting a Superior Proposal which contains
economic terms less favorable than the economic terms set forth in this
Agreement if Tribune shall have otherwise determined that the proposal is a
Superior Proposal.
7.7. HSR ACT FILING. Buyer shall determine if a filing by Buyer is
--------------
required under the HSR Act. If such a filing is required, Buyer shall notify
Tribune promptly upon making such a determination. As promptly as practicable
thereafter, Buyer and Tribune shall file with the Federal Trade Commission and
the Antitrust Division of the Department of Justice the notifications and other
information required to be filed under the HSR Act, or any rules and regulations
promulgated thereunder, with respect to the transactions contemplated hereby.
Each party warrants that all such filings by it will be, as of the date filed,
true and accurate and in accordance with the requirements of the HSR Act and any
such rules and regulations. Each of Buyer and Tribune agrees to make available
to the other such information as each of them may reasonably request relative to
its business, assets and property (including, in the case of Tribune, the
Company) as may be required of each of them to file any additional information
requested by such agencies under the HSR Act and any such rules and regulations.
- -19-
<PAGE>
ARTICLE VIII
ADDITIONAL AGREEMENTS
---------------------
8.1. USE OF NAMES. Tribune is not granting Buyer, the Company or any
-------------
Subsidiary a license to use any of Tribune's tradenames or trademarks of Tribune
or its Affiliates (including, without limitation, "Tribune Company"), and Buyer
---------------
shall not permit the Company or any Subsidiary to use in any manner after the
Closing any names or marks of Tribune or any of Tribune's Affiliates or any word
that is similar in sound or appearance to such names or marks. Buyer
acknowledges that Tribune and its Affiliates would be irreparably harmed by any
breach of this Section 8.1 and that any relief under Article XII will be
----------- -----------
inadequate to compensate Tribune or such Affiliates for any such breach.
Accordingly, Buyer agrees that, in addition to any relief available under
Article XII, Tribune and its Affiliates shall be entitled, without the necessity
- -----------
of proving actual damages or posting any bond, to injunctive relief against
Buyer and any involved Affiliates of Buyer in the event of any breach or
threatened breach by Buyer (or its Affiliates) of its covenants and agreements
in this Section 8.1 and Buyer (on behalf of itself and its Affiliates) consents
-----------
to the entry thereof. Notwithstanding any provision of this Agreement, the
Company and the Subsidiaries shall have the right, for a period not exceeding 60
days from the Closing Date, to distribute materials of the Company or any
Subsidiary marked with tradenames or trademarks of Tribune (including describing
the Company or any Subsidiary as a Tribune Company) printed on such materials
prior to the Closing Date, provided that Buyer shall cause the Company or
Subsidiary where feasible to remove such names and marks or to indicate thereon
prior to any use thereof the change in the ownership of the Company and, in any
event, on and after the 60th day after the Closing Date, Buyer shall cause the
Company or Subsidiary to remove such names and marks or to indicate thereon
prior to any use thereof the change in the ownership of the Company and the
Subsidiaries.
8.2. EMPLOYEE MATTERS. Tribune agrees to cause payment of all 401(k)
----------------
contributions for the fiscal year ended December 29, 1996 prior to Closing
(which equals $60,000 as of December 29, 1996 and was included as a liability in
the Balance Sheet).
8.3. RETIRED EMPLOYEES. Buyer agrees to cause the Company to notify
-----------------
Tribune in a reasonable and timely manner upon the Company's receipt of notice
of any claim with respect to the benefits of the Retired Employees described in
Schedule 5.21(c).
- ----------------
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer under this Agreement shall, at the option of
Buyer, be subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
9.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
----------------------------------------------------------
There shall have been no material breach by Tribune in the performance of any of
its covenants and agreements herein which shall not have been remedied or cured;
each of the representations and warranties of Tribune contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on the Closing Date (except to the extent that they
- -20-
<PAGE>
expressly relate to an earlier date), except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Buyer or any transaction permitted by Section 7.4 or
-----------
7.7 and except for such untruths or inaccuracies as have not had and are not
- ---
reasonably likely to have a material adverse effect on the assets, prospects,
Business, results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole, or materially adversely affect the ability of
Tribune to consummate the transactions contemplated by this Agreement; and there
shall have been delivered to Buyer a certificate to such effect, dated the
Closing Date, signed on behalf of Tribune by the President or any Vice President
of Tribune.
9.2. NECESSARY APPROVALS. Buyer shall have received all approvals and
-------------------
actions of or by all Governmental Bodies or Persons which are necessary to
consummate the transactions contemplated hereby which are specified in Schedule
--------
9.2 (being those which Buyer is required by applicable law or regulation to have
- ---
to operate the Business) and the real property leases which are specified in
Schedule 5.4, other than such real property leases relating to office space for
- ------------
which there is a substantially similar alternative office space readily
available to the Company at a substantially similar rental rate and which would
not require the incurrence by the Company of lease termination, relocation and
other costs which, in the aggregate, would be material to the Company.
9.3. NECESSARY CONSENTS. Tribune shall have received the consents, in
------------------
form and substance reasonably satisfactory to Buyer, which are specified in
Schedule 9.3.
- ------------
9.4. CLOSING DELIVERIES. Tribune shall have delivered to Buyer the
------------------
Closing Date deliveries set forth in Section. 4.4.
------------
9.5. FINANCING . Buyer shall have obtained an amount of funds from
---------
third parties sufficient to finance the acquisition of the Company Shares from
Tribune.
9.6 EXECUTIVE COMMITTEE APPROVAL. The Executive Committee or the
----------------------------
Board of Directors of Tribune shall have approved this Agreement and the
transactions contemplated hereby.
9.7. HSR ACT. Any applicable waiting period under the HSR Act shall
-------
have expired or been terminated.
Notwithstanding the failure of any one or more of the foregoing
conditions, Buyer may proceed with the Closing without satisfaction, in whole or
in part, of any one or more of such conditions and without written waiver. To
the extent that at the Closing Tribune delivers to Buyer a written notice
specifying in reasonable detail the failure of any of such conditions or the
breach by Tribune of any of the representations or warranties of Tribune herein,
and nevertheless Buyer proceeds with the Closing, Buyer shall be deemed to have
waived for all purposes any rights or remedies it may have against Tribune by
reason of the failure of any such conditions or the breach of any such
representations or warranties to the extent described in such notice.
- -21-
<PAGE>
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF TRIBUNE
----------------------------------------------
The obligations of Tribune under this Agreement shall, at the option
of Tribune, be subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
10.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
----------------------------------------------------------
There shall have been no material breach by Buyer in the performance of any of
its covenants and agreements herein which shall not have been remedied or cured;
each of the representations and warranties of Buyer contained in this Agreement
shall be true and correct on the Closing Date as though made on the Closing
Date, except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by Tribune or
any transaction contemplated by this Agreement and except for such untruths or
inaccuracies as have not had and are not reasonably likely to have a material
adverse effect on the assets, business, results of operations or financial
condition of Buyer or materially adversely affect the ability of Buyer to
consummate the transactions contemplated by this Agreement; and there shall have
been delivered to Tribune a certificate to such effect, dated the Closing Date
and signed on behalf of Buyer by the President or any Vice President of Buyer.
10.2. NECESSARY CONSENTS. Tribune shall have received consents, in
------------------
form and substance reasonably satisfactory to Tribune, which are specified in
Schedule 10.2.
- -------------
10.3. LETTER OF CREDIT. The stand-by letter of credit delivered to
----------------
Centre Square in connection with the Lease dated July 17, 1995 between the
Company and Centre Square shall have been terminated.
10.4. CLOSING DELIVERIES. Buyer shall have delivered to Tribune the
------------------
Closing Date deliveries set forth in Section 4.3.
-----------
10.5. EXECUTIVE COMMITTEE APPROVAL. The Executive Committee or the
----------------------------
Board of Directors of Tribune shall have approved this Agreement and the
transactions contemplated hereby.
10.6. HSR ACT. Any applicable waiting period under the HSR Act shall
-------
have expired or been terminated or Buyer shall have delivered to Tribune a
certificate, dated the Closing Date, and signed on behalf of Buyer by the
President or any Vice President of Buyer to the effect that the "person" (as
defined in 16 C.F.R. (S) 801.1(a)(1) (1996)) in which Buyer is included prior to
the Closing does not have ``annual net sales" (as defined in 16 C.F.R. (S)
801.11 (1996)) or "total assets" (as defined in 16 C.F.R. (S) 801.11 (1996)) of
$10 million or more.
Notwithstanding the failure of any one or more of the foregoing
conditions, Tribune may proceed with the Closing without satisfaction, in whole
or in part, of any one or more of such conditions and without written waiver.
To the extent that at the Closing Buyer delivers to Tribune a written notice
specifying in reasonable detail the failure of any of such conditions or the
breach by Buyer of any of the representations or warranties of Buyer herein, and
nevertheless Tribune proceeds with the Closing, Tribune shall be deemed to have
waived for all purposes any rights or remedies it may have against Buyer by
reason of the failure of any
- -22-
<PAGE>
such conditions or the breach of any such representations or warranties to the
extent described in such notice.
ARTICLE XI
TAX MATTERS
-----------
11.1. LIABILITY FOR TAXES. (a) Tribune shall be liable for and pay,
-------------------
and pursuant to Article XII, and subject to the limitations thereof, shall
-----------
indemnify Buyer against all Taxes (i) imposed on the Company or any Subsidiary
pursuant to Treas. Reg. (S) 1.1502-6 or similar provision of state or local law
solely as a result of the Company or such Subsidiary having been a member of the
Tribune's Group, or (ii) imposed on the Company or any Subsidiary, or for which
the Company or any Subsidiary may otherwise be liable, for any taxable year or
period that ends on or before the Closing Date and, with respect to any Straddle
Period, the portion of such Straddle Period ending on and including the Closing
Date, provided, however, that Tribune shall not be liable for or pay, and shall
-------- -------
not indemnify Buyer against, (A) any Taxes shown as a liability or reserve on
the Balance Sheet, (B) any Taxes that result from any actual or deemed election
under Section 338 of the Code or any similar provisions of state, local or
foreign law as a result of the purchase of the Company Shares or the deemed
purchase of shares of any Subsidiary or that result from the Company or any
Subsidiary engaging in any activity to engage in any transaction that would
cause the purchase of the Company Shares to be treated as a purchase or sale of
assets of the Company or any Subsidiary for federal, state or local Tax
purposes, and (C) any Taxes imposed on the Company or any Subsidiary for which
the Company or any Subsidiary may otherwise be liable, in either case, as a
result of transactions occurring on the Closing Date that are properly allocable
to the portion of the Closing Date after the Closing (Taxes described in this
proviso, hereinafter "Excluded Taxes"). Tribune shall be entitled to any refund
--------------
of (or credit for) Taxes, other than Excluded Taxes, allocable to any taxable
year or period that ends on or before the Closing Date and, with respect to any
Straddle Period, the portion of such Straddle Period ending on and including the
Closing Date.
(b) Buyer shall be liable for and pay, and pursuant to Article XII and
-----------
subject to the limitations thereof shall indemnify Tribune against, (i) all
Taxes imposed on the Company or any Subsidiary, or for which the Company or any
Subsidiary may otherwise be liable, for any taxable year or period that begins
after the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period beginning after the Closing Date and (ii) Excluded Taxes.
Buyer shall be entitled to any refund of (or credit for) (i) Taxes allocable to
any taxable year or period that begins after the Closing Date and, with respect
to any Straddle Period, the portion of such Straddle Period beginning after the
Closing Date and (ii) Excluded Taxes.
(c) For purposes of Section 11.1(a) and (b), whenever it is necessary
--------------- ---
to determine the liability for Taxes of the Company or a Subsidiary for a
Straddle Period, the determination of the Taxes of the Company or such
Subsidiary for the portion of the Straddle Period ending on and including, and
the portion of the Straddle Period beginning after, the Closing Date shall be
determined by assuming that the Straddle Period consisted of two taxable years
or periods, one which ended at the close of the Closing Date and the other which
began at the beginning of the day following the Closing Date, and items of
income, gain, deduction, loss
- -23-
<PAGE>
or credit of the Company or such Subsidiary for the Straddle Period shall be
allocated between such two taxable years or periods on a "closing of the books
basis" by assuming that the books of the Company or such Subsidiary were closed
at the close of the Closing Date and Tribune shall prepare and bear the cost of
its preparing any financial statements required to determine the tax liabilities
of the Company for the period ended on the Closing Date; provided, however, that
-------- -------
(i) transactions occurring on the Closing Date that are properly allocable to
the portion of the Closing Date after the Closing shall be allocated to the
taxable year or period that is deemed to begin at the beginning of the day
following the Closing Date, (ii) exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for depreciation, shall be
apportioned between such two taxable years or periods on a daily basis and (iii)
other items of income, gain, deduction, loss or credit for the month in which
the Closing Date occurs shall be allocated between such two taxable years or
periods by allocating an equal amount of such items to each calendar day in such
month, except that extraordinary items described in Treas. Reg. (S)
1.150276(b)(2)(ii)(C) shall be allocated to the day that they are taken into
account. Notwithstanding the foregoing provisions of this Section 11.1(c), if
---------------
the transactions contemplated by this Agreement result in the reassessment of
the value of any property owned by the Company or any Subsidiary for property
Tax purposes, or the imposition of any property Taxes at a rate which is
different than the rate that would have been imposed if such transactions had
not occurred, then (A) the portion of such property Taxes for the portion of the
Straddle Period ending on and including the Closing Date shall be determined on
a daily basis, using the assessed value and Tax rate that would have applied had
such transactions not occurred, and (B) the portion of such property Taxes for
the portion of such Straddle Period beginning after the Closing Date shall be
the total property Taxes for the Straddle Period minus the amount described in
clause (A) of this sentence.
(d) If, as a result of any action, suit, investigation, audit, claim,
assessment or amended Tax Return, there is any change after the Closing Date in
an item of income, gain, loss, deduction, credit or amount of Tax that results
in an increase in a Tax liability for which Tribune would otherwise be liable
pursuant to Section 11.1(a), and such change results in a realized decrease in
---------------
the Tax liability of the Company, any Subsidiary, Buyer or any Affiliate or
successor of any thereof for any taxable year or period beginning after the
Closing Date or for the portion of any Straddle Period beginning after the
Closing Date, Tribune shall not be liable pursuant to Section 11.1(a) with
---------------
respect to such increase to the extent of such realized decrease.
(e) Tribune and Buyer expressly agree that Tribune makes no
representation, warranty or covenant with respect to the amount of, or the
ability to utilize, any net operating loss carryovers, net capital loss
carryovers, credits or similar items of the Company or any Subsidiary at any
time. Without limiting the generality of the foregoing, Tribune shall have no
liability for a reduction in or elimination of any net operating loss carryover,
net capital loss carryover, credits or similar item as a result of income or
gain realized by the Company, any Subsidiary or any Affiliate thereof on or
prior to the Closing Date or as a result of any action, suit, investigation,
audit, claim, assessment or amended Tax Return relating to taxable years or
periods (or portions thereof) that end on or before the Closing Date.
11.2. TAX RETURNS. (a) Tribune shall file or cause to be filed when
-----------
due (taking into account all extensions properly obtained) all Tax Returns that
are required to be filed by or with respect to the Company and each Subsidiary
for taxable years or periods ending on or
- -24-
<PAGE>
before the Closing Date and Tribune shall remit or cause to be remitted any
Taxes due in respect of such Tax Returns, and Buyer shall file or cause to be
filed when due (taking into account all extensions properly obtained) all Tax
Returns that are required to be filed by or with respect to the Company and each
Subsidiary for taxable years or periods ending after the Closing Date and Buyer
shall remit or cause to be remitted any Taxes due in respect of such Tax
Returns. With respect to any Tax Returns to be filed by Buyer pursuant to the
preceding sentence that relate to taxable years or periods ending on or before
the Closing Date (i) such Tax Returns shall be filed in a manner consistent with
past practice and no position shall be taken, election made or method adopted
that is inconsistent with positions taken, elections made or methods used in
prior periods in filing such Tax Returns (including, without limitation, any
position which would have the effect of accelerating income to periods for which
Tribune is liable or deferring deductions to periods for which Buyer is liable)
and (ii) such Tax Returns shall be submitted to Tribune not later than 30 days
prior to the due date for filing such Tax Returns (or, if such due date is
within 45 days following the Closing Date, as promptly as practicable following
the Closing Date) for review and approval by Tribune, which approval may not be
unreasonably withheld, but may in all cases be withheld if such Tax Returns were
not prepared in accordance with clause (i) of this sentence.
(b) None of Buyer or any Affiliate of Buyer shall (or shall cause or
permit the Company or any Subsidiary to) amend, refile or otherwise modify any
Tax Return relating in whole or in part to the Company or any Subsidiary with
respect to any taxable year or period ending on or before the Closing Date (or
with respect to any Straddle Period) without either (i) the prior written
consent of Tribune, which consent may be withheld in the sole discretion of
Tribune or (ii) in the event that a Governmental Authority requires any such Tax
Return to be amended, refiled or otherwise modified providing prior written
notice to Tribune of any such requirement and affording Tribune any legally
available opportunity to contest such requirement at its sole expense.
(c) Buyer shall provide to Tribune and Tribune's authorized
representatives sufficient access to the Company's books, records, and any
ledgers to enable Tribune to prepare a package of Tax information materials,
including, without limitation, schedules and work papers (the "Tax Package")
-----------
required by Tribune to enable Tribune to prepare and file all Tax Returns
required to be prepared and filed by it pursuant to Section 11.2(a). The Tax
---------------
Package shall be completed in accordance with past practice, including past
practice as to providing such information and as to the method of computation of
separate taxable income or other relevant measure of income of the Company.
11.3. CONTEST PROVISIONS. Buyer shall promptly notify Tribune in
------------------
writing upon receipt by Buyer, any of its Affiliates, the Company or any
Subsidiary of notice of any pending or threatened federal, state, local or
foreign Tax audits, examinations or assessments which might affect the Tax
liabilities for which Tribune may be liable pursuant to Section 11.1(a).
---------------
Tribune shall have the sole right to represent the Company's and each
Subsidiary's interests in any Tax audit or administrative or court proceeding
relating to taxable periods ending on or before the Closing Date or otherwise
relating to Taxes for which Tribune may be liable pursuant to Section 11.1(a),
---------------
and to employ counsel of its choice at its expense. In the case of a Straddle
Period, Buyer shall control any audit, administrative or court proceeding,
- -25-
<PAGE>
but Tribune shall be entitled to participate at its expense in any Tax audit or
administrative or court proceeding relating (in whole or in part) to Taxes
attributable to the portion of such Straddle Period ending on and including the
Closing Date and, with the written consent of Buyer, and at Tribune's sole
expense, may assume the entire control of such audit or proceeding. None of
Buyer, any of its Affiliates, the Company or any Subsidiary may settle any Tax
claim for any taxable year or period ending on or before the Closing Date (or
for any Straddle Period) which may be the subject of indemnification by Tribune
under Section 11.1(a), or otherwise relating to Taxes which Tribune may be
---------------
liable pursuant to Section 11.1(a), without the prior written consent of
---------------
Tribune, which consent may be withheld in the sole discretion of Tribune.
11.4. ASSISTANCE AND COOPERATION. After the Closing Date, each of
--------------------------
Tribune and Buyer shall (and cause their respective Affiliates to):
(i) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
Section 11.2(a);
---------------
(ii) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding any Tax Returns of the Company and each
Subsidiary;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of the Company and each Subsidiary;
(iv) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company and each Subsidiary for
taxable periods for which the other may have a liability under Section
-------
11.1;
----
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period; and
(vi) timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise
reduce), or file Tax Returns or other reports with respect to sales,
transfer and similar Taxes; and
(vi) timely provide to the other powers of attorney or similar
authorizations necessary to carry out the purposes of this Section 11.4.
------------
ARTICLE XII
INDEMNIFICATION
---------------
12.1. INDEMNIFICATION BY TRIBUNE. (a) Tribune agrees to indemnify and
--------------------------
hold harmless each Buyer Group Member from and against any and all Losses and
Expense incurred by such Buyer Group Member in connection with or arising from:
(i) any breach by Tribune of any of its covenants in this Agreement;
- -26-
<PAGE>
(ii) any breach of any warranty or the inaccuracy of any
representation of Tribune contained in this Agreement;
(iii) the obligation of the Company (A) to provide the medical,
hospital or death benefits to the retired former employees of the Company
set forth on Schedule 5.21(c) or (B) to indemnify and hold harmless each
----------------
individual who served as director of the Company on or before the Closing
Date from any claim or liability of any kind; or
(iv) any liability with respect to (A) a violation of any
Environmental Law directly relating to the Real Property which occurs on or
after the closing date of the sale of the Real Property by the Company, (B)
any Remedial Action taken with respect to the Real Property on or after the
closing date of the sale of the Real Property by the Company or (C) any
claim of Losses and Expenses arising on or after the closing date of the
sale of the Real Property by the Company from the Release or threatened
Release of a Contaminant from the Real Property into the environment;
provided, however, that, without limiting Tribune's indemnification obligations
- -------- -------
under clauses (iii) and (iv) of this subsection (a) or with respect to claims
for Taxes described in Article XI, Tribune shall not be required to indemnify
----------
and hold harmless pursuant to clauses (i) and (ii) of this subsection (a) with
respect to Loss and Expense incurred by any Buyer Group Member (other than (A)
for breaches of any covenants or any representations and warranties of Tribune
with respect to which Tribune had knowledge as of the Closing or (B) for the
breach by Tribune of Section 8.2) until, and then only to the extent that, the
-----------
aggregate amount of all Loss and Expense exceeds $250,000; provided, further,
-------- -------
that without limiting Tribune's indemnification obligations under clause (iii)
of this subsection (a) or with respect to claims for Taxes described in Article
-------
XI, the aggregate amount that Tribune shall be required to indemnify and hold
- --
harmless pursuant to clauses (i), (ii) and (iv) of this subsection (a) with
respect to Loss and Expense incurred by Buyer shall not exceed the Purchase
Price. In the event that Tribune indemnifies Buyer for Loss or Expense pursuant
to this subsection (a), Buyer shall assign to Tribune any and all rights it may
have against any Person with respect to the amount of Loss and Expense for which
Buyer is indemnified by Tribune and will cooperate with Tribune at Tribune's
sole expense if Tribune attempts to recover such Loss and Expense from such
Person.
(b) The indemnification provided for in this Section 12.1 shall
------------
terminate one year after the Closing Date (and no claims shall be made by any
Buyer Group Member under this Section 12.1 thereafter), except that the
------------
indemnification by Tribune shall continue as to:
(i) the covenants of Tribune set forth in Sections 14.2, 14.10 and
------------- ------
14.13, and the indemnification provided for in Section 12.1(a)(iii) above,
----- ---------------------
as to all of which no time limitation shall apply;
(ii) the covenants of Tribune set forth in Article XI and the
-----------
indemnification provided for in Section 12.1(a)(iv) above, all of which
-------------------
shall survive until the expiration of the applicable statute of
limitations; and
(iii) any Loss or Expense of which any Buyer Group Member has
notified Tribune in accordance with the requirements of Section 12.3 on or
-------------
prior to the date such
- -27-
<PAGE>
indemnification would otherwise terminate in accordance with this Section
-------
12.1, as to which the obligation of Tribune shall continue until the
----
liability of Tribune shall have been determined pursuant to this Article
-------
XII, and Tribune shall have reimbursed all Buyer Group Members for the full
---
amount of such Loss and Expense in accordance with this Article XII.
-----------
(c) Buyer and Tribune agree that, for purposes of computing the amount
of any indemnification payment under this Section 12.1, any such indemnification
------------
payment shall be treated as an adjustment to the Purchase Price for all Tax
purposes.
(d) If Tribune is required to indemnify Buyer pursuant to the
provisions of this Section 12.1, and the cost, expense or liability for which
------- ----
the indemnification is sought under this Section 12.1 has provided the Company
------------
or Buyer, as the case may be, with a realized Tax benefit, Buyer shall use its
reasonable efforts to obtain (or cause the Company to obtain) such Tax benefit
if consistent with the tax policies of Buyer or the Company, as applicable, and
the amount of such Tax benefit actually realized by Buyer or the Company, as the
case may be, shall be taken into account in determining Tribune's liability to
indemnify Buyer under this Section 12.1.
------------
12.2. INDEMNIFICATION BY BUYER. (a) Buyer agrees to indemnify and
------------------------
hold harmless each Tribune Group Member from and against any and all Loss and
Expense incurred by such Tribune Group Member in connection with or arising
from:
(i) any breach by Buyer of any of its covenants or agreements in this
Agreement;
(ii) any breach of any warranty or the inaccuracy of any
representation of Buyer contained in this Agreement (including, without
limitation, the representation contained in the certificate delivered by
Buyer pursuant to Section 10.6);
------------
(iii) any claims by or in respect of any person under any employee
benefit plan, program, agreement or arrangement maintained by the Company
and listed on Schedule 5.21(a); or
----------------
(iv) the failure by Buyer to satisfy its obligations under any
Guaranty;
provided, however, that, except (A) with respect to the matters described in
- -------- -------
clauses (iii) or (iv) above, (B) for a breach by Buyer of Section 7.7 and 8.3
-------------------
and (C) for any Taxes for which Buyer is liable pursuant to Article XI (as to
----------
which the limitation set forth in this proviso shall not apply), Buyer shall not
be required to indemnify and hold harmless pursuant to this subsection (a) with
respect to Loss and Expense incurred by any Tribune Group Member until, and then
only to the extent that, the aggregate amount of such Loss and Expense exceeds
$250,000; provided, further, that without limiting Buyer's indemnification
-------- -------
obligations with respect to claims for Taxes described in Article XI, the
aggregate amount that Buyer shall be required to indemnify and hold harmless
pursuant to this subsection (b) with respect to Loss and Expense incurred by
Tribune shall not exceed Purchase Price. In the event that Buyer indemnifies
Tribune for Loss or Expense pursuant to this subsection (b), Tribune shall
assign to Buyer any and all rights it may have against any Person with respect
to the amount of Loss and Expense for which Tribune is
- -28-
<PAGE>
indemnified by Buyer and will cooperate with Tribune at Buyer's sole expense if
Buyer attempts to recover such Loss and Expense from such Person.
(b) The indemnification provided for in this Section 12.2 shall
------------
terminate one year after the Closing Date (and no claims shall be made by any
Tribune Group Member under this Section 12.2 thereafter), except that the
------------
indemnification by Buyer shall continue as to:
(i) the covenants of Buyer set forth in Sections 7.3, 7.7, 8.1, 8.3,
------------ --- --- ---
14.2, 14.6, 14.10 and 14.13 and the indemnification provided for in
---- ---- ------ -----
Sections 12.2(a)(iii) and (iv) above, as to all of which no time limitation
--------------------- ----
shall apply;
(ii) the covenants of Buyer set forth in Article XI which shall
----------
survive until the expiration of the applicable statute of limitations; and
(iii) any Loss or Expense of which any Tribune Group Member has
notified Buyer in accordance with the requirements of Section 12.3 on or
------------
prior to the date such indemnification would otherwise terminate in
accordance with this Section 12.2, as to which the obligation of Buyer
------------
shall continue until the liability of Buyer shall have been determined
pursuant to this Article XII, and Buyer shall have reimbursed all Tribune
-----------
Group Members for the full amount of such Loss and Expense in accordance
with this Article XII.
-----------
(c) If Buyer is required to indemnify Tribune pursuant to the
provisions of this Section 12.2, and the cost, expense or liability for which
------------
the indemnification is sought under this Section 12.2 has provided Tribune with
------------
a realized Tax benefit, Tribune shall use its reasonable efforts to obtain such
Tax benefit if consistent with the tax policies of Tribune and the amount of
such Tax benefit actually realized by Tribune shall be taken into account in
determining Buyer's liability to indemnify Buyer under this Section 12.2.
------------
12.3. NOTICE OF CLAIMS. (a) Any Buyer Group Member or Tribune Group
----------------
Member (the "Indemnified Party") seeking indemnification hereunder shall give to
-----------------
the party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
--------- ------------
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based; provided, that a Claim Notice in
--------
respect of any action at law or suit in equity by or against a third Person as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced; provided, that failure to give such notice shall not
--------
relieve the Indemnitor of its obligations hereunder except to the extent the
Indemnitor shall have been prejudiced by such failure (it being understood that
this proviso does not modify or otherwise affect the time periods specified in
Sections 12.1 and 12.2).
- ------------- ----
(b) In calculating any Loss or Expense there shall be deducted any
insurance recovery in respect thereof (and no right of subrogation shall accrue
hereunder to any insurer).
(c) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under this
Article XII shall be
- -----------
- -29-
<PAGE>
determined: (i) by the written agreement between the Indemnified Party and the
Indemnitor; (ii) by a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnified Party and the
Indemnitor shall agree. The judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken shall have been finally determined. The
Indemnified Party shall have the burden of proof in establishing the amount of
Loss and Expense suffered by it.
12.4. THIRD PERSON CLAIMS. (a) Subject to Section 12.4(b), the
------------------- ---------------
Indemnified Party shall have the right to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any third Person
claim, action or suit against such Indemnified Party as to which indemnification
will be sought by any Indemnified Party from any Indemnitor hereunder, and in
any such case the Indemnitor shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested by the Indemnified Party in connection therewith; provided, that the
--------
Indemnitor may participate, through counsel chosen by it and at its own expense,
in the defense of any such claim, action or suit as to which the Indemnified
Party has so elected to conduct and control the defense thereof; and provided,
--------
further, that the Indemnified Party shall not, without the written consent of
- -------
the Indemnitor, pay, compromise or settle any such claim, action or suit if the
Indemnitor has acknowledged and agreed in writing that the Indemnitor has an
obligation to provide indemnification to the Indemnified Party in respect
thereof (subject to the limitations set forth in Section 12.1 or 12.2, as the
------------ ----
case may be), in which case the Indemnitor shall have the right to conduct and
control the defense of such claim. Notwithstanding the foregoing, if the
Indemnified Party pays, settles or compromises any such claim, action or suit
without seeking the consent of the Indemnitor, the Indemnified Party shall be
deemed to have waived any right to indemnity therefor hereunder.
(b) If (A) any Buyer Group Member is seeking indemnification from any
Tribune Group Member pursuant to Section 12(a)(iv) or (B) if any third Person
-----------------
claim, action or suit against any Indemnified Party is solely for money damages
or, where Tribune is the Indemnitor, will have no continuing effect in any
material respect on the Company, then the Indemnitor shall have the right to
conduct and control, through counsel of its choosing, the defense, compromise or
settlement of any such third Person claim, action or suit against such
Indemnified Party as to which indemnification will be sought by any Indemnified
Party from any Indemnitor hereunder if the Indemnitor has acknowledged and
agreed in writing that, if the same is adversely determined, the Indemnitor has
an obligation to provide indemnification to the Indemnified Party in respect
thereof (subject to the limitations set forth in Section 12.1 or 12.2, as the
------------ ----
case may be), and in any such case the Indemnified Party shall cooperate in
connection therewith and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and appeals
as may be reasonably requested by the Indemnitor in connection therewith;
provided, that the Indemnified Party may participate, through counsel chosen by
- --------
it and at its own expense, in the defense of any such claim, action or suit as
to which the Indemnitor has so elected to conduct and control the defense
thereof. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay, settle or compromise any such claim, action or suit, provided that
--------
in such event the Indemnified Party shall waive any right to indemnity therefor
hereunder.
- -30-
<PAGE>
12.5. EXCLUSIVE REMEDY. Except for remedies that cannot be waived as
----------------
a matter of law, if the Closing occurs, this Article XII shall be the exclusive
-----------
remedy for breach of the representations and warranties contained in Article V
---------
or VI or the corresponding certificates delivered pursuant to Section 4.3 and
-- -----------
4.4.
- ---
ARTICLE XIII
TERMINATION
-----------
13.1. TERMINATION. Anything contained in this Agreement to the
-----------
contrary notwithstanding, this Agreement may be terminated at any time prior to
the Closing Date:
(a) by the mutual consent of Buyer and Tribune;
(b) by Buyer or Tribune if the Closing shall not have occurred on or
before February 28, 1997 (or such later date as may be mutually agreed to by
Buyer and Tribune);
(c) by Buyer in the event of any material breach by Tribune of any of
Tribune's agreements, representations, or warranties contained herein and the
failure of Tribune to cure such breach within 14 days after receipt of notice
from Buyer requesting such breach to be cured;
(d) by Tribune in the event of any material breach by Buyer of any of
Buyer's agreements, representations, or warranties contained herein and the
failure of Buyer to cure such breach within 14 days after receipt of notice from
Tribune requesting such breach to be cured;
(e) by Buyer or Tribune if any court of competent jurisdiction in the
United States or other United States Governmental Body shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby; or
(f) by Tribune in accordance with Section 7.6.
-----------
13.2. NOTICE OF TERMINATION. Any party desiring to terminate this
---------------------
Agreement pursuant to Section 13.1 shall give notice of such termination to
------------
the other party to this Agreement.
13.3. NON-SOLICITATION. If this Agreement is terminated, neither
----------------
Buyer nor any of its Affiliates will, for a period of two years thereafter,
without the prior written approval of Tribune, directly or indirectly solicit,
induce or attempt to persuade any person who is an employee of the Company on
the date hereof or at any time hereafter that precedes such termination, to
terminate his or her employment with the Company. Without limiting the rights of
Tribune to pursue all other legal and equitable rights available for a violation
of this Section 13.3 by Buyer or its Affiliates, it is agreed that other
------------
remedies cannot fully compensate Tribune for such a violation and that Tribune
shall be entitled to injunctive relief to prevent a violation or continuing
violation hereof. It is the intent and understanding of each party hereto that
if, in any action before any court or agency legally empowered to enforce this
Section 13.3, any term,
- ------------
- -31-
<PAGE>
restriction, covenant or promise in this Section 13.3 is found to be
------------
unreasonable and for that reason unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.
13.4. EFFECT OF TERMINATION. In the event that this Agreement shall
---------------------
be terminated pursuant to this Article XIII, all further obligations of the
------------
parties under this Agreement (other than Sections 13.3, 14.2 and 14.10) shall be
------------- ---- -----
terminated without further liability of any party to the other, provided that
nothing herein shall relieve any party from liability for its willful breach of
this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
------------------
14.1. SURVIVAL OF OBLIGATIONS. All of the representations,
-----------------------
warranties, agreements and covenants contained in this Agreement shall survive
the consummation of the transactions contemplated by this Agreement; provided,
--------
however, that the representations and warranties set forth in Article V or VI
- ------- --------- --
(other than the representations contained in Section 5.20) shall terminate on
------------
the first anniversary of the Closing Date. Except as otherwise provided herein,
no claim shall be made for the breach of any representation or warranty
contained in Article V or VI (other than the representations contained in
--------- --
Section 5.20) or under any certificate delivered representations and warranties
- ------------
terminate as set forth in this Section.
14.2. CONFIDENTIAL NATURE OF INFORMATION . Each party agrees that it
----------------------------------
will treat in confidence all documents, materials and other information which it
shall have obtained regarding the other party or its Affiliates during the
course of the negotiations leading to the consummation of the transactions
contemplated hereby (whether obtained before or after the date of this
Agreement), the investigation provided for herein and the preparation of this
Agreement and other related documents, and, in the event the transactions
contemplated hereby shall not be consummated, each party shall return to the
other party all copies of nonpublic documents and materials which have been
furnished in connection therewith and shall return or destroy all analyses,
compilations, studies or other documents of or prepared by such party from such
information (and confirm to the other party in writing that it has done so).
Such documents, materials and information shall not be communicated to any third
Person (other than to a party's counsel, accountants, financial advisors,
potential investors or lenders). No party shall use any such confidential
information in any manner whatsoever except solely for the purpose of evaluating
the proposed purchase and sale of the Company Shares; provided, however, that
-------- -------
after the Closing Buyer may use or disclose any confidential information of the
Company. The obligation of each party to treat such documents, materials and
other information in confidence shall not apply to any information which (i) is
or becomes available to such party from a source other than such party, (ii) is
or becomes available to the public other than as a result of disclosure by such
party or its agents, (iii) is required to be disclosed under applicable law or
judicial process, but only to the extent it must be disclosed, or (iv) such
party reasonably deems necessary to disclose to obtain any of the consents or
approvals contemplated hereby.
- -32-
<PAGE>
14.3. NO PUBLIC ANNOUNCEMENT. Neither Buyer nor Tribune shall,
----------------------
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that any such party shall be so obligated by law, in which
case the other party shall be advised and the parties shall use their best
efforts to cause a mutually agreeable release or announcement to be issued;
provided that the foregoing shall not preclude communications or disclosures
- --------
necessary to implement the provisions of this Agreement or to comply with the
accounting and Securities and Exchange Commission disclosure obligations or the
rules of any stock exchange.
14.4. NOTICES. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally or when sent by registered or certified mail or by
private courier addressed as follows:
If to Buyer, to:
MS Farm Journal Corporation
c/o Morgan Schiff & Co., Inc.
280 Park Avenue - East Building
26th Floor
New York, New York 10017
Attention: Sterling B. Brinkley, Jr.
with a copy to:
L. Kevin Sheridan, Jr.
Roberts Sheridan & Kotel
640 5th Avenue
New York, New York 10019
If to Tribune, to:
Tribune Company
435 North Michigan Avenue
Chicago, Illinois 60601
Attention: Vice President and
General Counsel
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Larry A. Barden
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
- -33-
<PAGE>
14.5. SUCCESSORS AND ASSIGNS. (a) The rights of either party under
----------------------
this Agreement shall not be assignable by such party hereto prior to the Closing
without the written consent of the other except that Buyer may assign its rights
and obligations to a separate legal entity controlled by Buyer or Buyer's sole
shareholder, provided that in connection with such assignment the assignee
expressly assumes in writing the obligations of Buyer hereunder. Following the
Closing, either party may assign any of its rights hereunder, but no such
assignment shall relieve it of its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon any Person other than the parties and successors and assigns permitted by
this Section 14.5 and the retirees described in Section 8.2 any right, remedy or
------------ -----------
claim under or by reason of this Agreement.
14.6. ACCESS TO RECORDS AFTER CLOSING . For a period of six years
-------------------------------
after the Closing Date, Tribune and its representatives shall have reasonable
access to all of the books and records of the Company and the Subsidiaries to
the extent that such access may reasonably be required by Tribune in connection
with matters relating to or affected by the operations of the Company and the
Subsidiaries prior to the Closing Date. Such access shall be afforded by Buyer
upon receipt of reasonable advance notice and during normal business hours.
Tribune shall be solely responsible for any costs or expenses incurred by it
pursuant to this Section 14.6. If Buyer, the Company or any Subsidiary shall
------------
desire to dispose of any of such books and records prior to the expiration of
such six-year period, Buyer shall, prior to such disposition, give Tribune a
reasonable opportunity, at Tribune's expense, to segregate and remove such books
and records as Tribune may select. In addition, Tribune shall provide Buyer with
such cooperation and access to records as is necessary or appropriate to enable
Buyer to prepare an audit of the consolidated financial statements of the
Company for the four fiscal years ending with fiscal year 1997.
14.7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits
---------------- ----------
and Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements,
understandings or letters of intent between or among any of the parties hereto.
This Agreement shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the parties
hereto.
14.8. INTERPRETATION. Article titles and headings to sections herein
--------------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Schedules
and Exhibits referred to herein shall be construed with and as an integral part
of this Agreement to the same extent as if they were set forth verbatim herein.
Disclosure of any fact or item in any Schedule hereto referenced by a particular
section in this Agreement shall be deemed to have been disclosed with respect to
every other section in this Agreement. Neither the specification of any dollar
amount in any representation or warranty contained in this Agreement nor the
inclusion of any specific item in any Schedule hereto is intended to imply that
such amount, or higher or lower amounts, or the item so included or other items,
are or are not material, and no party shall use the fact of the setting forth of
any such amount or the inclusion of any such item in any dispute or controversy
- -34-
<PAGE>
between the parties as to whether any obligation, item or matter not described
herein or included in any Schedule is or is not material for purposes of this
agreement. Unless this Agreement specifically provides otherwise, neither the
specification of any item or matter in any representation or warranty contained
in this Agreement nor the inclusion of any specific item in any Schedule hereto
is intended to imply that such item or matter, or other items or matters, are or
are not in the ordinary course of business, and no party shall use the fact of
the setting forth or the inclusion of any such item or matter in any dispute or
controversy between the parties as to whether any obligation, item or matter not
described herein or included in any Schedule is or is not in the ordinary course
of business for purposes of this Agreement. Tribune may, from time to time prior
to or at the Closing, by notice in accordance with the terms of this Agreement,
supplement or amend any Schedule, including one or more supplements or
amendments to correct any matter which would constitute a breach of any
representation, warranty or covenant contained herein. No such supplemental or
amended Schedule shall be deemed to cure any breach for purposes of Section 9.1.
-----------
If, however, the Closing occurs, any such supplement and amendment will be
effective to cure and correct for all other purposes and breach of any
representation, warranty or covenant which would have existed if Tribune had not
made such supplement or amendment, and all references to any schedule hereto
which is supplemented or amended as provided in this Section 14.8 shall for all
------------
purposes after the Closing be deemed to be a reference to such Schedule as so
supplemented or amended.
14.9. WAIVERS. Any term or provision of this Agreement may be waived,
-------
or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
14.10. EXPENSES. Each party hereto will pay all costs and expenses
--------
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agreements and conditions contained herein
on its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel and accountants.
14.11. PARTIAL INVALIDITY.
------------------
Wherever possible, each provision hereof shall be interpreted in such manner
as to be effective and valid under applicable law, but in case any one or more
of the provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such provision shall be ineffective to
the extent, but only to the extent, of such invalidity, illegality or
unenforceability without invalidating the remainder of such invalid, illegal or
unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.
14.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
-------------------------
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more
- -35-
<PAGE>
counterparts have been signed by each of the parties hereto and delivered to
each of Tribune and Buyer.
14.13. FURTHER ASSURANCES.
------------------
On and after the Closing Date each party hereto shall take, and Buyer shall
cause the Company to take, such other actions and execute such other documents
and instruments of conveyance and transfer as may be reasonably requested by the
other party hereto from time to time to effectuate or confirm the transfer of
the Company Shares to Buyer in accordance with the terms of this Agreement.
Notwithstanding anything to the contrary herein, Tribune agrees to continue to
provide accounts payable, benefit administration, and payroll processing to the
Company at Tribune's cost until the Company no longer requests such services and
benefits; provided, however, that such period shall not, in any event, extend
beyond 45 days from the date of the Closing.
14.14. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State of
Illinois.
14.15. DISCLAIMER OF WARRANTIES.
------------------------
Tribune makes no representations or warranties with respect to any
projections, forecasts or forward-looking information provided to Buyer. There
is no assurance that any projected or forecasted results will be achieved.
EXCEPT AS TO THOSE MATTERS EXPRESSLY COVERED BY THE REPRESENTATIONS AND
WARRANTIES IN THIS AGREEMENT AND THE CERTIFICATE DELIVERED BY TRIBUNE PURSUANT
TO SECTION 4.4, TRIBUNE IS SELLING THE COMPANY SHARES (AND THE BUSINESS AND
-----------
ASSETS OF THE COMPANY REPRESENTED THEREBY) ON AN "AS IS, WHERE IS" BASIS AND
DISCLAIMS ALL OTHER WARRANTIES, REPRESENTATIONS AND GUARANTEES WHETHER EXPRESS
OR IMPLIED. TRIBUNE MAKES NO REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE AND NO IMPLIED WARRANTIES WHATSOEVER.
Buyer acknowledges that neither Tribune nor any of its representatives nor any
other Person has made any representation nor warranty, express or implied, as to
the accuracy or completeness of any memoranda, charts, summaries or schedules
heretofore made available by Tribune or its representatives to Buyer or any
other information which is not included in this Agreement or the Schedules
hereto, and neither Tribune nor any of its representatives nor any other Person
will have or be subject to any liability to Buyer, any Affiliate of Buyer or any
other Person resulting from the distribution of any such information to, or use
of any such information by, Buyer, any Affiliate of Buyer or any of their
agents, consultants, accountants, counsel or other representatives.
14.16. MEDIATION; SUBMISSION TO JURISDICTION.
-------------------------------------
If a dispute arises out of or relates to this Agreement or the alleged breach
thereof and if such dispute is not settled by direct discussions between the
parties, the parties agree to attempt to resolve the dispute through nonbinding
mediation administered by the Center for Public Resources, 680 Fifth Avenue, New
York, New York 10019. The parties agree that if such dispute is not resolved
within 90 days after submission of such dispute to mediation, legal proceedings
may be instituted; provided, that any such legal proceeding must be brought in
--------
the United States District Court for the Northern District of Illinois and Buyer
and Tribune waive any and all objections to jurisdiction that they may have
under the laws of the State of Illinois or the United States.
- -36-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed the day and year first above written
MS FARM JOURNAL CORPORATION
By /s/ J. Carr Gamble, III
---------------------------
TRIBUNE COMPANY
By /s/ Andrew J. Oleszczuk
---------------------------
- -37-
<PAGE>
EXHIBIT 2.2
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of April 1,
1997, between MS Farm Journal Corporation, a Delaware corporation (the
"Company"), and Farm Journal Holdings Inc., a Delaware corporation
(the "Holdings")
WHEREAS the Company desires to assign to Holdings all its right, title
and interest in, to and under the Stock Purchase Agreement dated as of January
23, 1997, between the Company and Tribune Company, a Delaware corporation
("Tribune"), as amended by the letter agreement dated as of February 28, 1997,
between the Company and Tribune (as so amended, the "Stock Purchase Agreement")
WHEREAS Holdings desires to accept such assignment and to assume,
agree to be bound by and to perform the Company's obligations under the Stock
Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
SECTION 1. Assignment. The Company hereby assigns, transfers and
----------
delivers to Holdings all the Company's right, title and interest in, to and
under the Stock Purchase Agreement.
SECTION 2. Assumption. Holdings hereby assumes, agrees to be bound
----------
by and to perform all the obligations of the Company under the Stock Purchase
Agreement.
SECTION 3. Further Assurances. The Company agrees to execute any and
------------------
all further documents, agreements and instruments, and take all further action
that may be required under applicable law, or which Holdings may reasonably
request, in order to effectuate the transaction contemplated by this Assignment
and Assumption Agreement.
SECTION 4. Binding Agreement. This Assignment and Assumption
-----------------
Agreement shall be binding on the Company and Holdings and their respective
heirs, distributees, executors and legal representatives, successors and
assigns. This Assignment and Assumption Agreement may not be modified except by
an instrument in writing which is signed by each of the parties.
SECTION 5. Tribune Acknowledgment. Tribune agrees that from and
----------------------
after the date of this Assignment and Assumption Agreement (i) that Holdings
shall be the "Buyer" under as defined in the Stock Purchase Agreement, (ii) to
release the Company from all its obligations under the Stock Purchase Agreement
and (iii) to deal only with Holdings concerning all matters under the Stock
Purchase Agreement.
SECTION 6. Governing Law. This Assignment and Assumption Agreement
--------------
shall be construed and enforced in accordance with and governed by the laws of
the State of New York.
SECTION 7. Counterparts. This Assignment and Assumption Agreement
------------
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be duly executed as of the date first above written.
MS FARM JOURNAL CORPORATION
By: /s/ Phillip Ean Cohen
---------------------
Phillip Ean Cohen
President
FARM JOURNAL HOLDINGS INC.
By: /s/ J. Carr Gamble, III
-----------------------
J. Carr Gamble, III
President
Acknowledged and Agreed:
TRIBUNE COMPANY
By: /s/ Andrew J. Oleszczuk
-----------------------
Name: Andrew J. Oleszczuk
Title: V.P./Dir.
2
<PAGE>
EXHIBIT 2.3
EXECUTION COPY
- --------------------------------------------------------------------------------
FARM JOURNAL HOLDINGS INC.
FARM JOURNAL, INC.
NOTE PURCHASE AGREEMENT
Dated as of April 1, 1997
$11,000,000
9.50% Senior Subordinated Notes due 2007
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. BACKGROUND; THE NOTES; THE CLOSING; ETC................................. 1
1.1. Background....................................................... 1
1.2. Authorization and Description of Notes and Guaranty Agreement.... 1
1.3. Subordination of Notes........................................... 2
1.4. Sale and Purchase of Notes....................................... 2
1.5. Closing.......................................................... 2
1.6. Application of Proceeds.......................................... 3
1.7. Purchase for Investment.......................................... 3
1.8. Source of Funds.................................................. 3
2. CONDITIONS TO CLOSING................................................... 3
2.1. Proceedings Satisfactory........................................ 4
2.2. Opinions of Counsel............................................. 4
2.3. Representations and Warranties.................................. 4
2.4. Performance; No Default......................................... 4
2.5. Compliance Certificate.......................................... 4
2.6. Consummation of Acquisition..................................... 4
2.7. Legal Investment................................................ 5
2.8. Absence of Certain Events....................................... 5
2.9. Consents and Approvals.......................................... 5
2.10. Partnership Agreement; Sale of Partnership Units; Side Letter... 6
2.11. Capitalization of Partnership................................... 6
2.12. Pro Forma Balance Sheet......................................... 6
2.13. Fees Payable at Closing......................................... 6
2.14. Private Placement Number........................................ 7
2.15. Funding Instructions............................................ 7
3. PAYMENT AND PREPAYMENT OF NOTES......................................... 7
3.1. Required Prepayments and Payment at Maturity..................... 7
3.2. Optional Prepayments............................................. 7
3.3. Prepayment Upon Change of Control................................ 8
3.4. Notice of Optional Prepayment; Calculation of Yield Maintenance
Amount........................................................... 9
3.5. Maturity; Surrender; Notice of Prepayments; etc.................. 9
3.6. Limitation on Prepayment and Acquisition of Notes................ 9
3.7. Payments Due on Other Than a Business Day........................ 9
3.8. Allocation of Partial Prepayments................................ 10
4. FINANCIAL STATEMENTS; INFORMATION....................................... 10
5. INSPECTION OF PROPERTIES AND BOOKS...................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6. COVENANTS............................................................... 15
6.1. Maintenance of Certain Financial Conditions..................... 15
6.2. Debt of the Company............................................. 15
6.3. Liens........................................................... 16
6.4. Investments, etc................................................ 16
6.5. Restricted Payments............................................. 17
6.6. Transactions with Affiliates.................................... 18
6.7. Consolidation, Merzer, Sale of Assets, etc...................... 19
6.8. Sale of Subsidiary Stock........................................ 20
6.9. Prepayment of Notes Upon Change of Control...................... 20
6.10. Nature of Business.............................................. 21
6.11. Books and Records; Fiscal Year.................................. 21
6.12. Corporate Existence; Licenses................................... 21
6.13. Payment of Taxes, Claims for Labor and Materials, etc........... 21
6.14. Maintenance of Properties....................................... 22
6.15. Insurance....................................................... 22
6.16. Compliance with Laws............................................ 22
6.17. Maintenance of Independent Directors............................ 23
6.18. Issuance or Sale of Additional Capital Stock.................... 23
6.19. Environmental Matters........................................... 23
6.20. Payment of Notes................................................ 23
6.21. Maintenance of Office........................................... 24
6.22. Post-Closing Audit.............................................. 24
7. SUBORDINATION........................................................... 24
7.1. Notes, Holdings Guaranty and Subsidiary Guaranties Subordinated
to Senior Debt.................................................. 24
7.2. Certain Definitions............................................. 24
7.3. Subordination to Prior Payment of all Senior Debt on Dissolution,
Reorganization, Insolvency, etc................................. 28
7.4. No Payment with Respect to Notes in Certain Circumstances....... 29
7.5. Payments Notwithstanding........................................ 31
7.6. No Prejudice or Impairment...................................... 31
7.7. Reliance........................................................ 32
7.8. Turnover of Payments............................................ 32
7.9. Disclosure of Subordination..................................... 32
7.10. Amendment....................................................... 33
7.11. Liens; Enforcement of Claims.................................... 33
7.12. Notice of Subordination......................................... 33
7.13. Rights not Impaired............................................. 33
7.14. Termination of Subordination.................................... 34
7.15. Proof of Claim.................................................. 34
7.16. Reliance by Holders of Senior Debt.............................. 34
7.17. Waiver of Jury Trial............................................ 35
7.18. Further Assurances.............................................. 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND HOLDINGS.............. 35
8.1. Stock Purchase Agreement........................................ 35
8.2. Consummation of Acquisition..................................... 35
8.3. Organization and Authority of Holdings and the Company.......... 36
8.4. Subsidiaries.................................................... 36
8.5. Business of Holdings............................................ 36
8.6. Qualification................................................... 36
8.7. Business and Property; Financial Statements; etc................ 37
8.8. Changes, etc.................................................... 37
8.9. Ownership, Capital Stock, etc................................... 37
8.10. Compliance with Laws, Other Instruments, etc.................... 38
8.11. Consents and Approvals.......................................... 38
8.12. Title to Property; Leases....................................... 39
8.13. Debt, etc....................................................... 39
8.14. Solvency........................................................ 39
8.15. Litigation...................................................... 39
8.16. Taxes........................................................... 40
8.17. Compliance with ERISA........................................... 40
8.18. Private Offering................................................ 41
8.19. Use of Proceeds; Margin Regulations............................. 41
8.20. Licenses, Patents, Trademarks, Authorizations, etc.............. 42
8.21. Status Under Certain Statutes; Other Regulations................ 42
8.22. Labor Matters................................................... 42
8.23. Full Disclosure................................................. 43
8.24. Environmental Matters........................................... 43
9. HOLDINGS GUARANTY....................................................... 44
9.1. Guaranty of Payment and Performance............................ 44
9.2. Waiver......................................................... 44
9.3. Obligations Unaffected......................................... 45
9.4. Absolute and Unconditional Nature of Obligations............... 46
9.5. Independent Obligation......................................... 47
9.6. Reinstatement.................................................. 47
9.7. Subrogation.................................................... 48
9.8. Acceleration, etc.............................................. 48
9.9. Limitation..................................................... 48
10. EVENTS OF DEFAULT: REMEDIES............................................ 48
10.1. Events of Default Defined; Acceleration of Maturity............ 48
10.2. Default Remedies............................................... 52
10.3. Remedies Cumulative............................................ 52
10.4. Remedies Not Waived............................................ 52
10.5. Annulment of Acceleration of Notes............................. 52
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
11. DEFINITIONS AND CONSTRUCTION............................................ 53
11.1. Defined Terms.................................................. 53
11.2. Accounting Terms, etc.......................................... 67
11.3. Construction................................................... 67
12. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES............................ 68
12.1. Note Register.................................................. 68
12.2. Transfer and Exchange.......................................... 68
12.3. Owners and Noteholders......................................... 68
13. LOST, ETC., NOTES....................................................... 68
14. AMENDMENT AND WAIVER.................................................... 69
15. DIRECT PAYMENT.......................................................... 70
16. LIABILITIES OF THE PURCHASER............................................ 70
17. MISCELLANEOUS........................................................... 70
17.1. Expenses....................................................... 70
17.2. Reliance On and Survival of Representations.................... 71
17.3. Successors and Assigns......................................... 71
17.4. Notices........................................................ 71
17.5. LAW GOVERNING.................................................. 71
17.6. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL............... 72
17.7. Headings, etc.................................................. 72
17.8. Substitution of Purchaser...................................... 72
17.9. Entire Agreement............................................... 73
17.10. Counterparts................................................... 73
</TABLE>
SCHEDULE I Information Concerning Purchaser
SCHEDULE II Foreign Qualifications
SCHEDULE III Existing Debt of the Company
SCHEDULE IV Existing Investments of the Company
SCHEDULE V List of Documents furnished to Purchaser
SCHEDULE VI Material Trademarks
SCHEDULE VI Material Trademarks
SCHEDULE VII Disclosure Schedule
iv
<PAGE>
EXHIBIT A Form of Note
EXHIBIT B Form of Opinion of Special Counsel to the Company and Holdings
EXHIBIT C-1 Form of Partnership Agreement
EXHIBIT C-2 Form of Amendment No. 1 to Partnership Agreement
v
<PAGE>
FARM JOURNAL HOLDINGS INC.
c/o Morgan Schiff & Co., Inc.
280 Park Avenue, East Building, 26th Floor
New York, New York 10017
FARM JOURNAL, INC.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Re: 9.50% Senior Subordinated Notes Due 2007
As of April 1, 1997
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Ladies and Gentlemen:
Each of the undersigned, FARM JOURNAL HOLDINGS INC., a Delaware
corporation ("HOLDINGS"), and FARM JOURNAL, INC., a Pennsylvania corporation
--------
(the "COMPANY"), which, as a result of the transactions contemplated by SECTION
-------
1.1, at or concurrently with the Closing contemplated by SECTION 1.5 will become
a Wholly-Owned Subsidiary of Holdings, hereby agrees with you, for your benefit
and the benefit of the other Noteholders from time to time of the Notes referred
to below, as follows:
1. BACKGROUND; THE NOTES; THE CLOSING; ETC.
----------------------------------------
1.1. BACKGROUND. MS Farm Journal Corporation, a Delaware corporation
----------
(the "GENERAL PARTNER"), and Tribune Company, a Delaware corporation
---------------
("TRIBUNE"), are signatories to a Stock Purchase Agreement, dated as of January
23, 1997, as amended by letter dated February 28, 1997 (as so amended, the
"STOCK PURCHASE AGREEMENT"), providing for the purchase by the General Partner
------------------------
from Tribune of all of the issued and outstanding shares of common stock of the
Company. Pursuant to an assignment and assumption agreement, dated as of April
1, 1997 (the "ASSIGNMENT AGREEMENT"), between the General Partner and Holdings,
--------------------
the General Partner has assigned to Holdings, and Holdings has assumed, all of
the General Partner's rights and obligations under the Stock Purchase Agreement.
1.2. AUTHORIZATION AND DESCRIPTION OF NOTES AND GUARANTY AGREEMENT.
--------------------------------------------------------------
(a) The Company has duly authorized the issuance, sale and delivery of its 9.50%
Senior Subordinated Notes due 2007 in the aggregate principal amount of
$11,000,000 (together with all notes issued in substitution or exchange therefor
or in replacement thereof in accordance with SECTION 12 of this Agreement, the
"NOTES"), each of which shall:
-----
<PAGE>
(i) bear interest from the date thereof on the unpaid principal
amount thereof at the per annum rate of 9.50% (computed on the basis of a
360-day year of twelve 30-day months), payable semi-annually in arrears on
June 1 and December 1 of each year commencing with December 1, 1997;
(ii) bear interest on any overdue principal (including any overdue
optional prepayment of principal) and Yield Maintenance Amount, if any, and
(to the extent permitted by applicable law) any overdue interest, and any,
other overdue amounts payable hereunder, at the Overdue Rate until paid,
such overdue interest, if any, to be payable semi-annually on each date any
payment of interest is due under SECTION 1.2(a) or, at the option of the
Noteholder of such Note, on demand;
(iii) mature and be payable in full on April 1, 2007, such payment to
be in an amount sufficient to pay in full the entire unpaid principal
thereof and accrued interest thereon;
(iv) be subject to mandatory prepayment in the amounts and on the
dates specified in SECTION 3.1; and
(v) be otherwise subject to prepayment in the amounts and to the
extent specified in SECTION 3.2 and SECTION 3.3.
The Notes shall be substantially in the form of EXHIBIT A.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings attributed thereto in SECTION 10.
(b) The Notes shall be entitled to the benefits of the guaranty by
Holdings of the obligations of the Company under this Agreement and the Notes as
more fully set out in SECTION 9 (the "HOLDINGS GUARANTY"). Holdings has duly
-----------------
authorized the execution and delivery of this Agreement and the performance of
its obligations hereunder (including the performance of its obligations under
the Holdings Guaranty).
1.3. SUBORDINATION OF NOTES. The payment of the principal, Yield
----------------------
Maintenance Amount, if any, and interest on the Notes and any other amounts due
hereunder shall be subordinate to and junior in right of payment to Senior Debt
to the extent and in the manner set forth in SECTION 7.
1.4. SALE AND PURCHASE OF NOTES. The Company will issue and sell to
--------------------------
you and, subject to the terms and conditions hereof, and in reliance upon the
representations and warranties of Holdings and the Company contained herein and
the information contained in the materials listed on SCHEDULE V, you will
purchase from the Company, at the Closing provided for in SECTION 1.5, Notes in
the aggregate principal amount of $11,000,000, at a purchase price equal to 100%
of such principal amount.
1.5. CLOSING. (a) The closing of the sale and purchase of the Notes
-------
(the "CLOSING") shall take place at the offices of Roberts, Sheridan & Kotel,
Tower 49, 12 East 49th Street, New York, New York 10017, at 10:00 a.m., New York
City time, on April 1, 1997, or on
2
<PAGE>
such later Business Day as the Company and you shall agree (such specified or
subsequent Business Day, as the case may be, the "CLOSING DATE").
------------
(b) At the Closing, the Company will deliver to you the Notes to be
purchased by you in the form of a single Note in the principal amount of
$11,000,000 (or such greater number of Notes as you may request aggregating such
principal amount), dated the Closing Date and registered in your name (or the
name of your nominee), against wire transfer by you to the Company of
immediately available funds in the amount of the purchase price therefor. If at
the Closing the Company shall fail to tender such Notes to you as provided
herein or if any of the conditions specified in SECTION 2 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any other
rights you may have by reason of such failure or such non-fulfillment.
1.6. APPLICATION OF PROCEEDS. Subject in any event to the provisions
-----------------------
of SECTION 8.19, the proceeds from the sale of the Notes will be applied by the
Company on the Closing Date, contemporaneously with the closing of the
Acquisition, to the redemption of 65 shares of the capital stock of the Company
owned by Tribune.
1.7. PURCHASE FOR INVESTMENT. You represent to the Company that on
-----------------------
the Closing Date you will acquire the Notes being acquired by you for your own
account and not with a view to, or for sale in connection with, the distribution
(as such term is used in Section 2(11) of the Securities Act) of any part
thereof, provided that the disposition of your property shall at all times be
--------
and remain within your control. The Company acknowledges that each Note is a
"security" as defined in Section 2(1) of the Securities Act and Section 3(a)(10)
of the Exchange Act.
1.8. SOURCE OF FUNDS. (a) You represent to the Company that no part
---------------
of the funds to be used by you to pay the purchase price of the Notes
constitutes assets allocated to any separate account maintained by you in which
any employee benefit plan (or its related trust) has any interest. If your
source of funds includes assets of your insurance company general account (as
defined in Section V(e) of Prohibited Transaction Class Exemption ("PTCE") 95-
----
60), you represent to the Company that no employee benefit plan or employee
benefit plans maintained by a single employer (including an "affiliate" thereof,
as defined in Section V(a) of PTCE 95-60) or employee organization hold an
interest or interests either as contract holders or as the beneficial owners of
contracts in such general account, the reserves and liabilities for which exceed
10% of the sum of all reserves and liabilities of such general account plus your
surplus, such reserves and liabilities and such surplus in each case being
calculated in accordance with the applicable provisions of PTCE 95-60.
(b) As used in this Section, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
2. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the
---------------------
Notes to be purchased by you hereunder is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of each of the following conditions:
3
<PAGE>
2.1. PROCEEDINGS SATISFACTORY. All proceedings taken in connection
------------------------
with the authorization and issuance of the Notes and the consummation of the
transactions contemplated by this Agreement, the Stock Purchase Agreement and
the other Transaction Documents and all documents and papers relating thereto
(including all proceedings, agreements and documents relating to the
Acquisition), and all corporate organization, formation and authorization
documents relating to Holdings and the Company and the transactions contemplated
hereby, shall be reasonably satisfactory in form, scope and substance to you and
your special counsel, and you and your special counsel shall have received
copies (executed or certified as may be appropriate) of such documents and
papers as they may reasonably request in connection therewith.
2.2. OPINIONS OF COUNSEL. You shall have received opinions, each
dated the Closing Date, addressed to you and satisfactory in form, scope, and
substance to you, from (i) Roberts, Sheridan & Kotel, special counsel to the
Company and Holdings, substantially in the form of EXHIBIT B, and covering such
other matters as you or your special counsel may reasonably request; and (ii)
Coudert Brothers, your special counsel in connection with the transactions
contemplated by this Agreement, covering such matters as you may reasonably
request. In addition, you shall have received copies of the opinion of counsel
for the General Partner and Holdings and the opinion of counsel for Tribune
delivered pursuant to the Stock Purchase Agreement in connection with the
consummation of the transactions contemplated thereby, accompanied in the case
of each such opinion, by a letter from counsel rendering same stating that you
and your special counsel are entitled to rely on such opinion as if it were
addressed to you and your special counsel.
2.3. REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------
warranties of the Company and Holdings contained in this Agreement or in any
Transaction Document to be entered into on or prior to the Closing Date or made
by or on behalf of either of them in the materials listed on SCHEDULE V, shall
be true and correct when made and as of the time of the Closing with the same
effect as though such representations and warranties had been made on and as of
the Closing Date (except to the extent that any such representation or warranty
specifically refers to another date).
2.4. PERFORMANCE; NO DEFAULT. The Company and Holdings shall have
-----------------------
performed all agreements and complied with all conditions contained herein or in
any other Transaction Document required to be performed or complied with by them
prior to or at the Closing (including the delivery of all instruments,
certificates or documents required to be delivered in connection with any of the
Transaction Documents), and at the time of the Closing (and after giving effect
to the sale of the Notes to you and the application of the proceeds of such
sale) no condition or event shall exist which constitutes a Default or an Event
of Default.
2.5. COMPLIANCE CERTIFICATE. Each of the Company and Holdings shall
----------------------
have delivered to you an Officers' Certificate, dated the Closing Date,
certifying that the conditions specified in SECTIONS 2.3 AND 2.4 applicable to
it have been fulfilled.
2.6. CONSUMMATION OF ACQUISITION. On the Closing Date, concurrently
---------------------------
with the consummation of the Closing:
4
<PAGE>
(a) each of the General Partner and Holdings shall have duly
authorized, executed and delivered the Assignment Agreement, and Holdings
shall have assumed all of the rights and obligations of the General Partner
under the Stock Purchase Agreement;
(b) all of the conditions precedent to the obligations of Holdings
(as assignee of the General Partner) and Tribune set forth in the Stock
Purchase Agreement shall have been fulfilled, no amendment, modification or
waiver (in the case of any material condition) of such conditions precedent
shall have been made, other than as may have been approved by you in
writing on or prior to the Closing Date, and the acquisition by Holdings of
100% of the issued and outstanding shares of capital stock of the Company
pursuant to the terms of the Stock Purchase Agreement (the "ACQUISITION")
-----------
shall have been completed, and Holdings shall have good and marketable
title to all the issued and outstanding shares of capital stock of the
Company, free and clear of all Liens;
(c) the Board of Directors of the Company, as constituted immediately
following the Acquisition, shall have duly authorized by appropriate
corporate action (i) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, (ii)
the issuance, sale and delivery by the Company of the Notes, and (iii) the
execution and delivery by the Company of, and the performance by the
Company of its obligations under, the other Transaction Documents to which
the Company is or is to be a party; and
(d) copies, certified by an appropriate officer of Holdings as true,
correct and complete, of all the Acquisition Documents and all documents
delivered in connection with the transactions contemplated thereby shall
have been delivered to you and your special counsel.
2.7. LEGAL INVESTMENT. On the Closing Date the Notes and the
----------------
Partnership Units shall be and qualify as a legal investment for you under the
laws and regulations of each jurisdiction to which you may be subject (without
resort to any basket or leeway provisions of said laws, such as New York
Insurance Law (S) 1405(a)(8)), and the purchase of the Notes shall not subject
you to any tax, penalty, liability or other onerous condition pursuant to any
applicable law or regulation; and you shall have received such certificates or
other evidence, if any, as you may request demonstrating the satisfaction of
this condition.
2.8. ABSENCE OF CERTAIN EVENTS. There shall not have occurred any
-------------------------
Material Adverse Change from that reflected in the most recent annual financial
statements of the Company referred to in SECTION 8.7, nor shall there exist any
additional information not disclosed to you as of such date which information
may have or may result in a Material Adverse Effect. Since the date of the
balance sheets included in such financial statements, the Company shall not have
consolidated or merged with or into, or participated in a share exchange with,
any Person, or sold, leased or otherwise disposed of any assets or properties
other than in the ordinary course of business.
2.9. CONSENTS AND APPROVALS. All actions, approvals, consents,
----------------------
permits, licenses, waivers, exemptions, Orders, authorizations, registrations,
declarations, filings and recordings (collectively, "APPROVALS"), if any, which
---------
are required to be taken, given, obtained,
5
<PAGE>
filed or recorded, as the case may be, by or from or with (a) any Governmental
-
Body, (b) any holder of any indebtedness, obligation or securities of the
-
Company or any trustee or agent for any such holder, or (c) any other Person
-
necessary for the Acquisition or for the legal and valid execution and delivery
by the Company and Holdings of this Agreement and the other Transaction
Documents to which they respectively are parties, and the consummation of the
transactions (including the issuance of the Notes and the consummation of the
Acquisition) contemplated hereby and thereby, shall have been duly taken, given,
obtained, filed or recorded, as the case may be, and all such Approvals shall be
final, subsisting and in full force and effect on the Closing Date, and shall
not be subject to any further proceedings or appeals or any conditions
subsequent not approved by you. To the extent requested by you, certified copies
or other appropriate evidence of all such Approvals, in form, scope and
substance satisfactory to you and your special counsel, shall have been
delivered to you and your special counsel.
2.10. PARTNERSHIP AGREEMENT; SALE OF PARTNERSHIP UNITS; SIDE LETTER.
-------------------------------------------------------------
The Agreement of Limited Partnership, dated as of the Closing Date and
substantially in the form of EXHIBIT C-1, shall have been duly executed by the
General Partner, you and the other Limited Partners and shall be in full force
and effect, and Amendment No. 1 to the Agreement of Limited Partnership, dated
as of the Closing Date and substantially in the form of EXHIBIT C-2, shall have
been duly executed by the General Partner and not less than a Majority in
Interest of Limited Partners (as defined in such Agreement of Limited
Partnership) and shall be in full force and effect (such Agreement of Limited
Partnership, as amended by such Amendment No. 1, being hereinafter referred to
as the "PARTNERSHIP AGREEMENT"). Concurrently with the consummation of the
---------------------
Closing, (i) the General Partner shall hold a 1% general partnership interest in
the Partnership, and there shall be no other entity owning or holding any
interest as a general partner in the Partnership, and (ii) you shall have
purchased and shall be the legal and beneficial owner of 17.5 Partnership Units.
You shall have received a letter, dated the Closing Date and in form and
substance satisfactory to you, from the General Partner to you concerning
certain matters relating to the Partnership Agreement.
2.11. CAPITALIZATION OF PARTNERSHIP. The proceeds from the sale of
-----------------------------
Partnership Units on the Closing Date, together with the proceeds of the Closing
Loan (if any), shall equal not less than $10,000,000. The evidence of, and the
terms and conditions applicable to, the Closing Loan (if any) shall be
satisfactory to you in form and substance.
2.12. PRO FORMA BALANCE SHEET. The Company shall have furnished you
-----------------------
with a pro forma consolidated balance sheet of the Company and its consolidated
Subsidiaries as of March 2, 1997 (the "PRO FORMA BALANCE SHEET"), in reasonable
-----------------------
detail and consistent with GAAP. The Pro Forma Balance Sheet shall be
satisfactory to you in form and substance.
2.13. FEES PAYABLE AT CLOSING. The Company shall have paid the
-----------------------
reasonable legal fees and other expenses of your special counsel referred to in
SECTION 17.1 and all other fees and expenses for which the Company is obligated
pursuant to SECTION 17.1 and for which the Company shall have received invoices
on or prior to the last Business Day preceding the Closing Date.
6
<PAGE>
2.14. PRIVATE PLACEMENT NUMBER. A Private Placement Number shall have
------------------------
been assigned to the Notes by the CUSIP Service Bureau of Standard & Poor's
Corporation and you shall have received a copy of a letter therefrom confirming
the same.
2.15. FUNDING INSTRUCTIONS. At least two Business Days prior to the
--------------------
Closing Date, you shall have received written payment instructions addressed to
you and executed by an authorized officer of the Company setting forth the
purchase price of the Notes to be purchased by you on the Closing Date and
directing the manner of payment of such purchase price by setting forth (a) the
-
name of the bank to which such payment is to be made (the "TRANSFEREE BANK"),
---------------
(b) the ABA number of the Transferee Bank, (c) the account name and number at
- -
the Transferee Bank into which the purchase price for the Notes is to be
deposited and (d) the name and telephone number of the account representative at
-
the Transferee Bank responsible for verifying receipt of such funds.
3. PAYMENT AND PREPAYMENT OF NOTES.
--------------------------------
3.1. REQUIRED PREPAYMENTS AND PAYMENT AT MATURITY. On June 1 in each of
--------------------------------------------
the years 2003 through 2006 (each such date being referred to herein as a
"REQUIRED PREPAYMENT DATE") (so long as any of the Notes remain outstanding),
------------------------
the Company will prepay, and there shall become due and payable, the principal
amount of the Notes specified for payment on such Required Prepayment Date in
the following table (or such lesser principal amount of Notes as shall then be
outstanding):
REQUIRED PRE- AGGREGATE PRINCIPAL AMOUNT OF
PAYMENT DATE REQUIRED PREPAYMENT
- ------------- -----------------------------
June 1, 2003 $2,200,000
June 1, 2004 $2,200,000
June 1, 2005 $2,200,000
June 1, 2006 $2,200,000
Each such prepayment pursuant to this SECTION 3.1 shall be at 100% of
the principal amount so to be prepaid, together with interest accrued thereon to
the date of such prepayment, without Yield Maintenance Amount or any other
premium.
On April 1, 2007, the Company will pay, and there shall become due and
payable, the entire remaining unpaid principal amount of the Notes, together
with interest accrued thereon.
3.2. OPTIONAL PREPAYMENTS.
---------------------
(a) LIMITATION ON OPTIONAL PREPAYMENTS. The Notes shall not be subject to
prepayment at the option of the Company except in accordance with the terms of
subdivisions (b) and (c) of this SECTION 3.2.
(b) OPTIONAL PREPAYMENTS WITH YIELD MAINTENANCE AMOUNT. On any date, the
Company may, at its option, upon notice as provided in SECTION 3.4, prepay the
Notes in whole or from time to time in part (in integral multiples of at least
$1,00O,000), each such optional prepayment to be made at 100% of the principal
amount of the Notes to be so prepaid together
7
<PAGE>
with interest accrued on such principal amount to the date of prepayment, plus
the Yield Maintenance Amount determined in respect of such principal amount.
(c) OPTIONAL PREPAYMENTS WITHOUT YIELD MAINTENANCE AMOUNT UNDER CERTAIN
CIRCUMSTANCES. Under the following circumstances, as hereinafter provided, the
Company may prepay a portion of the Notes at its option without Yield
Maintenance Amount:
(i) in the event of an IPO, the Company may, at its option and upon
notice as provided in SECTION 3.4, at any time on or after the effective
date of such IPO, prepay an aggregate principal amount of Notes not
exceeding $2,750,000, such optional prepayment to be made at 100% of the
principal amount specified in such notice to be so prepaid together with
interest accrued on such principal amount to the date of such prepayment,
without Yield Maintenance Amount or any other premium;
(ii) if the sale by you of any IPO Shares to which you are entitled
pursuant to the Partnership Agreement ceases to be restricted (under Rule
144(k) of the Securities Act or as a result of the Partnership permitting
the registration of such sale under the Securities Act or otherwise),
whether or not you in fact consummate any such sale at any time thereafter,
the Company may, at its option and upon notice as provided in SECTION 3.4,
prepay an aggregate principal amount of Notes not exceeding $2,750,000,
such optional prepayment to be made at 100% of the principal amount
specified in such notice to be so prepaid together with interest accrued on
such principal amount to the date of such prepayment, without Yield
Maintenance Amount or any other premium; and
(iii) in the event that the Company shall consummate a Qualified
Transaction constituting a Successor Transaction in connection with which
(x) if such Qualified Transaction constitutes a Change of Control, there
shall exist any Noteholder which shall not have elected to exercise its
right pursuant to SECTION 6.9 to require the prepayment of the Notes held
by it in connection with such Change of Control, and (y) the Successor
shall have assumed the Company's obligations under this Agreement and the
Notes in accordance with SECTION 6.7(D), then the Company may, at its
option and upon notice as provided in SECTION 3.4, contemporaneously with
the consummation of such Qualified Transaction (or as soon thereafter as is
practicable, but in no event later than 10 days after such consummation),
prepay a principal amount of Notes held by each such Noteholder in an
amount not exceeding such Noteholder's pro rata share (in proportion to the
--- ----
aggregate principal amount of Notes held by all such Noteholders) of the
excess (if any) of (1) $5,500,000 over (2) the aggregate principal amount
----
of Notes (if any) which the Company shall have previously prepaid at its
option pursuant to subclause (i) or subclause (ii) of this SECTION 3.2(C),
each such optional prepayment to be made at 100% of the principal amount
specified in such notice to be so prepaid together with interest accrued on
such principal amount to the date of such prepayment, without Yield
Maintenance Amount or any other premium.
3.3. PREPAYMENT UPON CHANGE OF CONTROL. The Company shall prepay the
---------------------------------
principal amount of Notes specified for prepayment in any Prepayment Election
Notice delivered by the Company as contemplated by SECTION 6.9, each such
prepayment to be at the price and on the Prepayment Date determined in
accordance with, and otherwise as provided in, SECTION 6.9.
8
<PAGE>
3.4. NOTICE OF OPTIONAL PREPAYMENT; CALCULATION OF YIELD MAINTENANCE
---------------------------------------------------------------
AMOUNT. The Company will give each Noteholder, with respect to each optional
- ------
prepayment pursuant to SECTION 3.2, (a) notice thereof at least 30 and not more
-
than 60 days prior to the date fixed for such prepayment (which notice may be
revoked by written notice of revocation not less than two Business Days prior to
such date), specifying (i) such date of prepayment and the principal amount of
-
each Note held by such Noteholder so to be prepaid, (ii) the amount of accrued
--
interest payable to such Noteholder in respect of such prepayment, and (iii) if
---
such prepayment is being made pursuant to SECTION 3.2(b), the Company's estimate
as of the date of such notice of the Yield Maintenance Amount, if any,
applicable in respect of such prepayment, showing in reasonable detail the
calculation thereof and setting forth the Reinvestment Yield used in such
calculation, and (b) if such prepayment is being made pursuant to SECTION
-
3.2(b), further notice (a copy of which shall be telefaxed by the Company to
each such Noteholder concurrently with the sending thereof) two Business Days
prior to such date of prepayment, specifying such Yield Maintenance Amount, if
any, showing in reasonable detail the calculation thereof and setting forth the
Reinvestment Yield used in such calculation. Each determination by the Company
set forth in any such notice furnished to a Noteholder of the Yield Maintenance
Amount applicable in respect of a prepayment of Notes held by such Noteholder
shall be subject to verification by such Noteholder; and any redetermination of
such Yield Maintenance Amount by such Noteholder shall, in the absence of
manifest error, be conclusive and binding as between the Company and such
Noteholder.
3.5. MATURITY; SURRENDER; NOTICE OF PREPAYMENTS; ETC. In the case of
-----------------------------------------------
any prepayment of Notes pursuant to SECTION 3.2 (unless the notice of such
prepayment has been revoked as permitted by SECTION 3.4) or SECTION 3.3, the
principal amount of each Note to be prepaid shall become due and payable on the
date fixed for such prepayment in the notice of such prepayment pursuant to
SECTION 3.2 or SECTION 3.3, as the case may be, together with interest accrued
on such principal amount to such date, and if such prepayment is made pursuant
to SECTION 3.2(b), the Yield Maintenance Amount, if any, payable in connection
with such prepayment pursuant to such SECTION 3.2(b). Any Note paid or prepaid
in full in accordance with the terms of this Agreement shall thereafter be
surrendered to the Company upon its written request therefor and canceled and
not reissued; and no Note shall be issued in lieu of any paid or prepaid
principal amount of any Note.
3.6. LIMITATION ON PREPAYMENT AND ACQUISITION OF NOTES. The Company
-------------------------------------------------
will not, and will not permit any of its Affiliates or Subsidiaries to, pay,
prepay, purchase, redeem or otherwise acquire, directly or indirectly, any Note
except by way of payment or prepayment by the Company in accordance with the
terms of this Agreement and such Note.
3.7. PAYMENTS DUE ON OTHER THAN A BUSINESS DAY. If any payment or
-----------------------------------------
prepayment of principal, Yield Maintenance Amount, if any, or interest on or
with respect to any Note or Notes becomes due and payable on any day that is not
a Business Day, the amount of such payment or prepayment shall be payable on the
next succeeding Business Day and, with respect to any such payment or prepayment
of principal, interest shall continue to accrue thereon during any such
extension period at the applicable rate of interest in effect immediately prior
to such extension.
9
<PAGE>
3.8. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each required
---------------------------------
or optional prepayment made pursuant to SECTION 3.2 of less than the entire
unpaid principal amount of all outstanding Notes, the principal amount of the
Notes so to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective principal
amounts thereof not theretofore prepaid. The amount of each optional prepayment
of the Notes made pursuant to SECTION 3.2 shall be credited against the required
annual prepayments of principal and payment at final maturity then remaining
unpaid on the Notes (i) in the case of each optional prepayment of the Notes
made pursuant to SECTION 3.2(b), pro rata against each of such required annual
--- ----
prepayments and such payment at final maturity, and (ii) in the case of each
optional prepayment of the Notes made pursuant to SECTION 3.2(c), in the inverse
order of the scheduled dates of such required annual prepayments and payment, at
final maturity.
4. FINANCIAL STATEMENTS; INFORMATION. Each of Holdings and the Company
---------------------------------
(each, for purposes of this SECTION 4, a "REPORTING ENTITY") will furnish (in
----------------
duplicate) to each Noteholder:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 60 days after the end of each of the first three quarterly fiscal
periods in each fiscal year of such Reporting Entity, consolidated and, if
already prepared by such Reporting Entity or if specifically requested by
any Noteholder, consolidating, balance sheets of such Reporting Entity and
its Subsidiaries as of the end of such quarterly fiscal period and the
related consolidated and (if so prepared or requested) consolidating
statements of income and cash flows of such Reporting Entity and its
Subsidiaries for such quarterly fiscal period and (in the case of the
second and third fiscal period in each fiscal year) for the portion of the
fiscal year ended with the last day of such quarterly fiscal period,
setting forth in each case in comparative form the respective figures as of
the end of and for the corresponding period of the previous fiscal year (if
applicable), all in reasonable detail, prepared in accordance with GAAP
applied on a basis consistent with prior years, and certified by the
Treasurer, Chief Financial Officer or Controller of such Reporting Entity
as complete and correct in all material respects and as fairly presenting
the consolidated financial position of such Reporting Entity and its
consolidated Subsidiaries and the results of their operations and their
cash flows, subject only to changes resulting from normal year-end audit
adjustments; provided, however, that so long as (x) the assets of the
-------- -------
Company and its Subsidiaries equal or exceed 90% of the assets of Holdings
and its Subsidiaries and (y) the operating revenue of the Company and its
Subsidiaries equals or exceeds 90% of the operating revenue of Holdings and
its Subsidiaries, "Reporting Entity" as used in this subdivision (a) shall
refer only to the Company;
(b) ANNUAL STATEMENTS. As soon as available and in any event within
90 days after the end of each fiscal year of such Reporting Entity,
consolidated and, if already prepared by such Reporting Entity or if
specifically requested by any Noteholder, consolidating balance sheets of
such Reporting Entity and its Subsidiaries as of the end of such fiscal
year and the related consolidated and (if so prepared or requested)
consolidating statements of income and cash flows of such Reporting Entity
and its Subsidiaries for such fiscal year, setting forth in each case in
comparative form the respective figures as of the end of and for the
previous fiscal year (if applicable), all in
10
<PAGE>
reasonable detail and (i) in the case of such consolidated financial
-
statements, prepared in accordance with GAAP applied on a basis consistent
with prior years and accompanied by an opinion thereon of one of the so-
called "Big Six" firms of independent certified public accountants of
recognized national standing selected by such Reporting Entity, which
opinion shall be made without qualification, shall comply with generally
accepted auditing standards at the time in effect, and shall state that
such financial statements present fairly, in all material respects, the
financial position of such Reporting Entity and its consolidated
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated in conformity with GAAP
(without reference to any inconsistency of application of accounting
principles except for changes in application in which such accountants
concur and that are noted in such financial statements), that the audit of
such accountants was conducted in accordance with generally accepted
auditing standards, and that such accountants believe such audit provides a
reasonable basis for their opinion, and (ii) in the case of such
--
consolidating statements (if so prepared or requested), certified as
complete and correct in all material respects by the chief financial
officer of such Reporting Entity; provided, however, that so long as (x)
-------- -------
the assets of the Company and its Subsidiaries equal or exceed 90% of the
assets of Holdings and its Subsidiaries and (y) the operating revenue of
the Company and its Subsidiaries equals or exceeds 90% of the operating
revenue of Holdings and its Subsidiaries, "Reporting Entity" as used in
this subdivision (b) shall refer only to the Company;
(c) OFFICERS' CERTIFICATES. Concurrently with each delivery of
financial statements of the Company pursuant to subdivision (a) or (b) of
this SECTION 4, an Officers' Certificate of the Company:
(i) stating that the signatories thereto have reviewed the
terms of this Agreement and the Notes and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and condition of the Company and its Subsidiaries during
the accounting period covered by such financial statements for the
purpose of making the determinations stated in such Officers'
Certificate, and that such review has not disclosed the existence
during or at the end of such accounting period, and that such
signatories do not have knowledge of the existence as at the date of
such Officers' Certificate, of any condition or event which
constitutes a Default or an Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Company has taken or is
taking or proposes to take with respect thereto; and
(ii) setting forth facts or computations in reasonable detail
demonstrating compliance during and at the end of such accounting
period with the covenants and restrictions contained in SECTIONS
6.1(a), 6.1 (b), 6.1 (c), 6.5 AND 6.7;
(d) ACCOUNTANTS' CERTIFICATES. Concurrently with each delivery of
annual financial statements of the Company pursuant to subdivision (b) of
this SECTION 4, a
11
<PAGE>
written statement addressed to the Company from the independent certified
public accountants who have certified such financial statements:
(i) stating whether, in the course of their audit examination,
anything has come to their attention concerning the existence during
the fiscal year covered by such financial statements (and whether they
have knowledge of the existence as of the date of such written
statement) of any condition or event which constitutes a Default or an
Event of Default, and, if so, specifying the nature and period of
existence thereof; and
(ii) stating that they have examined the Officers' Certificate
delivered in connection with such annual financial statements pursuant
to clause (c) of this SECTION 4 for such fiscal year, and, based upon
their annual audit examination, nothing has come to their attention
which causes them to believe that the information contained in such
Officers' Certificate is not correct or that the matters set forth in
such Officers' Certificate pursuant to subdivision (c)(ii) of this
SECTION 4 have not been properly stated in accordance with the terms
of this Agreement;
(e) COMMISSION AND OTHER REPORTS. Within ten Business Days after the
filing or distribution thereof, copies of (i) all financial statements,
-
reports, notices, proxy statements and other information sent or made
available generally by such Reporting Entity to any class of its security
holders or by any Subsidiary of such Reporting Entity to any class of its
security holders other than such Reporting Entity or another of its
Subsidiaries, (ii) all regular and periodic reports (including reports on
--
Form 8-K) and all registration statements (other than those on Form S-8 or
a successor form relating to the registration of securities pursuant to an
employee benefit plan) and prospectuses filed by such Reporting Entity or
any of its Subsidiaries with any securities exchange or with the
Commission, and (iii) all press releases and other statements made
---
available generally by such Reporting Entity or any of its Subsidiaries to
the public concerning material developments in the business of such
Reporting Entity or any of its Subsidiaries;
(f) AUDIT REPORTS. Promptly (and in any event within five Business
Days) after receipt thereof, copies of all reports (other than as
contemplated by subdivision (b) of this SECTION 4) submitted to such
Reporting Entity by independent certified public accountants in connection
with any annual, interim or special audit of such Reporting Entity or its
Subsidiaries made by such accountants;
(g) DEFAULTS, ETC. Promptly (and in any event within five Business
Days) after any officer of such Reporting Entity obtains knowledge of any
condition or event which constitutes a Default or an Event of Default, or
becomes aware that any Noteholder has given any notice or taken any other
action with respect to a claimed Default or Event of Default or that any
Person has given any notice to such Reporting Entity or any Subsidiary
thereof or any other Person or taken any other action with respect to a
claimed event of default under or in respect of any Debt referred to in
SECTION 10.1(e) or any Senior Debt referred to in SECTION 10.1(1) or with
respect to the occurrence or existence of any event or condition of the
type referred to in
12
<PAGE>
SECTION 10.1(f), 10.1(g), 10.1(j) OR 10.1(k), an Officers' Certificate
specifying in reasonable detail the nature and period of existence thereof
and what action the Company has taken or is taking or proposes to take with
respect thereto;
(h) ERISA. Promptly (and in any event within five Business Days)
after any Company Group Member or any plan administrator of any Plan (i)
-
knows or has reason to know of the occurrence of any Termination Event,
(ii) receives with respect to any Multiemployer Plan notice as prescribed
--
in ERISA of any withdrawal liability assessed against any Company Group
Member or of a determination that any Multiemployer Plan is in
reorganization or insolvent (both within the meaning of Title IV of ERISA),
(iii) knows that a prohibited transaction (within the meaning of Section
---
406 of ERISA or Section 4975 of the Code) for which a statutory or
administrative exemption is not available or a breach of fiduciary
responsibility has occurred in connection with which any Company Group
Member could reasonably be subject to any material liability under Section
406, 409, 502(i) or 502(l) of ERISA or Section 4975 of the Code, or under
any agreement or other instrument pursuant to which such Company Group
Member has agreed or is required to indemnify any Person against any such
liability or (iv) knows or has reason to know that there has been a
--
material adverse change in the funding status of any Plan, a description of
such event or a copy of such notice and a statement by the principal
financial officer of such Reporting Entity of the action which has been or
is being taken or is proposed to be taken by such Reporting Entity with
respect thereto;
(i) NOTICE OF CHANGE OF CONTROL. Promptly, and in no event later
than 5 days after any officer of the Company or Holdings obtains knowledge
of any Change of Control, written notice thereof in the form of an
Officers' Certificate describing in reasonable detail the facts and
circumstances giving rise to such Change of Control, specifying the date
such Change of Control is expected to occur, and making reference to
SECTION 6.9 of this Agreement and the right of the holders of Notes to
require the prepayment of the Notes on the terms and conditions provided
for in such SECTION 6.9;
(j) LITIGATION, ETC. Promptly (and in any event within five Business
Days) after any officer of such Reporting Entity obtains knowledge of any
litigation administrative proceeding or judgment (i) relating to such
-
Reporting Entity or any of its Subsidiaries (whether or not considered by
such Reporting Entity to be covered by insurance) which could reasonably be
expected to have a Material Adverse Effect, (ii) relating in any way to or
--
calling into question the validity, binding effect or enforceability of
this Agreement, the Notes or any other Transaction Document, or (iii)
---
challenging or in any way calling into question the rights of the Company
or any of its Subsidiaries under any Material Trademark, an Officers'
Certificate specifying in reasonable detail the facts and circumstances
surrounding such litigation, proceeding or judgment;
(k) ENVIRONMENTAL NOTICES. Promptly (and in any event within five
Business Days) after any officer of such Reporting Entity obtains knowledge
that (i) such Reporting Entity or any of its Subsidiaries is not in
-
compliance in all material respects with any Environmental Law or (ii) that
--
any Environmental Claim has been made against such Reporting Entity or any
of its Subsidiaries and such non-compliance or Environmental Claim could
reasonably be expected to have a Material Adverse Effect on
13
<PAGE>
such Reporting Entity, an Officers' Certificate specifying the nature and
period of existence of such non-compliance or the substance of such
Environmental Claim and, in either case, what action such Reporting Entity
has taken or is taking or proposes to take with respect thereto; and
(l) REQUESTED INFORMATION. Promptly upon request therefor, such
other information (including, without limitation, any comment letter
relating to the Company submitted by its certified public accountants in
connection with any audit referred to in subdivision (f) of this Section),
if any, as to the Business or Condition of such Reporting Entity or its
Subsidiaries as may from time to time be reasonably requested by any
Noteholder.
5. INSPECTION OF PROPERTIES AND BOOKS. (a) So long as you, your
----------------------------------
nominee or any other institutional investor shall be obligated to purchase or
shall hold any Note, your or such other institutional Noteholder's
representative or representatives may, upon two Business Days' prior notice to
Holdings or the Company, as the case may be, visit and inspect any of the
properties of Holdings or the Company and its Subsidiaries, as the case may be,
including their respective books of account, records, reports and other papers,
and make copies and extracts therefrom, all at such reasonable times and as
often as may be reasonably requested, provided that, during the continuance of
--------
any Default or Event of Default, (i) all reasonable travel, lodging costs and
-
related expenses relating to one such visit or inspection per fiscal quarter
shall be borne by the Company, and (ii) any such visit or inspection shall in
--
any event be deemed to have been reasonably requested.
(b) Each of Holdings and the Company shall make available to each
Noteholder's representative or representatives during any visit to which SECTION
5(A) applies such of its officers, employees and independent public accountants
as are requested by such representative or representatives (provided that, so
--------
long as no Default or Event of Default shall have occurred and be continuing,
neither Holdings nor the Company shall be required to make available its
independent public accountants more than once each fiscal year) to discuss any
aspect of its or its Subsidiaries' affairs, finances, accounts, or condition
(and each of Holdings and the Company hereby authorizes and directs each such
officer, employee, and independent public accountant to engage in such
discussions) and shall supply such services, including copying, which such
representative or representatives reasonably request in connection with its or
their inspection. Notwithstanding anything to the contrary contained herein,
neither Holdings nor the Company shall charge any Noteholder for any costs
incurred (including salary and other overhead expenses and any costs of copying)
in making available such persons or providing such services.
(c) So long as you shall hold any Note and shall also be a Limited
Partner, Holdings and the Company shall provide you with such information
regarding the Partnership or the business and affairs of the Partnership as you
shall reasonably request, and shall cause the General Partner to make available
to you or your representative or representatives, for inspection and copying by
you or such representative or representatives, the books of account and records
maintained by the General Partner in respect of the Partnership.
14
<PAGE>
6. COVENANTS. From the date of this Agreement through the Closing
---------
Date, and thereafter so long as any Note shall be Outstanding:
6.1. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS.
-------------------------------------------
(a) DEBT COVERAGE RATIO. The Company will not on any date permit the
-------------------
ratio of Total Included Debt as of such date to EBITDA for the period of
four fiscal quarters ending on or most recently prior to such date to
exceed 5.00 to 1.00.
(b) MAINTENANCE OF NET WORTH. The Company will not, on any date in
------------------------
any fiscal year, permit Consolidated Net Worth to be less than the Net
Worth Minimum applicable to any date in such fiscal year. The "NET WORTH
---------
MINIMUM" applicable to any date in any fiscal year shall be (i) for any
------- -
date in the fiscal year ended December 31, 1997, $8,000,000, and (ii) for
--
any date in each fiscal year thereafter, the sum of the Net Worth Minimum
for any date in the immediately preceding fiscal year plus 50% (0% in the
case of a deficit) of Consolidated Net Income for such immediately
preceding fiscal year.
(c) INTEREST COVERAGE RATIO. The Company will not, as of the last
day of any fiscal quarter of the Company, permit the ratio of EBITDA for
the period of four fiscal quarters of the Company ended on such date to
Interest Expense for such period of four fiscal quarters to be less than
1.50 to 1.00.
6.2. DEBT OF THE COMPANY. The Company will not, and the Company
-------------------
will not permit any of its Subsidiaries to, directly or indirectly, create,
assume, incur, issue, agree to purchase or repurchase, or provide funds in
respect of, or otherwise become or remain liable in respect of, by way of
Guaranty or otherwise, any Debt, except that:
(a) the Company may become and remain liable in respect of the Debt
evidenced by the Notes;
(b) the Company may become and remain liable in respect of Current
Debt incurred under a revolving credit facility in an aggregate principal
amount at any time outstanding not exceeding $3,500,000, the proceeds of
which are used by the Company for working capital and for no other purpose;
provided, however, that the Company shall not be permitted to have any such
-------- -------
Current Debt outstanding unless there shall have been during the
immediately preceding twelve-month period a period of at least 30
consecutive days on each of which there shall have been no such Current
Debt outstanding, and any violation by the Company of this proviso will
constitute an Event of Default, whether or not the Company is otherwise
permitted to incur additional Debt pursuant to subdivision (e) of this
SECTION 6.2;
(c) the Company may remain liable in respect of the Debt outstanding
on the date of this Agreement and described in SCHEDULE III, and any
extension, renewal, refunding or refinancing thereof, provided that the
--------
principal amount thereof is not increased;
(d) any Subsidiary may become and remain liable in respect of Debt of
such Subsidiary owing to the Company or a Wholly-Owned Subsidiary; and
15
<PAGE>
(e) the Company and any Subsidiary may become and remain liable in
respect of additional Debt (other than Debt prohibited by virtue of the
proviso to SECTION 6.2(b)), provided that on and as of the date on which
--------
the Company or such Subsidiary proposes to incur any such additional Debt
and after giving effect to such incurrence and to the substantially
concurrent incurrence or retirement of any other Debt by the Company and
its Subsidiaries and to the application of the proceeds of such Debt, no
Event of Default shall have occurred and be continuing; and provided,
--------
further, however that in no event shall any Subsidiary be permitted to
------- -------
become and remain liable in respect of additional Debt pursuant to this
SECTION 6.2(e) unless and until such Subsidiary shall have executed and
delivered to each Noteholder a guaranty by such Subsidiary of the
obligations of the Company under this Agreement and the Notes, which
guaranty shall be expressly subordinate to all Senior Debt and other Debt
of such Subsidiary (other than any such Debt owing to the Company Holdings
or any other Subsidiary of Holdings), shall be satisfactory in form and
substance to the Noteholders and, if requested by any Noteholder, shall be
accompanied by an opinion of counsel reasonably satisfactory to each
Noteholder concerning such matters relating to such Subsidiary and such
guaranty as such Noteholder may reasonably request.
The Company will not in any event create, incur, assume or permit to exist any
Debt of the Company owing to any of its Subsidiaries. For all purposes of this
Section, any Person becoming a Subsidiary after the date of this Agreement shall
be deemed to have created, assumed or incurred all of its then outstanding Debt
at the time it becomes a Subsidiary, and any extension, renewal, refunding or
refinancing of any Debt shall be deemed to be an incurrence of such Debt at the
time of such extension, renewal, refunding or refinancing.
6.3. LIENS. The Company will not, and will not permit any of its
-----
Subsidiaries to, directly or indirectly create, incur, assume or permit to exist
(upon the happening of a contingency or otherwise) any Lien (other than Liens
created in the ordinary course of business which do not secure indebtedness or
obligations in respect of borrowed money or the obtaining of advances or credit)
on or with respect to (a) the "Farm Journal" trademark or trade name or (b) any
database which is part of the Data Management business of the Company as
conducted on the date hereof, provided that the foregoing restriction shall not
--------
prohibit the creation of Liens on accounts receivable generated by such assets
and the books and records, contracts, chattel paper, letters of credit and
general intangibles relating to such accounts receivable (including any computer
programs or tape files containing information directly relating to such accounts
receivable), but only if such Liens do not encumber any such database.
6.4. INVESTMENTS, ETC. The Company will not, and will not permit any
----------------
of its Subsidiaries to, directly or indirectly, make or own any Investments
except:
(a) the Company and its Subsidiaries may make and own Investments in
(i) readily marketable direct obligations issued by the United States of
-
America or any agency thereof which, in the case of any such agency, are
unconditionally guaranteed or backed by the full faith and credit of the
United States of America, in each case maturing within one year from the
date of acquisition thereof; (ii) certificates of deposit or bankers'
--
acceptances maturing within one year from the date of creation thereof
which are either (x) fully insured by the Federal Deposit Insurance
Corporation or (y) issued by a
16
<PAGE>
commercial or chartered bank or trust company organized under the laws of
the United States of America or a state thereof having combined capital,
surplus and undivided profits of not less than $100,000,000 and having, in
respect of its long-term unsecured debt obligations, a rating of at least
A- from Standard & Poor's Corporation or A3 from Moody's Investors Service,
Inc.; and (iii) open-market commercial paper maturing not later than 270
days after the date of issuance thereof and having at the time of
acquisition a rating of at least A-2 from Standard & Poor's Corporation or
P-2 from Moody's Investors Service, Inc. or an equivalent rating from any
other credit rating agency of recognized national standing in the United
States of America;
(b) the Company and any Subsidiary may continue to own the
Investments existing on the date hereof and described in SCHEDULE IV;
(c) the Company and any Subsidiary may make and own Investments in
properly endorsed negotiable instruments received in the ordinary course of
business;
(d) the Company may make and own any Investment in a promissory note
of or an advance to any employee of the Company made in favor of, or
assigned to, the Company and arising from the payment by such employee of
the subscription price of any Partnership Unit (or portion thereof) and/or
any related purchase by the Partnership of capital stock of Holdings;
(e) the Company and any Subsidiary may make and own investments in
any Subsidiary or any Person which simultaneously becomes a Subsidiary; and
(f) the Company and its Subsidiaries may make and own Investments in
addition to those permitted by the foregoing subdivisions (a) through (e)
of this SECTION 6.4, but only if, at the time of the making by the Company
or any Subsidiary of any such additional Investment pursuant to this
SECTION 6.4(f), the amount of such additional Investment, when added to the
amount of all other Investments then owned by the Company and its
Subsidiaries and not otherwise permitted by any of the foregoing
subdivisions (a) through (e) of this SECTION 6.4, does not exceed 20% of
Consolidated Net Worth.
For purposes of this Section, (i) Investments owned by any Person or for which
it is obligated at the time it becomes a Subsidiary shall be deemed to be made
at the time such Person becomes such a Subsidiary and (ii) the amount involved
in any Investment made through the transfer of property shall be deemed to be
the greater of (x) the fair market value of such property (as determined in good
-
faith by the Board of Directors) and (y) the book value thereof on the books of
-
the Company (as determined in accordance with GAAP), in each case determined on
the date such Investment is made or committed to be made.
6.5. RESTRICTED PAYMENTS. The Company will not, directly or
-------------------
indirectly (through a Subsidiary or otherwise), authorize, declare, pay or make
any Restricted Payment at any time on or prior to April 1, 1998. Thereafter, the
Company will not, directly or indirectly (through a Subsidiary or otherwise),
authorize, declare, pay or make any Restricted Payment unless both at the time
of, and immediately after effect has been given to, such proposed action:
17
<PAGE>
(a) no Event of Default shall have occurred and be continuing; and
(b) the sum of (i) the aggregate amount of all sums and property
included in all Restricted Payments directly or indirectly declared,
ordered, paid, distributed, made or set apart by the Company during the
period from and including the Closing Date to and including the date of
such proposed action (the "COMPUTATION PERIOD"), plus (ii) the aggregate
------------------
amount of all MS Payments made by the Company at any time during the period
from and including the Closing Date to and including the second anniversary
of the Closing Date, shall not exceed the sum of (1) 50% (or minus 100% in
the case of any deficit) of Adjusted Consolidated Net Income for the
Computation Period plus (2) an amount equal to the net proceeds received by
----
the Company from the sale of capital stock of the Company during the
Computation Period.
For all purposes of this Section, the amount involved in any
Restricted Payment directly or indirectly declared, ordered, paid, distributed,
made or set apart in property shall be deemed to be the greater of (x) the fair
-
value of such property (as determined in good faith by the Board of Directors)
and (y) the net book value thereof on the books of the Company (as determined in
-
accordance with GAAP), in each case as determined on the date such Restricted
Payment is declared, ordered, paid, distributed, made or set apart.
The Company will not authorize any Restricted Payment which is not
payable within 60 days after authorization.
6.6. TRANSACTIONS WITH AFFILIATES. The Company will not, and the
----------------------------
Company will not permit any of its Subsidiaries to, directly or indirectly,
enter into or be a party to any transaction or arrangement (including, without
limitation, the contribution, transfer, purchase, sale or exchange of property,
or the rendering of any service, or the payment of management or other service
fees) with any Affiliate unless such transaction or arrangement is entered into
pursuant to the reasonable requirements or in the ordinary course of the
Company's or such Subsidiary's business, as the case may be, in any such case,
upon terms that are fair and reasonable and no less favorable to the Company or
such Subsidiary, as the case may be, than those which might be obtained at the
time on an arm's-length basis from any Person which is not such an Affiliate;
provided, however that the foregoing restrictions shall not apply to (i) MS
- -------- ------- -
Payments not exceeding $800,000 in the aggregate made at any time on or prior to
the second anniversary of the Closing Date; (ii) MS Payments made at any time
--
after the second anniversary of the Closing Date which, either individually or
when aggregated with all other MS Payments made during the then-current fiscal
year, do not exceed $50,000; (iii) MS Payments made at any time after the
---
second anniversary of the Closing Date approved by a majority, but not less than
two, of the independent directors on the Board of Directors, acting in good
faith; (iv) payments made by the Company to reimburse Morgan Schiff, the
--
Partnership, the General Partner or Holdings for out-of-pocket expenses and
other transaction costs incurred by Morgan Schiff, the Partnership, the General
Partner or Holdings in connection with the closing of the Acquisition and the
transactions contemplated by this Agreement and the offering and sale of
Partnership Units or which may be incurred by Morgan, Schiff, the Partnership,
the General Partner or Holdings in connection with future acquisitions or debt
or equity financings made by or directly or indirectly for the benefit of
Holdings or the Company; and (v) payments made by the Company to reimburse the
-
General Partner and the Partnership for reasonable expenses incurred
18
<PAGE>
by the General Partner and the Partnership in connection with their provision of
on-going management, accounting and other similar services to the General
Partner, the Partnership, Holdings and the Company in connection with their
respective day-to-day operating, accounting and management requirements.
6.7. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company will
------------------------------------------
not, and will not permit any Subsidiary to, voluntarily liquidate or dissolve,
or consolidate or merge with or into any other Person, or permit any other
Person to consolidate with or merge with or into it, or participate in a share
exchange with, or sell, lease, transfer, terminate, contribute or otherwise
dispose of all or substantially all of its assets to any other Person, except
that, subject in any event to compliance with the last paragraph of this
Section:
(a) any Subsidiary of the Company may (i) consolidate with or merge
into the Company or any Wholly Owned Subsidiary of the Company if the
Company or such Wholly Owned Subsidiary, as the case may be, shall be the
continuing or surviving corporation or (ii) consolidate or merge with any
other corporation or other business entity if such Subsidiary shall be the
continuing or surviving entity;
(b) any Subsidiary of the Company may sell, lease, transfer,
contribute or otherwise dispose of its assets in whole or in part to the
Company or any Wholly Owned Subsidiary of the Company, and may, following
any such disposition in whole, liquidate and dissolve;
(c) the Company may consolidate or merge with any other corporation or
other business entity if the Company shall be the continuing or surviving
entity; and
(d) the Company may consolidate with or merge into, or be sold or sell
its assets as an entirety or substantially to, any other Person (a
"SUCCESSOR"; any such consolidation, merger or sale of assets satisfying
----------
the requirements of this SECTION 6.7(d) being hereinafter referred to as a
"SUCCESSOR TRANSACTION"), but only if such Successor (x) is a solvent
--------------------- -
corporation duly organized, validly existing and in good standing under the
laws of the United States of America or a state thereof and (y) expressly
-
assumes, not later than the consummation of such Successor Transaction,
pursuant to a written instrument satisfactory in form, scope and substance
to each Noteholder, the due and punctual payment of the principal of, Yield
Maintenance Amount or other premium, if any, and interest on the Notes
according to their tenor, and the due and punctual performance and
observance of the obligations of the Company under this Agreement, an
executed counterpart of which agreement shall have been furnished to each
Noteholder, together with a favorable opinion of counsel satisfactory to
each such holder covering such matters relating to the Successor, the
Successor Transaction, such assumption and such agreement as such holder
may reasonably request;
provided, however, that, notwithstanding the foregoing provisions of this
- -------- -------
SECTION 6.7, except in connection with a Successor Transaction, in no event
shall the Company or any Subsidiary be permitted to sell, contribute or
otherwise dispose of (1) the "Farm Journal" trademark or trade name or (2) the
Company's Data Management business as an entirety (or any database which is a
part thereof).
19
<PAGE>
No consolidation, merger, sale, lease, transfer, contribution or other
disposition referred to in subdivision (a) through subdivision (d) of this
Section shall be permitted under this Section unless at the time of and
immediately after giving effect to any such transaction, (A) no Default or Event
-
of Default shall have occurred and be continuing, (B) the Company shall be
-
permitted to incur at least $1.00 of additional Debt under SECTION 6.1(a), and
(C) if such transaction shall involve or result in a Change of Control, the
- --
Company shall have prepaid in compliance with SECTION 6.9 the full amount of all
Notes of each holder thereof which shall have elected to require such
prepayment. No sale, lease, transfer, contribution or other disposition
permitted by this Section shall release the Company from any of its obligations
and liabilities under this Agreement or the Notes.
6.8. SALE OF SUBSIDIARY STOCK. (a) The Company will not sell,
------------------------
transfer or otherwise dispose of (except to a Wholly-Owned Subsidiary) any
shares of stock or similar rights of any Subsidiary (except to qualify
directors) or any Debt of any Subsidiary, and will not permit any Subsidiary to
sell, transfer or otherwise dispose of (except to the Company or a Wholly-Owned
Subsidiary) any shares of stock or similar rights or any Debt of any other
Subsidiary, nor will the Company permit any Subsidiary to issue, sell or
otherwise dispose of any of its shares of stock or similar rights (except to the
Company or a Wholly-Owned Subsidiary or to qualify directors), unless such sale,
transfer or disposition is permitted under SECTION 6.7.
(b) Prior to an IPO, Holdings will not, directly or indirectly, sell
or otherwise dispose of any shares of capital stock or other securities of (or
warrants, rights or options to acquire shares or capital stock or other
securities of), the Company.
6.9. PREPAYMENT OF NOTES UPON CHANGE OF CONTROL. At any time
------------------------------------------
following the receipt by any holder of Notes of notice pursuant to SECTION 4(i)
of a pending Change of Control or, if no such notice is received by any such
holder, upon the occurrence of or at any time following a Change of Control
(subject in any such case to the next succeeding paragraph of this Section),
each holder of a Note shall have the right at its option exercisable by the
giving of notice to the Company (a "PREPAYMENT ELECTION NOTICE") to elect to
require the prepayment by the Company of all Notes then held by such holder on
the prepayment date specified by such holder in such Prepayment Election Notice
(which shall not in any event be prior to the date of the consummation of such
Change of Control), such prepayment to be at a price equal to 100% of the
principal amount of such Notes together with interest accrued thereon to such
prepayment date, plus the Yield Maintenance Amount determined in respect of such
principal amount, provided that (i) if such Change of Control shall have
--------
resulted from the consummation of a Qualified Transaction, the Yield Maintenance
Amount otherwise required to be paid pursuant to this SECTION 6.9 shall be
reduced by 50% and (ii) if such Change of Control shall result from an event
described in subclause (i) of the definition of "Change of Control" which event
shall have occurred as a result of the death of one or more members of the MS
Group, any prepayment required as a result of such Change of Control under this
SECTION 6.9 shall be without Yield Maintenance Amount or any other premium.
The right of the holder of a Note to give a Prepayment Election Notice
requiring the prepayment of such Note pursuant to this Section following a
Change of Control shall expire at the close of business in New York City on the
sixtieth day following the later of (x) the date of
-
20
<PAGE>
the occurrence of such Change of Control and (y) actual receipt by such holder
-
of notice of such Change of Control pursuant to SECTION 4(i). Notwithstanding
any provision hereof to the contrary, no failure on the part of the holder of
any Note to exercise such holder's right to require the prepayment thereof by
the Company pursuant to this Section following a Change of Control shall be
deemed a waiver of or otherwise impair the rights of such holder pursuant to
this Section in respect of all other events or circumstances that shall
constitute a Change of Control. Neither anything contained in this SECTION 6.9,
nor the giving by any holder or holders of Notes pursuant hereto of a Prepayment
Election Notice, nor the making by the Company pursuant hereto of any prepayment
of Notes, shall permit the Company to consummate a Successor Transaction unless
such Successor Transaction is consummated in all respects in compliance with the
applicable provisions of SECTION 6.7.
6.10. NATURE OF BUSINESS. Neither Holdings nor the Company will, and
------------------
neither Holdings nor the Company will permit any of its Subsidiaries to, engage
in any business which is substantially different from the business in which the
Company was engaged on the Closing Date or in which the Company was contemplated
to become engaged as described in the Offering Memorandum.
6.11. BOOKS AND RECORDS; FISCAL YEAR. Each of Holdings and the
------------------------------
Company will, and will cause each of its Subsidiaries to, (a) keep proper books
-
of record and account in which full, true and correct entries will be made of
all its material business dealings and transactions in accordance with GAAP
applied on a consistent basis and (b) maintain a system of accounting
-
established and administered in accordance with GAAP, and set aside on its books
from its earnings for each fiscal year all proper reserves, accruals and
provisions which, in accordance with GAAP, should be set aside from such
earnings in connection with its business, including, without limitation,
provisions for depreciation, obsolescence and/or amortization and accruals for
taxes for such period. The Company will notify each Noteholder of any change in
its fiscal year.
6.12. CORPORATE EXISTENCE; LICENSES. Each of Holdings and the Company
-----------------------------
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence (except as otherwise permitted by SECTION 6.7) and its rights (charter
and statutory) and Licenses; except that, subject to compliance with SECTION 6.7
and the next succeeding sentence of this Section, the rights and Licenses of the
Company or any Subsidiary (other than their respective rights to the Material
Trademarks) may be abandoned, modified or terminated if in the good faith
judgment of the Board of Directors such abandonment, modification or termination
is in the best interests of the Company or such Subsidiary and is not
disadvantageous to the Noteholders. The Company will, and cause each Subsidiary
to, in any event maintain the validity of (i) its rights to the Material
Trademarks and (ii) all other Licenses necessary in any material respect for the
conduct of the business of the Company or such Subsidiary as now conducted and
as proposed to be conducted.
6.13. PAYMENT OF TAXES, CLAIMS FOR LABOR AND MATERIALS, ETC. Each of
-----------------------------------------------------
Holdings and the Company will, and will cause each of its Subsidiaries to,
promptly pay and discharge or cause to be promptly paid and discharged when due
and before the same shall become delinquent (a) all taxes, assessments and
-
governmental charges or levies imposed upon it or upon its income or profits or
upon any of its franchises, Licenses, business or property, or
21
<PAGE>
upon any part thereof, and (b) all claims of landlords, carriers, warehousemen,
-
mechanics, materialment and other similar Persons for labor, materials, supplies
and rentals which, if unpaid, might by law become a Lien or charge upon any of
its property; provided, however, that the failure of Holdings, the Company or
-------- -------
any such Subsidiary to pay any such tax, assessment, charge, levy or claim shall
not constitute a default hereunder if and for so long as the amount,
applicability or validity thereof shall concurrently be contested in good faith
by appropriate and timely actions or proceedings diligently pursued, and if such
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor and its title to or right to the use of any of its
property is not impaired in any material respect by reason of such contest.
6.14. MAINTENANCE OF PROPERTIES. The Company will, and will cause
-------------------------
each Subsidiary to, maintain and keep, or cause to be maintained and kept, in
good repair, working order and condition (ordinary wear and tear excepted) all
material properties (whether owned or leased) used or useful in the business of
the Company and its Subsidiaries, and from time to time make or cause to be made
all necessary and proper repairs, renewals, replacements and improvements
thereof, so that the business carried on in connection therewith may be properly
and advantageously conducted consistent with good industry standards.
6.15. INSURANCE. The Company will, and will cause each Subsidiary
---------
to, keep adequately insured, by financially sound and reputable insurers, all of
its property of a character customarily insured against by prudent corporations
engaged in the same or a similar business and similarly situated against loss or
damage of the kinds and in amounts customarily insured against by such
corporations, and with deductibles or coinsurance no greater than is customary,
and carry, with such insurers in customary amounts, such other insurance,
including public liability insurance and insurance against claims for any
violation of applicable law, as is customarily carried by prudent corporations
of established reputation engaged in the same or a similar business and
similarly situated.
6.16. COMPLIANCE WITH LAWS. Each of Holdings and the Company will,
--------------------
and will cause each of its Subsidiaries to, promptly comply in all material
respects with all laws, statutes, rules, regulations and ordinances and all
Orders of, and restrictions imposed by, any court, arbitrator or Governmental
Body in respect of the conduct of its business and the ownership of its
properties (including, without limitation, applicable laws, statutes, rules,
regulations, ordinances and Orders relating to occupational health and safety
standards, consumer protection and equal employment opportunities), except to
the extent that the applicability or validity of any such law, statute, rule,
regulation, ordinance or Order is being contested in good faith by appropriate
and timely actions or proceedings diligently pursued, and for which such reserve
or other appropriate provision, if any, as shall be required by GAAP shall have
been made, so long as such actions or proceedings are effective to prevent the
imposition of any material penalty on Holdings or the Company, as the case may
be, and neither the Holdings' nor the Company's title to or right to the use of
any of its property is impaired in any material respect by reason of such
contest, provided that any violation in any material respect by Holdings, the
--------
Company or any of their respective Subsidiaries of any law, statute, rule,
regulation, ordinance or Order shall not be deemed a breach of this covenant
unless such violation, either individually or together with all other such
violations, could reasonably be expected to have a Material Adverse Effect.
22
<PAGE>
6.17. MAINTENANCE OF INDEPENDENT DIRECTORS. Within 60 days after the
------------------------------------
Closing Date and at all times thereafter, the Company shall ensure that the
members of the Board of Directors shall include at least two independent
directors. For the purposes of this SECTION 6.17, the term "independent
director" means any director who, together with the members of his family, does
not own, directly or indirectly, more than five percent (5%) of the outstanding
capital stock or partnership interests of the Partnership or General Partner or
any Affiliate thereof, and who is not (and none of the members of whose family
is) an officer, director, partner, principal, associate or employee of or
consultant to Morgan Schiff or the General Partner or any of their Affiliates.
6.18. ISSUANCE OR SALE OF ADDITIONAL CAPITAL STOCK. Prior to an IPO,
--------------------------------------------
the Company will not issue or sell any shares of its capital stock or any
securities convertible into or exchangeable for any shares of its capital stock,
or grant any rights to subscribe for or to purchase, or any options for the
issuance of, or (except in connection with Liens directly or indirectly securing
Debt incurred by the Company as permitted by, and in accordance with the terms
of SECTION 6.2(e) of this Agreement) create any claims of any character relating
to, any of its capital stock or any stock or securities convertible into or
exchangeable for any of its capital stock, other than to Holdings.
6.19. ENVIRONMENTAL MATTERS. (a) The Company will, and will cause
---------------------
each Subsidiary to, (i) obtain and maintain in full force and effect all
-
Environmental Permits that may be required from time to time under any
Environmental Laws applicable to the Company and (ii) be and remain in
--
compliance in all material respects with all terms and conditions of all such
Environmental Permits and with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in all applicable Environmental Laws, except where failure to so
comply would not have a Material Adverse Effect, and the Company will, and will
cause each Subsidiary to, undertake and complete, in accordance with all
Environmental Laws and within a reasonable time period, the remedial actions
specified in the Environmental Audits and, upon the reasonable request of any
Noteholder, shall provide such Noteholder with evidence of completion of such
remedial actions.
(b) The Company will not, and will not permit any Subsidiary to, (i)
-
cause or allow (A) any Hazardous Substance to be present at any time on, in,
-
under or above the Company Premises or any part thereof or (B) the Company
-
Premises or any part thereof to be used at any time to manufacture, generate,
refine, process, distribute, use, sell, treat, receive, store, dispose of,
transport, arrange for transport of, handle, or be involved in any other
activity involving, any Hazardous Substance, or (ii) conduct any such activities
--
described in the foregoing clause (i)(B) on the Company Premises or anywhere
else, except, in each case referred to in the foregoing clauses (i) and (ii), in
a manner that is in compliance in all material respects with all applicable
Environmental Laws and Environmental Permits and to an extent that will not have
a Material Adverse Effect.
6.20. PAYMENT OF NOTES. The Company will duly and punctually pay the
----------------
principal of, Yield Maintenance Amount, if any, and interest on the Notes in
accordance with the terms of the Notes and this Agreement.
23
<PAGE>
6.21. MAINTENANCE OF OFFICE. Until the principal, Yield Maintenance
---------------------
Amount, if any, and interest on the Notes shall have been paid in full to the
registered holders thereof, the Company will maintain its principal office at a
location in the United States of America where notices, presentations and
demands in respect of this Agreement and the Notes may be made upon it, and will
notify each Noteholder in writing of any change of location of such office at
least 30 days prior to such change of location. Such office shall first be
maintained at the address set forth at the head of this Agreement.
6.22. POST-CLOSING AUDIT. Not later than six months after the
------------------
Closing Date, the Company will furnish to you a consolidated balance sheet of
the Company and its Subsidiaries, dated after the Closing Date and not later
than six months after the Closing Date, in reasonable detail and prepared in
accordance with GAAP and accompanied by an opinion thereon of one of the so-
called "Big Six" firms of independent certified public accountants of recognized
national standing selected by the Company, which opinion shall comply with
generally accepted auditing standards at the time in effect, and shall state
that such balance sheet presents fairly, in all material respects, the financial
position of the Company and its Subsidiaries as at the date indicated in
conformity with GAAP, that the audit of such accountants was conducted in
accordance with generally accepted auditing standards, and that such accountants
believe such audit provides a reasonable basis for their opinion.
7. SUBORDINATION.
--------------
7.1. NOTES, HOLDINGS GUARANTY AND SUBSIDIARY GUARANTIES SUBORDINATED TO
------------------------------------------------------------------
SENIOR DEBT. The Company, Holdings, you and each subsequent holder of a Note, by
- -----------
acceptance thereof, covenant and agree, but only to the extent and in the manner
provided in this SECTION 7, that the payment of principal of, Yield Maintenance
Amount and any other premium, if any, and interest on the Notes and any
additional amounts (including, without limitation, fees, expenses and
indemnities) payable by or on behalf of the Company to any Noteholder under this
Agreement, the payment by Holdings under the Holdings Guaranty and the payment
by any Subsidiary Guarantor under the Subsidiary Guaranty to which it is a
party, shall be subordinate and junior in right of payment to the prior payment
in full of all Senior Debt (as hereinafter defined) of the applicable Obligor.
In the event of a conflict in this SECTION 7 between a provision restricting the
making of a payment in respect of the Notes and another not restricting the
making of such payment, the provision restricting the making of such payment
shall govern.
7.2. CERTAIN DEFINITIONS. For purposes of this SECTION 7, the
-------------------
following terms shall have the respective meanings indicated.
"BANK AGREEMENT": THE REVOLVING Credit and Security Agreement, dated
--------------
as of the date hereof, between First Union National Bank, the Company and
Holdings, and any modification, amendment, renewal or extension thereof.
"BANK AGREEMENT DOCUMENTS": the Bank Agreement and all documents and
------------------------
instruments executed, delivered or filed in connection therewith or pursuant
thereto.
"BANK SENIOR DEBT": the Senior Debt outstanding under the Bank
----------------
Agreement Documents.
24
<PAGE>
"BLOCKAGE PERIOD": a Primary Blockage Period or a Secondary Blockage
---------------
Period.
"COMPANY ADDITIONAL SENIOR DEBT DOCUMENTS": all documents and
----------------------------------------
instruments executed, delivered or filed in connection with any Debt referred to
in clause (a)(y) of the definition of "Senior Company Debt".
"COMPANY REFINANCING SENIOR DEBT DOCUMENTS": any document or
-----------------------------------------
instrument executed, delivered or filed in connection with the refinancing of
any Debt referred to in clause (a)(z) of the definition of "Senior Company
Debt", provided that such refinancing is permitted under this Agreement.
---------
"COMPANY SENIOR DEBT DOCUMENTS": the Bank Agreement Documents, the
-----------------------------
Company Additional Senior Debt Documents and the Company Refinancing Senior Debt
Documents.
"HOLDINGS SENIOR DEBT DOCUMENTS": all documents and instruments
------------------------------
executed, delivered or filed in connection with any Debt referred to in clause
(a)(x) or (a)(y) of the definition of "Senior Holdings Debt".
"INTERCREDITOR AGREEMENT": an agreement between the holders of Bank
-----------------------
Senior Debt and one or more holders of other Senior Company Debt and/or of
Senior Holdings Debt.
"JUNIOR DEBT": (i) as to the Senior Company Debt, the principal of,
-----------
Yield Maintenance Amount and any other premium, if any, and interest on the
Notes and any additional amounts (including, without limitation, fees, expenses
and indemnities) payable to any Noteholder under this Agreement; (ii) as to the
Senior Holdings Debt, the Holdings Guaranty; (iii) as to the Senior Subsidiary
Debt of any Subsidiary Guarantor, the Subsidiary Guaranty of such Subsidiary
Guarantor; (iv) of the Company, the principal of, Yield Maintenance Amount and
any other premium, if any, and interest on the Notes and any additional amounts
(including, without limitation, fees, expenses and indemnities) payable to any
holder of the Notes under this Agreement; (v) of Holdings, all indebtedness,
obligations and liabilities of Holdings to any Noteholder under the Holdings
Guaranty; and (vi) of any Subsidiary Guarantor, all indebtedness, obligations
and liabilities of such Subsidiary Guarantor to any Noteholder under the
Subsidiary Guaranty to which such Subsidiary Guarantor is a party.
"OBLIGOR": the Company, Holdings or any Subsidiary Guarantor,
-------
provided that, when used with respect to the Notes, the Company is the Obligor
- ---------
as to the Notes, when used with respect to the Holdings Guaranty, Holdings is
the Obligor as to the Holdings Guaranty, and when used with respect to any
Subsidiary Guaranty, the Subsidiary Guarantor party thereto is the Obligor with
respect to such Subsidiary Guaranty.
"POTENTIAL SIGNIFICANT DEFAULT": as defined in SECTION 7.4(b).
-----------------------------
"PRIMARY BLOCKAGE PERIOD": as defined in SECTION 7.4(b)(X)(1).
-----------------------
"PRIMARY DEFAULT": a Significant Default of the type described in
---------------
subclause (i) of the definition thereof.
25
<PAGE>
"PROCEEDING": as to any Obligor, any bankruptcy, receivership,
----------
assignment for the benefit of creditors, reorganization or arrangement with
creditors of such Obligor, whether or not pursuant to bankruptcy laws, and any
dissolution, liquidation or other marshalling of the assets and liabilities of
such Obligor, whether voluntary or involuntary.
"SECONDARY BLOCKAGE NOTICE": as defined in SECTION 7.4(b)(X)(2).
-------------------------
"SECONDARY BLOCKAGE PERIOD": as defined in SECTION 7.4(b)(X)(2).
-------------------------
"SECONDARY DEFAULT": a Significant Default of the type described in
-----------------
subclause (ii) of the definition thereof.
"SENIOR COMPANY DEBT":
-------------------
(a) the principal amount of
(x) Debt of the Company incurred under the Bank Agreement in an
amount not to exceed at any time outstanding $4,000,000,
(y) Debt of the Company incurred by the Company as permitted by,
and in accordance with the terms of, SECTION 6.2(b), provided that at
--------
the time of the issuance or incurrence of such Debt the agreements,
notes or other instruments evidencing or executed in connection with
such Debt state that such Debt is intended to be "Senior Debt"
hereunder, and
(z) Debt of the Company incurred to refinance, renew, extend,
modify or amend any outstanding Debt referred to in clause (x) or (y)
above or in this clause (z), and of the Company outstanding under any
revolving credit or similar facility which replaced (without increase
in maximum available amount) any revolving credit or similar facility
the Debt outstanding under which constituted "Senior Company Debt",
provided that at the time of the issuance or incurrence of such Debt
--------
the agreements, notes or other instruments evidencing or executed in
connection with such Debt state that such Debt is intended to be
"Senior Debt" hereunder;
(b) prepayment charges, if any, payable by the Company with respect to
any such principal amount;
(c) interest payable by the Company on any such principal amount which
accrues at any time prior to or within one year after the filing by or
against the Company of any Proceeding (whether or not allowed as a claim in
any such Proceeding), provided that such interest which accrues at a rate
---------
exceeding by more than 3% per annum the rate per annum at which such
interest would have accrued under the relevant Senior Debt Document, as
originally in effect, shall not constitute "Senior Company Debt";
(d) obligations of the Company under interest rate exchange, collar,
cap or similar agreements providing interest rate protection to the extent
entered into to satisfy the requirements of any Company Senior Debt
Document; and
26
<PAGE>
(e) fees, expenses, indemnities and all other amounts payable by the
Company under the Company Senior Debt Documents.
"SENIOR DEBT": (i) as to the Notes, Senior Company Debt; (ii) as to
-----------
the Holdings Guaranty, Senior Holdings Debt; (iii) as to any Subsidiary
Guaranty, Senior Subsidiary Guarantor Debt; (iv) of the Company, Senior Company
Debt; (v) of Holdings, Senior Holdings Debt; and (vi) of any Subsidiary
Guarantor, Senior Subsidiary Guarantor Debt of such Subsidiary Guarantor.
"SENIOR DEBT DOCUMENTS": the Company Senior Debt Documents, the
---------------------
Holdings Senior Debt Documents and the Subsidiary Guarantor Senior Debt
Documents.
"SENIOR HOLDINGS DEBT":
--------------------
(a) the principal amount of
(x) Debt of Holdings under any guaranty by Holdings of Senior
Company Debt, and
(y) other Debt of Holdings (other than any Debt of Holdings owing
to the Company or any other Subsidiary of Holdings), provided that, at
--------
the time of the issuance or incurrence of such Debt, the agreements,
notes or other instruments evidencing or executed in connection with
such Debt state that such Debt is intended to be "Senior Debt"
hereunder;
(b) prepayment charges, if any, payable by Holdings with respect to
any such principal amount;
(c) interest payable by Holdings on any such principal amount which
accrues at any time prior to or within one year after the filing by or
against Holdings of any Proceeding (whether or not allowed as a claim in
any such Proceeding), provided that such interest which accrues at a rate
---------
exceeding by more than 3% per annum the rate per annum at which such
interest would have accrued under the relevant Senior Debt Document, as
originally in effect, shall not constitute "Senior Holdings Debt";
(d) obligations of Holdings under interest rate exchange, collar, cap
or similar agreements providing interest rate protection to the extent
entered into to satisfy the requirements of any Holdings Senior Debt
Document; and
(e) fees, expenses, indemnities and all other amounts payable by
Holdings under the Holdings Senior Debt Documents.
"SENIOR SUBSIDIARY GUARANTOR DEBT":
--------------------------------
(a) the principal amount of
(x) Debt of any Subsidiary Guarantor under any guaranty by such
Subsidiary Guarantor of Senior Company Debt, and
27
<PAGE>
(y) other Debt of any Subsidiary Guarantor (other than any Debt
of such Subsidiary Guarantor owing to Holdings, the Company or any
other Subsidiary of Holdings), provided that, at the time of the
--------
issuance or incurrence of such Debt, the agreements, notes or other
instruments evidencing or executed in connection with such Debt state
that such Debt is intended to be "Senior Debt" hereunder;
(b) prepayment charges, if any, payable by such Subsidiary Guarantor
with respect to any such principal amount;
(c) interest payable by such Subsidiary Guarantor on any such
principal amount which accrues at any time prior to or within one year
after the filing by or against such Subsidiary Guarantor of any Proceeding
(whether or not allowed as a claim in any such Proceeding), provided that
--------
such interest which accrues at a rate exceeding by more than 3% per annum
the rate per annum at which such interest would have accrued under the
relevant Senior Debt Document, as originally in effect, shall not
constitute "Senior Subsidiary Guarantor Debt";
(d) obligations of such Subsidiary Guarantor under interest rate
exchange, collar, cap or similar agreements providing interest rate
protection to the extent entered into to satisfy the requirements of any
Subsidiary Guarantor Senior Debt Document; and
(e) fees, expenses, indemnities and all other amounts payable by
Holdings under the Subsidiary Guarantor Senior Debt Documents.
"SIGNIFICANT DEFAULT": as to any Obligor, (i) any event of default
-------------------
occurring under any agreement evidencing Senior Debt resulting from any failure
to pay when due (whether at stated maturity, by acceleration, mandatory
prepayment, on any interest payment date or otherwise) any principal of or
interest on or any other amount owing in respect of such Senior Debt; and (ii)
the occurrence or existence of any other event of default under any agreement
evidencing Senior Debt.
"SUBSIDIARY GUARANTOR": any Subsidiary party to a Subsidiary
--------------------
Guaranty.
"SUBSIDIARY GUARANTY": any guaranty by any Subsidiary of the
-------------------
obligations of the Company under this Agreement and the Notes delivered by such
Subsidiary pursuant to the second proviso to SECTION 6.2(e).
"SUBSIDIARY GUARANTOR SENIOR DEBT DOCUMENTS": all documents and
------------------------------------------
instruments executed, delivered or filed in connection with any Debt referred to
in clause (a)(x) or (a)(y) of the definition of "Senior Subsidiary Guarantor
Debt".
7.3. SUBORDINATION TO PRIOR PAYMENT OF ALL SENIOR DEBT ON
----------------------------------------------------
DISSOLUTION, REORGANIZATION, INSOLVENCY, ETC. In the event of any Proceeding as
- --------------------------------------------
to an Obligor, then
(i) all Senior Debt of such Obligor (including up to one-year's
interest accruing thereon after commencement of any such Proceeding,
whether or not such interest is allowed pursuant to applicable bankruptcy
law) shall be paid in full before any direct or indirect payment or
distribution of any character, whether in cash, securities or
28
<PAGE>
other property, including, without limitation, assets and proceeds of
assets (except securities which are subordinate and junior in right of
payment to the payment of Senior Debt of such Obligor at least to the
extent provided in this SECTION 7), shall be made for or on account of such
Obligor's Junior Debt; and
(ii) any payment or distribution of cash, property or securities
(except securities which are subordinate and junior in right of payment to
the payment of Senior Debt of such Obligor at least to the extent provided
in this SECTION 7), which would otherwise, but for the provisions of this
SECTION 7, be payable or distributable to or on account of the holders of
Junior Debt of such Obligor, shall be paid or distributed by any
liquidating trustee or other Person making such payment or distribution
directly to the holders of such Senior Debt, in order of seniority and then
ratably according to the aggregate amounts remaining unpaid on account of
such Senior Debt held by each to the extent they are of equal seniority,
for application to the payment of all such Senior Debt remaining unpaid, to
the extent necessary to pay all such Senior Debt in full after giving
effect to any concurrent payment or distribution, or provision therefor, to
the holders of such Senior Debt, before any such payment or distribution is
made to any holder of Junior Debt.
7.4. NO PAYMENT WITH RESPECT TO NOTES IN CERTAIN CIRCUMSTANCES.
---------------------------------------------------------
(a) No prepayment of the principal amount of any Notes shall be made
at the option of the Company pursuant to SECTION 3.2(b) or SECTION 3.2(c) or
otherwise, provided that, upon the occurrence of a Change of Control, if any
--------
Noteholder shall, in accordance with the provisions of SECTION 6.9, have
exercised its option to require the Company to prepay the Notes held by such
Noteholder, then if such prepayment is not prohibited by any other provision of
this SECTION 7 and if (i) all amounts required by any Senior Debt Documents to
be applied to the payment of Senior Debt outstanding thereunder as a result of
such Change of Control shall have been applied to the payment of such Senior
Debt as so required (including, but not limited to, payment in full if such
Senior Debt has been accelerated or is otherwise then due and payable in full),
or (ii) the holders of Senior Debt outstanding under such Senior Debt Documents
shall have waived such requirement in writing, then such prepayment of the Notes
may be made.
(b) In the event that (i) there shall occur a Significant Default with
respect to Senior Debt of the Company or (ii) the making of any payment in
respect of Junior Debt of the Company would create a Significant Default with
respect to the Senior Debt of the Company (a "POTENTIAL SIGNIFICANT DEFAULT"),
-----------------------------
then, unless, in each case, such Significant Default or Potential Significant
Default shall have been cured, waived in writing or shall have ceased to exist,
the Company or any other Obligor therefor shall not make and the holder or
holders of the Junior Debt of the Company or such other Obligor shall not be
entitled to receive any payment or distribution of assets or property of any
kind or character, whether from the Company or from any other Obligor and
whether in cash, securities or other property, for and on account of such Junior
Debt or any judgment related thereto, or on account of the purchase or
redemption or acquisition thereof:
(x) (1) if such Significant Default is a Primary Default, for a period of
up to 180 days (such period of time in any such case being
referred to herein as a
29
<PAGE>
"PRIMARY BLOCKADE PERIOD") after written notice of such Primary
-----------------------
Default shall have been delivered by the holders of such Senior
Debt to the Company and the holder or holders of Junior Debt of
the Company, requesting that such Primary Blockage Period apply,
and
(2) if such Significant Default is (or, in the case of a Potential
Significant Default, upon the occurrence thereof would be) a
Secondary Default, for a period of up to 120 days (such period of
time in any such case being referred to herein as a "SECONDARY
---------
BLOCKAGE PERIOD") after written notice of such Significant
---------------
Default or Potential Significant Default shall have been
delivered by the holders of such Senior Debt to the Company and
the holder or holders of Junior Debt of the Company, requesting
that such Secondary Blockage Period apply and, in the case of
such notice delivered in respect of a Potential Significant
Default, specifying the covenant or covenants in the applicable
Senior Debt Document of the Company under which a Secondary
Default would occur upon the making of a payment in respect of
the Junior Debt of the Company and setting forth calculations
demonstrating such result (any such notice being referred to in
this SECTION 7 as a "SECONDARY BLOCKAGE NOTICE"), or
(y) at any time after any Senior Debt of the Company outstanding shall
have become due prior to its stated maturity or, in the case of the
final stated maturity of any such Senior Debt, at any time after such
final stated maturity if such Senior Debt shall not have been paid at
such final stated maturity (notice of any of which shall be promptly
given by the Company to the holders of its Junior Debt) and until the
irrevocable payment in full of such Senior Debt;
provided, however, that
- -------- -------
(i) Primary Blockage Periods may not exceed 180 days in the aggregate
during any period of twelve consecutive calendar months, and Primary
Blockage Periods may not exceed 540 days in the aggregate during the
period from the Closing Date to and including the date the Notes are
paid in full,
(ii) Secondary Blockage Periods may not exceed 120 days in the aggregate
during any period of twelve consecutive calendar months, no Secondary
Blockage Notice may be delivered pursuant to this SECTION 7.4 at any
time during or within 180 days immediately following the expiration of
a Primary Blockage Period, and Secondary Blockage Periods may not
exceed 360 days in the aggregate during the period from the Closing
Date to and including the date the Notes are paid in full,
and provided, further, that if the Company's Senior Debt shall not by reason of
-------- -------
such Significant Default have become due prior to its stated maturity within the
applicable Blockage Period described above, the holder or holders of Junior Debt
shall be entitled to receive payment in full of all amounts then due in respect
of Junior Debt at the earlier of (i) the expiration of such Blockage Period and
(ii) the date on which the holders of such Senior Debt shall have waived such
Significant Default (or Potential Significant Default) in writing (it being
agreed that if such
30
<PAGE>
Significant Default resulted from the failure of an Obligor to make a payment
when due in respect of such Senior Debt, the acceptance of such payment by the
holders of such Senior Debt shall be deemed a waiver by such holders of such
Significant Default). No holder of Senior Debt of the Company other than the
holder of Bank Senior Debt may impose a Blockage Period under this SECTION 7.4
unless such imposition is expressly authorized by an Intercreditor Agreement.
(c) In the event there shall have occurred and be continuing any Event
of Default under this Agreement, then, unless in each case such Event of Default
shall have been cured or waived or shall have ceased to exist, the Notes may not
be declared to be due prior to their stated maturity and no Noteholder may take
any other action under this Agreement to accelerate the maturity of any amounts
due hereunder based on such Event of Default or to collect payment of any Junior
Debt or to foreclose or otherwise pursue any other remedy against the Company
until the earlier of (i) the time that all Senior Debt outstanding shall have
become due prior to its stated maturity and (ii) 30 days after written notice of
intention to accelerate based on any such Event of Default shall have been
delivered by any holder of Notes to the Company and the holders of Senior Debt.
The receipt by any Noteholder of any payment in respect of Junior Debt or any
cash, property, assets or proceeds as a result of any such action shall be
subject to all of the other provisions of this SECTION 7, including, but not
limited to, the provisions of this SECTION 7.4.
7.5. PAYMENTS NOTWITHSTANDING. No payment or distribution by any
------------------------
Obligor of any character, whether in cash, securities or other property (except
securities which are subordinate and junior in right of payment to the payment
of Senior Debt of such Obligor at least to the extent provided in this SECTION
7), to which the holders of such Obligor's Junior Debt would have been entitled
except for the provisions of this SECTION 7 and which shall have been made to or
for the account of the holders of such Obligor's Senior Debt shall, as between
such Obligor and its creditors (other than the holders of such Obligor's Senior
Debt and Junior Debt), be deemed to be a payment or distribution by such Obligor
to or for the account of the holders of such Obligor's Senior Debt, and from and
after the payment in full of all such Obligor's Senior Debt and the termination
of all commitments of the holders of such Senior Debt to lend additional money
or extend credit to such Obligor, the holders of such Obligor's Junior Debt
shall be subrogated to any and all rights of the holders of such Obligor's
Senior Debt to receive payments or distributions of cash, securities or other
property applicable to such Obligor's Senior Debt to the extent that payments or
distributions otherwise payable on such Obligor's Junior Debt have been applied
to such Obligor's Senior Debt until the Junior Debt of such Obligor shall be
paid in full, and no such payment or distribution made pursuant to such rights
of subrogation to the holder or holders of such Obligor's Junior Debt which
otherwise would be payable or distributable to or for the account of such
Obligor's Senior Debt shall, as between such Obligor and its creditors (other
than the holders of such Obligor's Junior Debt), be deemed to be a payment or
distribution by such Obligor to the holder or holders of such Obligor's Junior
Debt or on account of such Obligor's Junior Debt.
7.6. NO PREJUDICE OR IMPAIRMENT. The provisions of this SECTION 7
--------------------------
are solely for the purpose of defining the relative rights of the holders of the
Senior Debt on the one hand and the holders of Junior Debt on the other hand and
this SECTION 7 shall constitute a continuing offer to all persons who become
holders of, or continue to hold, Senior Debt. Nothing in this SECTION 7 shall
impair, as between an Obligor and the holders of such Obligor's Junior Debt, the
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obligation of such Obligor, which is unconditional and absolute, to pay to the
holders of such Obligor's Junior Debt such Junior Debt as and when the same
shall become due in accordance with its terms, nor shall anything herein prevent
the holders of such Junior Debt from exercising all remedies otherwise permitted
by applicable law upon default under this Agreement, subject, however, to the
provisions of this SECTION 7 and the rights of the holders of such Obligor's
Senior Debt hereunder. Without limitation of the generality of the foregoing,
nothing in this SECTION 7, this Agreement or the Notes shall prevent any
Obligor, at any time except during the pendency of any Proceeding as to such
Obligor, or under the conditions described in SECTION 7.4, from making payments
at any time of principal of, Yield Maintenance Amount or other premium, if any,
or interest on the Notes, either hereunder, under the Holdings Guaranty or under
a Subsidiary Guaranty, as applicable, or the retention thereof by any
Noteholder.
7.7. RELIANCE. Upon any payment or distribution of assets of an
Obligor referred to in this SECTION 7, the holders of the Junior Debt of such
Obligor shall be entitled to rely upon any order or decree of any court of
competent jurisdiction in which any dissolution, winding up, liquidation or
reorganization proceeding affecting the affairs of such Obligor is pending or
upon a certificate of the liquidating trustee or agent or other Person making
any payment or distribution to the holders of such Junior Debt for the purpose
of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of such
Obligor, the amount thereof or payable thereon, the amount paid or distributed
thereon and all other facts pertinent thereto or to this SECTION 7.
7.8. TURNOVER OF PAYMENTS. If any payment, distribution or security
--------------------
(except in the case of SECTION 7.3, securities which are subordinate and junior
in right of payment of Senior Debt at least to the extent provided in this
SECTION 7), or the proceeds of any thereof shall be collected or received by the
holder of any Junior Debt in contravention of any of the terms of this SECTION
7, the holder thereof will receive such payment, distribution or security or the
proceeds thereof in trust for the holders of Senior Debt and shall forthwith
deliver such payment, distribution, security or proceeds, in the form in which
it was received, together with such endorsements or documents as is necessary
for such transfer, to the extent necessary to pay all such Senior Debt of the
applicable Obligor in full, to the holder or holders of such Senior Debt in
order of seniority and then ratably, according to the respective amounts of such
Senior Debt held by each such holder to the extent they are of equal seniority;
provided, however, that if any holder of Senior Debt objects in writing to any
- -------- ------
such payment based upon a claim of different seniority, then such holder of
Junior Debt shall deposit such amount with any court of proper jurisdiction, for
determination by such court as to the proper application thereof. If at the time
any payment, distribution, security or proceeds are delivered to the holders of
such Senior Debt pursuant to this Section and such Senior Debt then due and
payable is less than the amount of such payment, distribution, security or
proceeds, only the amount so due and payable shall be applied to the payment of
such Senior Debt, and such excess shall be applied to the payment of such Junior
Debt then due and payable.
7.9. DISCLOSURE OF SUBORDINATION. Neither Obligor will, nor will
---------------------------
either Obligor permit any of its Subsidiaries or agents to, publish or give any
creditor or prospective creditor of such Obligor or any of its Subsidiaries any
copy, statement or summary (or acquiesce in the publication or giving of any
such copy, statement or summary) as to the subordination of the rights of the
holders of any Junior Debt without also stating, or causing to be stated (in the
32
<PAGE>
case of any document in a conspicuous manner), that such subordination is solely
for the holders of Senior Debt of such Obligor and not for the benefit of any
other creditor of such Obligor or any of its Subsidiaries.
7.10. AMENDMENT. Without the written consent of (i) the holders of
---------
the Bank Senior Debt and (ii) the holders of not less than 66-2/3% in aggregate
principal amount of all other outstanding Senior Debt of each Obligor,
(a) no amendment to this SECTION 7 shall be effective to modify the
subordination provisions in a manner adverse to the holders of Senior Debt
of such Obligor, and
(b) the Company and the Noteholders shall not amend, supplement or
otherwise modify the terms of the Junior Debt if the effect of such
amendment, supplement or modification is to (i) change the date of any
interest payment under the Notes or the scheduled final maturity date
thereof to an earlier date, (ii) require the applicable Obligor to make
payments of principal (including mandatory prepayments) or interest
thereunder more frequently or in greater amounts, (iii) alter any financial
covenant or any event of default in a manner which has the effect of making
such covenant or default more stringent or restrictive as applied to such
Obligor or (iv) alter any other covenant in any manner the effect of which
is to increase materially such Obligor's obligations thereunder.
7.11. LIENS; ENFORCEMENT OF CLAIMS. Unless and until all Senior Debt
----------------------------
shall have been paid in full and the obligations of all holders of Senior Debt
under the Senior Debt Documents to which they are a party have been terminated,
(i) no Noteholder may accept, receive or obtain any Lien in any property or
interests of any Obligor as security for the Junior Debt, and (ii) no Noteholder
may assert or enforce any claim against the Company or any of its assets which
is inconsistent with the provisions of this SECTION 7.
7.12. NOTICE OF SUBORDINATION. Each Note will include a legend to
-----------------------
the effect that payments in respect of such Note are subordinate to the payment
of Senior Debt as herein provided.
7.13. RIGHTS NOT IMPAIRED. The subordination effected pursuant to
-------------------
and the rights of the holders of Senior Debt under this SECTION 7 shall not be
impaired by any exercise or non-exercise by any such holder of any right, power
or remedy under or in respect of any Senior Debt or any instrument or agreement
relating thereto or evidencing any security therefor, or any act or failure to
act on the part of any Obligor or any holder of Senior Debt, or by any non-
compliance by any Obligor with the terms, provisions or covenants hereof,
regardless of the knowledge thereof by any holder of Senior Debt, or any waiver,
consent, release, indulgence, extension, renewal, modification, delay or other
action, inaction or omission, in respect of any Senior Debt or any instrument or
agreement relating thereto or any security therefor or guaranty thereof, whether
or not any Noteholder had knowledge of any of the foregoing. The Noteholders
agree, with respect to the Senior Debt and any and all collateral therefor and
guaranties thereof, that the Obligors and the holders of the Senior Debt may
agree to increase the amount of the Senior Debt (subject to the limitations set
forth in the definition of Company Senior Debt
33
<PAGE>
contained in SECTION 7.2) hereof or otherwise modify the terms of any of the
Senior Debt, and the holders of the Senior Debt may grant extensions of the time
of payment or performance and may agree to and make compromises, including
releases of collateral or guaranties, and settlements with the Obligors and all
other Persons, in each case without the consent of the Noteholders or the
Obligors and without affecting the agreements of the Noteholders or the Obligors
contained in this Agreement, provided, however, that nothing contained in this
-------- -------
SECTION 7.13 shall constitute a waiver of the right of the Obligors to agree or
consent to a settlement or compromise of a claim which any holder of Senior Debt
may have against the Obligors. Except as set forth above, the terms of this
SECTION 7, the subordination effected hereby and the rights of the holders of
the Senior Debt shall not be affected by any amendment of or addition or
supplement to any Senior Debt or any instrument or agreement relating thereto.
7.14. TERMINATION OF SUBORDINATION. The provisions of this SECTION 7
----------------------------
shall continue in full force and effect, and the obligations and agreements of
the Noteholders and the Obligors hereunder shall continue to be fully operative,
until all of the Senior Debt shall have been paid and satisfied in full. To the
extent that any Obligor or any guarantor or provider of collateral for the
Senior Debt makes any payment on the Senior Debt that is subsequently
invalidated, declared to be fraudulent or preferential or set aside or is
required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or reorganization act, state or Federal law, common law
or equitable cause (such payment being hereinafter referred to as a "VOIDED
------
PAYMENT", then to the extent of such Voided Payment, that portion of the Senior
- -------
Debt that had been previously satisfied by such Voided Payment shall be revived
and continue in full force and effect as if such Voided Payment had never been
made; provided, however, that any Voided Payment received by any Noteholder at
-------- -------
any time after the expiration of a period of 53 weeks after such Senior Debt
has, to the knowledge of such Noteholder, been paid in full and before such
Noteholder is aware that any payment in respect of such Senior Debt has become
or has been claimed to be subject to becoming so voided and returned may be
retained by such Noteholder and shall not be subject to the provisions of
SECTION 7.8.
7.15. PROOF OF CLAIM. In the event that, while any Senior Debt is
--------------
outstanding, any Proceeding is commenced by or against any Obligor or its
property and the holders of the Junior Debt of such Obligor have not filed
proofs of claim as of the tenth business day preceding the bar date therefor,
the holders of such Senior Debt shall be irrevocably authorized and empowered,
in their own name or otherwise, but shall have no obligation, to file
appropriate proofs of claim for the exercise or enforcement of any of the rights
or interests of the holders of such Junior Debt with respect to such Junior Debt
in such Proceeding; provided, however, that, notwithstanding the foregoing, no
-------- -------
holder of Senior Debt shall have any right whatsoever to vote any claim that any
holder of such Junior Debt shall have in such Proceeding to accept or reject any
plan or partial or complete liquidation, reorganization, arrangement,
composition or extension.
7.16. RELIANCE BY HOLDERS OF SENIOR DEBT. Each Noteholder, by its
----------------------------------
acceptance thereof, acknowledges that the provisions of this SECTION 7 are for
the benefit of and are enforceable by the holders of Senior Debt, and waives
proof of such reliance by any such holder of Senior Debt.
34
<PAGE>
7.17. WAIVER OF JURY TRIAL. EACH OF THE NOTEHOLDERS AND THE OBLIGORS
--------------------
HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS SECTION 7, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
7.18. FURTHER ASSURANCES. The Noteholders and the Obligors agree to
------------------
do, make, execute and deliver all such additional and further acts, things,
assurances and instruments as any party may reasonably require to carry into
effect the provisions and intent of this SECTION 7.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND HOLDINGS. Holdings
----------------------------------------------------------
(as to all of the following matters relating to itself or the Company and its
Subsidiaries) and the Company (as to all of the following matters relating to
itself and its Subsidiaries) represent and warrant, as of the date hereof and as
of the Closing Date, to you for your benefit and the benefit of each holder from
time to time of the Notes that:
8.1. STOCK PURCHASE AGREEMENT. You and your special counsel have
------------------------
been furnished with complete and correct copies of the Stock Purchase Agreement
(including all schedules and exhibits thereto). Each of the General Partner and
Holdings has the requisite legal right, power and authority to enter into (or,
in the case of Holdings, to assume the rights and obligations of the General
Partner under) the Stock Purchase Agreement and to carry out the transactions
contemplated thereby. Each of the General Partner and Holdings has, by all
necessary corporate action (all action of shareholders, if any, being required
therefor having been duly taken), duly authorized the execution and delivery of
(or, in the case of Holdings, the assumption of the rights and obligations of
the General Partner under) the Stock Purchase Agreement, and the performance of
its obligations thereunder. Holdings shall have, on or prior to the Closing
Date, duly performed and complied with all material agreements and conditions
contained in the Stock Purchase Agreement which are required to be performed and
complied with by it thereunder. Upon the effectiveness of the Assignment
Agreement, the Stock Purchase Agreement will constitute the valid and legally
binding obligation of Holdings, enforceable against Holdings in accordance with
its terms. The Stock Purchase Agreement is in full force and effect without any
known default existing thereunder, and has not been further amended or modified,
and no material term or provision thereof has been waived, except with your
prior written consent. To the best knowledge of Holdings and the Company,
Tribune has duly performed and complied with all material agreements and
conditions contained in the Stock Purchase Agreement required to be performed or
complied with by it thereunder on or prior to the date hereof.
8.2. CONSUMMATION OF ACQUISITION. Concurrently with the Closing on
---------------------------
the Closing Date, the Acquisition will be duly consummated in accordance with
the terms of the Stock Purchase Agreement and in compliance in all material
respects with all Applicable Laws and governmental rules and regulations, and
Holdings will become the owner, beneficially and of record, of 100% of the
issued and outstanding shares of capital stock of the Company, free and clear of
any Lien.
35
<PAGE>
8.3. ORGANIZATION AND AUTHORITY OF HOLDINGS AND THE COMPANY.
-------------------------------------------------------
(a) Holdings is a corporation duly formed and has a valid legal
existence and is in good standing under the laws of the State of Delaware and
has all requisite legal right, power and authority and all necessary licenses,
permits, franchises and governmental authorizations to own and operate its
properties and assets to carry on its business as now conducted and as proposed
to be conducted and to enter into and perform its obligations under this
Agreement and the other Transaction Documents to which it is or is to be a
party. Holdings has, by all necessary corporate action (all action of its
shareholders being required in connection therewith having been duly taken),
duly authorized the execution and delivery of this Agreement and the other
Transaction Documents to which it is to be a party and the performance of its
obligations hereunder and thereunder.
(b) The Company is a corporation duly formed and has a valid legal
existence and is in good standing under the laws of the State of Pennsylvania,
and has all requisite legal right, power and authority and all necessary
licenses, permits, franchises and governmental authorizations to own or hold
under lease the property it purports to own or hold under lease, to carry on its
business as now conducted and as proposed to be conducted, to enter into this
Agreement and the other Transaction Documents to which it is to be a party, to
issue and deliver the Notes, and to carry out the terms of this Agreement, such
Transaction Documents and the Notes. The Company has, by all necessary action
(all action of its shareholders being required in connection therewith having
been duly taken), duly authorized the execution and delivery of this Agreement
and the other Transaction Documents to which it is to be a party and the
issuance and sale of the Notes and performance of its obligations under this
Agreement, such Transaction Documents and the Notes.
8.4. SUBSIDIARIES. Holdings has no Subsidiaries as of the date
------------
hereof and will have, as of the Closing Date, no Subsidiaries other than the
Company and its Subsidiary Farm Journal Tours, Inc. The Company's only
Subsidiary is Farm Journal Tours, Inc., a Pennsylvania corporation, which
Subsidiary is inactive and owns no material assets. All capital stock of such
Subsidiary is owned beneficially and of record by the Company free and clear of
any Lien. There are no outstanding rights, options, warrants, conversion rights
or agreements (other than the Stock Purchase Agreement) for the purchase or
acquisition from the Company of any capital stock of such Subsidiary.
8.5. BUSINESS OF HOLDINGS. Holdings has not engaged in any business
--------------------
or incurred any liabilities since the date of its incorporation except for
activities, expenses and liabilities incident to its organization and the
carrying out of the transactions contemplated by the Acquisition Agreement and
this Agreement.
8.6. QUALIFICATION. Each of Holdings and the Company is, and each of
-------------
the Company's Subsidiaries is, duly qualified or licensed and in good standing
and is duly authorized to do business in each jurisdiction (other than the
jurisdiction of its formation or incorporation) in which the nature of its
activities or the character of the properties it owns or leases makes such
qualification or licensing necessary and in which the failure to so qualify or
be licensed would have a Material Adverse Effect. SCHEDULE II sets forth as to
Holdings, the Company and each Subsidiary of the Company the jurisdictions
(other than the jurisdiction of its organization) in
36
<PAGE>
which it is qualified or licensed to do business or in which any substantial
part of its assets is located.
8.7. BUSINESS AND PROPERTY; FINANCIAL STATEMENTS; ETC. You have been
------------------------------------------------
furnished with true and complete copies of the Limited Partnership Memorandum,
dated February, 1997 (the "OFFERING MEMORANDUM"), prepared on behalf of the
-------------------
Company and the Partnership by Morgan Schiff, as supplemented by Supplement No.
1 to the Limited Partnership Memorandum dated March, 1997 (the "SUPPLEMENT").
----------
Part IV of the Offering Memorandum contains a correct summary description in all
material respects, as of its date, of the business and material properties of
the Company and the nature of its operations. You have also been furnished with
(i) summary historical financial information of the Company compiled from the
audited financial statements of the Company for the two fiscal years ended
December 31, 1993 and the unaudited financial statements of the Company
(estimated for 1996) for the fiscal years ended December 31 in the years 1994
through 1996;(ii) financial projections for the Company and its Subsidiaries for
the fiscal years ending December 31 in the years 1997 through 1999 (such
financial projections being hereinafter referred to as the "PROJECTIONS"); and
-----------
(iii) the Pro Forma Balance Sheet; and (iv) the materials described on SCHEDULE
V. The financial information described in item (i) above, the Pro Forma Balance
Sheet and all related schedules and notes and the financial statements described
in item nos. 2 and 3 on SCHEDULE V are correct and complete in all material
respects and present fairly the financial position of the Company as at the
respective dates thereof and the results of operations and changes in financial
position (or cash flows, as applicable) of the Company for the respective
periods specified. The Projections were prepared based on assumptions which were
reasonable at the time of such preparation and made in good faith. Except as
disclosed in SCHEDULE VII, the Company has no material liabilities, contingent
or otherwise, of a character required, in accordance with GAAP, to be reflected
on its financial statements which are not described in the annual financial
statements referred to in this SECTION 8.7 or in the notes thereto.
8.8. CHANGES, ETC. Since the date of the Pro Forma Balance Sheet, (a)
------------
there has been no change in the Business or Condition of the Company which has
been, either in any one case or in the aggregate, Materially Adverse and (b)
there has been no occurrence or development, whether or not insured against,
which has had or could reasonably be expected to have a Material Adverse Effect.
8.9. OWNERSHIP, CAPITAL STOCK, ETC. At the time of the Closing and
-----------------------------
after giving effect to the Acquisition and the transactions contemplated by this
Agreement and the other Transaction Documents, all issued and outstanding
authorized capital stock of Holdings will be owned by the Partnership and will
have been duly and validly authorized and issued and fully paid and non-
assessable. At the time of the Closing and after giving effect to the
Acquisition and the transactions contemplated by this Agreement and the other
Transaction Documents, all of the issued and outstanding capital stock of the
Company will be duly authorized, validly issued, fully paid and non-assessable
and owned, beneficially and of record, by Holdings. Neither Holdings nor the
Company nor any of its Subsidiaries (x) has outstanding any stock or securities
-
convertible into or exchangeable for any shares of its capital stock, or any
rights (preemptive or otherwise) or warrants to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any of its capital stock or (y) is
-
37
<PAGE>
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire any shares of its capital stock or any convertible securities, rights or
warrants, or options of the type described in the foregoing subclause (x), other
than the Holdings Class B Common Stock and 65 shares of the Company's common
stock to be redeemed from Tribune on the Closing Date. Neither Holdings nor the
Company nor any of its Subsidiaries is a party to, nor, after due inquiry, has
knowledge of any agreement (except as set forth in this Agreement), restricting
the transfer of any shares of Holdings or the Company's capital stock.
8.10. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. (a) Neither
--------------------------------------------
Holdings, the Company nor any Subsidiary of the Company is in violation of any
term or provision of its certificate of incorporation or by-laws or other
constitutive document or any term of any agreement, indenture, mortgage,
instrument or License to which it is a party or by which it or any of its
properties may be bound or affected or any Applicable Law or any Order of any
court, arbitrator or Governmental Body applicable to it (including any
Applicable Law or Order relating to occupational health and safety standards,
consumer protection or equal employment practice requirements).
(b) Neither the execution and delivery of this Agreement, the other
Transaction Documents or the Notes nor the performance of the terms and
provisions hereof or thereof nor the consummation of the transactions
contemplated hereby or thereby will result in any breach of or be in conflict
with or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in a loss of any benefit
to which Holdings, the Company or any Subsidiary of the Company is entitled
under, or result in (or require) the creation of any Lien upon any property of
Holdings, the Company or any Subsidiary under, any term of the certificate of
incorporation or bylaws or other constitutive documents of Holdings, the Company
or any Subsidiary of the Company, as the case may be, or any agreement,
indenture, mortgage or instrument to which any property of Holdings, the Company
or any Subsidiary of the Company is a party or by which any property of
Holdings, the Company or any Subsidiary of the Company may be bound or affected,
or any Applicable Law or any Order of any court, arbitrator or Governmental Body
applicable to Holdings, the Company or any property of Holdings, the Company or
any Subsidiary of the Company.
(c) Neither Holdings, the Company nor any Subsidiary of the Company is in
default in the payment of any principal, premium or interest on, or any other
amount due and owing under, any Debt with respect to which it is liable.
8.11. CONSENTS AND APPROVALS. No Approval by, from or with, and no
----------------------
other action in respect of, any Governmental Body or any other Person (including
any trustee or any holder of any indebtedness, ownership interests or other
obligations of the Company or any of its Affiliates) is required for or in
connection with the valid execution and delivery by Holdings or the Company of,
or the performance by Holdings or the Company of its obligations under, this
Agreement, the other Transaction Documents to which it is to be a party or (in
the case of the Company) the Notes or the consummation by Holdings or the
Company of the transactions contemplated hereby and thereby, including (in the
case of the Company) the offer, issuance and delivery by the Company of the
Notes and (in the case of Holdings) the Holdings Guaranty, except such Approvals
as have been duly obtained or made and are in full force and effect.
38
<PAGE>
8.12. TITLE TO PROPERTY; LEASES. Each of the Company and each
-------------------------
Subsidiary of the Company has good and marketable title to all of the properties
and assets it purports to own, including those reflected on the Pro Forma
Balance Sheet or acquired by the Company or any Subsidiary after the date of the
Pro Forma Balance Sheet (other than any such properties disposed of since such
date in the ordinary course of business). The Company and each Subsidiary of the
Company enjoys peaceful and undisturbed possession under all leases of all
personal or real property necessary in any material respect to its operations or
the conduct of its business, all such leases are valid and subsisting and are in
full force and effect and neither the Company nor any Subsidiary is in default
in the performance or observance of its material obligations thereunder.
8.13. DEBT, ETC. Holdings is not liable with respect to any Debt.
---------
SCHEDULE III correctly lists all secured and unsecured Debt of the Company or
any Subsidiary of the Company outstanding on the date hereof and shows, as to
each item of Debt listed thereon, the obligor (including each guarantor) and
obligee, the aggregate principal amount outstanding on the date hereof, whether
the same constitutes Funded Debt or Current Debt, whether such item of Debt will
be repaid at or prior to either Closing or out of the proceeds of the Notes, and
a brief description of any security therefor. No default or event of default or
basis for acceleration exists or, after giving effect to the issuance and sale
of the Notes pursuant to this Agreement and the consummation of the other
transactions contemplated by this Agreement, would exist under any instrument or
agreement evidencing, providing for the issuance or securing of, or otherwise
relating to any such Debt. Except for this Agreement, neither the Company nor
any Subsidiary of the Company is party to or bound by any agreement, indenture,
mortgage, lease, instrument or license which contains any restriction on the
incurrence by it of any Debt.
8.14. SOLVENCY. After giving effect to the sale of the Notes and the
--------
consummation of the Acquisition and all the other transactions contemplated to
occur at or prior to the Closing by the Transaction Documents (including,
without limitation, the payment of all legal, accounting, investment banking and
other fees and expenses relating to the Acquisition, the sale of the Partnership
Units to be sold on or prior to the Closing Date and this Agreement), (a) the
aggregate value of all assets of the Company whether valued as a going concern,
at fair valuation or at their fair present salable value (without regard to the
value attributed thereto on the Pro Forma Balance Sheet or disclosed in the
notes thereto), exceeds the amount of all debts and liabilities (including
contingent, subordinated, unnatured and unliquidated liabilities) of the Company
whether or not required to be shown on the Pro Forma Balance Sheet or disclosed
in the notes thereto in accordance with GAAP, (b) the Company has and shall have
sufficient assets to pay its existing Debt, liabilities and obligations and all
other current Debt, liabilities and obligations when due and (c) the Company's
assets, property and capital are sufficient for the conduct of the business in
which it is engaged and proposes to engage. The obligations being incurred by
each of Holdings and the Company under or pursuant to the Transaction Documents
to which it is to be a party are not being incurred with actual intent to
hinder, delay or defraud existing creditors of Holdings or the Company; and each
of Holdings and the Company shall have received in consideration of the
obligations incurred by it under the Transaction Documents to which it is a
party a reasonably equivalent value in exchange therefor.
8.15. LITIGATION. There are no actions, suits or proceedings pending
----------
or, to the knowledge of Holdings or the Company, threatened against or affecting
Holdings or the
39
<PAGE>
Company or any Subsidiary of the Company, this Agreement, the other Transaction
Documents, the Notes, the Material Trademarks or any other properties of the
Company or any Subsidiary (and no basis therefor is known to Holdings or the
Company) in any court or before any arbitrator of any kind or before or by any
Governmental Body, which (a) question the validity or legality of this
-
Agreement, any other Transaction Document, the Notes or any action taken or to
be taken pursuant hereto or thereto or (b) either alone or taken together with
-
all other such actions, suits and proceedings, have had or could have a Material
Adverse Effect.
8.16. TAXES. The Company and each Subsidiary of the Company has
-----
filed all tax returns which are required by law to have been filed by it in any
jurisdiction and has paid all taxes, assessments, fees and charges of each
Governmental Body shown to be owing on such returns to the extent the same have
become due and payable and before they have become delinquent, other than those
presently payable without penalty or interest and those being contested in good
faith by appropriate and timely actions or proceedings diligently pursued and
with respect to which adequate reserves have been established in accordance with
GAAP. The Company does not know of any additional assessment or, except as
disclosed in Schedule 5.20 to the Stock Purchase Agreement, proposed assessment
for any fiscal year, and no material controversy in respect of additional
federal, state, local or foreign income taxes or any assessments with respect to
the Company or any Subsidiary of the Company are pending or to the knowledge of
the Company are threatened. In the opinion of the Company, all tax liabilities
of the Company and each Subsidiary of the Company (including taxes for all open
years and for its current fiscal period) are adequately provided for on the
books of the Company in a manner consistent with GAAP.
8.17. COMPLIANCE WITH ERISA. (a) No Termination Event has occurred,
---------------------
and no event or condition has occurred or exists as a result of which any
Termination Event could reasonably be expected to occur, with respect to any
Plan. No accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, has occurred with respect to
any Plan. The present value of all accrued benefits under each Plan (based on
those assumptions used to fund such Plan, which assumptions are reasonable) did
not, as of the most recent valuation date, which for any such Plan was not
earlier than twelve months prior to the date as of which this representation is
made, exceed the then current value of the assets of such Plan allocable to such
benefits.
(b) No Company Group Member has incurred, or is reasonably expected to
incur, any withdrawal liability to any Multiemployer Plan. No Company Group
Member has received any notification that any Multiemployer Plan is in
reorganization (as defined in Section 4241 of ERISA), is insolvent (as defined
in Section 4245 of ERISA) or has been terminated, within the meaning of Title IV
of ERISA, and no Multiemployer Plan is reasonably expected to be in
reorganization or insolvent or to be terminated.
(c) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has
occurred which has subjected or could subject any Company Group Member to any
liability under Section 406, 409, 502(i) or 502(1) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which such
Company Group Member has agreed or is required to indemnify any Person against
any such liability. No Company Group Member has incurred, or is reasonably
40
<PAGE>
expected to incur, any liability to the PBGC (other than for insurance premiums,
which have been paid when due).
(d) Full payment has been made on or before the due date thereof of
all amounts which any Company Group Member is or was required under the terms of
any Plan to have paid as contributions to such Plan as of the date hereof.
(e) No Lien imposed under the Code or ERISA on the assets of any
Company Group Member exists or is reasonably likely to arise on account of any
Plan.
(f) No welfare plan (as defined in Section 3(1) of ERISA) maintained
by any Company Group Member provides medical or death benefits with respect to
current or former employees beyond their termination of employment (other than
coverage mandated by law). Each such plan to which Sections 601-609 of ERISA
and Section 4980B of the Code apply has been administered in compliance with
such sections.
(g) Neither the execution and delivery of this Agreement or the
Transaction Documents nor the issuance of the Notes as herein contemplated will
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Code. The representation by the Company in the preceding sentence
is made in reliance upon and subject to the accuracy of your representation in
SECTION 1.7.
8.18. PRIVATE OFFERING. No Person has offered the Notes or any
----------------
similar securities of the Company for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you. Neither the Company nor any other Person acting on
its behalf has taken or will take, any action which would subject the issuance
or sale of the Notes to SECTION 5 of the Securities Act or to the registration
or qualification requirements of any securities or blue sky law of any
applicable jurisdiction.
8.19. USE OF PROCEEDS; MARGIN REGULATIONS. The Company and holdings
-----------------------------------
will apply the proceeds from the issuance of the Notes hereunder as provided in
SECTION 1.5. No part of the proceeds from the issuance of the Notes will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR 207, as amended), or for the purpose of
purchasing or carrying or trading in any securities under such circumstances as
to involve Holdings or the Company in a violation of Regulation X of said Board
(12 CFR 224, as amended) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220, as amended). The assets of the Company
do not consist on the date hereof of, and the Company has no present intention
of acquiring, directly or indirectly, any such margin stock or any such margin
security. None of the transactions contemplated by this Agreement (including the
direct or indirect use of the proceeds from the issuance of the Notes) will
violate or result in a violation of SECTION 7 of the Exchange Act or any
regulations issued pursuant thereto, including said Regulation G, Regulation T
and Regulation X.
41
<PAGE>
8.20. LICENSES, PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. Set forth
--------------------------------------------------
on SCHEDULE VI is a list of all trademarks and trade names of the Company which
are necessary in any material respect for the conduct of the business of the
Company and its Subsidiaries as conducted on the date hereof (such trademarks
and trade names being herein collectively referred to as the "MATERIAL
--------
TRADEMARKS"). The Company and its Subsidiaries own, possess or have the right to
- ----------
use (without any known conflict with the rights of others) all permits,
franchises, patents, trademarks, service marks, trade names, copyrights,
licenses and Approvals or the like (including, without limitation, the Material
Trademarks) (collectively, "LICENSES") which are necessary in any material
--------
respect to the conduct of their respective businesses as conducted on the date
hereof and as proposed to be conducted. All such Licenses or rights therein
purported to be owned by the Company or the applicable Subsidiary are so owned
free and clear of any Liens, other than Liens permitted under SECTION 6.3. Each
such License is in full force and effect, and the Company or the applicable
Subsidiary, as the case may be, has fulfilled and performed in all material
respects its obligations with respect thereto to the extent required to be
performed or observed on or prior to the date hereof. No default in the
performance or observance by the Company or any such Subsidiary of its
obligations under any Material Trademark has occurred (and, so far as is known
to the Company, no other event has occurred), which permits, or after notice or
lapse of time or both would permit, the revocation or termination of any such
Material Trademark, and no default in the performance or observance by the
Company or any such Subsidiary of its obligations under any other such License
has occurred (and, so far as is known to the Company, no other event has
occurred), which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any other such License or which, either alone
or taken together with the consequences of all other such defaults, has had or
in the future may have a Material Adverse Effect.
8.21. STATUS UNDER CERTAIN STATUTES; OTHER REGULATIONS. Neither the
------------------------------------------------
Company nor any Subsidiary is an "investment company" or a Person directly or
indirectly "controlled" by or "acting on behalf of " an investment company"
within the meaning of the Investment Company Act of 1940, as amended. Neither
the Company nor any Subsidiary is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended. Neither the Company nor
any Subsidiary is a "public utility," as such term is defined in the Federal
Power Act, as amended. The Company is not subject to regulation under any
Federal or state law, statute, rule, regulation or ordinance which limits its
ability to incur Debt.
8.22. LABOR MATTERS. There are no labor disputes between the Company
-------------
or any Subsidiary on the one hand and any of their respective employees or
representatives of such employees on the other hand which in the aggregate might
have a Material Adverse Effect, and the Company is in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, tax withholding on behalf of
employees and wages and hours, and neither the Company nor any Subsidiary is
engaged in any unfair labor practice which, either alone or taken together with
all other such practices, has had or could have a Material Adverse Effect.
42
<PAGE>
8.23. FULL DISCLOSURE. Neither this Agreement, the other Transaction
---------------
Documents, the information set forth in Section IV of the Offering Memorandum,
the Supplement, nor any other document, certificate or instrument delivered to
you by or on behalf of Holdings or the Company in connection with the
transactions contemplated by this Agreement (including the materials described
on SCHEDULE V) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which the same were made, not
misleading. There is no fact known to Holdings or the Company which has had a
Material Adverse Effect or in the future could reasonably be expected to (so far
as Holdings or the Company can now reasonably foresee) have a Material Adverse
Effect which has not been set forth or reflected in this Agreement, the
Transaction Documents, the information set forth in Section IV of the Offering
Memorandum, the Supplement or in the other documents, certificates and
instruments referred to herein and delivered to you by or on behalf of Holdings
or the Company on or prior to the date hereof in connection with the
transactions contemplated by this Agreement (including the materials described
on SCHEDULE V).
8.24. ENVIRONMENTAL MATTERS. (a) The Company and its Subsidiaries
---------------------
currently hold and at all times heretofore the Company and it Subsidiaries held
all Environmental Permits required under all Environmental Laws, except to the
extent failure to have any such Environmental Permit, in any one case or in the
aggregate, has not had and will not have a Material Adverse Effect.
(b) The Company and its Subsidiaries currently are, and at all times
heretofore the Company and its Subsidiaries have been, in compliance with all
Environmental Laws and all terms and conditions of all such Environmental
Permits and all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws and Environmental Permits, except to the extent failure
to comply therewith, in any one case or in the aggregate, has not had and will
not have a Material Adverse Effect.
(c) Except as disclosed in Schedule 5.19 to the Stock Purchase
Agreement, neither the Company nor any Subsidiary nor, to the knowledge of the
Company, any predecessor in interest of the Company or any Subsidiary in respect
of any of the Company Premises has ever received from any Governmental Body or
other Person any notice of, and the Company has no knowledge of, any past,
present or future events, conditions or circumstances that could prevent
continued compliance in all material respects with the Environmental Permits
referred to in clause (b) of this SECTION 8.24 or any scheduled renewals thereof
or any applicable Environmental Laws currently in effect, or that could
reasonably be expected to give rise to any liability on the part of the Company
or any Subsidiary or otherwise form the basis of any claim, action, demand,
request, notice, suit, proceeding, hearing, study or investigation
(collectively, "ENVIRONMENTAL CLAIMS") involving the Company or any Subsidiary,
--------------------
based on or related to (i) a violation of any applicable Environmental Laws or
-
Environmental Permits or (ii) the presence, manufacture, generation, refining,
--
processing, distribution, use, sale, treatment, receipt, storage, disposal,
transport, arranging for transport or handling, treatment or disposal of,
handling, or the emission, spill, discharge, release or threatened release into
the environment of, or the removal, remediation, response or any corrective
action taken with respect to, any Hazardous Material.
43
<PAGE>
9. HOLDINGS GUARANTY.
------------------
9.1. GUARANTY OF PAYMENT AND PERFORMANCE. Holdings hereby absolutely,
-----------------------------------
irrevocably and unconditionally guarantees as primary obligor and not merely as
surety:
(i) the full and prompt payment when due (whether upon prepayment, at
stated maturity, by declaration, acceleration, mandatory purchase or
otherwise) of the principal of, Yield Maintenance Amount, if any, and
interest on the Notes (including, without limitation, interest on overdue
principal and (to the extent permitted by applicable law) any overdue Yield
Maintenance Amount or other premium, if any, and interest on each Note);
(ii) the full and prompt payment by the Company when due of any and all
other obligations, liabilities and amounts (including, without limitation,
indemnities, fees, costs, expenses and interest thereon) of the Company now
existing or hereafter incurred under, arising out of or in connection with
this Agreement or the Notes;
(iii) the due performance of and compliance by the Company with the
terms, conditions, agreements and obligations under this Agreement or the
Notes; and
(iv) all renewals, extensions, modifications and refinancings (in whole
or in part) of any of the amounts, terms, conditions, agreements and
obligations referred to in clauses (i) through (iii) of this SECTION 9.1.
The principal, Yield Maintenance Amount or other premium (if any), interest,
obligations, liabilities, costs and expenses referred to in clauses (i) through
(iv) above are collectively referred to as the "GUARANTEED OBLIGATIONS" and the
----------------------
obligations of Holdings under this SECTION 9 are in this SECTION 9 sometimes
referred to as "THIS GUARANTY" and in other Sections of this Agreement are
---- --------
sometimes referred to as the "HOLDINGS GUARANTY." This Guaranty is an absolute,
------------------
irrevocable, unconditional, present and continuing guaranty of payment and
performance and not of collectibility, and is in no way conditioned or
contingent upon any attempt to collect from the Company or any other Person or
upon any other action, occurrence or circumstances whatsoever. In the event
that the Company shall fail to pay, or perform punctually, when due, whether or
not such failure or inability shall constitute an Event of Default, any of the
Guaranteed Obligations, Holdings shall, so often as any such default happens,
immediately pay the same forthwith or perform such term, condition, agreement or
obligation, without demand, presentment, protest or notice of any kind
whatsoever. All payments made by Holdings under this Guaranty shall be made in
compliance with this Agreement, including without limitation, SECTION 15, and
Holdings shall reimburse each holder of Notes, upon demand, for all of such
holder's costs and expenses of collection from, and enforcing compliance with
the terms of this Agreement by, the Company. This Guaranty shall be
subordinated to the Senior Holdings Debt in accordance with SECTION 7 of this
Agreement.
9.2. WAIVER. Holdings hereby unconditionally waives (a) notice of
------ -
acceptance of this Guaranty and notice of any liability to which this Guaranty
may apply, (b) diligence, presentment, demand of payment, protest, notice of
-
dishonor or nonpayment of any such
44
<PAGE>
liability, suit or taking of other action by any holder of any Note or any other
Person against, and any other notice to, any party liable in respect of the
Guaranteed Obligations, (c) notice of any events, circumstances or matters
-
described in SECTION 9.3 or 9.4 and all other notices whatsoever, including,
without limitation, any notice which may be required by statute, regulation,
rule of law or otherwise to preserve intact any right, power, privilege or
remedy of a holder of any Notes against Holdings, (d) any requirement that any
-
holder of the Notes investigate the financial condition or affairs of the
Company or advise Holdings of any fact respecting, or any change in, the
financial condition or affairs of the Company which might come to the attention
of any holder of the Notes at any time, whether or not any such holder of the
Notes knows or believes that any such fact or change is unknown to Holdings or
increases or may increase the risk of Holdings hereunder in respect of the
Guaranteed Obligations or any of them, (e) any requirement that any holder of
-
the Notes exhaust any right, power, privilege or remedy or proceed against the
Company under this Agreement, the Notes or any other agreement or instrument
referred to herein or therein or otherwise, or protect, secure, perfect or
insure any security interest or Lien on any property subject thereto or exhaust
any right or take any action against the Company or any other Person under or in
respect of any other guarantee of, or any collateral security for, any of the
Guaranteed Obligations, (f) any requirement that the holder of any Note mitigate
-
damages, (g) any release of Holdings from its obligations hereunder resulting
-
from any loss by it of its rights of subrogation, and (h) any other event,
-
circumstance or matter (other than payment and performance in full of the
Guaranteed Obligations, in accordance with the terms of this Agreement or the
Notes) that would constitute a legal or equitable discharge or defense of a
guarantor or a surety, it being the intent hereof that (other than as aforesaid)
the obligations of Holdings hereunder shall be absolute, irrevocable and
unconditional under any and all circumstances.
9.3. Obligations Unaffected. Holdings acknowledges, consents and
----------------------
agrees that any holder of the Notes may, at any time and from time to time,
without the consent of, or notice to, Holdings, without incurring responsibility
to Holdings and without impairing, diminishing, discharging, releasing,
suspending, prejudicing or terminating the obligations of Holdings under this
Guaranty, upon or without any terms or conditions and in whole or in part, take
or refrain from taking (either directly or indirectly) any and all actions with
respect to the Guaranteed Obligations or any of them (including, without
limitation, pursuant to this Agreement, the Notes or this Guaranty), any
collateral security at any time granted or received for any of the Guaranteed
Obligations, or any Person (including the Company) that such Noteholder
determines in its sole discretion to be necessary or appropriate whether or not
such action or refraining from acting varies or increases the risk of, or
affects the rights, powers, privileges and remedies of, Holdings, including,
without limitation:
(a) any extension or indulgence in respect of the payment or
performance of any Guaranteed Obligation under this Agreement or the Notes;
(b) any renewal, extension, refunding, amendment or modification of or
addition or supplement (whether material or otherwise) to or deletion or
waiver, consent, settlement, compromise, release, forbearance or departure
from any of the terms of this Agreement, the Notes or any other agreement
which may be made relating to any of such instruments or the Guaranteed
Obligations (except that the obligations of Holdings shall
45
<PAGE>
apply to this Agreement, the Notes or such other agreement as so renewed,
extended, refunded, amended, modified, waived, compromised, released or
supplemented);
(c) any exercise or non-exercise by any holder of Notes of any right,
power, privilege or remedy under or in respect of this Agreement or the
Notes or receipt of any additional collateral security, or any sale,
exchange, surrender, release, discharge, failure to perfect, loss,
abandonment or alteration of or in or dealing with any collateral security
by whomsoever at any time pledged or mortgaged to secure, or however
securing, the Guaranteed Obligations or any liabilities incurred directly
or indirectly in respect thereof or hereof; or
(d) any release or substitution of any one or more endorsers,
guarantors, the Company or other obligors.
9.4. Absolute and Unconditional Nature of Obligations. Holdings
------------------------------------------------
acknowledges, consents and agrees that its obligations under this Guaranty
constitute a present and continuing guaranty of payment and performance and not
of collection and shall apply to all the Guaranteed Obligations whenever
arising, are primary, absolute and unconditional, are exclusive and independent
of any security for or other guaranty of the Guaranteed Obligations, are not
subject to any counterclaim, set-off, deduction or defense based upon any claim
Holdings, the Company or any other Person may have or assert (other than, to the
extent thereof, prior payment and performance of such Guaranteed Obligations
under this Agreement or the Notes strictly in accordance with the terms hereof
and thereof) and shall remain in full force and effect without regard to, and
shall not be impaired, diminished, discharged, released, suspended, prejudiced,
terminated or otherwise affected by, any matter, event, circumstance or
occurrence whatsoever (whether or not Holdings shall have any knowledge or
notice thereof), including, without limitation:
(a) any action or inaction by any holder of Notes as contemplated in
SECTION 9.3; or
(b) any limitation on or discharge or release of the liability of the
Company, or in the method or terms of payment, under this Agreement or the
Notes which may now or hereafter be imposed by any statute, regulation or
rule of law, or any invalidity, irregularity or unenforceability of all or
part of this Agreement (including this Guaranty), the Notes or any other
agreement or instrument referred to herein or therein or the obligations of
the Company (or either of them) under this Agreement or the Notes and of
any collateral security therefor; or
(c) any voluntary or involuntary bankruptcy, insolvency,
reorganization, administration, arrangement, adjustment, composition,
liquidation, winding-up, dissolution, or the like of Holdings or any other
Person, or the properties or creditors of any of them; or
46
<PAGE>
(d) any merger or consolidation of Holdings with or into any other
Person, or any sale, lease, transfer, contribution or other disposition of
any or all of the assets of Holdings to any other Person; or
(e) any change in the relationship of Holdings to the Company; or
(f) any assignment or other transfer of the Notes or any interest
therein, in this Agreement or in any collateral security at any time
granted or received for the Guaranteed Obligations; or
(g) any failure on the part of the Company for any reason to comply
with or perform any of the terms of any agreement with Holdings; or
(h) any failure to give notice to Holdings of the occurrence of a
Default or an Event of Default; or
(i) any Default or Event of Default; or
(j) any acceleration of the maturity of any Guaranteed Obligations; or
(k) any other matter, event or circumstance (other than payment and
performance in full of the Guaranteed Obligations strictly in accordance
with the terms of this Agreement or the Notes) that would constitute a
legal or equitable discharge or defense of a guarantor or a surety or which
might otherwise limit recourse against the Company or Holdings.
Holdings further acknowledges, consents and agrees that its obligations under
this Guaranty shall remain in full force and effect until all Guaranteed
Obligations have been paid or performed in full.
9.5. Independent Obligation. The obligations of Holdings hereunder
----------------------
are independent of the obligations of any other guarantor or the Company, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or the Company and
whether or not any other guarantor or the Company be joined in any such action
or actions. Holdings waives, to the fullest extent permitted by law, the benefit
of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Company or other circumstance which
operates to toll any statute of limitations as to the Company shall operate to
toll the statute of limitations as to Holdings.
9.6. Reinstatement. If any claim is ever made upon any holder of
-------------
Notes for repayment or recovery of any amount or amounts received in payment
(whether paid by the Company, Holdings or any other Person) or on account of any
of the Guaranteed Obligations (whether made pursuant to this Agreement
(including this Guaranty) or the Notes or otherwise) and any holder of the Notes
repays or surrenders all or part of said amount by reason of (a) any judgment,
-
decree or Order of any court of any jurisdiction or any Governmental Body having
jurisdiction over such holder of the Notes or any of its property or (b) any
-
settlement or
47
<PAGE>
compromise of any such claim effected by such holder of the Notes with any
Person making any such claim (including the Company, Holdings or any other
Person), then and in such event Holdings agrees that any such judgment, decree,
order, settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of any Note or other instrument evidencing
any liability of the Company or Holdings, and Holdings shall be and remain
liable to such holder of Notes hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by any
such holder of Notes. The provisions of this Section shall survive the
termination of this Agreement.
9.7. Subrogation. In the event Holdings shall at any time pay any
-----------
sums on account of its obligations under this Guaranty or take any other action
in performance of its obligations under this Guaranty, Holdings shall be
subrogated to the rights, powers, privileges and remedies of the holders of the
Notes in respect of such obligations (but shall not for any purpose be deemed a
holder of Notes), provided that Holdings hereby agrees that it shall not seek to
--------
exercise any such rights of subrogation, any right of reimbursement, exoneration
or indemnity whatsoever or any rights of recourse to any security for any of the
obligations under this Agreement or the Notes or otherwise constituting
Guaranteed Obligations, unless and until all Guaranteed Obligations shall have
been indefeasible paid in full in cash and duly and fully performed.
9.8. Acceleration, etc. As between Holdings, on the one hand, and
-----------------
the holders of the Notes, on the other hand, the obligations of the Company
under this Agreement and under the Notes may be declared to be forthwith due and
payable as provided in SECTION 10.1 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said SECTION
10.1) for all purposes of this Guaranty notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing such obligations
from becoming automatically due and payable) as against the Company and, in the
event of such declaration (or in the event of any such obligations being deemed
to have become automatically due and payable), such obligations (whether or not
due and payable by the Company) shall forthwith become due and payable by
Holdings for purposes of this Guaranty.
9.9. Limitation. If in any action or proceeding involving any
----------
corporate law or any bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, the obligations of Holdings
hereunder would otherwise be held or determined to be void, invalid or
unenforceable by reason of the amount of its liability under this Guaranty, then
notwithstanding any other provision of this Guaranty to the contrary, the amount
of such liability shall, without any further action by Holdings or any other
Person, be automatically limited and reduced to the highest amount which is
valid and enforceable as determined in such action or proceeding.
10. EVENTS OF DEFAULT: REMEDIES.
----------------------------
10.1. Events of Default Defined; Acceleration of Maturity. If
---------------------------------------------------
any of the following conditions or events (each herein called an "EVENT OF
--------
DEFAULT") shall occur and be continuing (whatever the reason for such Event of
- -------
Default and whether it shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with judicial or
governmental or administrative order or action or otherwise):
48
<PAGE>
(a) default shall be made in the due and punctual payment to any
Noteholder of all or any part of the principal of, or Yield Maintenance
Amount, if any, on any Note when and as the same shall become due and
payable, whether on a date fixed for prepayment, at stated maturity, by
acceleration or declaration, or otherwise; or
(b) default shall be made in the due and punctual payment of any
interest on any Note when and as such interest shall become due and
payable, and such default shall continue for a period of five days; or
(c) default shall be made in the due performance or observance of any
covenant, provision, agreement or condition contained in SECTION 4(G) or
any of SECTION 6.1, SECTION 6.2 (other than subdivision (b) thereof, as to
which subdivision (d) of this SECTION 10.1 shall apply), and SECTIONS 6.3,
6.4, 6.5 AND 6.7 hereof; or
(d) default shall be made in the due performance or observance of any
other covenant, provision or agreement contained in this Agreement, (other
than any default referred to in any of the other clauses of this SECTION
10.1), and such default shall have continued for a period of 30 days after
the earlier of (x) the date on which any Responsible Officer of Holdings or
the Company first has knowledge of such default and (y) the giving of
notice to Holdings or the Company of such default by any Noteholder or
Noteholders; or
(e) (i) default shall be made in the payment of any principal of or
-
premium or interest on, whether on an interest payment date or on a date
fixed for payment or prepayment, at stated maturity, by acceleration or
declaration or otherwise, under or in respect of any Debt of Holdings or
the Company having a principal amount outstanding in excess of $300,000
(other than the Notes and any Senior Debt), and such default shall continue
beyond the period of grace, if any, provided with respect thereto; or (ii)
--
default shall be made in the due performance or observance of any covenant,
provision, agreement or condition contained in any document evidencing or
providing for the issuance or securing of any such Debt having a principal
amount outstanding in excess of $300,000 (other than the Notes and any
Senior Debt), if the effect of any such default referred to in this clause
(ii) results in the holder or holders of such Debt (or a trustee or agent
on behalf of such holders) causing or being permitted to cause any payment
or payments in respect of any such Debt to become due prior to the
scheduled due date thereof; or
(f) Holdings, the Company or any Subsidiary of the Company shall (i)
-
apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) become insolvent or be generally
--
unable to or shall generally fail or admit in writing its inability to pay
its debts as such debts become due, (iii) make a general assignment for the
---
benefit of its creditors, (iv) commence a voluntary case under the Federal
--
Bankruptcy Code (as now or hereafter in effect), (v) file a petition
-
seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the
49
<PAGE>
enforcement of creditors' rights generally, (vi) acquiesce in writing to,
--
or fail to controvert in a timely or appropriate manner, any petition filed
against it in an involuntary case under such Bankruptcy Code, (vii) take
---
any action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing, or (viii) take any action in furtherance
----
of any of the foregoing; or
(g) a proceeding or case shall be commenced in respect of Holdings,
the Company or any Subsidiary of the Company, without its application or
consent, in any court of competent jurisdiction, seeking (i) the
-
liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a
--
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and such proceeding or
case described in clause (i), (ii) or (iii) shall continue undismissed, or
---
unstayed and in effect, for a period of 60 days, or an order for relief
shall be entered in an involuntary case under the Federal Bankruptcy Code
(as now or hereafter in effect) against the Company and shall continue
undismissed, or unstayed and in effect, for a period of 60 days, or action
under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to Holdings, the Company or
any Subsidiary of the Company and shall continue undismissed, or unstayed
and in effect, for a period of 60 days; or
(h) a final judgment or decree for the payment of money shall be
rendered by a court of competent jurisdiction against the Company or any
Subsidiary of the Company which, either alone or together with all other
outstanding judgments or decrees against the Company or any Subsidiary of
the Company, shall aggregate more than $500,000 (exclusive of amounts
covered by insurance as to which the applicable insurer has acknowledged
coverage), and (x) such judgment shall remain undischarged and unstayed for
-
a period of more than 90 days or (y) any enforcement proceeding shall have
-
been commenced (and not stayed) by any creditor or upon such judgment; or
(i) any representation or warranty made by Holdings or the Company in
this Agreement or in the materials listed on SCHEDULE V or in any writing
furnished to you after the Closing Date pursuant to this Agreement in
connection with the transactions contemplated hereby shall prove to have
been false or incorrect or breached in any material respect on the date as
of which made; or
(j) any of the Transaction Documents (other than this Agreement) to
which Holdings or the Company, as the case may be, is party, at any time
and for any reason, shall not be or shall cease to be valid, binding and
enforceable against Holdings or the Company, as the case may be, or
Holdings or the Company, as the case may be, shall contest or deny the
validity or enforceability of any of the Transaction Documents (other than
this Agreement) to which it is a party or shall disaffirm or repudiate any
of their respective obligations thereunder; or
(k) the Company shall lose its rights to the "Farm Journal" trademark
or trade name; or
50
<PAGE>
(1) an event of default or (other than at maturity or at the option of
the Company) right of termination of commitment shall exist under any
agreement or instrument evidencing or relating to Senior Debt and such
Senior Debt is declared immediately due and payable as a result thereof; or
(m) (i) any Company Group Member shall fail to pay when due any amount
-
which it shall have become liable to pay to the PBGC or to a Plan under
Title IV of ERISA; (ii) any Company Group Member shall withdraw from a
--
Multiple Employer Plan during a plan year in which it is a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or shall
be treated as having so withdrawn under Section 4062(e) of ERISA, or any
Multiple Employer Plan shall be terminated; (iii) notice of intent to
---
terminate a Plan or Plans shall be filed under Title IV of ERISA by any
Company Group Member, any plan administrator or any combination of the
foregoing; (iv) the PBGC shall institute proceedings under Title IV of
--
ERISA to terminate or to cause a trustee to be appointed to administer any
Plan or Plans; (v) any Company Group Member shall withdraw from any
-
Multiemployer Plan; (vi) any Plan shall have an Unfunded Current Liability;
--
or (vii) any prohibited transaction (within the meaning of Section 406 of
---
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
shall occur which may subject any Company Group Member to any liability
under Section 406, 409, 502(i) or 502(1) of ERISA or Section 4975 of the
Code, or under any agreement or other instrument pursuant to which such
Company Group Member has agreed or is required to indemnify any Person
against any such liability; and there shall result from any such event or
events referred to in the foregoing clauses (i) through (vii) a risk of
incurring a liability on the part of any Company Group Member which would
have a Material Adverse Effect;
then (A) upon the occurrence on any date of any Event of Default described in
-
subdivision (f) or (g) of this Section with respect to the Company, the unpaid
principal amount of all Notes, together with the interest accrued thereon in
accordance with the terms thereof and hereof (which interest shall be deemed
matured), plus (to the extent permitted by applicable law) the Modified Yield
Maintenance Amount shall automatically become immediately due and payable,
without presentment, demand, protest, notice of intention to accelerate, notice
of acceleration, or other requirements of any kind, all of which are hereby
expressly waived by the Company, and (B) upon the occurrence on any date or
-
during the continuance of any other Event of Default, the Requisite Holders may,
by written notice to the Company, declare the unpaid principal amount of all
Notes to be, and the same shall forthwith become, due and payable, together with
the interest accrued thereon in accordance with the terms thereof and hereof
(which interest shall be deemed matured), plus (to the extent permitted by
applicable law) the Modified Yield Maintenance Amount (determined as of the date
of such declaration in respect of such principal amount of Notes), without
presentment, demand, protest, notice or other requirements of any kind, all of
which are hereby expressly waived by the Company; provided that, upon the
--------
occurrence on any date or during the continuance of an Event of Default
described in clause (a) or (b) of this Section with respect to any Note, the
holder of such Note may, by written notice to the Company, declare the unpaid
principal amount of such Note to be, and the same shall forthwith become, due
and payable, together with the interest accrued thereon in accordance
51
<PAGE>
with the terms thereof and hereof (which interest shall be deemed matured), plus
(to the extent permitted by applicable law) the Modified Yield Maintenance
Amount (determined as of the date of such declaration in respect of such
principal amount of such Note), without presentment, demand, protest, notice or
other requirements of any kind, all of which are hereby expressly waived by the
Company. If any Noteholder shall exercise the option specified in the proviso to
the preceding sentence, the Company will forthwith give written notice thereof
to the holders of all other outstanding Notes and each such Noteholder may
(whether or not such notice is given or received), by written notice to the
Company, declare the principal amount of all Notes held by it to be, and the
same shall forthwith become, due and payable, together with interest accrued
thereon in accordance with the terms thereof and hereof (which interest shall be
deemed matured), plus (to the extent permitted by applicable law) the Modified
Yield Maintenance Amount (determined as of the date of such declaration in
respect of such principal amount of such Notes), without presentment, demand,
protest, notice or other requirements of any kind, all of which are hereby
expressly waived by the Company.
10.2. Default Remedies. If any Event of Default shall have occurred
----------------
and be continuing, any Noteholder may proceed to protect and enforce its rights
under this Agreement or such Note, either by suit in equity or by action at law
or both, whether for specific performance of any covenant or agreement contained
in this Agreement or in aid of the exercise of any power granted in this
Agreement, or such Noteholder may proceed to enforce the payment of all sums due
upon such Note or under this Agreement or to enforce any other legal or
equitable right available to such Noteholder. The Company covenants that if the
Company shall default in the making of any payment due under any Note or if it
shall default in the performance or observance of any covenant or agreement
contained in this Agreement it will pay to each Noteholder such further amounts,
to the extent lawful, as shall be sufficient to pay the reasonable costs and
expenses of collection or of otherwise enforcing such Noteholder's rights,
including reasonable fees and disbursements of counsel to the Noteholders. The
obligations of the Company pursuant to the immediately preceding sentence shall
survive the transfer or payment in full of the Notes.
10.3. Remedies Cumulative. No remedy herein conferred upon you or
-------------------
any Noteholder is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
10.4. Remedies Not Waived. No course of dealing between the
-------------------
Partnership, Holdings or the Company and you or any Noteholder and no delay or
failure in exercising any rights hereunder or under any Note or any Transaction
Document in respect thereof shall operate as a waiver of or otherwise prejudice
any of your rights or the rights of any other Noteholder.
10.5. Annulment of Acceleration of Notes. The provisions of SECTION
----------------------------------
10.1 are subject to the condition that if the principal of, Modified Yield
Maintenance Amount, if any, and accrued interest on all Outstanding Notes shall
have been declared immediately due and payable (other than by reason of an Event
of Default of the character described in clause (f) or (g) of SECTION 10.1), the
Requisite Holders may, by written instrument filed with the Company, rescind
52
<PAGE>
and annul such declaration and the consequences thereof; provided, however, that
at the time such declaration is rescinded and annulled:
(a) no judgment or decree shall have been entered for the payment of
any money due pursuant to the Notes or this Agreement;
(b) all arrears of principal, Yield Maintenance Amount, if any, and
interest upon all of the Notes and all other sums payable under the Notes
and under this Agreement (including costs and expenses of the Noteholders
incurred in connection with such notice under SECTION 10.1 and the exercise
of remedies under SECTION 10.2, but excluding any principal or interest or
Modified Yield Maintenance Amount which has become due and payable solely
by reason of such notice under SECTION 10.1) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
remedied or waived pursuant to SECTION 14 or otherwise made good or cured;
and provided, further, that no such rescission and annulment shall extend to or
-------- -------
affect any subsequent Default of Event of Default or impair any right consequent
thereon.
11. DEFINITIONS AND CONSTRUCTION.
-----------------------------
11.1. Defined Terms. Except as otherwise specified, the
-------------
following terms have the respective meanings indicated below whenever used in
this Agreement (terms defined in the singular to have a correlative meaning when
used in the plural and vice versa):
---- -----
ACQUISITION: as defined in SECTION 2.6(B).
-----------
ACQUISITION DOCUMENTS: the Stock Purchase Agreement and the
---------------------
Assignment Agreement.
ADJUSTED CONSOLIDATED NET INCOME: for any period, Consolidated
--------------------------------
Net Income for such period plus the sum of all MS Payments made during the
----
period from and including the Closing Date to and including the second
anniversary of the Closing Date, to the extent such MS Payments were deducted in
calculating Consolidated Net Income for such period.
AFFILIATE: with respect to any designated Person, any other
---------
Person (a) directly or indirectly, through one or more intermediaries,
controlling or controlled by or under direct or indirect common control with
such designated Person, (b) which beneficially owns or holds 5% or more of the
shares of any class of voting stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of such designated Person, (c)
5% or more of any class of the voting stock (or in the case of a Person which is
not a corporation, 5% or more of the equity interest) of which is beneficially
owned or held by such designated Person, or (d) who is an officer or director of
such Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or
53
<PAGE>
cause the direction of the management and policies of such Person, whether
through the ownership of voting stock (or other equity interest) or by contract
or otherwise.
AGREEMENT; THIS AGREEMENT: this Note Purchase Agreement (together
-------------------------
with the Schedules and Exhibits hereto), as from time to time amended, modified
or supplemented in accordance with its terms.
APPLICABLE LAWS: any statute, law, regulation, ordinance, rule,
---------------
judgment, order, decree, permit, approval, concession, grant, franchise,
license, agreement, directive, guideline, policy, requirement or other
governmental restriction or any similar form of decision or determination by, or
any interpretation or administration of the foregoing by, any Governmental Body,
whether now or hereafter in effect (including Environmental Laws, laws
pertaining to land use or zoning restrictions, and building, health, fire, water
and use laws).
APPROVALS: as defined in SECTION 2.9.
---------
ASSIGNMENT AGREEMENT: as defined in SECTION 1.1.
--------------------
BLOCKAGE PERIOD: as defined in SECTION 7.4(A).
---------------
BOARD OF DIRECTORS: the board of directors (or committee of persons
------------------
performing similar functions) of the Company having the power and authority to
direct the affairs and management of the Company.
BUSINESS DAY: any day other than a Saturday, Sunday or any other day
------------
on which commercial banks are required or authorized by law or regulation to be
closed in New York, New York.
BUSINESS OR CONDITION: of any Person, the business, operations,
---------------------
assets, properties, earnings, condition (financial or other), or reasonably
foreseeable prospects of such Person, provided that such term, when used without
--------
reference to any particular Person, shall mean the Business and Condition of the
Company and its Subsidiaries taken as a whole.
CAPITAL LEASE: as applied to any Person, any lease (however
-------------
designated) of any property (whether real, personal or mixed) by such Person as
lessee which would, in accordance with GAAP, be required to be classified and
accounted for as a capital lease on the balance sheet of such Person or in the
notes thereto.
CAPITAL LEASE OBLIGATION: as at any date with respect to any Capital
------------------------
Lease, the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee or in the notes
thereto in respect of such Capital Lease.
CHANGE OF CONTROL: the occurrence of any one of the following events
-----------------
prior to an IPO: (i) the MS Group shall fail to own of record and beneficially
at least 51% of the voting stock of the General Partner; (ii) the General
Partner shall cease being the sole general partner of the Partnership; (iii)
persons in the MS Group, together with any then-current spouse or any
54
<PAGE>
lineal descendant (including by adoption and stepchildren) of any member of the
MS Group (collectively, "Family Members") or any trust created for tax purposes
--------------
in favor of any member of the MS Group or any Family Member, shall fail to own
in the aggregate limited partnership interests in the Partnership having a value
(measured by Invested Amounts (as defined in the Partnership Agreement)) of less
than $2,000,000; (iv) 51% of the voting stock of Holdings shall fail to be
owned, of record and beneficially, by the Partnership; or (v) 100% of the voting
stock of the Company shall fail to be owned, of record and beneficially, by
Holdings.
CLOSING: as defined in SECTION 1.5.
-------
CLOSING DATE: as defined in SECTION 1.5.
------------
CLOSING LOAN: the loan (if any) made by a member of the MS Group to
------------
the Partnership on the Closing Date.
CODE: the Internal Revenue Code of 1986, as amended, and any
----
successor statute thereto, as interpreted by the rules and regulations issued
thereunder, in each case as in effect from time to time.
COMMISSION: the Securities and Exchange Commission and any other
----------
similar or successor agency of the Federal government administering the
Securities Act and the Exchange Act.
COMPANY: as defined in the opening paragraph of this Agreement.
-------
COMPANY GROUP MEMBER: the Company, each Subsidiary and each of their
--------------------
respective predecessors.
COMPANY PREMISES: real property in which the Company, any Subsidiary
----------------
or any Person which has been a Subsidiary at any time has or ever had any direct
or indirect interest, including, without limitation, ownership thereof, or any
arrangement for the lease, rental or other use thereof, or the retention or
claim of any mortgage or security interest therein or thereon.
COMPUTATION PERIOD: as defined in SECTION 6.5(B).
------------------
CONSOLIDATED NET INCOME: for any period, the net income (or deficit)
-----------------------
of the Company and its Subsidiaries for such period (taken as a cumulative
whole) determined in accordance with GAAP after eliminating all inter-company
items and after deducting portions of income properly attributable to outside
minority interests, if any, in the stock (or its equivalent) and surplus of any
Subsidiary; provided, however, that there shall in any event be excluded from
-------- -------
Consolidated Net Income:
(a) the income of any other Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Company or
a Subsidiary;
55
<PAGE>
(b) the income of any Person other than a Subsidiary in which the
Company or any Subsidiary has an ownership interest, except to the extent
that such income has been actually received by the Company or such
Subsidiary in the form of cash dividends or similar distributions;
(c) any portion of the net income of a Subsidiary which is unavailable
(whether by law, agreement or otherwise) for the payment of dividends to
the Company or another Subsidiary;
(d) any deferred credit or amortization thereof from the acquisition
of any properties or assets of any Person;
(e) any aggregate net after-tax gain or loss during such period
arising from the sale, exchange or other distribution of capital assets
(such term to include all fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets and all
securities);
(f) any income resulting from any write-up of any assets after the
date hereof;
(g) any gain arising from the acquisition of any securities, or the
extinguishment of any Debt of the Company or any of its Subsidiaries or the
termination of an employee benefit plan;
(h) the net proceeds of any life insurance policy; and
(i) any item properly classified as extraordinary in accordance with
GAAP;
and provided further that, in determining "Consolidated Net Income" for purposes
-------- -------
of this Agreement, there shall not in any event be deducted from Consolidated
Net Income non-cash expenses related to the vesting in certain employees of the
Company of certain equity incentives provided to such employees which non-cash
expenses would, in accordance with GAAP, be required to be recognized by the
Company as an expense at the time of such vesting and deducted from Consolidated
Net Income.
CONSOLIDATED NET WORTH: at any date of determination,
----------------------
(a) the sum of (i) the par value (or value stated on the books of the
Company) of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Company and its Subsidiaries as of
such date plus (ii) the amount of (without duplication) the aggregate
----
liquidation preference of any preferred stock, the paid-in capital and
retained earnings of the Company and its Subsidiaries as of such date, in
each case as such amounts would be shown on a consolidated balance sheet of
the Company and its Subsidiaries as of such date prepared in accordance
with GAAP, minus
-----
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Subsidiaries;
56
<PAGE>
provided, however that, in determining "Consolidated Net Worth" for purposes of
- -------- -------
this Agreement, there shall not in any event be deducted from Consolidated Net
Worth non-cash expenses related to the vesting in certain employees of the
Company of certain equity incentives provided to such employees which non-cash
expenses would, in accordance with GAAP, be required to be recognized by the
Company as an expense at the time of such vesting and deducted from Consolidated
Net Worth.
CURRENT DEBT: as applied to any Person, as of any date of
------------
determination thereof, all Debt of such Person which would be classified upon a
balance sheet of such Person prepared as of such date in accordance with GAAP as
current debt.
DEBT: as applied to any Person, as of any date of determination
----
(without duplication):
(a) all obligations of such Person for borrowed money or evidenced by
bonds, debentures, notes, drafts or similar instruments, or upon which
interest payments are customarily made;
(b) all obligations of such Person for all or any part of the deferred
purchase price of property or services (other than trade accounts payable
and accruals arising in the ordinary course of business) or for the cost of
property constructed or of improvements thereon;
(c) all obligations (whether such Person or of another Person) secured
by any Lien on or payable out of the proceeds of production from property
owned or held by such Person even though such Person has not assumed or
become liable for the payment of any other Person's obligations;
(d) all Capital Lease Obligations of such Person;
(e) all preferred stock issued by such Person which is required by the
terms thereof to be redeemed, or for which mandatory sinking fund payments
are due, by a fixed date;
(f) all obligations of such Person in respect of any letter of credit
facility, bankers' acceptance facility or other similar credit facility;
provided, however, that in no event shall the Company's obligations in
-------- -------
respect of any letter or letters of credit having an aggregate face amount
of not more than $500,000 which secure the obligations of the Company under
any leases by it of real property constitute Debt for purposes of this
Agreement unless and to the extent that any such letter of credit has been
drawn on and remains unreimbursed for more than two Business Days after the
relevant draw date;
(g) all Guaranties by such Person of or with respect to obligations of
the character referred to in the foregoing clauses (a) through (f) of
another Person; and
57
<PAGE>
(h) all other indebtedness, to the extent it would constitute a
liability for borrowed money on a balance sheet of such Person prepared in
accordance with GAAP, exclusive of accounts payable and accrued expenses
arising in the ordinary course of business (including interest, discounts,
fees and expenses on Debt) and also exclusive of commitments for the
purchase of goods and services for which title to the property has not
passed or services have not been rendered;
provided, however, that in determining the Debt of any Person, (i) all
- -------- ------- -
liabilities described in clauses (a) through (h) above for which such Person is
jointly and severally liable with one or more other Persons (including all
liabilities of any partnership or joint venture of which such Person is a
general partner or co-venturer) shall be included at the full amount thereof
without regard to any right such Person may have against any such other Persons
for contribution or indemnity, and (ii) no effect shall be given to deposits,
--
trust arrangements or similar arrangements which, in accordance with GAAP,
extinguish Debt for which such Person remains legally liable; and provided
--------
further, however, that in no event shall the quarterly payments not exceeding
- ------- -------
$800,000 in the aggregate payable by the Company to Tribune on April 15, 1997,
July 15, 1997, October 15, 1997 and December 15, 1997 as reimbursement for the
payment by Tribune of Federal and state income taxes in respect of the Company's
1997 first quarter constitute Debt of the Company for purposes of this
Agreement.
DEFAULT: any condition or event which, with the giving of notice or
-------
the passage of time or both, would constitute an Event of Default.
EBITDA: for any period, the sum of (a) Consolidated Net Income for
------
such period, plus (to the extent deducted in determining such Consolidated Net
----
Income) (b) all provisions for any Federal, state or local income and other
taxes or taxes determined by reference to income made by the Company during such
period, plus (c) all provisions for depreciation and amortization (other than
----
amortization of debt discount, if any) made by the Company during such period,
plus (d) Interest Expense for such period, plus (e) restructuring charges and
- ---- ----
plus (f) dividends actually received by the Company from its Subsidiaries.
- ----
ENVIRONMENTAL CLAIMS: as defined in SECTION 8.24.
--------------------
ENVIRONMENTAL LAW: any past, present or future Federal, state, local
-----------------
or foreign statutory or common law, and any regulation, ordinance, code, plan,
Order, permit, grant, franchise, concession, restriction, injunction or
agreement issued, entered, promulgated or approved thereunder, relating to (a)
-
the environment, human health or safety, including spills, emissions,
discharges, releases or threatened releases of Hazardous Materials into the
environment, or (b) the presence, manufacture, generation, refining, processing,
-
distribution, use, sale, treatment, receipt, storage, disposal, transport,
arranging for transport, treatment or disposal of, or handling of or any other
activity involving Hazardous Materials or the effects thereof.
ENVIRONMENTAL PERMITS: collectively, any and all permits, consents,
---------------------
licenses, approvals, certifications, authorizations, determinations and
registrations of any nature at any time required pursuant to or in order to
comply with any Environmental Law.
58
<PAGE>
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
EVENT OF DEFAULT: as defined in SECTION 10.1.
----------------
EXCHANGE ACT: the Securities Exchange Act of 1934, or any similar
------------
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same may be in effect from time to time.
GAAP: generally accepted accounting principles as from time to time
----
set forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and in statements by the Financial
Accounting Standards Board or in such opinions and statements of such other
entities as shall be approved by a significant segment of the accounting
profession in the United States of America.
GENERAL PARTNER: as defined in SECTION 1.1.
---------------
GOVERNMENTAL BODY: any Federal, state, municipal, local or other
-----------------
governmental department, commission, board, bureau, agency, instrumentality,
political subdivision or taxing authority of any country.
GUARANTEED OBLIGATIONS: as defined in SECTION 9.1.
----------------------
GUARANTY: as applied to any Person, all obligations of such Person
--------
guaranteeing or in effect guaranteeing any Debt, lease, dividend or other
obligation (contingent or otherwise) of another, including any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business) or discounted or sold with recourse
by such Person, including any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to (a) purchase,
-
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or (b) maintain the solvency or any balance sheet or other financial condition
-
of the obligor of such obligation, or (c) make payment for any products,
-
materials or supplies or for any transportation or services regardless of the
non-delivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss in
respect thereof.
HAZARDOUS MATERIALS: collectively, those substances included within
-------------------
the definitions of "hazardous substances," "hazardous materials," "toxic
substances," "pollutants," "contaminants" or "solid waste" in the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. (S)
9601 et seq.), as amended by Superfund Amendments and Reauthorization Act of
-- ----
1986 (Pub. L. 99-499 100 Stat. 1613), the Resource Conservation
59
<PAGE>
and Recovery Act of 1976 (42 U.S.C. (S) 6901 et seq.) and the Hazardous
-- ---
Materials Transportation Act, (49 U.S.C. (S) 1801 et seq.), or any similar state
-- ---
or local laws, and in the regulations promulgated pursuant to said laws, all as
amended; and in any event shall include radioactive materials, petroleum and
petroleum products, medical wastes, infectious wastes, asbestos, paint
containing lead or mercury, and urea formaldehyde.
HOLDINGS: as defined in the opening paragraph of this Agreement.
--------
HOLDINGS CLASS B COMMON STOCK: shares of Class B Common Stock, par
-----------------------------
value $0.01 per share, of Holdings.
HOLDINGS GUARANTY: as defined in SECTION 1.2(B).
-----------------
INTEREST EXPENSE: for any period, the sum (without duplication) of
----------------
the following (in each case, after eliminating all offsetting debits and credits
between the Company and its Subsidiaries): (a) the aggregate amount of all
interest, without duplication, paid or accrued during such period in respect of
all Debt of the Company and its Subsidiaries (including, without limitation,
imputed interest on Capital Lease Obligations owed to any Person other than the
Company or its Subsidiaries), plus (b) all other items included as interest
expense of the Company and its Subsidiaries during such period in accordance
with GAAP.
INVESTMENT: as applied to any designated Person, any direct or
----------
indirect purchase or other acquisition by such designated Person for cash or
other property of stock, debt or other securities of any other Person, or any
direct or indirect loan, advance, extension of credit or capital contribution by
such designated Person to any other Person or any Guaranty by such designated
Person with respect to the Debt of such other Person, including all Debt of such
other Person and accounts receivable from such other Person other than any such
Debt of or accounts receivable from such other Person which constitute current
assets of such designated Person or which arise from sales to such other Person
in the ordinary course of business. In computing the amount involved in any
Investment, (i) undistributed earnings of, and interest accrued in respect of
-
Debt owing by, any such other Person accrued after the date of such Investment
shall not be included, (ii) there shall not be deducted from the amounts
--
invested in any such other Person any amounts received as earnings (in the form
of dividends, interest or otherwise) on such Investment or as loans from such
other Person, and (iii) unrealized increases or decreases in value, or write-
---
ups, write-downs or write-offs, of Investments in any such other Person or in
respect of any such property shall be disregarded.
IPO: a firm commitment, underwritten initial public offering of any
---
IPO Shares pursuant to a registration statement on Form S-1 that has been
declared effective in accordance with the Securities Act.
IPO SHARES: the class of capital stock of the Company or capital
----------
stock of Holdings that is held directly or indirectly by the Partnership and is
offered in the IPO and any rights, options or warrants to purchase IPO shares.
JUNIOR DEBT: as defined in SECTION 7.2.
-----------
60
<PAGE>
LICENSES: as defined in SECTION 8.20.
--------
LIEN: as to any Person, any mortgage, lien (statutory or other),
----
pledge, assignment, hypothecation, adverse claim, charge, security interest or
other encumbrance in or on, or any interest or title of any vendor, lessor,
lender or other secured party to or of such Person under any conditional sale,
trust receipt or other title retention agreement or lease with respect to, any
property or asset of such Person, or the signing or filing of a financing
statement which names such Person as debtor, or the signing of any security
agreement authorizing any other party as the secured party thereunder to file
any financing statement which names such Person as debtor. For purposes of this
Agreement, a Person shall be deemed to be the owner of any property which it has
placed in trust for the benefit of holders of indebtedness of such Person which
indebtedness is deemed to be extinguished under GAAP but for which such Person
remains legally liable, and such trust shall be deemed to be a Lien.
LIMITED PARTNER: as defined in the Partnership Agreement.
---------------
MATERIAL ADVERSE CHANGE; MATERIAL ADVERSE EFFECT; MATERIALLY ADVERSE:
------------------------------------------------- ------------------
in, on or to, as appropriate, any Person, a material adverse change in such
Person's Business or Condition, a material adverse effect on such Person's
Business or Condition or an event which is materially adverse to such Person's
Business or Condition; provided that (a) any such term, when used without
-------- -
reference to a particular Person, shall mean such change in, effect on or event
materially adverse to the Company and its Subsidiaries, taken as a whole and (b)
-
any material impairment of the ability of the Company to pay the principal of,
or the Yield Maintenance Amount, if any, and interest on, the Notes in
accordance with the terms thereof and hereof, any material impairment of the
ability of the Company to perform its other obligations under the Notes, this
Agreement, or the Transaction Documents to which it is a party, or any
circumstance or occurrence which would impair the enforceability as against the
Company of this Agreement, the Transaction Documents to which it is a party, or
the Notes, shall in any case be deemed to have resulted in a material adverse
change in, to have a material adverse effect on, and to be materially adverse
to, the Company's Business or Condition.
MATERIAL TRADEMARKS: as defined in SECTION 8.20.
-------------------
MODIFIED YIELD MAINTENANCE AMOUNT: with respect to any Note, the
---------------------------------
Yield Maintenance Amount with respect to such Note determined in accordance with
the definition of such term, provided that, for purposes of calculating the
--------
Modified Yield Maintenance Amount, the reference to "50 basis points" contained
in the second line of the definition of "Reinvestment Yield" contained in the
definition of "Yield Maintenance Amount" shall be deemed to be a reference to
"100 basis points".
MORGAN SCHIFF: Morgan Schiff & Co., Inc. and any successor entity
-------------
thereof controlled by the members of the MS Group as of the Closing Date.
61
<PAGE>
MS GROUP: the persons who are principals, associates or employees of
--------
or consultants to Morgan Schiff & Co., Inc. on the Closing Date, together with
the principals and employees of Morgan Schiff on any date thereafter so long as
they shall remain in such capacity.
MS PAYMENT: any payment made by the Company to Morgan Schiff or the
----------
Partnership for financial advisory and related services rendered to or on behalf
of the Company.
MULTIEMPLOYER PLAN: a plan defined as such in Section 3 (37) of ERISA
------------------
to which any Company Group Member is making or incurring an obligation to make,
or has made or incurred an obligation to make, contributions.
MULTIPLE EMPLOYER PLAN: a Plan to which any Company Group Member, and
----------------------
at least one employer other than a Company Group Member, is making or incurring
an obligation to make contributions or has made or incurred an obligation to
make contributions.
NET WORTH MINIMUM: as defined in SECTION 6.1(B).
-----------------
NOTE REGISTER: as defined in SECTION 12.1.
-------------
NOTEHOLDER: a registered holder of Notes.
----------
NOTES: as defined in SECTION 1.2(A).
-----
OBLIGOR: as defined in SECTION 7.2.
-------
OFFERING MEMORANDUM: as defined in SECTION 8.7.
-------------------
OFFICERS' CERTIFICATE: of any Person, a certificate executed on
---------------------
behalf of such Person by two of its officers, one of whom shall be its Chairman
of the Board of Directors (if an officer), its Chief Executive Officer, Chief
Operating Officer, President, or one of its Vice Presidents, and the other of
whom shall be its Treasurer, Chief Financial Officer or Controller.
ORDER: any order, writ, injunction, decree, judgment, award,
-----
determination, direction or demand of a court, arbitrator, administrative agency
or other Governmental Body.
OUTSTANDING: when used with reference to the Notes as of a particular
-----------
time, all Notes theretofore issued as provided in this Agreement, except (a)
-
Notes theretofore reported as lost, stolen, damaged or destroyed, or surrendered
for transfer, exchange or replacement, in respect of which replacement Notes
have been issued, (b) Notes theretofore paid in full, and (c) Notes theretofore
- -
canceled by the Company or delivered to the Company for cancellation; provided,
--------
however, that, for the purpose of determining whether Noteholders of the
- -------
requisite principal amount of the Notes have made or concurred in any amendment,
waiver, consent, approval, declaration, notice or other communication under this
Agreement, Notes owned by the Company or any Affiliate thereof shall not be
deemed to be Outstanding.
62
<PAGE>
OVERDUE RATE: a per annum rate of interest equal to the greater of
------------
(a) the sum of the per annum rate of interest from time to time announced by
-
Chase Bank at its principal office in New York, New York as the prime commercial
lending rate, plus 2.00%, and (b) 11.50% Interest at the Overdue Rate shall be
---- -
computed on the basis of actual days elapsed over a year of 365 days.
PARTNERSHIP: MS Farm International Limited Partnership, a Delaware
-----------
limited partnership.
PARTNERSHIP AGREEMENT: as defined in SECTION 2.10.
---------------------
PBGC: the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA and any successor thereof.
PERMITTED WORKING CAPITAL DEBT: as of any date of determination,
------------------------------
Current Debt of the Company outstanding on such date, the proceeds of which are
used by the Company for working capital and for no other purpose, provided that
--------
there shall have been during the immediately preceding twelve-month period a
period of at least 30 consecutive days on each of which there shall have been no
such Current Debt outstanding.
PERSON: any individual, corporation, association, partnership,
------
limited liability company, joint venture, trust or estate, organization,
business, government or agency or political subdivision thereof, or any other
entity.
PLAN: any employee pension benefit plan (as defined in Section 3(2)
----
of ERISA) maintained or contributed to at any time by any Company Group Member.
PREPAYMENT ELECTION NOTICE: as defined in SECTION 6.9.
--------------------------
PROCEEDING: as defined in SECTION 7.2.
----------
PRO FORMA BALANCE SHEET: as defined in SECTION 2.12.
-----------------------
PROJECTIONS: as defined in SECTION 8.7.
-----------
QUALIFIED TRANSACTION: any consolidation or merger of the Company
---------------------
with or into any other Person (if such other Person is the continuing or
surviving entity), or any sale of the Company or by the Company of all or
substantially all of its assets to any other Person, if your share of the
distributable Partnership proceeds in respect of such consolidation, merger or
sale shall be at least equal to 120% (after giving effect to the General
Partner's interest in distributions made with respect to your Limited Partner
interest) of your original Capital Contribution (as defined in the Partnership
Agreement).
REPORTABLE EVENT: any of the events set forth in Section 4043(c) of
----------------
ERISA or the regulations thereunder.
63
<PAGE>
REPORTING ENTITY: as defined in SECTION 4.
----------------
REQUIRED PREPAYMENT DATE: as defined in SECTION 3.1.
------------------------
REQUISITE HOLDERS: at any time, the holders of at least 66-2/3% in
-----------------
aggregate principal amount of the Notes at the time Outstanding.
RESPONSIBLE OFFICER: of any of Holdings or the Company (as the case
-------------------
may be), the Chief Executive Officer, the Chief Operating Officer, the
President, any Senior Vice President, the Chief Financial Officer, the
Treasurer, the Comptroller, the Assistant Treasurer, the General Counsel of such
entity (if an officer or employee of such entity), and any other officer or
employee of such entity who shall at any time hereafter perform substantially
the same duties as are performed on the date hereof by any such officer or
employee or who shall have the responsibility of monitoring compliance by any of
such entities with the terms hereof.
RESTRICTED PAYMENT: any payment or distribution or the incurrence of
------------------
any liability to make any payment or distribution, in cash, property or other
assets (other than shares of any class of capital stock (other than preferred
stock) of the Company) upon or in respect of any shares of any class of capital
stock of the Company or any warrants, rights or options evidencing a right to
purchase or acquire any securities of the Company, including, without limiting
the generality of the foregoing, payments or distributions as dividends and
payments or distributions for the purpose of purchasing, acquiring, retiring or
redeeming any such shares of stock or similar interests or other securities or
any warrants, rights or options to purchase or acquire any such securities or
making any other distribution in respect of any such shares of stock or similar
interests or other securities (or any warrants, rights or options evidencing a
right to purchase or acquire any such shares of stock). Notwithstanding the
foregoing, in no event shall any payment or distribution by the Company of
amounts required to satisfy the consolidated federal income tax liability of the
affiliated group of which the Company is a member and Holdings is the common
parent constitute a Restricted Payment for purposes of this Agreement so long
as, subject to the effect of reasonably calculated payments of estimated tax (it
being understood that any excess of such estimated tax payments for any taxable
period over the payment limitation described below for such period will be
returned to the Company), the amount paid by the Company and its Subsidiaries
pursuant to any such tax sharing or tax allocation arrangement for any taxable
period shall not exceed the excess of the aggregate tax liability, including
interest and penalties, if any, of the Company and its Subsidiaries for such
period and all prior periods with respect to which the Company and such
Subsidiaries filed consolidated federal income tax returns with Holdings
(calculated as if the Company, together with such Subsidiaries, had been filing
on a consolidated return basis as a separate affiliated group for the then
current taxable period and all prior periods and after giving effect to the
adjustments contemplated by Treas. Reg. (S) 1.1552-l(a)(2)(ii)(a)-(i)) over the
net amount paid or distributed (with appropriate adjustment for tax refunds from
the government not yet received) by the Company and its Subsidiaries pursuant to
this sentence for all taxable periods ending prior to the beginning of the then
current taxable period with respect to which the Company and such Subsidiaries
filed consolidated federal income tax returns with Holdings; provided, however,
-------- -------
that similar principles shall apply for state, local and foreign income and
franchise tax purposes
64
<PAGE>
where tax liability is determined on a unitary basis or reportable on a combined
or consolidated return involving more than one corporation.
SECURITIES ACT: the Securities Act of 1933 and the rules and
--------------
regulations of the Commission thereunder, all as the same may be in effect from
time to time.
SENIOR COMPANY DEBT: as defined in SECTION 7.2.
-------------------
SENIOR DEBT: as defined in SECTION 7.2.
-----------
SENIOR HOLDINGS DEBT: as defined in SECTION 7.2.
--------------------
SIGNIFICANT DEFAULT: as defined in SECTION 7.2.
-------------------
STOCK PURCHASE AGREEMENT: as defined in SECTION 1.1.
------------------------
SUBSIDIARY: with respect to any Person, any corporation or other
----------
Person more than 50% of the Equity Interest of which is at the time owned by
such Person and/or one or more of its other Subsidiaries. Unless otherwise
specified, any reference to a Subsidiary in this Agreement is intended as a
reference to a Subsidiary of the Company.
SUCCESSOR: as defined in SECTION 6.7(D).
---------
SUCCESSOR TRANSACTION: as defined in SECTION 6.7(D).
---------------------
SUPPLEMENT: as defined in SECTION 8.7.
----------
TERMINATION EVENT: (a) with respect to any Plan, the occurrence of a
----------------- -
Reportable Event or an event described in Section 4062(e) of ERISA, or (b) the
-
withdrawal of any Company Group Member from a Multiple Employer Plan during a
plan year in which it was a substantial employer (as such term is defined in
Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan, or
(c) the distribution of a notice of intent to terminate a Plan or Multiemployer
-
Plan pursuant to Section 4041(a)(2) or 4041A of ERISA or the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or (d) the
-
institution of proceedings to terminate a Plan or Multiemployer Plan by the PBGC
under Section 4042 of ERISA, or (e) any other event or condition which might
-
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or Multiemployer Plan or (f)
-
the complete or partial withdrawal of any Company Group Member from a
Multiemployer Plan.
TOTAL DEBT: as of any date of determination, all Debt of the Company
----------
and its Subsidiaries outstanding on such date, determined on a consolidated
basis in accordance with GAAP, after eliminating all intercompany items.
TOTAL INCLUDED DEBT: as of any date of determination, Total Debt on
-------------------
such date less not in excess of $3,500,000 in aggregate principal amount of
-----
Permitted Working Capital
65
<PAGE>
Debt outstanding on such date, and less, if such date of determination occurs
----
prior to April 1, 1998, the aggregate principal amount outstanding of the Notes.
TRANSACTION DOCUMENTS: this Agreement, the Notes and the Acquisition
---------------------
Documents.
TRANSFEREE BANK: as defined in SECTION 2.15.
---------------
TRIBUNE: as defined in SECTION 1.1.
-------
UNFUNDED CURRENT LIABILITY: of any Plan means the amount, if any, by
--------------------------
which the present value of the accrued benefits under such Plan (based on those
assumptions used to fund such Plan) as of the close of its most recent plan year
exceeds the then current value of the assets of such Plan allocable to such
benefits.
WHOLLY-OWNED SUBSIDIARY: any corporation or other Person all of the
--------------------------
outstanding shares of capital stock and other equity securities of any class or
classes of which is at the time owned beneficially and of record by the Company
or another Wholly-Owned Subsidiary.
YIELD MAINTENANCE AMOUNT: with respect to any Note, an amount equal
------------------------
to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Yield Maintenance Amount may in no
---------
event be less than zero. For the purposes of determining the Yield Maintenance
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the principal of
----------------
such Note that is to be prepaid pursuant to SECTION 3.2 or has become or is
declared to be immediately due and payable pursuant to SECTION 10.1, as the
context requires.
"Discounted Value" means, with respect to the Called Principal of any
----------------
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
------------------
any Note, 50 basis points over the yield to maturity implied by (i) the
-
yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such Called
Municipal on the display designated as "Gov't PX" on the Bloomberg
Financial Market Services (or, if not available, on such other display as
may replace such display on the Bloomberg Financial Market Services or any
other nationally recognized trading screen reporting on-line intra-day
trading in U.S. Treasury securities) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such yields are
--
66
<PAGE>
not reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for
the latest day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
-
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating on a linear basis between (1) the actively
- -
traded U.S. Treasury security with the duration closest to and greater than
the Remaining Average Life and (2) the actively traded U.S. Treasury
-
security with the duration closest to and less than the Remaining Average
Life.
"Remaining Average Life" means, with respect to any Called Principal,
----------------------
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products
- --
obtained by multiplying (a) the principal component of each Remaining
-
Scheduled Payment with respect to such Called Principal by (b) the number
-
of years (calculated to the nearest one-twelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
----------------------------
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a date
---------
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to SECTION 3.2 or
10.1.
"Settlement Date" means, with respect to the Called Principal of any
---------------
Note, the date on which such Called Principal is to be prepaid pursuant to
SECTION 3.2 or has become or is declared to be immediately due and payable
pursuant to SECTION 10.1, as the context requires.
11.2. Accounting Terms, etc. Except as specifically provided herein,
---------------------
all accounting terms used herein which are not expressly defined in this
Agreement have the meanings given to them in accordance with GAAP and all
computations made pursuant to this Agreement shall be made in accordance with
GAAP. All balance sheets and other financial statements delivered pursuant to
SECTION 4 shall be prepared in accordance with GAAP.
11.3. Construction. Where any provision of this Agreement refers to
------------
actions to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person. The table of contents and section
and other subdivision headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms hereof.
67
<PAGE>
Unless otherwise specified, (a) the word "including" shall mean "including
-
without limitation," whether or not so stated, (b) any reference in this
-
Agreement to a particular section or other subdivision or a particular annex,
exhibit or schedule shall be considered a reference to that section or other
subdivision of, or that annex, exhibit or schedule to, this Agreement, and (c)
-
references contained herein to any other contract or agreement shall be
considered references to such other contract or agreement, as the case may be,
as supplemented, amended or otherwise modified from time to time in accordance
with the terms thereof.
12. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES.
---------------------------------------------
12.1. Note Register. The Company will keep, at its office maintained
------------
pursuant to SECTION 6.20, a register (the "NOTE REGISTER") in which, at its
-------------
expense, it will provide for the registration and registration of transfer of
the Notes.
12.2. Transfer and Exchange. Whenever any Note or Notes shall be
---------------------
surrendered at the office of the Company referred to in SECTION 12.1 for
exchange or for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed by the registered Noteholder of
such Note or Notes or such Noteholder's attorney duly authorized in writing, the
Company will, at its expense, execute and deliver in exchange therefor a new
Note or Notes, as the case may be, in denominations of at least $500,000 (except
that one Note may be issued in a lesser principal amount if the unpaid principal
amount of the surrendered Note is not evenly divisible by, or is less than,
$500,000), as may be requested by such Noteholder or the transferee, in the same
aggregate unpaid principal amount as the aggregate unpaid principal amount of
the Note or Notes so surrendered. Each such new Note shall be made payable to
and registered in the name of the Person or Persons requested by such
Noteholder. Any Note issued in exchange for any other Note or upon transfer
thereof shall carry the rights to unpaid interest and interest to accrue which
were carried by the Note so exchanged or transferred, and neither gain nor loss
of interest shall result from any such transfer or exchange.
12.3. Owners and Noteholders. Subject to the provisions of SECTION
----------------------
15, the Company and any agent of the Company may treat the Person in whose name
any Note is registered as the owner and Noteholder of such Note for the purpose
of receiving payment of the principal of and Yield Maintenance Amount, if any,
and interest on such Note and for all other purposes whatsoever, whether or not
such Note shall be overdue.
13. LOST, ETC., NOTES. Upon receipt by the Company of evidence reasonably
-----------------
satisfactory to it of the loss, theft, destruction or mutilation of any Note,
and (in case of loss, theft or destruction) of indemnity or security in form
reasonably satisfactory to it, or, if mutilated, upon surrender of such Note for
cancellation, the Company will, at its expense, issue and deliver in lieu of
such Note a new Note, of like tenor in a like unpaid principal amount, dated so
that there will be no loss of interest on such lost, stolen, destroyed or
mutilated Note. Notwithstanding the foregoing provisions of this Section, if any
Note of which you or any other institutional Noteholder (or any your or other
Noteholder's nominee), is the owner is lost, stolen or destroyed, then your or
such other Noteholder's (or its nominee's) written statement by an authorized
officer as to such loss, theft or destruction shall be accepted as satisfactory
evidence
68
<PAGE>
thereof, and no indemnity or security shall be required as a condition to the
execution and delivery by the Company of a new Note in lieu of such Note (or as
a condition to the payment thereof, if due and payable) other than your or such
institutional Noteholder's unsecured written agreement, in form and substance
reasonably satisfactory to the Company, to indemnify the Company.
14. AMENDMENT AND WAIVER. (a) Any term, provision, covenant, agreement or
--------------------
condition of this Agreement or the Notes may, with the written consent of the
Company, be amended or modified, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Requisite Holders; provided, that
--------
(i) no such amendment, modification or waiver shall be effective prior
to the Closing without your consent,
(ii) without the consent of all Noteholders of all Notes at the time
outstanding, no such amendment, modification or waiver shall (A) change the
-
principal of, or the rate of interest on, or change the time of payment of
principal of, or Yield Maintenance Amount or Modified Yield Maintenance
Amount, if any, or interest on, any of the Notes, (B) modify any of the
-
provisions of this Agreement or of the Notes with respect to the payment or
prepayment thereof (including amending or modifying the definition of the
term "Yield Maintenance Amount" or "Modified Yield Maintenance Amount" or
any of the terms defined within either of such definitions), (C) change the
-
definition of Requisite Holders or change the percentage of Noteholders
required to accelerate the Notes, (D) modify any provision of SECTION 7 or
-
SECTION 9, or modify any provision of this Section, and
(iii) no such amendment, modification or waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon.
(b) Any amendment, modification or waiver pursuant to this Section
shall apply equally to all Noteholders and shall be binding upon them, upon each
future Noteholder and upon the Company, in each case whether or not a notation
thereof shall have been placed on any Note. Promptly after any amendment,
modification or waiver pursuant to this Section has become effective, the
Company shall deliver to each Noteholder a true and complete copy of the
instruments pursuant to which such amendment, modification or waiver was
effected, signed by the Requisite Holders and setting forth any such amendment
or modification or the terms of any such waiver.
(c) Neither Holdings nor the Company will, and neither Holdings nor
the Company will permit any of its Affiliates, directly or indirectly, to,
solicit, request or negotiate for or with respect to any proposed amendment,
modification or waiver of any of the provisions of this Agreement or the Notes
(including any proposed prepayment which is not in accordance with the
provisions of SECTION 3) unless each Noteholder (irrespective of the amount of
Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient
69
<PAGE>
information to enable it to make an informed decision with respect thereto.
Neither Holdings nor the Company will, and neither Holdings nor the Company will
permit any of its Affiliates, directly or indirectly, to, offer or pay any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any Noteholder or you in order to obtain your or such Noteholder's
consent to any amendment, modification or waiver of any term or provision of
this Agreement or the Notes unless such remuneration is concurrently paid on the
same terms proportionately to each Noteholder of the Notes then Outstanding
regardless of whether or not such Noteholder consents to such amendment,
modification or waiver.
15. DIRECT PAYMENT. Notwithstanding anything to the contrary in this
--------------
Agreement or the Notes, so long as you shall hold any Note, the Company shall
promptly and punctually pay all amounts which become due and payable on such
Note or hereunder to you at your address and in the manner set forth in SCHEDULE
I, or at such other place within the United States of America and in such other
manner as you may designate for the purpose by notice to the Company, each such
payment to be made without presentation or surrender of such Note or the making
of any notation thereon, except that any Note paid or prepaid in full shall,
following such payment or prepayment, be surrendered to the Company for
cancellation, upon its written request therefor, at its office maintained
pursuant to SECTION 6.21 or at the place of payment specified in the Notes.
You (by your acquisition of any Note) shall be deemed to have
agreed that prior to the sale, transfer or other disposition of any such Note,
you will make a notation thereon of the portion of the principal amount paid or
prepaid and the date to which interest has been paid thereon, or surrender the
same in exchange for a Note or Notes aggregating the same principal amount as
the unpaid principal amount of the Note so surrendered. The Company shall enter
into an agreement similar to that contained in the first sentence of this
Section with any other institutional Noteholder of Outstanding Notes (or nominee
thereof) who shall make with the Company an agreement similar to that contained
in the second sentence of this Section.
16. LIABILITIES OF THE PURCHASER. Neither this Agreement nor any
----------------------------
disposition of any of the Notes shall be deemed to create any liability or
obligation on your part or that of any other Noteholder to enforce any provision
hereof or of any of the Notes for the benefit or on behalf of any other Person
who may be a Noteholder.
17. MISCELLANEOUS
-------------
17.1. Expenses. Whether or not the transactions contemplated
--------
hereby are consummated, the Company will pay all costs and expenses (including
reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by you and each other Noteholder in connection
with such transactions or in connection with any actual or proposed amendment,
waiver or consent with respect to this Agreement or the Notes (whether or not
any such amendment, waiver or consent which may be proposed shall become
effective), including, without limitation: (a) the reasonable costs and expenses
-
incurred in enforcing (or determining whether or how to enforce) any rights
under this Agreement or the Notes, or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a Noteholder (other than any such
subpoena, legal process or other investigative demand relating solely to such
Noteholder's
70
<PAGE>
business activity or the regulation thereof by any applicable Governmental
Authority), and (b) the costs and expenses, including financial advisor's fees,
-
incurred in connection with the insolvency or bankruptcy of the Company or
Holdings or any Affiliate of the Company or Holdings or in connection with any
workout or restructuring of the transactions contemplated hereby or in
connection with any recapitalization of Holdings, the Company or the
Partnership. The Company will pay, and will save you and each other Noteholder
harmless from, all claims in respect of any fees, costs and expenses, if any, of
brokers and finders (other than those retained by you).
17.2. Reliance On and Survival of Representations. All agreements,
-------------------------------------------
covenants, representations and warranties of the Company or Holdings herein or
of (or on behalf of) Holdings or the Company in any certificates or other
instruments delivered pursuant to this Agreement shall (a) be deemed to be
material and to have been relied upon by you, notwithstanding any investigation
heretofore or hereafter made by you or on your behalf, and (b) survive the
execution and delivery of this Agreement and the issuance and delivery of the
Notes hereunder, and any investigation made at any time by you or on your behalf
or by or on behalf of any Noteholder from time to time of Notes or any
disposition or payment of any of the Notes.
17.3. Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of the respective parties hereto shall bind and inure
to the benefit of their respective successors and assigns and you and your
successors and assigns. The provisions of this Agreement are intended to be for
the benefit of all Noteholders from time to time, and shall be enforceable by
anv such Noteholder, whether or not an express assignment to such Noteholder of
rights under this Agreement has been made.
17.4. Notices. Unless otherwise expressly provided in this
-------
Agreement, all notices, opinions and other communications provided for herein
shall be in writing and delivered by hand or mailed, first class postage
prepaid, or sent by overnight courier, or by confirmed telefax transmission
(confirmed by hand-delivered, mailed or overnight courier copy) addressed (a) if
to Holdings or the Company, to the address therefor set forth at the head of
this Agreement, marked for the attention of President and Chief Operating
Officer, or at such other address or addresses as Holdings or the Company may
hereafter designate by notice to each Noteholder of any Note at the time
outstanding, provided that any notice of Default or Event of Default or service
--------
of process delivered to Holdings or the Company by confirmed telefax
transmission shall only be effective on the date the Company receives a hard
copy thereof by hand delivery, mail or overnight courier in accordance with the
terms hereof, or (b) if to you, at your address set forth in SCHEDULE I or at
such other address as you may hereafter designate by notice to the Company;
provided, however, that a notice (or copy thereof) to you by overnight courier
- -------- -------
shall only be effective if delivered to you at a street address designated for
such purpose in SCHEDULE I, and notice (or a copy thereof) to you by telefax
communication shall only be effective if by confirmed transmission to you at a
telephone number designated for such purpose in SCHEDULE I, or (c) if to any
other Noteholder, at the address of such Noteholder as it appears on the Note
Register.
17.5. LAW GOVERNING. THIS AGREEMENT AND THE NOTES AND ALL
-------------
AMENDMENTS, SUPPLEMENTS, MODIFICATIONS, WAIVERS AND
71
<PAGE>
CONSENTS RELATING HERETO OR THERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
17.6. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. EACH OF
------------------------------------------------
HOLDINGS AND THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND
IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT,
THE OTHER TRANSACTION DOCUMENTS OR THE NOTES MAY BE LITIGATED IN SUCH COURTS,
AND EACH OF HOLDINGS AND THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING
--------------------
IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT,
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER
DIRECTED TO IT AS PROVIDED IN SECTION 17.4 AND THAT SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR FIVE BUSINESS DAYS
AFTER THE SAME SHALL HAVE BEEN MAILED TO HOLDINGS OR THE COMPANY (AS THE CASE
MAY BE) IN ACCORDANCE HEREWITH. NOTHING CONTAINED IN THIS SECTION SHALL AFFECT
THE RIGHT OF ANY NOTEHOLDER OR YOU TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY
JURISDICTION AGAINST HOLDINGS OR THE COMPANY OR TO ENFORCE A JUDGMENT OBTAINED
IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF HOLDINGS AND THE COMPANY
ACKNOWLEDGES THAT THE TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY EXCEED THE
TIME AND EXPENSE FOR A BENCH TRIAL AND HEREBY WAIVES, TO THE EXTENT PERMITTED BY
LAW, TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE NOTES OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
17.7. Headings, etc. The section and other subdivision headings in
-------------
this Agreement and the table of contents hereto are for convenience of reference
only and shall not limit or otherwise affect the meaning or construction of any
of the terms hereof.
17.8. Substitution of Purchaser. You shall have the right to
-------------------------
substitute a subsidiary wholly owned by you as a purchaser of any or all of the
Notes to be purchased by you on the Closing Date by written notice delivered to
the Company, which notice shall be signed by you and such subsidiary and shall
contain such subsidiary's agreement to be bound by this Agreement; provided,
--------
however, that such agreement may contain a statement to the effect that such
- -------
subsidiary at all times has the right to sell the Notes being purchased by it to
you. Each of Holdings and the Company agrees that, upon the Company's receipt of
such notice and except to the extent otherwise specified therein, wherever the
word "you" is used in this Agreement (other than in this Section), such word
shall be deemed to refer to such subsidiary in lieu of you. If your subsidiary
has been substituted as a purchaser of any Notes and shall subsequently transfer
72
<PAGE>
such Notes to you, then you will thereafter be entitled to all the rights and
benefits of the purchaser of such Notes under this Agreement.
17.9. Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between you and the Company relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to the
subject matter hereof.
17.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
73
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterparts of this Agreement and return one of
the same to the Company, whereupon this Agreement shall become a binding
agreement among you, Holdings and the Company.
Very truly yours,
FARM JOURNAL HOLDINGS INC.
By /s/ J. Carr Gamble, III
------------------------
Name:
Title:
FARM JOURNAL, INC.
By /s/ Roger D. Randall
---------------------
Name: Roger D. Randall
Title: President
The foregoing Note Purchase
Agreement is hereby accepted
and agreed to as of the date hereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Gregory W. MacCordy
------------------------
Name: Gregory W. MacCordy
Title: Director--Private Placements
74
<PAGE>
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
by and among
FARM JOURNAL HOLDINGS, INC.
and
THE STOCKHOLDERS
of
PROFESSIONAL FARMERS OF AMERICA, INC.
dated as of
March l7, 1998
----------------------------------------
Relating to the Sale and Purchase of
the Capital Stock of
PROFESSIONAL FARMERS OF AMERICA, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1. PURCHASE AND SALE OF SHARES..................................................... 1
1.1 Agreement to Purchase and Sell................................................. 1
1.2 Closing........................................................................ 1
SECTION 2. PURCHASE PRICE.................................................................. 1
2.1 Cash Purchase Price............................................................ 1
2.2 Convertible Preferred Stock.................................................... 2
2.3 Post Closing Adjustment to Purchase Price...................................... 3
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS REGARDING COMPANY........................................................ 3
3.1 Organization and Standing of the Company....................................... 4
3.2 Qualification.................................................................. 4
3.3 Capital Structure of the Company............................................... 4
3.4 No Restrictions Upon the Company............................................... 4
3.5 No Subsidiaries................................................................ 4
3.6 Financial Statements........................................................... 5
3.7 Events Subsequent to the Balance Sheet Date.................................... 5
3.8 Liabilities.................................................................... 6
3.9 Guarantees..................................................................... 6
3.10 Real Property.................................................................. 7
3.11 Tangible Personal Property..................................................... 8
3.12 Contracts...................................................................... 8
3.13 Intellectual Property.......................................................... 10
3.14 Compliance with Law............................................................ 11
3.15 Environmental Matters.......................................................... 12
3.16 Boycott Matters................................................................ 13
3.17 Litigation..................................................................... 13
3.18 Tax Matters.................................................................... 13
3.19 Certain Payments............................................................... 15
3.20 Employees...................................................................... 16
3.21 Labor Relations................................................................ 16
3.22 Benefit Plans.................................................................. 16
3.23 Insurance...................................................................... 19
3.24 Accounts....................................................................... 19
3.25 Intercompany Accounts Working Capital and Dividends............................ 19
3.26 Relationship of Assets at Closing to Assets Used in Business................... 20
3.27 Customer List.................................................................. 20
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH OF THE
STOCKHOLDERS REGARDING SHARES......................................................... 21
4.1 Ownership of Stock.............................................................. 21
</TABLE>
-(i)-
<PAGE>
<TABLE>
<S> <C>
4.2 No Restrictions Upon the Stockholders........................................... 21
4.3 Brokers and Finders............................................................. 21
4.4 Acquisition of Preferred Stock.................................................. 21
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................... 23
5.1 Organization. Standing and Corporate Authority.................................. 23
5.2 Brokers and Finders............................................................. 23
SECTION 6. COVENANTS OF STOCKHOLDERS....................................................... 23
6.1 Conduct of the Company Pending Closing.......................................... 23
6.2 Access Pending Closing.......................................................... 25
6.3 Consents of Third Parties....................................................... 25
6.4 Resignations.................................................................... 25
6.5 Transfers....................................................................... 25
6.6 Continuing Relationships........................................................ 26
6.7 No Shop Clause.................................................................. 28
6.8 Closing......................................................................... 28
6.9 Election to Treat as Asset Sale................................................. 29
6.10 Allocation of Purchase Price.................................................... 29
6.11 Publicity....................................................................... 29
6.12 Non-Disclosure.................................................................. 29
6.13 Non-Competition................................................................. 29
6.14 Employee Benefit Matters........................................................ 31
6.15 Referrals....................................................................... 32
SECTION 7. COVENANTS OF PURCHASER.......................................................... 32
7.1 Books and Records............................................................... 32
7.2 Closing......................................................................... 32
7.3 Continuing Relationships........................................................ 32
7.4 Advertising..................................................................... 32
7.5 Publicity....................................................................... 33
7.6 Non-solicitation................................................................ 33
SECTION 8. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE.................................. 33
8.1 Representations and Warranties.................................................. 33
8.2 Performance..................................................................... 33
8.3 Liabilities..................................................................... 33
8.4 Shares.......................................................................... 34
8.5 Corporate Books................................................................. 34
8.6 Resignations.................................................................... 34
8.7 Proof of Good Standing.......................................................... 34
8.8 Transfers and Release of Guarantees............................................. 34
8.9 Certificate of Officer.......................................................... 34
8.10 Opinion of Counsel.............................................................. 35
8.11 New Lease....................................................................... 36
</TABLE>
-(ii)-
<PAGE>
<TABLE>
<S> <C>
8.12 PMM Closing..................................................................... 36
8.13 Financing....................................................................... 36
8.14 Due Diligence................................................................... 36
8.15 Further Assurances.............................................................. 36
8.16 Confirmation of Related Party Services.......................................... 36
8.17 Modified Oster Note............................................................. 36
SECTION 9. CONDITIONS TO OBLIGATION OF STOCKHOLDERS TO CLOSE............................... 36
9.1 Representations and Warranties.................................................. 37
9.2 Performance..................................................................... 37
9.3 PMM Closing..................................................................... 37
SECTION 10. TERMINATION.................................................................... 37
10.1 Mutual Termination: Termination For Unsatisfaction of Conditions................ 37
10.2 Termination Due to Financing or Due Diligence................................... 37
10.3 Termination Due to Loss......................................................... 38
10.4 Environmental Termination....................................................... 38
SECTION 11. Indemnification and survival................................................... 38
11.1 Indemnification of the Purchaser by the Stockholders............................ 38
11.2 Indemnification of the Purchaser by the Stockholders Regarding
Shares.......................................................................... 39
11.3 Indemnification of the Stockholders............................................. 39
11.4 Procedure for Indemnification................................................... 40
11.5 Survival........................................................................ 41
SECTION 12. MISCELLANEOUS.................................................................. 41
12.1 Written Agreement to Govern..................................................... 41
12.2 Severability.................................................................... 41
12.3 Notices......................................................................... 41
12.4 Counterparts.................................................................... 42
12.5 Law to Govern................................................................... 43
12.6 Successors and Assigns.......................................................... 43
12.7 Further Assurances.............................................................. 43
12.8 Gender, Number and Headings..................................................... 43
12.9 Schedules and Exhibits.......................................................... 43
12.10 Waiver of Provisions............................................................ 43
12.11 Expenses........................................................................ 43
12.12 Recitals........................................................................ 44
12.13 Knowledge of the Stockholders................................................... 44
12.14 No Third Party Beneficiaries.................................................... 44
12.15 Expenses........................................................................ 44
12.16 Additional Definitions.......................................................... 44
</TABLE>
-(iii)-
<PAGE>
EXHIBITS
--------
<TABLE>
<C> <S>
A. Stockholders
B. New Lease
C. Amended and Restated Oster Note
D. Service Confirmations
<CAPTION>
SCHEDULE
--------
<C> <S>
2.2 Schedule of Current Accounts Included in Price Adjustment Computation
3.1.1 Certificate of Incorporation and By-Laws
3.1.2 Officers and Directors of the Company
3.2 Trade Names and Offices
3.5 Publishing Affiliates
3.6(a) Annual Financial Statements
3.6(b) Interim Financial Statements
3.7(b) Officer Compensation Changes
3.11.1 Tangible Personal Property
3.11.2 Non-Transferred Hardware
3.12(a) Contracts
3.12(c) Subscription Agreement Exceptions
3.13(a) Intellectual Property
3.13(c).1 Licensed Property
3.13(c).2 Shared Software Not Transferred
3.13(d) WITs Product Description
3.14(a) Licenses and Permits
3.14(b) Exceptions to Compliance with Law
3.17 Litigation
3.18 Tax Matters
3.20 Compensation
3.22 Benefit Plans
3.23(a) Insurance Policies
3.23(b) Insurance Claims
3.24 Accounts
3.25.1 Merrill Oster Note
3.25.2 Advertising Rights
6.6(a) Retained Employees
6.10 Agreed Values
</TABLE>
-(iv)-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of March, 1998, by and among Farm Journal Holdings,
Inc., a Delaware corporation (the "Purchaser"), Merrill J. Oster, Carol J.
Oster, David M. Oster, Leah J. Rippe, David M. Oster Family Trust and Leah J.
Rippe Family Trust (collectively the "Stockholders").
RECITALS
--------
WHEREAS, the Stockholders desire to sell to the Purchaser, and the
Purchaser desires to purchase from the Stockholders that number of shares of
Common Stock (the "Shares") listed beside each Stockholder's name on Exhibit A,
---------
respectively, of Professional Market Management, Inc. (the "Company") together
with all rights incident thereto, including, without limitation, the goodwill of
the Company.
WHEREAS, the Company is engaged, inter alia, in the business of (i)
----- ----
the provision of satellite and/or electronically distributed information
services through its Global Link and Future Link products; (ii) the publication
of the ProFarmer and LandOwner newsletters, and (iii) the provision of
electronic newsletter content services (collectively, the "Business").
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto
hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES.
- ----------
1.1 Agreement to Purchase and Sell. On the Closing (as defined below),
------------------------------
the Stockholders shall sell their Shares to the Purchaser, and the Purchaser
shall purchase the Shares from the Stockholders, on the terms and subject to the
conditions hereinafter provided and in reliance on the representations,
warranties, covenants, promises, agreements and undertakings contained herein.
1.2 Closing. The consummation of the purchase and sale of the Shares
-------
hereunder (the "Closing") shall take place at the offices of Stradley Ronon
Stevens & Young, LLP, Philadelphia, Pennsylvania, at 11:00 A.M., local time, on
March 31, 1998, or such other date upon which the Purchaser and the Stockholders
may mutually agree in writing (the "Closing Date"). For all purposes hereunder,
the Closing shall be deemed to have occurred on the close of business on the
Closing Date.
SECTION 2. PURCHASE PRICE.
- ---------- --------------
2.1 Cash Purchase Price. The Purchaser shall pay to each Stockholder
-------------------
in good funds on the Closing Date $4,000.00 per Share held by such Stockholder,
representing an aggregate total cash purchase price of $10,900,000.
-1-
<PAGE>
2.2 Convertible Preferred Stock. On the Closing Date, Purchaser
---------------------------
shall deliver to each Stockholder one share of Convertible Redeemable Preferred
Stock of Purchaser (the "Preferred Stock") for each Share held by such
Stockholder. The Preferred Stock shall have the following attributes:
(a) Except as otherwise required by applicable law, the Preferred Stock
shall be nonvoting.
(b) The Preferred Stock shall be subject to the restrictions on transfer
set forth in Section 4.4(d) and (e) hereof unless and until (i) the Preferred
-------------- ---
Stock shall have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and sold or otherwise disposed of in accordance with the
intended method of disposition by the seller thereof set forth in the
registration statement covering such securities, (ii) at such time as an opinion
of counsel satisfactory to Purchaser shall have been rendered pursuant to
Section 4.4(e) hereof to the effect that the restrictive legend on such
- --------------
securities is not required (but not prior to the first annual anniversary of the
Closing Date), or (iii) when such securities are preferable in accordance with
the provisions of Rule 144 promulgated under the Securities Act. When
restrictions on transferability of the Preferred Stock expire, the holders of
Preferred Stock shall be entitled to receive from the Purchaser, without expense
(except for the payment of any applicable transfer tax) and as expeditiously as
possible, new stock certificates not bearing the legend provided for in Section
-------
4.4(e).
- ------
(c) The Preferred Stock shall have a stated value of $366.97 per share or
$ 1,000,000 in the aggregate (the "Stated Value").
(d) An annual dividend equal to 3.3% of the Stated Value of the Preferred
Stock on a cumulative basis shall be paid on the Preferred Stock before any
dividends may be paid on the Common Stock of the Purchaser.
(e) In the event of the liquidation of the Purchaser, the holders of
Preferred Stock shall be entitled to receive an amount equal to the Stated Value
of the Preferred Stock plus any cumulative unpaid priority as to dividends
pursuant to Section 2.2(c) before any amount is paid to the holders of the
--------------
Purchaser's Common Stock.
(f) The Preferred Stock shall be redeemed by the Purchaser at the option
of the holder thereof at its Stated Value plus any cumulative unpaid priority as
to dividends pursuant to Section 2.2(c), exercisable anytime, and only, within
--------------
30 days prior to the third annual anniversary of the Closing Date. The Purchaser
shall pay the redemption price within 30 days following receipt by Purchaser of
a timely written notice of redemption.
(g) The Preferred Stock shall be automatically converted into Common Stock
of the Purchaser on the closing of any offering of Common Stock of the Purchaser
pursuant to a registration statement filed with the Securities and Exchange
Commission (a "Public Offering"). Each share of Preferred Stock shall be
converted into Common Stock having
-2-
<PAGE>
a value, at the price at which Common Stock is offered to the public in the
Public Offering, equal to the Stated Value of a share of Preferred Stock. The
Common Stock issued on conversion shall be identical to the Common Stock issued
in the Public Offering except that such Common Stock shall not be registered,
shall be subject to similar restrictions on transferability as applicable to the
Preferred Stock converted, and shall be subject to any lock up restrictions
imposed upon all current holders of Common Stock by the underwriters in the
Public Offering. Such Common Stock shall have registration rights at least equal
to the rights given to any holder of Common Stock of Purchaser not issued in the
Public Offering. During the period in which any Preferred Stock is outstanding
prior to the third annual anniversary of the Closing Date, the Purchaser shall
not have any class of stock outstanding which has priority over or equal to the
Preferred Stock.
(h) The Preferred Stock shall be fully paid and nonassessable.
2.3 Post Closing Adjustment to Purchase Price. As soon as all
-----------------------------------------
transactions for the period through the Closing Date are entered into the
Company's books but in no event more than 30 days subsequent to the Closing
Date, the Stockholders shall deliver to the Purchaser a list of the balances as
of the close of business on the Closing Date of those current liability accounts
and current asset accounts listed on Schedule 2.3. Such statement shall be
------------
substantially in the form of Schedule 2.3, which shows the balances of the
------------
referenced accounts as of December 31, 1997 (the "Balance Sheet Date"). All pre-
closing transactions shall be entered on the Company's books in accordance with
the methods and in respect to the accounts as similar transactions were recorded
prior to the Balance Sheet Date. No adjustments shall be made in the amounts
recorded in the books for collectability of receivables or for contingent or
unknown liabilities as of the Closing Date and the allowance for doubtful
accounts and general reserves accounts shall not be changed from the Balance
Sheet Date and thus shall not be included in Schedule 2.3. To the extent that
------------
the excess of the balances of the current asset accounts over the balances of
the current liabilities accounts listed on Schedule 2.3 as of the close of
------------
business on the Closing Date is more than the excess shown on Schedule 2.3 as of
------------
the Balance Sheet Date, the Purchaser shall pay the difference to the
Stockholders in proration to the Shares held by each. To the extent such excess
as of the close of business on the Closing Date is less than the excess shown on
Schedule 2.3 as of the Balance Sheet Date, the Stockholders shall pay the
- ------------
difference to the Purchaser in proportion to the Shares held by each. All
payments provided for herein shall be made within 15 days after the statement
required hereby is delivered to the Purchaser.
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
- ---------- -------------------------------------------------------------
REGARDING COMPANY.
-----------------
The Stockholders hereby jointly and severally represent and warrant to
the Purchaser, as of the date hereof and as of the Closing Date, as follows:
3.1 Organization and Standing of the Company. The Company is a
----------------------------------------
corporation which is duly organized, validly existing and in good standing under
the laws of the State of Iowa. Schedule 3.1.1 contains complete and correct
--------------
copies of the Certificates of
-3-
<PAGE>
Incorporation and By-laws, as amended, of the Company (the "Formation
Documents"). The Company has all necessary corporate power and authority to
engage in the Business as it is presently conducted, to own all property now
owned by it, and to lease all of the property used by it under lease. A true and
correct copy of the corporate minutes and stock transfer records of the Company
have been delivered to the Purchaser, and the same constitute a complete and
accurate record of the proceedings taken by its Stockholders and directors, and
a complete and accurate record of all issuances and transfer of shares of its
capital stock. Schedule 3.1.2 contains a complete and accurate list of the
--------------
officers and directors of the Company.
3.2 Qualification. The Company is duly qualified to do business in Iowa
-------------
and, on the Closing, will be duly qualified in Illinois and the Company is in
good standing in such jurisdiction and in no others. To the Stockholders'
knowledge, without any investigation, the Company is not required to qualify to
do business in any other state. To the knowledge of the Stockholders, Schedule
--------
3.2 is a true and correct listing of all fictitious and trade names used by the
- ---
Company and the addresses of all offices of the Company, and any locations where
the Company's employees were based during the five years immediately preceding
the date of this Agreement.
3.3 Capital Structure of the Company. The authorized capital stock of
--------------------------------
the Company consists solely of 1,000 shares of common stock, with no par value,
of which 2,725 shares are duly authorized, validly issued and outstanding, and
fully paid and non-assessable. No other class or series of capital stock of the
Company is or has been authorized. There is no obligation which is or may be
binding upon the Company to issue, sell, redeem, purchase or exchange any of its
capital stock or any right relating thereto. The Stockholders are the sole
shareholders of record of the Company on the date of this Agreement.
3.4 No Restrictions Upon the Company. Except for the OCI Guaranty and
--------------------------------
the Lease Obligation described in Section 3.8(a), the Company is subject to no
--------------
restriction, agreement, law, judgment or decree (including, without limitation,
any restriction contained in its Formation Documents) which would (a) prohibit
or be violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby, or (b) result in the acceleration of any
indebtedness of the Company.
3.5 No Subsidiaries. The Company has no subsidiaries, nor does it own
---------------
any capital stock or other equity or ownership interest in any corporation,
partnership, limited liability company, association, trust, joint venture or
other entity. Schedule 3.5 sets forth the names of all entities controlled
------------
by the Stockholders which are engaged in the publishing business, whether in
print or electronic.
3.6 Financial Statements.
--------------------
(a) Schedule 3.6(a) contains a true copy of the Company's audited
---------------
financial statements, including the balance sheet, the statement of earnings and
retained earnings, the statement of cash flow, and all notes thereto, for the
fiscal years ended December 31, 1995, December 31, 1996 and December 31, 1997
(the "Balance Sheet Date"), all examined and
-4-
<PAGE>
reported on by the Company's certified public accountants, as set forth in their
report included therein (the "Financial Statements"). The Financial Statements
have been prepared from the Company's books and records, fairly present the
Company's financial position as of the date thereof and the results of the
Company's operations for the period then ended, and were prepared in accordance
with GAAP using assumptions, methods and procedures which, except as disclosed
therein and as provided in Section 6.1(m) hereof, were consistent with the
--------------
assumptions, methods and procedures used by the Company for the immediately
preceding year.
(b) Schedule 3.6(b) contains a copy of the Company's unaudited balance
---------------
sheet and statement of earnings and retained earnings for the one month period
ending January 31, 1998 (the "Interim Statements"). The Interim Statements were
taken from the Company's books and records and were prepared consistent
therewith. The Stockholders make no other representations as to the Interim
Statements.
3.7 Events Subsequent to the Balance Sheet Date. Except to the extent
-------------------------------------------
provided for in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and 6.6 there has not
-------- ---- ---- ---- ---- ---- ---
been since the Balance Sheet Date:
(a) Any direct or indirect redemption, purchase or other acquisition by
the Company of any capital stock of the Company, or any declaration,
setting aside or payment of any dividend or distribution on any capital
stock of the Company other than dividends or distributions which would not
violate Section 3.25 hereof:
------------
(b) Any increase in the compensation or benefits payable or to become
payable by the Company to any of its directors or officers except as
disclosed in Schedule 3.7(b);
---------------
(c) Any incurrence by the Company (i) of any indebtedness for borrowed
money or (ii) of any other indebtedness or of any liability in respect
thereof, except for the incurrence of indebtedness (other than for borrowed
money) in the ordinary course of business or any commitment by the Company
for an incurrence which would violate (i) or (ii);
(d) Any contractual commitment by the Company to any third party, other
than as provided in this Agreement or arising in the ordinary course of the
Company's business, relating to (i) the Assets or Business of the Company,
or (ii) the acquisition or disposition of Assets of the Company;
(e) Any transaction, other than in the ordinary course of business on the
same basis or terms as reflected in the Financial Statements, between the
Company and any shareholder, director, officer or affiliate of the Company;
(f) Any change in any accounting policies and procedures or practices by
the Company except as provided for in Section 6.1(m); or
--------------
(g) Any discount or adjustment in accounts receivable of the Company
except as provided in Section 3.25 or arising in the ordinary course of the
------------
Company's business
-5-
<PAGE>
consistent with past practices or the collection of any accounts receivable
other than in the ordinary course of business consistent with past
practices.
3.8 Liabilities.
-----------
(a) As of the Balance Sheet Date, to the knowledge of the Stockholders,
the Company had no liabilities (which liabilities when taken individually or
in the aggregate, are material) of any nature, whether accrued, absolute,
continent or otherwise, asserted or unasserted, except liabilities stated or
disclosed in the Financial Statements or disclosed in this Agreement or
Exhibits or Schedules furnished to Purchaser herewith and except for the
guaranty (the "OCI Guaranty") by the Company of the obligations of Oster
Communications, Inc. ("OCI") to American National Bank and Trust Company of
Chicago ("ANB") which will be released on Closing and except for obligations
as a co-lessor in regard to the leases for the Leased Equipment referred to in
Section 3.11 (the "Lease Obligation").
------------
(b) As of the date hereof and as of the Closing Date, to the knowledge of
the Stockholders, the Company does not have and will not have, any liabilities
of any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, except liabilities stated or disclosed in the Financial
Statements, liabilities disclosed in this Agreement or Exhibits or Schedules
furnished herewith, and except for liabilities incurred in the ordinary course
of business since the Balance Sheet Date.
(c) Since the Balance Sheet Date, the Company has paid its accounts
payable in the ordinary course of business and consistent with past practices.
3.9 Guarantees. Except for the OCI Guaranty, which will be released
----------
on Closing, the Lease Obligation, which will be released on Closing except for
the Leased Equipment, and indemnity provisions in written Contracts listed in
Schedule 3.12(a), the Company is not a guarantor, indemnitor or insurer or
- ----------------
otherwise liable for or in respect of any indebtedness of any person except as
an endorser of checks received by it and deposited in the ordinary course of
business.
3.10 Real Property.
-------------
(a) Fee Ownership. The Company does not own any real property;
-------------
(b) Lease Obligations. On the date hereof the Company is leasing space in
-----------------
Cedar Falls, Iowa, pursuant to an oral arrangement from an affiliate of the
Stockholders. On the Closing, the Stockholders shall cause the oral lease
to be cancelled and the Company shall enter into a lease for reconfigured
space in the building at 219 Parkade, Cedar Falls, Iowa, owned by an
affiliate of the Stockholders and an option to purchase the building, both
in the form attached hereto as Exhibit B (the "New Lease") and pursuant to
the terms set forth therein. The Company shall commence paying rent under
the New Lease as of the Closing Date but the Company shall have the right
to continue to occupy the space used by the Company as of the date of this
Agreement for a period of 90 days from the
-6-
<PAGE>
Closing Date without paying rent therefor other than the rent provided for
in the New Lease. All costs of reconfiguring the space for the Company and
all costs of moving shall be borne by the Company subject to the allowance
provided by the landlord in the New Lease. The only other space used by the
Company is space in Olympia Fields leased to OCI pursuant to the lease
attached in Schedule 3.10(b) (the "Olympia Fields Lease"). The Olympia
---------------
Fields Lease shall be assigned to the Company on or before the Closing, and
the Stockholders shall secure the lessor's consent to such assignment. As
to the Olympia Fields Lease:
(i) Neither the lessor nor the Company or OCI, as tenant, is in
default under the Olympia Fields Lease. The lessor has not made a claim
of default by the Company under the Olympia Fields Lease, nor does there
exist any condition which, with the passage of time or the giving of
notice, would constitute such a default. The Stockholders shall cause
the Company to promptly deliver to the Purchaser copies of any notices
hereafter received by the Company from any lessor relating to the
Olympia Fields Lease.
(ii) Any and all work to be performed by the lessor or the Company or
OCI under the Olympia Fields Lease has been completed and the Company or
OCI and/or the lessor have fully paid for the work. There are no
outstanding and unpaid leasing commissions due to any broker and no
leasing commissions which may accrue to any broker under any agreement
relating to the extension of any lease term from or the exercise of any
option relative to the Olympia Fields Lease.
(iii) There are no unexpired rent concessions under the Olympia Fields
Lease, and there are no rights, options to extend or purchase options
under the Olympia Fields Lease.
(iv) There are no security deposits under the Olympia Fields Lease.
(v) The Olympia Fields Lease is a valid and binding lease and the
Company's interest thereunder is held free and clear of all mortgages,
options, liens, charges, easements, agreements, claims, restrictions or
other encumbrances of any kind or nature whatsoever other then liens for
current taxes imposed by operation of law in the ordinary course of the
Company's business and the lien securing the obligations of OCI and ANB
which will be released at Closing.
3.11 Tangible Personal Property. Except as set forth in Schedule
-------------------------- --------
3.11.1 regarding property indicated thereon as leased, the Company has or at
- ------
Closing will have good and marketable title to all equipment, computer hardware,
furniture, and other tangible personal property listed in Schedule 3.11.1
---------------
(except for personal property disposed of in the ordinary course of business
after the date thereof and replaced with other personal property of comparable
value and utility), free and clear of any liens, claims, security interests,
options, leases, restrictions or encumbrances which adversely affect the
marketability of title thereto. The Stockholders shall cause any personal
property shown on Schedule 3.11.1 as not owned by the
---------------
-7-
<PAGE>
Company on the date hereof to be transferred to the Company at or prior to
Closing except for personal property listed in Schedule 3.11.1 which is leased
---------------
by unrelated third parties to an affiliate of the Company on the date hereof
(the "Leased Equipment"). On or prior to the Closing, the Stockholders shall
cause either the Leased Equipment to be subleased to the Company or a new lease
for such Leased Equipment to be entered into between the Company and the lessor
on substantially the same terms as presently leased to the Company's affiliate
and shall secure the Company's release in regard to equipment covered by the
lease other than the Leased Equipment. The assets listed on Schedule 3.11.1
---------------
constitute all the tangible personal property used solely in the operation of
the Company's Business as currently conducted but do not include assets owned by
affiliates of the Company the use of which is shared by the Company other
entities affiliated with the Company. Schedule 3.11.2 lists all hardware used by
---------------
the Company in the delivery of electronic products which is owned by and shared
with affiliates of the Company and is thus not being transferred to the Company
on Closing. EXCEPT AS EXPRESSLY PROVIDED HEREBY THE STOCKHOLDERS MAKE NO OTHER
WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, REGARDING THE
PERSONAL PROPERTY DESCRIBED 1N SCHEDULE 3.11 OR ANY OTHER PERSONAL PROPERTY
INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
SPECIFIC PURPOSE. The Company does not hold any property on consignment, nor
does the Company hold title to any property in the possession of others.
3.12 Contracts.
---------
(a) Except as set forth in Schedule 3.12(a), except for the transactions
----------------
with affiliates provided for in Section 6.6 or to be terminated on Closing
-----------
pursuant to Section 3.12(d), and except as provided for in Section 3.11 as to
-------------- ------------
Leased Equipment and Section 3.1 3(c) as to Licensed Property, the Company is
---------------
not a party to, or bound by, any oral or written contracts, agreements,
commitments, arrangements or understandings (the "Contracts"): (i) for the
employment of any officer or employee which is not terminable by the Company at
will without penalty; (ii) for any indebtedness; (iii) involving leasing
personal property (including, without limitation, leases for machinery and
office equipment, furniture, fixtures, and vehicles) which require an annual
payment in excess of $5,000 or the current term of which exceeds two years; (iv)
involving the payment or receipt of in excess of S10,000 per annum by the
Company or the current term of which exceeds one year (other than Subscription
Agreements as defined in Section 3.12(c)); (v) providing for the services of
--------------
distributors, sales representatives or similar representatives; (vi) relating to
the ownership, use or licensing of any patents, trademarks, trade names, brand
names, copyrights, inventions, processes, know-how, formulae, technology, trade
secrets or other proprietary rights; (vii) containing covenants by or binding on
the Company not to compete or to abide by any confidentiality agreement; (viii)
for the sale of goods or services to any governmental authority, including any
open purchase order issued by such entities; (ix) relating to any joint venture
or partnership contract or agreement; (x) for the incurrence of any capital
expenditure in excess of $10,000; (xi) for or with respect to any advertising
except for advertising contracts made
-8-
<PAGE>
in the ordinary course of business and for a duration not in excess of one year;
and (xii) granting to any person any right to purchase any of the Company's
assets.
(b) Except for the transactions with affiliates provided for in Section
-------
6.6 or to be terminated on Closing pursuant to Section 3.12(d), except as
- --- ---------------
provided for in Section 3.11 as to Leased Equipment and Section 3.13(c) as to
------------ ---------------
Licensed Property, and except for Subscription Agreements, all oral or written
contracts, agreements, commitments or undertakings by which the Company is
bound, including without limitation the Contracts, constitute legal, valid and
binding obligations of the respective parties thereto, are in full force and
effect, and neither the Company or, to the knowledge of the Stockholders, any
other party thereto has violated any provision of, or committed or failed to
perform any act which with notice, lapse of time or both would constitute a
default under the provisions of any such Contract, the termination of which
could have a Material Adverse Effect upon the Company. Correct and complete
copies of all written Contracts disclosed on Schedule 3.12(a) and all written
----------------
amendments thereto have been delivered to the Purchaser. In respect to any oral
Contract or any oral amendment to a Contract, accurate summaries of the material
terms thereof have been delivered to the Purchaser.
(c) Except as disclosed in Schedule 3.12(c), with respect to any and all
----------------
agreements of the Company, whether written or oral, relating to the purchase of
products or services of the Business by paying subscribers ("Subscription
Agreements"):
(i) The Company is the contracting party that provides the products
or services under the Subscription Agreements;
(ii) The Subscription Agreements have all been entered into by the
Company in the ordinary course of business, and none of the Subscription
Agreements have been materially amended subsequent to the Balance Sheet
Date or provide for the Company's fees to be materially reduced below the
charges in effect thereunder on the Balance Sheet Date;
(iii) To the Stockholders' knowledge, the satellite delivery system
utilized by the Business is currently capable of handling the volume of
data transmission services currently required by the Subscription
Agreements and no increased volume of such services has been promised by
the Company to its customers which would exceed such capability;
(iv) Since the Balance Sheet Date, claims for credits have been
adjusted in the ordinary course of business and on the Closing Date there
will be no outstanding material claims for credits, monies, or the like due
customers in regard to the Subscription Agreements;
(v) Since the Balance Sheet Date, the Company has received no
written notices of any warranty or indemnity claims by customers under any
of the
-9-
<PAGE>
Subscription Agreements which have not been settled with the customer
claimant except for claims which in the aggregate are not material:
(vi) Since the Balance Sheet Date, any and all enhancements to
services required by the Subscription Agreements to be provided to
customers have been completed and implemented in a timely manner and no
contract for other enhancements to services have been entered into by the
Company with it customers;
(vii) Since the Balance Sheet Date, the Company has received no
written notice of default from any customer under any of the Subscription
Agreements where such default would result in a material liability;
(viii) Since the Balance Sheet Date, the Company has received no
notice of the filing by any customer of a petition in bankruptcy,
assignment for the benefit of creditors, a petition seeking reorganization,
composition, liquidation, dissolution or similar arrangement where the
impact of an adverse outcome would have a Material Adverse Effect on the
Business:
(ix) All accounts receivable arising therefrom shown on the Interim
Statements or arising thereafter, to the extent shown on the Company's
books as uncollected on the Closing, represent valid obligations incurred
by subscribers; and
(x) The Stockholders have no reason to believe that the relationships
of the Company with its customers are not good commercial working
relationships.
(d) Except as provided in Sections 6.6 and 3.13(c), the Stockholders will
------------ -------
cause the Company to terminate all arrangements with affiliates of the
Stockholders as of the Closing.
3.13 Intellectual Property.
---------------------
(a) The Company has good and marketable title to all domestic and foreign
patents, patent applications pending, patent applications in process,
trademarks, trademark registrations, trademark registration applications,
copyrights, copyright registrations, copyright registration applications, and
service marks, service mark registrations and service mark registration
applications listed in Schedule 3.13(a) (the "Intellectual Property").
----------------
(b) There are no interference, opposition or cancellation proceedings or
infringement suits pending, or to the knowledge of the Stockholders, threatened
with respect to any Intellectual Property. To the knowledge of the Stockholders,
no other person is infringing any Intellectual Property and the Company is not
infringing on the proprietary rights of others and has not received any notice
of a claim of such infringement.
-10-
<PAGE>
(c) The Company currently uses the software described in Schedule 3.13(c).1
------------------
which is owned by or licensed to affiliates of the Company (the "Licensed
Property"). On or prior to the Closing, the Stockholders shall cause such rights
in the Licensed Property as such affiliates have on the date hereof to be either
transferred to or sublicensed to the Company. On the Closing, the Company shall
have the same rights to use the Licensed Property as such affiliate had on the
date hereof. The Company also uses the software on Schedule 3.13(c).2, the right
------------------
to the use of which is not being transferred to the Company. To the Knowledge of
the Stockholders, the software described in Schedule 3.13(c).2 is all of the
------------------
software owned by or licensed to affiliates of the Company which is being used
by the Company and which is not either owned or licensed to the Company or is
Licensed Property. No other software used by the Company through arrangements
with its affiliates except for the Licensed Property is being transferred to the
Company and all arrangements for the use of software of affiliates will be
terminated on Closing pursuant to Section 3.12(d); provided that the
---------------
Stockholders shall cause the affiliates of the Company to permit the use of any
other software owned or licensed by affiliates of the Company which is not
transferred to be used by the Company at the Company's cost and risk after the
Closing until January 20, 1999 while the Purchaser is transitioning to its own
software systems.
(d) The Company does not have on the date hereof and shall not have on the
Closing any rights to the WITs Product or any applications thereof as described
in Schedule 3.13(d). It is the intent of the Stockholders that the WITs Product
----------------
as so described will not compete with the Business as currently conducted and
based on the description in Schedule 3.13(d) Purchaser concurs that the WITs
----------------
Product will not compete with the Business as presently conducted.
3.14 Compliance with Law.
-------------------
(a) The Company has the permits and licenses from governmental bodies
listed in Schedule 3.14(a) hereto. Such permits and licenses constitute all of
the permits and licenses required, to the knowledge of the Stockholders, from
federal, state or local authorities in order for the Company to conduct the
Business as currently conducted. To the Stockholders' knowledge, the Company is
in compliance with the terms and conditions of all such permits and licensees.
The Company's registration as a commodities futures trading advisor will
terminate if appropriate forms are not filed within 20 days after Closing
disclosing the change in principals as a result of the Closing and registering
any new principals resulting from Purchaser's acquisition of the Shares. To the
Stockholder's knowledge, no other permits and licenses will terminate on
Closing.
(b) Except as disclosed in Schedule 3.14(b) hereto, to the knowledge of the
----------------
Stockholders, the Company is not in default under or in violation of any
applicable statute, law, ordinance, decree, order, rule, regulation, franchise,
permit or license of any governmental body, the violation of which may result in
a Material Adverse Effect.
3.15 Environmental Matters.
---------------------
-11-
<PAGE>
(a) The Company has not violated, and has received no notice of any
violation of the Environmental Laws, whether on property owned, leased or
controlled by the Company or on property of others, or otherwise, and there is
no known condition with respect to the Company or its assets or its prior
actions which with the passage of time is reasonably likely to lead to a
material violation of any of the Environmental Laws. For this purpose,
"Environmental Laws" shall refer to any law, rule, or regulation of, any
federal, state or local governmental authority to which the properties, assets,
personnel or business activities of the Company are subject or to which the
Company is subject, and which relate to the environment (including, without
limitation, federal, state and local laws, statutes, rules and regulations and
the common law relating to environmental matters and contamination of any type
whatsoever, including, without limitation: (i) treatment, storage, disposal,
incineration, generation and transportation of industrial, toxic or hazardous
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) ground water contamination; (iv) the release or threatened release into
the environment of industrial, toxic or hazardous substances, or solid or
hazardous waste, including, without limitation, emissions, discharges,
injections, spills, escapes, or dumping of pollutants, contaminants or
chemicals; (v) the protection of wildlife, marine sanctuaries and wetlands; (vi)
the protection of natural resources; (vii) storage tanks, vessels and related
equipment; (viii) abandoned or discarded barrels, containers and other closed
receptacles; (ix) health and safety of employees and other persons; and (x)
otherwise relating to the manufacture, processing, use, distribution, treatment,
storage, disposal, incineration, transportation, or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or solid or
hazardous waste.
(b) The Company has obtained and maintained in good standing all permits,
inspections licenses and other authorizations which are required under the
Environmental Laws for the operation of the Company's business, complete copies
(or, if oral, a summary) of which have been provided to the Purchaser.
(c) The Company is in compliance with all terms and conditions of such
required permits, licenses and authorizations, and it and its properties are
also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, timetables and
other provisions contained in the Environmental Laws.
(d) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, notice of investigation, proceeding notice
or demand letter pending or, to the knowledge of the Stockholders, threatened
against the Company relating in any way to the Environmental Laws.
(e) There are no orders from or agreements with any governmental or any
private party relating to violations of or compliance with the Environmental
Laws.
3.16 Boycott Matters. The Company is in compliance with all applicable
---------------
governmental statutes, laws, decrees, orders, rules and regulations which
prohibit or regulate the
-12-
<PAGE>
boycott of or refusal to deal with any person, including, without limitation,
the Export Administration Amendments of 1977 (50 U.S.C. App. Section 2401 et
seq.), the Ribicoff Amendments to the Tax Reform Act of 1976 (Section 999 of the
Internal Revenue Code of 1986, as amended to date (the "Code")) and the Sherman
Act (15 U.S.C. Section 1 et seq.), and all rules and regulations promulgated
pursuant to the foregoing.
3.17 Litigation. Except as disclosed in Schedule 3.17, there is no suit,
---------- -------------
arbitration, claim, investigation, action or proceeding, in law or in equity,
now pending or, to the knowledge of the Stockholders, threatened before any
court, arbitrator, commission, administrative or regulatory body, or any
governmental agency to which the Company is a party or which may result in any
judgment, award, order, decree, liability or other determination which will or
could have a Material Adverse Effect or which will or could prevent or interfere
with the consummation of any transactions contemplated hereby. No such judgment,
order, award or decree has been entered, nor has any such determination been
made or liability been incurred, which has, or could have, such a Material
Adverse Effect.
3.18 Tax Matters.
-----------
(a) As used herein, the term "Tax" or "Taxes" means any and all federal,
state, local or foreign income, corporation, gross receipts, profits, gains,
capital duty, franchise, withholding, payroll, social security, unemployment,
disability, property, wealth, welfare, stamp, excise, occupation, sales, use,
transfer, value added, alternative minimum, recapture, estimated or similar tax,
together with any interest, penalties or additions in respect of the foregoing,
and including any transferee or secondary liability in respect of such taxes.
(b) Except as set forth on Schedule 3.18:
-------------
(i) the Company has timely filed in accordance with applicable law all
federal, Illinois, Iowa and foreign tax returns (including without
limitation information returns and other material information) (the
"Returns") required to be filed through the date hereof and shall timely
file any such returns required to be filed on or prior to the Closing Date.
To the knowledge of the Stockholders, all Returns and other information
filed are complete and accurate in all material respects. The Company has
not requested any extension of time within which to file Returns (including
without limitation information returns) in respect of any Taxes, which
Returns have not been filed. The Stockholders have made available to the
Purchaser complete and accurate copies of the Company's federal, state and
local Tax returns for the past three years together with all examination
reports and statements of deficiencies assessed against or agreed to by the
Company for any taxable period ended on or after January 1, 1993. Schedule
--------
3.18 indicates those Tax Returns of the Company filed since January 1, 1993
----
that have been audited and indicates those Tax Returns that currently are
the subject of audit;
-13-
<PAGE>
(ii) all taxes shown to be payable on the Returns or on subsequent
assessments with respect thereto have been paid in full:
(iii) There are no pending or, to the knowledge of the Stockholders,
threatened audits, investigations or claims for or relating to any material
additional liability in respect of Taxes, and there are no matters under
discussion with any governmental authorities with respect to Taxes that in
the reasonable judgment of the Company or such Company's attorneys or
accountants, is likely to result in a material additional liability for
Taxes. Except as set forth on Schedule 3.18, no waiver or extension of a
-------------
statute of limitations relating to Taxes is in effect with respect to the
Company;
(iv) There are no liens for Taxes (other than for current Taxes not
yet due and payable) on any Company assets;
(v) The Company and each of its Stockholders made a valid election
effective as of April 1996, to be treated as an "S" corporation within the
meaning of Section 1361 of the Code for federal and applicable state and
local income Tax purposes. The Company has, for federal and applicable
state and local income Tax purposes, qualified as an "S" corporation within
the meaning of Section 1361 of the Code from the effective date of its
election to be treated as an "S" corporation through the date of this
Agreement and shall qualify as an "S" corporation through and including the
Closing Date. The Company has no undistributed "C" corporation earnings and
profits. Each Stockholder of the Company, including the Stockholders, is
and at all times has been an individual or trust eligible to be a
Stockholder of an "S" corporation in accordance with Section 1361(b) of the
Code. None of the Stockholders of the Company or the Company has taken or
omitted to take any action which would cause the Company to cease to be
treated as an "S" corporation within the meaning of Section 1361 of the
Code for federal and applicable state and local income Tax purposes;
(vi) None of the assets of the Company (A) secures any debt the
interest on which is Tax-exempt under Section 103(a) of the Code, (B) is
"Tax-exempt use property" within the meaning of Section 168(h) of the Code,
(C) is used predominantly outside the United States within the meaning of
Proposed Treasury Regulation Section 1.168-2(g)(5), (D) is "Tax exempt bond
financing property" within the meaning of Section 168(g)(5) of the Code,
(E) is "limited use property" with the meaning of Revenue Procedure 76-30
or (F) shall be treated as owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code. The transactions
contemplated by this Agreement are not subject to Tax withholding pursuant
to the provisions of Section 3406 or Subchapter A of Chapter 3 of the Code
or any other provision of applicable Law. None of the Stockholders is a
person other than a United States person within the meaning of the Code;
-14-
<PAGE>
(vii) No claim with respect to the Company has been made on or after
January 1, 1993 by an authority in a jurisdiction where such Company does
not file Tax returns that the Company is or may be subject to taxation by
that jurisdiction;
(viii) The Company is not is a party to any Tax indemnity, allocation
or sharing agreement;
(ix) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, Stockholder or other party, and has
complied in all material respects with all laws relating to Tax
withholding;
(x) There is no unresolved dispute or claim concerning any Tax
liability of the Company either claimed or raised by any Tax authority in
writing. There are no outstanding rulings of, or requests for rulings with,
any Tax authority addressed to the Company that are, or if issued would be,
binding on the Company; and
(xi) The Company is not a party to any joint venture, partnership or
other arrangement or contract which could be treated as a partnership for
federal income Tax purposes.
3.19 Certain Payments. All payments by the Company to agents, consultants
----------------
and others have been in payment of bona fide fees and commissions and not as
bribes or illegal or improper payments. The Company has complied with all
applicable provisions of the Foreign Corrupt Practices Act of 1977 and the rules
and regulations thereunder. To the knowledge of the Stockholders, the Company
has not made any payment to or on behalf of any person with respect to which a
deduction could be disallowed under Section 162(c) of Code. Neither the Internal
Revenue Service nor any other federal, state, local or foreign government agency
or entity has initiated or threatened any investigation of any payment made by
or on behalf of the Company of, or alleged to be of, the type described in this
Section 3.l9.
- ------------
3.20 Employees. Schedule 3.20 lists all employees employed directly by
--------- ------------
Company as of the date of this Agreement. All such individuals are employed, for
payroll purposes, by Merrill J. Oster, Inc. Schedule 3.20 does not include
-------------
officers and directors of the Company who do not work full-time for the Company
or employees of affiliates of the Company who provide general, administrative,
accounting and other services for Company as well as other businesses affiliated
with the Company. Schedule 3.20 includes the job title and aggregate annual cash
-------------
compensation of each individual listed as of the date of this Agreement. The
Stockholders have delivered to the Purchaser true and correct copies of any
written employment agreements (including any non-compete agreements) with all
individuals listed on Schedule 3.20.
-------------
3.21 Labor Relations . There is neither pending nor, to the knowledge of
---------------
the Stockholders, threatened any labor dispute, labor organizing activity,
election petition or
-15-
<PAGE>
proceeding, proceeding preparatory thereto, strike, slow down or work stoppage
which affects or which may affect the Company's business, or which may interfere
with its continued operations, and neither the Company nor any officer,
director, employee or agent of the Company has committed any unfair labor
practice as defined in the National Labor Relations Act of 1947, as amended. The
Company is not a party to or bound by any collective bargaining agreement. The
Company's relations with its employees are satisfactory and no employee paid
other than on an hourly wage basis has announced or threatened his or her
intention to leave the Company's employ.
3.22 Benefit Plans.
-------------
(a) Schedule 3.22 sets forth a correct and complete list of all employee
welfare and pension benefit plans and all other employee benefit arrangements
and payroll practices providing employee benefits (including all employment
agreements; severance agreements; executive compensation arrangements; incentive
programs or arrangements; sick leave policies; vacation pay and severance pay
policies; salary continuation arrangements for disability; consulting or similar
compensation arrangements with any Company employee; retirement plans; deferred
compensation plans; bonus programs; stock purchase arrangements; hospitalization
medical or health plans; life insurance plans; voluntary employee beneficiary
associations; tuition reimbursement or scholarship programs; and plans providing
benefits or payments in the event of a change in control, change in ownership or
sale of all or a substantial portion of the assets of the Company) maintained by
the Company or to which the Company contributes or is required to contribute
with respect to any current or former employee (each, a "Company Plan" and,
collectively, the "Company Plans"). With respect to each Company Plan (other
than a multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA") (a "Multiemployer
Plan")):
(i) such Company Plan (and each related trust, insurance contract or
fund) complies in form, and has complied in its operation, in all material
respects with the applicable requirements of ERISA, the Code and other
applicable Laws;
(ii) all required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-l's and Summary Plan Descriptions)
have been filed or distributed in accordance with ERISA, the Code and other
applicable Laws.
(iii) all contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Company Plan which is an Employee Pension Benefit Plan as defined
in Section 3(2) of ERISA (a "Pension Plan") and all contributions for any
period ending on or before the Closing Date which are not yet due have been
paid to each such Company Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for all
periods ending on or before the
-16-
<PAGE>
Closing Date have been paid with respect to each such Company Plan which is
a Welfare Plan (defined below);
(iv) each such Company Plan which is a Pension Plan that is intended
to meet the requirements of a "qualified plan" under Section 401 (a) of the
Code has received a currently applicable favorable determination letter
from the Internal Revenue Service and, to the knowledge of the
Stockholders, there exist no circumstances that would adversely affect the
qualified status of any such Company Plan under Section 401(a) of the Code
for which the remedial amendment period has expired. All contributions made
by the Company to each Company Plan which is a Pension Plan are fully
deductible for federal income Tax purposes. Each transfer of assets between
Company Plans which are Pension Plans during the five-year period ending
with the Closing Date is in compliance with ERISA and the qualification
requirements of Code Section 401(a);
(v) no such Company Plan (other than a Multiemployer Plan) is a
Pension Plan that is subject to Title IV of ERISA; and
(vi) the Stockholders have delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and other funding agreements which
implement such Company Plan.
(b) With respect to each Company Plan which is an employee welfare benefit
plan as defined in Section 3(1) of ERISA (a "Welfare Plan") and each Pension
Plan that the Company or any member of either Company's controlled group of
entities (within the meaning of Code Sections 414(b), (c), (m), or (o)) (each a
"Controlled Group Member") maintains or ever has maintained, or to which any of
them contributes, ever has contributed or ever has been required to contribute:
(i) no such Plan which is a Pension Plan is subject to Title IV of
ERISA;
(ii) the Company has not engaged in any non-exempt prohibited
transaction within the meaning of Title I of ERISA or Section 4975(c)(1) of
the Code with respect to such Company Plan, nor has the Company incurred
any liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of
such Company Plan, and no action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the
assets of such Company Plan (other than routine claims for benefits or
claims relating to a Multiemployer Plan that do not involve Company) is
pending or, to the knowledge of the Stockholders, threatened; and
-17-
<PAGE>
(iii) neither the Company nor any Controlled Group Member has
incurred, and the Stockholders have no reason to expect that the
Company or any of its Controlled Group Members shall incur, any
liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability) or under
the Code with respect to any such Plan which is a Pension Plan (other
than any Multiemployer Plan).
(c) Neither the Company nor any Controlled Group Member contributes
to, ever has contributed to or ever has been required to contribute to any
Multiemployer Plan or has incurred any withdrawal liability under Tide IV,
Subtitle E of ERISA with respect to any Company Plan.
(d) Except as set forth on Schedule 3.22, the Company does not
-------------
maintain or ever has maintained, or does not contribute, ever has
contributed or ever has been required to contribute to any Welfare Plan
providing medical, health, life insurance or other welfare benefits for
current or future retired or terminated employees, their spouses or their
dependents (other than in accordance with Section 4980B of the Code).
(e) Except as provided for in Schedule 3.22, no payment, acceleration
-------------
or increase in benefits provided by the Company under any Company Plan
shall occur as a result of the consummation of the transactions
contemplated by this Agreement.
(f) The Company is not bound by any oral or written commitment to
provide any employee welfare or pension benefit plan or arrangement other
than the Company Plans or to modify the terms or conditions of any of the
Company Plans.
(g) After the Closing, no employees hired by the Company pursuant to
Section 6.6 hereof shall be participants in any Company Plan except as
-----------
provided in Section 6.14.
------------
3.23 Insurance.
---------
(a) Schedule 3.23(a) correctly identifies all insurance policies and
----------------
bonds covering the Company or its assets, properties, operations or
personnel and the amounts, basis of premiums and nature of coverage with
respect to each such policy. Such policies and bonds are in full force and
effect, without interruption of coverage since the date specified for each
such policy in Schedule 3.23(a), and, to the knowledge of the Stockholders,
----------------
are carried by financially responsible insurance carriers, and are in such
amounts and against such risks and losses as are ordinarily and customarily
maintained with respect to comparable businesses, assets, properties,
operations or personnel. With exceptions which are not in the aggregate
material, the Company has not received any notice of cancellation,
termination or non-renewal or denial of liability with respect to any
policy or bond. Schedule 3.23(a) indicates any such policies which will
----------------
terminate on the Closing.
(b) Schedule 3.23(b) lists all outstanding claims as of the date of
----------------
this Agreement by the Company against insurance carriers for damage to or
loss of property or income
-18-
<PAGE>
and all claims made against the Company as of the date of this Agreement
which have been referred to insurers or which the Company believes to be
covered by insurers.
3.24 Accounts. Schedule 3.24 hereto correctly identifies each bank,
-------- -------------
securities, commodities or other brokerage or similar account and safe deposit
box or other depository maintained by, or on behalf of, or for the benefit of,
the Company, and the name of each Person with any Power or authority to act with
respect thereto.
3.25 Intercompany Accounts Working Capital and Dividends.
---------------------------------------------------
(a) Intercompany Receivable Account: Other Distributions. Prior to the
Closing the Company has been and will be operated by all cash of the
Company being loaned to OCI and all cash required by the Company to operate
being advanced by OCI as required to pay down the amount due to the Company
from OCI. The net amount due to the Company from OCI is carried as due from
related parties on the Company's balance sheet (the "Intercompany
Receivable Account"). All cash distributions to the Stockholders result in
a decrease in the Intercompany Receivable Account. The cost of acquiring
the personal property and the software required to be transferred to the
Company on or before the Closing pursuant to Sections 3.11 and 3.13(c)
------------- -------
shall be charged against and will thus reduce the Intercompany Receivable
Account in the amount of the fair market value of such property. On the
Closing, the Stockholders shall cause OCI to assume the Company's
obligation to pay deferred compensation of $3,293 per month for 60 months
at age 65 to Jerry Carlson, which represents the portion of such deferred
compensation liability accrued to date resulting in the elimination of the
existing deferred compensation liability on the Company's books by reducing
the Intercompany Receivable Account. The Company shall retain the remainder
of the deferred compensation obligation to Mr. Carlson and thus shall be
obligated to fund an annuity of $1,707 per month for 60 months commencing
at age 65 if Mr. Carlson is still employed by the Company at age 65.
Immediately prior to the Closing, the Company shall distribute to the
Stockholders the then balance of the Intercompany Receivable Account. The
Company shall make no other distributions to the Stockholders from the date
hereof to the Closing Date.
(b) Remaining Intercompany Items: Advertising Rights. On the Closing,
------------------------------------------------
after the distribution of the Intercompany Receivable Account, no amount
shall be owed by affiliates of the Company or the Stockholders to the
Company and the only amount that the Company shall owe to affiliates of the
Company or the Stockholders shall be the amount owed by the Company to
Merrill J. Oster in consideration for his sale of advertising rights in
Futures Magazine (the "Advertising Rights") to the Company, which amount
----------------
equaled $384,709 on December 31, 1997, and which amount is payable pursuant
to terms of a note, a true and correct copy of which is attached hereto as
Schedule 3.25.1 (the "Oster Note"). The Oster Note shall be amended and
---------------
restated on the Closing pursuant to Exhibit C. The Advertising Rights were
granted to Merril J. Oster pursuant to a Non-Competition and Non-
Solicitation Agreement dated May 30, 1997 by and between Futures
Communications Company, Inc. ("FCC") and Merrill J. Oster, a true and
correct copy of the relevant portions thereof dealing with the Advertising
Rights which is
-19-
<PAGE>
attached hereto as Schedule 3.25.2. The Advertising Rights relate only to
---------------
products and services of the Company on the Closing Date and require that
Purchaser keep the economic arrangements regarding the Advertising Rights
confidential. Merrill J. Oster has notified the FCC of the proposed sale of
the Company provided for in this Agreement and has afforded the FCC the
opportunity to make an offer to redeem the Advertising Rights as provided
therein. Merrill J. Oster will only accept a proposed redemption if the
terms therefor are acceptable to Purchaser. If such a proposal is accepted,
any amount received from FCC in exchange for the Advertising Rights will be
applied first to prepay the Oster Note and any excess thereof shall be paid
to the Company and shall be loaned to OCI as part of the Intercompany
Receivable Account.
3.26 Relationship of Assets at Closing to Assets Used in Business . After
------------------------------------------------------------
the transactions provided for in Sections 3.10, 3.11, 3.12(d), 3.13, 3.25 and
------------- ---- ------- ---- ----
6.6 and except as otherwise disclosed herein, the Assets at Closing will
- ---
constitute all of the tangible personal property used solely in the operation of
the Company's Business as currently conducted, all accounts receivable of the
Business except for the Intercompany Account Receivable, all Contracts and
Subscription Agreements, all Intellectual Property, all Licensed Property, all
permits and licenses from governmental bodies to the extent not terminable on a
change in control and all goodwill of the Company relating to the Business.
3.27 Customer List. The current customer lists and customer records are the
-------------
property of the Company. After the Closing, no entity controlled by the
Stockholders will be in possession of a copy of the customer list or customer
records of the Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH OF THE STOCKHOLDERS
--------- ----------------------------------------------------------
REGARDING SHARES.
----------------
Each of the Stockholders hereby represents severally and not jointly,
as of the date hereof and as of the Closing Date, as follows:
4.1 Ownership of Stock. Each Stockholder is the lawful owner of the number
------------------
of Shares listed opposite the name of such Stockholder in Exhibit A attached
---------
hereto, free and clear of all liens, encumbrances, restrictions and claims of
every kind except for a pledge to ANB to secure the OCI Guaranty which will be
released on the Closing; each Stockholder has full legal right, power and
authority to enter into this Agreement and to sell, assign, transfer and convey
such Stockholder's Shares pursuant to this Agreement; and the delivery to
Purchaser of such Stockholder's Shares pursuant to the provisions of this
Agreement will transfer to Purchaser valid title thereto, free and clear of all
liens, encumbrances, restrictions and claims of every kind.
4.2 No Restrictions Upon the Stockholders. Such Stockholder is not subject
--------------------------------------
to any restriction, agreement, law, judgment or levy which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby except for a pledge to ANB to secure the OCI
Guaranty which will be released on the Closing. This Agreement is the valid and
binding agreement of such Stockholder, enforceable in accordance with its terms.
-20-
<PAGE>
4.3 Brokers and Finders. Such Stockholder has not engaged or authorized any
-------------------
broker, investment banker or other third party to act on such Stockholder's
behalf, either directly or indirectly, as a broker, finder or advisor in
connection with the sale of such Stockholder's Shares pursuant to this
Agreement.
4.4 Acquisition of Preferred Stock.
------------------------------
(a) The shares of Preferred Stock to be acquired by the Stockholder
pursuant to Section 2.2 are being acquired by the Stockholder for the
-----------
Stockholder's own account, not as a nominee or agent, and not with a view
to the resale or distribution thereof within the meaning of the Securities
Act, and such Stockholder will not distribute the Preferred Stock in
violation of the Securities Act or any applicable state securities laws.
(b) Each Stockholder acknowledges that the Purchaser has made
available to such Stockholder the opportunity to ask questions of and
received answers from the Purchaser's officers and directors concerning the
business and financial condition of the Purchaser, and the Stockholder has
received to the Stockholder's satisfaction such information about the
business and financial condition of the Purchaser as such Stockholder has
requested.
(c) Each Stockholder represents that (i) such Stockholder is an
"accredited investor" as such term is defined in Rule 501 promulgated under
the Securities Act, (ii) such Stockholder's financial situation is such
that such Stockholder can afford to bear the economic risk of holding the
Preferred Stock for an indefinite period of time and suffer complete loss
of such Stockholder's investment in the Preferred Stock, (iii) such
Stockholder's knowledge and experience in financial and business matters is
such that such Stockholder is capable of evaluating the merits and risks of
acquisition of the Preferred Stock as contemplated by this Agreement, and
(iv) such Stockholder has no contract, arrangement or understanding with
any broker, finder of similar agent with respect to the transactions
contemplated by this Agreement respecting the Preferred Stock.
(d) Each Stockholder (i) acknowledges that the shares of Preferred
Stock are not registered under the Securities Act and that the shares of
Preferred Stock to be acquired by such Stockholder must be held
indefinitely by such Stockholder unless they are subsequently registered
under the Securities Act or an exemption from registration is available,
(ii) is aware that any routine sales under Rule 144 promulgated under the
Securities Act of Preferred Stock may be made only in limited amounts and
in accordance with the terms and conditions of Rule 144 and that in such
cases where Rule 144 is not applicable, compliance with some other
registration exemption will be required, (iii) is aware that Rule 144 may
not presently be available for use by such Stockholder for resale of any
Preferred Stock, and (iv) is aware that the Purchaser is not obligated to
register under the Securities Act any sale, transfer or other disposition
of the Preferred Stock. Each Stockholder further agrees that,
notwithstanding the expiration or lapse of any restriction(s) on transfer
of the Preferred Stock as provided in Section 2.2, such
-----------
-21-
<PAGE>
Stockholder will not transfer any shares of the Preferred Stock for a
period of twelve months from the Closing Date except pursuant to the
conversion to Common Stock provided for in Section 2.2(g).
-------------
(e) Each Stockholder acknowledges that the Purchaser is not required
to register the transfer of shares of the Preferred Stock on the books of
the Purchaser unless the Purchaser shall have been provided with an opinion
of counsel reasonably satisfactory to it prior to such transfer to the
effect that registration under the Securities Act or any applicable state
securities law is not required in connection with the transaction resulting
in such transfer. Each certificate for shares of Preferred Stock issued
upon any transfer as above provided shall bear the restrictive legend set
forth below, except that such restrictive legend shall not be required as
provided in Section 2.2(b) or if the opinion of counsel reasonably
--------------
satisfactory to the Purchaser referred to above is to the further effect
that such legend is not required in order to establish compliance with the
provisions of the Securities Act and any applicable state securities law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM, AND ANY SALE OR OTHER TRANSFER IS FURTHER
SUBJECT TO THE RESTRICTIONS SET FORTH IN THE CERTAIN STOCK PURCHASE AGREEMENT
DATED ______________, 1998, BY AND AMONG FARM JOURNAL HOLDINGS, INC., AND THE
STOCKHOLDERS OF PROFESSIONAL FARMERS OF AMERICA, INC.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
---------- -------------------------------------------
The Purchaser hereby represents and warrants to the Stockholders, as
of the date hereof and as of the Closing Date, as follows:
5.1 Organization. Standing and Corporate Authority . The Purchaser is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full corporate power and authority to enter
into and perform this Agreement and consummate the transactions contemplated
hereby. The execution, delivery and performance hereof and the consummation of
the transactions contemplated hereby by the Purchaser have been duly authorized
by all necessary corporate action and this Agreement is a valid and binding
agreement of the Purchaser, enforceable in accordance with its terms.
5.2 Brokers and Finders. The Purchaser will be responsible for any broker,
-------------------
investment banker or other third party engaged by the Purchaser to act on its
behalf as a broker, finder or advisor in connection with the Purchaser's
purchase of the Shares.
SECTION 6. COVENANTS OF STOCKHOLDERS.
---------- -------------------------
The Stockholders hereby covenant and agree with the Purchaser as
follows:
-22-
<PAGE>
6.1 Conduct of the Company Pending Closing. From the date hereof to and
--------------------------------------
including the Closing Date, the Stockholders shall cause the Company to operate
its business only in the usual and ordinary course, consistent with past
practice, and in connection therewith the Stockholders will not permit the
Company to (or enter into any agreement to):
(a) incur any indebtedness for borrowed money or assume, guarantee,
endorse except as an endorser of checks received by it and deposited in the
ordinary course of business or otherwise become responsible for the
obligations of any other individual, firm or corporation, or, except as
provided in Section 3.25 hereof, make any loans or advances to any
------------
individual, firm or corporation;
(b) except for dividends or distributions which would not violate
Section 3.25 hereof, make, declare or pay any dividend, or declare or make
------------
any distribution on, or redeem, purchase or otherwise acquire, any shares
of its outstanding capital stock or authorize the creation or issuance of
any additional shares of its capital stock or any options, calls or
commitments relating to its capital stock or any securities or obligations
convertible into or exchangeable for or giving any person any right to
subscribe for or acquire any shares of its capital stock;
(c) mortgage, pledge or otherwise encumber any of its properties or
assets;
(d) except as provided in Section 3.25 hereof, sell or transfer any of
------------
its properties or assets or cancel, release or assign any indebtedness owed
to them or any claims held by it, other than in the ordinary course of its
business;
(e) close any material facilities;
(f) except as provided in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and
------------- ---- ---- ---- ----
6.6 hereof, make any investment of a capital nature either by purchase of
---
stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase or lease of any property or assets of any
other individual, firm or corporation;
(g) enter into any joint venture, partnership or other similar
arrangement or form any other new arrangement for the conduct of its
business;
(h) except as provided in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and
------------- ---- ---- ---- ----
6.6 hereof, enter into, amend or terminate any material contract, including
---
material leases, permits and licenses;
(i) increase in any manner the compensation or fringe benefits (other
than compensation or fringe benefits increases as may be required by law or
in accordance with its customary compensation practices and related changes
in fringe benefits) of any of its officers, directors or employees or pay
or agree to pay any pension or retirement allowance not required by any
existing plan or agreement to such officers, directors or employees, commit
itself to any pension, retirement or profit-sharing plan or agreement or
employment agreement (except for retainer or consulting agreements entered
into in
-23-
<PAGE>
the ordinary course of its business and except as provided in Section 6.6,
-----------
hereof) with or for the benefit of any officer, employee or other person
or, except as required by law, alter, amend, terminate in whole or in part,
or curtail or permanently discontinue distributions to, any employee
pension benefit plan;
(j) permit, to the extent within its control, any insurance policy
naming the Company as a beneficiary or a loss payable payee to be canceled
or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination or cancellation replacement policies
providing substantially similar coverage are in full force and effect;
provided, however, that this provision shall not apply to insurance which,
as disclosed in Schedule 3.23, will lapse or terminate on the Closing;
-------------
(k) make any amendments to its Certificate of Incorporation or By-
laws;
(l) take any actions which would be inconsistent with keeping
available the services of its present employees and preserving its existing
relationships with its suppliers, customers and others or with the
uninterrupted maintenance of the Company's operations as a going concern;
or
(m) change the accounting methods or practices of the Company except
that the Company shall change its method of capitalizing and amortizing
deferred promotion costs as agreed between the Company's certified public
accountants and Purchaser's certified public accountants and shall restate
its 1995 closing balance sheet and 1996 and 1997 Financial Statements to
reflect such change.
(n) fail to expend promotion costs in the ordinary course of business
consistent with its 1998 Business Plan dated January 6, 1998; or
(o) take or omit to take any action the effect of which could or will
render inaccurate any of the Stockholders' representations and warranties
set forth herein.
6.2 Access Pending Closing. From the date hereof to and including the
----------------------
Closing Date, the Stockholders shall cause the Purchaser and its accountants and
other representatives to have the right to full and complete access to the books
and records of the Company and the Company's employees and customers for the
purpose of making such investigation of the financial condition and operations
of the Company as the Purchaser may reasonably deem necessary; provided that any
contact with customers prior to Closing shall be on a basis mutually agreed upon
between the Stockholders and the Purchaser which is not calculated to reveal to
the customers contacted that the transactions provided for herein are
contemplated.
6.3 Consents of Third Parties. Prior to the Closing, the Stockholders
-------------------------
shall obtain, at their sole expense, all consents and other approvals from any
governmental agency, bureau or authority, or any other person (including any
lender or lessor), which are required of the Company as a result of or to
effectuate the transactions contemplated by this Agreement.
-24-
<PAGE>
6.4 Resignations. The Stockholders who are also officers or directors of
------------
the Company shall deliver to the Purchaser on the Closing their resignations as
officers and directors. On the Closing, the Stockholders shall also deliver to
Purchaser the resignations of David Joerger and Merlyn VandeKrol as officers of
the Company.
6.5 Transfers. The Stockholders shall cause the transfers to or from the
---------
Company provided for in Sections 3.10, 3.11, 3.13 and 3.25 to occur on or before
------------- ---- ---- ----
the Closing and shall cause the Company to enter into the New Lease and the
agreements for services provided for in Section 6.6(e), (f), (g) and (h) on the
-------------- --- --- ---
Closing.
6.6 Continuing Relationships.
------------------------
(a) Company Employees. On the Closing, the Stockholders shall cause
-----------------
Merrill J. Oster, Inc. to terminate as employees for payroll purposes those
individuals listed in Schedule 6.6(a) and such individuals shall be offered
---------------
the opportunity to become employees of the Company on the Closing for
payroll purposes on terms and conditions, except for fringe benefits,
comparable to those paid by Merrill J. Oster, Inc. to such individuals and
reimbursed by the Company. The Stockholders shall cause all wages,
salaries, commissions, bonuses (including without limitation the bonuses
due to Mark Wooderson and Dan Manternach on the transactions provided for
in this Agreement), incentives, and the cost of all fringe benefits
provided to such employees (including, without limitation claims against
the Oster Communications, Inc. Health Plan arising prior to Closing but
billed thereafter) which shall have become due in the future for work
performed as of and through the Closing Date to be paid by Merrill J.
Oster, Inc. and credited against the Intercompany Receivable Account as a
partial repayment as of the Closing, and Merrill J. Oster, Inc. shall
withhold and pay all taxes in respect of such wages, balances, commissions,
bonuses, incentives and benefits provided that the Company shall assume all
obligations for accrued vacation and sick days and shall use its best
efforts to procure a waiver of severance pay, if any, due from Merrill J.
Oster, Inc. due to their termination of employment by Merrill J. Oster,
Inc. for any such individuals employed by the Company pursuant to this
Section. Should the Company become liable to any such employees for
severance payments resulting from their termination pursuant to this
Section which are not waived after use of such best efforts or should the
Company become liable to either Mark Wooderson or Dan Manternach for
severance pursuant to the agreements between the Company and such
individuals both dated January 23, 1998, the Stockholders shall cause such
payments to be made by OCI on behalf of the Company and to be credited as a
partial repayment against the Intercompany Account Receivable. All
individuals who are listed on Schedule 3.20 but are not listed on Schedule
------------- --------
6.6(a) shall not be employees of the Company after the Closing Date and the
------
Stockholders shall be responsible for any accrued vacation, sick days, and
severance due to such individuals as a result of the transactions provided
for herein. The Stockholders shall prevent the Company from raising the
compensation of those individuals listed on Schedule 6.6(a) from that
---------------
disclosed in Schedule 3.20 prior to Closing without the written consent of
-------------
Purchaser.
-25-
<PAGE>
(b) Offers to Other Employees. In addition to those individuals listed
-------------------------
in Schedule 6.6(a), Purchaser may offer employment on the Closing by the
---------------
Company or Purchaser to David Joerger ("Joerger"), chief financial officer
of OCI, on the condition that (i) Joerger shall be allowed to perform
consulting services for Merrill J. Oster and any entities controlled by the
Stockholders for twelve months subsequent to Closing provided that such
consulting services do not interfere with his employment by Purchaser or
the Company, and (ii) Joerger shall waive any claims he may have for
severance payments or other benefits on termination of his employment with
OCI and any related entities. Should Joerger accept employment with
Purchaser or the Company on Closing, the Purchaser or the Company may also
offer employment to Susan Groves, Joerger's secretary, provided that the
Purchaser or the Company shall provide her services on a half-time basis to
act as secretary for Merrill J. Oster for twelve months subsequent to
Closing or such shorter period as Merrill J. Oster shall desire her
services for a fee of $1,500 per month. Except as provided in Sections
--------
6.6(a) and (b), during the Non-competition Period as defined in Section
------ --- -------
6.13, Purchaser or any affiliate of Purchaser shall not offer to employ or
----
employ, directly or indirectly, any individual employed on the Closing Date
in any capacity by any entity listed in Schedule 3.5 except (i) with the
------------
prior written permission of Merrill J. Oster or (ii) one year after such
individual was last employed by an entity listed in Schedule 3.5.
------------
(c) VandeKrol Services. The Stockholders shall provide, without
------------------
charge, the services of Merlyn VandeKrol ("VandeKrol") to Purchaser on a
half-time basis to advise Purchaser on matters relating to the Company for
the period of one year after the Closing or such shorter period as
VandeKrol is employed by OCI or any other entity controlled by the
Stockholders. The Company shall reimburse VandeKrol or his employer for any
out-of-pocket costs incurred by him or his employer in providing services
for Purchaser pursuant hereto.
(d) Internet Development Service. The internet development services
----------------------------
currently provided by FutureSource Information Systems, Inc. ("FSIS") and
the billings to the Company therefor shall terminate as of the Closing. The
Purchaser shall have 180 days after the Closing to remove the Company's
internet site from FSIS's server at the Company's expense.
(e) Quotes. For a period of the shorter of (i) five years from the
------
Closing or (ii) so long as FSIS is both providing real time commodity
exchange quotes to others and is not prohibited by the commodity exchanges
from providing such quotes to others for use on a snapshot quote basis,
provided that either FSIS or Purchaser may terminate such service on 12
months notice to the other given anytime (but only after December 31, 1999
as to notice by FSIS), the Stockholders shall cause FSIS to provide FSIS's
real time data feed of commodity exchange quotes to the Company for use in
the Company's Links product to take a snapshot of such quotes every ten
minutes or to use in delayed quote products for a monthly fee of $5,000,
with such monthly fee adjusted effective each January 1 for increases in
the Consumer Price Index All Urban Wage Earners for the entire United
States during the prior calendar year. In addition to such monthly fee, the
Company shall
-26-
<PAGE>
reimburse FSIS for all fees charged by exchanges in regard to such service
to the Company. The quotes provided immediately after the Closing pursuant
to this provision will be the same as those provided on the date of this
Agreement but may change over the term of this arrangement.
(f) FWN News. For a period of five years from the Closing, provided
--------
that either OCI or Purchaser may terminate such service on twelve months
notice to the other given anytime (but only after December 31, 1999 as to
notice by OCI), the Stockholders shall cause OCI through its Future World
News division ("FWN") to provide FWN's full real time news feed, including
any and all improvements made thereto which are not separately charged to
other FWN customers, to the Company for use in the Company's Links product
for redistribution to the Company's Links customers (other than customers
who are themselves redistributors) for a monthly fee equal to $5 per active
Links terminal at the end of each month, with such monthly fee adjusted
effective each January 1 for increases in the Consumer Price Index--All
Urban Wage Earners for the entire United States during the prior calendar
year. The news feed provided immediately after the Closing pursuant to this
provision will be the same as that provided on the date of this Agreement
but may change over the term of this arrangement.
(g) FWN Staff Access. For a period of the shorter of (i) five years
----------------
from the Closing Date, or (ii) so long as FWN maintains a Washington
bureau, provided that either OCI or Purchaser may terminate such access on
12 months notice to the other given anytime (but only after December 31,
1999 as to notice by OCI), the Stockholders shall cause OCI to provide
access to FWN's editorial staff to provide comments on news items of
interest to the Company's customers for a monthly fee of $13,800, with such
monthly fee adjusted effective each January 1 for increases in the Consumer
Price Index--All Urban Wage Earners for the entire United States during the
prior calendar year.
(h) FSIS Service. For a period of five years from the Closing Date,
------------
provided that either FSIS or Purchaser may terminate such access on 12
months notice to the other given anytime (but only after December 31, 1999
as to notice by FSIS), the Stockholders shall cause FSIS to provide such
number of terminals for access to FSIS's services by the Company's editors
as the Company shall request for a monthly fee equal to $370 for the first
terminal at a site and $210 for each additional terminal at the same site,
with such monthly fees adjusted effective each January 1 for increases in
the Consumer Price Index--All Urban Wage Earners for the entire United
States during the prior calendar year. In addition to such monthly fee,
the Company shall reimburse FSIS for all fees charged by exchanges in
regard to such service to the Company.
6.7 No Shop Clause. For the period commencing on the date hereof and
--------------
ending on the date, if any, this Agreement is terminated pursuant to Section 10,
----------
the Stockholders shall not solicit, contact or have any discussion, and shall
not permit the Company to solicit, contact or have any discussion, with any
person or entity with a view to (i) the acquisition of any assets of the
Company, (ii) the acquisition of any capital stock of the Company, (iii) the
merger or consolidation of the Company, or (iv) the acquisition by the Company
of the stock or assets of
-27-
<PAGE>
any other person or entity. The Stockholders shall give the Purchaser immediate
telephonic notice regarding all details of any attempt by any third party to
solicit, contract or discuss the matters set forth in clauses (i)-(iv) above.
6.8 Closing. The Stockholders shall use their best efforts to cause the
-------
conditions specified in Section 8 (other than Sections 8.12 and 8.13) hereof to
---------- ------------- ----
be satisfied at or as soon as practical after the date hereof.
6.9 Election to Treat as Asset Sale . The Stockholders will join the
-------------------------------
Purchaser in making an election under Section 338(h)(10) of the Internal Revenue
Code of 1986 and any corresponding elections available under state, local or
foreign law with respect to the purchase and sale of Shares (collectively,
"Election"). On the Closing, each Stockholder will deliver to Purchaser an
executed Form 8023 which Purchaser may utilize to make the Election. Pursuant to
the Election, the Company will be deemed for federal and Iowa and Illinois state
income tax purposes to have sold its assets while still owned by Stockholders
and to have immediately liquidated by distributing the proceeds of the deemed
sale to the Stockholders and the Purchaser will be deemed to have purchased such
assets in a new corporation.
6.10 Allocation of Purchase Price. The Purchaser and the Stockholders
----------------------------
agree that the modified aggregate deemed sale price as defined in Treas. Reg.
(S) 1.338(h)(10)-l(f)(l) shall be allocated to the assets of the Company for all
purposes (including tax and financial statement purposes) in a manner consistent
with the fair market value of the Company's assets set forth on Schedule 6.10 to
-------------
this Agreement.
6.11 Publicity. Prior to the Closing, the Stockholders shall not, and
---------
shall not permit the Company to, cause or permit any press release or other
announcement concerning the transactions contemplated by this Agreement or
disclose the existence or contents hereof without the prior written consent of
Purchaser, except as required to carry out the transactions provided for herein
and except for discussions with attorneys, accountants, agents and bankers
involved herein; provided that on the Closing the parties shall cooperate in the
timing and contents of a joint announcement concerning the transactions provided
for herein.
6.12 Non-Disclosure. After the Closing, the Stockholders agree to keep
--------------
confidential and shall not, except with the express prior written consent of
Purchaser, directly or indirectly, voluntarily or involuntarily, communicate,
disclose or divulge to anyone or for the benefit of anyone other than the
Purchaser any and all confidential information concerning the conduct and
details of the Company's Business including, without limitation, trade secrets,
customer lists, technology, know-how, methods, contracts, costs, policies, sales
methods, financial condition, operations, statistics and suppliers; provided
that this section shall not apply (i) to any information available from other
public sources, (ii) any information already known to the recipient unless such
knowledge emanated from a breach of this section, and (iii) to the extent
disclosure is required by law.
6.13 Non-Competition.
---------------
-28-
<PAGE>
(a) The Stockholders agree that they shall not, during the period
commencing on the Closing and ending on the fifth annual anniversary of the
Closing (the "Non-Competition Period"), directly or indirectly, in any
capacity, whether as employee, owner, investor, lender, partner, agent,
director, officer, shareholder, or in any other capacity, for their own
benefit or for the benefit of anyone other than Purchaser:
(i) Engage in any Prohibited Activity (as defined below), provided
that nothing herein shall be construed to prevent Stockholders from
owning, on a wholly passive basis, up to an aggregate of 5% of a class
of equity securities issued by an entity that engages in any
Prohibited Activity that is publicly traded and registered under the
Securities Exchange Act of 1934, as amended. For this purpose,
"Prohibited Activity" shall mean activities that would compete
directly with the Business as presently conducted; provided that
Prohibited Activities shall not include the production and sale of
products and services currently being produced, published, distributed
or sold by OCI, FSIS and FWN and the sale of advertising therein as
well as updated and functional extensions of such products and
additional products which are similar in function and purpose or use
("Existing Products"); provided further that until the second
anniversary of the Closing, Existing Products shall not include a
snapshot commodity quotations product delivered by satellite.
(ii) Employ or attempt to employ any individual employed on the
day following the Closing Date in any capacity by the Company,
Purchaser, Farm Journal, Inc., or MS Farm Limited Partnership except
(i) with the written permission of Purchaser or (ii) one year after
such individual was last employed by the Company, Purchaser, Farm
Journal, Inc., or MS Farm Limited Partnership.
(iii) Request or advise any customer of the Business as presently
conducted to withdraw, curtail or cancel such customer's business with
the Company; provided that for this purpose customers upgrading from
the Company's Global Link and Future Link products to Existing
Products of FSIS shall not be deemed to have withdrawn, curtailed or
cancelled their business with the Company.
(iv) Knowingly use the Company's customer list.
(b) Any breach by the Stockholders of the provisions of this Section
-------
6.13 or Section 6.12 will result in irreparable injury to the Purchaser for
---- ------------
which money damages could not adequately compensate the Purchaser, and, in
the event of any such breach Purchaser shall be entitled to have an
injunction issued by any competent court of equity enjoining and
restraining such breach. The existence of any claim or cause of action the
Stockholders may have against the Purchaser shall not constitute a defense
or bar to the enforcement of such covenants.
(c) If any portion of Section 6.13(a) or the application thereof is
---------------
construed to be invalid or unenforceable, then the other portions of
Section 6.13(a) or the application
---------------
-29-
<PAGE>
thereof shall not be affected and shall be given full force and effect
without regard to the invalid or unenforceable portions. If any portion of
Section 6.13(a) is held unenforceable because of the area covered, the
---------------
duration thereof, or the scope thereof, the court making such determination
shall have the power to reduce the area and/or duration and/or limit the
scope thereof and the provisions of Section 6.13(a) shall then be
---------------
enforceable in reduced form.
6.14 Employee Benefit Matters.
------------------------
(a) Company Plans. The Stockholders agree that, effective as of the
-------------
Closing, the Company shall cease to be a participating employer in each
Company Plan listed in Schedule 3.22. On or before the Closing, the
-------------
Stockholders shall cause OCI and the Company to execute all necessary
documents to cause the Company to cease to be a participating employer in
each such Company Plan. The Stockholders agree that the Purchaser shall
have no liability or obligation with respect to any such Company Plan.
(b) Plan Names and Sponsor. The Stockholders shall cause OCI on or
----------------------
before the Closing to change the name of the plan to OCI, and shall cause
OCI to file amended 1996 Form 5500s on or before Closing changing the name
of the plan sponsor and administrator to OCI and the employer
identification number to OCI's employer identification number in regard to
group health insurance, long term disability and group insurance plans
listed in Schedule 3.22.
-------------
(c) COBRA. The Stockholders agree that OCI shall be responsible for
-----
satisfying all liabilities under Part 6 of Title B of Title I of ERISA and
Section 3980B of the Code to provide continuation coverage and notice of
such coverage to employees of the Company and their eligible dependents who
incur a "qualifying event" on or prior to the Closing.
(d) HIPAA. The Stockholders agree that OCI shall be responsible for
-----
satisfying all liabilities under Part 7 of Subtitle B of Title I of ERISA
and Sections 9801 and 3980D of the Code to provide certifications of
coverage to employees of the Company and their eligible dependents who
become entitled to such certifications as a result of termination of
coverage or employment occurring on or prior to the Closing.
(e) OCI Cafeteria Plan. As soon as practicable following the Closing,
------------------
the Stockholders shall cause the medical spending account balances and the
dependent care account balances of employees hired by the Company pursuant
to Section 6.6(a) or 6.6(b) under the OCI Cafeteria Plan to be transferred
-------------- ------
to the Purchaser's Section 125 cafeteria plan, in accordance with the
provisions of each such plan and applicable law. The Stockholders shall
cause OCI to adopt any necessary amendments to the OCI Cafeteria Plan in
order to enable the Plan to make a transfer of accounts to the Purchaser's
cafeteria plan. The Purchaser agrees to cooperate with OCI in effecting any
such transfers of account balances from the OCI Cafeteria Plan to the
Purchaser's cafeteria plan and agrees
-30-
<PAGE>
to adopt any necessary amendments to Purchaser's cafeteria plan in order to
permit the plan to accept a transfer of accounts from the OCI Cafeteria
Plan.
(f) OCI Employee Savings Plan. On or before the Closing, the
-------------------------
Stockholders shall cause the Company to terminate its participation in the
OCI Employee Savings Plan and the account balances of employees hired by
the Company pursuant to Sections 6.6(a) or 6.6(b) under the OCI Employee
--------------- ------
Savings Plan to be distributed to such employees in accordance with the
Plan and applicable law as soon as reasonably practical after Closing.
(g) Intercompany Charge. All amounts assumed by OCI pursuant to
-------------------
Section 6.14 shall reduce the Intercompany Receivable Account.
------------
6.15 Referrals. From and after the Closing Date, the Stockholders agree to
---------
refer any and all customer inquiries received by them or any of their affiliates
relating to the Company or the Business to the Company and to promptly notify
the Company of such inquires on a regular basis.
SECTION 7. COVENANTS OF PURCHASER.
---------- -----------------------
The Purchaser hereby covenants and agrees with the Stockholders as
follows:
7.1 Books and Records. In connection with any tax audit of the
-----------------
Stockholders, or the preparation of any tax return of the Stockholders, or the
defense of any claim brought against the Stockholders, or any other proper
purpose, the Purchaser will cause the Company to make available to the
Stockholders, at the Stockholders' request and expense from time to time, all
books and records of the Company either existing on or relating to any
transaction on or prior to the Closing Date, for inspection or copying by the
Stockholders at any reasonable time for a six year period after the Closing
Date.
7.2 Closing. The Purchaser will use its best efforts to cause the
-------
conditions specified in Section 9 and in Sections 8.13 and 8.14 hereof to be
--------- ------------- ----
satisfied at or as soon as practicable after the date hereof.
7.3 Continuing Relationships. For the periods subsequent to the
------------------------
Closing provided for therein, the Purchaser shall cause the Company to procure
from affiliates of the Stockholders the services provided for in Sections 6.6(e)
---------------
through (h) and shall comply with the provisions of Sections 6.6(a) and (b).
--------------- ---
7.4 Advertising. The Purchaser shall keep and cause the Company to
-----------
keep the economic arrangements regarding the Advertising Rights confidential.
7.5 Publicity. Prior to the Closing, the Purchaser shall not cause or
---------
permit any press release or other announcement concerning the transactions
contemplated by this Agreement or disclose the existence or contents hereof
without the prior written consent of Merrill J. Oster, except as required to
carry out the transactions provided for herein, except for discussions with
attorneys, accountants, agents and bankers involved herein and except in a
registration statement
-31-
<PAGE>
filed with the Securities and Exchange Commission; provided that on the Closing
the parties shall cooperate in the timing and contents of a joint announcement
concerning the transactions provided for herein.
7.6 Non-solicitation. During the Non-Competition Period, the Purchaser
----------------
shall comply with the last sentence of Section 6.6(b).
--------------
SECTION 8. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE.
--------- ----------------------------------------------
The obligation of the Purchaser hereunder to proceed with the Closing
is subject to the satisfaction on or before the Closing Date of each of the
following conditions, unless otherwise waived in writing by the Purchaser. All
documents, instruments and opinions to be furnished by the Stockholders pursuant
hereto shall be in form and substance reasonably satisfactory to the Purchaser
and its counsel.
8.1 Representations and Warranties . The representations and warranties of
------------------------------
the Stockholders contained herein, and in any certificate or other writing
delivered pursuant hereto or in connection herewith, shall be true and correct
in all respects on and as of the Closing Date.
8.2 Performance. The Stockholders shall have duly performed or complied
-----------
with all of the covenants, acts and obligations to be performed or complied with
by them hereunder at or prior to the Closing.
8.3 Liabilities. Except for liabilities reflected in the Financial
-----------
Statements or on the Schedules hereto, and except for trade account payables
incurred by the Company since the Balance Sheet Date in the normal and ordinary
course of the Company's business on the Closing Date there shall not be any
liabilities of the Company of any kind whatsoever, whether or not accrued or
fixed, absolute or contingent, known or unknown, determined or determinable, nor
shall there be any condition or circumstance existing or which has existed, and
no event shall have occurred which could reasonably be expected to result in any
such liability, which liabilities in any such case could, individually or in the
aggregate, adversely affect (for financial or other reasons) the ability of the
Company to continue to conduct the Business (as presently conducted) on and
after the Closing Date.
8.4 Shares. Each of the Stockholders shall have delivered to the Purchaser
------
a certificate or certificates representing all of his or her Shares, duly
endorsed by such Stockholder for transfer to the Purchaser or accompanied by an
assignment of such Shares to the Purchaser duly executed by each such
Stockholder.
8.5 Corporate Books. The Stockholders shall have delivered to the
---------------
Purchaser the corporate minute books, seals (if any) and stock transfer records
of the Company.
8.6 Resignations. The Stockholders shall have delivered to the Purchaser
------------
the written resignations of all of the officers and directors of the Company
required pursuant to Section 6.4, hereof, effective as of the Closing, on the
-----------
Closing Date.
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<PAGE>
8.7 Proof of Good Standing. The Stockholders shall have delivered to the
----------------------
Purchaser (i) a certified copy of the Certificate of Incorporation of the
Company, and all amendments thereto, and (ii) a Certificate of Good Standing
with respect to the Company, dated within ten days of the Closing Date, from the
States of Iowa and Illinois.
8.8 Transfers and Release of Guarantees. The transfers to and from the
-----------------------------------
Company provided for in Sections 3.10, 3.11, 3.13 and 3.25 shall have occurred,
------------- ---- ---- ----
the Lease Obligation shall be released as provided in Section 3.9, and the OCI
-----------
Guaranty shall have been released by ANB prior to or simultaneously with the
Closing.
8.9 Certificate of Officer. The Purchaser shall have received a
----------------------
certificate signed by the President of the Company, dated the Closing Date,
either (i) stating that the representations and warranties contained herein or
in any certificate or other writing delivered pursuant hereto or in connection
herewith are accurate on and as of the Closing Date and that the Stockholders
have duly performed or complied with all of the covenants, acts and obligations
to be performed or complied with by them hereunder at or prior to the Closing or
(ii) specifying in which respects such warranties and representations are not
accurate at Closing or such covenants, acts and obligations have not been
performed or complied with despite the exercise of the Stockholders' best
efforts pursuant to Section 6.8. In the event a certificate described in clause
-----------
(ii) or the prior sentence is delivered to Purchaser, Purchaser shall have the
right in its sole discretion to terminate this Agreement and Purchaser shall
have no claim for breach of a warranty, representation or covenant described
therein, but such certificate shall itself be deemed a representation and
warranty by the Stockholders hereunder.
8.10 Opinion of Counsel. The Purchaser shall have received from the law
------------------
firm of Jenner & Block, counsel to the Stockholders, an opinion of such counsel,
dated the Closing Date, in form and substance reasonably acceptable to the
Purchaser and its counsel, to the effect that:
(a) This Agreement is a valid and binding agreement of the
Stockholders and is enforceable against each of them in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights, or the availability of equitable remedies.
(b) All requisite action has been taken by the Stockholders to legally
enter into and consummate the transactions contemplated by this Agreement,
including but not limited to, the transfer of each such Stockholder's
Shares to the Purchaser on the Closing Date.
(c) The authorized capital stock of the Company consists of 10,000
shares of Common Stock, with a par value of $100 per share, of which 2,725
shares are issued and outstanding. All of the issued and outstanding Shares
have been duly authorized and validly issued, and are fully paid and non-
assessable.
-33-
<PAGE>
(d) Upon delivery of the Shares to the Purchaser by the Stockholders,
the Purchaser will acquire good and marketable title to the Shares free
from any adverse claim or restriction, except those claims, if any,
resulting from any acts of the Purchaser.
(e) The Company is a corporation which is duly organized, validly
existing and in good standing under the laws of the State of Iowa, is
registered as a foreign corporation in Illinois and has corporate power and
authority in Iowa and Illinois to own and use its assets and properties,
and to carry on its business as same was being conducted immediately prior
to the Closing Date.
(f) Neither the execution and delivery of this Agreement by the
Stockholders, nor the Stockholders' compliance with the terms and
provisions hereof, has resulted or will result in the violation or breach
of any statute or regulation of the United States of America, the State of
Iowa, or any other jurisdiction in which the Company conducts its business,
or will violate or conflict with or constitute a default or result in or
permit the acceleration of any obligation or give rise to any lien under,
the Certificate of Incorporation (or other charter document), By-Laws, or
any agreement or other instrument, order, decree or award of or applicable
to the Company, known to such counsel.
(g) Except as disclosed in any Schedule hereto, such counsel has no
knowledge of any material litigation, proceeding, governmental
investigation or labor dispute, whether pending or threatened, against or
relating to the Company, or any of its property or assets.
8.11 New Lease. The Stockholders have caused the New Lease to be executed.
---------
8.12 PMM Closing . The sale of all the stock of Professional Market
-----------
Management, Inc. ("PMM") to Purchaser pursuant to a separate agreement between
Purchaser and Stockholders shall close simultaneously with the Closing.
8.13 Financing. The Purchaser shall have obtained financing satisfactory
---------
to Purchaser in Purchaser's sole discretion in order to complete the
transactions provided for herein. Unless Purchaser shall have delivered notice
to Stockholders of termination pursuant to Section 10.2 hereof for failure to
------------
satisfy this condition before 5:00 p.m. (CST) on March 27, 1998, this condition
shall be deemed satisfied.
8.14 Due Diligence. The Purchaser shall be satisfied, in its sole
-------------
discretion, with the outcome of its due diligence investigation of the Company.
Unless Purchaser shall have delivered notice to Stockholders of termination
pursuant to Section 10.2 for failure to satisfy this condition before 5:00 p.m.
------------
(CST) on March 13, 1998, this condition shall be deemed satisfied.
8.15 Further Assurances. The Stockholders shall deliver to the Purchaser
------------------
such other documents and instruments as may be reasonably required to consummate
the transactions contemplated hereby.
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<PAGE>
8.16 Confirmation of Related Party Services. The Stockholders shall have
--------------------------------------
delivered or caused to be delivered to Purchaser written confirmation by OCI and
FSIS that they will provide to the Company the services described in Sections
--------
6.6(e) through (h) on the terms set forth therein in the form set forth in
- ------ ---
Exhibit D.
8.17 Modified Oster Note. The Oster Note shall have been amended and
-------------------
restated as provided for in Section 3.25(b).
---------------
SECTION 9. CONDITIONS TO OBLIGATION OF STOCKHOLDERS TO CLOSE.
--------- -------------------------------------------------
The obligation of the Stockholders to proceed with the Closing is
subject to the satisfaction on or before the Closing Date of each of the
following conditions, unless waived in writing by the Stockholders.
9.1 Representations and Warranties. The representations and warranties of
------------------------------
the Purchaser contained herein and in any certificate or other writing delivered
pursuant hereto or in connection herewith shall be true and correct in all
respects on and as of the Closing Date.
9.2 Performance. The Purchaser shall have duly performed or complied with
-----------
all of the covenants, acts and obligations to be performed or complied with by
the Purchaser hereunder on or prior to the Closing Date.
9.3 PMM Closing. The purchase of all the stock of PMM by Purchaser
-----------
pursuant to a separate agreement between Purchaser and Stockholders shall close
simultaneously with the Closing.
SECTION 10. TERMINATION.
---------- -----------
10.1 Mutual Termination; Termination For Unsatisfaction of Conditions.
----------------------------------------------------------------
This Agreement may be terminated and abandoned, without limiting or waiving any
other rights and remedies any party may have at law or in equity, at any time
prior to the consummation of the Closing on the Closing Date under the following
described circumstances:
(a) Upon the mutual written consent of the Purchaser and the
Stockholders.
(b) By the Purchaser, if the conditions set forth in Section 8 hereof
---------
(except for those set forth in Sections 8.12 and 8.13) shall not be fully
------------- ----
satisfied or waived by the Purchaser, on or before the Closing Date.
(c) By the Stockholders, if the conditions set forth in Section 9
---------
hereof shall not be fully satisfied or waived by the Stockholders, on or
before the Closing Date
(d) By either party, in the event that the other party fails to
perform or observe any of the covenants or obligations to be performed or
observed by the other party under this Agreement, or in the event that the
other party shall breach any of the representations or warranties contained
in this Agreement. In such case, the non-breaching party shall be
-35-
<PAGE>
entitled to any and all rights and remedies available at law or in equity,
including, without limitation, specific performance and injunctive relief,
all of which shall be cumulative.
10.2 Termination Due to Financing or Due Diligence.
---------------------------------------------
(a) If the Purchaser, in its sole discretion, determines on or before
March 13, 1998 that the condition set forth in Section 8.13 has not been
------------
satisfied for any reason, the Purchaser may terminate this Agreement by
delivering written notice thereof to the Stockholders before 5:00 p.m.
(CST) on March 13, 1998, in which event this Agreement shall be null and
void.
(b) If the Purchaser, in its sole discretion, determines on or before
March 27, 1998 that the condition set forth in Section 8.13 has not been
------------
satisfied for any reason, the Purchaser may terminate this Agreement by
delivering written notice to the Stockholders before 5:00 p.m. (CST) on
March 27, 1998, in which event this Agreement shall be null and void.
10.3 Termination Due to Loss. The Purchaser shall have the right to
-----------------------
terminate this Agreement by delivering written notice thereof to the
Stockholders before the Closing Date in the event of a material loss,
destruction or damage to the Business or Assets of the Company subsequent to the
date of this Agreement as a result of fire, storm, casualty, other acts of God
or theft of a substantial amount of the Assets, whether or not such loss is
covered by insurance, in which event this Agreement shall be null and void.
10.4 Environmental Termination. The Purchaser shall, at its own cost,
-------------------------
have a Phase 1 environmental assessment performed on the real estate which is
the subject of the New Lease; provided that this assessment must be performed
and a copy delivered to the Stockholders prior to the Closing Date or the
assessment shall be cancelled. If the assessment shows conditions requiring
remediation unacceptable to Merrill J. Oster, the Stockholders may terminate
this Agreement, in which event this Agreement shall be null and void.
SECTION 11. INDEMNIFICATION AND SURVIVAL.
---------- ----------------------------
11.1 Indemnification of the Purchaser by the Stockholders . The
----------------------------------------------------
Stockholders agree to jointly and severally indemnify, defend, and hold the
Purchaser, the Company and their respective officers, directors and
shareholders, and their respective heirs, executors, personal representatives,
successors and assigns (each, a "Purchaser Indemnified Party"), harmless from
and against any and all costs, expenses, losses, damages, fines, penalties or
liabilities (including, without limitation, interest which may be imposed in
connection therewith, court costs, litigation expenses, reasonable attorneys'
fees and accounting fees) incurred by any Purchaser Indemnified Party with
respect to, in connection with, arising from, or alleged to result from, arise
out of, or in connection with:
(a) A breach of any representation or warranty made by the
Stockholders and contained in this Agreement (except Section 4 hereof) or
---------
any exhibit or schedule attached hereto;
-36-
<PAGE>
(b) A breach of any covenant, restriction or agreement made by or
applicable to the Stockholders and contained in this Agreement; and
(c) Any state and local Taxes (other than Iowa or Illinois Taxes)
incurred by the Company for the period prior to the Closing provided that
this indemnity shall not apply to Taxes of states and localities in states
in which either (i) the Company registers to do business subsequent to the
Closing or locates an office, property or employee in subsequent to the
Closing or (ii) the Purchaser or any affiliate of the Purchaser other than
the Company is registered to do business in or paying sales taxes to or has
an office, property or employees in on or subsequent to the Closing.
11.2 Indemnification of the Purchaser by the Stockholders Regarding Shares.
-------------------------------------------------------------- ------
Each of the Stockholders shall indemnify, defend, and hold the Purchaser, the
Company and their respective officers, directors and shareholders, and their
respective heirs, executors, personal representatives, successors and assigns,
harmless from and against any and all costs, expenses, losses, damages, fines,
penalties or liabilities (including, without limitation, interest which may be
imposed in connection therewith, court costs, litigation expenses, reasonable
attorneys' fees and accounting fees) incurred by any of such parties with
respect to, in connection with, arising from, or alleged to result from, arise
out of, or in connection with:
(a) a breach by such Stockholder of any representation or warranty
made by such Stockholder in Section 4 of this Agreement; and
---------
(b) any activities undertaken by such Stockholders subsequent to the
Closing allegedly or purportedly acting on behalf of the Company subsequent
to the Closing except for those activities expressly provided for in this
Agreement.
11.3 Indemnification of the Stockholders. The Purchaser shall indemnify,
-----------------------------------
defend and hold the Stockholders and their respective heirs, executors, personal
representatives, successors and assigns, harmless from and against any and all
costs, expenses, losses, damages, fines, penalties or liabilities (including,
without limitation, interest that may be imposed in connection therewith, court
costs, litigation expenses, reasonable attorneys' fees and accounting fees)
incurred by any of such parties with respect to, in connection with, arising
from, or alleged to result from, arise out of, or in connection with:
(a) A breach by the Purchaser of any representation or warranty made
by the Purchaser and contained in this Agreement; and
(b) A breach by the Purchaser of any covenant, restriction or
agreement made by the Purchaser or applicable to the Purchaser and
contained in this Agreement.
11.4 Procedure for Indemnification.
-----------------------------
(a) The party which is entitled to be indemnified hereunder (the
"Indemnified Party") shall promptly give notice hereunder to the
indemnifying party after obtaining written notice of any claim as to which
recovery may be sought against the indemnifying
-37-
<PAGE>
party because of the terms of this Section 11 and, if such indemnity shall
----------
arise from the claim of a third party, shall permit the indemnifying party
to assume the defense of any such claim and any litigation resulting from
such claim. Notwithstanding the foregoing, the right to indemnification
hereunder shall not be affected by any failure of an Indemnified Party to
give such notice or delay by an Indemnified Party in giving such notice
unless, and then only to the extent that, the rights and remedies of the
indemnifying party shall have been prejudiced as a result of the failure to
give, or delay in giving, such notice. Failure by an indemnifying party to
notify an Indemnified Party of its election to defend any such claim or
action by a third party within twenty-one days after notice thereof shall
have been given to the indemnifying party shall be deemed a waiver by the
indemnifying party of its right to defend such claim or action.
(b) If the indemnifying party assumes the defense of such claim or
litigation resulting therefrom, the obligations of the indemnifying party
hereunder as to such claim shall include taking all steps necessary in the
defense or settlement of such claim or litigation and holding the
Indemnified Party harmless from and against any and all damages caused by
or arising out of any settlement approved by the indemnifying party or any
judgment in connection with such claim or litigation. The indemnifying
party shall not, in the defense of such claim or any litigation resulting
therefrom, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) except with the written consent of
the Indemnified Party or enter into any settlement (except with the written
consent of the Indemnified Party) which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect of such claim
or litigation. Anything herein to the contrary notwithstanding, the
Indemnified Party may, with counsel of its choice and at its expense,
participate in the defense of any such claim or litigation.
(c) If the indemnifying party shall not assume the defense of any such
claim by a third party or litigation resulting therefrom after receipt of
notice from such Indemnified Party, the Indemnified Party may defend
against such claims or litigation in such manner as it deems appropriate,
and unless the indemnifying party shall deposit with the Indemnified Party
a sum equivalent to the total amount demanded in such claim or litigation
plus the Indemnified Party's estimate of the costs of defending the same,
the Indemnified Party may settle such claim or litigation on such terms as
it may deem appropriate and the indemnifying party shall promptly reimburse
the Indemnified Party for the amount of such settlement and for all damage
incurred by the Indemnified Party in connection with the defense against or
settlement of such claim or litigation.
(d) The indemnifying party shall promptly reimburse the Indemnified
Party for the amount of any judgment rendered with respect to any claim by
a third party in such litigation and for all damage incurred by the
Indemnified Party in connection with the defense against such claim or
litigation, whether or not resulting from, arising out of, or incurred with
respect to, the act of a third party.
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<PAGE>
11.5 Survival. All covenants and agreements of any party hereto set forth
--------
herein shall survive the Closing. Further, all representations and warranties in
this Agreement shall survive the Closing and shall remain in effect for a period
of 24 months after the Closing except with respect to any and all
representations and warranties relating to environmental and tax matters which
shall survive for the applicable statute of limitations period. The Stockholders
agree that, notwithstanding any right of the Purchaser to fully investigate the
affairs of the Company and notwithstanding any knowledge of facts determined or
determinable by the Purchaser pursuant to such investigation or right of
investigation, the Purchaser has the right to rely fully upon the
representations, warranties, indemnities, covenants and agreement of the
Stockholders contained in this Agreement, all of which are material and none of
which supersedes any obligation of the Stockholders under any of such
representations, warranties, indemnities, covenants or restrictions.
SECTION 12. MISCELLANEOUS.
---------- -------------
12.1 Written Agreement to Govern. This Agreement sets forth the entire
---------------------------
understanding and supersedes all prior and contemporaneous oral or written
agreements among the parties hereto relating to the subject matter contained
herein, and merges all prior and contemporaneous discussions among them. No
party hereto shall be bound by any definition, condition, representation,
warranty, covenant or provision other than as expressly stated in this Agreement
or as hereafter set forth in a written instrument executed by such party or by a
duly authorized representative of such party.
12.2 Severability. The parties hereto expressly agree that it is not the
------------
intention of any party hereto to violate any public policy, statutory or common
laws rules, regulations, treaties or decisions of any government or agency
thereof. If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provision as applied
to any fact or circumstance, such articles, sections, sentences, words, clauses
or combinations thereof shall be modified to the minimum extent necessary to
render it valid, and it shall not affect any other provision of this Agreement
or the same provisions applied to any other fact or circumstance, and the
remainder of this Agreement shall remain binding upon the parties hereto.
12.3 Notices. Any and all notices and other communications necessary or
-------
desirable to be served hereunder shall be either personally delivered or sent by
telecopy, prepaid same-day or overnight delivery service, proof of delivery
requested, or United States certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
(a) If to the Stockholders:
c/o Merrill J. Oster
219 Parkade
Cedar Falls, Iowa 50613
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<PAGE>
With a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Larry D. Blust
Telecopier No.: (312) 527-0484
(b) If to the Purchaser:
Farm Journal Holdings, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: President
Telecopier No.: (215) 568-5012
(c) With a copy to:
John F. Dougherty, Jr., Esq.
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
Telecopier No.: (215) 564-8120
or to such other address or addresses as any party hereto may designate for
itself from time to time in a written notice served upon the other parties
hereto in accordance herewith. Any notice sent as hereinabove provided shall be
deemed delivered upon receipt or refusal of delivery, except in the case of
certified or registered United States mail which shall be deemed delivered on
the fifth business day next following the postmark date which it bears.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
12.5 Law to Govern. The validity, construction and enforceability of this
-------------
Agreement shall be governed in all respects by the laws of the State of Illinois
without regard to its conflict of laws rules.
12.6 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
12.7 Further Assurances. At any time on or after the Closing, the parties
------------------
hereto shall each perform such acts, execute and deliver such instruments,
assignments, endorsements and other documents and do all such other things
consistent with the terms of this Agreement as
-40-
<PAGE>
may be reasonably necessary to accomplish the transaction contemplated by this
Agreement or otherwise to carry out the purpose of this Agreement.
12.8 Gender, Number and Headings. The masculine, feminine or neuter
---------------------------
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires. References to the Stockholders shall also be a reference to
each such Stockholder individually. The headings in this Agreement are inserted
for convenience or reference only and are not a part of this Agreement.
12.9 Schedules and Exhibits. The Schedules and Exhibits referred to herein
----------------------
and attached hereto are incorporated herein by such references as if fully set
forth in the text hereof.
12.10 Waiver of Provisions. The terms, covenants, representations,
--------------------
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
12.11 Expenses. Except as otherwise expressly provided herein, each party
--------
shall bear its own expenses incident to this Agreement and the transactions
contemplated hereby, including without limitation, all fees of counsel,
accountants and consultants.
12.12 Recitals. The recitals set forth above on the initial page of this
--------
Agreement are incorporated herein by this reference, and this Agreement shall be
construed in light thereof.
12.13 Knowledge of the Stockholders. For purposes of this Agreement, the
-----------------------------
knowledge of the Stockholders shall be deemed to include the knowledge of each
of the Stockholders or any of them after consulting with David Joerger and
Merlyn VandeKrol.
12.14 No Third Party Beneficiaries. This Agreement is made solely for the
----------------------------
benefit of the parties hereto and shall not give rise to any rights of any kind
to third parties, including without limitation, any and all employees of the
Company. In no event shall this Agreement be deemed or construed to be an offer
or guarantee of continued employment to any Company employee.
12.15 Expenses. Except as otherwise expressly provided herein, the
--------
Stockholders and the Purchaser shall each pay all of the costs and expenses of
their performance and compliance with all agreements and conditions contained in
this Agreement on their part to be performed or complied with.
-41-
<PAGE>
12.16 Additional Definitions. When used herein, the following capitalized
----------------------
terms have the following meanings. Any of such terms and any other terms defined
herein, may be used in the singular or plural, depending upon the reference,
unless the context otherwise requires.
"Assets" shall mean all of the right, title and interest in and to the
------
properties, assets and rights of any kind, wheresoever located, whether tangible
or intangible, real or personal, and shall be limited to those properties,
assets and rights constituting, or used in connection with, or related to the
Business and owned by the Company or in which the Company has any interest,
including but not limited to, all of the Company's right, title and interest in
the following:
(a) all accounts and notes receivable (whether current or non-
current), refunds, deposits, prepayments or prepaid expenses and unbilled
costs and fees (including without limitation any prepaid insurance
premiums) of the Company;
(b) the name Professional Farmers of America, Inc. and the
corresponding logos and all trade names under which the Company does
business in connection with the Business, together with the goodwill of the
Business appertaining thereto;
(c) all Contract rights, to the extent transferable;
(d) all leases to which the Company is a party or by which the Company
is bound and which relate to the Business or the Assets, whether oral or
written;
(e) all furniture, fixtures, furnishings, machinery, automobiles,
trucks spare parts, supplies, equipment, molds patterns and other tangible
personal property owned by the Company and used in connection with the
Business, wherever located and including any such fixtures and equipment in
the possession of any of the Company's suppliers, including all warranty
rights, if any, with respect thereto;
(f) all inventory used in the conduct of the Business and owned by
the Company;
(g) all books and records;
(h) all proprietary rights relating to the Business;
(i) all permits and licenses, to the extent transferable;
(j) all computer hardware and, to the extent transferable, computer
software;
(k) all insurance policies;
(l) all available suppliers, sales, literature, promotional
literature, customer, supplier and distributor lists, art work,
display units, telephone and facsimile numbers and purchasing
records related to the Business;
-42-
<PAGE>
(m) all rights under, or pursuant to, all warranties, representations
and guarantees made by third parties in connection with the
Assets or services furnished to the Company pertaining to the
Business or affecting the Assets, to the extent such warranties,
representations and guarantees are assignable; and
(n) all claims, causes of action, rights of recovery and rights of
set-off of any kind, against any person or entity, including, but
not limited to, any encumbrances or other rights to payment or to
enforce payment in connection with products delivered or services
provided by the Company on or prior to the Closing Date.
(o) all goodwill of the Company.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accounts and the statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
professionals of the United States of America, which are applicable on any
particular date.
"Material Adverse Effect or Material Adverse Change" shall mean,
--------------------------------------------------
individually or in the aggregate, any material adverse effect upon or material
adverse change in the following items, (a) the financial condition or results of
operation of the Company taken as a whole, or (b) the condition, prospects or
going concern value of the Business taken as a whole.
"affiliate of Purchaser" shall not include any entitles controlled by
----------------------
the shareholder of the general partner of MS Farm International Limited
Partnership other than through MS Farm International Limited Partnership and its
successors and assigns.
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
FARM JOURNAL HOLDINGS, INC.
By: /s/ Stanford Erickson
----------------------
Title: Vice President
----------------------
SHAREHOLDERS
/s/ Merrill J. Oster
---------------------------
MERRILL J. OSTER
/s/ Carol J. Oster
---------------------------
CAROL J. OSTER
/s/ David M. Oster
---------------------------
DAVID M. OSTER
/s/ Leah J. Rippe
---------------------------
LEAH J. RIPPE
DAVID M. OSTER FAMILY TRUST
By: /s/ David M. Oster
-----------------------
Trustee
LEAH J. RIPPE FAMILY TRUST
By: /s/ Leah J. Rippe
-----------------------
Trustee
-44-
<PAGE>
EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
by and among
FARM JOURNAL HOLDINGS, INC.
and
THE STOCKHOLDERS
of
PROFESSIONAL MARKET MANAGEMENT, INC.
dated as of
March 17, 1998
____________________________________________
Relating to the Sale and Purchase of
the Capital Stock of
PROFESSIONAL MARKET MANAGEMENT, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. PURCHASE AND SALE OF SHARES................................................. 1
1.1 Agreement to Purchase and Sell....................................... 1
1.2 Closing.............................................................. 1
SECTION 2. PURCHASE PRICE.............................................................. 1
2.1 Cash Purchase Price.................................................. 1
2.2 Post Closing Adjustment to Purchase Price............................ 1
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS REGARDING COMPANY............................................. 2
3.1 Organization and Standing of the Company............................. 2
3.2 Qualification........................................................ 2
3.3 Capital Structure of the Company..................................... 2
3.4 No Restrictions Upon the Company..................................... 3
3.5 No Subsidiaries...................................................... 3
3.6 Financial Statements................................................. 3
3.7 Events Subsequent to the Balance Sheet Date.......................... 3
3.8 Liabilities.......................................................... 4
3.9 Guarantees........................................................... 4
3.10 Real Property........................................................ 5
3.11 Tangible Personal Property........................................... 5
3.12 Contracts............................................................ 5
3.13 Intellectual Property................................................ 7
3.14 Compliance with Law.................................................. 8
3.15 Environmental Matters................................................ 9
3.16 Boycott Matters...................................................... 10
3.17 Litigation........................................................... 10
3.18 Tax Matters.......................................................... 10
3.19 Certain Payments..................................................... 12
3.20 Employees............................................................ 12
3.21 Labor Relations...................................................... 12
3.22 Benefit Plans........................................................ 13
3.23 Insurance............................................................ 15
3.24 Accounts............................................................. 15
3.25 Intercompany Accounts, Working Capital and Dividends................. 16
3.26 Relationship of Assets at Closing to Assets Used in Business......... 16
3.27 Customer List........................................................ 16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH OF THE
STOCKHOLDERS REGARDING SHARES.............................................. 16
4.1 Ownership of Stock................................................... 16
4.2 No Restrictions Upon the Stockholders................................ 17
4.3 Brokers and Finders.................................................. 17
</TABLE>
-i-
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<TABLE>
<S> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER................................. 17
5.1 Organization, Standing and Corporate Authority....................... 17
5.2 Brokers and Finders.................................................. 17
SECTION 6. COVENANTS OF STOCKHOLDERS................................................... 17
6.1 Conduct of the Company Pending Closing............................... 17
6.2 Access Pending Closing............................................... 19
6.3 Consents of Third Parties............................................ 19
6.4 Resignations......................................................... 19
6.5 Transfers............................................................ 19
6.6 Continuing Relationships............................................. 19
6.7 No Shop Clause....................................................... 20
6.8 Closing.............................................................. 20
6.9 Election to Treat as Asset Sale...................................... 21
6.10 Allocation of Purchase Price......................................... 21
6.11 Publicity............................................................ 21
6.12 Non-Disclosure....................................................... 21
6.13 Non-Competition...................................................... 21
6.14 Employee Benefit Matters............................................. 22
6.15 Referrals............................................................ 23
SECTION 7. COVENANTS OF PURCHASER...................................................... 23
7.1 Books and Records.................................................... 23
7.2 Closing.............................................................. 24
7.3 Continuing Relationships............................................. 24
7.4 Publicity............................................................ 24
7.5 Nonsolicitation...................................................... 24
SECTION 8. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE.............................. 24
8.1 Representations and Warranties....................................... 24
8.2 Performance.......................................................... 24
8.3 Liabilities.......................................................... 24
8.4 Shares............................................................... 25
8.5 Corporate Books...................................................... 25
8.6 Resignations......................................................... 25
8.7 Proof of Good Standing............................................... 25
8.8 Transfers and Release of Guarantees.................................. 25
8.9 Certificate of Officer............................................... 25
8.10 Opinion of Counsel................................................... 25
8.11 PFA Closing.......................................................... 26
8.12 Financing............................................................ 26
8.13 Due Diligence........................................................ 26
8.14 Further Assurances................................................... 27
SECTION 9. CONDITIONS TO OBLIGATION OF STOCKHOLDERS TO CLOSE........................... 27
9.1 Representations and Warranties....................................... 27
9.2 Performance.......................................................... 27
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.3 PFA Closing.......................................................... 27
SECTION 10. TERMINATION................................................................ 27
10.1 Mutual Termination; Termination For Unsatisfaction of Conditions..... 27
10.2 Termination Due to Financing or Due Diligence........................ 28
10.3 Termination Due to Loss.............................................. 28
SECTION 11. INDEMNIFICATION AND SURVIVAL............................................... 28
11.1 Indemnification of the Purchaser by the Stockholders................. 28
11.2 Indemnification of the Purchaser by the Stockholders Regarding Shares 29
11.3 Indemnification of the Stockholders.................................. 29
11.4 Procedure for Indemnification........................................ 29
11.5 Survival............................................................. 30
SECTION 12. MISCELLANEOUS.............................................................. 31
12.1 Written Agreement to Govern.......................................... 31
12.2 Severability......................................................... 31
12.3 Notices.............................................................. 31
12.4 Counterparts......................................................... 32
12.5 Law to Govern........................................................ 32
12.6 Successors and Assigns............................................... 32
12.7 Further Assurances................................................... 32
12.8 Gender, Number and Headings.......................................... 32
12.9 Schedules and Exhibits............................................... 32
12.10 Waiver of Provisions................................................. 33
12.11 Expenses............................................................. 33
12.12 Recitals............................................................. 33
12.13 Knowledge of the Stockholders........................................ 33
12.14 No Third Party Beneficiaries......................................... 33
12.15 Expenses............................................................. 33
12.16 Additional Definitions............................................... 33
</TABLE>
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<PAGE>
EXHIBITS
--------
A Stockholders
SCHEDULES
---------
2.2 Schedule of Current Accounts Included in Price Adjustment Computation
3.1.1 Certificate of Incorporation and By-Laws
3.1.2 Officers and Directors of the Company
3.2 Trade Names and Offices
3.5 Publishing Affiliates
3.6(a) Annual Financial Statements
3.6(b) Interim Financial Statements
3.7(b) Officer Compensation Changes
3.11.1 Tangible Personal Property
3.11.2 Non-Transferred Hardware
3.12(a) Contracts
3.12(c) Subscription Agreement Exceptions
3.13(a) Intellectual Property
3.13(c).1 Licensed Property
3.13(a).2 Shared Software Not Transferred
3.13(d) WITs Product Description
3.14(a) Licenses and Permits
3.14(b) Exceptions to Compliance with Law
3.17 Litigation
3.18 Tax Matters
3.20 Compensation
3.22 Benefit Plans
3.23(a) Insurance Policies
3.23(b) Insurance Claims
3.24 Accounts
6.6(a) Retained Employees
6.10 Agreed Values
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<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17/th/ day of March, 1998, by and among Farm Journal Holdings,
Inc., a Delaware corporation (the "Purchaser"), Merrill J. Oster, Carol J.
Oster, David M. Oster Family Trust and Leah J. Rippe Family Trust (collectively
the "Stockholders").
RECITALS
--------
WHEREAS, the Stockholders desire to sell to the Purchaser, and the
Purchaser desires to purchase from the Stockholders that number of shares of
Common Stock (the "Shares") listed beside each Stockholder's name on Exhibit A,
---------
respectively, of Professional Market Management, Inc. (the "Company") together
with all rights incident thereto, including, without limitation, the goodwill of
the Company.
WHEREAS, the Company is engaged, inter alia, in the business of the
----- ----
provision of the Cash Master managed marketing program (the "Business").
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto
hereby agree as follows:
SECTION 1 PURCHASE AND SALE OF SHARES.
--------- ---------------------------
1.1 Agreement to Purchase and Sell. On the Closing (as defined below),
------------------------------
the Stockholders shall sell their Shares to the Purchaser, and the Purchaser
shall purchase the Shares from the Stockholders, on the terms and subject to the
conditions hereinafter provided and in reliance on the representations,
warranties, covenants, promises, agreements and undertakings contained herein.
1.2 Closing. The consummation of the purchase and sale of the Shares
-------
hereunder (the "Closing") shall take place at the offices of Stradley Ronon
Stevens & Young, LLP, Philadelphia, Pennsylvania, at 11:00 A.M., local time, on
March 31, 1998, or such other date upon which the Purchaser and the Stockholders
may mutually agree in writing (the "Closing Date"). For all purposes hereunder,
the Closing shall be deemed to have occurred on the close of business on the
Closing Date.
SECTION 2 PURCHASE PRICE.
--------- --------------
2.1 Cash Purchase Price. The Purchaser shall pay to each Stockholder in
-------------------
good funds on the Closing Date $200.00 per Share held by such Stockholder,
representing an aggregate total cash purchase price of $100,000.
2.2 Post Closing Adjustment to Purchase Price . As soon as all
-----------------------------------------
transactions for the period through the Closing Date are entered into the
Company's books but in no event more than 30 days subsequent to the Closing
Date, the Stockholders shall deliver to the Purchaser a list of the balances as
of the close of business on the Closing Date of those current liability accounts
-1-
<PAGE>
and current asset accounts listed on Schedule 2.2. Such statement shall be
------------
substantially in the form of Schedule 2.2, which shows the balances of the
------------
referenced accounts as of December 31, 1997 (the "Balance Sheet Date"). All pre-
closing transactions shall be entered on the Company's books in accordance with
the methods and in respect to the accounts as similar transactions were recorded
prior to the Balance Sheet Date. No adjustments shall be made in the amounts
recorded in the books for collectability of receivables or for contingent or
unknown liabilities as of the Closing Date and the allowance for doubtful
accounts and general reserves accounts shall not be changed from the Balance
Sheet Date and thus shall not be included in Schedule 2.2. To the extent that
------------
the excess of the balances of the current asset accounts over the balances of
the current liabilities accounts listed on Schedule 2.2 as of the close of
------------
business on the Closing Date is more than the excess shown on Schedule 2.2 as of
------------
the Balance Sheet Date, the Purchaser shall pay the difference to the
Stockholders in proration to the Shares held by each. To the extent such excess
as of the close of business on the Closing Date is less than the excess shown on
Schedule 2.2 as of the Balance Sheet Date, the Stockholders shall pay the
- ------------
difference to the Purchaser in proportion to the Shares held by each. All
payments provided for herein shall be made within 15 days after the statement
required hereby is delivered to the Purchaser.
SECTION 3 COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------- -------------------------------------------------------------
REGARDING COMPANY.
-----------------
The Stockholders hereby jointly and severally represent and warrant to
the Purchaser, as of the date hereof and as of the Closing Date, as follows:
3.1 Organization and Standing of the Company. The Company is a
----------------------------------------
corporation which is duly organized, validly existing and in good standing under
the laws of the State of Iowa. Schedule 3.1.1 contains complete and correct
--------------
copies of the Certificates of Incorporation and By-laws, as amended, of the
Company (the "Formation Documents"). The Company has all necessary corporate
power and authority to engage in the Business as it is presently conducted, to
own all property now owned by it, and to lease all of the property used by it
under lease. A true and correct copy of the corporate minutes and stock transfer
records of the Company have been delivered to the Purchaser, and the same
constitute a complete and accurate record of the proceedings taken by its
Stockholders and directors, and a complete and accurate record of all issuances
and transfer of shares of its capital stock. Schedule 3.1.2 contains a complete
--------------
and accurate list of the officers and directors of the Company.
3.2 Qualification. The Company is duly qualified to do business in Iowa
-------------
and the Company is in good standing in such jurisdiction and in no others. To
the Stockholders' knowledge, without any investigation, the Company is not
required to qualify to do business in any other state. To the knowledge of the
Stockholders, Schedule 3.2 is a true and correct listing of all fictitious and
------------
trade names used by the Company and the addresses of all offices of the Company
and any locations where the Company's employees were based during its existence.
3.3 Capital Structure of the Company. The authorized capital stock of the
--------------------------------
Company consists solely of 1,000 shares of common stock, with no par value, of
which 500 shares are duly authorized, validly issued and outstanding, and fully
paid and non-assessable. No other class or series of capital stock of the
Company is or has been authorized. There is no obligation which is or may be
binding upon the Company to issue, sell, redeem, purchase or exchange any of its
-2-
<PAGE>
capital stock or any right relating thereto. The Stockholders are the sole
shareholders of record of the Company on the date of this Agreement.
3.4 No Restrictions Upon the Company. Except for the OCI Guaranty and the
--------------------------------
Lease Obligation described in Section 3.8(a), the Company is subject to no
--------------
restriction, agreement, law, judgment or decree (including, without limitation,
any restriction contained in its Formation Documents) which would (a) prohibit
or be violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby, or (b) result in the acceleration of any
indebtedness of the Company.
3.5 No Subsidiaries. The Company has no subsidiaries, nor does it own any
---------------
capital stock or other equity or ownership interest in any corporation,
partnership, limited liability company, association, trust, joint venture or
other entity. Schedule 3.5 sets forth the names of all entities controlled by
------------
the Stockholders which are engaged in the publishing business, whether in print
or electronic.
3.6 Financial Statements.
--------------------
(a) Schedule 3.6(a) contains a true copy of the Company's unaudited
---------------
balance sheet and the statement of earnings and retained earnings, for the
fiscal years ended December 31, 1996 and December 31, 1997 (the "Balance
Sheet Date") (the "Financial Statements"). The Financial Statements have
been prepared from the Company's books and records, and were prepared
consistent therewith. The Stockholders make no other representations as to
the Financial Statements.
(b) Schedule 3.6(b) contains a copy of the Company's unaudited balance
---------------
sheet and statement of earnings and retained earnings for the one month
period ending January 31, 1998 (the "Interim Statements"). The Interim
Statements were taken from the Company's books and records and were
prepared consistent therewith. The Stockholders make no other
representations as to the Interim Statements.
3.7 Events Subsequent to the Balance Sheet Date. Except to the extent
-------------------------------------------
provided for in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and 6.6. there has not
------------- ---- ---- ---- ---- ---
been since the Balance Sheet Date:
(a) Any direct or indirect redemption, purchase or other acquisition
by the Company of any capital stock of the Company, or any declaration,
setting aside or payment of any dividend or distribution on any capital
stock of the Company other than dividends or distributions which would not
violate Section 3.25 hereof;
------------
(b) Any increase in the compensation or benefits payable or to become
payable by the Company to any of its directors or officers except as
disclosed in Schedule 3.7(b);
---------------
(c) Any incurrence by the Company (i) of any indebtedness for borrowed
money or (ii) of any other indebtedness or of any liability in respect
thereof, except for the incurrence of indebtedness (other than for borrowed
money), in the ordinary course of business or any commitment by the Company
for an incurrence which would violate (i) or (ii);
-3-
<PAGE>
(d) Any contractual commitment by the Company to any third party,
other than as provided in this Agreement or arising in the ordinary course
of the Company's business, relating to (i) the Assets or Business of the
Company, or (ii) the acquisition or disposition of Assets of the Company;
(e) Any transaction, other than in the ordinary course of business on
the same basis or terms as reflected in the Financial Statements, between
the Company and any shareholder, director, officer or affiliate of the
Company;
(f) Any change in any accounting policies and procedures or practices
by the Company; or
(g) Any discount or adjustment in accounts receivable of the Company
except as provided in Section 3.25 or arising in the ordinary course of the
------------
Company's business consistent with past practices or the collection of any
accounts receivable other than in the ordinary course of business
consistent with past practices.
3.8 Liabilities.
-----------
(a) As of the Balance Sheet Date, to the knowledge of the
Stockholders, the Company had no liabilities (which liabilities when taken
individually or in the aggregate, are material) of any nature, whether
accrued, absolute, continent or otherwise, asserted or unasserted, except
liabilities stated or disclosed in the Financial Statements or disclosed in
this Agreement or Exhibits or Schedules furnished to Purchaser herewith and
except for the guaranty (the "OCI Guaranty") by the Company of the
obligations of Oster Communications, Inc. ("OCI") to American National Bank
and Trust Company of Chicago ("ANB") which will be released on Closing and
except for obligations as a co-lessor in regard to the leases for the
Leased Equipment referred to in Section 3.11 (the "Lease Obligation").
------------
(b) As of the date hereof and as of the Closing Date, to the knowledge
of the Stockholders, the Company does not have and will not have, any
liabilities of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, except liabilities stated or disclosed
in the Financial Statements, liabilities disclosed in this Agreement or
Exhibits or Schedules furnished herewith, and except for liabilities
incurred in the ordinary course of business since the Balance Sheet Date.
(c) Since the Balance Sheet Date, the Company has paid its accounts
payable in the ordinary course of business and consistent with past
practices.
3.9 Guarantees. Except for the OCI Guaranty, which will be released on
----------
Closing, the Lease Obligation, which will be released on Closing except for the
Leased Equipment, and indemnity provisions in written Contracts listed in
Schedule 3.12(a), the Company is not a guarantor, indemnitor or insurer or
- ----------------
otherwise liable for or in respect of any indebtedness of any person except as
an endorser of checks received by it and deposited in the ordinary course of
business.
-4-
<PAGE>
3.10 Real Property.
-------------
(a) Fee Ownership. The Company does not own any real property;
-------------
(b) Lease Obligations. On the date hereof the Company is leasing
-----------------
space in Cedar Falls, Iowa, pursuant to an oral arrangement from an
affiliate of the Stockholders. On the Closing, the Stockholders shall cause
the oral lease to be cancelled and the Company shall sublease the same
space from an affiliate of the Purchaser. The Company leases no other
space.
3.11 Tangible Personal Property . Except as set forth in Schedule 3.11.1
-------------------------- ---------------
regarding property indicated thereon as leased, the Company has or at Closing
will have good and marketable title to all equipment, computer hardware,
furniture, and other tangible personal property listed in Schedule 3.11.1
---------------
(except for personal property disposed of in the ordinary course of business
after the date thereof and replaced with other personal property of comparable
value and utility), free and clear of any liens, claims, security interests,
options, leases, restrictions or encumbrances which adversely affect the
marketability of title thereto. The Stockholders shall cause any personal
property shown on Schedule 3.11.1 as not owned by the Company on the date hereof
---------------
to be transferred to the Company at or prior to Closing except for personal
property listed in Schedule 3.11.1 which is leased by unrelated third parties to
---------------
an affiliate of the Company on the date hereof (the "Leased Equipment"). On or
prior to the Closing, the Stockholders shall cause either the Leased Equipment
to be subleased to the Company or a new lease for such Leased Equipment to be
entered into between the Company and the lessor on substantially the same terms
as presently leased to the Company's affiliate and shall secure the Company's
release in regard to equipment covered by the lease other than the Leased
Equipment. The assets listed on Schedule 3.11.1 constitute all the tangible
---------------
personal property used solely in the operation of the Company's Business as
currently conducted but do not include assets owned by affiliates of the Company
the use of which is shared by the Company other entities affiliated with the
Company. Schedule 3.11.2 lists all hardware used by the Company in the delivery
---------------
of electronic products which is owned by and shared with affiliates of the
Company and is thus not being transferred to the Company on Closing. EXCEPT AS
EXPRESSLY PROVIDED HEREBY THE STOCKHOLDERS MAKE NO OTHER WARRANTY OR
REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, REGARDING THE PERSONAL
PROPERTY DESCRIBED IN SCHEDULE 3.11 OR ANY OTHER PERSONAL PROPERTY INCLUDING
-------------
WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A SPECIFIC
PURPOSE. The Company does not hold any property on consignment, nor does the
Company hold title to any property in the possession of others.
3.12 Contracts.
---------
(a) Except as set forth in Schedule 3.12(a), except for the
----------------
transactions with affiliates provided for in Section 6.6 or to be
-----------
terminated on Closing pursuant to Section 3.12(d), and except as provided
---------------
for in Section 3.11 as to Leased Equipment and Section 3.13(c) as to
------------ ---------------
Licensed Property, the Company is not a party to, or bound by, any oral or
written contracts, agreements, commitments, arrangements or understandings
(the "Contracts"): (i) for the employment of any officer or employee which
is not terminable
-5-
<PAGE>
by the Company at will without penalty; (ii) for any indebtedness; (iii)
involving leasing personal property (including, without limitation, leases
for machinery and office equipment, furniture, fixtures and vehicles) which
require an annual payment in excess of $5,000 or the current term of which
exceeds two years; (iv) involving the payment or receipt of in excess of
$10,000 per annum by the Company or the current term of which exceeds one
year (other than Subscription Agreements as defined in Section 3.12(c);
---------------
(v) providing for the services of distributors, sales representatives or
similar representatives; (vi) relating to the ownership, use or licensing
of any patents, trademarks, trade names, brand names, copyrights,
inventions, processes, know-how, formulae, technology, trade secrets or
other proprietary rights; (vii) containing covenants by or binding on the
Company not to compete or to abide by any confidentiality agreement; (viii)
for the sale of goods or services to any governmental authority, including
any open purchase order issued by such entities; (ix) relating to any joint
venture or partnership contract or agreement; (x) for the incurrence of any
capital expenditure in excess of $10,000; (xi) for or with respect to any
advertising except for advertising contracts made in the ordinary course of
business and for a duration not in excess of one year; and (xii) granting
to any person any right to purchase any of the Company's assets.
(b) Except for the transactions with affiliates provided for in
Section 6.6 or to be terminated on Closing pursuant to Section 3.12(d),
----------- ---------------
except as provided for in Section 3.11 as to Leased Equipment and Section
------------ -------
3.13(c) as to Licensed Property, and except for Subscription Agreements,
-------
all oral or written contracts, agreements, commitments or undertakings by
which the Company is bound, including without limitation the Contracts,
constitute legal, valid and binding obligations of the respective parties
thereto, are in full force and effect, and neither the Company or, to the
knowledge of the Stockholders, any other party thereto has violated any
provision of, or committed or failed to perform any act which with notice,
lapse of time or both would constitute a default under the provisions of
any such Contract, the termination of which could have a Material Adverse
Effect upon the Company. Correct and complete copies of all written
Contracts disclosed on Schedule 3.12(a) and all written amendments thereto
----------------
have been delivered to the Purchaser. In respect to any oral Contract or
any oral amendment to a Contract, accurate summaries of the material terms
thereof have been delivered to the Purchaser.
(c) Except as disclosed in Schedule 3.12(c), with respect to any and
----------------
all agreements of the Company, whether written or oral, relating to the
purchase of products or services of the Business by paying subscribers
("Subscription Agreements"):
(i) The Company is the contracting party that provides the products
or services under the Subscription Agreements;
(ii) The Subscription Agreements have all been entered into by the
Company in the ordinary course of business, and none of the Subscription
Agreements have been materially amended subsequent to the Balance Sheet
Date or provide for the Company's fees to be materially reduced below the
charges in effect thereunder on the Balance Sheet Date;
-6-
<PAGE>
(iii) To the Stockholders' knowledge, the satellite delivery system
utilized by the Business is currently capable of handling the volume of
data transmission services currently required by the Subscription
Agreements and no increased volume of such services has been promised by
the Company to its customers which would exceed such capability;
(iv) Since the Balance Sheet Date, claims for credits have been
adjusted in the ordinary course of business and on the Closing Date there
will be no outstanding material claims for credits, monies, or the like due
customers in regard to the Subscription Agreements;
(v) Since the Balance Sheet Date, the Company has received no
written notices of any warranty or indemnity claims by customers under any
of the Subscription Agreements which have not been settled with the
customer claimant except for claims which in the aggregate are not
material;
(vi) Since the Balance Sheet Date, any and all enhancements to
services required by the Subscription Agreements to be provided to
customers have been completed and implemented in a timely manner and no
contract for other enhancements to services has been entered into by the
Company with its customers;
(vii) Since the Balance Sheet Date, the Company has received no
written notice of default from any customer under any of the Subscription
Agreements where such default would result in a material liability;
(viii) Since the Balance Sheet Date, the Company has received no
notice of the filing by any customer of a petition in bankruptcy,
assignment for the benefit of creditors, a petition seeking reorganization,
composition, liquidation, dissolution or similar arrangement where the
impact of an adverse outcome would have a Material Adverse Effect on the
Business;
(ix) All accounts receivable arising therefrom shown on the Interim
Statements or arising thereafter, to the extent shown on the Company's
books as uncollected on the Closing, represent valid obligations incurred
by subscribers; and
(x) The Stockholders have no reason to believe that the
relationships of the Company with its customers are not good commercial
working relationships.
(d) Except as provided in Section 6.6 and 3.13(c), the Stockholders
----------- -------
will cause the Company to terminate all arrangements with affiliates of the
Stockholders as of the Closing.
3.13 Intellectual Property.
---------------------
(a) The Company has good and marketable title to all domestic and
foreign patents, patent applications pending, patent applications in
process, trademarks,
-7-
<PAGE>
trademark registrations, trademark registration applications, copyrights,
copyright registrations, copyright registration applications, and service
marks, service mark registrations and service mark registration
applications listed in Schedule 3.13(a) (the "Intellectual Property").
----------------
(b) There are no interference, opposition or cancellation proceedings
or infringement suits pending, or to the knowledge of the Stockholders,
threatened with respect to any Intellectual Property. To the knowledge of
the Stockholders, no other person is infringing on any Intellectual
Property and the Company is not infringing on the proprietary rights of
others and has not received any notice of a claim of such infringement
(c) The Company currently uses the software described in Schedule 3.13(c).1
----------------
which is owned by or licensed to affiliates of the Company (the "Licensed
Property"). On or prior to the Closing, the Stockholders shall cause such
rights in the Licensed Property as such affiliates have on the date hereof
to be either transferred to or sublicensed to the Company. On the Closing,
the Company shall have the same rights to use the Licensed Property as such
affiliate had on the date hereof. The Company also uses the software on
Schedule 3.13(c).2, the right to the use of which is not being transferred
------------------
to the Company. To the knowledge of the Stockholders, the software
described in Schedule 3.13(c).2 is all of the software owned by or licensed
----------------
to affiliates of the Company which is being used by the Company and which
is not either owned or licensed to the Company or is Licensed Property. No
other software used by the Company through arrangements with its affiliates
except for the Licensed Property is being transferred to the Company and
all arrangements for the use of software of affiliates will be terminated
on Closing pursuant to Section 3.12(d); provided that the Stockholders
---------------
shall cause the affiliates of the Company to permit the use of any other
software owned or licensed by affiliates of the Company which is not
transferred to be used by the Company at the Company's cost and risk after
the Closing until January 20, 1999 while the Purchaser is transitioning to
its own software systems.
(d) The Company does not have on the date hereof and shall not have on
the Closing any rights to the WITs Product or any applications thereof as
described in Schedule 3.13(d). It is the intent of the Stockholders that
----------------
the WlTs Product as so described will not compete with the Business as
currently conducted and based on the description in Schedule 3.13(d)
----------------
Purchaser concurs that the WITs Product will not compete with the Business
as presently conducted.
3.14 Compliance with Law.
-------------------
(a) The Company has the permits and licenses from governmental bodies
listed in Schedule 3.14(a) hereto. Such permits and licenses constitute all
----------------
of the permits and licenses required, to the knowledge of the Stockholders,
from federal, state or local authorities in order for the Company to
conduct the Business as currently conducted. To the Stockholders'
knowledge, the Company is in compliance with the terms and conditions of
all such permits and licenses. To the Stockholder's knowledge, no permits
and licenses will terminate on Closing.
-8-
<PAGE>
(b) Except as disclosed in Schedule 3.14(b) hereto, to the knowledge
----------------
of the Stockholders, the Company is not in default under or in violation of
any applicable statute, law, ordinance, decree, order, rule, regulation,
franchise, permit or license of any governmental body, the violation of
which may result in a Material Adverse Effect.
3.15 Environmental Matters.
---------------------
(a) The Company has not violated, and has received no notice of any
violation of the Environmental Laws, whether on property owned, leased or
controlled by the Company or on property of others, or otherwise, and there
is no known condition with respect to the Company or its assets or its
prior actions which with the passage of time is reasonably likely to lead
to a material violation of any of the Environmental Laws. For this purpose,
"Environmental Laws" shall refer to any law, rule, or regulation of, any
federal, state or local governmental authority to which the properties,
assets, personnel or business activities of the Company are subject or to
which the Company is subject, and which relate to the environment
(including, without limitation, federal, state and local laws, statutes,
rules and regulations and the common law relating to environmental matters
and contamination of any type whatsoever, including, without limitation:
(i) treatment, storage, disposal, incineration, generation and
transportation of industrial, toxic or hazardous substances or solid or
hazardous waste; (ii) air, water and noise pollution; (iii) ground water
contamination; (iv) the release or threatened release into the environment
of industrial, toxic or hazardous substances, or solid or hazardous waste,
including, without limitation, emissions, discharges, injections, spills,
escapes, or dumping of pollutants, contaminants or chemicals; (v) the
protection of wildlife, marine sanctuaries and wetlands; (vi) the
protection of natural resources; (vii) storage tanks, vessels and related
equipment; (viii) abandoned or discarded barrels, containers and other
closed receptacles; (ix) health and safety of employees and other persons;
and (x) otherwise relating to the manufacture, processing, use,
distribution, treatment, storage, disposal, incineration, transportation,
or handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or solid or hazardous waste.
(b) The Company has obtained and maintained in good standing all
permits, inspections licenses and other authorizations which are required
under the Environmental Laws for the operation of the Company's business,
complete copies (or, if oral, a summary) of which have been provided to the
Purchaser.
(c) The Company is in compliance with all terms and conditions of such
required permits, licenses and authorizations, and it and its properties
are also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
timetables and other provisions contained in the Environmental Laws.
(d) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, notice of investigation,
proceeding notice or demand letter pending or, to the knowledge of the
Stockholders, threatened against the Company relating in any way to the
Environmental Laws.
-9-
<PAGE>
(e) There are no orders from or agreements with any governmental or
any private party relating to violations of or compliance with the
Environmental Laws.
3.16 Boycott Matters. The Company is in compliance with all applicable
---------------
governmental statutes, laws, decrees, orders, rules and regulations which
prohibit or regulate the boycott of or refusal to deal with any person,
including, without limitation, the Export Administration Amendments of 1977 (50
U.S.C. App. Section 2401 et seq.), the Ribicoff Amendments to the Tax Reform Act
-- ---
of 1976 (Section 999 of the Internal Revenue Code of 1986, as amended to date
(the "Code")) and the Sherman Act (15 U.S.C. Section 1 et seq.), and all rules
-- ---
and regulations promulgated pursuant to the foregoing.
3.17 Litigation. Except as disclosed in Schedule 3.17, there is no suit,
---------- -------------
arbitration, claim, investigation, action or proceeding, in law or in equity,
now pending or, to the knowledge of the Stockholders, threatened before any
court, arbitrator, commission, administrative or regulatory body, or any
governmental agency to which the Company is a party or which may result in any
judgment, award, order, decree, liability or other determination which will or
could have a Material Adverse Effect or which will or could prevent or interfere
with the consummation of any transactions contemplated hereby. No such judgment,
order, award or decree has been entered, nor has any such determination been
made or liability been incurred, which has, or could have, such a Material
Adverse Effect.
3.18 Tax Matters.
-----------
(a) As used herein, the term "Tax" or "Taxes" means any and all
--- -----
federal, state, local or foreign income, corporation, gross receipts,
profits, gains, capital duty, franchise, withholding, payroll, social
security, unemployment, disability, property, wealth, welfare, stamp,
excise, occupation, sales, use, transfer, value added, alternative minimum,
recapture, estimated or similar tax, together with any interest, penalties
or additions in respect of the foregoing, and including any transferee or
secondary liability in respect of such taxes.
(b) Except as set forth on Schedule 3.18:
-------------
(i) the Company has timely filed in accordance with applicable law
all federal Iowa and foreign tax returns (including without limitation
information returns and other material information) (the "Returns")
required to be filed through the date hereof and shall timely file any
such returns required to be filed on or prior to the Closing Date. To
the knowledge of the Stockholders, all Returns and other information
filed are complete and accurate in all material respects. The Company
has not requested any extension of time within which to file Returns
(including without limitation information returns) in respect of any
Taxes, which Returns have not been filed except for 1997 Returns. The
Stockholders have made available to the Purchaser complete and
accurate copies of the Company's federal, state and local Tax returns
for the past three years together with all examination reports and
statements of deficiencies assessed against or agreed to by the
Company for any taxable period ended on or after January 1, 1993.
Schedule 3.18 indicates those Tax Returns of the Company filed
-------------
-10-
<PAGE>
since January 1,1993 that have been audited and indicates those Tax
Returns that currently are the subject of audit;
(ii) all taxes shown to be payable on the Returns or on subsequent
assessments with respect thereto have been paid in full;
(iii) There are no pending or, to the knowledge of the
Stockholders, threatened audits, investigations or claims for or
relating to any material additional liability in respect of Taxes, and
there are no matters under discussion with any governmental
authorities with respect to Taxes that in the reasonable judgment of
the Company or such Company's attorneys or accountants, is likely to
result in a material additional liability for Taxes. Except as set
forth on Schedule 3.18, no waiver or extension of a statute of
-------------
limitations relating to Taxes is in effect with respect to the
Company;
(iv) There are no liens for Taxes (other than for current Taxes
not yet due and payable) on any Company assets;
(v) The Company and each of its Stockholders made a valid election
effective as of April 1996, to be treated as an "S" corporation within
the meaning of Section 1361 of the Code for federal and applicable
state and local income Tax purposes. The Company has, for federal and
applicable state and local income Tax purposes, qualified as an "S"
corporation within the meaning of Section 1361 of the Code from the
effective date of its election to be treated as an "S" corporation
through the date of this Agreement and shall qualify as an "S"
corporation through and including the Closing Date. The Company has no
undistributed "C" corporation earnings and profits. Each Stockholder
of the Company, including the Stockholders, is and at all times has
been an individual or trust eligible to be a Stockholder of an "S"
corporation in accordance with Section 1361(b) of the Code. None of
the Stockholders of the Company or the Company has taken or omitted to
take any action which would cause the Company to cease to be treated
as an "S" corporation within the meaning of Section 1361 of the Code
for federal and applicable state and local income Tax purposes;
(vi) None of the assets of the Company (A) secures any debt the
interest on which is Tax-exempt under Section 103(a) of the Code, (B)
is "Tax-exempt use property" within the meaning of Section 168(h) of
the Code, (C) is used predominantly outside the United States within
the meaning of Proposed Treasury Regulation Section 1.168-2(g)(5), (D)
is "Tax exempt bond financing property" within the meaning of Section
1 68(g)(5) of the Code, (E) is "limited use property" with the meaning
of Revenue Procedure 76-30 or (F) shall be treated as owned by any
other person pursuant to the provisions of former Section 168(f)(8) of
the Code. The transactions contemplated by this Agreement are not
subject to Tax withholding pursuant to the provisions of Section 3406
or Subchapter A of Chapter 3 of the Code or any other provision of
applicable Law. None of the Stockholders is a person other than a
United States person within the meaning of the Code;
-11-
<PAGE>
(vii) No claim with respect to the Company has been made on or
after January 1, 1993 by an authority in a jurisdiction where such
Company does not file Tax returns that the Company is or may be
subject to taxation by that jurisdiction;
(viii) The Company is not is a party to any Tax indemnity,
allocation or sharing agreement;
(ix) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, Stockholder or other
party, and has complied in all material respects with all laws
relating to Tax withholding;
(x) There is no unresolved dispute or claim concerning any Tax
liability of the Company either claimed or raised by any Tax authority
in writing. There are no outstanding rulings of, or requests for
rulings with, any Tax authority addressed to the Company that are, or
if issued would be, binding on the Company; and
(xi) The Company is not a party to any joint venture, partnership
or other arrangement or contract which could be treated as a
partnership for federal income Tax purposes.
3.19 Certain Payments. All payments by the Company to agents, consultants
----------------
and others have been in payment of bona fide fees and commissions and not as
bribes or illegal or improper payments. The Company has complied with all
applicable provisions of the Foreign Corrupt Practices Act of 1977 and the rules
and regulations thereunder. To the knowledge of the Stockholders, the Company
has not made any payment to or on behalf of any person with respect to which a
deduction could be disallowed under Section 162(c) of Code. Neither the Internal
Revenue Service nor any other federal, state, local or foreign government agency
or entity has initiated or threatened any investigation of any payment made by
or on behalf of the Company of, or alleged to be of, the type described in this
Section 3.19.
- ------------
3.20 Employees. Schedule 3.20 lists all employees employed directly by
--------- -------------
Company as of the date of this Agreement. All such individuals are employed,-
for payroll purposes, by Merrill J. Oster, Inc. Schedule 3.20 does not include
-------------
officers and directors of the Company who do not work full-time for the Company
or employees of affiliates of the Company who provide general, administrative,
accounting and other services for Company as well as other businesses affiliated
with Company. Schedule 3.20 includes the job title and aggregate annual cash
-------------
compensation of each individual listed as of the date of this Agreement. The
Stockholders have delivered to the Purchaser, true and correct copies of any
written employment agreements (including any non-compete agreements) with all
individuals listed on Schedule 3.20.
-------------
3.21 Labor Relations. There is neither pending nor, to the knowledge of
---------------
the Stockholders, threatened any labor dispute, labor organizing activity,
election petition or proceeding, proceeding preparatory thereto, strike, slow
down or work stoppage which affects or which may affect the Company's business,
or which may interfere with its continued operations, and neither the Company
nor any officer, director, employee or agent of the Company has
-12-
<PAGE>
committed any unfair labor practice as defined in the National Labor Relations
Act of 1947, as amended. The Company is not a party to or bound by any
collective bargaining agreement. The Company's relations with its employees are
satisfactory and no employee paid other than on an hourly wage basis has
announced or threatened his or her intention to leave the Company's employ.
3.22 Benefit Plans.
-------------
(a) Schedule 3.22 sets forth a correct and complete list of all
-------------
employee welfare and pension benefit plans and all other employee benefit
arrangements and payroll practices providing employee benefits (including
all employment agreements; severance agreements; executive compensation
arrangements; incentive programs or arrangements; sick leave policies;
vacation pay and severance pay policies; salary continuation arrangements
for disability; consulting or similar compensation arrangements with any
Company employee; retirement plans; deferred compensation plans; bonus
programs; stock purchase arrangements; hospitalization medical or health
plans; life insurance plans; voluntary employee beneficiary associations;
tuition reimbursement or scholarship programs; and plans providing benefits
or payments in the event of a change in control, change in ownership or
sale of all or a substantial portion of the assets of the Company)
maintained by the Company or to which the Company contributes or is
required to contribute with respect to any current or former employee
(each, a "Company Plan," and collectively, the "Company Plans"). With
------------ -------------
respect to each Company Plan (other than a multiemployer plan as defined in
Section 3(37) or Section 4001(a)(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") (a "Multiemplover Plan")):
(i) such Company Plan (and each related trust, insurance contract
or fund) complies in form, and has complied in its operation, in all
material respects with the applicable requirements of ERISA, the Code
and other applicable Laws;
(ii) all required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-l's and Summary Plan
Descriptions) have been filed or distributed in accordance with ERISA,
the Code and other applicable Laws.
(iii) all contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Company Plan which is an Employee Pension Benefit Plan as
defined in Section 3(2) of ERISA (a "Pension Plan") and all
------------
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Company Plan or
accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each such
Company Plan which is a Welfare Plan (defined below);
(iv) each such Company Plan which is a Pension Plan that is
intended to meet the requirements of a "qualified plan" under Section
401 (a) of the Code, has received a currently applicable favorable
determination letter from the Internal
-13-
<PAGE>
Revenue Service and, to the knowledge of the Stockholders, there exist
no circumstances that would adversely affect the qualified status of
any such Company Plan under Section 401(a) of the Code for which the
remedial amendment period has expired. All contributions made by the
Company to each Company Plan which is a Pension Plan are fully
deductible for federal income Tax purposes. Each transfer of assets
between Company Plans which are Pension Plans during the five year
period ending with the Closing Date is in compliance with ERISA and
the qualification requirements of Code Section 401(a);
(v) no such Company Plan (other than a Multiemployer Plan) is a
Pension Plan that is subject to Title IV of ERISA; and
(vi) the Stockholders have delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts and other funding
agreements which implement such Company Plan.
(b) With respect to each Company Plan which is an employee welfare
benefit plan as defined in Section 3(1) of ERISA (a "Welfare Plan") and
each Pension Plan that the Company or any member of either Company's
controlled group of entities (within the meaning of Code Sections 414(b),
(c), (m), or (o)) (each a "Controlled Group Member") maintains or ever has
-----------------------
maintained, or to which any of them contributes. ever has contributed or
ever has been required to contribute:
(i) no such Plan which is a Pension Plan is subject to Title IV of
ERISA;
(ii) the Company has not engaged in any non-exempt prohibited
transaction within the meaning of Title I of ERISA or Section
4975(c)(1) of the Code with respect to such Company Plan, nor has the
Company incurred any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration
or investment of the assets of such Company Plan, and no action, suit,
proceeding, hearing or investigation with respect to the
administration or the investment of the assets of such Company Plan
(other than routine claims for benefits or claims relating to a
Multiemployer Plan that do not involve Company) is pending or, to the
knowledge of the Stockholders, threatened; and
(iii) neither the Company nor any Controlled Group Member has
incurred, and the Stockholders have no reason to expect that the
Company or any of its Controlled Group Members shall incur, any
liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability) or under
the Code with respect to any such Plan which is a Pension Plan (other
than any Multiemployer Plan).
(c) Neither the Company, nor any Controlled Group Member contributes
to, ever has contributed to or ever has been required to contribute to any
Multiemployer Plan or
-14-
<PAGE>
has incurred any withdrawal liability under Title IV, Subtitle E of ERISA
with respect to any Company Plan.
(d) Except as set forth on Schedule 3.22, the Company does not
-------------
maintain or ever has maintained, or does not contribute, ever has
contributed or ever has been required to contribute to any Welfare Plan
providing medical, health, life insurance or other welfare benefits for
current or future retired or terminated employees. their spouses or their
dependents (other than in accordance with Section 4980B of the Code).
(e) Except as provided for in Schedule 3.22, no payment, acceleration
-------------
or increase in benefits provided by the Company under any Company Plan
shall occur as a result of the consummation of the transactions
contemplated by this Agreement.
(f) The Company is not bound by any oral or written commitment to
provide any employee welfare or pension benefit plan or arrangement other
than the Company Plans or to modify the terms or conditions of any of the
Company Plans.
(g) After the Closing, no employees hired by the Company pursuant to
Section 6.6 hereof shall be participants in any Company Plan except as
-----------
provided in Section 6.14.
------------
3.23 Insurance.
---------
(a) Schedule 3.23(a) correctly identifies all insurance policies and
----------------
bonds covering the Company or its assets, properties, operations or
personnel and the amounts, basis of premiums and nature of coverage with
respect to each such policy. Such policies and bonds are in full force and
effect, without interruption of coverage since the date specified for each
such policy in Schedule 3.23(a), and, to the knowledge of the Stockholders,
----------------
are carried by financially responsible insurance carriers, and are in such
amounts and against such risks and losses as are ordinarily and customarily
maintained with respect to comparable businesses, assets, properties,
operations or personnel. With exceptions which are not in the aggregate
material, the Company has not received any notice of cancellation,
termination or non-renewal or denial of liability with respect to any
policy or bond. Schedule 3.23(a) indicates any such policies which will
----------------
terminate on the Closing.
(b) Schedule 3.23(b) lists all outstanding claims as of the date of
----------------
this Agreement by the Company against insurance carriers for damage to or
loss of property or income and all claims made against the Company as of
the date of this Agreement which have been referred to insurers or which
the Company believes to be covered by insurers.
3.24 Accounts. Schedule 3.24 hereto correctly identifies each bank,
-------- -------------
securities, commodities or other brokerage or similar account and safe deposit
box or other depository maintained by, or on behalf of, or for the benefit of,
the Company, and the name of each person with any power or authority to act with
respect thereto.
-15-
<PAGE>
3.25 Intercompany Accounts, Working Capital and Dividends.
----------------------------------------------------
(a) Intercompany Receivable Account; Other Distributions. Prior to the
-------------------------------
Closing the Company has been and will be operated by all cash of the
Company being loaned to OCI and all cash required by the Company to operate
being advanced by OCI as required. The net amount due to (or from) the
Company from (or to) OCI is carried as due from (or to) related parties on
the Company's balance sheet (the "Intercompany Receivable Account"). All
-------------------------------
cash distributions to the Stockholders result in a decrease in the
Intercompany Receivable Account. The cost of acquiring the personal
property and the software required to be transferred to the Company on or
before the Closing pursuant to Sections 3.11 and 3.13(c) shall be charged
------------- -------
against and will thus reduce the Intercompany Receivable Account in the
amount of the fair market value of such property. Immediately prior to the
Closing, the Company shall distribute to the Stockholders the then balance
of the Intercompany Receivable Account or the Stockholders shall contribute
such balance to capital to the extent that such account is negative. The
Company shall make no other distributions to the Stockholders from the date
hereof to the Closing Date.
(b) Remaining Intercompany Items. On the Closing, after the
----------------------------
distribution (or contribution) of the Intercompany Receivable Account, no
amount shall be owed by (or to) affiliates of the Company or the
Stockholders to (or by) the Company.
3.26 Relationship of Assets at Closing to Assets Used in Business. After
------------------------------------------------------------
the transactions provided for in Sections 3.10, 3.11, 3.12(d), 3.13, 3.25 and
------------- ---- ------- ---- ----
6.6 and except as otherwise disclosed herein, the Assets at Closing will
- ---
constitute all of the tangible personal property used solely in the operation of
the Company's Business as currently conducted, all accounts receivable of the
Business except for the Intercompany Account Receivable, all Contracts and
Subscription Agreements, all Intellectual Property, all Licensed Property, all
permits and licenses from governmental bodies to the extent not terminable on a
change in control and all goodwill of the Company relating to the Business.
3.27 Customer List. The current customer lists and customer records are
-------------
the property of the Company. After the Closing, no entity controlled by the
Stockholders will be in possession of a copy of the customer list or customer
records of the Company.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF EACH OF THE STOCKHOLDERS
--------- ----------------------------------------------------------
REGARDING SHARES.
----------------
Each of the Stockholders hereby represents severally and not jointly,
as of the date hereof and as of the Closing Date, as follows:
4.1 Ownership of Stock. Each Stockholder is the lawful owner of the number
------------------
of Shares listed opposite the name of such Stockholder in Exhibit A attached
hereto, free and clear of all liens, encumbrances, restrictions and claims of
every kind except for a pledge to ANB to secure the OCI Guaranty which will be
released on Closing; each Stockholder has full legal right, power and authority
to enter into this Agreement and to sell, assign, transfer and convey such
Stockholder's Shares pursuant to this Agreement; and the delivery to Purchaser
of such
-16-
<PAGE>
Stockholder's Shares pursuant to the provisions of this Agreement will transfer
to Purchaser valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of every kind.
4.2 No Restrictions Upon the Stockholders. Such Stockholder is not subject
-------------------------------------
to any restriction, agreement, law, judgment or levy which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby except for a pledge to ANB to secure the OCI
Guaranty which will be released on Closing. This Agreement is the valid and
binding agreement of such Stockholder, enforceable in accordance with its terms.
4.3 Brokers and Finders. Such Stockholder has not engaged or authorized
-------------------
any broker, investment banker or other third party to act on such Stockholder's
behalf, either directly or indirectly, as a broker, finder or advisor in
connection with the sale of such Stockholder's Shares pursuant to this
Agreement.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
--------- -------------------------------------------
The Purchaser hereby represents and warrants to the Stockholders, as
of the date hereof and as of the Closing Date, as follows:
5.1 Organization, Standing and Corporate Authority. The Purchaser is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full corporate power and authority to enter
into and perform this Agreement and consummate the transactions contemplated
hereby. The execution, delivery and performance hereof and the consummation of
the transactions contemplated hereby by the Purchaser have been duly authorized
by all necessary corporate action and this Agreement is a valid and binding
agreement of the Purchaser, enforceable in accordance with its terms.
5.2 Brokers and Finders. The Purchaser will be responsible for any broker,
-------------------
investment banker or other third party engaged by the Purchaser to act on its
behalf as a broker, finder or advisor in connection with the Purchaser's
purchase of the Shares.
SECTION 6 COVENANTS OF STOCKHOLDERS.
--------- -------------------------
The Stockholders hereby covenant and agree with the Purchaser as
follows:
6.1 Conduct of the Company Pending Closing. From the date hereof to and
--------------------------------------
including the Closing Date, the Stockholders shall cause the Company to operate
its business only in the usual and ordinary course, consistent with past
practice and in connection therewith, the Stockholders will not permit the
Company to (or enter into any agreement to):
(a) incur any indebtedness for borrowed money or assume, guarantee,
endorse except as an endorser of checks received by it and deposited in the
ordinary course of business or otherwise become responsible for the
obligations of any other individual, firm or corporation, or, except as
provided in Section 3.25 hereof, make any loans or advances to any
------------
individual, firm or corporation;
-17-
<PAGE>
(b) except for dividends or distributions which would not violate
Section 3.25 hereof, make, declare or pay any dividend, or declare or make
------------
any distribution on, or redeem, purchase or otherwise acquire, any shares
of its outstanding capital stock or authorize the creation or issuance of
any additional shares of its capital stock or any options, calls or
commitments relating to its capital stock or any securities or obligations
convertible into or exchangeable for or giving any person any right to
subscribe for or acquire any shares of its capital stock;
(c) mortgage, pledge or otherwise encumber any of its properties or
assets;
(d) except as provided in Section 3.25 hereof, sell or transfer any of
------------
its properties or assets or cancel, release or assign any indebtedness owed
to them or any claims held by it, other than in the ordinary course of its
business;
(e) close any material facilities;
(f) except as provided in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and
------------- ---- ---- ---- ----
6.6 hereof, make any investment of a capital nature either by purchase of
---
stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase or lease of any property or assets of any
other individual, firm or corporation;
(g) enter into any joint venture, partnership or other similar
arrangement or form any other new arrangement for the conduct of its
business;
(h) except as provided in Sections 3.10, 3.11, 3.12, 3.13, 3.25 and
------------- ---- ---- ---- ----
6.6 hereof, enter into, amend or terminate any material contract, including
---
material leases, permits and licenses;
(i) increase in any manner the compensation or fringe benefits (other
than compensation or fringe benefits increases as may be required by law or
in accordance with its customary compensation practices and related changes
in fringe benefits) of any of its officers, directors or employees or pay
or agree to pay any pension or retirement allowance not required by any
existing plan or agreement to such officers, directors or employees, commit
itself to any pension, retirement or profit-sharing plan or agreement or
employment agreement (except for retainer or consulting agreements entered
into in the ordinary course of its business and except as provided in
Section 6.6, hereof) with or for the benefit of any officer, employee or
-----------
other person or, except as required by law, alter, amend, terminate in
whole or in part, or curtail or permanently discontinue distributions to,
any employee pension benefit plan;
(j) permit, to the extent within its control, any insurance policy
naming the Company as a beneficiary or a loss payable payee to be canceled
or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination or cancellation replacement policies
providing substantially similar coverage are in full force and effect
provided, however, that this provision shall not apply to insurance which,
as disclosed in Schedule 3.23, will lapse or terminate on Closing;
-------------
(k) make any amendments to its Certificate of Incorporation or By-
laws;
-18-
<PAGE>
(l) take any actions which would be inconsistent with keeping
available the services of its present employees and preserving its existing
relationships with its suppliers, customers and others or with the
uninterrupted maintenance of the Company's operations as a going concern;
or
(m) take or omit to take any action the effect of which could or will
render inaccurate any of the Stockholders' representations and warranties
set forth herein.
6.2 Access Pending Closing. From the date hereof to and including the
----------------------
Closing Date, the Stockholders shall cause the Purchaser and its accountants and
other representatives to have the right to full and complete access to the books
and records of the Company and the Company's employees and customers for the
purpose of making such investigation of the financial condition and operations
of the Company as the Purchaser may reasonably deem necessary; provided that any
contact with customers prior to Closing shall be on a basis mutually agreed upon
between the Stockholders and the Purchaser which is not calculated to reveal to
the customers contacted that the transactions provided for herein are
contemplated.
6.3 Consents of Third Parties. Prior to the Closing, the Stockholders
-------------------------
shall obtain, at their sole expense, all consents and other approvals from any
governmental agency, bureau or authority, or any other person (including any
lender or lessor), which are required of the Company as a result of or to
effectuate the transactions contemplated by this Agreement.
6.4 Resignations. The Stockholders who are also officers or directors of
------------
the Company shall deliver to the Purchaser on Closing their resignations as
officers and directors. On the Closing, the Stockholders shall also deliver to
Purchaser the resignations of David Joerger and Merlyn VandeKrol as officers of
the Company.
6.5 Transfers. The Stockholders shall cause the transfers to or from the
---------
Company provided for in Sections 3.10, 3.11, 3.13 and 3.25 to occur on or before
------------- ---- ---- ----
the Closing.
6.6 Continuing Relationships.
------------------------
(a) Company Employees. On the Closing, the Stockholders shall cause
-----------------
Merrill J. Oster, Inc. to terminate as employees for payroll purposes those
individuals listed in Schedule 6.6(a) and such individuals shall be offered
---------------
the opportunity to become employees of the Company on the Closing for
payroll purposes on terms and conditions, except for fringe benefits,
comparable to those paid by Merrill J. Oster, Inc. to such individuals and
reimbursed by the Company. The Stockholders shall cause all wages,
salaries, commissions, bonuses, incentives, and the cost of all fringe
benefits provided to such employees (including, without limitation claims
against the Oster Communications, Inc. Health Plan arising prior to Closing
but billed thereafter) which shall have become due in the future for work
performed as of and through the Closing Date to be paid by Merrill J.
Oster, Inc. and credited against the Intercompany Receivable Account as of
the Closing, and Merrill J. Oster, Inc. shall withhold and pay all taxes in
respect of such wages, balances, commissions, bonuses, incentives and
benefits provided that the Company shall assume all obligations for accrued
vacation and sick days and shall use its best efforts to procure a waiver
of severance pay, if any, due from Merrill J. Oster, Inc.
-19-
<PAGE>
due to their termination of employment by Merrill J. Oster, Inc. for any
such individuals employed by the Company pursuant to this Section. Should
the Company become liable to any such employees for severance payments
resulting from their termination pursuant to this Section which are not
waived after use of such best efforts, the Stockholders shall cause such
payments to be made by OCI on behalf of the Company and to be credited
against the Intercompany Account Receivable. All individuals who are listed
on Schedule 3.20 but are not listed on Schedule 6.6(a) shall not be
------------- ---------------
employees of the Company after the Closing Date and the Stockholders shall
be responsible for any accrued vacation, sick days, and severance due to
such individuals as a result of the transactions provided for herein. The
Stockholders shall prevent the Company from raising the compensation of
those individuals listed on Schedule 6.6(a) from that disclosed in Schedule
--------------- --------
3.20 prior to Closing without the written consent of Purchaser.
----
(b) Offers to Other Employees. In addition to those individuals listed
-------------------------
in Schedule 6.6(a), Purchaser may offer employment on the Closing by
---------------
Purchaser or an affiliate of Purchaser to David Joerger ("Joerger"), chief
financial officer of OCI, on the condition that (i) Joerger shall be
allowed to perform consulting services for Merrill J. Oster and any
entities controlled by the Stockholders for twelve months subsequent to
Closing provided that such consulting services do not interfere with his
employment by Purchaser or an affiliate of Purchaser, and (ii) Joerger
shall waive any claims he may have for severance payments or other benefits
on termination of his employment with OCI and any related entities. Should
Joerger accept employment with Purchaser or an affiliate of Purchaser on
Closing, the Purchaser or such affiliate may also offer employment to Susan
Groves, Joerger's secretary, provided that the Purchaser or such affiliate
shall provide her services on a half-time basis to act as secretary for
Merrill J. Oster for twelve months subsequent to Closing or such shorter
period as Merrill J. Oster shall desire her services for a fee of $1,500
per month. Except as provided in Sections 6.6(a) and (b), during the
--------------- ---
Noncompetition Period as defined in Section 6.13, Purchaser or any
------------
affiliate of Purchaser shall not offer to employ or employ, directly or
indirectly, any individual employed on the Closing Date in any capacity by
any entity listed in Schedule 3.5 except (i) with the prior written
------------
permission of Merrill J. Oster or (ii) one year after such individual was
last employed by an entity listed in Schedule 3.5.
------------
6.7 No Shop Clause. For the period commencing on the date hereof and
--------------
ending on the date, if any, this Agreement is terminated pursuant to Section 10,
----------
the Stockholders shall not solicit, contact or have any discussion, and shall
not permit the Company to solicit, contact or have any discussion, with any
person or entity with a view to (i) the acquisition of any assets of the
Company, (ii) the acquisition of any capital stock of the Company, (iii) the
merger or consolidation of the Company, or (iv) the acquisition by the Company
of the stock or assets of any other person or entity. The Stockholders shall
give the Purchaser immediate telephonic notice regarding all details of any
attempt by any third party to solicit, contract or discuss the matters set forth
in clauses (i)-(iv) above.
6.8 Closing. The Stockholders shall use their best efforts to cause the
-------
conditions specified in Section 8 (other than Sections 8.12 and 8.13) hereof to
--------- ------------- ----
be satisfied at or as soon as practical after the date hereof.
-20-
<PAGE>
6.9 Election to Treat as Asset Sale. The Stockholders will join the
-------------------------------
Purchaser in making an election under Section 338(h)(10) of the Internal Revenue
Code of 1986 and any corresponding elections available under state, local or
foreign law with respect to the purchase and sale of Shares (collectively,
"Election"). On the Closing, each Stockholder will deliver to Purchaser an
executed Form 8023 which Purchaser may utilize to make the Election. Pursuant to
the Election, the Company will be deemed for federal and Iowa and Illinois state
income tax purposes to have sold its assets while still owned by Stockholders
and to have immediately liquidated by distributing the proceeds of the deemed
sale to the Stockholders and the Purchaser will be deemed to have purchased such
assets in a new corporation.
6.10 Allocation of Purchase Price. The Purchaser and the Stockholders
----------------------------
agree that the modified aggregate deemed sale price as defined in Treas. Reg.
(S) 1.338(h)(10)-1(f)(1) shall be allocated to the assets of the Company for all
purposes (including tax and financial statement purposes) in a manner consistent
with the fair market value of the Company's assets set forth on Schedule 6.10 to
-------------
this Agreement.
6.11 Publicity. Prior to the Closing, the Stockholders shall not, and
---------
shall not permit the Company to, cause or permit any press release or other
announcement concerning the transactions contemplated by this Agreement or
disclose the existence or contents hereof without the prior written consent of
Purchaser, except as required to carry out the transactions provided for herein
and except for discussions with attorneys, accountants, agents and bankers
involved herein; provided that on the Closing the parties shall cooperate in the
timing and contents of a joint announcement concerning the transactions provided
for herein.
6.12 Non-Disclosure. After the Closing, the Stockholders agree to keep
--------------
confidential and shall not, except with the express prior written consent of
Purchaser, directly or indirectly, voluntarily or involuntarily, communicate,
disclose or divulge to anyone or for the benefit of anyone other than the
Purchaser any and all confidential information concerning the conduct and
details of the Company's Business including, without limitation, trade secrets,
customer lists, technology, know-how, methods, contracts, costs, policies, sales
methods, financial condition, operations, statistics and suppliers; provided
that this section shall not apply (i) to any information available from other
public sources, (ii) any information already known to the recipient unless such
knowledge emanated from a breach of this section, and (iii) to the extent
disclosure is required by law.
6.13 Non-Competition.
---------------
(a) The Stockholders agree that they shall not, during the period
commencing on the Closing and ending on the fifth annual anniversary of the
Closing (the "Non-Competition Period"), directly or indirectly, in any
capacity, whether as employee, owner, investor, lender, partner, agent,
director, officer, shareholder, or in any other capacity, for their own
benefit or for the benefit of anyone other than Purchaser:
(i) Engage in any Prohibited Activity (as defined below), provided
that nothing herein shall be construed to prevent Stockholders from
owning, on a wholly passive basis, up to an aggregate of 5% of a class
of equity securities issued by an entity that engages in any
Prohibited Activity that is publicly traded
-21-
<PAGE>
and registered under the Securities Exchange Act of 1934, as amended.
For this purpose, "Prohibited Activity" shall mean activities that
would compete directly with the Business as presently conducted;
provided that Prohibited Activities shall not include the production
and sale of products and services currently being produced, published,
distributed or sold by OCI, FSIS and FWN and the sale of advertising
therein as well as updated and functional extensions of such products
and additional products which are similar in function and purpose or
use ("Existing Products"); provided further that until the second
anniversary of the Closing, Existing Products shall not include a
snapshot commodity quotations product delivered by satellite.
(ii) Employ or attempt to employ any individual employed on the
day following the Closing Date in any capacity by the Company,
Purchaser, Farm Journal, Inc., or MS Farm International Limited
Partnership except (i) with the written permission of Purchaser or
(ii) one year after such individual was last employed by the Company,
Purchaser, Farm Journal, Inc., or MS Farm International Limited
Partnership.
(iii) Request or advise any customer of the Business as presently
conducted to withdraw, curtail or cancel such customer's business with
the Company.
(iv) Knowingly use the Company's customer list.
(b) Any breach by the Stockholders of the provisions of this Section 6
---------
13 or Section 6.12 will result in irreparable injury to the Purchaser for
-- ------------
which money damages could not adequately compensate the Purchaser, and, in
the event of any such breach Purchaser shall be entitled to have an
injunction issued by any competent court of equity enjoining and
restraining such breach. The existence of any claim or cause of action the
Stockholders may have against the Purchaser shall not constitute a defense
or bar to the enforcement of such covenants.
(c) If any portion of Section 6.13(a) or the application thereof is
---------------
construed to be invalid or unenforceable, then the other portions of
Section 6.13(a) or the application thereof shall not be affected and shall
---------------
be given full force and effect without regard to the invalid or
unenforceable portions. If any portion of Section 6.13(a) is held
---------------
unenforceable because of the area covered, the duration thereof, or the
scope thereof, the court making such determination shall have the power to
reduce the area and/or duration and/or limit the scope thereof and the
provisions of Section 6.13(a) shall then be enforceable in reduced form.
---------------
6.14 Employee Benefit Matters.
------------------------
(a) Company Plans. The Stockholders agree that, effective as of the
-------------
Closing, the Company shall cease to be a participating employer in each
Company Plan listed in Schedule 3.22. On or before the Closing, the
-------------
Stockholders shall cause OCI and the Company to execute all necessary
documents to cause the Company to cease to be a
-22-
<PAGE>
participating employer in each such Company Plan. The Stockholders agree
that the Purchaser shall have no liability or obligation with respect to
any such Company Plan.
(b) COBRA. The Stockholders agree that OCI shall be responsible for
-----
satisfying all liabilities under Part 6 of Title B of Title I of ERISA and
Section 3980B of the Code to provide continuation coverage and notice of
such coverage to employees of the Company and their eligible dependents who
incur a "qualifying event" on or prior to the Closing.
(c) HIPAA. The Stockholders agree that OCI shall be responsible for
-----
satisfying all liabilities under Part 7 of Subtitle B of Title I of ERISA
and Sections 9801 and 3980D of the Code to provide certifications of
coverage to employees of the Company and their eligible dependents who
become entitled to such certifications as a result of termination of
coverage or employment occurring on or prior to the Closing.
(d) OCI Cafeteria Plan. As soon as practicable following the Closing,
------------------
the Stockholders shall cause the medical spending account balances and the
dependent care account balances of employees hired by the Company pursuant
to Section 6.6(a) or 6.6(b) under the OCI Cafeteria Plan to be transferred
-------------- ------
to the Purchaser's Section 125 cafeteria plan, in accordance with the
provisions of each such plan and applicable law. The Stockholders shall
cause OCI to adopt any necessary amendments to the OCI Cafeteria Plan in
order to enable the Plan to make a transfer of accounts to the Purchaser's
cafeteria plan. The Purchaser agrees to cooperate with OCI in effecting any
such transfers of account balances from the OCI Cafeteria Plan to the
Purchaser's cafeteria plan and agrees to adopt any necessary amendments to
Purchaser's cafeteria plan in order to permit the plan to accept a transfer
of accounts from the OCI Cafeteria Plan.
(e) OCI Employee Savings Plan. On or before the Closing, the
-------------------------
Stockholders shall cause the Company to terminate its participation in the
OCI Employee Savings Plan and the account balances of employees hired by
the Company pursuant to Sections 6.6(a) or 6.6(b) under the OCI Employee
--------------- ------
Savings Plan to be distributed to such employees in accordance with the
Plan and applicable law as soon as reasonably practical after Closing.
(f) Intercompany Charge. All amounts assumed by OCI pursuant to
-------------------
Section 6.14 shall reduce the Intercompany Receivable Account.
------------
6.15 Referrals. From and after the Closing Date, the Stockholders agree to
---------
refer any and all customer inquiries received by them or any of their affiliates
relating to the Company or the Business to the Company and to promptly notify
the Company of such inquiries on a regular basis.
SECTION 7 COVENANTS OF PURCHASER.
--------- ----------------------
The Purchaser hereby covenants and agrees with the Stockholders as
follows:
7.1 Books and Records. In connection with any tax audit of the
-----------------
Stockholders, or the preparation of any tax return of the Stockholders, or the
defense of any claim brought against the
-23-
<PAGE>
Stockholders, or any other proper purpose, the Purchaser will cause the Company
to make available to the Stockholders, at the Stockholders' request and expense
from time to time, all books and records of the Company either existing on or
relating to any transaction on or prior to the Closing Date, for inspection or
copying by the Stockholders at any reasonable time for a six year period after
the Closing Date.
7.2 Closing. The Purchaser will use its best efforts to cause the
-------
conditions specified in Section 9 and in Sections 8.12 and 8.13 hereof to be
--------- ------------- ----
satisfied at or as soon as practicable after the date hereof.
7.3 Continuing Relationships. For the periods subsequent to the Closing
------------------------
provided for therein, the Purchaser shall comply with the provisions of Sections
--------
6.6(a) and (b).
- ------ ---
7.4 Publicity. Prior to the Closing, the Purchaser shall not cause or
---------
permit any press release or other announcement concerning the transactions
contemplated by this Agreement or disclose the existence or contents hereof
without the prior written consent of Merrill J. Oster, except as required to
carry out the transactions provided for herein, except for discussions with
attorneys, accountants, agents and bankers involved herein and except in a
registration statement filed with the Securities and Exchange Commission;
provided that on the Closing the parties shall cooperate in the timing and
contents of a joint announcement concerning the transactions provided for
herein.
7.5 Nonsolicitation. During the Non-Competition Period, the Purchaser
---------------
shall comply with the last sentence of Section 6.6(b).
--------------
SECTION 8 CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE.
--------- ----------------------------------------------
The obligation of the Purchaser hereunder to proceed with the Closing
is subject to the satisfaction on or before the Closing Date of each of the
following conditions, unless otherwise waived in writing by the Purchaser. All
documents, instruments and opinions to be furnished by the Stockholders pursuant
hereto shall be in form and substance reasonably satisfactory to the Purchaser
and its counsel.
8.1 Representations and Warranties. The representations and warranties of
------------------------------
the Stockholders contained herein, and in any certificate or other writing
delivered pursuant hereto or in connection herewith, shall be true and correct
in all respects on and as of the Closing Date.
8.2 Performance. The Stockholders shall have duly performed or complied
-----------
with all of the covenants, acts and obligations to be performed or complied with
by them hereunder at or prior to the Closing.
8.3 Liabilities. Except for liabilities reflected in the Financial
-----------
Statements or on the Schedules hereto, and except for trade account payables
incurred by the Company since the Balance Sheet Date in the normal and ordinary
course of the Company's business on the Closing Date there shall not be any
liabilities of the Company of any kind whatsoever, whether or not accrued or
fixed, absolute or contingent, known or unknown, determined or determinable, nor
shall there be any condition or circumstance existing or which has existed, and
no event shall have occurred which could reasonably be expected to result in any
such liability, which liabilities
-24-
<PAGE>
in any such case could, individually or in the aggregate, adversely affect (for
financial or other reasons) the ability of the Company to continue to conduct
the Business (as presently conducted) on and after the Closing Date.
8.4 Shares. Each of the Stockholders shall have delivered to the Purchaser
------
a certificate or certificates representing all of his or her Shares, duly
endorsed by such Stockholder for transfer to the Purchaser or accompanied by an
assignment of such Shares to the Purchaser duly executed by each such
Stockholder.
8.5 Corporate Books. The Stockholders shall have delivered to the
---------------
Purchaser the corporate minute books, seals (if any) and stock transfer records
of the Company.
8.6 Resignations. The Stockholders shall have delivered to the Purchaser
------------
the written resignations of all of the officers and directors of the Company
required pursuant to Section 6.4, hereof, effective as of the Closing, on the
-----------
Closing Date.
8.7 Proof of Good Standing. The Stockholders shall have delivered to the
----------------------
Purchaser (i) a certified copy of the Certificate of Incorporation of the
Company, and all amendments thereto, and (ii) a Certificate of Good Standing
with respect to the Company, dated within ten days of the Closing Date, from the
State of Iowa.
8.8 Transfers and Release of Guarantees. The transfers to and from the
-----------------------------------
Company provided for in Sections 3.10, 3.11, 3.13 and 3.25 shall have occurred,
------------- ---- ---- ----
the Lease Obligation shall be released as provided in Section 3.9, and the OCI
-----------
Guaranty shall have been released by ANB prior to or simultaneously with the
Closing.
8.9 Certificate of Officer. The Purchaser shall have received a
----------------------
certificate signed by the President of the Company, dated the Closing Date,
either (i) stating that the representations and warranties contained herein or
in any certificate or other writing delivered pursuant hereto or in connection
herewith are accurate on and as of the Closing Date and that the Stockholders
have duly performed or complied with all of the covenants, acts and obligations
to be performed or complied with by them hereunder at or prior to the Closing or
(ii) specifying in which respects such warranties and representations are not
accurate at Closing or such covenants, acts and obligations have not been
performed or complied with despite the exercise of the Stockholders' best
efforts pursuant to Section 6.8. In the event a certificate described in clause
------------
(ii) or the prior sentence is delivered to Purchaser, Purchaser shall have the
right in its sole discretion to terminate this Agreement and Purchaser shall
have no claim for breach of a warranty, representation or covenant described
therein, but such certificate shall itself be deemed a representation and
warranty by the Stockholders hereunder.
8.10 Opinion of Counsel. The Purchaser shall have received from the law
------------------
firm of Jenner & Block, counsel to the Stockholders, an opinion of such counsel,
dated the Closing Date, in form and substance reasonably acceptable to the
Purchaser and its counsel, to the effect that:
(a) This Agreement is a valid and binding agreement of the
Stockholders and is enforceable against each of them in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights, or the availability of equitable remedies.
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(b) All requisite action has been taken by the Stockholders to legally
enter into and consummate the transactions contemplated by this Agreement,
including but not limited to, the transfer of each such Stockholder's
Shares to the Purchaser on the Closing Date.
(c) The authorized capital stock of the Company consists of 1,000
shares of Common Stock, with no par value, of which 500 shares are issued
and outstanding. All of the issued and outstanding Shares have been duly
authorized and validly issued, and are fully paid and non-assessable.
(d) Upon delivery of the Shares to the Purchaser by the Stockholders,
the Purchaser will acquire good and marketable title to the Shares free
from any adverse claim or restriction, except those claims, if any,
resulting from any acts of the Purchaser.
(e) Company is a corporation which is duly organized, validly existing
and in good standing under the laws of the State of Iowa and has corporate
power and authority in Iowa to own and use its assets and properties, and
to carry on its business as same was being conducted immediately prior to
the Closing Date.
(f) Neither the execution and delivery of this Agreement by the
Stockholders, nor the Stockholders' compliance with the terms and
provisions hereof, has resulted or will result in the violation or breach
of any statute or regulation of the United States of America, the State of
Iowa, or any other jurisdiction in which the Company conducts its business,
or will violate or conflict with or constitute a default or result in or
permit the acceleration of any obligation or give rise to any lien under,
the Certificate of Incorporation (or other charter document), By-laws, or
any agreement or other instrument, order, decree or award of or applicable
to the Company, known to such counsel.
(g) Except as disclosed in any Schedule hereto, such counsel has no
knowledge of any material litigation, proceeding, governmental
investigation or labor dispute, whether pending or threatened, against or
relating to the Company, or any of its property or assets.
8.11 PFA Closing. The sale of all the stock of Professional Farmers of
-----------
America, Inc. ("PFA") to Purchaser pursuant to a separate agreement between
Purchaser and Stockholders shall close simultaneously with the Closing.
8.12 Financing. The Purchaser shall have obtained financing satisfactory
---------
to Purchaser in Purchaser's sole discretion in order to complete the
transactions provided for herein. Unless Purchasers all have delivered notice to
Stockholders of termination pursuant to Section 10.2 hereof for failure to
------------
satisfy this condition before 5:00 p.m. (CST) on March 27, 1998, this condition
shall be deemed satisfied.
8.13 Due Diligence. The Purchaser shall be satisfied, in its sole
-------------
discretion, with the outcome of its due diligence investigation of the Company.
Unless Purchaser shall have delivered notice to Stockholders of termination
pursuant to Section 10.2 for failure to satisfy this condition before 5:00 p.m.
------------
(CST) on March l3, 1998, this condition shall be deemed satisfied.
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<PAGE>
8.14 Further Assurances. The Stockholders shall deliver to the Purchaser
------------------
such other documents and instruments as may be reasonably required to consummate
the transactions contemplated hereby.
SECTION 9 CONDITIONS TO OBLIGATION OF STOCKHOLDERS TO CLOSE.
--------- -------------------------------------------------
The obligation of the Stockholders to proceed with the Closing is
subject to the satisfaction on or before the Closing Date of each of the
following conditions, unless waived in writing by the Stockholders.
9.1 Representations and Warranties. The representations and warranties of
------------------------------
the Purchaser contained herein and in any certificate or other writing delivered
pursuant hereto or in connection herewith shall be true and correct in all
respects on and as of the Closing Date.
9.2 Performance. The Purchaser shall have duly performed or complied with
-----------
all of the covenants, acts and obligations to be performed or complied with by
the Purchaser hereunder on or prior to the Closing Date.
9.3 PFA Closing. The purchase of all the stock of PFA by Purchaser
-----------
pursuant to a separate agreement between Purchaser and Stockholders shall close
simultaneously with the Closing.
SECTION 10 TERMINATION.
---------- -----------
10.1 Mutual Termination; Termination For Unsatisfaction of Conditions.
----------------------------------------------------------------
This Agreement may be terminated and abandoned, without limiting or waiving any
other rights and remedies any party may have at law or in equity, at any time
prior to the consummation of the Closing on the Closing Date under the following
described circumstances:
(a) Upon the mutual written consent of the Purchaser and the
Stockholders.
(b) By the Purchaser, if the conditions set forth in Section 8 hereof
---------
(except for those set forth in Sections 8.12 and 8.13) shall not be fully
------------- ----
satisfied or waived by the Purchaser, on or before the Closing Date.
(c) By the Stockholders, if the conditions set forth in Section 9
---------
hereof shall not be fully satisfied or waived by the Stockholders, on or
before the Closing Date.
(d) By either party, in the event that the other party fails to
perform or observe any of the covenants or obligations to be performed or
observed by the other party under this Agreement, or in the event that the
other party shall breach any of the representations or warranties contained
in this Agreement. In such case, the non-breaching party shall be entitled
to any and all rights and remedies available at law or in equity,
including, without limitation, specific performance and injunctive relief,
all of which shall be cumulative.
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10.2 Termination Due to Financing or Due Diligence.
---------------------------------------------
(a) If the purchaser, in its sole discretion, determines on or before
March 13, 1998 that the condition set forth in Section 8.13 has not been
------------
satisfied for any reason, the Purchaser may terminate this Agreement by
delivering written notice thereof to the Stockholders before 5:00 p.m.
(CST) on March 13, 1998, in which event this Agreement shall be null and
void.
(b) If the Purchaser, in its sole discretion, determines on or before
March 27, 1998 that the condition set forth in Section 8.12 has not been
------------
satisfied for any reason, the Purchaser may terminate this Agreement by
delivering written notice to the Stockholders before 5:00 p.m. (CST) on
March 27, 1998, in which event this Agreement shall be null and void.
10.3 Termination Due to Loss. The Purchaser shall have the right to
-----------------------
terminate this Agreement by delivering written notice thereof to the
Stockholders before the Closing Date in the event of a material loss,
destruction or damage to the Business or Assets of the Company subsequent to the
date of this Agreement as a result of fire, storm, casualty, other acts of God
or theft of a substantial amount of the Assets, whether or not such loss is
covered by insurance, in which event this Agreement shall be null and void.
SECTION 11 INDEMNIFICATION AND SURVIVAL.
---------- ----------------------------
11.1 Indemnification of the Purchaser by the Stockholders. The
----------------------------------------------------
Stockholders agree to jointly and severally indemnify, defend, and hold the
Purchaser, the Company and their respective officers, directors and
shareholders, and their respective heirs, executors, personal representatives,
successors and assigns (each, a "Purchaser Indemnified Party"), harmless from
and against any and all costs, expenses, losses, damages, fines, penalties or
liabilities (including, without limitation, interest which may be imposed in
connection therewith, court costs, litigation expenses, reasonable attorneys'
fees and accounting fees) incurred by any Purchaser Indemnified Party with
respect to, in connection with, arising from, or alleged to result from, arise
out of, or in connection with:
(a) A breach of any representation or warranty made by the
Stockholders and contained in this Agreement (except Section 4 hereof) or
---------
any exhibit or schedule attached hereto;
(b) A breach of any covenant, restriction or agreement made by or
applicable to the Stockholders and contained in this Agreement; and
(c) Any state and local Taxes (other than Iowa Taxes) incurred by the
Company for the period prior to the Closing provided that this indemnity
shall not apply to Taxes of states and localities in states in which either
(i) the Company registers to do business subsequent to the Closing or
locates an office, property or employee in subsequent to the Closing or
(ii) the Purchaser or any affiliate of the Purchaser other than the Company
is registered to do business in or paying sales taxes to or has an office,
property or employees in on or subsequent to the Closing.
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<PAGE>
11.2 Indemnification of the Purchaser by the Stockholders Regarding Shares.
---------------------------------------------------------------------
Each of the Stockholders shall indemnify, defend, and hold the Purchaser, the
Company and their respective officers, directors and shareholders, and their
respective heirs, executors, personal representatives, successors and assigns,
harmless from and against any and all costs, expenses, losses, damages, fines,
penalties or liabilities (including, without limitation, interest which may be
imposed in connection therewith, court costs, litigation expenses, reasonable
attorneys' fees and accounting fees) incurred by any of such parties with
respect to, in connection with, arising from, or alleged to result from, arise
out of, or in connection with:
(a) a breach by such Stockholder of any representation or warranty
made by such Stockholder in Section 4 of this Agreement; and
---------
(b) any activities undertaken by such Stockholders subsequent to the
Closing allegedly or purportedly acting on behalf of the Company subsequent
to the Closing except for those activities expressly provided for in this
Agreement.
11.3 Indemnification of the Stockholders. The Purchaser shall indemnify,
-----------------------------------
defend and hold the Stockholders and their respective heirs, executors, personal
representatives, successors and assigns, harmless from and against any and all
costs, expenses, losses, damages, fines, penalties or liabilities (including,
without limitation, interest that may be imposed in connection therewith, court
costs, litigation expenses, reasonable attorneys' fees and accounting fees)
incurred by any of such parties with respect to, in connection with, arising
from, or alleged to result from. arise out of, or in connection with:
(a) A breach by the Purchaser of any representation or warranty made
by the Purchaser and contained in this Agreement; and
(b) A breach by the Purchaser of any covenant, restriction or
agreement made by the Purchaser or applicable to the Purchaser and
contained in this Agreement.
11.4 Procedure for Indemnification.
-----------------------------
(a) The party which is entitled to be indemnified hereunder (the
"Indemnified Party") shall promptly give notice hereunder to the
indemnifying party after obtaining written notice of any claim as to which
recovery may be sought against the indemnifying party because of the terms
of this Section 11 and, if such indemnity shall arise from the claim of a
----------
third party, shall permit the indemnifying party to assume the defense of
any such claim and any litigation resulting from such claim.
Notwithstanding the foregoing, the right to indemnification hereunder shall
not be affected by any failure of an Indemnified Party to give such notice
or delay by an Indemnified Party in giving such notice unless, and then
only to the extent that, the rights and remedies of the indemnifying party
shall have been prejudiced as a result of the failure to give, or delay in
giving, such notice. Failure by an indemnifying party to notify an
Indemnified Party of its election to defend any such claim or action by a
third party within twenty-one days after notice thereof shall have been
given to the indemnifying party shall be deemed a waiver by the
indemnifying party of its right to defend such claim or action.
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<PAGE>
(b) If the indemnifying party assumes the defense of such claim or
litigation resulting therefrom, the obligations of the indemnifying party
hereunder as to such claim shall include taking all steps necessary in the
defense or settlement of such claim or litigation and holding the
Indemnified Party harmless from and against any and all damages caused by
or arising out of any settlement approved by the indemnifying party or any
judgment in connection with such claim or litigation. The indemnifying
party shall not, in the defense of such claim or any litigation resulting
therefrom, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) except with the written consent of
the Indemnified Party or enter into any settlement (except with the written
consent of the Indemnified Party) which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect of such claim
or litigation. Anything herein to the contrary notwithstanding, the
Indemnified Party may, with counsel of its choice and at its expense,
participate in the defense of any such claim or litigation.
(c) If the indemnifying party shall not assume the defense of any such
claim by a third party or litigation resulting therefrom after receipt of
notice from such Indemnified Party, the Indemnified Party may defend
against such claims or litigation in such manner as it deems appropriate,
and unless the indemnifying party shall deposit with the Indemnified Party
a sum equivalent to the total amount demanded in such claim or litigation
plus the Indemnified Party's estimate of the costs of defending the same,
the Indemnified Party may settle such claim or litigation on such terms as
it may deem appropriate and the indemnifying party shall promptly reimburse
the Indemnified Party for the amount of such settlement and for all damage
incurred by the Indemnified Party in connection with the defense against or
settlement of such claim or litigation.
(d) The indemnifying party shall promptly reimburse the Indemnified
Party for the amount of any judgment rendered with respect to any claim by
a third party in such litigation and for all damage incurred by the
Indemnified Party in connection with the defense against such claim or
litigation, whether or not resulting from, arising out of, or incurred with
respect to, the act of a third party.
11.5 Survival. All covenants and agreements of any party hereto set forth
--------
herein shall survive the Closing. Further, all representations and warranties in
this Agreement shall survive the Closing and shall remain in effect for a period
of 24 months after the Closing except with respect to any and all
representations and warranties relating to environmental and tax matters which
shall survive for the applicable statute of limitations period. The Stockholders
agree that, notwithstanding any right of the Purchaser to fully investigate the
affairs of the Company and notwithstanding any knowledge of fact determined or
determinable by the Purchaser pursuant to such investigation or right of
investigation, the Purchaser has the right to rely fully upon the
representations, warranties, indemnities, covenants and agreements of the
Stockholders contained in this Agreement, all of which are material and none of
which supersedes any obligation of the Stockholders under any of such
representations, warranties, indemnities, covenants or restrictions.
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<PAGE>
SECTION 12 MISCELLANEOUS.
---------- -------------
12.1 Written Agreement to Govern. This Agreement sets forth the entire
---------------------------
understanding and supersedes all prior and contemporaneous oral or written
agreements among the parties hereto relating to the subject matter contained
herein, and merges all prior and contemporaneous discussions among them. No
party hereto shall be bound by any definition, condition, representation,
warranty, covenant or provision other than as expressly stated in this Agreement
or as hereafter set forth in a written instrument executed by such party or by a
duly authorized representative of such party. Notwithstanding any of the terms
and conditions contained in this Agreement, which the parties acknowledge and
agree are substantially the same as those set forth in the separate Stock
Purchase Agreement with respect to PFA, the parties hereby agree that only those
provisions of this Agreement which directly apply and relate to the Company
shall govern the transaction contemplated by Section 1.1 hereof.
-----------
12.2 Severability. The parties hereto expressly agree that it is not the
------------
intention of any party hereto to violate any public policy, statutory or common
laws rules, regulations, treaties or decisions of any government or agency
thereof. If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provision as applied
to any fact or circumstance, such articles, sections, sentences, words, clauses
or combinations thereof shall be modified to the minimum extent necessary to
render it valid, and it shall not affect any other provision of this Agreement
or the same provisions applied to any other fact or circumstance, and the
remainder of this Agreement shall remain binding upon the Parties hereto.
12.3 Notices. Any and all notices and other communications necessary or
-------
desirable to be served hereunder shall be either personally delivered or sent by
telecopy, prepaid same-day or overnight delivery service, proof of delivery
requested, or United States certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
(a) If to the Stockholders:
c/o Merrill J. Oster
219 Parkade
Cedar Falls, Iowa 50613
With a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Larry D. Blust
Telecopier No.: (312) 527-0484
-31-
<PAGE>
(b) If to the Purchaser:
Farm Journal Holdings, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: President
Telecopier No.: (215) 568-5012
(c) With a copy to:
John F. Dougherty, Jr., Esq.
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
Telecopier No.: (215) 564-8120
or to such other address or addresses as any party hereto may designate for
itself from time to time in a written notice served upon the other parties
hereto in accordance herewith. Any notice sent as hereinabove provided shall be
deemed delivered upon receipt or refusal of delivery, except in the case of
certified or registered United States mail which shall be deemed delivered on
the fifth business day next following the postmark date which it bears.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
12.5 Law to Govern. The validity, construction and enforceability of this
-------------
Agreement shall be governed in all respects by the laws of the State of Illinois
without regard to its conflict of laws rules.
12.6 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
12.7 Further Assurances. At any time on or after the Closing, the parties
------------------
hereto shall each perform such acts, execute and deliver such instruments,
assignments, endorsements and other documents and do all such other things
consistent with the terms of this Agreement as may be reasonably necessary to
accomplish the transaction contemplated by this Agreement or otherwise to carry
out the purpose of this Agreement.
12.8 Gender, Number and Headings. The masculine, feminine or neuter
---------------------------
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires. References to the Stockholders shall also be a reference to
each such Stockholder individually. The headings in this Agreement are inserted
for convenience or reference only and are not a part of this Agreement.
12.9 Schedules and Exhibits. The Schedules and Exhibits referred to herein
----------------------
and attached hereto are incorporated herein by such references as if fully set
forth in the text hereof.
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12.10 Waiver of Provisions. The terms, covenants, representations,
--------------------
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
12.11 Expenses. Except as otherwise expressly provided herein, each party
--------
shall bear its own expenses incident to this Agreement and the transactions
contemplated hereby, including without limitation, all fees of counsel,
accountants and consultants.
12.12 Recitals. The recitals set forth above on the initial page of this
--------
Agreement are incorporated herein by this reference, and this Agreement shall be
construed in light thereof.
12.13 Knowledge of the Stockholders. For purposes of this Agreement, the
-----------------------------
knowledge of the Stockholders shall be deemed to include the knowledge of each
of the Stockholders or any of them after consulting with David Joerger and
Merlyn VandeKrol.
12.14 No Third Party Beneficiaries. This Agreement is made solely for the
----------------------------
benefit of the parties hereto and shall not give rise to any rights of any kind
to third parties, including without limitation, any and all employees of the
Company. In no event shall this Agreement be deemed or construed to be an offer
or guarantee of continued employment to any Company employee.
12.15 Expenses. Except as otherwise expressly provided herein, the
--------
Stockholders and the Purchaser shall each pay all of the costs and expenses of
their performance and compliance with all agreements and conditions contained in
this Agreement on their part to be performed or complied with.
12.16 Additional Definitions. When used herein, the following capitalized
----------------------
terms have the following meanings. Any of such terms and any other terms defined
herein, may be used in the singular or plural, depending upon the reference,
unless the context otherwise requires.
"Assets" shall mean all of the right, title and interest in and to the
------
properties, assets and rights of any kind, wheresoever located, whether tangible
or intangible, real or personal, and shall be limited to those properties,
assets and rights constituting, or used in connection with, or related to the
Business and owned by the Company or in which the Company has any interest,
including but not limited to, all of the Company's right, title and interest in
the following:
(a) all accounts and notes receivable (whether current or non-
current), refunds, deposits, prepayments or prepaid expenses and unbilled
costs and fees (including without limitation any prepaid insurance
premiums) of the Company;
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<PAGE>
(b) the name Professional Market Management, Inc. and the
corresponding logos and all trade names under which the Company does
business in connection with the Business, together with the goodwill of the
Business appertaining thereto;
(c) all Contract rights, to the extent transferable;
(d) all leases to which the Company is a party or by which the Company
is bound and which relate to the Business or the Assets, whether oral or
written;
(e) all furniture, fixtures, furnishings, machinery, automobiles,
trucks spare parts, supplies, equipment, molds patterns and other tangible
personal property owned by the Company and used in connection with the
Business, wherever located and including any such fixtures and equipment in
the possession of any of the Company's suppliers, including all warranty
rights, if any, with respect thereto;
(f) all inventory used in the conduct of the Business and owned by the
Company;
(g) all books and records;
(h) all proprietary rights relating to the Business;
(i) all permits and licenses, to the extent transferable;
(j) all computer hardware and, to the extent transferable, computer
software;
(k) all insurance policies;
(l) all available suppliers, sales, literature, promotional
literature, customer, supplier and distributor lists, art work, display
units, telephone and facsimile numbers and purchasing records related to
the Business;
(m) all rights under, or pursuant to, all warranties, representations
and guarantees made by third parties in connection with the Assets or
services furnished to the Company pertaining to the Business or affecting
the Assets, to the extent such warranties, representations and guarantees
are assignable; and
(n) all claims, causes of action, rights of recovery and rights of
set-off of any kind, against any person or entity, including, but not
limited to, any encumbrances or other rights to payment or to enforce
payment in connection with products delivered or services provided by the
Company on or prior to the Closing Date.
(o) all goodwill of the Company.
"Material Adverse Effect or Material Adverse Change" shall mean,
------------------------ -----------------------
individually or in the aggregate, any material adverse effect upon or material
adverse change in the following items, (a) the financial condition or results of
operation of the Company taken as a whole, or (b) the condition, prospects or
going concern value of the Business taken as a whole.
-34-
<PAGE>
"Affiliate of Purchaser" shall not include any entitles controlled by
the shareholder of the general partner of MS Farm International Limited
Partnership other than through MS Farm International Limited Partnership and its
successors and assigns.
-35-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
FARM JOURNAL HOLDINGS, INC.
By: /s/ Stanford Erickson
----------------------
Title: CEO and Chairman
----------------
SHAREHOLDERS
/s/ Merrill J. Oster
---------------------
MERRILL J. OSTER
/s/ Carol J. Oster
-------------------
CAROL J. OSTER
DAVID M. OSTER FAMILY TRUST
By: /s/ David M. Oster
-------------------
Trustee
LEAH J. RIPPE FAMILY TRUST
By: /s/ Leah J. Rippe
------------------
Trustee
-36-
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
Employment Agreement ("Agreement") made and entered into this 28th the day of
March, 1997, by and between MS FARM JOURNAL CORPORATION, a Delaware corporation
(the "General Partner"), and STANFORD ERICKSON, having a residence at the
address set forth beneath his signature below ("Employee").
WHEREAS, the General Partner desires to cause Farm Journal, Inc.
("Employer") to employ Employee to obtain the benefit of his services as
Chairman of the Board of Directors and Chief Executive Officer of Employer and
Employee desires to accept such employment.
NOW, THEREFORE, in consideration of the promises and of the respective
covenants and agreements set forth herein and for other good and valuable
consideration, the General Partner and Employee hereby agree as follows:
1. Employment. Upon the closing (the "Closing") of the acquisition
----------
(the "Acquisition") of Employer by Farm Journal Holdings Inc., (i) the General
Partner will cause Employer to employ Employee and to enter into a written
assumption of this Agreement and all obligations of Employer hereunder and (ii)
Employee hereby accepts employment with Employer on all the terms and conditions
of this Agreement.
2. Term. The term of this Agreement shall be for a period of five
----
(5) years (the "Initial Term"), commencing no later than ten business days after
the Closing (the actual date Employee commences work for Employer, the
"Employment Date") and terminating on the fifth anniversary of the Employment
Date, unless sooner terminated as set forth in Sections 10 and 11. Unless either
party gives notice to the other to the contrary at least 60 days prior to the
end of the Initial Term or any Renewal Term (as defined below), this Agreement
shall be renewed upon the end of the Initial Term or such Renewal Term, as the
case may be for an additional one-year period (any such period one-year period
being referred to herein as a "Renewal Term"). The notice requirement set forth
in the immediately preceding sentence is for the convenience of the parties only
and shall not in any manner affect the rights, obligations and remedies of the
parties hereunder.
3. Compensation.
------------
(a) Salary. Employer agrees to pay Employee during the term of Employee's
------
employment under this Agreement, a base salary at a rate of One Hundred
Seventy Thousand Dollars ($170,000) per year (such amount, as the same may
be increased by the Employer's Board of Directors (the "Board") the "Base
Salary"), payable periodically in accordance with the normal payment
schedule and practices of Employer. The Employee's Base Salary shall be
reviewed annually by Employer and Employee and performance raises may be
given when warranted in the sole discretion of Board. All payments shall
be subject to withholding and other applicable taxes.
(b) Bonus Payments. Employee shall be entitled to receive, in addition to the
--------------
Base Salary, such bonus payments, if any, as the Board or the Compensation
Committee of the Board, in its sole discretion, may specify. The amount of
any annual bonus specified by the Board or such Compensation Committee may
be up to 100% of Employee's Base Salary.
<PAGE>
The objectives to be followed by Employer in determining the amount of any
bonus may include both quantitative measures (including, for example and
without limitation, improving revenue, cash flow, net income, earnings per
share and return on assets) and qualitative measures (including, for
example and without limitation, developing a superior competitive position,
creating a corporate culture characterized by enthusiasm, productive
activity and high ethical standards and building an effective team at all
levels of the organization). Employee shall be entitled to receive on the
Employment Date an advance of $25,000, subject to all applicable
withholding requirements, in respect of, and to be credited against,
Employee's annual bonus.
4. Duties and Responsibilities.
---------------------------
(a) As Officer and Employee. Employer hereby employs Employee upon the terms
-----------------------
and conditions set forth in this Agreement, to serve as Chairman of the
Board and Chief Executive Officer of the Employer in which office Employee
shall perform the executive duties vested in such offices by the By-Laws of
the Employer, to be the most senior executive officer of Employer and to be
responsible for directing the business and affairs of Employer and for the
development and implementation of long-range objectives, policies and
plans, including strategies to increase the value of Employer over the term
of this Agreement, all subject to the input and approval of the Board.
(b) Sole Employment is with Employee. During his term of employment, Employee
--------------------------------
shall not directly or indirectly render any services of a business,
commercial or professional nature to any other person, firm, corporation or
organization, whether for compensation or otherwise, without the prior
written consent of the Board, except for such charitable, academic,
professional or trade services which do not interfere with Employee
performing his duties hereunder (as determined by the Board). Employee (i)
represents to Employer that Employee's execution, and performance of the
terms, of this Agreement does not and will not breach or otherwise violate
the terms of any agreement (whether or not in writing) of Employee with any
other person and (ii) agrees that any breach of such representation shall
constitute grounds for termination of Employee for cause under Section 10.
(c) As Director. The Board shall cause Employee to be nominated for election
-----------
and, for so long as the Employer shall remain an indirect, wholly-owned
subsidiary of MS Farm International Limited Partnership (the "Partnership")
or one or more of its affiliates controlled by the General Partner, the
General Partner shall cause the Employee to be elected, as a director of
Employer during the entire employment term. As a director, Employee shall
serve as Chairman and on the Executive Committee and on such other
committees of the Board as the Board may request. Employee agrees that he
shall not be entitled to receive any compensation for serving as a director
of Employer or as a director, officer or employee of Employer's
subsidiaries or other affiliates other than the compensation to be paid to
Employee by Employer pursuant to this Agreement.
(d) Employee Acceptance. Employee hereby accepts the employment and duties
-------------------
contemplated herein, and Employee agrees to devote his full working time,
to the performance of his duties under this Agreement and the business of
Employer, and to
2
<PAGE>
comply with all significant lawful policies of the Employer which under
this Agreement may be in effect from time to time.
5. Expenses. Employer agrees to pay or reimburse Employee for all
--------
reasonable, ordinary and properly vouchered business expenses (including for
necessary business travel) and client entertainment expenses incurred after the
Employment Date in the performance of his services under this Agreement in
accordance with all applicable policies and procedures of Employer for expense
reimbursement.
6. Equity Participation and Other Benefits.
---------------------------------------
(a) Purchase of Class A Limited Partner Interests. On the Employment Date,
---------------------------------------------
Employee shall purchase one Unit as defined in the Limited Partnership
Memorandum dated February 1997, of the Partnership (the "Partnership") (as
the same may be supplemented) of Class A Limited Partner interests of the
Partnership. Employee shall pay the purchase price of such Unit by (i) the
payment to the Partnership of $25,000 in cash and (ii) delivery of
Employee's full recourse promissory note (the "Note") in the principal
amount of $75,000, bearing interest at the prime rate, secured by all of
Employee's interest in the Partnership and the proceeds of the sale of
Employee's primary residence, maturing on the earlier of (x) the sale of
the Employee's primary residence or (y) the anniversary of issuance and
repayable from the proceeds of the sale of Employee's primary residence.
The Note shall be in form and substance satisfactory to the Partnership.
(b) Purchase of Class B Limited Partner Interests. In connection with the
---------------------------------------------
closing of the Acquisition of the Company by Farm Journal Holdings Corp.,
Employee will be entitled to purchase on the Employment Date an equity
participation interest in the Partnership as set forth on Annex A hereto.
(c) Other Benefit Plans. In addition to the compensation specified in Section
-------------------
3 hereinabove, during the term of Employee's employment with Employer,
Employee shall be entitled to participate in or receive benefits under any
employee benefit plan or other arrangement made available generally by
Employer, now or in the future, to its key management employees, subject to
and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements.
(d) Automobile. During the term of Employee's employment with Employer,
----------
Employer will reimburse to Employee up to $500 per month of expenses
incurred by Employee to lease a Chrysler Town & Country LXI car in addition
to the compensation provided in Section 3 hereinabove.
(e) Relocation Allowance. Employee shall be entitled to reimbursement of (i)
--------------------
the reasonable actual out-of-pocket costs up to $50,000 incurred by
Employee in connection with Employee's relocation to the greater
Philadelphia area if made within two years of Employee's Employment Date
and (ii) his temporary living expenses (up to $4,000 per month) in
Philadelphia for the period through July 1997.
3
<PAGE>
7. Employer's Authority. Employee agrees to observe and comply with
--------------------
the lawful rules and regulations of Employer respecting performance of duties,
reimbursement of expenses and other matters relating to Employer's business.
8. Covenant to Retain Employer's Confidences and Trade Secrets. By
-----------------------------------------------------------
virtue of his employment, Employee will have continuing access to privileged and
confidential information, including without limitation trade secrets, relating
to Employer, or any of Employer's subsidiaries or affiliates, or any of their
respective businesses (any such information being referred to collectively
herein as "Confidential Information"). It is acknowledged and agreed that
Employer will suffer immeasurable and irreparable harm if Confidential
Information is used or exploited outside the scope of this Agreement or
Confidential Information is disclosed in breach of this Agreement. Accordingly,
during the period of his employment hereunder and following termination on of
his employment with Employer, Employee shall not, without the written consent of
the Board or of a person (other than Employee) authorized thereby, use, exploit
or disclose to any person any Confidential Information; provided, however, that
Confidential Information shall not include any information that already is
lawfully (and without breach of any duty or agreement to preserve
confidentiality) in the public domain or prevent Employee from using general
know-how not proprietary to Employer; and provided further that Employee shall
not be required to keep confidential any such information, and may disclose such
information, under the following circumstances:
Employee may disclose Confidential Information to another employee of
Employer or to representatives or warrants of Employer (such as independent
accountants and legal counsel) when such disclosure is reasonably necessary
or appropriate in connection with the performance by Employee of his duties
as an executive officer of Employer,
Employee may disclose Confidential Information at the express direction of
any authorized governmental entity acting within the scope of its
jurisdiction,
Employee may disclose Confidential Information pursuant to a subpoena or
other court process, or
Employee may disclose Confidential Information as otherwise required by law
or the rules, regulations or orders of any applicable regulatory body
acting within the scope of its jurisdiction,
but, before any such disclosure may be made under the foregoing clause (ii),
(iii) or (iv), Employee shall cause Employer (or if after the termination of
Employee's employment with Employer, shall afford to Employer a reasonable
opportunity) to exercise reasonably appropriate measures to object to such
disclosure and to provide for the confidential treatment of the information if
so disclosed. Employee acknowledges and agrees that all Confidential
Information, that has been learned, developed or created by him during and in
connection with his employment with Employer, shall belong to, and shall remain
the sole property of, Employer. Employee shall not be entitled to keep or
reproduce any such information or materials after his employment with Employer
terminates. Employee shall, at any time requested by Employer (either during or
after his employment with Employer), promptly make all disclosures, execute all
instruments and perform all acts reasonably necessary to vest in Employer, fully
and
4
<PAGE>
completely, all such rights and information, and Employee promptly shall deliver
to Employer all memoranda, notes, reports, lists and other documents (and all
copies thereof), in whatever media contained, which he may then have in his
possession, custody or control, and which contain any Confidential Information.
9. Covenant Not to Compete. Employee acknowledges that the services
-----------------------
he will render to Employer are of a special and unique character, any loss of
which cannot adequately be compensated by damages or an action at law. In view
of the unique value to Employer of the services of Employee for which Employer
has contracted hereunder, the confidential information obtained by (or disclosed
to) Employee as a consequence of his employment with Employer and the harm that
would result to the business of Employer as a result of competition between
Employee and Employer; as a material inducement to Employer to enter into this
Agreement; and as a material inducement to Employer to pay Employee the
compensation provided in this Agreement on the terms and conditions hereof,
Employee covenants and agrees as follows:
(a) Employee will not (without the prior written consent of Employer (which
consent may be withheld by Employer in its sole discretion for any reason))
for so long as he shall be employed by Employer commencing with the
Employment Date and for a period ending on the first anniversary following
the termination of his employment with Employer under this Agreement for
any reason whatsoever, for his own account or otherwise, and whether alone
or in concert with others, directly or indirectly:
(i) compete with Employer in any manner in those segments of the
publishing, market research, data management business or any other
business activity in which Employer, at the time of termination, is
substantially engaged or which Employer then is actively pursuing (the
"Business"), or manage, operate, control, be employed by, participate
in, render financial or other assistance to or be connected in any
manner with the ownership, management, representatives, operations or
control of that part of any business that competes with any of the
Business, or solicit business as contemplated by paragraph (ii) below;
(ii) solicit or accept solicitations in competition with Employer in any
Business of any advertiser, customer or client of Employer at the time
of termination, or any person or entity who, within the one (1) year
immediately preceding the time of termination, was an advertiser,
customer or client of Employer or was solicited by Employer to be an
advertiser, customer or client;
(iii) offer employment to or employ any person who is, at the time of such
offer, or who had been within one (1) year prior to the time of such
offer, (x) an employee of Employer or its subsidiaries or (y) an
independent contractor or consultant of Employer engaged in editorial,
research, skilled production or data management, managerial or sales
work, unless, in the case of an employee, such person shall have been
terminated by Employer without cause, or shall have terminated his or
her employment with the consent of Employer, and shall have worked at
least six months at another employer prior to the date when such
person first is employed or offered employment by Employee; or
5
<PAGE>
(iv) request, suggest or cause any past, present or future advertisers,
customers or clients of the Employer, any of its subsidiaries or any
of their affiliates engaged in the Business, to cancel or terminate,
or change the terms of, any business relationship with the Employer,
or any of its affiliates or engaged in the Business or request or
cause any vendor, printer, manufacturer or material supplier to
cancel, terminate or change the terms of, any relationship with the
Employer, any of its subsidiaries or any of their affiliates related
to the Business.
(b) Employee shall not at any time, whether alone or in concert with others,
directly or indirectly say or perform acts that will disparage the
reputation, trade name, integrity and goodwill of the Employer, any of its
publications or businesses, the Partnership or any of the Employer's
officers, employees, agents, directors, stockholders and/or affiliates,
including, but not limited to, MS Farm Journal Corporation and Morgan
Schiff & Co., Inc. Employer shall not at any time, whether alone or in
concert with others, directly or indirectly, make statements to third
parties disparaging the reputation of Employee. For the avoidance of
doubt, such agreements by Employer and Employee shall not be breached by
any termination of Employee's employment under this Agreement or the
content of any pleadings, affidavits, depositions or singular matters
relating to a dispute between Employer and Employee.
(c) Employee acknowledges and agrees that Employer conducts its Business
throughout the continental United States and intends to conduct it in
certain non-United States jurisdictions. The specific provisions of this
covenant not to compete by Employee are limited to and binding only within
those markets and geographical boundaries, including without limitation the
continental United States, in which Employer is engaged in Business or
where Employer, at the time of termination, is actively and in good faith
pursuing the engagement of Business.
(d) Employee acknowledges that this Section is an essential element of this
Agreement, and that but for this Section, Employer would not have entered
into this Agreement. Employee also acknowledges that the provisions of
this Section are reasonable and necessary to protect the legitimate
interests of Employer and that any breach of the terms, covenants or
agreements set forth in this Section shall be competitively unfair and may
cause irreparable damage to Employer because of the special and unique
services to be performed by Employee under this Agreement and that recovery
of damages at law will not be an adequate remedy. Accordingly, Employee
agrees that for any breach or threatened breach of the terms, covenants and
agreements of this Section, in addition to any other rights or remedies
Employer may have, Employer may apply to any court of law or equity having
jurisdiction to enforce the specific performance of the foregoing
provisions and may apply for injunctive relief against any act which would
violate any such provisions. Employer agrees that for any breach of the
agreement of Employer set forth in the last sentence of clause (b) of this
Section 9, in addition to any other rights or remedies Employee may have,
Employee may apply to any court of law or equity having jurisdiction for
injunctive relief against statements by Employer that would violate such
agreement.
6
<PAGE>
10. Termination without Severance. Except for the covenants, terms
-----------------------------
and conditions contained in Sections 8, 9 and 14 (and, to the extent applicable
to said sections, Sections 15 through 19), this Agreement shall be terminated
immediately:
(a) Upon the death of Employee; or
(b) Upon the Total Disability of Employee. Total Disability shall mean any
condition of illness or physical or mental incapacity or disability which
prevents or appears reasonably likely to prevent Employee from performing
the essential functions of his position (as determined by a physician
mutually acceptable to Employer and Employee or a necessary representative
of Employee), with or without reasonable accommodation, on a full-time
basis for ninety (90) consecutive days or ninety (90) days within any one
hundred eighty (180) day period; or
(c) If Employee is fired with Cause. For purposes of this Agreement, "Cause"
shall mean any of the following, as determined by the Board:
(i) Employee's material breach of Sections 8 and 9 hereof or Employee's
material failure or Employee's refusal to follow lawful written
policies or directions of the Board (which the Board believes in good
faith to be in the best interests of Employer) or Employee's material
failure to perform his duties as set forth in Sections 4 and 7 of this
Agreement or as assigned by the Board from time to time in accordance
with Sections 4 and 7 of this Agreement;
(ii) Employee acts dishonestly and the same adversely affects Employer; or
(iii) Employee is or has engaged in gross misconduct which is employment
related, or Employee is convicted of a felony or any crime involving
moral turpitude, fraud or misrepresentation; or
(d) Employee fails to resign his current position and commence work with
Employer on or prior to ten business days after the Closing of the
Acquisition; or
(e) If Employee voluntarily quits his employment.
11. Termination with Severance. Except for the covenants, terms and
conditions contained in Sections 8 and 9 (and, to the extent applicable to said
sections, Sections 14 through 19), and subject to the terms and conditions of
this Section 11, this Agreement may be terminated upon either of the following
two events: (i) at the election of Employer at any time without Cause, by giving
written notice of such election to Employee; and (ii) at the election of
Employee, by giving written notice to the Board, if Employer (at a time when
Employee is not in material breach of this Agreement) is in material breach of
this Agreement and such breach continues for thirty (30) or more days after
Employee gives written notice of such material breach to the Board. In the event
of any termination pursuant to the foregoing sentence, Employee shall be
entitled, without any duty to mitigate, to continue to receive his then-existing
Base salary under Section 4(a) hereof for a period of three months following the
date of such termination; provided that such number of months shall increase by
one month for each completed full year of Employee's employment by Employer. The
rights of Employee under the
7
<PAGE>
foregoing sentence to his Base Salary and the obligations of Employer pertaining
thereto, are contingent upon (i) Employee executing and delivering to Employer
(in form and substance satisfactory to Employer) a release in favor of Employer,
all affiliates of Employer and all of Employer's and such affiliate's respective
stockholders, partners, officers, directors, employees, agents and
representatives, from any and all claims arising under this Agreement or as a
result of Employee's employment relationship with Employer or any of Employer's
predecessors or affiliates and (ii) Employee complying with all of his post-
termination obligations, including, but not limited to, his obligations under
Section 8 and 9 hereof.
12. Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by reputable overnight
courier or by registered or certified mail (return receipt requested), postage
prepaid, or by telecopy (immediately followed by telephone confirmation of
delivery of such telecopy with the intended recipient of such notice or by
notice in writing sent promptly by registered or certified mail as provided
above), to the parties to this Agreement at the following addresses or at such
other address for a party as shall be specified by like notice:
(a) If to Employer, at:
Farm Journal, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: Board of Directors
Telephone: (215) 557-8900
Facsimile: (215) 568-5012
(b) If to Employee, at his address set forth beneath his signature below with a
copy to:
Farm Journal, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: Stanford Erickson
Telephone: (215) 557-8900
Facsimile: (215) 568-5012
All such notices and communications shall be deemed to have been received on the
date of delivery, on the date that the telecopy is confirmed as having been
received, on the next business day after being sent by reputable overnight
courier or on the third business day after mailing, as the case may be.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and undertakings, written and oral. This
Agreement may be amended only by a
8
<PAGE>
subsequent written agreement of Employee and Employer. No waiver by Employee or
by Employer of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or any prior or subsequent time. This Agreement shall
be binding upon and shall inure to the benefit of Employee, his heirs,
executors, administrators, beneficiaries and legal representatives and shall be
binding and inure to the benefit of Employer and its successors and assigns.
14. Merger and Consolidation, Assignment. (a) Upon the Closing of the
Acquisition, all rights and obligations of the General Partner under this
Agreement shall immediately be assigned to and assumed by Employer and the
General Partner shall have no further obligations of any kind hereunder. If
Employer at any time merges or consolidates with any other corporation or sells
or otherwise transfers all or a substantial portion of its assets or shares of
stock to another corporation or entity, the provisions of the Agreement shall be
binding upon the inure to the benefit of the corporation or entity surviving or
resulting from such merger of consolidation or to which such assets or shares of
stock have been sold or transferred. This Agreement, being personal to Employee,
may not be assigned by Employee.
(b) The execution of this Agreement by the General Partner shall not
obligate the General Partner in any manner with respect to the completion of the
Acquisition and Employee expressly acknowledges and agrees that (I) it shall
hold the General Partner and its affiliates harmless against any loss or damages
suffered by Employee as a result of the failure of the Acquisition to close
(regardless of the cause of such failure), (ii) that the General Partner shall
have no obligation to perform and pay the obligations of the Employer hereunder
and (iii) except with respect to the obligation of the General Partner under
Section 1 to cause Employer to employ Employee upon the Closing of the
Acquisition, the General Partner shall have no obligations or liability
hereunder.
15. Applicable Law and Jurisdiction.
-------------------------------
(a) This Agreement shall be governed by and construed in accordance with the
internal law of the State of New York without regard to its conflicts of
law principles.
(b) The parties agree that the exclusive place of jurisdiction for any action,
suit or proceeding relating to this Agreement shall be in the courts of the
United States of America sitting in the Borough of Manhattan in the City of
New York or, if such courts shall not have jurisdiction over the subject
matter thereof, in the courts of the State of New York sitting therein, and
each such party hereby irrevocably and unconditionally agrees to submit to
the jurisdiction of such courts for purposes of any such action, suit or
proceeding. Each party irrevocably waives any objection it may have to the
venue of any action, suit or proceeding brought in such courts or to the
convenience of the forum. Final judgment in any such action, suit or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment, a certified or true copy of which shall be
conclusive evidence of the fact and the amount of any indebtedness or
liability of any party therein described.
16. Entire Agreement; Article and Section Headings. This Agreement
----------------------------------------------
sets forth the entire agreement of the parties hereto, and supersedes all prior
communications, whether oral
9
<PAGE>
or written, with respect to the subject matter hereof. The articles, section and
other headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
17. Reformation and Severability. In the event that any one or more
----------------------------
of the provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the same shall be construed and, if necessary,
reformed in substance, by limiting it so as to be valid and enforceable to the
maximum extent permitted by applicable law, and the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired and
shall remain in full force and effect to the fullest extent permitted by law.
The parties shall negotiate in good faith to replace an invalid, illegal or
unenforceable provision with a valid provision the economic effect of which is
as close as possible to that of the invalid, illegal or unenforceable provision.
18. Enforceability. The failure of either party at any time to
--------------
require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement, nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provisions or as a waiver of the provision itself.
19. Survival. The respective obligations of, and benefits afforded
--------
to, Employee and Employer as provided in Sections 8, 9, 11 and 14 of this
Agreement (and, to the extent applicable to said Sections 8, 9, 11 or 14,
Sections 15 through 20), shall survive termination of this Agreement.
20. Other Agreements. Employee represents and warrants to Employer
----------------
that Employee has not entered into any contract or agreement of any nature with
any person, firm or corporation which in connection with Employee's previous
employment, contains any restraints on Employee's future services.
21. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be a single agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the date first above written.
EMPLOYEE: MS FARM JOURNAL CORPORATION
/s/ Stanford Erickson By: /s/ J. Carr Gamble, III.
- ---------------------- -------------------------
STANFORD ERICKSON Title:
Employee's Residential Address:
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<PAGE>
ANNEX A
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All terms not defined herein shall have the meaning set forth in the
Employment Agreement to which this Annex is attached.
Employee shall be granted the opportunity (subject to vesting) to realize
the financial benefit of a 10 year option at fair market value on 5% of the
limited partnership interests in MS Farm International Limited Partnership (the
"Partnership") on a fully diluted basis after giving effect to the limited
partnership interests issued at the closing of the acquisition ("Acquisition")
of the Company by Farm Journal Holding Inc. ("Holdings") (including interests
issued within six months thereafter, up to a maximum of 100 Units, i.e.,
$10,000,000) and the issuance of a similar interest to the Company's Chief
Operating Officer (the "Interest").
On the date Employee joins the Company, one fifth of such Interest shall
vest. Another four-fifths of such Interest shall vest in five equal
installments on each of the five anniversaries of the employment date (or at
such later date as the audited financials for the prior year are issued)
provided (i) that Employee continues to be employed by Employer on such date and
(ii) that the following financial targets are met:
First anniversary: EBITDA for the prior year
(1997) is at least $2.830 million (as shown on the
audited financials for the prior year)
Second anniversary: EBITDA for the prior year
(1998) is at least $3.643 million (as shown on the
audited financials for the prior year)
Third anniversary: EBITDA for the prior year
(1999) is at least $5.290 million (as shown on the
audited financials for the prior year)
Fourth anniversary: EBITDA for the prior year is at
least $5.819 million (110% of the
third anniversary target) and 20%
of the prior year's net revenues (as shown on the
audited financials for the prior year)
Fifth anniversary: EBITDA for the prior year is at
least $6.4 million and 20% of the
prior year's net revenues (as shown on the audited
financials for the prior year)
<PAGE>
In the event of a firm underwritten initial public offering ("IPO") pursuant
to an effective registration statement on Form S-1 under the Securities Act of
1933, as amended (the "Act") at a value that implies a pre-IPO equity valuation
of the Company of at least three times the Partnership's investment in the
company, 25% of such Interest not then vested shall vest, with the remaining
amounts to be vested on a pro rata basis in accordance with the schedule, and
subject to the conditions, set forth above.
In the event the Company is subject to a "Change in Control" all such
Interest shall vest immediately. A "Change in Control" means any merger or
consolidation of Employer, any sale or other transfer of all or substantially
all of Employer's assets, or any sale of a majority of the capital stock of
Employer or of a majority of any class of equity of any stockholder of Employer,
if as a result of such transaction neither Phillip Ean Cohen, Morgan Schiff &
Co., Inc. nor any of its affiliates or associates (or any employee or associate
of Morgan Schiff & Co., Inc. or its affiliates) (including any of such person's
estates or heirs) shall own or control, directly or indirectly, a majority or
controlling voting interest in Employer or the successor to Employer. Employee
acknowledges and agrees that MS Farm Journal Corporation, as the general partner
of the Partnership, is an affiliate of Morgan Schiff & Co., Inc.
It is currently anticipated that the Interest will be implemented through
Employee purchasing for an amount to be agreed (e.g., $500) on the closing date
of the Acquisition a Class B Limited Partner interest of the Partnership. The
Class B Limited Partner interest shall be equivalent to the Class A Limited
Partner interest except that the proceeds of such sale will be used to purchase
junior stock ("Junior Stock") of Holdings representing 4% of the common stock of
Holdings actually acquired on such closing date with the proceeds of all Limited
Partner interests sold by the Partnership (and acquired with the proceeds of
Limited Partner interest sold within six months thereafter, up to a maximum of
100 Units, i. e., $10,000,000 (inclusive of Units sold on or prior to the
closing date of the Acquisition)).
The terms of the Junior Stock will include mandatory redemption and other
provisions to implement the vesting schedule set forth above. The Certificate
of Incorporation of Holdings will be amended to provide mandatory redemption
provisions in respect of the Junior Stock to provide for a mandatory redemption
at the original purchase price of shares of Junior Stock (or any shares of
capital stock issued in exchange for, on conversion of, as a dividend or other
distribution in respect of, or as part of a recapitalization involving the
Junior Stock) at such time and to the extent that such shares of capital stock
are no longer capable of being vested in favor of Employee.
The Junior Stock will be subject to the conversion provisions applicable
thereto under the Certificate of Incorporation of Holdings attached hereto. The
Junior Stock will have voting rights identical to the shares of stock into which
it may be converted from time to time.
In the event of an EPO, the Junior Stock will become convertible into the
stock that is the subject of such offering.
For purposes of this paragraph, Affiliate shall mean any person who is an
affiliate of Employer within the meaning of Rule 144 under the Act. So long as
Employee is an Affiliate,
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<PAGE>
Employee shall be entitled to participate in any registration under the Act of
the sale securities of Holdings by controlling Affiliates. Such participation
shall be on the same terms as are made available to other Affiliates
participating in such registration, and, at the option of Employee, shall
include up to Employee's vested pro rata share of the Holdings equity securities
to be registered, based on the number of shares that are the subject of the such
registration held by Employee as compared to the total number of shares of the
same class of Employer equity beneficially held (within the meaning of
Securities and Exchange Commission Rule 13d-d under the Securities Exchange Act
of 1934, as amended) by all Affiliates.
All certificates representing the shares of Junior Stock (and any shares of
capital stock issued in exchange for, on conversion of, as a dividend or other
distribution in respect of, or as part of a recapitalization involving the
Junior Stock) shall bear a legend substantially in the following form, in
addition to any other legends that may be required under Federal or state
securities laws:
"The shares of stock represented by this certificate are subject to
mandatory redemption in accordance with the terms of the Certificate of
Incorporation of the Issuer."
3
<PAGE>
EXHIBIT 10.2
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of April 1,
1997, between MS Farm Journal Corporation, a Delaware corporation
(the "Company"), and Farm Journal, Inc., a Pennsylvania
corporation ("Farm Journal").
WHEREAS the Company desires to assign to Farm Journal all its right,
title and interest in, to and under the Employment Agreement dated as of March
28, 1997 (the "Employment Agreement"), between the Company and Stanford Erickson
("Employee").
WHEREAS Farm Journal desires to accept such assignment and to assume,
agree to be bound by and to perform the Company's obligations under the
Employment Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
SECTION 1. Assignment. The Company hereby assigns, transfers and
----------
delivers to Farm Journal all the Company's right, title and interest in, to and
under the Employment Agreement.
SECTION 2. Assumption. Farm Journal hereby assumes, agrees to be
----------
bound by and to perform all the obligations of the Company under the Employment
Agreement.
SECTION 3. Further Assurances. The Company agrees to execute any and
------------------
all further documents, agreements and instruments, and take all further action
that may be required under applicable law, or which Farm Journal may reasonably
request, in order to effectuate the transaction contemplated by this Assignment
and Assumption Agreement.
SECTION 4. Binding Agreement. This Assignment and Assumption
-----------------
Agreement shall be binding on the Company and Farm Journal and their respective
heirs, distributees, executors and legal representatives, successors and
assigns. This Assignment and Assumption Agreement may not be modified except by
an instrument in writing which is signed by each of the parties.
SECTION 5. Governing Law. This Assignment and Assumption Agreement
-------------
shall be construed and enforced in accordance with and governed by the laws of
the State of New York.
SECTION 6. Counterparts. This Assignment and Assumption Agreement
------------
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be duly executed as of the date first above written:
MS FARM JOURNAL CORPORATION
By: /s/ J. Carr Gamble, III
------------------------
J. Carr Gamble, III
Vice-President
FARM JOURNAL, INC.
By: /s/ Roger D. Randall
---------------------
Roger D. Randall
President
Agreed and Accepted to:
/s/ Stanford Erickson
- ----------------------
Stanford Erickson
2
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
Employment Agreement ("Agreement") made and entered into this 27th day
of March 1997 by and between MS FARM JOURNAL CORPORATION. a Delaware corporation
(the "General Partner"), and ROGER D. RANDALL, having a residence at the address
set forth beneath his signature below ("Employee").
WHEREAS, the General Partner desires to cause Farm Journal. Inc.
("Employer") to employ Employee to obtain the benefit of his services as
President, Chief Operating Officer and a Member of the Board of Employer and
Employee desires to accept such employment.
NOW, THEREFORE, in consideration of the promises and of the respective
covenants and agreements set forth herein and for other good and valuable
consideration, the General Partner and Employee hereby agree as follows:
1. Employment. Upon the closing (the "Closing") of the acquisition
----------
(the "acquisition") of Employer by Farm Journal Holdings Inc., (i) the General
Partner will to cause Employer to employ Employee and to enter into a written
assumption of this Agreement and all obligations of Employer hereunder and (ii)
Employee hereby accepts employment with Employer on all the terms and conditions
of this Agreement.
2. Term. The term of this Agreement shall be for a period of five (5)
----
years (the "Initial Term"), commencing one day after the Closing (the
"Employment Date") and terminating on the fifth anniversary of the Employment
Date, unless sooner terminated as set forth in Sections 10 and 11. Unless either
party gives notice to the other to the contrary prior to the end of the Initial
Term or any Renewal Term (as defined below), this Agreement shall be renewed
upon the end of the Initial Term or such Renewal Term, as the case may be, for
an additional one-year period (any such one-year period being refined to herein
as a "Renewal Term").
3. Compensation.
------------
(a) Salary. Employer agrees to pay Employee during the Term of this Agreement,
------
a base salary at a rate of One Hundred Sixty Thousand Dollars ($160,000) per
year (such amount, as the same may be adjusted by the Employer's Board of
Directors (the "Board"), the "Base Salary"), payable periodically in accordance
with the normal payment schedule and practices of Employer. The Employee's Base
Salary shall be reviewed annually by Employer and Employee and performance
raises may be given when warranted in the sole discretion of the Board. All
payments shall be subject to withholding and other applicable taxes.
(b) Bonus Payments. Employee shall be entitled to receive, in addition to the
--------------
Base Salary, such bonus payments, if any, as the Board or the Compensation
Committee of the Board, in its sole discretion, may specify. The amount of any
annual bonus specified by the Board or such Compensation Committee may be up to
100% of Employee's Base Salary. The objectives to be followed by Employer in
determining the amount of any bonus may include both quantitative measures
(including, for
<PAGE>
example and without limitation, improving revenue, cash flow, net income,
earnings per share and return on assets) and qualitative measures (including,
for example and without limitation, developing a superior competitive position,
creating a corporate culture characterized by enthusiasm, productive activity
and high ethical standards and building an effective team at all levels of the
organization).
4. Duties and Responsibilities.
---------------------------
As Officer and Employee. Employer hereby employs Employee upon the terms and
- -----------------------
conditions set forth in this Agreement, to serve as President and Chief
Operating Officer of the Employer in which office Employee shall perform the
executive duties vested in such offices by the By-Laws of the Employer.
Sole Employment is with Employer. During his term of employment, Employee shall
- --------------------------------
not directly or indirectly render any services of a business, commercial or
professional nature to any other person, firm, corporation or organization,
whether for compensation or otherwise, without the prior written consent of the
Board, except for such charitable, academic, professional or trade services
which do not interfere with Employee performing his duties hereunder (as
determined by the Board).
(a) As Director. The Board shall cause Employee to be nominated for election
-----------
and, for so long as the Employer shall remain an indirect, wholly-owned
subsidiary of MS Farm International Limited Partnership (the "Partnership") the
General Partner shall cause the Employee to be elected as a director of Employer
during the entire employment term. As a director, Employee shall serve on the
Executive Committee and on such other committees of the Board as the Board may
request. Employee agrees that he shall not be entitled to receive any
compensation for serving as a director of Employer or as a director, officer or
employee of Employer's subsidiaries or other affiliates other than the
compensation to be paid to Employee by Employer pursuant to this Agreement.
(b) Employee Acceptance. Employee hereby accepts the employment and duties
-------------------
contemplated herein, and Employee agrees to devote his full working time to the
performance of his duties and the business of Employer, and to comply with all
significant lawful policies of the Employer which may be in effect from time to
time.
5. Expenses. Employer agrees to pay or reimburse Employee for all
--------
reasonable, ordinary and properly vouchered business expenses (including for
necessary business travel) and client entertainment expenses incurred after the
Employment Date in the performance of his services under this Agreement in
accordance with all applicable policies and procedures of Employer for expense
reimbursement.
6. Equity Participation and Other Benefits.
---------------------------------------
(a) Purchase of Class A Limited Partner Interests. Employee shall purchase for
---------------------------------------------
$200,000 two Units as defined in the Limited Partnership Memorandum dated
February 1997, of MS Farm International Limited Partnership (the "Partnership")
(as the same may be supplemented) of Class A Limited Partner interests of the
Partnership.
(b) Purchase of Class B Limited Partner Interests. In connection with the
---------------------------------------------
closing of the Acquisition of the Company by Farm Journal Holdings Corp.,
Employee will be entitled on the
2
<PAGE>
Employment Date to purchase an equity participation interest in the Partnership
as set forth on Annex A hereto.
(c) Other Benefit Plans. In addition to the compensation specified in Section
-------------------
3 hereinabove, during the term of Employee's employment with Employer, Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan or other arrangement made available generally by Employer, now or
in the future, to its key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements.
7. Employer's Authority. Employee agrees to observe and comply with
--------------------
the lawful rules and regulations of Employer respecting performance of duties,
reimbursement of expenses and other matters relating to Employer's business.
8. Covenant to Retain Employer's Confidences and Trade Secrets. By
-----------------------------------------------------------
virtue of his employment, Employee will have continuing access to privileged and
confidential information, including without limitation trade secrets, relating
to Employer, or any of Employer's subsidiaries or affiliates, or any of their
respective businesses (any such information being referred to collectively
herein as "Confidential Information"). It is acknowledged and agreed that
Employer will suffer immeasurable and irreparable harm if Confidential
Information is used or exploited outside the scope of this Agreement or
Confidential Information is disclosed in breach of this Agreement. Accordingly,
during the period of his employment hereunder and following termination of his
employment with Employer, Employee shall not, without the written consent of the
Board or of a person (other than Employee) authorized thereby, use, exploit or
disclose to any person any Confidential Information; provided, however, that
Confidential Information shall not include any information that already is
lawfully (and without breach of any duty or agreement to preserve
confidentiality) in the public domain or prevent Employee from using general
know-how not proprietary to Employer; and provided further that Employee shall
not be required to keep confidential any such information, and may disclose such
information, under the following circumstances:
(i) Employee may disclose Confidential Information to another
employee of Employer or to representatives or agents of Employer (such as
independent accountants and legal counsel) when such disclosure is reasonably
necessary or appropriate in connection with the performance by Employee of his
duties as an executive officer of Employer,
(ii) Employee may disclose Confidential Information at the express
direction of any authorized governmental entity acting within the scope of its
jurisdiction,
(iii) Employee may disclose Confidential Information pursuant to a
subpoena or other court process, or
(iv) Employee may disclose Confidential Information as otherwise
required by law or the rules, regulations or orders of any applicable regulatory
body acting within the scope of its jurisdiction, but, before any such
disclosure may be made under the foregoing clause (ii), (iii) or (iv), Employee
shall cause Employer (or if after the termination of Employee's employment with
Employer, shall afford to Employer a reasonable opportunity) to exercise
3
<PAGE>
reasonably appropriate measures to object to such disclosure and to provide for
the confidential treatment of the information if so disclosed. Employee
acknowledges and agrees that all Confidential Information, that are or have been
learned, developed or created by him during or in connection with his employment
with Employer, shall belong to, and shall remain the sole property of, Employer.
Employee shall not be entitled to keep or reproduce any such information or
materials after his employment with Employer terminates. Employee shall, at any
time requested by Employer (either during or after his employment with
Employer), promptly make all disclosures, execute all instruments and perform
all acts reasonably necessary to vest in Employer, fully and completely, all
such rights and information, and Employee promptly shall deliver to Employer all
memoranda, notes, reports, lists and other documents (and all copies thereof),
in whatever media contained, which he may then have in his possession, custody
or control, and which contain any Confidential Information.
9. Covenant Not to Compete. Employee acknowledges that the services
-----------------------
he will render to Employer are of a special and unique character, any loss of
which cannot adequately be compensated by damages or an action at law. In view
of the unique value to Employer of the services of Employee for which Employer
has contracted hereunder, the confidential information obtained by (or disclosed
to) Employee as a consequence of his employment with Employer and the harm that
would result to the business of Employer as a result of competition between
Employee and Employer; as a material inducement to Employer to enter into this
Agreement; and as a material inducement to Employer to pay Employee the
compensation provided in this Agreement on the terms and conditions hereof,
Employee covenants and agrees as follows:
(a) Employee will not (without the prior written consent of Employer (which
consent may be withheld by Employer in its sole discretion for any reason)) for
so long as he shall be employed by Employer commencing with the Employment Date
and for a period ending on the second anniversary (or, if Employee is fired
without Cause, the first anniversary) following the termination of his
employment with Employer under this Agreement for any reason whatsoever, for his
own account or otherwise, and whether alone or in concert with others, directly
or indirectly:
(i) compete with Employer in any manner in those segments of the
publishing, market research, data management business or any other business
activity in which Employer, at the time of termination, is substantially engaged
or which Employer then is actively pursuing (the "Business"), or manage,
operate, control, be employed by, participate in, render financial or other
assistance to or be connected in any manner with the ownership, management,
representatives, operations or control of that part of any business that
competes with any of the Business, or solicit business as contemplated by
paragraph (ii) below;
(ii) solicit or accept solicitations in competition with Employer of any
Business of any advertiser, customer or client of Employer at the time of
termination, or any person or entity who, within the one (1) year immediately
preceding the time of termination, was an advertiser, customer or client of
Employer or was solicited by Employer to be an advertiser, customer or client;
provided, however, Employer agrees that the provisions of this clause (ii) shall
- -------- -------
not restrict the ability of Employee to be employed by any advertiser of
Employer; or
4
<PAGE>
(iii) offer employment to or employ any person who is, at the time of such
offer, or who had been within one (1) year prior to the time of such offer, (x)
an employee of Employer or its subsidiaries or (y) an independent contractor or
consultant of Employer engaged in editorial, research, skilled production or
data management, managerial or sales work, unless, in the case of an employee,
such person shall have been terminated by Employer without cause, or shall have
terminated his or her employment with the consent of Employer, and shall have
worked at least six months at another employer prior to the date when such
person first is employed or offered employment by Employee; or
(iv) request, suggest or cause any past, present or future advertisers,
customers or clients of the Employer, the Partnership or any of their
affiliates, to cancel or terminate, or change the terms of, any business
relationship with the Employer, the Partnership or any of their affiliates or
request or cause any vendor, printer, manufacturer or material supplier to
cancel or terminate, or change the terms of, any business relationship with the
Employer; provided, however, Employer agrees that the provisions of this clause
-------- -------
(iv) shall not prohibit the Employee, if employed by any advertiser of Employer,
from negotiating in good faith, on behalf of such advertiser, the terms of such
advertiser's business relationship with Employer.
(b) Employee shall not at any time, whether alone or in concert with others,
directly or indirectly say or perform acts that will disparage the reputation,
trade name, integrity and goodwill of the Employer, any of its publications or
businesses, the Partnership or any of the Employer's officers, employees,
agents, directors, stockholders and/or affiliates, including, but not limited
to, MS Farm Journal Corporation and Morgan Schiff & Co., Inc. Employer shall not
of any time, whether alone or in concert with others, make statements to third
parties disparaging the reputation of Employee; provided that this agreement
--------
shall not in any manner restrict or limit, or constitute a waiver of, the
exercise by Employer of all rights and remedies hereunder.
(c) Employee acknowledges and agrees that Employer conducts its Business
throughout the continental United States and intends to conduct it in certain
non-United States jurisdictions. The specific provisions of this covenant not to
compete by Employee are limited to and binding only within those markets and
geographical boundaries, including without limitation the continental United
States, in which Employer is engaged in Business or where Employer, at the time
of termination, is actively and in good faith pursuing the engagement of
Business.
(d) Employee acknowledges that this Section is an essential element of this
Agreement, and that but for this Section, Employer would not have entered into
this Agreement. Employee also acknowledges that the provisions of this Section
are reasonable and necessary to protect the legitimate interests of Employer and
that any breach of the terms, covenants or agreements set forth in this Section
shall be competitively unfair and may cause irreparable damage to Employer
because of the special and unique services to be performed by Employee under
this Agreement and that recovery of damages at law will not be an adequate
remedy. Accordingly, Employee agrees that for any breach or threatened breach of
the terms, covenants and agreements of this Section, in addition to any other
rights or remedies Employer may have, Employer may apply to any court of law or
equity having jurisdiction to enforce the specific performance of the foregoing
provisions and may apply for injunctive relief against any act which would
violate any such provisions. Employer agrees that for any breach of the
agreement of Employer set forth in the last sentence of clause (b) of this
Section 9, in addition to any other rights or remedies
5
<PAGE>
Employee may have, Employee may apply to any court of law or equity having
jurisdiction for injunctive relief against statements by Employer that would
violate such agreement.
10. Termination without Severance. Except for the covenants, terms
-----------------------------
and conditions contained in Sections 8, 9 and 14 (and, to the extent applicable
to said sections, Sections 15 through 19), this Agreement shall be terminated
immediately:
(a) Upon the death of Employee; or
(b) Upon the Total Disability of Employee. Total Disability shall mean any
condition of illness or physical or mental incapacity or disability which
prevents or appears reasonably likely to prevent Employee from performing the
essential functions of his position (as determined by a physician mutually
acceptable to Employer and Employee or a necessary representative of Employee),
with or without reasonable accommodation, on a full-time basis for ninety (90)
consecutive days or ninety (90) days within any one hundred eighty (180) day
period; or
(c) If Employee is fired with Cause. For purposes of this Agreement, "Cause"
shall mean any of the following, as determined by the Board:
(i) Employee's material breach of Sections 8 and 9 hereof or Employee's
material failure or Employee's refusal to follow written policies or directions
of the Board (which the Board believes in good faith to be in the best interests
of Employer) or Employee's material failure to perform his duties as set forth
in Sections 4 and 7 of this Agreement or as assigned by the Board from time to
time in accordance with Sections 4 and 7 of this Agreement;
(ii) Employee acts dishonestly and the same adversely affects Employer; or
(iii) Employee is or has engaged in gross misconduct which is employment
related, or Employee is convicted of a felony or any crime involving moral
turpitude, fraud or misrepresentation; or
(d) If Employee voluntarily quits his employment.
11. Termination with Severance. Except for the covenants, terms and
--------------------------
conditions contained in Sections 8 and 9 (and, to the extent applicable to said
sections, Sections 14 through 19), and subject to the terms and conditions of
this Section 11, this Agreement may be terminated upon either of the following
two events: (i) at the election of Employer at any time without Cause, by giving
written notice of such election to Employee; and (ii) at the election of
Employee, by giving written notice to the Board, if Employer (at a time when
Employee is not in material breach of this Agreement) is in material breach of
this Agreement and such breach continues for thirty (30) or more days after
Employee gives written notice of such material breach to the Board. In the
event of any termination pursuant to the foregoing sentence, Employee shall be
entitled, without any duty to mitigate, to continue to receive his then-existing
Base Salary under Section 4(a) hereof for a period of three months following the
date of such termination (provided that such number of months shall increase by
one month for each completed full year of Employee's employment by Employer).
The rights of Employee under the foregoing sentence to his Base Salary and the
obligations of Employer pertaining thereto, are contingent upon (i) Employee
executing and delivering to Employer (in form and substance
6
<PAGE>
satisfactory to Employer) a release in favor of Employer, all affiliates of
Employer and all of Employer's and such affiliate's respective stockholders,
partners, officers, directors, employees, agents and representatives, from any
and all claims arising under this Agreement or as a result of Employee's
employment relationship with Employer or any of Employer's predecessors or
affiliates and (ii) Employee complying with all of his post-termination
obligations, including, but not limited to, his obligations under Section 8 and
9 hereof.
12. Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by reputable overnight
courier or by registered or certified mail (return receipt requested), postage
prepaid, or by telecopy (immediately followed by telephone confirmation of
delivery of such telecopy with the intended recipient of such notice or by
notice in writing sent promptly by registered or certified mail as provided
above), to the parties to this Agreement at the following addresses or at such
other address for a party as shall be specified by like notice:
(a) If to Employer, at:
Farm Journal, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: Board of Directors
Telephone: (215) 557-8900
Facsimile: (215) 568-5012
7
<PAGE>
If to Employee, at his address set forth beneath his signature below with a copy
to:
Farm Journal, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attention: Roger D. Randall
Telephone: (215) 557-8900
Facsimile: (215) 568-5012
All such notices and communications shall be deemed to have been received on the
date of delivery, on the date that the telecopy is confirmed as having been
received, on the next business day after being sent by reputable overnight
courier or on the third business day after mailing, as the case may be.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and undertakings, written and oral. This
Agreement may be amended only by a subsequent written agreement of Employee and
Employer. No waiver by Employee or by Employer of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provision or condition at the same or any prior or
subsequent time. This Agreement shall be binding upon and shall inure to the
benefit of Employee, his heirs, executors, administrators, beneficiaries and
legal representatives and shall be binding and inure to the benefit of Employer
and its successors and assigns.
14. Merger and Consolidation Assignment. (a) Upon the Closing of the
-----------------------------------
Acquisition, all rights and obligations of the General Partner under this
Agreement shall immediately be assigned to and assumed by Employer and the
General Partner shall have no other obligations of any kind hereunder. If
Employer at any time merges or consolidates with any other corporation or sells
or otherwise transfers all or a substantial portion of its assets or shares of
stock to another corporation or entity, the provisions of the Agreement shall be
binding upon the inure to the benefit of the corporation or entity surviving or
resulting from such merger of consolidation or to which such assets or shares of
stock have been sold or transferred. This Agreement, being personal to
Employee, may not be assigned by Employee.
(b) The execution of this Agreement by the General Partner shall not obligate
the General Partner in any manner with respect to the completion of the
Acquisition and Employee expressly acknowledges and agrees that (I) it shall
hold the General Partner and its affiliates harmless against any loss or damages
suffered by Employee as a result of the failure of the Acquisition to close
(regardless of the cause of such failure), (ii) that the General Partner shall
have no obligation to perform and pay the obligations of the Employer hereunder
and (iii) except with respect to the obligation of the General Partner under
Section 1 to cause Employer to employ Employee upon the Closing of the
Acquisition, the General Partner shall have no obligations or liability
hereunder.
8
<PAGE>
15. Applicable Law and Jurisdiction.
-------------------------------
(a) This Agreement shall be governed by and construed in accordance with the
internal law of the State of New York without regard to its conflicts of law
principles.
(b) The parties agree that the exclusive place of jurisdiction for any action,
suit or proceeding relating to this Agreement shall be in the courts of the
United States of America sitting in the Borough of Manhattan in the City of New
York or, if such courts shall not have jurisdiction over the subject matter
thereof, in the courts of the State of New York sitting therein, and each such
party hereby irrevocably and unconditionally agrees to submit to the
jurisdiction of such courts for purposes of any such action, suit or proceeding.
Each party irrevocably waives any objection it may have to the venue of any
action, suit or proceeding brought in such courts or to the convenience of the
forum. Final judgment in any such action, suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment, a certified
or true copy of which shall be conclusive evidence of the fact and the amount of
any indebtedness or liability of any party therein described.
16. Entire Agreement; Article and Section Headings. This Agreement
----------------------------------------------
sets forth the entire agreement of the parties hereto, and supersedes all prior
communications, whether oral or written, with respect to the subject matter
hereof. The articles, section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. Reformation and Severability. In the event that any one or more
----------------------------
of the provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the same shall be construed and, if necessary,
reformed in substance, by limiting it so as to be valid and enforceable to the
maximum extent permitted by applicable law, and the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired and
shall remain in full force and effect to the fullest extent permitted by law.
The parties shall negotiate in good faith to replace an invalid, illegal or
unenforceable provision with a valid provision the economic effect of which is
as close as possible to that of the invalid, illegal or unenforceable provision.
18. Enforceability. The failure of either party at any time to
--------------
require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement, nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provisions or as a waiver of the provision itself.
19. Survival. The respective obligations of, and benefits afforded
--------
to, Employee and Employer as provided in Sections 8, 9, 11 and 14 of this
Agreement (and, to the extent applicable to said Sections 8, 9, 11 or 14,
Sections 15 through 20), shall survive termination of this Agreement.
20. Other Agreements. Employee represents and warrants to Employer
----------------
that Employee has not entered into any contract or agreement of any nature with
any person, firm or
9
<PAGE>
corporation which in connection with Employee's previous employment, contains
any restraints on Employee's future services.
21. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be a single agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the date first above written
MS FARM JOURNAL CORPORATION
EMPLOYEE:
/s/ Roger D. Randall By: /s/ J. Carr Gamble, III
- --------------------- ------------------------
ROGER D. RANDALL Title:
Employee's Residential Address:
One Christian Street
Townhouse #7
Philadelphia, Pennsylvania 19147
10
<PAGE>
ANNEX A
-------
All terms not defined herein shall have the meaning set forth in the
Employment Agreement to which this Annex is attached.
Employee shall be granted the opportunity (subject to vesting) to realize
the financial benefit of a 10 year option at fair market value on 4% of the
limited partnership interests in MS Farm International Limited Partnership (the
"Partnership") on a fully diluted basis after giving effect to the limited
partnership interests issued at the closing of the acquisition ("Acquisition")
of the Company by Farm Journal Holding Inc. ("Holdings") (including interests
issued within six months thereafter, up to a maximum of 100 Units, i.e.,
$10,000,000) and the issuance of a similar interest to the Company's Chief
Operating Officer (the "Interest").
On the date Employee joins the Company, one fifth of such Interest shall
vest. Another four-fifths of such Interest shall vest in five equal
installments on each of the five anniversaries of the employment date (or at
such later date as the audited financials for the prior year are issued)
provided (i) that Employee continues to be employed by Employer on such date and
(ii) that the following financial targets are met:
First anniversary: EBITDA for the prior year
(1997) is at least $2.830 million (as shown on the
audited financials for the prior year)
Second anniversary: EBITDA for the prior year
(1998) is at least $3.643 million (as shown on the
audited financials for the prior year)
Third anniversary: EBITDA for the prior year
(1999) is at least $5.290 million (as shown on the
audited financials for the prior year)
Fourth anniversary: EBITDA for the prior year is at
least $5.819 million (110% of the
third anniversary target) and 20%
of the prior year's net revenues (as shown on the
audited financials for the prior year)
Fifth anniversary: EBITDA for the prior year is at
least $6.4 million and 20% of the
prior year's net revenues (as shown on the audited
financials for the prior year)
<PAGE>
In the event of a firm underwritten initial public offering ("IPO") pursuant to
an effective registration statement on Form S-1 under the Securities Act of
1933, as amended (the "Act") at a value that implies a pre-IPO equity valuation
of the Company of at least three times the Partnership's investment in the
company, 25% of such Interest not then vested shall vest, with the remaining
amounts to be vested on a pro rata basis in accordance with the schedule, and
subject to the conditions, set forth above.
In the event the Company is subject to a "Change in Control" all such
Interest shall vest immediately. A "Change in Control" means any merger or
consolidation of Employer, any sale or other transfer of all or substantially
all of Employer's assets, or any sale of a majority of the capital stock of
Employer or of a majority of any class of equity of any stockholder of
Employer, if as a result of such transaction neither Phillip Ean Cohen, Morgan
Schiff & Co., Inc. nor any of its affiliates or associates (or any employee or
associate of Morgan Schiff & Co., Inc. or its affiliates) (including any of
such person's estates or heirs) shall own or control, directly or indirectly, a
majority or controlling voting interest in Employer or the successor to
Employer. Employee acknowledges and agrees that MS Farm Journal Corporation,
as the general partner of the Partnership, is an affiliate of Morgan Schiff &
Co., Inc.
It is currently anticipated that the Interest will be implemented through
Employee purchasing for an amount to be agreed (e.g., $500) on the closing date
of the Acquisition a Class B Limited Partner interest of the Partnership. The
Class B Limited Partner interest shall be equivalent to the Class A Limited
Partner interest except that the proceeds of such sale will be used to purchase
junior stock ("Junior Stock") of Holdings representing 4% of the common stock
of Holdings actually acquired on such closing date with the proceeds of all
Limited Partner interests sold by the Partnership (and acquired with the
proceeds of Limited Partner interest sold within six months thereafter, up to a
maximum of 100 Units, i.e., $ 1 0,000,000 (inclusive of Units sold on or prior
to the closing date of the Acquisition)).
The terms of the Junior Stock will include mandatory redemption and other
provisions to implement the vesting schedule set forth above. The Certificate
of Incorporation of Holdings will be amended to provide mandatory redemption
provisions in respect of the Junior Stock to provide for a mandatory redemption
at the original purchase price of shares of Junior Stock (or any shares of
capital stock issued in exchange for, on conversion of, as a dividend or other
distribution in respect of, or as part of a recapitalization involving the
Junior Stock) at such time and to the extent that such shares of capital stock
are no longer capable of being vested in favor of Employee.
The Junior Stock will be subject to the conversion provisions applicable
thereto under the Certificate of Incorporation of Holdings attached hereto.
The Junior Stock will have voting rights identical to the shares of stock into
which it may be converted from time to time.
In the event of an IPO, the Junior Stock will become convertible into the
stock that is the subject of such offering.
For purposes of this paragraph, Affiliate shall mean any person who is an
affiliate of Employer within the meaning of Rule 144 under the Act. So long as
Employee is an Affiliate, Employee shall be entitled to participate in any
registration under the Act of the sale of securities
2
<PAGE>
of Holdings by controlling Affiliates. Such participation shall be on the same
terms as are made available to other Affiliates participating in such
registration, and, at the option of Employee, shall include up to Employee's
vested pro rata share of the Holdings equity securities to be registered, based
on the number of shares that are the subject of the such registration held by
Employee as compared to the total number of shares of the same class of
Employer equity beneficially held (within the meaning of Securities and
Exchange Commission Rule 13d-d under the Securities Exchange Act of 1934, as
amended) by all Affiliates.
All certificates representing the shares of Junior Stock (and any shares of
capital stock issued in exchange for, on conversion of, as a dividend or other
distribution in respect of, or as part of a recapitalization involving the
Junior Stock) shall bear a legend substantially in the following form, in
addition to any other legends that may be required under Federal or state
securities laws:
"The shares of stock represented by this certificate are subject to
mandatory redemption in accordance with the terms of the Certificate of
Incorporation of the Issuer."
3
<PAGE>
EXHIBIT 10.4
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of April 1,
1997, between MS Farm Journal Corporation, a Delaware corporation
(the "Company"), and Farm Journal, Inc., a Pennsylvania
corporation ("Farm Journal").
WHEREAS the Company desires to assign to Farm Journal all its right,
title and interest in, to and under the Employment Agreement dated as of March
27, 1997 (the "Employment Agreement"), between the Company and Roger D. Randall
("Employee").
WHEREAS Farm Journal desires to accept such assignment and to assume,
agree to be bound by and to perform the Company's obligations under the
Employment Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
SECTION 1. Assignment. The Company hereby assigns, transfers and
----------
delivers to Farm Journal all the Company's right, title and interest in, to and
under the Employment Agreement.
SECTION 2. Assumption. Farm Journal hereby assumes, agrees to be
----------
bound by and to perform all the obligations of the Company under the Employment
Agreement.
SECTION 3. Further Assurances. The Company agrees to execute any and
------------------
all further documents, agreements and instruments, and take all further action
that may be required under applicable law, or which Farm Journal may reasonably
request, in order to effectuate the transaction contemplated by this Assignment
and Assumption Agreement.
SECTION 4. Binding Agreement. This Assignment and Assumption
-----------------
Agreement shall be binding on the Company and Farm Journal and their respective
heirs, distributees, executors and legal representatives, successors and
assigns. This Assignment and Assumption Agreement may not be modified except by
an instrument in writing which is signed by each of the parties.
SECTION 5. Governing Law. This Assignment and Assumption Agreement
-------------
shall be construed and enforced in accordance with and governed by the laws of
the State of New York.
SECTION 6. Counterparts. This Assignment and Assumption Agreement
------------
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be duly executed as of the date first above written.
MS FARM JOURNAL CORPORATION
By: /s/ J. Carr Gamble, III
-------------------------------
J. Carr Gamble, III
Vice President
FARM JOURNAL, INC.
By: /s/ Stanford Erickson
-------------------------------
Stanford Erickson
Chief Executive Officer
Agreed and Accepted to:
/s/ Roger D. Randall
- -----------------------------
Roger D. Randall
2
<PAGE>
Exhibti 10.5
CREDIT AGREEMENT
Dated as of April 2, 1998
among
FARM JOURNAL, INC.,
as Borrower,
FARM JOURNAL HOLDINGS INC.,
as Parent,
and
FIRST UNION NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
Page
----------
SECTION 1. DEFINITIONS.............................................. 3
1.1 Defined Terms............................................ 3
1.2 Other Definitional Provisions............................ 21
1.3 Accounting Terms......................................... 22
SECTION 2. THE LOANS; AMOUNT AND TERMS.............................. 22
2.1 Revolving Loans.......................................... 22
2.2 [Intentionally left blank]............................... 24
2.3 Conversion Options....................................... 24
2.4 Minimum Principal Amount of Tranches..................... 25
2.5 Default Rate and Payment Dates........................... 25
2.6 Reductions in Revolving Commitments and Prepayments...... 26
2.7 Commitment Fee........................................... 29
2.8 Computation of Interest and Fees......................... 29
2.9 Pro Rata Treatment and Payments.......................... 29
2.10 Non-Receipt of Funds by the Administrative Agent......... 30
2.11 Inability to Determine Interest Rate..................... 31
2.12 Illegality............................................... 31
2.13 Requirements of Law...................................... 32
2.14 Indemnity................................................ 33
2.15 Taxes.................................................... 34
2.16 Replacement of Agent..................................... 36
SECTION 3. REPRESENTATIONS AND WARRANTIES........................... 37
3.1 Financial Condition...................................... 37
3.2 No Change................................................ 37
3.3 Existence; Compliance with Law........................... 37
3.4 Power; Authorization; Enforceable Obligations............ 38
3.5 No Legal Bar, No Default................................. 38
3.6 No Material Litigation................................... 38
3.7 Investment Company Act................................... 39
3.8 Federal Regulations...................................... 39
3.9 ERISA.................................................... 39
3.10 Environmental Matters.................................... 39
3.11 Purpose of Loan.......................................... 40
3.12 Subsidiaries............................................. 40
3.13 Intellectual Property Rights............................. 41
3.14 No Burdensome Restrictions............................... 41
3.15 Taxes.................................................... 41
3.16 No Interest in Real Estate............................... 42
3.17 Printing................................................. 42
3.18 Assets................................................... 42
<PAGE>
SECTION 4. CONDITIONS PRECEDENT...................................... 40
4.1 Conditions to Closing Date................................ 40
4.2 Conditions to Loans-Acquired Assets....................... 42
4.3 Conditions to All Loans................................... 42
SECTION 5. AFFIRMATIVE COVENANTS..................................... 43
5.1 Financial Statements...................................... 43
5.2 Certificates; Other Information........................... 44
5.3 Payment of Obligations.................................... 45
5.4 Conduct of Business and Maintenance of Existence.......... 45
5.5 Maintenance of Property................................... 45
5.6 Inspection of Property, Books and Records; Discussions.... 45
5.7 Notices................................................... 45
5.8 Environmental Laws........................................ 46
5.9 Financial Covenants....................................... 47
5.10 Covenants Regarding Patents, Trademarks and Copyrights.... 48
5.11 Fees, Etc................................................. 49
5.12 Subsidiaries.............................................. 49
5.13 Subsequently Acquired Real Property....................... 49
5.14 Landlord Waivers.......................................... 50
5.15 Bailee's Letters.......................................... 50
5.16 Year 2000 Compatibility................................... 50
5.17 Further Assurances........................................ 50
SECTION 6. NEGATIVE COVENANTS........................................ 51
6.1 Indebtedness.............................................. 51
6.2 Liens..................................................... 52
6.3 Guaranty Obligations...................................... 52
6.4 Lines of Business......................................... 52
6.5 Consolidation, Merger, sale, or Purchase of Assets, Etc... 52
6.6 Advances, Investments and Loans........................... 53
6.7 Transactions with Affiliates.............................. 54
6.8 Ownership of Subsidiaries................................. 54
6.9 Fiscal Year............................................... 54
6.10 Prepayments Indebtedness, etc............................. 54
6.11 Restricted Payments....................................... 55
6.12 Partnership ad Corporate Documents; Purchase Agreements... 55
6.13 No Printing............................................... 55
6.14 Limitations on Activities by Parent....................... 55
SECTION 7. EVENTS OF DEFAULT......................................... 56
SECTION 8. THE ADMINISTRATIVE AGENT.................................. 59
8.1 Appointment............................................... 59
ii
<PAGE>
8.2 Delegation of Duties...................................... 40
8.3 Exculpatory Provisions.................................... 60
8.4 Reliance by Administrative Agent.......................... 60
8.5 Notice of Default......................................... 60
8.6 Non-Reliance on Administrative Agent and Other Lenders.... 61
8.7 Indemnification........................................... 61
8.8 Administrative Agent...................................... 62
8.9 Successor Administrative Agent............................ 62
SECTION 9. MISCELLANEOUS............................................. 62
9.1 Amendments, Waivers and Release of Collateral............. 62
9.2 Notices................................................... 63
9.3 No Waiver; Cumulative Remedies............................ 64
9.4 Survival of Representations and Warranties................ 64
9.5 Payment of Expenses and Taxes............................. 64
9.6 Successors and Assigns; Participations;
Purchasing Lenders...................................... 65
9.7 Adjustments; Set-off...................................... 68
9.8 Table of Contents and Section Headings.................... 69
9.9 Counterparts.............................................. 69
9.10 Severability.............................................. 69
9.11 Integration............................................... 69
9.12 Governing Law............................................. 69
9.13 Consent to Jurisdiction and Service of Process............ 69
9.14 Arbitration............................................... 70
9.15 Confidentiality........................................... 71
9.16 Acknowledgements.......................................... 72
SECTION 10. GUARANTY.................................................. 72
10.1 The Guaranty.............................................. 72
10.2 Bankruptcy................................................ 73
10.3 Nature of Liability....................................... 73
10.4 Independent Obligation.................................... 74
10.5 Authorization............................................. 74
10.6 Reliance.................................................. 74
10.7 Waiver.................................................... 74
10.8 Limitation on Enforcement................................. 75
10.9 Confirmation of Payment................................... 76
10.10 Senior Debt under Teachers Agreement...................... 76
10.11 Confession of Judgement................................... 76
iii
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of April 2,1998, among FARM JOURNAL, INC., a
Pennsylvania corporation (the "Borrower"), FARM JOURNAL HOLDINGS INC., a
Delaware corporation and the owner of all of the issued and outstanding capital
stock of the Borrower (the "Parent"), the subsidiaries of the Borrower listed on
the signature pages hereto (hereinafter the Parent and such subsidiaries shall
be referred to as the "Guarantors"), the several banks, financial institutions
and other investors from time to time parties to this Agreement (the "Lenders")
and FIRST UNION NATIONAL BANK, as administrative agent for the Lenders (in such
capacity, the "Agent" or the "Administrative Agent").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower has requested the Lenders to make loans in an amount
up to $15,000,000 as more particularly described herein;
WHEREAS, the Lenders are willing to make such loans on the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS.
-------------
As used in this Agreement, terms defined in the preamble to this Agreement
have the meanings therein indicated, and the following terms have the following
meanings:
"Acquired Assets": the assets and/or stock of Professional Farmers of
---------------
America, Inc. and Professional Market Management, Inc. to be acquired
pursuant to the Purchase Agreements.
"Acquisition": the acquisition by the Borrower (or one of its wholly-
-----------
owned Subsidiaries) of the Acquired Assets pursuant to the Purchase
Agreements.
"Adjusted EBITDA": of any Person for any period, EBITDA for such
---------------
period ("Unadjusted EBITDA") plus (i) if such Person made any acquisition
----------------- ----
permitted by Section 6.5(b) during such period, EBITDA generated from such
acquisitions ("Acquired EBITDA") as if such acquisitions occurred at the
beginning of the applicable period except to the extent such Acquired
EBITDA has already been included in the calculation of Unadjusted EBITDA
for such period, minus (ii) if such Person has sold or otherwise divested
-----
any businesses permitted by Section 6.5(a) during such period, EBITDA
generated from such sold or divested businesses as if such sales or
divestitures occurred at the beginning of the applicable period.
"Affiliate": as to any Person, any other Person (excluding any
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, a Person shall be deemed to be "controlled by" a Person if such
Person possesses, directly or indirectly, power either (a) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (b) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Aggregate Revolving Committed Amount": the aggregate amount of all
------------------------------------
of the Revolving Commitments in effect from time to time, as reduced from
time to time as provided in Section 2.6.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
modified from time to time in accordance with its terms.
1
<PAGE>
"Applicable Commitment Fee Percentage": for any day, the rate per
------------------------------------
annum set forth below opposite the applicable Leverage Ratio then in
effect:
Leverage
Ratio Percentage
===================================================================
4.5 0.50%
- -------------------------------------------------------------------
3.5 but less then 4.5 0.375%
- -------------------------------------------------------------------
less then 3.5 0.25%
===================================================================
The Applicable Commitment Fee Percentage shall, in each case, be determined
and adjusted (a) quarterly on the date five (5) Business Days after the
date of receipt by the Administrative Agent of the quarterly compliance
certificate and financial information provided in accordance with Sections
5.1(b) and 5.2(b) and (b) on each date that the Borrower makes an
acquisition pursuant to Section 6.5(b)(iii) hereof (each a "Commitment Fee
--------------
Determination Date").
------------------
Such Applicable Commitment Fee Percentage shall be effective from such
Commitment Fee Determination Date until the next such Commitment Fee
Determination Date. The initial Applicable Commitment Fee Percentage shall
be .50% until the first Commitment Fee Determination Date occurring after
June 30, 1998.
"Applicable Interest Rate Percentage": for any day, the rate per
-----------------------------------
annum set forth below opposite the applicable Leverage Ratio then in
effect, it being understood that the Applicable Interest Rate Percentage
for (i) Base Rate Loans shall be the percentage set forth under the column
"Base Rate Margin", and (ii) LIBOR Rate Loans shall be the percentage set
forth under the column "LIBOR Rate Margin":
Leverage Base Rate LIBOR
Ratio Margin Rate
============================================================
4.5 1.25% 2.50%
- ------------------------------------------------------------
4.0 but less then 4.5 1.00% 2.25%
- ------------------------------------------------------------
3.5 but less then 4.0 0.75% 2.00%
- ------------------------------------------------------------
less then 3.5 0.50% 1.75%
============================================================
The Applicable Interest Rate Percentage shall, in each case, be determined
and adjusted (a) quarterly on the date five (5) Business Days after the
date of receipt by the Administrative Agent of the quarterly compliance
certificate and financial information provided in accordance with Sections
5.1(b) and 5.2(b) and (b) on each date that the Borrower makes an
acquisition pursuant to Section 6.5(b)(iii) hereof (each an "Interest
--------
Determination Date").
------------------
2
<PAGE>
Such Applicable Interest Rate Percentage shall be effective from such
Interest Determination Date until the next such Interest Determination
Date. The initial Applicable Interest Rate Percentages shall be 1.25% in
the case of the Base Rate Margin and 2.50% in the case of the LIBOR Rate
Margin until the first Interest Determination Date occurring after June 30,
1998.
"Asset Disposition": any sale, lease, transfer or other disposition
-----------------
(including any such transaction effected by way of merger, amalgamation or
consolidation) by the Borrower or any of its Subsidiaries subsequent to the
Closing Date of any asset (including stock or other equity interests in
Subsidiaries of the Borrower), including without limitation any sale
leaseback transaction (whether or not involving a Capital Lease), but
excluding Specified Sales.
"Authorized Signatory": the Chairman of the Board, the President or
--------------------
Chief Financial Officer of the Borrower and such senior personnel of the
Borrower as may be hereafter duly authorized and designated in writing to
execute documents, agreements and instruments on the Borrower's behalf.
"Bankruptcy Code": the Bankruptcy Code in Title 11 of the United
---------------
States Code, as amended, modified, succeeded or replaced from time to time.
"Base Rate": for any day, a rate per annum equal to the greater of
---------
(a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof,
"Prime Rate" shall mean, at any time, the rate of interest per annum
----------
publicly announced from time to time by First Union at its principal office
in Charlotte, North Carolina as its prime rate. Each change in the Prime
Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the
rate announced publicly by First Union as its Prime Rate is an index or
base rate and shall not necessarily be its lowest or best rate charged to
its customers or other banks; and "Federal Funds Effective Rate" shall
----------------------------
mean, for any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published
on the next succeeding Business Day, the average of the quotations for the
day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive in the absence of manifest error) that it is unable to
ascertain the Federal Funds Effective Rate, including the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no
longer exist. Any change in the Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the opening
of business on the date of such change.
3
<PAGE>
"Base Rate Loans": Revolving Loans that bear interest at an interest
---------------
rate based on the Base Rate.
"Borrower": such term as defined in the first paragraph of this
--------
Agreement.
"Borrowing Date": in respect of any Loan, the date such Loan is made.
--------------
"Business": such term as defined in Section 3.10(b).
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in Charlotte, North Carolina or Philadelphia,
Pennsylvania are authorized or required by law to close; provided, however,
-------- -------
that when used in connection with a rate determination, borrowing or
payment in respect of a LIBOR Rate Loan, the term "Business Day" shall also
exclude any day on which banks in London, England are not open for dealings
in Dollar deposits in the London interbank market.
"Capital Expenditures": all expenditures which in accordance with
--------------------
GAAP would be classified as capital expenditures, including without
limitation, Capital Lease Obligations and capitalized development costs.
"Capital Lease": any lease of property, real or personal, the
-------------
obligations, with respect to which are required to be capitalized on a
balance sheet of the lessee in accordance with GAAP.
"Capital Lease Obligations": the capitalized lease obligations
-------------------------
relating to a Capital Lease determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests (including partnership and
limited liability company interests) in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Cash Equivalents": (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition ("Government
----------
Obligations"), (ii) U.S. dollar denominated (or foreign currency fully
-----------
hedged) time deposits, certificates of deposit, Eurodollar time deposits
and Eurodollar certificates of deposit of (y) any domestic commercial bank
of recognized standing having capital and surplus in excess of $250,000,000
or (z) any bank whose short-term commercial paper rating from S&P is at
least A- 1 or the equivalent thereof or from Moody's is at least P- 1 or
the equivalent thereof (any such bank being an "Approved Bank"), in each
-------------
case with maturities of not more than 364 days from the date of
acquisition, (iii) commercial paper and variable or fixed rate notes issued
by any Approved Bank (or by the parent company thereof) or any variable
rate notes issued by, or guaranteed by any domestic corporation rated A-1
(or the equivalent thereof) or better by S&P or P-1 (or the equivalent
thereof) or better by Moody's and maturing within six months of the date of
acquisition, (iv) repurchase agreements with a bank or trust company
4
<PAGE>
(including a Lender) or a recognized securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or fully
guaranteed by the United States of America, (v) obligations of any state of
the United States or any political subdivision thereof for the payment of
the principal and redemption price of and interest on which there shall
have been irrevocably deposited Government Obligations maturing as to
principal and interest at times and in amounts sufficient to provide such
payment, (vi) auction preferred stock rated in the highest short-term
credit rating category by S&P or Moody's and (vii) U.S. dollar denominated
time and demand deposit accounts or money market accounts with those
domestic banks meeting the requirements of item (y) or (z) of clause (ii)
above and any other domestic commercial banks insured by the FDIC with an
aggregate balance not to exceed $100,000 in the aggregate at any time at
any such bank.
"Cash Tax Liabilities": the cash tax liability for income taxes paid
--------------------
by the Borrower or any of its Subsidiaries or required to be distributed to
members of the Borrower or any of its Subsidiaries.
"Closing Date": the date of this Agreement, being also the date on
------------
which each of the conditions specified in Section 4.1 are satisfied in full
or waived in accordance with this Agreement.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commitment Fee": such term as defined in Section 2.7.
--------------
"Commitment Letter": the letter agreement dated as of March 18, 1998
-----------------
among the Borrower, First Union and First Union Capital Markets.
"Commitment Period": the period from and including the Closing Date
-----------------
to but not including the Termination Date.
"Commitment Transfer Supplement": a Commitment Transfer Supplement,
------------------------------
substantially in the form of Schedule 9.6(c).
---------------
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414(b) or (c) of the
Code, or solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.
"Consolidated Adjusted EBITDA": Adjusted EBITDA of the Borrower and
----------------------------
its Subsidiaries on a consolidated basis determined in accordance with GAAP
applied on a consistent basis.
"Consolidated Capital Expenditures": Capital Expenditures of the
---------------------------------
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with GAAP applied on a consistent basis.
5
<PAGE>
"Consolidated Cash Tax Liabilities": Cash Tax Liabilities of the
---------------------------------
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with GAAP applied on a consistent basis.
"Consolidated EBITDA": EBITDA of the Borrower and its Subsidiaries on
-------------------
a consolidated basis determined in accordance with GAAP applied on a
consistent basis.
"Consolidated Fixed Charges": as of the last day of any fiscal
--------------------------
quarter, the sum of (i) Consolidated Interest Expense for the four (4)
consecutive quarters then ending plus (ii) the amount, if positive, equal
----
to the aggregate principal amount of Revolving Loans outstanding on the
first day of the period of four (4) consecutive quarters then ending minus
the Aggregate Revolving Committed Amount existing as of the last day of
such fiscal quarter (exclusive, for purposes hereof, of any voluntary
reductions in the Revolving Commitments pursuant to Section 2.6(a) or any
mandatory reduction pursuant to Section 2.6(b)(ii), 2.6(b)(iii) or
2.6(b)(iv), plus (iii) payments made on all Indebtedness of the Borrower
----
and its Subsidiaries (other than payments on the Revolving Loans) during
the four (4) consecutive quarters then ending plus (iv) Consolidated
----
Capital Expenditures made or incurred during the four (4) consecutive
quarters then ending, plus (v) Consolidated Cash Tax Liabilities paid or
----
distributed during the four (4) consecutive quarters then ending, plus (vi)
----
deferred customer acquisition costs (not included in the calculation of
Consolidated EBITDA) capitalized during the four (4) consecutive fiscal
quarters then ending.
"Consolidated Interest Expense": Interest Expense of the Borrower and
-----------------------------
its Subsidiaries on a consolidated basis determined in accordance with GAAP
applied on a consistent basis.
"Consolidated Total Funded Debt": Total Funded Debt of the Borrower
------------------------------
and its Subsidiaries on a consolidated basis determined in accordance with
GAAP applied on a consistent basis.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any material agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
material property is bound.
"Copyrights": (i) all copyrights in all works, now existing or
----------
hereafter created or acquired, all registrations and recordings thereof,
and all applications in connection therewith, whether in the United States
Copyright Office or in any similar office or agency of the United States,
any State thereof or any other country or any political subdivision
thereof, or otherwise, including, without limitation, any thereof referred
to in Schedule 3.13 to the Credit Agreement, and (ii) all renewals thereof.
-------------
"Credit Documents": this Agreement, each of the Notes, the Joinder
----------------
Agreements and the Security Documents.
"Credit Parties": collectively, the Borrower and the Guarantors.
--------------
6
<PAGE>
"Debt Issuance": the issuance of any Indebtedness for borrowed money
-------------
by the Borrower or any of its Subsidiaries.
"Default": any of the events specified in Section 7, whether or not
-------
any requirement for the giving of notice or the lapse of time, or both, or
any other condition, has been satisfied.
"Defaulting Lender": at any time, any Lender that, at such time (a)
-----------------
has failed to make a Loan required pursuant to the terms of this Agreement,
(b) has failed to pay to the Administrative Agent or any Lender an amount
owed by such Lender pursuant to the terms of this Agreement, or (c) has
been deemed insolvent or has become subject to a bankruptcy or insolvency
proceeding or to a receiver, trustee or similar official.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Domestic Lending Office": initially, the office of each Lender
-----------------------
designated as such Lender's Domestic Lending Office shown on Schedule
--------
2.1(a); and thereafter, such other office of such Lender as such Lender may
------
from time to time specify to the Administrative Agent and the Borrower as
the office of such Lender at which Base Rate Loans of such Lender are to be
made.
"EBITDA": of any Person for any period, net income for such period,
------
plus (i) Interest Expense to the extent deducted in determining such net
----
income, plus (ii) depreciation, amortization and all other non-cash charges
----
deducted in determining such net income, all determined in accordance with
GAAP consistently applied, minus (iii) extraordinary non-cash income
-----
(including, for purposes hereof, gain from the sale of assets in the
ordinary course of business, such as obsolete equipment), plus (iv)
----
extraordinary non-cash expenses (including, for purposes hereof, loss from
the sale of the assets in the ordinary course of business, such as obsolete
equipment), plus (v) income taxes to the extent deducted to determine net
----
income, plus (vii) the adjustments and allowances set forth on Schedule
---- --------
1.1(a) attached hereto.
------
"Environmental Laws": any and all applicable foreign, Federal, state,
------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority or other
Requirement of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health or the environment, as now or may at any time be in effect during
the term of this Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurodollar Reserve Percentage": for any day, the percentage
-----------------------------
(expressed as a decimal and rounded upwards, if necessary, to the next
higher 1/100th of 1%) which is in effect for such day as prescribed by the
Federal Reserve Board (or any successor) for determining the maximum
reserve requirement (including without limitation any basic, supplemental
or emergency reserves) in respect of Eurocurrency liabilities, as defined
7
<PAGE>
in Regulation D of such Board as in effect from time to time, or any
similar category of liabilities for a member bank of the Federal Reserve
System in New York City.
"Event of Default": any of the events specified in Section 7;
----------------
provided, however, that any requirement for the giving of notice or the
-------- -------
lapse of time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any period (a "Determination Period"), an
---------------- --------------------
amount equal to (i) Consolidated EBITDA for the Determination Period minus
-----
(ii) Consolidated Fixed Charges for the Determination Period.
"Federal Funds Effective Rate": such term as defined in the
----------------------------
definition of "Base Rate".
"Fee Letter": the letter agreement dated as of March 18, 1998 among
----------
the Borrower, First Union and First Union Capital Markets.
"First Union": First Union National Bank, a national banking
-----------
association.
"Fixed Charge Coverage Ratio": as of the last day of any fiscal
---------------------------
quarter, the ratio of (x) Consolidated Adjusted EBITDA (for the four (4)
consecutive fiscal quarters then ending) plus cash and Cash Equivalents of
the Borrower and its Subsidiaries in excess of $500,000 (as of the first
day of the four (4) consecutive fixed quarters then ending) to (y)
Consolidated Fixed Charges for the four (4) consecutive fiscal quarters
then ending (after giving effect to the Interim Adjustments for the
calculations occurring on June 30, 1998, September 30, 1998, December 31,
1998 and March 31, 1999).
"GAAP": generally accepted accounting principles in effect in the
----
United States of America applied on a consistent basis, subject, however,
------- -------
in the case of determination of compliance with the financial covenants set
out in Section 5.9 to the provisions of Section 1.3.
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
-------------------
(the "primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
8
<PAGE>
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
--------
however, that the term Guarantee Obligation shall not include endorsements
-------
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Guarantors": (i) the Parent and (ii) the Subsidiaries of the
----------
Borrower identified as a "Guarantor" on the signature pages hereto and any
Subsidiary acquired or formed subsequent to the Closing Date.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of
property or services (other than trade liabilities and other normal accrued
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or similar instrument,
(c) all obligations of such Person under Capital Leases, (d) all
obligations of such Person in respect of bankers' acceptances issued or
created for the account of such Person, (e) all liabilities secured by any
Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof (other than
liabilities securing carriers', warehousemen's, mechanics', repairmen's or
other like nonconsensual statutory Liens arising in the ordinary course of
business), (f) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by such
Person (other than customary reservations or retentions of title under
agreements with suppliers entered into in the ordinary course of business),
(g) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements (other than supply agreements
and other similar arrangements entered into in the ordinary course of
business), (h) all Guarantee Obligations of such Person, (i) all
obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or
option agreements or other interest or exchange rate or commodity price
hedging agreements, and 0) the maximum amount of all letters of credit
issued for the account of such Person and, without duplication, all drafts
drawn thereunder (to the extent not theretofore reimbursed). For purposes
of this Agreement, Indebtedness shall not include any Indebtedness owing by
the Borrower to any of its Subsidiaries or by any Subsidiary of the
Borrower to the Borrower or by any Subsidiary of the Borrower to any other
Subsidiary of the Borrower or any contingent obligation in respect thereof.
It is understood and agreed that the amount of any Indebtedness described
in clause (e) shall
9
<PAGE>
be the lower of the amount of the obligation or the fair market value of
the collateral securing such obligation, and the amount of any obligation
described in clause (i) shall be the termination payments that would be
required to be paid to a counterparty upon early termination (in accordance
with customary industry standards) rather than any notional amount with
regard to which payments may be calculated.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": such term as defined in Section 3.13.
---------------------
"Interest Coverage Ratio": as of the last day of any fiscal quarter,
-----------------------
the ratio of Consolidated Adjusted EBITDA for the four (4) consecutive
quarters then ending to Consolidated Interest Expense for the four (4)
consecutive quarters then ending (after giving effect to the Interim
Adjustments for the calculations occurring on June 30, 1998, September 30,
1998, December 31, 1998 and March 31, 1999).
"Interest Expenses": for any Person for any period, the sum of all
-----------------
interest and fee expense including amortization of debt discount and
premium and the interest component under Capital Leases for such Person;
provided that there shall be added to and included in Interest Expense for
--------
purposes hereof the net amount payable (other than amounts payable in
respect of up-front or one-time fees, which shall be excluded from Interest
Expense) by such Person in respect of any Interest Protection Agreement and
Interest Expense shall be reduced by the net amount receivable by such
Person under any Interest Protection Agreement in respect of such period.
"Interest Payment Date": (a) as to any Base Rate Loan, the last
---------------------
Business Day of each March, June, September and December to occur while
such Loan is outstanding, (b) as to any LIBOR Rate Loan having an Interest
Period of three months or less, the last day of such Interest Period and
(c) as to any LIBOR Rate Loan having an Interest Period longer than three
months, each day which is three months after the first day of such Interest
Period and the last day of such Interest Period.
"Interest Period": with respect to any LIBOR Rate Loan,
---------------
(i) initially, the period commencing on the Borrowing Date or
conversion date, as the case may be, with respect to such LIBOR Rate
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in the notice of borrowing or notice of conversion
given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such LIBOR Rate
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then
current Interest Period with respect thereto;
10
<PAGE>
provided that the foregoing provisions are subject to the following:
--------
(A) if any Interest Period pertaining to a LIBOR Rate Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(B) any Interest Period pertaining to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of the relevant calendar month;
(C) if the Borrower shall fail to give notice as provided above,
the Borrower shall be deemed to have selected a Base Rate Loan to
replace the affected LIBOR Rate Loan as provided in Section 2.3(b);
(D) any Interest Period in respect of any Revolving Loan that
would otherwise extend beyond the Termination Date shall end on the
Termination Date; and
(E) no more than 3 LIBOR Rate Loans may be in effect at any time
and the Borrower shall not be entitled to select any Interest Period
pertaining to a LIBOR Rate Loan until 3 Business Days after the
Closing Date. For purposes hereof, LIBOR Rate Loans with different
Interest Periods shall be considered as separate LIBOR Rate Loans,
even if they shall begin on the same date and have the same duration,
although borrowings, extensions and conversions may, in accordance
with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new LIBOR Rate Loan with a single
Interest Period.
"Interest Protection Agreement": any interest rate protection
-----------------------------
agreement or interest rate future, option, cap, collar or other hedging
arrangement.
"Interim Adjustments": for the first four fiscal quarters following
-------------------
the Closing Date, the Fixed Charge Coverage Ratio and the Interest Coverage
Ratio shall be calculated using the adjustments and assumptions regarding
Interest Expense set forth below:
(a) for the fiscal quarters ending June 30, 1998, September 30,
1998, December 31, 1998 and March 31, 1999, Interest Expense for the
twelve month period for which the Fixed Charged Coverage Ratio and the
Interest Coverage Ratio is being calculated shall be deemed to be the
result obtained by multiplying (i) the actual Interest Expense for the
period from the Closing Date through the last day of such fiscal
quarter times (ii) a ratio equal to (A) 365 divided by (B) the number
of days elapsed from the Closing Date until the last day of such
quarter; and
11
<PAGE>
(b) for the fiscal quarter ending June 30, 1999 and each fiscal
quarter thereafter, Interest Expense shall be the actual Interest
Expense for the twelve month period ending on such date.
"Joinder Agreement": a Joinder Agreement substantially in the form of
-----------------
Schedule 5.12, executed and delivered by a Subsidiary in accordance with
-------------
the provisions of Section 5.12.
"Leverage Ratio": as of the last day of any fiscal quarter, the ratio
--------------
(x) of Consolidated Total Funded Debt as of the last day of such fiscal
quarter minus cash and Cash Equivalents of the Borrower and its
Subsidiaries as of the last day of such fiscal quarter then ending in
excess of $500,000 to (y) Consolidated Adjusted EBITDA for the four (4)
consecutive fiscal quarters then ending.
"LIBOR": the arithmetic mean (rounded to the nearest 1/100th of 1%)
-----
of the offered rates for deposits in Dollars for a period equal to the
Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 A.M. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such
rate is not available, then "LIBOR" shall mean the rate per annum at which,
as determined by the Administrative Agent, Dollars in the amount of
$5,000,000 are being offered to leading banks at approximately 11:00 A.M.
London time, two (2) Business Days prior to the commencement of the
applicable Interest Period for settlement in immediately available funds by
leading banks in the London interbank market for a period equal to the
Interest Period selected.
"LIBOR Lending Office": initially, the office of each Lender
--------------------
designated as such Lender's LIBOR Lending Office shown on Schedule 2.1(a);
----------------
and thereafter, such other office of such Lender as such Lender may from
time to time specify to the Administrative Agent and the Borrower as the
office of such Lender at which the LIBOR Rate Loans of such Lender are to
be made.
"LIBOR Rate": a rate per annum (rounded upwards, if necessary, to the
----------
next higher 1/100th of 1%) determined by the Administrative Agent pursuant
to the following formula:
LIBOR Rate = LIBOR
-----------------------
1.00 - Eurodollar Reserve Percentage
"LIBOR Rate Loan": Revolving Loans or the rate of interest applicable
---------------
to which is based on the LIBOR Rate.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
12
<PAGE>
agreement and any Capital Lease having substantially the same economic
effect as any of the foregoing).
"Majority Lenders": Lenders holding in the aggregate more than 66
----------------
2/3% of the sum of (i) all Loans then outstanding at such time and (ii) the
aggregate unused Revolving Commitments at such time; provided, however,
-------- -------
that if any Lender shall be a Defaulting Lender at such time, then there
shall be excluded from the determination of Majority Lenders those Loans
owing to such Defaulting Lender and such Defaulting Lender's Revolving
Commitments, or after termination of the Revolving Commitments, the
principal balance of the Loans owing to such Defaulting Lender.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole, exclusive
of events or occurrences affecting the economy generally, (b) the ability
of the Borrower and its Subsidiaries to perform their Obligations, when
such Obligations are required to be performed, under this Agreement or any
of the Notes or (c) the validity or enforceability of this Agreement, any
of the Notes or any of the other Credit Documents or the rights or remedies
of the Administrative Agent or the Lenders hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Moody's": Moody's Investors Service, Inc.
-------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Sales Proceeds": the gross cash proceeds (including cash by way
------------------
of deferred payment pursuant to a promissory note, receivable or otherwise,
but only as and when received) received from the sale, lease, conveyance,
disposition or other transfer of assets or from a Recovery Event (if and to
the extent not used to repair or replace the property which was the subject
of the Recovery Event), net of (i) reasonable transactions costs payable to
third parties, (ii) the estimated taxes payable with respect to such
proceeds (based upon the highest marginal federal and state tax rates),
whether payable by a Borrower or its direct or indirect members (including,
without duplication, withholding taxes), (iii) Indebtedness (other than
Indebtedness of the Lenders pursuant to this Agreement and the other Credit
Documents) which is secured by, or otherwise related to, the assets which
are the subject of such event to the extent such Indebtedness is paid with
a portion of the proceeds therefrom, (iv) proceeds needed to pay
liabilities directly related to the assets which are the subject of such
event to the extent such liabilities are not assumed by a purchaser of the
assets and are paid with a portion of the proceeds received from the
disposition of such assets and (v) other costs which may occur as a result
13
<PAGE>
of, and are reasonably associated with, discontinuing operations, shut-
downs or otherwise resulting from, the disposition of such assets.
"Notice of Account Designation": such term as defined in Section
-----------------------------
2.l(b)(iii).
"Notice of Borrowing": the written notice of borrowing as referenced
-------------------
and defined in Section 2.1(b)(i).
"Notice of Conversion": the written notice of extension or conversion
--------------------
as referenced and defined in Section 2.3.
"Obligations": without duplication, (i) all of the obligations of the
-----------
Credit Parties to the Lenders and the Agent, whenever arising, under this
Agreement, the Notes or any of the other Credit Documents (including, but
not limited to, any interest accruing after the occurrence of a filing of a
petition of bankruptcy under the Bankruptcy Code with respect to any Credit
Party, regardless of whether such interest is an allowed claim under the
Bankruptcy Code) and (ii) all liabilities and obligations, whenever
arising, owing from the Borrower or any of its Subsidiaries to any Lender,
or any affiliate of a Lender, arising under any Interest Rate Protection
Agreement.
"Participant": such term as defined in Section 9.6(b).
-----------
"Patents": (i) all letters patent of the United States or any other
-------
country, now existing or hereafter arising, and all improvement patents,
reissues, reexaminations, patents of additions, renewals and extensions
thereof, including, without limitation, any thereof referred to in Schedule
--------
3.13 to the Credit Agreement, and (ii) all applications for letters patent
----
of the United States or any other country, now existing or hereafter
arising, and all provisionals, divisions, continuations and continuations-
in-part and substitutes thereof, including, without limitation, any thereof
referred to in Schedule 3.13 to the Credit Agreement.
-------------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": such term as defined in Section 6.5(b)(iii).
---------------------
"Permitted Investments": (i) cash and Cash Equivalents, (ii)
---------------------
receivables owing to the Borrower or any of its Subsidiaries or any
receivables and advances to suppliers, in each case if created, acquired or
made in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms, (iii) loans and/or investments in
and to the Borrower or any of its Subsidiaries (iv) investments (including
debt obligations, stock, securities or other property) received in
connection with the bankruptcy or reorganization of suppliers and customers
and in settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business, and (v)
investments, acquisitions or transactions permitted under Section 6.5(b).
As used herein, "investment" means all investments, in cash or by delivery
----------
of property made, directly or indirectly in, to or from any Person, whether
by acquisition of shares of capital stock or partnership interest
14
<PAGE>
or other equity interest, property, assets, indebtedness or other obligations or
securities or by loan advance, capital contribution or otherwise.
"Permitted Liens":
---------------
(i) Liens created by or otherwise existing under or in connection
with this Agreement or the other Credit Documents in favor of the
Administrative Agent for the benefit of the Lenders;
(ii) Liens in favor of the Administrative Agent for the benefit
of a Lender hereunder as the provider of interest rate protection
relating to the Loans hereunder, but only (A) to the extent such Liens
secure obligations under such Interest Rate Protection Agreements
permitted under Section 6.1, (B) to the extent such Liens are on the
same collateral as to which the Lenders also have a Lien (or shall
have been offered the opportunity to have a Lien in such collateral)
and (C) if such provider and the Lenders shall share pari passu in the
---- -----
collateral subject to such Liens;
(iii) Liens on assets securing purchase money indebtedness and
Capital Leases (and refinancings thereof) to the extent permitted
under subsection (d) of Section 6.1;
(iv) Liens for taxes, assessments, charges or other governmental
levies not yet due or as to which the period of grace (not to exceed
60 days), if any, related thereto has not expired or which are being
contested in good faith by appropriate proceedings, provided that
--------
adequate reserves with respect thereto are maintained on the books of
the Borrower or any of its Subsidiaries, as the case may be, in
conformity with GAAP (or, in the case of Subsidiaries with significant
operations outside of the United States of America, generally accepted
accounting principles in effect from time to time in their respective
jurisdictions of incorporation);
(v) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(vi) pledges or deposits in, connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
(vii) deposits to secure the performance of bids, trade
contracts, (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
15
<PAGE>
(viii) Liens in connection with attachments or judgments
(including judgment or appeal bonds), provided that the judgments
secured shall, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have
been discharged within 60 days after the expiration of any such stay;
(ix) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered property for its intended purpose;
(x) leases or subleases of real property granted to others not
interfering in any material respect with the business of the Borrower
or any of its Subsidiaries; and
(xi) any extension, renewal or replacement (or successive
extensions, renewals or replacements) , in whole or in part, of any
Lien referred to in the foregoing clauses; provided that such
--------
extension, renewal or replacement Lien shall be limited to all or a
part of the property which secured the Lien so extended, renewed or
replaced (plus improvements on such property).
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at any particular time, any employee benefit plan which is
----
covered by Title IV of ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledge Agreement": the Pledge Agreement by the Parent, the Borrower
----------------
and their Subsidiaries, as pledgors, pledging their respective stock in
their respective Subsidiaries in favor of the Agent for the benefit of the
Lenders, as such Pledge Agreement is amended, supplemented or otherwise
modified from time to time.
"Prime Rate": such term as defined in the definition of Base Rate.
----------
"Properties": such term as defined in Section 3.10(a).
----------
"Purchase Agreements": the final purchase agreements to be executed
-------------------
in connection with the acquisition of the Acquired Assets by the Borrower.
"Purchasing Lenders": such term as defined in Section 9.6(c).
------------------
"Recovery Event": the receipt by the Borrower or any of its
--------------
Subsidiaries of any cash insurance proceeds or condemnation award payable
by reason of theft, loss, physical destruction or damage, taking or similar
event with respect to any property or assets of the Borrower or any of its
Subsidiaries.
16
<PAGE>
"Register": such term as defined in Section 9.6(d).
--------
"Regularly Scheduled Reduction Amounts": such term as defined in
-------------------------------------
Section 2.6(b)(i).
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such Plan is in reorganization within the meaning of such
term as used in Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty-day notice period is
waived under subsections .11, .12, .13, .14, .16, .18, .19 or .20 of PBGC
Reg. (S)4043.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and Bylaws, partnership agreement, operating agreement or
other organizational or governing documents of such Person, and each law,
treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
material property is subject.
"Restricted Payment": (i) any payment by the Borrower or any of its
------------------
Subsidiaries of a payment, distribution or dividend (other than a dividend
or distribution payable solely in stock or equity interest of the Borrower)
on, or any payment on account of the purchase, redemption, defeasance or
retirement of, or any other distribution on, any partnership interest,
limited liability company interest, share of any class of stock or other
ownership interest in the Borrower or any of its Subsidiaries (including
any such payment or distribution in cash or in property or obligations of a
Borrower or any of its Subsidiaries), (ii) any loan or advance by the
Borrower or any of its Subsidiaries to any Affiliate of the Borrower or any
of its Subsidiaries other than as permitted by Sections 6.6 or 6.7, or
(iii) the payment by the Borrower or any of its Subsidiaries of any
management or administrative fee to any Affiliate of the Borrower or any of
its Subsidiaries or of any salary, bonus or other form of compensation
other than in the ordinary course of business to any Person who is a
significant partner, shareholder, member, owner or executive officer of any
such Affiliate other than as permitted by Section 6.7.
"Revolving Commitment": as to any Lender, the obligation of such
--------------------
Lender to make Revolving Loans to the Borrower hereunder in an aggregate
principal amount at any one time outstanding not to exceed the amount set
forth opposite such Lender's name on Schedule 2.1(a), as such amount may be
---------------
reduced from time to time in accordance with the provisions of this
Agreement.
"Revolving Commitment Percentage": for each Lender, a fraction
-------------------------------
(expressed as a percentage) the numerator of which is the Revolving
Commitment of such Lender at such time and the denominator of which is the
aggregate Revolving Committed Amount at such time. The initial Revolving
Commitment Percentages are set out on Schedule 2.1(a).
---------------
17
<PAGE>
"Revolving Committed Amount": collectively, the aggregate amount of
--------------------------
all of the Revolving Commitments as referenced in Section 2.1(a) and,
individually, the amount of each Lender's Revolving Commitment as specified
in Schedule 2.1(a).
---------------
"Revolving Loans": such term as defined in Section 2.1.
---------------
"Revolving Note" or "Revolving Notes": the promissory notes of the
-------------- ---------------
Borrower in favor of each of the Lenders evidencing the Revolving Loans
provided pursuant to Section 2.1(e), individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time.
"S&P": Standard & Poor's Ratings Group, a division of McGraw Hill,
---
Inc.
"Security Agreement": the Security Agreement by and among the
------------------
Borrower and the Guarantors, as amended, supplemented or otherwise modified
from time to time.
"Security Documents": collectively, the Security Agreement, the
------------------
Pledge Agreement, and all other security documents hereafter delivered to
the Administrative Agent granting a Lien on any asset or assets of any
Person to secure the Obligations of the Borrower and the Guarantors
hereunder and under any of the other Credit Documents, including UCC
financing statements and other similar instruments.
"Single Employer Plan": any Plan which is not a Multi-Employer Plan.
--------------------
"Specified Sales": (i) the sale, transfer, lease or other disposition
---------------
of inventory and materials in the ordinary course of business (including
obsolete and/or unnecessary), (ii) the sale, transfer, lease or other
disposition of machinery, parts and equipment (including obsolete and/or
unnecessary equipment) in the ordinary course of business, (iii) the sale,
transfer or other disposition of articles in the ordinary course of
business or the granting of permission for reprints in the ordinary course
of business and (iv) the sale, lease or disposition of space and related
property and assets in the ordinary course of business.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of a Borrower.
"Taxes": such term as defined in Section 2.15.
-----
"Teachers": Teachers Insurance and Annuity Association of America.
--------
18
<PAGE>
"Teachers Agreement": the Note Purchase Agreement, dated as of April
------------------
1, 1997, as amended through and including the date hereof, among the
Borrower, the Parent and Teachers.
"Teachers Indebtedness": the indebtedness incurred by the Borrower
---------------------
and the Parent to Teachers pursuant to the terms of the Teachers Agreement.
"Termination Date": the earlier of (a) March 31, 2005 or (b) the date
----------------
on which the Revolving Commitments shall terminate in accordance with the
provisions of this Agreement.
"Total Funded Debt": of any Person at any date, (a) all indebtedness
-----------------
of such Person for borrowed money, (b) all obligations of such Person under
Capital Leases, (c) all Guarantee Obligations of such Person, and (d) the
maximum amount of all letters of credit issued or bankers' acceptances
created for the account of such Person and, without duplication, all drafts
drawn thereunder (to the extent not theretofore reimbursed).
"Trademarks": (i) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, service marks,
logos and other source or business identifiers, together with the goodwill
of the business symbolized by said marks, names, logos and identifiers now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any
political subdivision thereof, or otherwise, including, without limitation,
any thereof referred to in Schedule 3.13 to the Credit Agreement, and (ii)
-------------
all renewals thereof including, without limitation, any thereof referred to
in Schedule 3.13 to the Credit Agreement.
-------------
"Tranche": the collective reference to LIBOR Rate Loans whose
-------
Interest Periods begin and end on the same day. A Tranche may sometimes be
referred to as a "Eurodollar Tranche".
"Transfer Effective Date": such term as defined in each Commitment
-----------------------
Transfer Supplement.
"2.15 Certificate": such term as defined in Section 2.15.
----------------
"Type": as to any Loan, its nature as a Base Rate Loan or LIBOR Rate
----
Loan, as the case may be.
1.2 OTHER DEFINITIONAL PROVISIONS.
-----------------------------
(a) Unless otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in the Notes or other Credit
Documents or any certificate or other document made or delivered pursuant
hereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and
not to any
19
<PAGE>
particular provision of this Agreement, and Section, subsection, Schedule
and Exhibit references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
1.3 ACCOUNTING TERMS.
----------------
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP applied on a basis consistent (except for changes concurred
with by the Borrower's independent public accountants) with the most recent
audited financial statements of the Borrower delivered to the Lenders; provided
--------
that, if the Borrower notifies the Administrative Agent that it wishes to amend
any covenant in Section 5.9 to eliminate the effect of any change in GAAP on the
operation of such covenant (or if the Administrative Agent notifies the Borrower
that the Majority Lenders wish to amend Section 5.9 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Majority Lenders.
The Borrower shall deliver to the Administrative Agent and each Lender at
the same time as the delivery of any annual or quarterly financial statements
given in accordance with the provisions of Section 5.1, (i) a description in
reasonable detail of any material change in the application of accounting
principles employed in the preparation Of such financial statements from those
applied in the most recently preceding quarterly or annual financial statements
as to which no objection shall have been made in accordance with the provisions
above and (ii) a reasonable estimate of the effect on the financial statements
on account of such changes in application.
20
<PAGE>
SECTION 2. THE LOANS; AMOUNT AND TERMS
2.1 REVOLVING LOANS.
---------------
(a) Revolving Commitment. During the Commitment Period, subject to the terms
--------------------
and conditions hereof, each Lender severally agrees to make revolving
credit loans ("Revolving Loans") to the Borrower from time to time for the
---------------
purposes hereinafter set forth; provided, however, that (i) with regard to
-------- -------
each Lender individually, such Lender's share of outstanding Revolving
Loans shall not exceed such Lender's Revolving Committed Amount, and (ii)
with regard to the Lenders collectively, the sum of the aggregate amount of
outstanding Revolving Loans shall not exceed FIFTEEN MILLION DOLLARS
($15,000,000) (as such aggregate maximum amount may be reduced from time to
time as provided herein, the "Revolving Committed Amount"). Revolving
--------------------------
Loans may consist of Base Rate Loans or LIBOR Rate Loans, or a combination
thereof, as the Borrower may request, and may be repaid and reborrowed in
accordance with the provisions hereof. LIBOR Rate Loans shall be made by
each Lender at its LIBOR Lending Office and Base Rate Loans at its Domestic
Lending Office.
(b) Revolving Loan Borrowings.
-------------------------
(i) Notice of Borrowing. The Borrower shall request a Revolving Loan
-------------------
borrowing by written notice (or telephone notice promptly confirmed in
writing which confirmation may be by fax) to the Administrative Agent not
later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day
of requested borrowing in the case of Base Rate Loans, and on the third
Business Day prior to the date of the requested borrowing in the case of
LIBOR Rate Loans. Each such request for borrowing shall be irrevocable and
shall specify (A) that a Revolving Loan is requested, (B) the date of the
requested borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, LIBOR Rate Loans or a combination thereof,
and if LIBOR Rate Loans are requested, the Interest Period(s) therefor. A
form of Notice of Borrowing (a "Notice of Borrowing") is attached as
-------------------
Schedule 2.1(b)(i). If the Borrower shall fail to specify in any such
------------------
Notice of Borrowing (I) an applicable Interest Period in the case of a
LIBOR Rate Loan, then such notice shall be deemed to be a request for an
Interest Period of one month, or (II) the type of Revolving Loan requested,
then such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Administrative Agent shall give notice to each Lender
promptly upon receipt of each Notice of Borrowing, the contents thereof and
each such Lender's share thereof.
(ii) Minimum Amounts. Each Revolving Loan borrowing shall be in a
---------------
minimum aggregate amount of $500,000, in the case of Base Rate Loans, and
integral multiples of $100,000 in excess thereof, and $500,000, in the case
of LIBOR Rate Loans and integral multiples of $100,000 in excess thereof
(or the remaining amount of the Revolving Commitment, if less).
21
<PAGE>
(iii) Advances. Each Lender will make its Revolving Commitment
--------
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower at the office of the Administrative
Agent specified in Schedule 9.2, or at such other office as the
------------
Administrative Agent may designate in writing, by 1:00 P.M. (Charlotte,
North Carolina time) on the date specified in the applicable Notice of
Borrowing in Dollars and in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent by crediting the account of the
Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent. The Borrower hereby irrevocably
authorizes the Administrative Agent to disburse the proceeds of each
Borrowing requested pursuant to this Section 2.1 in immediately available
funds by crediting such proceeds to a deposit account of the Borrower
maintained with the Administrative Agent or by wire transfer to any other
account of the Borrower in each such case as may be specified by the
Borrower from time to time in a written notice in the form attached hereto
as Schedule 2.1(b)(iii) (a "Notice of Account Designation"). Unless other
--------------------
wise specified by the Borrower, the Notice of Account Designation most
recently provided to the Administrative Agent shall control.
(c) Repayment. The principal amount of all Revolving Loans shall be due and
---------
payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 2.5, Revolving Loans shall
--------
bear interest as follows:
(i) Base Rate Loans. During such periods as Revolving Loans shall be
---------------
comprised of Base Rate Loans, each such Base Rate Loan shall bear interest
at a per annum rate equal to the sum of the Base Rate plus the Applicable
----
Interest Rate Percentage; and
(ii) LIBOR Rate Loans. During such periods as Revolving Loans shall be
----------------
comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear
interest at a per annum rate equal to the sum of the LIBOR Rate plus the
----
Applicable Interest Rate Percentage.
Interest on Revolving Loans shall be payable in arrears on each Interest
Payment Date.
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly executed
---------------
promissory note of the Borrower to each Lender in substantially the form of
Schedule 2.1(e). Each Lender is hereby authorized to record the date, Type
---------------
and amount of each Revolving Loan made by such Lender, each continuation
thereof, each conversion of all or a portion thereof to another Type, the
date and amount of each payment or prepayment of principal thereof and, in
the case of LIBOR Rate Loans, the length of each Interest Period with
respect thereto, on the schedule annexed to and constituting a part of its
Revolving Note, and any such recordation shall constitute prima facie
22
<PAGE>
evidence of the accuracy of the information so recorded absent manifest
error; provided that neither the failure to make, nor any error in the
--------
making of, any such recordation shall limit or otherwise affect the
obligation of the Borrower hereunder or under such Revolving Note with
respect to any Revolving Loan and payments of principal or interest on such
Revolving Note. Each Revolving Note shall be dated the Closing Date and
provide for the payment of interest in accordance with subsection 2.1(d).
2.2 [Intentionally left blank]
2.3 CONVERSION OPTIONS.
------------------
(a) The Borrower may elect from time to time to convert Base Rate Loans to
LIBOR Rate Loans, by giving the Administrative Agent at least three
Business Days' prior irrevocable written notice of such election and elect
from time to time to convert LIBOR Rate Loans to Base Rate Loans, by giving
the Administrative Agent at least one Business Day's prior irrevocable
written notice of such election. A form of Notice of Conversion is
attached as Schedule 2.3. If the date upon which a Base Rate Loan is to be
------------
converted to a LIBOR Rate Loan is not a Business Day, then such conversion
shall be made on the next succeeding Business Day and during the period
from such last day of an Interest Period to such succeeding Business Day
such Revolving Loan shall bear interest as if it were a Base Rate Loan.
All or any part of outstanding LIBOR Rate Loans and Base Rate Loans may be
converted as provided herein, provided that (i) a Revolving Loan may be
--------
converted into a LIBOR Rate Loan only if no Event of Default has occurred
and is continuing, (ii) partial conversions into a LIBOR Rate Loan shall be
in an aggregate principal amount of $500,000 or a whole multiple of
$100,000 in excess thereof and (iii) partial conversions into a Base Rate
Loan shall be in an aggregate principal amount of $500,000 or a whole
multiple of $ 100,000 in excess thereof.
(b) Any LIBOR Rate Loans may be continued as such upon the expiration of an
Interest Period with respect thereto by compliance by the Borrower with the
notice provisions contained in subsection 2.3(a); provided, that a LIBOR
--------
Rate Loan may be continued as such only if no Event of Default has occurred
and is continuing, in which case such Loan shall be automatically converted
to a Base Rate Loan at the end of the applicable Interest Period with
respect thereto. Where the Borrower shall fail to give timely notice of an
election to continue a LIBOR Rate Loan, or where continuation of LIBOR Rate
Loans is not permitted hereunder, such LIBOR Rate Loans shall be
automatically converted to Base Rate Loans at the end of the applicable
Interest Period with respect thereto.
2.4 MINIMUM PRINCIPAL AMOUNT OF TRANCHES.
------------------------------------
All borrowings, payments and prepayments in respect of Revolving Loans
shall be in such amounts and be made pursuant to such elections so that after
giving effect thereto the aggregate principal amount of the Revolving Loans
comprising any Tranche shall not be less than $500,000, in the case of Base Rate
Loans, and integral multiples in excess of $100,000 in
23
<PAGE>
excess thereof, and $500,000, in the case of LIBOR Rate Loans, and integral
multiples of $100,000 in excess thereof
2.5 DEFAULT RATE AND PAYMENT DATES.
------------------------------
(a) If all or a portion of the principal amount of any Revolving Loan which is
a LIBOR Rate Loan shall not be paid when due or continued as a LIBOR Rate
Loan in accordance with the provisions of Section 2.3 (whether at the
stated maturity, by acceleration or otherwise), such overdue principal
amount of such Revolving Loan shall be converted to a Base Rate Loan at the
end of the Interest Period applicable thereto.
(b) If all or a portion of (i) the principal amount of any Revolving Loan, (ii)
any interest payable thereon or (iii) any fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum which is in the case of overdue principal, the rate that
would otherwise be applicable thereto plus 2% or in the case of overdue
interest, fees or other amounts, the Base Rate plus 2%, in each case from
the date of such non-payment until such amount is paid in full (as well
after as before judgment).
(c) Interest on each Revolving Loan shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant to
paragraph (b) of this subsection shall be payable from time to time on
demand.
2.6 REDUCTIONS IN REVOLVING COMMITMENTS AND PREPAYMENTS.
---------------------------------------------------
(a) Voluntary Reduction in Revolving, Commitments. The Borrower may from time
---------------------------------------------
to time permanently reduce the aggregate amount of the Revolving
Commitments in whole or in part without premium or penalty except as
provided in Section 2.14 upon three (3) Business Days' prior written notice
to the Administrative Agent; provided that after giving effect to any such
--------
voluntary reduction the Revolving Loans then outstanding shall not exceed
the Aggregate Revolving Committed Amount, as reduced. Partial reductions
in the aggregate Revolving Commitment shall in each case be in a minimum
aggregate amount of $500,000 and integral multiples of $100,000 in excess
thereof.
(b) Mandatory Reductions in Revolving Commitments and Mandatory Prepayments.
-----------------------------------------------------------------------
(i) Scheduled Reductions in Revolving Commitments. The aggregate amount
---------------------------------------------
of the Revolving Commitments shall be automatically and permanently reduced by
the following amounts on the following dates:
24
<PAGE>
Reduction Date Amount of Reduction
- ------------------------------------------------ ----------------------------
March 31, 1999 $ 375,000
June 30, 1999 375,000
September 30, 1999 375,000
December 31, 1999 375,000
March 31, 2000 375,000
June 30, 2000 375,000
September 30, 2000 375,000
December 31, 2000 375,000
March 31, 2001 375,000
June 30, 2001 375,000
September 30, 2001 375,000
December 31, 2001 375,000
March 31, 2002 562,500
June 30, 2002 562,500
September 30, 2002 562,500
December 31, 2002 562,500
March 31, 2003 562,500
June 30, 2003 562,500
September 30, 2003 562,500
December 31, 2003 562,500
March 31, 2004 562,500
June 30, 2004 562,500
September 30, 2004 562,500
December 31, 2004 562,500
March 31, 2005 3,750,000
-----------
$15,000,00
25
<PAGE>
The foregoing mandatory reduction amounts shall hereinafter be referred to
as the "Regularly Scheduled Reduction Amounts".
-------------------------------------
(ii) Net Sales Proceeds. The Borrower shall make a prepayment of the
------------------
Loans in an amount equal to 100% of the Net Sales Proceeds from Asset
Dispositions in excess of $1,000,000 which are not reinvested by the
Borrower in businesses permitted to be engaged in by the Borrower and its
Subsidiaries pursuant to Section 6.4 within six months after the applicable
date of disposition. Any such required prepayment of Net Sales Proceeds
shall be made on the date six months from the date of the applicable Asset
Disposition and shall be applied to the outstanding principal balance of
the Revolving Loans (with a corresponding reduction in the Revolving
Commitments). Any such reduction in the Revolving Commitments shall be
applied to, and serve to reduce, the Regularly Scheduled Reduction Amounts
which would otherwise be required under subsection (i) hereof pro rata as
to such amounts. Subject to the foregoing provisions, such prepayments
shall be applied first to Base Rate Loans, if any, and then to Eurodollar
Loans in direct order of Interest Period maturities.
(iii) Excess Cash Flow. On the date 120 days after the end of each
----------------
fiscal year beginning for fiscal year 1999, the Borrower shall make a
prepayment of the Loans in an aggregate amount equal to (A) fifty percent
(50%) of Excess Cash Flow for the immediately preceding fiscal year if the
Leverage Ratio on the last day of such fiscal year is equal to or greater
than 4.0 to 1.0 or (B) zero (0.0%) of Excess Cash Flow for the immediately
preceding fiscal year if the Leverage Ratio on the last day of such fiscal
year is less than 4.0 to 1.0. Any such payments of Excess Cash Flow shall
be applied to the outstanding principal balance of the Revolving Loans
(with a corresponding reduction in the Revolving Commitments). Any such
reduction in the Revolving Commitments shall be applied to, and serve to
reduce, the Regularly Scheduled Reduction Amounts which would otherwise be
required under subsection (i) hereof in the inverse order of reduction
dates. Subject to the foregoing provisions, such prepayments shall be
applied first to Base Rate Loans, if any, and then to Eurodollar Loans in
direct order of Interest Period maturities.
(iv) Debt Issuance. Immediately upon receipt by the Borrower of cash
-------------
proceeds from any Debt Issuance (other than any Debt Issuance relating to
Indebtedness permitted by Section 6.1), the Borrower shall make a
prepayment of the Loans in an amount equal to such proceeds. Any such
prepayments shall be applied to the outstanding principal balance of the
Revolving Loans (with a corresponding reduction in the Revolving
Commitments). Any such reduction in the Revolving Commitments shall be
applied to, and serve to reduce, the
26
<PAGE>
Regularly Scheduled Reduction Amounts which would otherwise be required
under subsection (i) hereof in the inverse order of reduction dates.
Subject to the foregoing provisions, such prepayments shall be applied
first to Base Rate Loans, if any, and then to Eurodollar Loans in direct
order of Interest Period maturities.
(v) Mandatory Prepayment on Revolving Loan. If at any time the aggregate
--------------------------------------
amount of Revolving Loans and then outstanding shall exceed the Aggregate
Revolving Committed Amount, as reduced from time to time, the Borrower
shall immediately make payment on the Revolving Loans in an amount
sufficient to eliminate the excess. Any such payments shall be applied
first to Base Rate Loans and then to LIBOR Rate Loans in direct order of
their Interest Period maturities.
2.7 COMMITMENT FEE.
--------------
In consideration of the Revolving Commitments, the Borrower agrees to pay
to the Administrative Agent for the ratable benefit of the Lenders a commitment
fee (the "Commitment Fee") for each calendar quarter (or portion thereof) during
--------------
the Commitment Period, computed at the rate of the Applicable Commitment Fee
Percentage on the average daily amount by which the Aggregate Revolving
Committed Amount exceeds the aggregate principal amount of Revolving Loans
outstanding (for the subject calendar quarter). The Commitment Fee shall be
payable quarterly in arrears on the last Business Day of each March, June,
September and December (commencing June 30, 1998) and on the Termination Date.
2.8 COMPUTATION OF INTEREST AND FEES.
--------------------------------
(a) Interest payable hereunder with respect to LIBOR Rate Loans shall be
calculated on the basis of a year of 360 days for the actual days elapsed.
All other fees, interest and all other amounts payable hereunder shall be
calculated on the basis of a 365/6 day year for the actual days elapsed.
The Administrative Agent shall as soon as practicable notify the Borrower
and the Lenders of each determination of a LIBOR Rate on the Business Day
of the determination thereof. Any change in the interest rate on a
Revolving Loan resulting from a change in the Base Rate shall become
effective as of the opening of business on the day on which such change in
the Base Rate shall become effective. The Administrative Agent shall as
soon as practicable notify the Borrower and the Lenders of the effective
date and the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent pursuant
to any provision of this Agreement shall be conclusive and binding on the
Borrower and the Lenders in the absence of manifest error.
2.9 PRO RATA TREATMENT AND PAYMENTS.
-------------------------------
Each borrowing of Revolving Loans and any reduction of the Revolving
Commitments shall be made pro rata according to the respective Revolving
Commitment Percentages of the Lenders. Each payment under this Agreement or any
Revolving Note shall be applied, first, in the case of a payment on the
Revolving Notes (or in respect of the Revolving Loans), to any fees then due and
27
<PAGE>
owing by the Borrower pursuant to subsection 2.7, second, to interest then due
and owing in respect of the Revolving Notes of the Borrower and, third, to
principal then due and owing hereunder and under the Revolving Notes of the
Borrower. Except as otherwise provided herein, each payment on account of any
fees pursuant to subsection 2.7 shall be made pro rata to the Lenders in
accordance with the respective amounts due and owing. Each payment by the
Borrower on account of principal of and interest on the Revolving Loans shall be
made pro rata according to the respective amounts due and owing. Each
prepayment on account of principal of the Revolving Loans shall be applied to
such of the Revolving Loans as the Borrower may designate (to be applied pro
rata among the Lenders); provided, that prepayments made pursuant to subsection
--------
2.10(a) or 2.12 shall be applied in accordance with such subsection. All
payments (including prepayments) to be made by the Borrower on account of
principal, interest and fees shall be made without defense, set-off or
counterclaim (except as provided in subsection 2.15(b)) and shall be made to the
Administrative Agent for the account of the Lenders at the Administrative
Agent's office specified in Schedule 9.2 in Dollars and in immediately available
------------
funds. The Administrative Agent shall distribute such payments to the Lenders
entitled thereto promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the LIBOR Rate Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a LIBOR Rate Loan becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to extend
such payment into another calendar month, in which event such payment shall be
made on the immediately preceding Business Day.
2.10 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT.
------------------------------------------------
(a) Unless the Administrative Agent shall have been notified by a Lender prior
to the date a Revolving Loan is to be made by such Lender (which notice
shall be effective upon receipt) that such Lender does not intend to make
the proceeds of such Revolving Loan available to the Administrative Agent,
the Administrative Agent may assume that such Lender has made such proceeds
available to the Administrative Agent on such date, and the Administrative
Agent may in reliance upon such assumption (but shall not be required to)
make available to the Borrower a corresponding amount. If such amount is
made available to the Administrative Agent on a date after such Borrowing
Date, such Lender shall pay to the Administrative Agent on demand an amount
equal to the product of (i) the daily average Federal Funds Effective Rate
during such period, times (ii) the amount of such Lender's Revolving
Commitment Percentage of such borrowing, times (iii) a fraction, the
numerator of which is the number of days that elapse from and including
such Borrowing Date to the date on which such Lender's Revolving Commitment
Percentage of such borrowing shall have become immediately available to the
Administrative Agent and the denominator of which is 360. If such Lender's
Revolving Commitment Percentage is not in fact made available to the
Administrative Agent by such Lender within two (2) Business Days of such
Borrowing Date, the Administrative Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to Base Rate
Loans hereunder, on demand, from the Borrower.
(b) Unless the Administrative Agent shall have been notified by the Borrower,
prior to the date on which any payment is due from it hereunder (which
notice shall be
28
<PAGE>
effective upon receipt) that the Borrower does not intend to make such
payment, the Administrative Agent may assume that the Borrower has made
such payment when due, and the Administrative Agent may in reliance upon
such assumption (but shall not be required to) make available to each
Lender on such payment date an amount equal to the portion of such assumed
payment to which such Lender is entitled hereunder, and if the Borrower has
not in fact made such payment to the Administrative Agent, such Lender
shall, on demand, repay to the Administrative Agent the amount made
available to such Lender. If such amount is repaid to the Administrative
Agent on a date after the date such amount was made available to such
Lender, such Lender shall pay to the Administrative Agent on demand an
amount equal to the product of (i) the daily average Federal Funds
Effective Rate during such period, times (ii) the amount made available to
such Lender by the Administrative Agent pursuant to this paragraph (b),
times (iii) a fraction, the numerator of which is the number of days that
elapse from and including the date on which such amount was made available
to such Lender to the date on which such amount shall have been repaid to
the Administrative Agent by such Lender and become immediately available to
the Administrative Agent and the denominator of which is 360.
(c) A certificate of the Administrative Agent submitted to the Borrower or any
Lender with respect to any amount owing under this subsection shall be
conclusive in the absence of manifest error.
2.11 INABILITY TO DETERMINE INTEREST RATE.
------------------------------------
Notwithstanding any other provision of this Agreement, if (i) the
Administrative Agent shall reasonably determine (which determination shall be
conclusive and binding absent manifest error) that, by reason of circumstances
affecting the relevant market, reasonable and adequate means do not exist for
ascertaining LIBOR for such Interest Period, or (ii) the Majority Lenders shall
reasonably determine (which determination shall be conclusive and binding absent
manifest error) that the LIBOR Rate does not adequately and fairly reflect the
cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested
be outstanding as a Eurodollar Tranche during such Interest Period, the
Administrative Agent shall forthwith give telephone notice of such
determination, confirmed in writing, to the Borrower, and the Lenders at least
two Business Days prior to the first day of such Interest Period. Unless the
Borrower shall have notified the Administrative Agent upon receipt of such
telephone notice that it wishes to rescind or modify its request regarding such
LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans
shall be made as Base Rate Loans and any Revolving Loans that were requested to
be converted into or continued as LIBOR Rate Loans shall be converted into Base
Rate Loans. Until any such notice has been withdrawn by the Administrative
Agent, no further Revolving Loans shall be made as, continued as, or converted
into, LIBOR Rate Loans for the Interest Periods so affected.
2.12 ILLEGALITY.
----------
Notwithstanding any other provision of this Agreement, if the adoption of
or any change in any Requirement of Law or in the interpretation or application
thereof, in each case occurring after the Closing Date, by the relevant
Governmental Authority to any Lender shall make it unlawful for such Lender or
its LIBOR Lending Office to make or maintain LIBOR Rate Loans
29
<PAGE>
as contemplated by this Agreement or to obtain in the interbank eurodollar
market through its LIBOR Lending Office the funds with which to make such Loans,
(a) such Lender shall promptly notify the Administrative Agent and the Borrower
thereof, (b) the commitment of such Lender hereunder to make LIBOR Rate Loans or
continue LIBOR Rate Loans as such shall forthwith be suspended until the
Administrative Agent shall give notice that the condition or situation which
gave rise to the suspension shall no longer exist, and (c) such Lender's Loans
then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day
of the Interest Period for such Loans or within such earlier period as required
by law to Base Rate Loans. The Borrower hereby agrees promptly to pay any
Lender, upon its demand, any additional amounts necessary to compensate such
Lender for actual and direct costs (but not including anticipated profits)
reasonably incurred by such Lender in making any repayment in accordance with
this subsection including, but not limited to, any interest or fees payable by
such Lender to lenders of funds obtained by it in order to make or maintain its
LIBOR Rate Loans hereunder. A certificate as to any additional amounts payable
pursuant to this subsection submitted by such Lender, through the Administrative
Agent, to the Borrower shall be conclusive in the absence of manifest error.
Each Lender agrees to use reasonable efforts (including reasonable efforts to
change its LIBOR Lending Office) to avoid or to minimize any amounts which may
otherwise be payable pursuant to this subsection; provided, however, that such
-------- -------
efforts shall not cause the imposition on such Lender of any additional costs or
legal or regulatory burdens deemed by such Lender to be material.
2.13 REQUIREMENTS OF LAW.
-------------------
(a) If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority, in each case made subsequent
to the date hereof:
(i) shall subject such Lender to any tax of any kind whatsoever with
respect to any LIBOR Rate Loan made by it, or change the basis of taxation
of payments to such Lender in respect thereof (except for taxes covered by
subsection 2.15 (including any taxes imposed by reason of any failure of
such Lender to comply with its obligations under subsection 2.15(b)), or
changes in the rate of tax on the net income, or franchise tax, of such
Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender any other condition (excluding any tax
of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such
Lender of making or maintaining LIBOR Loans or to reduce any amount
receivable hereunder or under any Revolving Note, then, in any such case,
the Borrower shall promptly pay such Lender,
30
<PAGE>
within 15 days after its demand, any additional amounts necessary to
compensate such Lender for such additional cost or reduced amount
receivable which such Lender reasonably deems to be material as determined
by such Lender with respect to its LIBOR Rate Loans. A certificate as to
any additional amounts payable pursuant to this subsection submitted by
such Lender, through the Administrative Agent, describing in reasonable
detail the nature of such event and a reasonably detailed explanation of
the calculation thereof, to the Borrower shall be conclusive in the absence
of manifest error. Each Lender agrees to use reasonable efforts (including
reasonable efforts to change its Domestic Lending Office or LIBOR Lending
Office, as the case may be) to avoid or to minimize any amounts which might
otherwise be payable pursuant to this paragraph of this subsection;
provided, however, that such efforts shall not cause the imposition on such
Lender of any additional costs or legal or regulatory burdens deemed by
such Lender to be material.
(b) If any Lender shall have reasonably determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof as a consequence of its obligations
hereunder or compliance by such Lender or any corporation controlling such
Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or Governmental
Authority made subsequent to the date hereof as a consequence of its
obligations hereunder does or shall have the effect of reducing the rate of
return on such Lender's or such corporation's capital as a consequence of
its obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's or such corporation's policies
with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then from time to time, within 15 days after demand
by such Lender, the Borrower shall pay to such Lender such additional
amount as shall be certified by such Lender as being required to compensate
it for such reduction. Such a certificate as to any additional amounts
payable under this subsection submitted by a Lender (which certificate
shall include a description in reasonable detail of the basis for the
computation), through the Administrative Agent, to the Borrower shall be
conclusive absent manifest error.
(c) Notwithstanding anything to the contrary contained herein, the Borrower
shall not have any obligation to pay to any Lender amounts owing under this
subsection 2.13 for any period which is more than 180 days prior to the
date (but not in any event prior to the Closing Date) upon which the
request for payment therefor is delivered to the Borrower.
(d) The agreements in this subsection shall survive the termination of this
Agreement and payment of the Notes and all other amounts payable hereunder.
2.14 INDEMNITY.
---------
The Borrower hereby agrees to indemnify each Lender and to hold such Lender
harmless from any funding loss or expense which such Lender may sustain or incur
(other than as a result of such Lender's gross negligence or willful misconduct)
as a consequence of (a) default by the
31
<PAGE>
Borrower in payment of the principal amount of or interest on any LIBOR Rate
Loan by such Lender in accordance with the terms hereof, (b) default by the
Borrower in accepting a LIBOR Rate Loan after the Borrower has given a notice in
accordance with the terms hereof, (c) default by the Borrower in making any
prepayment of a LIBOR Rate Loan after the Borrower has given a notice in
accordance with the terms hereof, and/or (d) the making by the Borrower of a
prepayment of a LIBOR Rate Loan, or the conversion thereof, on a day which is
not the last day of the Interest Period with respect thereto, in each case equal
to (i) the amount of interest which would have accrued on the amount so prepaid,
or not so paid, borrowed, converted or continued, for the period from the date
of such prepayment or of such failure to borrow, convert or continue to the last
day of such Interest Period (or, in the case of a failure to pay, borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure), in each case at the applicable rate of interest for such Loans
provided for herein (excluding the Applicable Interest Rate Percentage included
therein), over (ii) the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. A certificate as to any additional amounts payable pursuant
to this subsection submitted by any Lender, through the Administrative Agent, to
the Borrower (which certificate must be delivered to the Administrative Agent
within thirty days following such default, prepayment or conversion) shall be
conclusive in the absence of manifest error. The agreements in this subsection
shall survive termination of this Agreement and payment of the Revolving Notes
and all other amounts payable hereunder.
2.15 TAXES.
-----
(a) All payments made by the Borrower hereunder or under any Revolving Note
will be, except as provided in Section 2.15(b), made free and clear of, and
without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now
or hereafter imposed by any Governmental Authority or by any political
subdivision or taxing authority thereof or therein with respect to such
payments (but excluding (i) any tax imposed on or measured by the net
income or profits of a Lender pursuant to the laws of the jurisdiction in
which it is organized or the jurisdiction in which the principal office or
applicable lending office of such Lender is located or any subdivision
thereof or therein and (ii) any franchise taxes, branch taxes, taxes on
doing business or taxes on the overall capital or net worth of any Lender
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or its applicable lending office
is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect thereto (all such non-
excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
-----
imposed, the Borrower agrees-to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts
due under this Agreement or under any Note, after withholding or deduction
for or on account of any such Taxes, will not be less than the amount
provided for herein or in such Note. The Borrower will furnish to the
Administrative Agent as soon as practicable after the date the payment of
any Taxes is due pursuant to applicable law certified copies (to the extent
reasonably available and required by law) of tax receipts evidencing such
payment by the Borrower. Except as provided in this Section 2.15, the
Borrower agrees to indemnify and hold
32
<PAGE>
harmless each Lender, and reimburse such Lender upon its written request,
for the amount of any Taxes so levied or imposed and paid by such Lender.
(b) Each Lender or Participant that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) agrees to deliver to the
Borrower and the Administrative Agent on or prior to the Closing Date, or
in the case of a Lender or Participant that is, an assignee or transferee
of an interest under this Agreement pursuant to Section 9.6 (unless the
respective Lender or Participant was already a Lender or Participant
hereunder immediately prior to such assignment or transfer), on the date of
such assignment or transfer to such Lender, (i) if the Lender or
Participant is a "bank" within the meaning of Section 881(c)(3)(A) of the
Code, two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying such Lender's or
Participant's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement
and under any Note, or (ii) if the Lender or Participant is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code, either Internal
Revenue Service Form 1001 or 4224 as set forth in clause (i) above, or (x)
a certificate substantially in the form of Schedule 2.15 (any such
-------------
certificate, a "2.15 Certificate") and (y) two accurate and complete
----------------
original signed copies of Internal Revenue Service Form W-8 (or successor
form) certifying such Lender's or Participant's entitlement to an exemption
from United States withholding tax with respect to payments of interest to
be made under this Agreement and under any Note. In addition, each Lender
and Participant agrees that it will deliver upon the Borrower's request (or
upon such Lender's or Participant's becoming aware that any version is no
longer accurate) updated versions of the foregoing, as applicable, whenever
the previous certification has become obsolete or inaccurate in any
material respect, together with such other forms as may be required in
order to confirm or establish the entitlement of such Lender or Participant
to a continued exemption from or reduction in United States withholding tax
with respect to payments under this Agreement and any Note.
Notwithstanding anything to the contrary contained in Section 2.15(a), but
subject to the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or
withhold Taxes imposed by the United States (or any political subdivision
or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Lender or Participant
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent
that such Lender or Participant has not provided to the Borrower U.S.
Internal Revenue Service Forms that establish a complete exemption from
such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 2.15(a) hereof to gross-up payments to be made to a
Lender or Participant or otherwise indemnify such Lender or Participant in
respect of Taxes imposed by the United States if (I) such Lender or
Participant has not provided to the Borrower the Internal Revenue Service
Forms required to be provided to the Borrower pursuant to this Section
2.15(b) or (II) in the case of a payment, other than interest, to a Lender
or Participant described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from withholding of such Taxes.
Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 2.15 but subject in any event to
clause (y)(I) in the immediately preceding sentence, the Borrower agrees to
pay additional amounts and to
33
<PAGE>
indemnify each Lender in the manner set forth in Section 2.15(a) (without
regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by them as
described in the immediately preceding sentence as a result of any changes
after the Closing Date (or, in the case of an assignee or transferee, after
the date such assignee or transferee became a Lender or Participant
hereunder) in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the
deducting or withholding of Taxes.
(c) Each Lender agrees to use reasonable efforts (including reasonable efforts
to change its Domestic Lending Office or LIBOR Lending Office, as the case
may be) to avoid or to minimize any amounts which might otherwise be
payable pursuant to this subsection; provided, however, that such efforts
-------- -------
shall not cause the imposition on such Lender of any additional costs or
legal or regulatory burdens deemed by such Lender to be material unless in
the case of costs the Borrower has agreed to reimburse such Lender for such
costs.
(d) If the Borrower pays any additional amount pursuant to this subsection 2.15
with respect to a Lender or Participant, such Lender or Participant shall
use reasonable efforts to obtain a refund of tax or credit against its tax
liabilities on account of such payment; provided that such Lender or
--------
Participant shall have no obligation to use such reasonable efforts if
either (i) it is in an excess foreign tax credit position or (ii) it
believes in good faith, in its sole discretion, that claiming a refund or
credit would cause adverse tax consequences to it. In the event that such
Lender or Participant receives such a refund or credit, such Lender or
Participant shall pay to the Borrower an amount that such Lender reasonably
determines is equal to the net tax benefit obtained by such Lender or
Participant as a result of such payment by the Borrower. In the event that
no refund or credit is obtained with respect to the Borrower's payments to
such Lender pursuant to this subsection 2.15, then such Lender or
Participant shall upon request provide a certification that such Lender or
Participant has not received a refund or credit for such payments. Nothing
contained in this subsection 2.15 shall require a Lender or Participant to
disclose or detail the basis of its calculation of the amount of any tax
benefit or any other amount or the basis of its determination referred to
in the proviso to the first sentence of this subsection 2.15 to the
Borrower or any other party.
(e) The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Revolving Notes and all other amounts
payable hereunder.
2.16 REPLACEMENT OF AGENT.
--------------------
If any Lender becomes a Defaulting Lender, if any Lender delivers a notice
pursuant to Section 2.12, 2.13 or 2.15 or if any Lender fails to consent to a
waiver or amendment which requires the consent of each of the Lenders
(hereinafter any such Lender shall be referred to as a "Replaced Lender"), then
in such case, the Borrower may, upon at least five (5) Business Days' notice to
the Administrative Agent and such Replaced Lender, designate a replacement
lender (a "Replacement Lender") acceptable to the Administrative Agent in its
reasonable discretion, to which such Replaced Lender shall, subject to its
receipt (unless a later date for the remittance
34
<PAGE>
thereof shall be agreed upon by the Borrower and the Replaced Lender) of all
amounts owed to such Replaced Lender hereunder, assign all (but not less than
all) of its rights and obligations hereunder. Upon any assignment by any Lender
pursuant to this Section 2.16 becoming effective, the Replacement Lender shall
thereupon be deemed to be a "Lender" for all purposes of this Agreement and such
Replaced Lender shall thereupon cease to be a "Lender" for all purposes of this
Agreement and shall have no further rights or obligations hereunder (other than
pursuant to Sections 2.12, 2.13, 2.15 and 9.5 while such Replaced Lender was a
Lender).
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the Loans
herein provided for, the Borrower hereby represents and warrants to the
Administrative Agent and to each Lender that:
3.1 FINANCIAL CONDITION.
-------------------
The financial statements provided to the Administrative Agent and the
Lenders, consisting of an audited balance sheet of the Borrower dated as of
December 31, 1997, together with related statements of operations and statements
of cash flows, copies of which have heretofore been provided to each of the
Lenders, are complete and correct in all material respects and present fairly in
accordance with GAAP the financial condition and pro forma results from
operations of the entities for the periods specified, except as noted therein
and subject to normal year-end adjustments and the footnote disclosures required
by GAAP.
3.2 NO CHANGE.
---------
Since December 31, 1997, there has been no development or event which has
had a Material Adverse Effect.
3.3 EXISTENCE; COMPLIANCE WITH LAW.
------------------------------
The Borrower and each Subsidiary (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has the limited liability company, corporate or partnership power and authority
and the legal right to own and operate all its material property, to lease the
material property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign limited liability
company, corporation or partnership and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification except to the extent set forth in
3.2 of the Purchase Agreements with respect to Professional Farmers of America,
Inc. and Professional Market Management, Inc. and except to the extent that the
failure to so qualify or be in good standing would not, in the aggregate, have a
Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
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<PAGE>
3.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
---------------------------------------------
The Borrower and each Subsidiary have full power and authority and the
legal right to make, deliver and perform the Credit Documents to which it is
party and has taken all necessary company, corporate or partnership action to
authorize the execution, delivery and performance by it of the Credit Documents
to which it is party. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery or performance of any Credit Document by the Borrower or any Subsidiary
(other than those which have been obtained) or with the validity or
enforceability of any Credit Document against the Borrower or any Subsidiary
(except such filings as are necessary in connection with the perfection of the
Liens created by such Credit Documents) except to the extent that the failure to
obtain any such consent or authorization or to affect any filing or notice would
not in the aggregate, reasonably expected to have a Material Adverse Effect.
Each Credit Document to which the Borrower or any Subsidiary is a party has been
duly executed and delivered on behalf of the Borrower or such Subsidiary. Each
Credit Document to which it is a party constitutes a legal, valid and binding
obligation of the Borrower or such Subsidiary enforceable against the Borrower
or such Subsidiary in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
3.5 NO LEGAL BAR, NO DEFAULT.
------------------------
The execution, delivery and performance of the Credit Documents, the
borrowings thereunder and the use of the proceeds of the Loans will not violate
any Requirement of Law or any Contractual Obligation of the Borrower or any
Subsidiary (except those as to which waivers or consents have been obtained and
except for any such violation which will not have a Material Adverse Effect),
and will not result in, or require, the creation or imposition of any Lien on
any of their respective properties or revenues pursuant to any Requirement of
Law or Contractual Obligation other than the Liens arising under or contemplated
in connection with the Credit Documents. Neither the Borrower nor any
Subsidiary is in default under or with respect to any of its Contractual
Obligations in any respect which would reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
3.6 NO MATERIAL LITIGATION.
----------------------
Except as set forth in Schedule 3.6, no litigation, investigation or
------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the best knowledge of the Borrower, threatened by or against the Borrower or
any Subsidiary or against any of its or their respective properties or revenues
(a) with respect to the Credit Documents or any Loan or any of the transactions
contemplated hereby, or (b) which could reasonably be expected to have a
Material Adverse Effect.
3.7 INVESTMENT COMPANY ACT.
----------------------
Neither the Borrower nor any Subsidiary is an "investment company", or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
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<PAGE>
3.8 FEDERAL REGULATIONS.
-------------------
No part of the proceeds of any Loan hereunder will be used directly or
indirectly for any purpose which violates, or which would be inconsistent with,
the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect.
Neither the Borrower nor any Subsidiary owns "margin stock" except as identified
in the financial statements referred to in Section 3.1 and the aggregate value
of all "margin stock" owned by the Borrower and the Subsidiaries taken as a
group does not exceed 25% of the value of their assets.
3.9 ERISA.
-----
Neither a Reportable Event nor an "accumulated funding deficiency" (within
the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred
during the five-year period prior to the date on which this representation is
made or deemed made with respect to any Plan, and each Plan has complied in all
material respects with the applicable provisions of ERISA and the Code, except
to the extent that any such occurrence or failure to comply would not reasonably
be expected to have a Material Adverse Effect. No termination of a Single
Employer Plan has occurred resulting in any liability that has remained
underfunded, and no Lien in favor of the PBGC or a Plan has arisen, during such
five-year period which would reasonably be expected to have a Material Adverse
Effect. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits by an amount which, as determined in accordance with GAAP,
would reasonably be expected to have a Material Adverse Effect. Neither the
Borrower, any Subsidiary nor any Commonly Controlled Entity is currently subject
to any liability for a complete or partial withdrawal from a Multiemployer Plan
which would reasonably be expected to have a Material Adverse Effect.
3.10 ENVIRONMENTAL MATTERS.
---------------------
Except to the extent that all of the following, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect:
(a) To the best knowledge of the Borrower, the facilities and properties owned,
leased or operated by the Borrower and its Subsidiaries (the "Properties")
----------
do not use, store, generate, dispose of or handle any Materials of
Environmental Concern in amounts or concentrations which (i) constitute a
violation of or (ii) could give rise to liability under, any Environmental
Law.
(b) To the best knowledge of the Borrower, the Properties and all operations at
the Properties are in compliance, and have in the last five years been in
compliance, in all material respects with all applicable Environmental
Laws, and there has been no violation of any Environmental Law with respect
to the Properties or the business operated by the Borrower (the
"Business").
--------
(c) Neither the Borrower nor any Subsidiary has received any notice of
violation, alleged violation, non-compliance, liability or potential
liability regarding
37
<PAGE>
environmental matters or compliance with Environmental Laws with regard to
any of the Properties or the Business, nor does the Borrower have knowledge
that any such notice is being threatened.
(d) To the best knowledge of the Borrower, all Materials of Environmental
Concern have been generated, treated, stored or disposed of at, on or under
any of the Properties in accordance with applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is pending
or, to the best of the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or the Business or any
facility that has received materials of environmental concern generated by
the Borrower, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect
to the Properties or the Business.
(f) To the best knowledge of the Borrower, there has been no release or threat
of release of Materials of Environmental Concern at or from the Properties
arising from or related to the operations of the Borrower or any Subsidiary
in connection with the Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give rise
to liability under Environmental Laws.
3.11 PURPOSE OF LOAN.
---------------
The proceeds of the Loans will be used to finance the acquisition of the
Acquired Assets and closing costs incurred in connection therewith, to repay
existing Indebtedness, to pay closing costs incurred in connection herewith and
to provide senior debt capacity to make acquisitions and investments permitted
hereby and to provide general working capital.
3.12 SUBSIDIARIES.
------------
Set forth on Schedule 3.12 is a complete and accurate list of all
-------------
Subsidiaries of the Borrower as of the Closing Date. As of the Closing Date,
information on the attached Schedule includes state of organization; the number
of shares of each class of capital stock or partnership or other equity
interests (identified by type) outstanding; the number and percentage of
outstanding shares of each class of stock or percentage of ownership interest;
and the number and effect, if exercised, of all outstanding options, warrants,
rights of conversion or purchase and similar rights. The outstanding capital
stock and partnership and other equity interests of all such Subsidiaries are
validly issued, fully paid and non-assessable and are owned, free and clear of
all Liens (other than those arising under or contemplated in connection with the
Credit Documents). As of the Closing Date, except as set forth on Schedule
--------
3.12, there are no outstanding options or other rights pertaining to the
partnership or other equity interests of the Borrower, and no voting trusts,
shareholders' or partners' agreements (other than the partnership agreements
relating to the formation, organization, operation and governance of the
partnerships, copies of which have been provided to the Administrative Agent and
the Lenders) or similar agreement affecting either ownership of or the right to
vote such partnership interests.
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<PAGE>
3.13 INTELLECTUAL PROPERTY RIGHTS.
----------------------------
The Borrower and its Subsidiaries own or have the right to use, subject to
any of its obligations under any valid and binding license agreement, the
Intellectual Property (as defined below) disclosed in Schedule 3.13 hereto,
-------------
which, to the best of their knowledge, represents all Intellectual Property
individually or in the aggregate material to the conduct of the businesses of
the Borrower and its Subsidiaries taken as a whole on the date hereof. Except
as disclosed in Schedule 3.13 hereto or where the failure shall not have a
-------------
Material Adverse Effect, (i) the Borrower or a Subsidiary has the right to use
the Intellectual Property disclosed in Schedule 3.13 hereto in perpetuity and
--------------
without payment of royalties, (ii) all registrations with and applications to
Governmental or Regulatory Authorities in respect of such Intellectual Property
are valid and in full force and effect and are not subject to the payment of any
taxes or maintenance fees or the taking of any other actions by the Borrower or
a Subsidiary to maintain their validity or effectiveness, and (iii) there are no
restrictions on the direct or indirect transfer of any Contractual Obligation,
or any interest therein, held by the Borrower or any Subsidiary in respect of
such Intellectual Property. Neither the Borrower nor any Subsidiary of the
Borrower is in default (or with the giving of notice or lapse of time or both,
would be in default) under any license to use such Intellectual Property the
loss of which would reasonably be expected to have a Material Adverse Effect, to
the best of the Borrower and its Subsidiaries' knowledge such Intellectual
Property is not being infringed by any third party the loss of which may have a
Material Adverse Effect, and to the best of the Borrower and its Subsidiaries'
knowledge neither the Borrower nor any Subsidiary of the Borrower is infringing
any Intellectual Property of any third party the infringement of which would
reasonably be expected to have a Material Adverse Effect. For purposes of this
Section 3.13, "Intellectual Property" means patents and patent rights,
----------------------
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, copyrights and copyright rights, including the
right to sue for past infringement, licenses, proprietary information, designs,
processes, inventions, software and related intellectual property rights and all
pending applications for and registrations of any of the foregoing.
3.14 NO BURDENSOME RESTRICTIONS.
--------------------------
No Requirement of Law or Contractual Obligation of the Borrower could
reasonably be expected to have a Material Adverse Effect.
3.15 TAXES.
-----
The Borrower and the Subsidiaries have filed, or caused to be filed, all
material tax returns (Federal, state, local and foreign) required to be filed on
or prior to the Closing Date and paid all taxes shown thereon to be due
(including interest and penalties) and have paid all other taxes, fees,
assessments and other governmental charges (including mortgage recording taxes,
documentary stamp taxes and intangibles taxes) owing (or necessary to preserve
any Liens in favor of the Lenders) with respect to taxable periods ending on or
before the Closing Date by them, except for such taxes (i) which are not yet
delinquent, (ii) as are being contested in good faith and by proper proceedings,
and against which adequate reserves are being maintained in accordance with GAAP
or (iii) the nonpayment of which would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Borrower is not aware of any
proposed material tax assessments against it or any of its Subsidiaries.
39
<PAGE>
3.16 NO INTEREST IN REAL ESTATE.
--------------------------
Other than the leasehold interests reflected on Schedule 3.16, neither the
-------------
Borrower nor any of its Subsidiaries has any interest in any real property.
3.17 PRINTING.
--------
Neither the premises leased by the Borrower or any of its Subsidiaries or
any other real estate owned or leased by the Borrower or any of its Subsidiaries
has been used by the Borrower or any of its Subsidiaries (or any of their
respective predecessors in interest) for printing including without limitation,
printing of any publications, including newspapers, magazines, circulars,
pamphlets, books or similar items, but excluding printing of office
correspondence and ordinary printing for customary office purposes.
3.18 ASSETS.
------
The assets of the Borrower and its Subsidiaries located outside of the
States of Iowa and Minnesota and the Commonwealth of Pennsylvania constitute
less than 10% of all assets of the Borrower and its Subsidiaries located in the
United States.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO CLOSING DATE.
--------------------------
This Agreement shall become effective upon the satisfaction of the
following conditions precedent:
(a) Execution of Agreement. The Administrative Agent shall have received (i)
----------------------
multiple counterparts of this Agreement for each Lender, executed by a duly
authorized officer of each party hereto, (ii) for the account of each
Lender a Revolving Note, and (iii) multiple counterparts of the Security
Agreement to be executed by the Borrower and its Subsidiaries in existence
as of the Closing Date, the Pledge Agreement, and other Security Documents
for each Lender and UCC financing statements relating thereto executed by a
duly authorized officer of each party thereto, in each case conforming to
the requirements of this Agreement and executed by a duly authorized
officer of the Borrower and the parties to the Pledge Agreement, as
applicable.
(b) Liability and Casualty Insurance. The Administrative Agent shall have
--------------------------------
received copies of insurance policies or certificates of insurance
evidencing liability and casualty insurance meeting the requirements set
forth herein or in the Security Agreement to be executed by the Borrower
and its Subsidiaries in existence as of the Closing Date.
(c) Corporate Documents. The Administrative Agent shall have received the
-------------------
following:
40
<PAGE>
(i) Articles of Incorporation. Copies of the certificate of formation,
-------------------------
articles of organization, articles of incorporation or charter documents of
the Borrower and the Guarantors certified to be true and complete as of a
recent date by the appropriate governmental authority of the state of its
organization or incorporation.
(ii) Resolutions. Copies of the resolutions taken by the directors of
-----------
the Borrower and the Guarantors approving and adopting the Credit
Documents, the transactions contemplated therein and authorizing execution
and delivery thereof, certified by a secretary or assistant secretary as of
the Closing Date to be true and correct and in full force and effect as of
such date.
(iii) Bylaws. A copy of the bylaws of the Borrower and the Guarantors
------
certified by a secretary or assistant secretary as of the Closing Date to
be true and correct and in full force and effect as of such date.
(iv) Good Standing. Copies of (A) certificates of good standing,
-------------
existence or its equivalent with respect to the Borrower and the Guarantors
certified as of a recent date by the appropriate governmental authorities
of the state of incorporation and each other state in which the failure to
so qualify and be in good standing would have a material adverse effect on
the business or operations of the Borrower or the Guarantors in such state
and (B) a certificate indicating payment of all corporate franchise taxes
certified as of a recent date by the appropriate governmental taxing
authorities.
(d) Officer's Certificate. The Administrative Agent shall have received a
---------------------
certificate of a duly authorized secretary or assistant secretary of each
of the Borrower and the Guarantors dated the Closing Date, substantially in
the form of Schedule 4.1(d) with appropriate insertions and attachments.
----------------
(e) Legal Opinion of Counsel. The Administrative Agent shall have received,
------------------------
with a copy for each Lender, opinions of various counsel for the Borrower
and the Guarantors, dated the Closing Date and addressed to the
Administrative Agent and the Lenders, in form and substance satisfactory to
Administrative Agent and the Lenders.
(f) Compliance and Solvency Certificates. The Administrative Agent shall have
------------------------------------
received from an Authorized Signatory (i) a certificate regarding the
accuracy of representations and warranties and the absence of Defaults, in
form reasonably acceptable to the Administrative Agent, and (ii) a solvency
certificate substantially in the form of Schedule 4.1(f)(ii), demonstrating
-------------------
the solvency of the Borrower and each of the Guarantors.
(g) Fees. The Agent shall have received all fees owing to each of them
----
pursuant to the Fee Letter.
(h) Litigation. There shall not exist any (i) order, decree, judgment, ruling
----------
or injunction which restrains the consummation of the acquisition of the
Acquired Assets in the manner contemplated by the Purchase Agreement or
(ii) any pending or threatened
41
<PAGE>
action, suit, investigation or proceeding against the Borrower or any
Guarantor that would have or would reasonably be expected to have a
Material Adverse Effect.
(i) Section 4.3 Conditions. The conditions specified in Sections 4.3 (a)
----------------------
and (b) shall be satisfied on the Closing Date as if Loans were to be made
on such date.
(j) Notice of Account Designation. The Borrower shall have executed and
-----------------------------
delivered to the Administrative Agent a Notice of Account Designation.
(k) Additional Matters. All other documents and legal matters in connection
------------------
with the transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to the Administrative Agent and its
counsel.
4.2 CONDITIONS TO LOANS-ACQUIRED ASSETS.
-----------------------------------
The obligation of each Lender to make any Loan hereunder which will be used
to finance the purchase of any of the Acquired Assets is subject to the
satisfaction on the date of the making of such Loan of the conditions set forth
in Sections 4.1 and 4.3 hereunder and is further subject to the consent by the
Agent of all terms, conditions and documentation regarding such purchase
(including the Purchase Agreement relating thereto), such consent not to be
unreasonably withheld.
4.3 CONDITIONS TO ALL LOANS.
-----------------------
The obligation of each Lender to make any Loan hereunder (including the
initial Loans to be made hereunder) is subject to the satisfaction of the
following conditions precedent on the date of making such Loan:
(a) Representations and Warranties. The representations and warranties made by
------------------------------
the Borrower and the Subsidiaries herein, in the Security Documents or
which are contained in any certificate furnished at any time under or in
connection herewith shall be true and correct in all material respects on
and as of the date of such Loan as if made on and as of such date (except
to the extent such representations and warranties expressly relate to an
earlier date).
(b) No Default or Event of Default. No Default or Event of Default shall have
------------------------------
occurred and be continuing on such date or after giving effect to the Loan
to be made on such date unless such Default or Event of Default shall have
been waived in accordance with this Agreement.
Each request for a Loan and each acceptance by the Borrower of a Loan shall
be deemed to constitute a representation and warranty by the Borrower as of the
date of such Loan that the applicable conditions in paragraphs (a) and (b) have
been satisfied.
42
<PAGE>
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that on the Closing Date, and
thereafter for so long as this Agreement is in effect and until the Commitments
have terminated, no Note remains outstanding and unpaid, and the Loans, together
with interest, fees and all other amounts owing to the Administrative Agent or
any Lender hereunder, are paid in full, the Borrower shall, and in the case of
Sections 5.3, 5.4, 5.5, 5.6, 5.7 and 5.8 shall cause each of its Subsidiaries,
to:
5.1 FINANCIAL STATEMENTS.
--------------------
Furnish to the Administrative Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available, but in any event within
---------------------------
90 days after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income and retained earnings and of cash flows of the
Borrower and its consolidated Subsidiaries for such year, audited by
Deloitte & Touche LLP or any other firm of independent certified public
accountants of nationally recognized standing reasonably acceptable to the
Majority Lenders, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification indicating that the scope
of the audit was inadequate to permit such independent certified public
accountants to certify such financial statements without such
qualification; and
(b) Quarterly Financial Statements. As soon as available and in any event
------------------------------
within 45 days after the end of each of the first three fiscal quarters of
the Borrower, a company-prepared consolidating balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such period and
related company-prepared statements of income and retained earnings and of
cash flows for the Borrower and its consolidated Subsidiaries for such
quarterly period and for the portion of the fiscal year ending with such
period, in each case setting forth in comparative form consolidating
figures for the corresponding period or periods of (i) the preceding fiscal
year and (ii) the annual budget plan (subject in each case to normal
recurring year-end audit adjustments);
(c) Monthly Financial Statements. As soon as available and in any event within
----------------------------
45 days after the end of each month, a company-prepared consolidating
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such month and related company-prepared statements of income and
retained earnings and of cash flows for the Borrower and its consolidated
Subsidiaries for such monthly period and for the portion of the fiscal year
ending with such period, in each case setting forth in comparative form
consolidating figures for the corresponding period or periods of (i) the
preceding fiscal year and (ii) the annual budget plan (subject in each case
to normal recurring year-end audit adjustments);
(d) Annual Budget Plan. As soon as available, but in any event no more than 90
------------------
days after the date hereof, a copy of the detailed annual budget or plan
for fiscal year 1998 set out by month, in form and detail reasonably
acceptable to the Administrative Agent and the Majority Lenders, together
with a summary of the material assumptions made in the preparation of the
budget or plan. As soon as available, but in any event no
43
<PAGE>
more than 60 days after the end of fiscal year 1998 and each fiscal year
thereafter, a copy of the detailed annual budget or plan for the next
fiscal year set out by month, in form and detail reasonably acceptable to
the Administrative Agent and the Majority Lenders, together with a summary
of the material assumptions made in the preparation of the budget or plan;
all such financial statements to include a breakdown by titles and other lines
of business to fairly present in all material respects the financial condition
and results from operations of the entities and for the periods specified
(subject, in the case of interim statements, to normal recurring year-end audit
adjustments) and to be prepared in reasonable detail and, in the case of the
annual and quarterly financial statements provided in accordance with
subsections (a) and (b) above, in accordance with GAAP applied consistently
throughout the periods reflected therein (except as approved by such accountants
or Authorized Signatory, as the case may be, and disclosed therein) and were
accompanied by a description of, and an estimation of the effect on the
financial statements on account of, a change in the application of accounting
principles as provided in Section 1.3.
5.2 CERTIFICATES; OTHER INFORMATION.
-------------------------------
Furnish to the Administrative Agent and each of the Lenders:
(a) Accountants Certificate. Concurrently with the delivery of the financial
-----------------------
statements referred to in Section 5.1(a) above, a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor no
knowledge was obtained of any Default or Event of Default, except as
specified in such certificate;
(b) Compliance Certificate. Concurrently with the delivery of the financial
----------------------
statements referred to in Sections 5.1(a) and 5.1(b) above, a certificate
of an Authorized Signatory stating that, to the best of such Authorized
Signatory's knowledge, the Borrower and the Subsidiaries during such period
observed or performed in all material respects all of their covenants and
other agreements, and satisfied in all material respects every material
condition, contained in this Agreement to be observed, performed or
satisfied by them, and that such Authorized Signatory has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate and such certificate shall include the calculations required to
indicate compliance with Section 5.9 and information as to Restricted
Payments made in the applicable period in accordance with Section 6.11;
(c) Other Information. Promptly, such additional financial and other
-----------------
information as the Administrative Agent, on behalf of any Lender, may from
time to time reasonably request.
5.3 PAYMENT OF OBLIGATIONS.
----------------------
Pay, discharge or otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, in accordance with industry practice
(subject, where applicable, to specified grace periods) all obligations in
excess of $1,000,000 of whatever nature and any
44
<PAGE>
additional costs that are imposed as a result of any failure to so pay,
discharge or otherwise satisfy such obligations, except when the amount or
validity of such obligations and costs is currently being contested in good
faith by appropriate proceedings and reserves, if applicable, in conformity with
GAAP with respect thereto have been provided on the books of the Borrower or its
Subsidiaries, as the case may be.
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.
------------------------------------------------
Preserve, renew and keep in full force and effect its company, corporate or
partnership existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business; comply with all Contractual Obligations and Requirements of Law
applicable to it except to the extent that failure to comply therewith would
not, in the aggregate, have a Material Adverse Effect.
5.5 MAINTENANCE OF PROPERTY INSURANCE.
---------------------------------
Keep all material property useful and necessary in its business in
reasonably good working order and condition (ordinary wear and tear excepted);
maintain with financially sound and reputable insurance companies insurance on
all its material property in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to the Administrative
Agent, upon written request, full information as to the insurance carried.
5.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS; DISCUSSIONS.
------------------------------------------------------
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its businesses and activities; and
permit, during regular business hours and upon reasonable notice by the
Administrative Agent or any Lender (any such inspection by the Administrative
Agent to be at the Borrower's expense and any such inspection by any Lender to
be at such Lenders expense), to visit and inspect any of its properties and
examine and make abstracts from any of its books and records (other than
materials protected by the attorney-client privilege and materials which the
Borrower may not disclose without violation of a confidentiality obligation
binding upon it) at any reasonable time and as often as may reasonably be
desired, and to discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with officers and employees
of the Borrower and its Subsidiaries and with its independent certified public
accountants.
5.7 NOTICES.
-------
Give notice to the Administrative Agent (which shall promptly transmit such
notice to each Lender) of:
(a) within five Business Days after the Borrower knows of the occurrence of any
material Default or Event of Default;
45
<PAGE>
(b) promptly, any default or event of default under any Contractual Obligation
of the Borrower or any Subsidiary which would reasonably be expected to
have a Material Adverse Effect;
(c) promptly, any litigation, or any investigation or proceeding known to the
Borrower, affecting the Borrower or any Subsidiary which, if adversely
determined, would reasonably be expected to have a Material Adverse Effect;
(d) as soon as possible and in any event within 30 days after the Borrower
knows: (i) the occurrence of any Reportable Event with respect to any Plan,
a failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower, any Subsidiary or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan, provided that in
each case in clause (i) and (ii) above, such event or condition could have
a Material Adverse Effect; and
(e) promptly, any other development or event which would reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Authorized Signatory setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
5.8 ENVIRONMENTAL LAWS.
---------------------
(a) Comply in all material respects with, and take reasonable actions to ensure
compliance in all material respects by all tenants and subtenants, if any,
with, all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and take reasonable actions to ensure
that all tenants and subtenants obtain and comply in all material respects
with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws except
to the extent that failure to do so would not reasonably be expected to
have a Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under Environmental Laws
and promptly comply in all material respects with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws
except to the extent that the same are being contested in good faith by
appropriate proceedings and the failure to do or the pendency of such
proceedings would not reasonably be expected to have a Material Adverse
Effect; and
(c) Defend, indemnify and hold harmless the Administrative Agent and the
Lenders, and their respective employees, agents, officers and directors,
from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature known or unknown, contingent or otherwise, arising
46
<PAGE>
out of, or in any way relating to the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of the
Borrower, its Subsidiaries or the Properties, or any orders, requirements
or demands of Governmental Authorities related thereto, including, without
limitation, reasonable attorney's and consultants fees, investigation and
laboratory fees, response costs, court costs and litigation expenses,
except to the extent that any of the foregoing arise out of the gross
negligence or willful misconduct of the party seeking indemnification
therefor. The agreements in this paragraph shall survive repayment of the
Notes and all other amounts payable hereunder.
5.9 FINANCIAL COVENANTS.
----------------------
(a) Leverage Ratio. The Borrower will maintain, as of the end of each fiscal
--------------
quarter to occur during the periods shown, a Leverage Ratio of not greater
than:
Period Ratio
- ------------------------------------------- -------------------------------
Closing Date through June 30, 1999 5.00:1.0
July 1, 1999 to December 31, 1999 4.50:1.0
January 1, 2000 to June 30, 2000 4.00:1:0
July 1, 2000 and thereafter 3.50:1.0
(b) Interest Coverage Ratio. The Borrower will maintain, as of the end of each
-----------------------
fiscal quarter to occur during the periods shown, an Interest Coverage
Ratio of at least:
Period Ratio
- ------------------------------------------- -------------------------------
Closing Date through December 31, 1998 1.75:1.0
January 1, 1999 to December 31, 1999 2.00:1.0
January 1, 2000 and thereafter 2.25:1.0
(c) Fixed Charge Coverage Ratio. The Borrower will maintain, as of the end of
---------------------------
each fiscal quarter a Fixed Charge Coverage Ratio of at least 1.05:1.0.
5.10 COVENANTS REGARDING PATENTS, TRADEMARKS AND COPYRIGHTS.
---------------------------------------------------------
(a) The Borrower shall notify the Administrative Agent promptly if it knows or
has reason to know that any application, letters patent or registration
relating to any Patent or Trademark which is material to the business of
the Borrower and its Subsidiaries taken as a whole may become abandoned, or
of any material adverse determination or development (including, without
limitation, the institution of, or any
47
<PAGE>
such determination or development in, any proceeding in the United States
Patent and Trademark Office or any court) regarding the Borrower's or such
other Subsidiary's ownership of any Patent or Trademark which is material
to the business of the Borrower and its Subsidiaries taken as a whole, its
right to patent or register the same, or to enforce, keep and maintain the
same.
(b) The Borrower shall notify the Administrative Agent promptly after it knows
or has reason to know of any material adverse determination or development
(including, without limitation, the institution of, or any such
determination or development in, any proceeding in any court) regarding any
Copyright which is material to the business of the Borrower and its
Subsidiaries taken as a whole, whether (i) such Copyright may become
invalid or unenforceable prior to its expiration or termination, or (ii)
the Borrower's or such other Subsidiary ownership of such Copyright, its
right to register the same or to enforce, keep and maintain the same may
become affected.
(c) (i) The Borrower shall promptly notify the Administrative Agent of any
filing by the Borrower or any other Subsidiary, either itself or through
any agent, employee, licensee or designee (but in no event later than the
fifteenth day following such filing), of any application for the
registration of any Copyright, Trademark or Patent with the United States
Copyright Office or United States Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof.
(ii) Concurrently with the delivery of quarterly and annual financial
statements of the Borrower pursuant to Section 5.1 hereof, the Borrower
shall provide the Administrative Agent and its counsel a complete and
correct list of all new Copyrights, Patents and Trademarks owned by the
Borrower or any of its Subsidiaries that have not been previously set forth
as annexes of such documents and instruments showing all filings and
recordings for the protection of the security interest of the
Administration Agent therein pursuant to the agreements of the United
States Patent and Trademark Office or the United States Copyright Office.
(iii) Upon request of the Administrative Agent, the Borrower shall
execute and deliver any and all agreements, instruments, documents, and
papers as the Administrative Agent may reasonably request to evidence the
Administrative Agent's security interest in the Copyrights, Patents,
Trademarks and the General Intangibles referred to in clauses (i) and (ii),
including, without limitation, the goodwill of the Borrower or such other
Subsidiary, relating thereto or represented thereby (or such other
Copyrights, Trademarks, Patents or the General Intangibles relating thereto
or represented thereby as the Administrative Agent may reasonably request).
(d) The Borrower will take all necessary actions, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office or the United States Copyright Office, to maintain each letters
patent for the Patents or registration of the Trademarks and Copyrights
which are material to the business of the Borrower and its Subsidiaries
taken as a whole, including, without limitation, payment of maintenance
48
<PAGE>
fees, filing of applications for renewal, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings.
(e) In the event that any Trademark, Copyright or Patent is infringed,
misappropriated or diluted by a third party, the Borrower shall notify the
Administrative Agent promptly after it learns thereof and shall, unless the
Borrower or the relevant Subsidiary, as the case may be, shall reasonably
determine that such Trademark, Copyright or Patent is not material to the
business of the Borrower and its Subsidiaries taken as a whole, promptly
sue for infringement, misappropriation or dilution and to recover any and
all damages for such infringement, misappropriation or dilution, and take
such other actions as the Borrower or such Subsidiary, as the case may be,
shall reasonably deem appropriate under the circumstances to protect such
Trademark , Copyright or Patent.
5.11 FEES, ETC.
---------
Pay to the Agent the fees and comply with the other agreements provided for
in the Fee Letter and the Commitment Letter.
5.12 SUBSIDIARIES.
------------
In the event the Borrower shall acquire or otherwise obtain any Subsidiary
on or after the Closing Date, the Borrower shall promptly notify the
Administrative Agent of the existence of such Subsidiary, shall provide the
Administrative Agent with the information required by Section 3.12 with respect
thereto and shall cause such Subsidiary to enter into and deliver to the
Administrative Agent on behalf of the Lenders (i) a Joinder Agreement in the
form of Schedule 5.12 attached hereto and (ii) an amendment to the applicable
-------------
Pledge Agreement pledging the stock of such Subsidiary. In connection
therewith, the Borrower shall cause the Subsidiary to deliver to the
Administrative Agent on behalf of the Lenders certified organizational
documents, evidences of authority and opinion letters customary and usual for
transactions of the type contemplated by this Agreement and to take such other
action in connection therewith, including without limitation the filing of
appropriate financing statements, as the Administrative Agent may reasonably
require.
5.13 SUBSEQUENTLY ACQUIRED REAL PROPERTY.
-----------------------------------
In the event the Borrower or any Subsidiary shall acquire any interest in
real property on or after the Closing Date (other than the leasehold interests
set forth on Schedule 3.16 as of the Closing Date), the Borrower or such
-------------
Subsidiary, as the case may be, shall enter into and deliver to the
Administrative Agent on behalf of the Lenders a deed of trust or mortgage,
together with evidences of authority and opinion letters customary and usual for
transactions of the type contemplated by this Agreement, in form and substance
reasonably acceptable to the Administrative Agent pursuant to which the Borrower
or such Subsidiary grants a deed of trust or mortgage to the Administrative
Agent (or its trustee) on behalf of the Lenders in such real property interest
free and clear of all Liens other than Permitted Liens. In connection
49
<PAGE>
therewith, the Borrower or such Subsidiary shall deliver to the Administrative
Agent such surveys, environmental reports and title insurance policies and take
such other action in connection therewith, including without limitation the
filing of appropriate fixture filings, as shall be reasonably required by the
Administrative Agent.
5.14 LANDLORD WAIVERS.
----------------
The Borrower will use commercially reasonable efforts to obtain executed
landlord waiver forms in form reasonably satisfactory to the Agent (a) within 90
days after the Closing Date from the landlords of the leased locations of the
Borrower and its Subsidiaries listed on Schedule 3.16 hereto and (b) following
the Closing Date, within 45 days after the Borrower or any Subsidiary has
entered into any lease of a location, from the landlord of such leased location.
5.15 BAILEE'S LETTERS.
----------------
The Borrower will use commercially reasonable efforts to obtain within
ninety (90) days after the Closing Date, a bailee's letter in form and substance
reasonably acceptable to the Administrative Agent (i) from the Borrowers or the
Subsidiaries' significant printer, if any, and (ii) from the Borrower's
fulfillment house.
5.16 YEAR 2000 COMPATIBILITY.
-----------------------
The Borrower will take as soon as reasonably practicable all actions
reasonably necessary to assure that the Credit Parties' computer based systems
are able to operate with respect to and effectively process data which includes
dates on and after January 1, 2000. At the request of the Administrative Agent,
the Credit Parties shall provide reasonable assurances satisfactory to the
Administrative Agent of the Credit Parties' Year 2000 compatibility.
5.17 FURTHER ASSURANCES.
------------------
(a) Promptly upon request by the Agent, or any Lender through the Agent, the
Borrower shall correct any material defect or error that may be discovered
in any credit document or in the execution, acknowledgment, filing or
recordation hereof, and
(b) Promptly upon request by the Agent or any Lender through the Agent, the
Borrower shall due, execute, acknowledge, deliver, record, rerecord, file,
refile, register and reregister any and all such further acts, deeds,
conveyances, pledge agreements, mortgages, deeds of trust, trust deeds,
assignments, financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances and
other instruments
50
<PAGE>
as the Agent, or any Lender through the agent, may reasonably require from
time to time in order to (i) carryout more effectively the purposes of this
Agreement, the Notes or any other Credit Document (ii) to the fullest
extent permitted by applicable law, subject to any credit party's
properties, assets, rights or interest to the Liens now or hereafter
intended to be covered by any of the security documents, (iii) perfect and
maintain the validity, effectiveness priority of any of the Security
Documents and any of the Liens intended to be created thereunder and (iv)
assure, convey, grant, assign, transfer, preserve, protect and confirm more
effectively unto the Agent and the Lenders the rights granted or now or
hereafter granted to the Agent and the Lender under any Credit Document or
under any other instrument executed in connection with any Credit Document
to which any Credit Party is or is to be a party.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that on the Closing Date, and
thereafter for so long as this Agreement is in effect and until the Commitments
have terminated, no Note remains outstanding and unpaid and the Loans, together
with interest, Commitment Fees and all other amounts owing to the Administrative
Agent or any Lender hereunder, are paid in full.
6.1 INDEBTEDNESS.
------------
The Borrower will not, nor will it permit any Subsidiary to, contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising or existing under this Agreement and the other Credit
Documents;
(b) the Teachers Indebtedness provided that any payments made in connection
therewith are made in compliance with the subordination provisions
contained in the Teachers Agreement;
(c) other Indebtedness existing as of the Closing Date as set forth in Schedule
--------
6.1(c)) and renewals, refinancings or extensions thereof in a principal
-------
amount not in excess of that outstanding as of the date of such renewal,
refinancing or extension;
(d) unsecured intercompany Indebtedness among the Borrower and the Guarantors;
(e) Capital Leases and purchase money indebtedness for the financing of
equipment which, in the aggregate principal amount at any time, do not
exceed $1,000,000; and
(f) other Indebtedness which does not exceed $1,000,000 in the aggregate at any
time outstanding.
6.2 LIENS.
-----
The Borrower will not, nor will it permit any Subsidiary to, contract,
create, incur, assume or permit to exist any Lien with respect to any of their
respective property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or hereafter acquired, except for Permitted
Liens.
6.3 GUARANTY OBLIGATIONS.
--------------------
The Borrower will not, nor will it permit any Subsidiary to, enter into or
otherwise become or be liable in respect of any Guaranty Obligations (excluding
specifically therefrom
51
<PAGE>
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) other than (i) those in favor of the Lenders in
connection herewith, (ii) Guaranty Obligations by the Borrower or its
Subsidiaries of other Indebtedness permitted under Section 6.1 (except, as
regards Indebtedness under subsection (b) thereof, only if and to the extent
such Indebtedness was guaranteed on the Closing Date), and (iii) other Guaranty
Obligations which do not exceed $1,000,000 at any time outstanding.
6.4 LINES OF BUSINESS.
-----------------
The Borrower will not, nor will it permit any of its Subsidiaries to, alter
its line or lines of business activity if as a result thereof the Borrower and
its Subsidiaries would not be predominantly engaged in the business of (a) the
publishing of Farm Journal magazine and other agricultural magazines, (b) the
------------
dissemination of market research and data service, (c) the provision of
satellite and/or electronically distributed subscription information services,
(d) the publication of ProFarmer and LandOwner newsletters, (e) the provision of
--------- ---------
electronic newsletter content services (f) the provision of the Cash Master
Managed Marketing Program, and (g) the providing of all updated, functional
extensions and additional lines of business reasonably compatible with (a) - (f)
above.
6.5 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC.
-------------------------------------------------------
The Borrower will not, nor will it permit any Subsidiary to,
(a) dissolve, liquidate or wind up its affairs, sell, transfer, lease or
otherwise dispose of all or any substantial part of its property or assets
outside of the ordinary course of business or agree to do so at a future
time except the following, without duplication, shall be expressly
permitted:
(i) Specified Sales;
(ii) the sale, transfer, lease or other disposition of property or
assets not in the ordinary course of business (other than Specified Sales),
where and to the extent that they are the result of a Recovery Event or
otherwise and the net proceeds therefrom are used to repair or replace
damaged property or to purchase or otherwise acquire new assets or property
provided that such purchase or acquisition is committed to within 90 days
of receipt of the net proceeds and such purchase or acquisition is
consummated within 180 days of such receipt; and
(iii) the sale, transfer, lease or other disposition of property or
assets to the Borrower or any Guarantor.
Provided no Default or Event of Default then exists, the Administrative Agent
shall, without obtaining the consent of any Lender, release its lien on any
collateral sold or otherwise transferred in accordance with this Section upon
the consummation of such sale or transfer and upon the performance by the
Borrower of all of its Obligations hereunder on account of such sale or
transfer.
As used herein, "substantial part" shall mean business, property or assets which
----------------
have contributed
52
<PAGE>
(x) 10% or more, in any instance, or
(y) 15% or more, when aggregated with all other such sales or
dispositions which have occurred within a period of one year,
of Consolidated Adjusted EBITDA for the four (4) consecutive fiscal quarters
most recently ending prior to the date thereof; or
(b) purchase, lease or otherwise acquire (in a single transaction or a series
of related transactions) all or any substantial part of the property or
assets of any Person (other than purchases or other acquisitions of
inventory, leases, materials, property and equipment in the ordinary course
of business, except as otherwise limited or prohibited herein), or enter
into any merger or consolidation, except for (i) investments or
acquisitions permitted pursuant to Section 6.6, (ii) the acquisition of the
Acquired Assets, (iii) acquisitions of types of businesses permitted to be
engaged in by the Borrower and its Subsidiaries pursuant to Section 6.4
(the "Permitted Acquisitions") so long as with respect to the acquisition
of each such business, (A) no Default or Event of Default then exists or
would exist after giving effect thereto and (B) the Borrower demonstrates
to the reasonable satisfaction of the Administrative Agent that the
Borrower will be in pro forma compliance with all of the terms and
provisions of this Agreement after giving effect thereto, (iv) the merger
or consolidation of any Subsidiary into the Borrower or any Subsidiary, or
a sale, transfer or lease of all or a substantial part of the properties of
any Subsidiary (at fair value) to the Borrower or any Subsidiary and (v)
the merger of any Person into the Borrower or any Subsidiary, provided that
---------
the Borrower or any Subsidiary shall be the surviving corporation, and in
any such case no Default or Event of Default would exist after giving
effect thereto.
6.6 ADVANCES, INVESTMENTS AND LOANS.
-------------------------------
The Borrower will not, nor will it permit any Subsidiary to, lend money or
extend credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person except for Permitted Investments.
6.7 TRANSACTIONS WITH AFFILIATES.
----------------------------
Except (a) as permitted in subsection (iv) of the definition of Permitted
Investments, (b) for the payments and issuances permitted by Section 6.8 and (c)
for the payments permitted by Section 6.11, the Borrower will not, nor will it
permit any Subsidiary to, enter into any transaction or series of transactions,
whether or not in the ordinary course of business, with any officer, director,
shareholder or Affiliate other than on terms and conditions substantially as
favorable as would be obtainable in a comparable arm's-length transaction with a
Person other than an officer,. director, shareholder or Affiliate.
6.8 OWNERSHIP OF SUBSIDIARIES.
-------------------------
The Borrower will not, nor will it permit any Subsidiary to, create, form
or acquire a Subsidiary other than any Subsidiary acquired or formed to acquire
assets in connection with any
53
<PAGE>
Permitted Acquisition, provided such Subsidiary guarantees all of the
Obligations of the Borrower hereunder, pledges substantially all of its assets
to secure such guarantee and has its stock or other equity interests pledged to
the Administrative Agent, all on terms reasonably satisfactory to the
Administrative Agent. Further, the Borrower will not, nor will it permit any of
its Subsidiaries to, issue, sell, transfer, pledge or otherwise dispose of any
partnership interests, limited liability company interest, shares of capital
stock or other equity or ownership interests ("Equity Interests") in themselves
----------------
or in any of their Subsidiaries, except (a) Equity Interests that are issued,
sold or transferred to the Borrower or a wholly-owned Subsidiary of the Borrower
and (b) in connection with a transaction permitted under Section 6.5.
6.9 FISCAL YEAR.
-----------
The Borrower will not, nor will it permit any Subsidiary to, change its
fiscal year other than a change in fiscal year by any Subsidiary to match the
fiscal year of the Borrower.
6.10 PREPAYMENTS OF INDEBTEDNESS, ETC.
---------------------------------
Neither the Borrower nor any of its Subsidiaries will (a) after the
issuance thereof, amend or modify (or permit the amendment or modification of),
if materially adverse to the interests of the Lenders (including, without
limitation, any acceleration or shortening of amortization of principal thereof,
or modification of the terms of subordination relating thereto), any of the
terms of any Consolidated Total Funded Debt (other than any Indebtedness
permitted by Section 6.1 (e)), (b) make any payment on the Teachers Indebtedness
in violation of the subordination provisions contained in the Teachers Agreement
or (c) make (or give any notice with respect thereto) any voluntary or optional
payment or prepayment or redemption or acquisition for value of (including
without limitation, by way of depositing money or securities with the trustee
with respect thereto before due for the purpose of paying when due) or exchange
of any Consolidated Total Funded Debt (other than any Indebtedness permitted by
Section 6.1 (e)), except for any voluntary prepayment of the Teachers
Indebtedness made pursuant to Section 3.2(c)(i) or (ii) of the Teachers
Agreement so long as no Event of Default then exists or would result from any
such voluntary prepayment.
54
<PAGE>
6.11 RESTRICTED PAYMENTS.
-------------------
The Borrower will not, nor will it permit any of its Subsidiaries which are
not whollyowned to, make any Restricted Payment; provided, however, (a) any
-------- -------
Subsidiary of the Borrower may make Restricted Payments to the Borrower, (b) the
Borrower may pay customary and reasonable fees to Affiliates of the Borrower for
investment banking, management, consulting and other financial and advisory
services provided by such Affiliates, (c) the Borrower may pay dividends to the
Parent to enable the Parent to redeem its Series A Convertible Redeemable
Preferred Stock as may be required pursuant to Section 2.2 of the Purchase
Agreement relating to Professional Farmers of America, Inc. so long as no
Default or Event of Default hereunder exists immediately prior to or after the
payment of any such dividend or (d) the Borrower may pay dividends to the Parent
to enable the Parent to pay taxes and administrative fees necessary for
compliance with Section 6.14 hereof and to pay transaction costs incurred in
connection with the initial public offering of the Parent's stock.
6.12 PARTNERSHIP AND CORPORATE DOCUMENTS; PURCHASE AGREEMENTS.
--------------------------------------------------------
The Borrower will not, nor will it permit any of its Subsidiaries to, amend
or otherwise modify their articles of limited partnership, limited liability
limited partnership, incorporation, limited liability company or other similar
organizational or charter document, or their limited partnership agreement,
limited liability limited partnership agreement, limited liability company
agreement, bylaws, operating agreement or other similar governing document or
the Purchase Agreement in a manner which is adverse to the interest of the
Lenders, without the prior written consent of the Administrative Agent and the
Majority Lenders, which consent will not be unreasonably withheld.
6.13 NO PRINTING.
-----------
No portion of any premises leased by the Borrower or any real property
owned or leased by Borrower will be used for the printing of any publications,
including without limitation, newspapers, magazines, circulars, pamphlets, books
or similar items, but excluding printing of office correspondence and ordinary
printing for customary office purposes.
6.14 LIMITATIONS ON ACTIVITIES BY PARENT.
-----------------------------------
The Parent shall not, directly or indirectly, (a) enter into or permit to
exist any transaction or agreement (including any agreement for incurrence or
assumption of Indebtedness, any purchase, sale, lease or exchange of any
property or the rendering of any service), between itself and any other Person,
other than (x) the Credit Documents to which it is a party (the "Parent
Documents"), or (y) the guarantee obligations under the Teachers Agreement, (b)
engage in any business or conduct any activity (including the making of any
investment or payment) or transfer any of its assets, other than the making of
investments in the Borrower, the performance of the Parent Documents in
accordance with the terms thereof, the performance of ministerial activities and
payment of taxes and administrative fees necessary for compliance with the next
succeeding sentence, the application of the Restricted Payments it receives
pursuant to Section 6.11 hereof in accordance with the Parent Documents and as
provided in Section 2.2 of the Purchase Agreement relating to Professional
Farmers of America, Inc. and the initial public offering of its
55
<PAGE>
stock, or (c) consolidate or merge with or into any other Person. The Parent
shall preserve, renew and keep in full force and effect its corporate existence
and any rights, privileges and franchises necessary or desirable in the conduct
of its business, and shall comply in all material respects with all material
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities, provided that the Parent may terminate any such right,
--------
privilege or franchise (other than its existence) if its senior management in
good faith determines that such termination is in the best interests of the
Parent and not materially disadvantageous to the Lenders.
SECTION 7. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) (i) The Borrower shall fail to pay any principal on any Note when due in
accordance with the terms thereof or hereof; or (ii) the Borrower shall
fail to pay any interest on any Note or any fee or other amount payable
hereunder when due in accordance with the terms thereof or hereof and such
failure shall continue unremedied for five (5) Business Days; or
(b) Any representation or warranty made by the Parent, the Borrower or any
Subsidiary of the Borrower herein, in any Security Agreement or in any of
the other Credit Documents or which is contained in any certificate,
document or financial or other statement prepared and furnished by the
Parent, the Borrower or any of the Borrower's Subsidiaries at any time
under or in connection with this Agreement shall prove to have been
incorrect, false or misleading in any material respect on or as of the date
made or deemed made; or
(c) The Borrower shall
(i) default in the due performance or observance of Sections 5.7(a) or
Section 5.9, or
(ii) default in any material respect in the observance or performance of
any other term, covenant or agreement contained in this Agreement (other
than as described in Sections 7(a) or 7(c)(i) above) or any of the other
Credit Documents, and such default shall continue unremedied for a period
of t0 days or more after the earlier of any officer of the Borrower
becoming aware of such default or the receipt by the Borrower of written
notice from the Administrative Agent thereof; or
(d) The Parent, the Borrower or any of the Borrower's Subsidiaries shall (i)
default in any payment of principal of or interest on the Teachers
Indebtedness or any other Indebtedness (other than the Notes) in a
principal amount outstanding of at least $1,000,000 in the aggregate for
the Parent, the Borrower and the Borrower's Subsidiaries or in the payment
of any matured Guarantee Obligation in a principal amount outstanding of at
least $l,000,000 in the aggregate for the Parent, the Borrower and the
Borrower's Subsidiaries beyond the period of grace (not to exceed 30 days),
if any, provided in the
56
<PAGE>
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or performance of
any other agreement or condition relating to the Teachers Indebtedness or
any such other Indebtedness in a principal amount outstanding of at least
$1,000,000 in the aggregate for the Parent; the Borrower and the Borrower's
Subsidiaries or Guarantee Obligation in a principal amount outstanding of
at least $1,000,000 in the aggregate for the Parent, the Borrower and the
Borrower's Subsidiaries or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation to
become payable; or
(e) (i) The Parent, the Borrower or any of the Borrower's Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Parent, the
Borrower or any of the Borrower's Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Parent, the Borrower or any of the Borrower's
Subsidiaries any case, proceeding or other action of a nature referred to
in clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 90 days; or (iii) there shall be
commenced against the Parent, the Borrower or any of the Borrower's
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 90 days from the entry thereof; or
(iv) the Parent, the Borrower or any of the Borrower's Subsidiaries shall
take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) the Parent, the Borrower or any of the Borrower's
Subsidiaries shall admit in writing its inability to, pay its debts as they
become due; or
(f) One or more judgments or decrees shall be entered against the Parent, the
Borrower or any of the Borrower's Subsidiaries involving in the aggregate a
liability (to the extent not paid when due or covered by insurance) of
$1,000,000 or more and all such judgments or decrees shall not have been
paid and satisfied, vacated, discharged, stayed or bonded pending appeal
within 45 days from the entry thereof; or
(g) (i) The Parent, the Borrower, any Subsidiary of the Borrower or any
Commonly Controlled Entity shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, other than
57
<PAGE>
a transaction for which a statutory exemption is available or an
administrative exemption has been obtained, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
shall exist with respect to any Single-Employer Plan or any Lien in favor
of the PBGC or a Single-Employer Plan shall arise on the assets of the
Parent, the Borrower or any of the Borrower's Subsidiaries or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall
be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
Trustee is, in the reasonable opinion of the Majority Lenders, likely to
result in the termination of such Plan for purposes of Title IV of ERISA,
(iv) any Single Employer Plan shall terminate for purposes of Title IV of
ERISA, or (v) the Parent, the Borrower or any of the Borrower's
Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Majority Lenders is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
any Multiemployer Plan; and in each case in clauses (i) through (v) above,
such event or condition, together with all other such events or conditions,
if any, could have a Material Adverse Effect; or
(h) either:
(i) prior to the initial public offering of the stock of the Parent, (A)
the Parent shall fail to own 100% of the issued and outstanding capital
stock of the Borrower, (B) MS Farm International Limited Partnership shall
fail to own at least 51% of the combined voting power of all securities of
the Parent entitled to vote in the election of directors thereof, (C) MS
Farm Journal Corporation shall cease to be general partner of MS Farm
International Limited Partnership, (D) Philip Ean Cohen (or his estate)
shall fail to own, directly or indirectly, at least 51% of the combined
voting power of all securities of MS Farm Journal Corporation entitled to
vote in the election of directors thereof or (E) the occurrence of a
"Change of Control" under and as defined in the Teachers Agreement; or
(ii) after the initial public offering of the stock of the Parent, (a)
the Parent shall fail to own 100% of the issued and outstanding capital
stock of the Borrower, (b) Philip Ean Cohen (or his estate) shall fail to
own, directly or indirectly, at least 51% of the combined voting power of
all securities of the Parent entitled to vote in the election of directors
thereof or (c) the occurrence of a "Change of Control" under and as defined
in the Teachers Agreement; or
(i) Any other Credit Document shall fail to be in full force and effect or to
give the Administrative Agent and/or the Lenders the security interests,
liens, rights, powers and privileges purported to be created thereby and
such failure shall have a material adverse effect on the rights and
remedies of the Administrative Agent or the Lenders thereunder (except to
------
the extent any such failure is caused by the Administrative Agent and
except as such documents may be terminated or no longer in force and effect
------
in accordance with the terms thereof, other than those indemnities and
provisions which by their terms shall survive);
58
<PAGE>
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (e) above, automatically the Commitments shall immediately
terminate and the Loans (with accrued interest thereon), and all other amounts
under the Credit Documents shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the written consent of the Majority Lenders, the
Administrative Agent may, or upon the written request of the Majority Lenders,
the Administrative Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the written consent of the Majority
Lenders, the Administrative Agent may, or upon the written request of the
Majority Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans (with accrued interest thereon) and all other
amounts owing under this Agreement and the Notes to be due and payable forthwith
whereupon the same shall immediately become due and payable. Except as
expressly provided above in this Section 7, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 APPOINTMENT.
-----------
Each Lender hereby irrevocably designates and appoints First Union National
Bank as the Administrative Agent of such Lender under this Agreement, and each
such Lender irrevocably authorizes First Union National Bank, as the
Administrative Agent for such Lender, to take such action on its behalf under
the provisions of this Agreement and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein and in the other
Credit Documents, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
8.2 DELEGATION OF DUTIES.
--------------------
The Administrative Agent may execute any of its duties under this Agreement
by or through agents or attorneys-in-fact and shall be entitled to rely on
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care. Without
limiting the foregoing, the Administrative Agent may appoint an affiliate as its
agent to perform the functions of the Administrative Agent hereunder relating to
the advancing of funds to the Borrower and distribution of funds to the Lenders
and to perform such other related functions of the Administrative Agent
hereunder as are reasonably incidental to such functions. No such appointment
shall relieve the Administrative Agent of its responsibilities hereunder.
8.3 EXCULPATORY PROVISIONS.
----------------------
Neither the Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any
action lawfully taken or omitted to be
59
<PAGE>
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (b)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Administrative Agent
under or in connection with, this Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of any of the Credit
Documents or for any failure of the Borrower to perform its Obligations
hereunder or thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance by the Borrower of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrower.
8.4 RELIANCE BY ADMINISTRATIVE AGENT.
--------------------------------
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation reasonably believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless (a) a written notice of assignment, negotiation
or transfer thereof shall have been filed with the Administrative Agent and (b)
the Administrative Agent shall have received the written agreement of such
assignee to be bound hereby as fully and to the same extent as if such assignee
were an original Lender party hereto, in each case in form satisfactory to the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first receive such advice or concurrence of the Majority Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred it by reason of
taking or continuing to take any such action. The Administrative Agent shall in
all cases be fully protected in acting, or in refraining from acting, under any
of the Credit Documents in accordance with a request of the Majority Lenders,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Lenders and all future holders of the Notes.
8.5 NOTICE OF DEFAULT.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Administrative
Agent receives such a notice, the Administrative Agent shall give prompt notice
thereof to each of the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be directed by the
Majority Lenders, including, without limitation, exercise of remedies and
initiation of litigation; provided, however, that unless and until the
-------- -------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
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taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
------------------------------------------------------
Each Lender expressly acknowledges that neither the Administrative Agent
nor any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
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 analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
8.7 INDEMNIFICATION.
---------------
The Lenders agree to indemnify the Administrative Agent in its capacity
hereunder (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitment Percentages in effect on the date on which indemnification is sought
under this subsection, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating to
or arising out of any Credit Document or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided, however, that no Lender shall be
-------- -------
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the Administrative Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the
termination of this Agreement and payment of the Notes and all other amounts
payable hereunder.
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8.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
-----------------------------------------------
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower as
though the Administrative Agent were not the Administrative Agent hereunder.
With respect to its Loans made or renewed by it and any Note issued to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" shall include the Administrative
Agent in its individual capacity.
8.9 SUCCESSOR ADMINISTRATIVE AGENT.
------------------------------
The Administrative Agent may resign or be removed as Administrative Agent
upon 30 days' prior notice to the Borrower and the Lenders. The Administrative
Agent may be removed by the written consent of the Majority Lenders. If the
Administrative Agent shall resign or be removed as Administrative Agent under
this Agreement and the Notes, then the Majority Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower, or if the Majority Lenders cannot agree on a successor
within 30 days from the notice of resignation by the Administrative Agent, the
Administrative Agent, with the approval of the Borrower, may appoint a bank or
trust company with capital and surplus of at least $500,000,000 as successor
Administrative Agent within 30 days thereafter, whereupon such successor agent
shall succeed to the rights, powers and duties of the Administrative Agent, and
the term "Administrative Agent" shall mean such successor agent effective upon
such appointment and approval, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Notes. After any retiring
Administrative Agent's resignation or renewal as Administrative Agent, the
provisions of this subsection shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement. Resignation by the Administrative Agent shall become effective upon
appointment of, and acceptance by, a successor Administrative Agent, or the
passage of the applicable periods without appointment of a successor.
SECTION 9. MISCELLANEOUS
9.1 AMENDMENTS, WAIVERS AND RELEASE OF COLLATERAL.
---------------------------------------------
Neither this Agreement, nor any of the Notes, nor any of the other Credit
Documents, nor any terms hereof or thereof may be amended, supplemented, waived
or modified except in accordance with the provisions of this subsection nor may
Collateral be released except as specifically provided herein or in the Security
Documents or in accordance with the provisions of this subsection. The Majority
Lenders affected thereby may, or, with the written consent of the Majority
Lenders affected thereby, the Administrative Agent may, from time to time, (a)
enter into with the Borrower written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any
provisions to this Agreement or the other Credit Documents or (b) waive, on such
terms and conditions as the Majority Lenders may specify in such instrument, any
of the requirements of this Agreement or the other Credit Documents or any
Default or Event of Default and its consequences; provided, however, that no
-------- -------
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such waiver and no such amendment, waiver, supplement, modification or release
shall (i) reduce the amount or extend the scheduled final date of maturity of
any Loan or Note or any installment thereon, or reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof or increase the amount or extend the expiration date of any Lender's
Commitment, in each case without the written consent of each Lender directly
affected thereby, or (ii) amend, modify or waive any provision of this
subsection or reduce the percentage specified in the definition of Majority
Lenders, or consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement, in each case without the written
consent of all the Lenders, or (iii) amend, modify or waive any provision of
Section 8 without the written consent of the then Administrative Agent, or (iv)
release all or substantially of the collateral without the written consent of
all of the Lenders except to the extent such releases are provided for in this
Agreement or the other Credit Documents. Any such waiver, any such amendment,
supplement or modification and any such release shall apply equally to each of
the Lenders and shall be binding upon the Borrower, the Lenders, the
Administrative Agent and all future holders of the Notes. In the case of any
waiver, the Borrower, the Lenders and the Administrative Agent shall be restored
to their former position and rights hereunder and under the outstanding Loans
and Notes and other Credit Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
9.2 NOTICES.
-------
Except as otherwise provided in Section 2, all notices, requests and
demands to or upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made (a) when delivered by
hand, (b) when transmitted via telecopy (or other facsimile device) on a
Business Day between the hours of 10:00 A.M. and 7:00 P.M. (EST or EDT, as
appropriate) (or on the following Business Day if sent after 7:00 P.M.) to the
number set out herein, (c) the day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (d)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case, addressed as follows in the
case of the Borrower and the Administrative Agent, and as set forth on Schedule
--------
2.1(a) in the case of the Lenders, or to such other address as may be hereafter
- ------
notified by the respective parties hereto and any future holders of the Notes:
The Borrower: Farm Journal, Inc.
Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102-2181
Attn: Stanford A. Erickson, Chairman and CEO
Telecopier: (212) 568-5012
Telephone: (215) 557-8942
The Administrative
Agent: First Union Capital Markets Group
One First Union Center, DC-5
Charlotte, North Carolina 28288-0735
Attn: Russ Herakovich
Telecopier:(704) 374-4092
Telephone: (704) 383-0311
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9.3 NO WAIVER; CUMULATIVE REMEDIES.
------------------------------
No failure to exercise and no delay in exercising, on the part of the
Administrative Agent or any Lender, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
All representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the Notes and the
making of the Loans, provided that all such representations and warranties shall
--------
terminate on the date upon which the Commitments have been terminated and all
amounts owing hereunder and under any Notes have been paid in full.
9.5 PAYMENT OF EXPENSES AND TAXES.
-----------------------------
The Borrower agrees (a) to pay or reimburse the Administrative Agent for
all its reasonable out-of-pocket costs and expenses incurred in connection with
the preparation and execution of, and any amendment, supplement or modification
to, the Credit Documents and any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, together with the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay or reimburse
each Lender and the Administrative Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement, the Notes and any such other documents, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent and to the Lenders (including reasonable allocated costs of
in-house legal counsel), and (c) on demand, to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other similar taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Credit Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent and their affiliates harmless from and against, any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of the Credit Documents and any such other Documents and the use, or proposed
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use, of proceeds of the Loans (all the foregoing, collectively the "indemnified
-----------
liabilities"); provided, however, that the Borrower shall not have any
- ----------- -------- -------
obligation hereunder to the Administrative Agent or any Lender with respect to
indemnified liabilities arising from (i) the gross negligence or willful
misconduct of the Administrative Agent or any such Lender, (ii) legal
proceedings commenced against the Administrative Agent or any such Lender by any
security holder or creditor thereof arising out of and based upon rights
afforded such security holder or creditor solely in its capacity as such, (iii)
legal proceedings commenced against the Administrative Agent or any Lender by
any other Lender or the Administrative Agent or its participants or (iv) a
breach of any of the Credit Documents by the Lenders. The agreements in this
subsection shall survive repayment of the Loans, Notes and all other amounts
payable hereunder.
9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING LENDERS.
----------------------------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Administrative Agent, all future holders of the
Notes and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights or obligations under this
Agreement or the other Credit Documents without the prior written consent
of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any
------------
Loan owing to such Lender, any Note held by such Lender, any Commitment of
such Lender, or any other interest of such Lender hereunder. In the event
of any such sale by a Lender of participating interests to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the
holder of any such Note for all purposes under this Agreement, and the
Borrower and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. No Lender shall transfer or grant any
participation under which the Participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document
except to the extent such amendment or waiver would (i) extend the final
maturity of any Loan or Note in which such Participant is participating, or
reduce the stated rate or extend the time of payment of interest or Fees
thereon (except in connection with a waiver of interest at the increased
post-default rate) or reduce the principal amount thereof, or increase the
amount of the Participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of
Default shall not constitute a change in the terms of such participation,
and that an increase in any Commitment or Loan shall be permitted without
consent of any Participant if the Participant's participation is not
increased as a result thereof), (ii) except as otherwise expressly provided
in a Credit Document, release all or substantially all of the collateral,
or (iii) consent to the assignment or transfer by the Borrower of any of
its rights and obligations under this Agreement. In the case of any such
participation, the Participant shall not have any rights under this
Agreement or any of the other Credit Documents (the Participant's rights
against such Lender in respect of such participation to be those set forth
in the agreement executed by such Lender in favor of the Participant
relating thereto) and all amounts payable by the Borrower hereunder shall
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<PAGE>
be determined as if such Lender had not sold such participation, provided
--------
that each Participant shall be entitled to the benefits of Sections 2.14,
2.15, 2.16 and 9.5 with respect to its participation in the Commitments and
the Loans outstanding from time to time; provided, that no Participant
--------
shall be entitled to receive any greater amount pursuant to such
subsections than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time sell or assign to any
Lender or any affiliate thereof and, with the consent of the Administrative
Agent, and, so long as no Event of Default has occurred and is continuing,
with the consent of the Borrower (in each case, which consent shall not be
unreasonably withheld), to one or more additional banks or financial
institutions ("Purchasing Lenders"), all or any part of its rights and
------------------
obligations under this Agreement and the Notes in minimum amounts of
$5,000,000 (or, if less, the entire amount of such Lender's obligations) if
the Purchasing Lender is not a Lender hereunder, or with no minimum amount
if the Purchasing Lender is a Lender hereunder, pursuant to a Commitment
Transfer Supplement, executed by such Purchasing Lender, such transferor
Lender (and, in the case of a Purchasing Lender that is not then a Lender
or an affiliate thereof, by the Administrative Agent and, so long as no
Event of Default has occurred and is continuing, by the Borrower), and
delivered to the Administrative Agent for its acceptance and recording in
the Register. Each such assignment must be of a constant, not varying,
percentage of all of such Lender's rights and obligations hereunder. Upon
such execution, delivery, acceptance and recording, from and after the
Transfer Effective Date specified in such Commitment Transfer Supplement,
(x) the Purchasing Lender thereunder shall be a party hereto and, to the
extent provided in such Commitment Transfer Supplement, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the transferor Lender thereunder shall, to the extent provided in
such Commitment Transfer Supplement, be released from its obligations under
this Agreement (and, in the case of a Commitment Transfer Supplement
covering all or the remaining portion of a transferor Lender's rights and
obligations under this Agreement, such transferor Lender shall cease to be
a party hereto). Such Commitment Transfer Supplement shall be deemed to
amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment
of Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Notes. On or prior to the Transfer
Effective Date specified in such Commitment Transfer Supplement, the
Borrower shall execute and deliver to the Administrative Agent in exchange
for the Note delivered to the Administrative Agent pursuant to such
Commitment Transfer Supplement a new Note to the order of such Purchasing
Lender in an amount equal to the Commitment assumed by it pursuant to such
Commitment Transfer Supplement and, unless the transferor Lender has not
retained a Commitment hereunder, a new Note to the order of the transferor
Lender in an amount equal to the Commitment retained by it hereunder. Such
new Note shall be dated the Closing Date and shall otherwise be in the form
of the Note replaced thereby. The Note surrendered by the transferor Lender
shall be returned by the Administrative Agent to the Borrower marked
"canceled".
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(d) The Administrative Agent shall maintain at its address referred to in
Section 9.2 a copy of each Commitment Transfer Supplement delivered to it
and a register (the "Register") for the recordation of the names and
--------
addresses of the Lenders and the Commitment of, and principal amount of the
Loans owing to, each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower,
the Administrative Agent and the Lenders may treat each Person whose name
is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by a
transferor Lender and a Purchasing Lender (and, in the case of a Purchasing
Lender that is not then a Lender or an affiliate thereof, by the
Administrative Agent and. so long as no Event of Default has occurred and
is continuing, by the Borrower) together with payment to the Administrative
Agent (by the transferor Lender or the Purchasing Lender, as agreed between
them) of a registration and processing fee of $3,000 for each Purchasing
Lender listed in such Commitment Transfer Supplement, and the Notes subject
to such Commitment Transfer Supplement, the Administrative Agent shall (i)
accept such Commitment Transfer Supplement, (ii) record the information
contained therein in the Register and (iii) give prompt notice of such
acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any Participant or
Purchasing Lender (each, a "Transferee") and any prospective Transferee any
and all financial information in such Lender's possession concerning the
Borrower and its Affiliates which has been delivered to such Lender by or
on behalf of the Borrower pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its Affiliates prior to
becoming a party to this Agreement; in each case subject to Section 9.15.
(g) At the time of each assignment pursuant to this Section 9.6 to a Person
which is not already a Lender hereunder and which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for
Federal income tax purposes, the respective assignee Lender shall provide
to the Borrower and the Administrative Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a 2.16 Certificate) described in
Section 2. 16.
(h) Nothing herein shall prohibit any Lender from pledging or assigning any of
its rights under this Agreement (including, without limitation, any right
to payment of principal and interest under any Note) to any Federal Reserve
Bank in accordance with applicable laws.
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9.7 ADJUSTMENTS; SET-OFF.
---------------------
(a) Each Lender agrees that if any Lender (a "benefitted Lender") shall at any
-----------------
time receive any payment of all or part of its Loans, or interest thereon,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in clause (e) of Section 7, or otherwise) in a greater
proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans, or interest
thereon, such benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of each such other
Lender's Loan, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however,
-------- -------
that if all or any portion of such excess payment or benefits is thereafter
recovered from such benefitted Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each Lender so
purchasing a portion of another Lender's Loans may exercise all rights of
payment (including, without limitation rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such
portion.
(b) In addition to any rights and remedies of the Lenders provided by law
(including, without limitation, other rights of set-off), each Lender shall
have the right. without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by applicable law,
upon the occurrence of any Event of Default, to set-off and appropriate and
apply any and all deposits (general or special time or demand, provisional
or final), in any currency, and any other credits, indebtedness or claims,
in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender
or any branch or agency thereof to or for the credit or the account of the
Borrower, or any part thereof in such amounts as such Lender may elect,
against and on account of the obligations and liabilities of the Borrower
to such Lender hereunder and claims of every nature and description of such
Lender against the Borrower, in any currency, whether arising hereunder,
under the Notes or under any documents contemplated by or referred to
herein or therein, as such Lender may elect, whether or not such Lender has
made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The aforesaid right of set-off may
be exercised by such Lender against the Borrower or against any trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor of the Borrower, or
against anyone else claiming through or against the Borrower or any such
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the occurrence of any Event of Default.
Each Lender agrees promptly to notify the Borrower and the Administrative
Agent after any such set-off and application made by such Lender; provided,
--------
however, that the failure to give such notice shall not affect the validity
-------
of such set-off and application.
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9.8 TABLE OF CONTENTS AND SECTION HEADINGS.
--------------------------------------
The table of contents and the Section and subsection headings herein are
intended for convenience only and shall be ignored in construing this Agreement.
9.9 COUNTERPARTS.
-------------
This Agreement may be executed by one or more of the parties to this Agreement
on any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
9.10 SEVERABILITY.
------------
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.11 INTEGRATION.
-----------
This Agreement, the Notes and the other Credit Documents represent the
agreement of the Borrower, the Administrative Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent, the Borrower or any
Lender relative to the subject matter hereof not expressly set forth or referred
to herein or in the Notes. Upon execution and delivery of this Agreement, the
Commitment Letter shall cease to be of any further force and effect.
9.12 GOVERNING LAW.
-------------
This Agreement and the Notes and the rights and obligations of the parties
under this Agreement and the Notes shall be governed by, and construed and
interpreted in accordance with, the law of the Commonwealth of Pennsylvania.
9.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
All judicial proceedings brought against the Borrower and/or any other Credit
Party with respect to this Agreement, any Note or any of the other Credit
Documents may be brought in the courts of the State of North Carolina in
Mecklenburg County or of the United States for the Western District of North
Carolina or the courts of the Commonwealth of Pennsylvania in Philadelphia
County or of the United States for the Eastern District of Pennsylvania, and. by
execution and delivery of this Agreement, each of the Borrower and the other
Credit Parties accepts, for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and irrevocably agrees to be bound by any final judgment rendered thereby
in connection with this Agreement from which no appeal has been taken or is
available. Each of the Borrower and the other Credit Parties irrevocably agrees
that all service of process in any such proceedings in any such court may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to it at its address set
forth in Section 9.2 or at such other address of which the Agent shall have been
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notified pursuant thereto, such service being hereby acknowledged by the each of
the Borrower and the other Credit Parties to be effective and binding service in
every respect. Each of the Borrower, the other Credit Parties, the Agent and the
Lenders irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non conveniens
which it may now or hereafter have to the bringing of any such action or
proceeding in any such jurisdiction. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
any Lender or the Agent to bring proceedings against the Borrower or the other
Credit Parties in the court of any other jurisdiction.
9.14 ARBITRATION.
-----------
(a) Notwithstanding the provisions of Section 9.13 to the contrary, upon demand
of any party hereto, whether made before or after institution of any
judicial proceeding, any dispute, claim or controversy arising out of,
connected with or relating to this Agreement and other Credit Documents
("Disputes") between or among parties to this Agreement shall be resolved
by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort
claims, counterclaims, disputes as to whether a matter is subject to
arbitration, claims brought as class actions, claims arising from Credit
Documents executed in the future, or claims arising out of or connected
with the transaction reflected by this Agreement.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code.
All arbitration hearings shall be conducted in Philadelphia, Pennsylvania
or Charlotte, North Carolina. A hearing shall begin within 90 days of
demand for arbitration and all hearings shall be concluded within 120 days
of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then no more than a total
extension of 60 days. The expedited procedures set forth in Rule 51 seq.
of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys selected from the Commercial Financial
Dispute Arbitration Panel of the AAA. The single arbitrator selected for
expedited procedure shall be a retired judge from the highest court of
general jurisdiction, state or federal, of the state where the hearing will
be conducted or if such person is not available to serve, the single
arbitrator may be a licensed attorney. The parties hereto do not waive
applicable Federal or state substantive law except as provided herein.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to Interest Rate Protection Agreements.
(b) Notwithstanding the preceding binding arbitration provisions, the Agent,
the Lenders, the Borrower and the other Credit Parties agree to preserve,
without diminution, certain remedies that the Agent on behalf of the
Lenders may employ or exercise freely, independently or in connection with
an arbitration proceeding or after an
70
<PAGE>
arbitration action is brought. The Agent on behalf of the Lenders shall
have the right to proceed in any court of proper jurisdiction or by self-
help to exercise or prosecute the following remedies, as applicable (i) all
rights to foreclose against any real or personal property or other security
by exercising a power of sale granted under Credit Documents or under
applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration. garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
(c) The parties hereto agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
(d) By execution and delivery of this Agreement, each of the parties hereto
accepts, for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction relating to any arbitration
proceedings conducted under the Arbitration Rules in Philadelphia,
Pennsylvania or Charlotte, North Carolina, as the case may be, and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this Agreement from which no appeal has been taken or is
available.
9.15 CONFIDENTIALITY.
---------------
The Administrative Agent and each of the Lenders agrees that it will use
reasonable and customary efforts not to disclose without the prior consent of
the Borrower (other than to its employees, Subsidiaries, Affiliates, auditors or
counsel or to another Lender) any information with respect to the Borrower and
its Subsidiaries which is furnished pursuant to this Agreement, any other Credit
Document or any documents contemplated by or referred to herein or therein and
which is designated by the Borrower to the Lenders in writing as confidential or
as to which it is otherwise reasonably clear such information is not public,
except that any Lender may disclose any such information (a) as has become
generally available to the public other than by a breach of this Section 9. l 5,
(b) as may be required or appropriate in any report, statement or testimony
submitted to any municipal, state or federal regulatory body having or claiming
to have jurisdiction over such Lender or to the Federal Reserve Board or the
Federal Deposit Insurance Corporation or the OCC or similar organizations
(whether in the United States or elsewhere) or their successors or the National
Association of Insurance Commissioners, (c) as may be required or appropriate in
response to any summons or subpoena or any law, order, regulation or ruling
applicable to such Lender, provided that such Lender, to the extent permitted by
---------
law, has used its reasonable best efforts to give notice thereof to the Borrower
prior to making such disclosure or (d) to any prospective Participant or
assignee in connection with any contemplated transfer pursuant to Section 9.6,
provided that such prospective transferee shall have been made aware of this
- ---------
Section 9.15 and shall have agreed to be bound by its provisions as if it were a
party to this Agreement.
71
<PAGE>
9.16 ACKNOWLEDGMENTS.
---------------
The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery
of each Credit Document;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement and the relationship between Administrative Agent and
Lenders, on one hand. and the Borrower, on the other hand, in connection
herewith is solely that of debtor and creditor; and
(c) no joint venture exists among the Lenders or among the Borrower and the
Lenders.
SECTION 10. GUARANTY
10.1 THE GUARANTY.
------------
In order to induce the Lenders to enter into this Agreement and to extend
credit hereunder and in recognition of the direct benefits to be received by the
Guarantors from the Loans hereunder, each of the Guarantors hereby agrees with
the Administrative Agent and the Lenders as follows: each Guarantor hereby
unconditionally and irrevocably jointly and severally guarantees as primary
obligor and not merely as surety the full and prompt payment when due, whether
upon maturity, by acceleration or otherwise, of any and all indebtedness of the
Borrower to the Administrative Agent and the Lenders and all other Obligations
of the Borrower and the other Credit Parties hereunder. If any or all of the
indebtedness of the Borrower to the Administrative Agent and the Lenders becomes
due and payable hereunder, each Guarantor unconditionally promises to pay such
indebtedness to the Administrative Agent and the Lenders, or order, on demand,
together with any and all reasonable expenses which may be incurred by the
Administrative Agent or the Lenders in collecting any of the indebtedness. The
word "indebtedness" is used in this Section 10 in its most comprehensive sense
and includes any and all advances, debts, obligations and liabilities of the
Borrower arising in connection with this Agreement, in each case, heretofore,
now, or hereafter made, incurred or created, whether voluntarily or
involuntarily, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether or not such indebtedness is from time to time reduced, or
extinguished and thereafter increased or incurred, whether the Borrower may be
liable individually or jointly with others, whether or not recovery upon such
indebtedness may be or hereafter become barred by any statute of limitations,
and whether or not such indebtedness may be or hereafter become otherwise
unenforceable.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents, to the extent the obligations of a Guarantor
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers) then the obligations of each such
72
<PAGE>
Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
10.2 BANKRUPTCY.
----------
Additionally, each of the Guarantors unconditionally and irrevocably
guarantees jointly and severally the payment of any and all indebtedness of the
Borrower to the Lenders whether or not due or payable by the Borrower upon the
occurrence of any of the events specified in Section 7(a), and unconditionally
promises to pay such indebtedness to the Administrative Agent for the account of
the Lenders, or order, on demand, in lawful money of the United States. Each of
the Guarantors further agrees that to the extent that the Borrower or a
Guarantor shall make a payment or a transfer of an interest in any property to
the Administrative Agent or any Lender, which payment or transfer or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
or otherwise is avoided, and/or required to be repaid to the Borrower or a
Guarantor, the estate of the Borrower or a Guarantor, a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such avoidance or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
10.3 NATURE OF LIABILITY.
-------------------
The liability of each Guarantor hereunder is exclusive and independent of
any security for or other guaranty of the indebtedness of the Borrower whether
executed by any such Guarantor, any other guarantor or by any other party, and
no Guarantor's liability hereunder shall be affected or impaired by (a) any
direction as to application of payment by the Borrower or by any other party, or
(b) any other continuing or other guaranty, undertaking or maximum liability of
a guarantor or of any other party as to the indebtedness of the Borrower, or (c)
any payment on or in reduction of any such other guaranty or undertaking, or (d)
any dissolution, termination or increase, decrease or change in personnel by the
Borrower, or (e) any payment made to the Administrative Agent or the Lenders on
the indebtedness which the Administrative Agent or such Lenders repay the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each of the Guarantors waives
any right to the deferral or modification of its obligations hereunder by reason
of any such proceeding.
10.4 INDEPENDENT OBLIGATION.
----------------------
The obligations of each Guarantor hereunder are independent of the obligations
of any other guarantor or the Borrower, and a separate action or actions may be
brought and prosecuted against each Guarantor whether or not action is brought
against any other guarantor or the Borrower and whether or not any other
Guarantor or the Borrower is joined in any such action or actions.
10.5 AUTHORIZATION.
-------------
Each of the Guarantors authorizes the Administrative Agent and each Lender
without notice or demand (except as shall be required by applicable statute and
cannot be waived), and without affecting or impairing its liability hereunder,
from time to time to (a) renew,
73
<PAGE>
compromise, extend, increase, accelerate or otherwise change the time for
payment of, or . otherwise change the terms of the indebtedness or any part
thereof in accordance with this Agreement, including any increase or decrease of
the rate of interest thereon, (b) take and hold security from any guarantor or
any other party for the payment of this Guaranty or the indebtedness and
exchange, enforce waive and release any such security, (c) apply such security
and direct the order or manner of sale thereof as the Administrative Agent and
the Lenders in their discretion may determine and (d) release or substitute any
one or more endorsers, guarantors, the Borrower or other obligors.
10.6 RELIANCE.
--------
It is not necessary for the Administrative Agent or the Lenders to inquire
into the capacity or powers of the Borrower or the officers, directors, partners
or Administrative Agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
10.7 WAIVER.
------
(a) Each of the Guarantors waives any right (except as shall be required by
applicable statute and cannot be waived) to require the Administrative
Agent or any Lender to (i) proceed against the Borrower, any other
guarantor or any other party, (ii) proceed against or exhaust any security
held from the Borrower, any other guarantor or any other party, or (iii)
pursue any other remedy in the Administrative Agent's or any Lender's power
whatsoever. Each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower, any other guarantor or any other party
other than payment in full of the indebtedness, including without
limitation any defense based on or arising out of the disability of the
Borrower, any other guarantor or any other party, or the unenforceability
of the indebtedness or any part thereof from any cause, or the cessation
from any cause of the liability of the Borrower other than payment in full
of the indebtedness. The Administrative Agent or any of the Lenders may, at
their election, foreclose on any security held by the Administrative Agent
or a Lender by one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable (to the extent
such sale is permitted by applicable law), or exercise any other right or
remedy the Administrative Agent and any Lender may have against the
Borrower or any other party, or any security, without affecting or
impairing in any way the liability of any Guarantor hereunder except to the
extent the indebtedness has been paid. Each of the Guarantors waives any
defense arising out of any such election by the Administrative Agent and
each of the Lenders, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or
remedy of the Guarantors against the Borrower or any other party or any
security.
(b) Each of the Guarantors waives all presentments, demands for performance,
protests and notices, including without limitation notices of
nonperformance, notice of protest, notices of dishonor, notices of
acceptance of this Guaranty, and notices of the existence, creation or
incurring of new or additional indebtedness. Each Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower's
financial condition and assets, and of all other circumstances
74
<PAGE>
bearing upon the risk of nonpayment of the indebtedness and the nature,
scope and extent of the risks which such Guarantor assumes and incurs
hereunder, and agrees that neither the Administrative Agent nor any Lender
shall have any duty to advise such Guarantor of information known to it
regarding such circumstances or risks.
(c) Each of the Guarantors hereby agrees it will not exercise any rights of
subrogation which it may at any time otherwise have as a result of this
Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy
Code, or otherwise) to the claims of the Lenders against the Borrower or
any other guarantor of the indebtedness of the Borrower owing to the
Lenders (collectively, the "Other Parties") and all contractual, statutory
-------------
or common law rights of reimbursement, contribution or indemnity from any
Other Party which it may at any time otherwise have as a result of this
Guaranty until such time as the Loans hereunder shall have been paid and
the Commitments have been terminated. Each of the Guarantors hereby further
agrees not to exercise any right to enforce any other remedy which the
Administrative Agent and the Lenders now have or may hereafter have against
any Other Party, any endorser or any other guarantor of all or any part of
the indebtedness of the Borrower and any benefit of, and any right to
participate in, any security or collateral given to or for the benefit of
the Lenders to secure payment of the indebtedness of the Borrower until
such time as the Loans hereunder shall have been paid and the Commitments
have been terminated.
10.8 LIMITATION ON ENFORCEMENT.
-------------------------
The Lenders agree that this Guaranty may be enforced only by the action of
the Administrative Agent acting upon the instructions of the Required Lenders
and that no Lender shall have any right individually to seek to enforce or to
enforce this Guaranty, it being understood and agreed that such rights and
remedies may be exercised by the Administrative Agent for the benefit of the
Lenders upon the terms of this Agreement. The Lenders further agree that this
Guaranty may not be enforced against any director, officer, employee or
stockholder of the Guarantors.
10.9 CONFIRMATION OF PAYMENT.
-----------------------
The Administrative Agent and the Lenders will, upon request after payment
of the indebtedness and obligations which are the subject of this Guaranty and
termination of the commitments relating thereto, confirm to the Borrower, the
Guarantors or any other Person that the such indebtedness and obligations have
been paid and the commitments relating thereto terminated, subject to the
provisions of Section 10.2.
10.10 SENIOR DEBT UNDER TEACHERS AGREEMENT.
------------------------------------
The Obligations shall constitute "Senior Debt" under the Teachers
Agreement.
10.11 CONFESSION OF JUDGMENT.
----------------------
Each Credit Party authorizes and empowers any attorney or attorneys or the
Prothonotary or Clerk of any Court of Record in the Commonwealth of
Pennsylvania, upon the occurrence of an Event of Default hereunder, to appear
for such Credit Party in any such court, with or without
75
<PAGE>
declaration filed, as of any term or time there or elsewhere to be held and
therein to confess or enter judgment against such Credit Party in favor of the
Lender for all sums due or to become due by such Credit Party to Lender under
this Agreement, with costs of suit and release of errors and with the greater of
five percent (5%) of such sums or $15,000.00 added as a reasonable attorney's
fee; and for doing so this Agreement or a copy verified by affidavit shall be
sufficient warrant; such authority and power shall not be exhausted by any
exercise thereof, and judgment may be confessed as aforesaid from time to time
as often as there is occasion therefor.
Each Credit Party acknowledges that it has had the assistance of counsel in
the review and execution of this Agreement and further acknowledges that the
meaning and effect of the confession of judgment have been fully explained to it
by such counsel.
Each Credit Party, being fully aware of the right to notice and a hearing
concerning the validity of any and all claims that may be asserted against such
Credit Party by Lender before a judgment can be entered hereunder or before
execution may be levied on such judgment against any and all property of such
Credit Party, hereby waives these rights and agrees and consents to judgment,
being entered by confession in accordance with the terms hereof and execution
being levied on such judgment against any and all property of such Credit Party,
in each case without first giving notice and the opportunity to be heard on the
validity of the claim or claims upon which such judgment is entered.
Any provision in a confession of judgment clause in any of the Credit
Documents for an attorneys' collection commission shall in no way limit any of
the Borrower's or Surety's liability to reimburse bank for all legal fees and
costs incurred by Lenders even if such fees and costs are in excess of the
attorneys' collection commission provided for in such confession of judgment.
[Remainder of Page Intentionally Left Blank]
76
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by its proper and duly authorized officers as of the
day and year first above written.
BORROWER: FARM JOURNAL, INC.
- --------
By: /s/ Stanford A. Erickson
------------------------------
Name: Stanford A. Erickson
----------------------------
Title: Chairman/CEO
---------------------------
GUARANTORS: FARM JOURNAL HOLDINGS INC.
By: /s/ Stanford A. Erickson
------------------------------
Name: Stanford A. Erickson
----------------------------
Title: Vice President
---------------------------
PROFESSIONAL FARMERS OF
AMERICA, INC.
By: /s/ Stanford A. Erickson
------------------------------
Name: Stanford A. Erickson
----------------------------
Title: President
---------------------------
PROFESSIONAL MARKET
MANAGEMENT, INC.
By: /s/ Stanford A. Erickson
------------------------------
Name: Stanford A. Erickson
----------------------------
Title: President
---------------------------
AGENTS AND LENDERS: FIRST UNION NATIONAL BANK,
- ------------------
AS ADMINISTRATIVE AGENT AND AS A
LENDER
By: /s/ Mark M. Harden
Name: Mark M. Harden
TITLE: SENIOR VICE PRESIDENT
77
<PAGE>
EXHIBIT 10.6
CENTRE SQUARE
PHILADELPHIA, PENNSYLVANIA
OFFICE LEASE
BETWEEN
CENTRE SQUARE
LANDLORD
AND
FARM JOURNAL, INC.
TENANT
DATED: JULY 17, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. REFERENCE DATA....................................................... 1
2. DEMISE............................................................... 3
3. TERM................................................................. 3
4. LEASE YEARS.......................................................... 3
5. RENT................................................................. 4
6. LANDLORD IMPROVEMENTS................................................ 9
7. TENANT IMPROVEMENTS.................................................. 9
8. ALTERATIONS.......................................................... 9
9. PERMITTED USES....................................................... 10
10. COMPLEX OPERATION AND SERVICES....................................... 11
11. INTERRUPTION OF SERVICES............................................. 14
12. REPAIRS.............................................................. 15
13. [INTENTIONALLY DELETED].............................................. 16
14. QUIET ENJOYMENT...................................................... 16
15. LANDLORD'S RIGHT OF ENTRY............................................ 17
16. SURRENDER OF PREMISES................................................ 17
17. MISCELLANEOUS COVENANTS.............................................. 19
18. RULES AND REGULATIONS................................................ 20
19. PERFORMANCE OF TENANT'S COVENANTS.................................... 21
20. EMINENT DOMAIN....................................................... 21
21. CASUALTY DAMAGE...................................................... 22
22. INSURANCE; WAIVER OF SUBROGATION..................................... 23
23. MORTGAGES AND OTHER AGREEMENTS....................................... 25
24. SUBORDINATION AND ATTORNMENT......................................... 26
25. ASSIGNMENT AND SUBLETTING............................................ 27
26. MERGERS.............................................................. 31
27. DEFAULT.............................................................. 32
28. LANDLORD'S REMEDIES.................................................. 32
29. UNDERLYING LEASES AND ESTATES........................................ 36
30. SUCCESSORS AND ASSIGNS, LIMITATION OF LANDLORD'S LIABILITY........... 36
31. LETTER OF CREDIT..................................................... 36
32. SPRINKLER SYSTEM; LIFE SAFETY SYSTEM................................. 38
33. ENVIRONMENTAL CONSIDERATIONS......................................... 39
34. HOLDING OVER......................................................... 40
35. RENTABLE SQUARE FEET................................................. 41
36. LOWER MEZZANINE SPACE................................................ 41
37. EXPANSION OPTIOn..................................................... 41
38. RIGHT OF FIRST OFFER................................................. 44
39. OPTION TO RENEW...................................................... 47
40. DETERMINATION OF MARKET RENT......................................... 48
41. SATELLITE DISH....................................................... 50
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
42. PARKING.............................................................. 51
43. WAIVERS.............................................................. 51
44. WAIVER OF TRIAL BY JURY; WAIVER OF NOTICEs........................... 51
45. SEVERABILITY......................................................... 52
46. NOTICES.............................................................. 52
47. BROKERS.............................................................. 52
48. NON-LIABILITY OF AGENT............................................... 52
49. AMENDMENT AND MODIFICATION........................................... 53
50. HEADINGS AND TERMS................................................... 53
51. GOVERNING LAW........................................................ 53
52. REDEVELOPMENT AUTHORITY PROVISIONS................................... 53
53. DELIVERY FOR EXAMINATION............................................. 54
54. SURVIVAL............................................................. 54
55. TIME OF ESSENCE...................................................... 54
56. JOINT AND SEVERAL LIABILITY.......................................... 54
57. TENANT'S REMEDIES.................................................... 54
58. LANDLORD'S CURE PERIOD............................................... 54
</TABLE>
iii
<PAGE>
LEASE
EXHIBITS
1. Plan of Leased Premises
6. Operating Expense
7. Landlord Improvements
8. Tenant Improvements
9. Standards for Work to be Performed by Tenant
11.1 HVAC Specifications
11.2 Janitorial Specifications
11.3 Security Guard Service
19. Rules and Regulations
24. Tenant Estoppel Letter
25. Form of Subordination, Non-Disturbance and Attornment Agreement
36.1 Location of Lower Mezzanine Demising Wall and Corridor
36.2 Lower Mezzanine Work
37.1 Additional Space Improvements
37.2 Annual Fixed Rents per Rentable Square Foot
42. Parking, Agreement
iv
<PAGE>
LEASE with FARM JOURNAL, INC. ("Tenant")
on Premises in Centre Square Complex
Philadelphia, Pennsylvania
This Lease made as of the Date of Lease set forth in the following Reference
Data (the "Reference Data") by and between CENTRE SQUARE (the "Landlord"). and
the Tenant identified immediately above.
1. REFERENCE DATA. For purposes of this Lease. the terms set forth below
shall have the meanings or be assigned the amounts as follows:
Date of Lease: July 17, 1995
- ------------- ----------------------------------------------------
Annual Fixed Rent: Lease Years 1-2 $635,055 per year (subject
- ----------------- to Fixed Rent Credit for
Lease Year 1)
Lease Years 3-4 $655,946 per year
Lease Year 5 $676,837 per year
Lease Years 6-9 $823,074 per year
Lease Year 10 $864,856 per year
Lease Term: Ten (10) years, subject to
- ---------- Section 3 of this Lease and
Section 5.3 of Exhibit 8.
Building: The ____ east office tower, X
- -------- ---
west office tower or galleria
of the Complex (check
applicable line).
Complex: The project commonly known
- ------- as Centre Square consisting
of two office towers, a
galleria and the Lot.
Lot: The land comprising a block
- --- in the City of Philadelphia,
Commonwealth of Pennsylvania,
bounded by Market Street,
Fifteenth Street, Ranstead
Street and Sixteenth Street.
Leased Premises: The Leased Premises consists
- --------------- of approximately 47,723
Rentable Square Feet and is
located as follows: Floor
28, containing approximately
30,864 Rentable Square Feet;
the portion of floor 27 shown
crosshatched on the floor plan
attached hereto as Exhibit 1,
containing approximately 10,918
Rentable Square Feet; the
portion of the Lower Mezzanine
shown
1
<PAGE>
crosshatched on the floor plan
attached hereto as Exhibit 1,
containing approximately 5,941
Rentable Square Feet.
Tenant's Expense
Proportionate Share: 2.790%
- -------------------
Tenant's Tax
Proportionate Share: 2.530%
- -------------------
Operating Expense Allowance: Actual Operating Expense for
- --------------------------- the 1995 calendar year
Real Estate Tax Allowance: Actual Adjusted Real Estate
- ------------------------- Taxes for the 1995 calendar
year
Broker(s): The Galbreath Company and
- --------- Julien J. Studley, Inc.
Tenant's Address for Notices: At the Leased Premises, with
- ---------------------------- copies to:
Tribune Properties
435 North Michigan Avenue
Chicago, IL 60611
Attention: Director of Real
Estate
and
Tribune Properties
435 North Michigan Avenue
Chicago, IL 60611
Attention: General Counsel
Managing Agent: The Galbreath Company
- --------------
Address of Managing Agent: 14th Floor
- ------------------------- 2000 Market Street
Philadelphia, PA 19103
Permitted Uses: Executive and general office
- -------------- purposes, and broadcasting
purposes.
2
<PAGE>
2. DEMISE. Landlord hereby demises and lets to Tenant and Tenant hereby takes
and hires from Landlord the Leased Premises identified in Section 1 above and
delineated in Exhibit 1, attached hereto and made a part hereof, TOGETHER WITH,
the right to use in common with Landlord and other Tenant's, occupants and
visitors to the Complex, the common walkways and sidewalks of the Lot, the
Complex lobby, Complex entrances, all other facilities of the Complex intended
for the common use of Tenant's, occupants and visitors to the Complex, and, if
the Leased Premises includes less than an entire floor of the Complex, the
common lobbies, hallways, lavatories and other common facilities of such floor.
3. TERM. The term of this Lease (the "Term" or "Lease Term") shall commence
on the Commencement Date which shall be the earlier of (A) the date on which
Tenant takes possession of the Leased Premises for thc operation of its
business, or (B) the date which is seven (7) calendar days after the date of
Substantial Completion of the Landlord Improvements and the Tenant Improvements
(as such terms are hereinafter defined). If the Commencement Date occurs on the
first day of a calendar month, the Term shall continue for the period of years
set forth in Section 1 of this Lease from the Commencement Date, unless extended
or sooner terminated as proposed in this Lease. If the Commencement Date occurs
on any day other than the first day of a calendar month, the Term shall continue
for the period of years set forth in Section 1 of this Lease from the first day
of the calendar month immediately following the Commencement Date, unless
extended or sooner terminated as proposed in this Lease. The foregoing is
subject to the provisions of Section 5.3 of Exhibit 8.
After the date of Substantial Completion has been determined in accordance with
the provisions of Article 5 of Exhibit 8 to this Lease, Landlord shall give
notice to Tenant advising Tenant of the Commencement Date and the expiration
date of thc Term.
4. LEASE YEARS. The first lease year of the Term shall commence on the
Commencement Date and shall end (A) on the day immediately preceding the first
anniversary of the Commencement Date, if the Commencement Date is the first day
of the month, or (B) the last day of thc month in which the first anniversary of
the Commencement Date occurs, if the Commencement Date is any day other than the
first day of a calendar month. The foregoing is subject to the provisions of
Section 5.3 of Exhibit 8. Each subsequent lease year shall be a period of twelve
months, commencing on the day immediately following the expiration of the prior
lease year and expiring on the day immediately preceding the anniversary of thc
commencement of such lease year.
The Annual Fixed Rent set forth in Section 1 is an annualized amount. If the
first lease y ear is more than 365 days, Tenant shall pay a pro rated amount of
the Annual Fixed Rent set forth in Section 1 for the period which is in excess
of 365 days.
3
<PAGE>
5. RENT
A. Payment of Rent. Annual Fixed Rent is payable by Tenant in monthly
---------------
installments of one-twelfth (1/12/th/) of the annual Fixed Rent, without
prior notice or demand, in advance, on the first day of each month at the
Managing Agent's address set forth in Section 1 of this Lease or at such
other place as Landlord may direct. Tenant hereby covenants and agrees to
pay when due the Annual Fixed Rent, and all other sums payable to Landlord
hereunder (such other sums being hereinafter collectively referred to as
"Additional Rent," and Annual Fixed Rent and Additional Rent being
hereinafter collectively referred to as "Rent"). If any installment of
Rent is not paid within ten (10) days after the same is due, Tenant shall
pay Landlord an administrative charge of one and one half percent (1.5%) of
the amount of the overdue installment. If such installment of Rent is not
paid within thirty (30) days after it is due, an additional one and one-
half percent (1.5%) administrative charge shall be added, and at the
expiration of each subsequent thirty-day period a further one and one-half
percent (1.5%) administrative charge shall be added until the installment
in is paid. Except as otherwise expressly set forth in this Lease, all
Rent shall be paid without any setoff or deduction whatsoever. Tenant's
covenant and agreement to pay Rent shall for all purposes be construed to
be a separate and independent covenant.
B. Fixed Rent Credit. Tenant shall receive a credit in the amount of $564,057
-----------------
against the Annual Fixed Rent payable by Tenant for the first lease year of
Term (the "Fixed Rent Credit"). The Fixed Rent Credit shall be applied on
a dollar-for-dollar basis to the monthly installments of Annual Fixed Rent
for the Leased Premises due and owing after the Commencement Date, until
exhausted.
C. Components of Annual Fixed Rent. The Annual Fixed Rent set forth in Section
-------------------------------
1 of this Lease consists of three components: (i) the .Annual Fixed Rent
for the Leased Premises, not including the space located on the Lower
Mezzanine; (ii) the Annual Fixed Rent for the portion of the Leased
Premises located on the Lower Mezzanine (the "Lower Mezzanine Space") and
(iii) the Annual Fixed Rent for the Pricing Spaces (as hereinafter
defined). The Annual Fixed Rent for the Leased Premises, not including the
Lower Mezzanine Space is as follows:
Lease Years 1-2 $564,057 per year (subject to Fixed
Rent Credit for Lease Year 1)
Lease Years 3-4 $584,948 per Year
Lease Year 5 $605,839 per Year
Lease Years 6-9 $752,076 per Year
Lease Year 10 $793,858 per Year
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The Annual Fixed Rent for the Lower Mezzanine Space is $46,518 per year,
throughout the Lease Term. The Annual Fixed Rent for the Parking Spaces is
$24,480 per year, throughout the Lease Term.
6. ESCALATION
A. Real Estate Taxes. If Adjusted Real Estate Taxes for any Tax Year,
-----------------
beginning with the calendar year 1995, shall be greater than the Real
Estate Tax Allowance, Tenant shall pay to Landlord as Additional Rent an
amount equal to Tenant's Tax Proportionate Share of such difference. (The
amount of Tenant's Tax Proportionate Share of such difference is
hereinafter referred to as the "Tax Adjustment".) If the expiration date
of the Lease Term is any date other than the last day of a Tax Year, the
Tax Adjustment shall be allocated proportionately to the amount of time
such Tax Year that the Lease Term is in effect.
Following the Landlord's receipt of the annual bills for Real Estate Taxes
for each Tax Year during the Lease Term. Landlord shall furnish Tenant
with a Tax Statement. Tenant shall pay the Tax Adjustment in one payment
within thirty (30) days after Tenant receives the Tax Statement.
As used in this Lease, the following words and terms shall be defined as
hereinafter set forth:
(i) "REAL ESTATE TAXES" shall mean all taxes, charges, impositions,
levies, assessments and burdens and special assessments of every kind
and nature assessed or imposed by any governmental or quasi-
governmental body or authority or special service district on and or
with respect to the Lot or the Complex or the rents therefrom
(including taxes based on gross receipts) which Landlord shall become
obligated to pay because of or in connection with the ownership,
leasing and operation of the Lot or Complex, subject to the following:
a. the amount of special taxes or special assessment to be included shall
be limited to the amount of the installment (plus any interest, other
than penalty interest, payable thereon) of such special tax or special
assessment required to be paid during the year in respect of which
such taxes are being determined, if such special tax or assessment is
permitted to be paid in installments; and
b. there shall be excluded from such taxes all federal and state income
taxes, excess profit taxes, excise taxes, franchise taxes, estate,
succession, inheritance and transfer taxes; provided, however, that if
at any time during the Lease Term the method of taxation then
prevailing shall be altered so that any tax, assessment, levy,
imposition or charge or any part thereof shall be imposed upon
Landlord in place or partly in place of any such Real Estate Taxes, or
contemplated increase therein, and shall be measured by or be based in
whole or in part upon the Lot or Complex or the rents or other income
therefrom, then all such new taxes,
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assessments, levies, impositions or charges or part thereof, to the
extent that they are so measured or based, shall be included in Real
Estate Taxes to the extent that such items would be payable if the Lot
and Complete were the only property of Landlord subject thereto and
the income received by Landlord from the Lot and Complex were the only
income of Landlord, and
c. there shall be excluded from Real Estate Taxes any Use and Occupancy
Tax which Landlord may collect from Tenant for payment to any
governmental authority, provided, however, that Tenant shall pay such
Use and Occupancy Tax to Landlord as Additional Rent upon demand if
Landlord is required by law to collect such tax for any governmental
authority, in which case Landlord shall remit any amounts paid to
Landlord to the appropriate governmental authority.
(ii) "ADJUSTED REAL ESTATE TAXES" shall mean the Real Estate Taxes for any
Tax Year, plus the expenses of any contests (administrative or
otherwise) of tax assessments or proceedings for refunds incurred
during such Tax Year. If Landlord is successful in obtaining a refund
for an Tax year, the Adjusted Real Estate Taxes for the Tax Year to
which such refund is applicable shall be recalculated to reflect the
amount of thc refund received by Landlord, and Tenant shall receive a
credit equal to the amount of the difference between the Tax
Adjustment which has accruals paid by Tenant and the Tax Adjustment
which is actually due, taking into account the amount of the refund,
Such credit shall be applied to the next installments of Rent coming
due under this Lease. If, following the expiration of the Term,
Landlord receives a refund which is applicable to any lease year of
the Term, Landlord shall pay the foregoing amount to Tenant within
thirty (30) days after Landlord's receipt of such refund.
(iii) "REAL ESTATE TAX ALLOWANCE" shall mean and equal the
amount set forth in Section 1 of this Lease.
(iv) "TAX YEAR" shall mean each calendar year, or such other period of
twelve (12) months as hereafter may be duly adopted as the fiscal year
for real estate tax purposes by the City of Philadelphia, occurring
during the Lease Term.
(v) "TENANTS TAX PROPORTIONATE SHARE" shall mean and equal the
percentage set forth in Section 1 of this Lease
(vi) "TAX STATEMENT" shall mean a statement in writing signed by
Landlord, setting forth (a) the Adjusted Real Estate Taxes for any Tax
Year, (b) the Real Estate Tax Allowance, and (c) the Tax Adjustment
payable by Tenant for a specified Tax Year, or portion thereof.
B. Operating Expenses. If the Operating Expense for any Operating Year,
------------------
beginning with calendar year 1996, shall be greater than the Operating
Expense Allowance, Tenant shall pay to Landlord as Additional Rent an
amount equal to Tenant's Expense Proportionate
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Share of the difference. (The amount of Tenant's Expense Proportionate
Share of such difference is hereinafter referred to as the "Operating
Expense Adjustment".) If the expiration date of the Lease Term is any date
other than the last day of an Operating Year, the Operating Expense
Adjustment will be allocated proportionately to the amount of time in such
Operating Year that the Lease Term is in effect.
From and after January 1, 1997, Tenant shall pay to Landlord, on account of
the Operating Expense Adjustment for the current Operating Year, monthly
installments in advance equal to one-twelfth (1/12/th/) of the estimated
Operating Expense Adjustment for such Operating Year (the "Operating
Expense Estimate"). Such installments shall be payable on the first day of
each month throughout the Lease Term at the Managing Agent's address set
forth in Section 1 or at such other place as Landlord may direct, except
that, if the Commencement Date occurs on a day other than the first day of
a month, the first such installment shall be paid on the Commencement Date
and apportioned based on the number of days in such month occurring form
and after the Commencement Date. Following the end of each Operating Year,
Landlord shall furnish to Tenant an Operating Expense Statement (as
hereinafter defined). Within thirty (30) days following the receipt of
such Operating Expense Statement, Tenant shall pay to Landlord (or Landlord
shall credit to Tenant) the sum of (i) any deficiency (or excess) between
the installments paid on account of the preceding Operating Year's
Operating Expense Adjustment and the actual Operating Expense Adjustment
for such
Operating Year, and (ii) any deficiency (or excess) between (a) the
total of the installments paid on account of the Operating Expense
Adjustment for the current Operating Year in which the Operating
Expense Statement is issued, and (b) the product of one-twelfth (1/12)
of the Operating Expense Estimate as shown on the Operating Expense
Statement for the current Operating Year and the number of months
which have elapsed during such Operating Year, Until the Operating
Expense Estimate for the current Operating Year is furnished by
Landlord, Tenant shall continue to pay monthly installments on account
of the current Operating Year's Operating Expense Adjustment based
upon the preceding Operating Year's Operating Expense Estimate.
As set forth above, Tenant's obligation to pay monthly installments of
the Operating Expense Estimate does not commence until January 1,
1997. If there is any Operating Expense Adjustment due for the 1996
calendar year, Tenant shall pay such amount in one lump sum within
thirty (30) days following receipt of the Operating Expense Statement.
As used in this Lease, the following words and terms shall be defined as
hereinafter set forth:
(i) "OPERATING YEAR" shall mean each calendar year, or such
other period of twelve (12) months as hereafter may be adopted by Landlord
as its fiscal year, occurring during the Lease Term.
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(ii) "OPERATING EXPENSE ALLOWANCE" shall mean and equal the
amount set forth in Section 1 of this Lease.
(iii) "TENANT'S EXPENSE PROPORTIONATE SHARE" shall mean and
equal the percentage set forth in Section 1 of this Lease.
(iv) "OPERATING EXPENSE STATEMENT" shall mean a statement in
writing certified by Landlord, Managing Agent or Landlord's accountants, setting
forth in reasonable detail (a) the Operating Expense for the preceding Operating
Year, (b) the Operating Expense Allowance, (c) the Operating Expense Adjustment
for such Operating Year, or portion thereof, and (d) the Operating Expense
Estimate for the current Operating Year.
(v) "OPERATING EXPENSE" shall mean all expenses incurred by
Landlord in connection with the ownership, management, maintenance, operating,
replacement and repair of the Complex and the Lot, as more particularly defined
in Exhibit 6 to this Lease, Landlord shall use reasonable efforts to refrain
from incurring any Operating Expense which would be excessive or commercially
unreasonable.
The Operating Expense for any Operating Year or portion thereof during which
less than one hundred percent (100%) of the rentable area of the Complex is
leased to Tenant's shall be increased to include an imputed cost for unoccupied
portions of the Complex in an amount equal to the additional Operating Expense
which Landlord reasonably determines would have been incurred by Landlord had
one hundred percent (100%) of the rentable area of the Complex been occupied by
Tenant's during such period. In addition, if in any Operating Year any tenant
of the Complex is providing for itself any services the cost of which would be
included in Operating Expense if such service were provided by Landlord, the
Operating Expense for such Operating Year shall be increased to include an
imputed amount equal to the additional Operating Expense that would have been
incurred by Landlord had Landlord provided to such tenant the services that were
provided to Tenant's generally.
C. Tenant's Right of Review
------------------------
(i) Tenant's shall have the right to inspect the books and records
used by Landlord in calculating the Operating Expense Adjustment for a
particular year within ninety (90) days following receipt of the Operating
Expense Statement for such year during regular business hours after having given
Landlord written notice at least ten (10) days prior thereto; provided, however,
that Tenant shall make all payments of Additional Rent without delay.
(ii) Unless Tenant shall taken written exception to any Operating
Expense Statement within ninety (90) days after Tenant's receipt of the same,
such statement shall be final and binding upon Tenant. The foregoing 90-day
period shall be extended for a period of time equal to the length of any delay
caused by Landlord in connection with Tenant's review of Landlord's books and
records.
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(iii) Tenant's inspection of Landlord's books and records (the
"Tenant Review") shall be performed by an employee or employees of Tenant or by
a reputable public accounting firm, consultant or contractor engaged by Tenant.
In no event, however, shall Tenant agree to pay any entity which performs such
inspection on a contingent fee or percentage of recovery basis.
(iv) Landlord shall make its books and records available for the
Tenant Review at the Complex or at the offices of Managing Agent in
Philadelphia, Pennsylvania, or at the offices of Landlord's accountants, in
Philadelphia, Pennsylvania.
(v) Landlord shall maintain its books and records used in
calculating Operating Expense in an orderly and businesslike fashion.
7. LANDLORD IMPROVEMENTS. Landlord shall perform certain work in the Leased
Premises (not including the Lower Mezzanine Space, as to which the provisions of
Section 36 shall be applicable) at the sole cost and expense of Landlord (the
"Landlord Improvements"). The Landlord Improvements are described in Exhibit 7
to this Lease and shall be performed in accordance with the provisions of
Exhibit 8 to this Lease.
8. TENANT IMPROVEMENTS. Tenant desires to have certain additional
improvements constructed in the Leased Premises (not including the Lower
Mezzanine Space, as to which the provisions of Section 36 shall be applicable)
in order to prepare thc Leased Premises for Tenant's occupancy (the Tenant
Improvements"). The cost of completing the Tenant Improvements shall be paid
from the Construction Allowance (as hereinafter defined) and, to the extent
hereinafter set forth, from Tenant's own funds. Landlord shall complete the
Tenant Improvements in accordance with the provisions of Exhibit 8 to this
Lease.
9. ALTERATIONS
A. The term "Alteration" as used in this Lease shall mean an installation,
improvement, alteration or addition to the Leased Premises other than the
Tenant Improvements. The term "Material Alteration" shall mean (a) any
Alteration which affects any structural component of the Building or any of
the Building systems or equipment, or the operation or effectiveness
thereof, or the exterior appearance of the Building; or (b) any Alteration
which entails the covering of any floor of the Leased Premises with
carpeting or any other floor covering; or (c) any Alteration (other than an
Alteration which is cosmetic or decorative in nature, such as painting (but
not including carpeting) which by itself costs more than Twenty-Five
Thousand Dollars ($25,000) or which is part of a larger project, program,
plan or group of such Alterations which costs more than Twenty-Five
Thousand Dollars ($25,000) in the aggregate.
B. Tenant shall not make any Material Alteration to thc Leased Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. In connection with any request by Tenant
for Landlord's consent to a Material
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Alteration, Tenant shall submit to Landlord plans and specifications
therefor in such detail as Landlord may reasonably require.
C. Although Landlord's consent shall not be required for any Alteration which
is not a Material Alteration, Tenant shall nonetheless notify Landlord of
such Alteration before it is installed or erected.
D. Tenant shall comply with the requirements of Exhibit 9 in connection with
the construction of any Alterations, except that the first and second
sentences of Section 9(A) of Exhibit 9 shall apply only to Material
Alterations. All Alterations shall be deemed part of the Complex and shall
not thereafter be removed by Tenant unless within twenty (20) days after
Landlord's receipt of request for approval of a Material Alteration
pursuant to Section 9(B) or notice of any other Alteration pursuant to
Section 9(C), Landlord gives notice to Tenant that upon the expiration or
earlier termination of the Lease Term, Tenant shall be obligated to remove
such Material Alteration or such other Alteration, as applicable. If
Landlord gives such notice, Tenant shall be required to restore the Leased
Premises to its condition prior to the installation of such Material
Alteration or other Alteration, as more particularly set forth in Section
17 of this Lease.
E. In connection with Tenant's initial occupancy of the Leased Premises,
Tenant intends to install a stained glass window in the Leased Premises,
subject to the approval of Landlord, which approval shall not be
unreasonably withheld or delayed. Notwithstanding the provisions of
Section 9(D) or Section 17(A) of this Lease, the stained glass window shall
remain the property of Tenant and Tenant shall have the right to remove the
same upon the expiration of the Lease Term. Tenant shall repair any damage
caused by the installation and/or removal of the stained glass window
(including, without limitation, repairing and patching holes and wall
surfaces and repainting), and restore the Leased Premises to substantially
the same condition in which it existed prior to the installation of the
stained glass window. If Tenant fails to remove the stained glass window
upon the expiration or earlier termination of the Lease Term, then the same
shall be deemed to have been abandoned by Tenant, and either may be
retained by Landlord as Landlord's property or may be disposed of in such
manner as Landlord sees fit.
10. PERMITTED USES.
A. Tenant covenants and agrees to use and occupy the Leased Premises only in
conformity with law and for the uses specified in Section 1 of this Lease.
Notwithstanding the foregoing, Tenant shall be permitted to use the Leased
Premises for broadcasting purposes only if such use (I) is permitted under
applicable zoning and other law; (ii) is not prohibited by the terms of any
other existing lease of space in the Complex; (iii) will not interfere with
the operation of the Complex or with the Complex systems; and (iv) will not
be disturbing to other Tenant's.
For purposes of this Lease, the term "executive and general office
purposes" shall not include use as a school, college, university or
educational institution of any type; use as a
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governmental or quasi-governmental agency; use for any purpose which is not
consistent with the operation of the Complex as a first-class office
building; use as an employment, recruitment or temporary help service or
agency; or any use involving regular traffic by the general public.
B. Tenant covenants and agrees not to use or permit any use of the Leased
Premises which creates any safety hazard, which would be dangerous to the
Leased Premises, the Complex or the occupants of same, or which would be
disturbing to other Tenant's or occupants of the Complex. If Tenant uses
or permits any use of the Leased Premises for any purpose which would cause
any increase in premium for any insurance which Landlord may then have in
effect with respect to the Complex generally, such use shall not constitute
an Event of Default under this Lease provided that (i) such use otherwise
complies with the requirements of this Lease, and (ii) Tenant pays Landlord
the amount of such increase in premium.
11. COMPLEX OPERATION AND SERVICES
A. Subject to the provisions of this Section 11, Landlord shall furnish
through Landlord's employees or independent contractors, the following
services:
(i) Heating, ventilating, and air conditioning shall be
provided Monday through Friday from 8:00 a.m. to 6:00 p.m., except holidays, and
Saturdays from 8:00 a.m. to 1:00 p.m., except holidays (referred to hereinafter
as "Business Hours"), in conformity with the standards set forth in Exhibit
11.1. Heating, ventilating and air conditioning service shall be subject to
such regulations as the Department of Energy or other governmental agency shall
adopt from time to time.
(ii) If Tenant shall require heating, ventilating, and air-
conditioning outside the hours and days above specified ("After Hour HVAC
Service"), Landlord shall furnish such for the area or areas specified on
written request of Tenant delivered to Landlord before 3:00 p.m. of the business
day preceding the extra usage period. Tenant shall pay Landlord for such After
Hours HVAC Service upon invoice from Landlord to Tenant at the rates established
by Landlord from time to time. If another tenant which is serviced by the same
HVAC system that services Tenant also requests After Hours HVAC Service for all
or a part of the same period as Tenant, the charge to Tenant shall be equitably
apportioned for the relevant period or portion thereof.
(iii) Maintenance and cleaning of the Leased Premises shall be
provided Monday through Friday (excluding holidays), after Business Hours, in
accordance with the standards set forth in Exhibit 11.2.
(iv) Normal elevator service shall be provided for the of all
Tenant's and the general public during Business Hours. Limited elevator service
shall be provided at all
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other times. During periods of "limited elevator service" there shall be at
least one elevator cab in operation.
(v) Freight elevator service for normal business deliveries
shall be supplied in common with service to Landlord and other Tenant's,
weekdays between the hours of 8:00 a.m. and 5:00 p.m. No deliveries of
construction materials or moving of large quantities of furniture or equipment
shall be permitted during such hours. The freight elevator may be used by
Tenant for such purposes, in common with service to others, at other times
reasonably established by Landlord for such purposes, upon payment of the
reasonable charges therefor established by Landlord. Notwithstanding the
foregoing, there shall be no charge for the use of the freight elevator during
the period of Tenant's initial move into the Leased Premises.
(vi) Hot and cold water for normal lavatory purposes, drinking
fountains, coffee makers and kitchens (incident to Tenant's use of the Leased
Premises for general office purposes) shall be provided twenty-four (24) hours
per day, three hundred sixty-five (365) days per year. If Tenant requires water
for additional purposes, Tenant shall pay the cost thereof as shown on a meter
to be installed and maintained at Tenant's expense to measure such additional
consumption.
(vii) Subject to the following sentence, Landlord shall provide
security guard service in accordance with the standards set forth in Exhibit
11.3. Landlord shall not be required to continue to provide such security guard
service, however, any future security system introduced at the Complex shall
provide a comparable level of security. All persons entering or leaving the
Complex before or after Business Hours may be required to do so under such
regulations as the Landlord may impose, and Tenant shall comply (and cause its
employees, agents, contractors and invitees to comply) with such security
regulations and procedures as Landlord from time to time may generally impose
for the Complex and its occupants, including registering with a security desk.
Landlord makes no representation that the present or any future system employed
at the Complex to monitor access to the Complex will prevent unauthorized access
to the Complex or the Leased Premises.
(viii) Cleaning and maintenance of the common areas of the
Complex.
(ix) Operation and maintenance of a lobby directory, on which
Tenant shall have the right to ninety (90) entries.
(x) Access to the Complex twenty-four (24) hours per day,
three hundred sixty-five (365) days per year basis.
(xi) Landlord shall maintain and operate the Complex and Lot
(excluding those portions of the Complex leased to Tenant's) in compliance at
all times with any law, ordinance, code or regulation applicable to the Complex
and Lot, the non-compliance with which, individually or in the aggregate, would
materially impair Tenant's ability to occupy, possess and otherwise enjoy the
Leased Premises or any part thereof for its intended purpose, or which would
subject Tenant to liability to any governmental authority.
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B. The following terms, as used in this Lease. shall have the meanings set
forth below:
(i) "Electric Allowance" shall mean the product of (a) 1.003
kilowatt hours per month of electric energy (i.e.. five watts per Rentable
Square Foot at 85% demand for 236 hours per month), pro rated for any partial
month, and (b) the number of Rentable Square Feet in the Leased Premises.
(ii) "Electric Allowance Cost" means the amount that Tenant would
pay the electric utility providing service to the Complex at the general service
rate, using the demand amount recorded by the demand meter, assuming that
Tenant's usage of electricity were equal to the Electric Allowance.
(iii) "Total Electric Cost" means the amount that Tenant would pay
thc electric utility providing service to the Complex at the general service
rate for all electricity used in the Leased Premises. using the demand amount
recorded by the demand meter, and applying such amount against the total
electric usage for the Leased Premises.
(iv) "Excess Electric Cost" means the difference between the Total
Electric Cost and the Electric Allowance Cost.
Landlord shall provide electric energy for the Leased Premises in an amount
equal to the Electric Allowance. At any time during the Term, Landlord may,
at its election, install usage and demand meters to measure the use of
electricity in the Leased Premises. Such meters shall be installed at
Landlord's Cost and expense. If Tenant uses more than the Electric
Allowance, Tenant shall pay to Landlord the Excess Electric Cost within
thirty (30) days after Tenant is billed therefor. Upon request, Landlord
shall provide Tenant with a copy of the invoice from the electric utility
providing service to the Complex, based upon which Landlord determined the
Excess Electric Cost.
C. Landlord shall not be liable in any way to Tenant for any failure or defect
in the supply or character of electric energy furnished to the Leased
Premises by reason of any requirement, act or omission of the public
utility serving the Complex with electricity, Tenant's use of electric
energy in the Leased Premises shall not at any time exceed the capacity of
any of the electric conductors and equipment in or otherwise serving the
Leased Premises (which capacity shall be sufficient to provide the Electric
Allowance), In order to insure that such capacity is not exceeded and to
avert possible adverse effect upon the Complex electric service, Tenant
shall not, without Landlord's prior written consent in each instance,
connect to the Complex electric distribution system any fixtures,
appliances or equipment other than lamps, personal computers and similar
small office machines or make any alterations or additions to the electric
system of the Leased Premises, Should Landlord grant such consent, all
additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant upon Landlord's
demand. Upon Tenant's request, Landlord shall furnish and install at
Tenant's expense all replacement lighting tubes, lamps, bulbs and ballasts
required in the Leased Premises.
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D. The parties acknowledge that Tenant intends to install a supplemental air
conditioning unit (the "Supplemental Unit") for a portion of the Leased
Premises, as part of the Tenant Improvements, The Supplemental Unit shall
be connected to Landlord's condenser water system as part of the Tenant
Improvements.
In the event that Tenant hereafter desires to install any additional
supplemental HAVC units ("Additional Units"), Landlord shall install the
same upon request by Tenant, provided that sufficient electric and
condenser water capacity is available. The cost of such units and the
expense of installation, including, without limitation, the cost of
preparing working drawings and specifications, shall be paid by Tenant as
Additional Rent within thirty (30) days after Tenant is billed therefor.
If any Additional Unit occupies space outside the Leased Premises, Tenant
shall pay rent for such space.
Landlord shall maintain and repair the Supplemental Unit and any Additional
Units, and the cost thereof shall be paid by Tenant within thirty (30) days
after Tenant is billed therefor.
Landlord shall provide condenser water for the Supplemental Units and
Additional Units, Tenant's consumption of condenser water and usage of the
Supplemental Unit and any Additional Units shall be measured by meters
installed by Landlord at Tenant's expense, Tenant shall pay Landlord for
condenser water and usage of the Supplemental Unit and any Additional Units
at a rate equal to 125% of the cost charged by the municipal authority
which supplies the water.
Tenant shall pay such amounts monthly within thirty (30) days after receipt
of Landlord's bill therefor. The foregoing amounts shall be in addition to
any other costs payable by Tenant, either from the Construction Allowance
or Tenant's own funds, pursuant to the first paragraph of Section 11(D).
12. INTERRUPTION OF SERVICES
A. Landlord reserves the right to stop any service in the Complex, when
necessary by reason of accident, emergency, testing, or fire or similar
drills, or until necessary repairs have been completed. In each instance
of stoppage, Landlord shall exercise due diligence to promptly eliminate
the cause thereof. Except in case of emergency repairs, or fire or similar
drills, Landlord will give Tenant at least twenty-four (24) hours' advance
notice of any contemplated stoppage during Business Hours and will use
reasonable efforts to minimize disruption of Tenant's business.
B. Landlord shall have no responsibility or liability for interruption,
curtailment or failure to supply any services to be provided by Landlord
when prevented by events beyond Landlord's reasonable control.
C. Any interruption, curtailment or failure to supply any service on account
of either the exercise by Landlord of its rights under Section l2(A) or any
circumstance beyond Landlord's control as set forth in Section l2(B) shall
not constitute an actual or
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constructive eviction or entitle Tenant to any compensation or any
abatement or diminution of or set off against Rent or otherwise release
Tenant from any of its obligations under this Lease or impose any liability
on Landlord.
Notwithstanding anything to the contrary set forth in this Lease, if the
entire Leased Premises or all of thc space leased by Tenant on any one
floor is rendered untenantable due to any interruption of services and such
untenantability continues for a period in excess of seven (7) consecutive
business days, Rent shall abate for the entire Leased Premises or such
floor, as the case may be, thereafter, until the Leased Premises, or such
floor, are again rendered tenantable for Tenant's normal business purposes,
if and only if either (i) the cause of the interruption of services was
within the reasonable control of Landlord, or (ii) a Pennsylvania Standard
Form of Fire Insurance Policy with extended coverage endorsement would
cover loss of rents on account of the event or circumstance which rendered
the Leased Premises untenanable.
In addition, if the Leased Premises is rendered untenantable for a period
of one year or more (exclusive of any period of untenantability which is
attributable to any delay or condition caused by Tenant) due to any
condition other than a casualty (which is addressed in Section 22 of this
Lease). Tenant may terminate this Lease at any time prior to the time that
the Leased Premises is rendered tenantable.
13. REPAIRS
A. Landlord shall make, as an Operating Expense of the Complex, all repairs
and replacements necessary to maintain in good condition and repair, the
base building plumbing, heating, ventilating, air conditioning, electric
systems, external windows and floors (excluding carpeting and floor
coverings), structural components and roof, provided, however, that
Landlord shall not be obligated to make any such repairs until the
expiration of a reasonable period of time after receipt of written notice
from Tenant that such repair is needed. Tenant shall give Landlord prompt
written notice of any accident to or defects in the foregoing.
B. In no event shall Landlord be obligated under this Section 13 to repair any
damage caused by any act, omission or negligence of Tenant or its
employees, agents, invitees, licensees, subTenant's, or contractors.
Tenant shall reimburse Landlord for all costs and expenses of repairing and
replacing all damage or injury to the Complex caused by Tenant or its
employees, agents, invitees, licensees, subTenant's, or contractors, or as
a result of all or any of them moving in or out of the Complex or by
installation or removal of furniture, fixtures or other property. Such
costs and expenses shall be collectible as Additional Rent and paid by
Tenant within thirty (30) days after Tenant is billed therefor.
C. Landlord shall not be liable for any injury to or interference with
Tenant's business arising from the making of any repairs, alterations,
additions or improvements in or to the Leased Premises or the Complex or to
any appurtenances or equipment therein; provided, however, Landlord shall
use reasonable efforts to minimize any interference with
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Tenant's business operations. Except in case of emergency, Landlord will
give Tenant at least twenty-four (24) hours' advance notice if Landlord
requires access to the Leased Premises pursuant to this Section. Landlord
shall proceed with due diligence to complete any repairs, alterations,
additions or improvements with respect to which access to the Leased
Premises is required. There shall be no abatement of Rent because of such
repairs, alterations, additions or improvements or because of any delay by
Landlord in making the same.
D. Tenant shall maintain the Leased Premises and the fixtures and
appurtenances therein in good condition and repair at all times, damage by
fire or other casualty excepted (as to which the provisions of Section 22
of this Lease shall govern). Such obligation shall include, without
limitation, all electrical, plumbing and mechanical systems serving the
Leased Premises from the point such systems connect to the base building
systems on each floor. Upon request by Tenant, Landlord shall perform
Tenant's obligations under this Section. Tenant shall pay all costs
incurred by Landlord in so doing within thirty (30) days after Tenant is
billed therefor. Notwithstanding the foregoing, in no event shall Landlord
have any obligation under this Section to maintain or repair (i) any
personal property of Tenant, or (ii) any data or telecommunications wiring,
equipment or fixtures.
14. [INTENTIONALLY DELETED]
15. QUIET ENJOYMENT. Tenant, upon paying the Annual Fixed Rent, all Additional
Rent, and upon observing, keeping and performing all covenants, agreements and
conditions of this Lease on Tenant's part to be observed, kept and performed,
shall quietly have and enjoy the Leased Premises throughout the Lease Term
without hindrance or molestation by Landlord or by anyone claiming in, through
or under Landlord, subject, however, to the exceptions, reservations and
conditions of this Lease.
16. LANDLORD'S RIGHT OF ENTRY. Landlord, any ground lessor, mortgagee or any
agent thereof, shall have the right to enter the Leased Premises: to perform
Landlord's covenants as set forth in this Lease, for purposes of inspection and
to insure Tenant's compliance with the provisions of this Lease, to make any
repairs, replacements or alterations to the Complex or do any work which
Landlord may deem necessary, or to show the Leased Premises to prospective
purchasers of the Complex, and also, during the last year of the Lease Term, to
show the Leased Premises to prospective Tenant's. Except in case of emergency,
Landlord shall give Tenant at least twenty-four (24) hours' notice prior to
exercising its rights under this Section.
Landlord may install, use, maintain, repair, replace and relocate pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Complex within or through the Leased Premises or through the walls,
columns and ceilings therein, provided that Landlord shall not unreasonably
interfere with Tenant's use and occupancy of the Leased Premises or damage the
appearance thereof.
17. SURRENDER OF PREMISES.
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A. Except as otherwise set forth in Section 9(E) of this Lease, all
Alterations shall remain upon the Leased Premises at the expiration or
earlier termination of this Lease and shall become the property of Landlord
unless Landlord shall give written notice to Tenant to remove such
Alterations as provided in Section 9 of this Lease. If Landlord gives such
notice, Tenant shall, prior to the expiration of the Term, remove the
Alterations as to which such notice is given, repair any damage caused by
the installation and/or removal (including, without limitation, repairing
and patching holes, replacing ceiling, floor and wall surfaces and
repainting), and restore the Leased Premises to substantially the same
condition in which it existed prior to the time that such Alteration was
made. Should Tenant fail to remove any such Alteration, or to repair such
damage when required by Landlord pursuant to this Section 17, Landlord may
do so, and the cost and expense thereof, together with interest at the
Overdue Interest Rate from the date such costs and expenses were incurred
by Landlord, shall be paid by Tenant to Landlord as Additional Rent within
thirty (30) days after Tenant is billed therefor. As used herein, the term
"Overdue Interest Rate" shall mean and equal four percent (4%) per annum
over the prime interest rate announced from time to time by CoreStates
Bank, National Association located in Philadelphia, Pennsylvania, or its
successor, as being its prime interest rate charged to its most credit-
worthy commercial customers for 90-day unsecured loans (the "Prime Rate").
B. Except as hereinafter set forth with respect to Non-Standard Tenant
Improvements, Tenant shall have neither the right nor the obligation to
remove any of the Tenant Improvements, all of which shall remain upon the
Leased Premises at the expiration or earlier termination of this Lease and
shall become the property of Landlord. Notwithstanding the foregoing,
Landlord shall have the right to require that Tenant remove any Non-
Standard Tenant Improvements by notice to Tenant given prior to or within a
reasonable period after the termination of this Lease. If Landlord gives
such notice, Tenant shall be required to promptly remove the Non-Standard
Tenant Improvements as to which notice is given, to repair any damage
caused by the installation and/or removal of such Non-Standard Tenant
Improvements (including, without limitation, repairing and patching holes,
replacing ceiling, floor and wall surfaces and repainting), and restore the
Leased Premises to substantially the same condition in which it existed
prior to the time that any such Non-Standard Tenant Improvements were made.
Should Tenant fail to remove any such Non-Standard Tenant Improvements or
to repair such damage when required by Landlord pursuant to this Section
17, Landlord may do so, and the cost and expense thereof, together with
interest at the Overdue Interest Rate from the date such costs and expenses
were incurred by Landlord, shall be paid by Tenant to Landlord as
Additional Rent within thirty (30) days after Tenant is billed therefor.
The term "Non-Standard Tenant Improvements" shall mean (i) the Floor
Opening (as hereinafter defined) or any other floor openings or structural
alterations; (ii) dumbwaiters; (iii) safes or vaults; (iv) raised floors;
or (v) supplemental HVAC units or UPS units.
C. The parties acknowledge that, as part of the Tenant Improvements, Tenant
intends to cause an internal staircase to be installed in the Leased
Premises. The internal staircase
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will connect, and require a floor opening between, the 27th and 28th floors
(the "Floor Opening"). Notwithstanding anything to the contrary set forth
in this Section, if, during the one year period following the expiration or
earlier termination of the Term (the "One Year Period"), Landlord leases
the Leased Premises to a tenant which intends to utilize the Floor Opening,
Tenant shall be released from it obligation to close the Floor Opening and
to pay any cost in connection therewith. If either (i) during the One Year
Period Landlord leases the portion of the Leased Premises in which the
Floor Opening is located to a Tenant which does not intend to use the Floor
Opening, or (ii) during the One Year Period Landlord does not lease the
portion of the Leased Premises in which the Floor Opening is located then,
in either such case, Landlord may give notice to Tenant that Landlord has
closed or intends to close the Floor Opening. Such notice (the "Floor
Closing Notice") shall set forth the costs incurred or expected to be
incurred by Landlord in connection with closing the Floor Opening. Tenant
shall pay Landlord one-half of the amount of such costs, as set forth in
the Floor Closing Notice, within thirty (30) days after Tenant receives the
Floor Closing Notice. Notwithstanding anything to the contrary set forth
in this Section, a Floor Closing Notice given pursuant to Section 17(C)(i)
above must be given, if at all, within eighteen (18) months following the
expiration or earlier termination of the Term; a Floor Closing Notice given
pursuant to Section 17(C)(ii) must be given, if at all, within the six
month period following the expiration of the One Year Period.
D. Any personal property which shall remain in the Leased Premises or any part
thereof after the expiration or earlier termination of this Lease shall be
deemed to have been abandoned and either may be retained by Landlord as
Landlord's property or may be disposed of in such manner as Landlord may
set fit, provided that notwithstanding the foregoing Tenant shall, upon
request of Landlord made prior to or within a reasonable period after the
expiration or earlier termination of this Lease, promptly remove from the
Complex any such personal property at Tenant's cost and expense. Should
Tenant fail so to do, Landlord may do so, and the cost and expense thereof,
together with interest at the Overdue Interest Rate from the date such
costs and expenses were incurred by Landlord, shall be paid by Tenant to
Landlord as Additional Rent within thirty (30) days after Tenant is billed
therefor. If such personal property or any part thereof shall be sold by
Landlord, Landlord may receive and retain the proceeds of such sale(s) as
Landlord's property.
18. MISCELLANEOUS COVENANTS. Tenant shall faithfully perform all of the
covenants and conditions to be performed and observed by Tenant hereunder and in
addition to those covenants and conditions which are set forth elsewhere herein.
Tenant agrees:
A. To secure and maintain in effect any governmental approvals. licenses and
permits as may be required for Tenant's use and occupancy of the Leased
Premises.
B. To comply with all applicable laws, codes and regulations of governmental
authorities applicable to Tenant's use and occupancy of the Leased Premises
and all rules and
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regulations of insurers of the Leased Premises and the National Board of
Fire Underwriters as they apply to Tenant's use and occupancy of the Leased
Premises. Without limiting the generality of the foregoing, Tenant shall
comply within the Leased Premises with the requirements of the Americans
with Disabilities Act (and all regulations promulgated thereunder), as the
same may be amended from time to time (the "Act"). The Act may require,
among other things, that the Leased Premises be designed to remove
architectural barriers so that the Leased Premises will be readily
accessible to people with disabilities, on the same basis as the Leased
Premises are accessible to those without such disabilities. The foregoing
obligation of Tenant however shall not permit Tenant to make, without
Landlord's approval, any changes to the Leased Premises which otherwise
would require Landlord's approval under this Lease.
Tenant shall have no obligation for compliance with the Act of any portion
of the Complex other than the Leased Premises and the doors entering into
the Leased Premises.
C. If the Leased Premises includes less than an entire floor of the Complex,
not to place, erect, maintain or display any sign or other marking of any
kind whatsoever on the exterior surface of the walls of the Leased Premises
or on any door which faces any common corridor or hallway, without the
prior written approval of Landlord, which approval shall not be
unreasonably withheld or delayed for a single sign, provided that the same
conforms with sign standards established by Landlord generally for the
Complex, and not to install or replace any entrance door or other door
facing on any common corridor or hallway with other than the standard door
supplied by Landlord, without the prior written approval of the Landlord.
D. Except as otherwise approved by Landlord (which approval shall not be
unreasonably withheld) or installed by Landlord as part of the Tenant
Improvements, not to use or place any curtains, blinds (other than building
standard blinds), drapes, coverings or signs over any exterior windows or
upon the window surfaces as would be visible from the outside of the
Complex.
E. Without the prior written approval of Landlord, not to place within the
Leased Premises or bring into the Complex any machinery, equipment or other
personalty other than customary office furnishings and small office
machinery having a weight not in excess of the load per square foot which
the floor was designed to carry and which is allowed by law. Landlord in
its sole discretion, may condition any approval given pursuant to this
Section 18(E) upon the requirement that Tenant pay all costs of all
structural and other alterations, changes or additions required to be made
to the Leased Premises and Complex, in the reasonable business judgment of
Landlord, for the safe support of such machinery, equipment of personalty,
together with all costs of engineering or other studies required in the
reasonable business judgment of Landlord, to determine the required
structural and other alterations, changes or additions.
F. Not to remove, attempt to remove or manifest an intent to remove Tenant's
goods or property from or out of the Leased Premises other than in the
ordinary course of business,
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without having first paid Landlord all Rent which may become due during the
Lease Term. Without limiting any other rights or remedies which Landlord
may have, Landlord shall have no obligation to provide freight elevator
service to Tenant in connection with removal of Tenant's goods or property
other than in the ordinary course of business, unless the payment required
by this Section has first been made.
G. Not to use the fire tower stairs in the Complex, except in case of
emergency.
19. RULES AND REGULATIONS. Tenant covenants and agrees that Tenant, its
servants, employees, agents, invitees, licensees and other visitors shall
observe faithfully, and comply strictly with the Rules and Regulations contained
in Exhibit 19 attached hereto and made a part hereof, and such other and further
reasonable Rules and Regulations as Landlord may from time to time adopt.
Nothing in this Lease contained shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease as against any other tenant and Landlord shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees agents, invitees, licensees or other visitors. If Landlord does elect
to enforce the Rules and Regulations, however, Landlord shall not discriminate
against Tenant in connection with such enforcement. In the event of a conflict
between the express provisions of this Lease and such Rules and Regulations,
this Lease shall control.
20. PERFORMANCE OF TENANT'S COVENANTS. If Tenant fails to perform any covenant
or observe any condition to be performed or observed by Tenant hereunder or acts
in violation of any covenant or condition hereof, Landlord may, but shall not be
required to on behalf of Tenant, perform such covenant and/or take such steps,
including entering upon the Leased Premises as may be necessary or appropriate
to meet the requirements of any such covenants or condition, provided that
Landlord shall have given Tenant at least ten (10) days' prior written notice of
Landlord's intention to do so, unless an emergency situation exists, in which
case Landlord shall have the right to proceed immediately; and all costs and
expenses incurred by Landlord in so doing, including reasonable attorneys' fees
shall be paid by Tenant to Landlord upon notice from Landlord, together with
interest at the Overdue Interest Rate from the date of such notice, as
Additional Rents. Landlord's proceeding under the rights reserved to Landlord
under this Section shall not in any way prejudice or waive any rights Landlord
might otherwise have against Tenant by reason of any such failure to act or
action of Tenant.
21. EMINENT DOMAIN. In the event of exercise of the power of eminent domain
whereby (A) such portion of the Complex is taken that access to the Leased
Premises is permanently impaired thereby and reasonable alternate access is not
provided by Landlord within a time period which is reasonable under the
circumstances, or (B) all or substantially all of the Leased Premises or the
Complex is taken, or (C) such portion of the Complex is taken that Landlord is
unable to provide the services which it has agreed to provide under this Lease,
and as a result thereof, Tenant's ability to use and occupy the Leased Premises
is materially impaired; or (D)
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less than substantially all of the Complex is taken, but Landlord, acting in
good faith determines that it is not economically feasible to continue to
operate the uncondemned portion as a first-class office building, or (E) less
than substantial all of the Leased Premises is taken but Tenant, acting in good
faith, determines that because of such taking it is not economically feasible to
continue to conduct its business in the uncondemned portion of the Leased
Premises then in the case of (A), (B) or (C), either party, and in the case of
(D), Landlord, and in the case of (E), Tenant, shall have the right to terminate
this Lease as of the date that possession of that part which was taken is
required to be delivered or surrendered to the condemning authority: and in such
case all Rent shall be adjusted to the date of termination. The foregoing right
of termination shall be applicable to the taking of any estate or interest
whatsoever which, as a matter of law, would deprive Landlord or Tenant of any
right to possession (in common with others, as to common areas of thc Complex)
for any period in excess of one year from the date of taking, whether or not the
taking be in fee, for a term of years or any other estate or interest; and a
taking shall include the transfer to title or of any interest in the Complex by
deed or other instrument in settlement of or in lieu of transfer by operation of
law incident to condemnation proceedings. If only a part of the Leased Premises
is taken and this Lease is not terminated by Landlord or Tenant as set forth
above, the Annual Fixed Rent shall be abated in proportion to the amount of
space so taken and Tenant's Proportionate Share shall be appropriately adjusted,
as of the date of the loss of possession.
Tenant, hereby waives any loss or damage or claims therefor resulting from
exercise of the power of eminent domain by any governmental or other party
exercising the same, whether such loss or damage results from condemnation of
part or all of the Leased Premises or any portion of the Lot or Complex, except
that Tenant may make a separate claim against the condemning authority for any
moving, removal and business dislocation damages or expenses payable to Tenant's
under the Pennsylvania Eminent Domain Code of 1964, as amended but in no event
shall Tenant make any claim against Landlord, or the condemning authority, or
any party having an interest in the Lot or Complex which would result in the
diminution or reduction in the award for the Lot or Complex payable to the
Landlord or to any other party having an interest in the Lot or Complex.
22. CASUALTY DAMAGE.
A. In The event of damage to or destruction of the Leased Premises caused by
fire or other casualty, or of the entrances and other common facilities
necessary to provide normal access to the Leased Premises, or to other
portions of the Complex or its equipment which portions and equipment are
necessary to provide services to the Leased Premises in accordance with the
terms of this Lease (collectively the "Base Complex") Landlord shall make
repairs and restorations (the "Restoration") as hereinafter provided.
unless this Lease is terminated by Landlord or Tenant as hereinafter
provided.
B. Within ninety (90) days after the occurrence of any casualty with respect
to the Leased Premises or the Base Complex, Landlord shall given written
notice to Tenant (the "Repair Period Notice") advising Tenant of the length
of time that Landlord estimates
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will be required for Restoration of the part the Leased Premises or Base
Complex which has been damaged (the "Estimated Restoration Period"). If (i)
the damage is of such nature or extent, in the reasonable judgment of
Landlord, that the Estimated Restoration Period would be more than one year
after, the date of the casualty (with normal work crews and hours and in
the normal course of Restoration of the entire Complex), or (ii) a
substantial portion of the Complex is so damaged, that, in Landlord's
reasonable judgment, it is uneconomical to restore or repair thc Complex,
or (iii) less than one year of the Lease Term would remain at the end of
the Estimated Restoration Period, Landlord shall have the right within
ninety (90) days after the occurrence of the casualty, to terminate this
Lease as of the date of the occurrence of the casualty. If the Repair
Period Notice indicates that the Estimated Restoration Period would be more
than one year after thc occurrence of the casualty, Tenant shall also have
the right by giving notice in writing to Landlord (a "Tenant Termination
Notice"), within thirty (30) days after Tenant's receipt of the Repair
Period Notice, to terminate this Lease as of the date of the occurrence of
such casualty.
In addition, if the casualty is of a type not insured against under
standard fire policies with extended type coverage, or if the holder of any
mortgage, deed of trust or similar security interest covering the Complex
shall not permit the application of adequate insurance proceeds for the
Restoration, Landlord shall have the right, at its option, to terminate
this Lease by giving notice to Tenant within thirty (30) days after the
Repair Period Notice has been given.
C. In the event of such fire or other casualty, if this Lease is not
terminated pursuant to the terms of this Section 22, and if this Lease is
then in full force and effect. Landlord shall proceed diligently to restore
the Leased Premises and the Base Complex to substantially its condition
immediate after the completion of the Landlord Improvements and Tenant
Improvements.
D. In the event that Landlord does not complete the restoration of the Leased
Premises and Base Complex within the Permitted Restoration Period (as
hereinafter defined) then, in such event, Tenant may at any time prior to
substantial completion of such work, terminate this Lease whereupon this
Lease shall become null and sold as of the date of the casualty and neither
any shall have any further liability or obligation hereunder. The term
"Permitted Restoration Period" means the Estimated Restoration Period, plus
an additional period equal to the length of any delays caused by
circumstances beyond the reasonable control of Landlord. but not in excess
of an additional four months.
E. In the case of damage to the Leased Premises which is of a nature or extent
that all or a portion of the Leased Premises is rendered untenantable, the
Annual Fixed Rent shall be abated in proportion to the amount of space
which is untenantable and Tenant's Proportionate Share shall be
appropriately reduced for the duration of the untenantability.
F. Anything to the contrary in this Lease notwithstanding, expressed or
implied, Landlord shall have no liability to Tenant for, and shall have no
duty to, repair, replace or restore
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any damage whatsoever, occurring as a result of leakage or seepage of
water or any other liquid from any source whatsoever, or snow, frost,
steam, excessive heat or cold, falling plaster, sewage, gas, odors, noise
or by air-conditioning or heating apparatus, except to the extent that
such damage (i) is caused by the negligence or willful misconduct of
Landlord or is caused by Landlord's failure to perform its obligations
under this Lease, and (ii) is not covered by any insurance maintained or
required to be maintained by Tenant under this Lease. Provided, however,
Landlord shall repair, replace and restore all damage to the Complex
structure, systems and fixtures (including any portion thereof located
within the Leased Premises), and the cost thereof shall be included in
Operating Expense to the extent such cost (i) does not constitute a
capital expenditure, and (ii) would not be covered under a standard fire
with extended coverage insurance policy.
23. INSURANCE; WAIVER OF SUBROGATION.
A. Tenant shall maintain the following insurance coverages throughout the
Lease Term in companies licensed to do business in Pennsylvania and
reasonably satisfactory to Landlord:
(i) A Comprehensive General Liability Policy and Primary Umbrella Policy,
insuring against claims for personal injury including bodily injury,
death and property damage in an amount not less than Three Million
Dollars ($3,000,000.00) combined single limit per occurrence, with such
commercially reasonable increases in limits as Landlord may from time to
time request. The foregoing policies of insurance shall name as
additional insureds, Landlord, the Landlord's general partners, the owner
of the Lot, the Lot owner's general partners and Managing Agent, but only
with respect to liability arising out of (a) the ownership, maintenance
or use of the Leased Premises, or (b) the negligence or willful
misconduct of Tenant. The insurance shall not apply to any "occurrence"
which takes place after the later of (1) the expiration of the Term, or
(2) the date that Tenant ceases to use and occupy the Leased Premises; or
(z) structural alterations, new construction or demolition operations
performed by or on behalf of any of the parties named as additional
insureds.
(ii) "All risk," non-contributory property damage insurance. including
sprinkler leakage, for the full replacement cost of all leasehold
improvements, alterations, all office furniture, trade fixtures, office
equipment merchandise, and all other items of Tenant's property; and
(iii) Business interruption insurance in an amount sufficient to reimburse
Tenant for loss of earnings attributable to prevention of access to the
Complex or Leased Premises for a period of at least one a year.
Tenant shall, prior to the commencement of the Lease Term and thereafter
during the Lease Term prior to the expiration date of any insurance
policy, furnish to Landlord policies or certificates issued by thc
respective carriers evidencing such coverage or replacements and renewals
thereof, which policies or certificates shall state that such
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insurance coverage may not be reduced to a level below that required under
this Section, otherwise changed so that such insurance no longer meets the
requirements of this Section 23, canceled or expire without at least thirty
(30) days' prior written notice to Landlord.
Tenant's liability shall not be limited because of the insurance required
hereunder nor to the amounts thereof nor because of any exclusions from
coverage in any insurance policy.
B. Landlord shall maintain throughout the Term (i) all-risk or fire with
extended coverage insurance upon the Complex in at least such amounts as,
and with deductibles which are not materially in excess of, those
maintained on or with respect to comparable office buildings in center city
Philadelphia, with appropriate adjustments based upon the size, replacement
cost, age, location, quality and condition of the Complex and such other
buildings, and (ii) general liability insurance against claims for bodily
injury, death and property damage in and about the Complex and the Lot in
at least such amounts as are maintained by the owners of comparable office
buildings in center city Philadelphia.
Notwithstanding anything to the contrary set forth herein. so long as
Landlord is one of the following, or is a partnership in which one of the
following is a general partner. Landlord may maintain the insurance under
this Lease by means of self-insurance: (i) Metropolitan Life Insurance
Company, (ii) any entity which is related to Metropolitan Life Insurance
Company, or (iii) an insurance company having a Best's rating of B+ or
higher.
C. Landlord and Tenant: each hereby releases the other from any and all
liability or responsibility to the party granting such release (a
"Releasing Party") and to anyone claiming through or under the Releasing
Party by way of subrogation or otherwise, for loss or damage to the
property of the Releasing Party, even if the loss or damage shall have been
caused by the fault or negligence of the other party, or anyone for whom
such party may be responsible, provided, however, that this release shall
be effective only with respect to loss or damage (i) covered by insurance
maintained by the Releasing Party or required to be maintained by the
Releasing Party pursuant to the terms of this Lease, and (ii) occurring
during such time as the relevant insurance policy of the Releasing Party)
contains a clause or endorsement to the effect that such release shall not
adversely affect or impair such insurance or prejudice the right of the
insured to recover thereunder. Each party will use its best efforts to
obtain such a clause or endorsement, but if an additional premium is
charged therefor, the party benefiting therefrom, if it desires to have
such waiver, will pay to the other the amount of such additional premium
promptly upon being billed therefor.
24. MORTGAGES AND OTHER AGREEMENTS.
A. In the event that any person, firm, corporation or other entity who is a
party to any instrument to which this Lease is subject or subordinate
(including, without limitation, any, mortgage or ground lease now or
hereafter placed upon the Complex or Lot or any
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interest created therein) or their successor(s), succeeds thereunder to the
interest of Landlord in the Complex or Lot, or acquires the right to
possession of the Complex or Lot, such person, firm, corporation or other
entity shall not be (i) liable for any act or omission of the party named
above as Landlord under this Lease; (ii) liable for the performance of
Landlord's covenants hereunder which arise and accrue prior to such
person., firm, corporation or other entity succeeding to the interest of
Landlord hereunder or acquiring such right to possession; (iii) subject to
any offsets or defenses which Tenant may have at any time against Landlord;
(iv) bound by any Rent which Tenant may have paid previously for more than
one month in advance; (v) liable for the return of any security deposit
which it did not actually receive; or (vi) bound by any amendment or
modification hereof relating to the reduction of Rent, the shortening of
the Lease Term or the effecting of a cancellation or surrender hereof and
made without the consent of such person, firm, corporation or other entity.
B. Tenant agrees, from time to time as may be required by Landlord to execute,
acknowledge and deliver to Landlord all or any of the following within
twenty (20) days after being requested to do so: an estoppel letter
certifying to such party as Landlord reasonably may designate, including
any mortgagee or ground lessor, that this Lease is in full force and effect
and has not been amended, modified or superseded, that Landlord has
satisfactorily completed all construction work required by this Lease, that
Tenant has accepted the Leased premises and is now in possession hereof,
that Tenant has no defense, offsets or counterclaims hereunder or otherwise
against Landlord with respect to this Lease or the Leased Premises and
landlord is not in default hereunder (or if any of the foregoing is not the
case, specifying in reasonable detail the extent and nature thereof), that
Tenant has no actual knowledge of any pledge or assignment of this Lease or
Rent hereunder, that Rent is accruing under this Lease but has not been
paid more than one month in advance and the date to which Rent has been
paid; and any other instrument that Tenant may be reasonably requested to
execute by Landlord or by any mortgagee or ground lessor of the Lot or
Complex or any interest therein, so long as the rights of Tenant as
provided for by this Lease are not adversely affected by any such other
instrument. Tenant's estoppel letter shall be in the form of Exhibit 24
attached hereto and made a part hereof, or in such other form as Landlord
or its mortgagee or ground lessor shall hereafter prescribe.
C. Should any prospective mortgagee or ground lessor require a modification or
modifications of this Lease, which modification or modifications will not
cause in the Rent stipulated hereunder or in any other way adversely change
the rights or obligations of Tenant hereunder, then and in such event,
Tenant agrees that this Lease may be so modified and agrees to execute
whatever documents are required therefor and deliver the same to Landlord
within twenty (20) days following request therefor.
D. In the event of any default by Landlord which would give Tenant the right
to exercise any remedy, Tenant shall not exercise any such remedy until it
has notified in writing the holder of any mortgage or deed of trust which
at the time shall be a lien on all or any portion of the Lot or Complex (if
the name any address of such holder shall previously
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have been furnished by written notice to Tenant) of such default, and until
there shall have elapsed a period of thirty (30) days from use receipt of
such notice, and such additional time as is reasonably necessary for the
holder to cure such default, provided that the holder commences to cure the
default within such thirty-days period and diligently thereafter prosecutes
such cure to completion.
25. SUBORDINATION AND ATTORNMENT.
A. Subject to Section 25(B), this Lease and the estate, interest and rights
hereby created are subordinate to the lease agreements of the nature
referred to in Section 29 hereof, any mortgage now or hereafter placed upon
the Lot, the Complex or any estate or interest herein, including without
limitation, any mortgage on any leasehold estate, and to all renewals,
modifications, consolidations, replacements and extensions of same as well
as any substitutes therefor. Tenant agrees that in the event any person,
firm, corporation or other entity acquires the right to possession of the
Lot and the Complex including any mortgagee, ground lessor, or holder of
any estate or interest having priority over this Lease, Tenant shall, if
requested by such person, firm, corporation or other entity, attorn to and
become the tenant of such person, firm, corporation or other entity, upon
the same terms and conditions as are set forth herein for the balance of
the Lease Term (as the same may be extended as provided for elsewhere in
this Lease). Notwithstanding the foregoing, any mortgagee may, at any
time, subordinate its mortgage to this Lease, without Tenant's consent, by
notice in writing to Tenant, and thereupon this Lease shall be deemed
prior to such mortgage without regard to their respective dates of
execution and delivery, and in that event, such mortgagee shall have the
rights with respect to this Lease as if this Lease as if this Lease had
been executed prior to the execution and delivery of the mortgage.
B. The provisions of Section 25(A) are subject, however, to the express
condition that so long as Tenant is not in default in its obligations
hereunder beyond any applicable notice and grace periods, (i) Tenant will
not be made a party in any action or proceeding by any senior party in
interest to recover possession of the Building and/or the Leased Premises
or to the foreclosure of any mortgage, (ii) Tenant's possession shall not
be disturbed, and (iii) this Lease shall not be cancelled or terminated and
shall continue in full force and effect upon any foreclosure, sheriff's
sale or recovery of possession upon all of the terms and conditions set
forth in this Lease. The holder of every interest to which this Lease is
subordinate shall be deemed to have agreed to the conditions set forth in
this Section 25(B), without necessity for execution of any additional
documents.
C. Although the foregoing provisions of this Section 25 are automatic and do
not require the execution of any further documentation, Tenant, if
requested by Landlord, and Landlord if requested by Tenant shall execute
any such instruments in recordable form as may be reasonably necessary to
confirm the foregoing subordination, non-disturbance and attornment
agreements. Upon request by Tenant, Landlord shall use reasonable efforts
to cause the holder of any mortgage upon the Lot or Complex and/or the
lessor under any lease agreement referred to in Section 29, to execute such
instruments also.
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D. Landlord represents to Tenant that, as of the date of this Lease (i) there
are no mortgages on the Complex, or on any estate or interest of Landlord
therein, and (ii) there are no leases of the nature described in Section
29, except for the Lease dated as of November 12, 1970, between the
Trustees of the General Electric Pension Trust as lessor and Centre Square,
Inc. and Tishman Construction Company of Pennsylvania, Inc. as lessees (as
amended, the Ground Lease"). Simultaneously with the execution of this
Lease, Landlord shall deliver to Tenant a Subordination, Nondisturbance and
Attornment Agreement in the form attached hereto as Exhibit 25, executed by
Centre Square Two, the current lessor under the Ground Lease.
26. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not pledge, mortgage or otherwise encumber this Lease without
the prior written consent of Landlord which maybe withheld for any reason
in Landlord's sole discretion. Except as otherwise expressly set forth in
Section 26(M) of this Lease, Tenant shall not assign this Lease, sublet all
or any part of the Leased Premises, or permit the same to be occupied or
used by anyone other than Tenant or its employees without Landlord's prior
written consent, which consent shall not be unreasonably withheld or
delayed.
B. Tenant's request for consent, where such consent is required hereunder,
shall be in writing and contain the name, address and description of the
business of the proposed assignee or subtenant, its most recent financial
statement and other evidence of financial responsibility, and a description
of all material terms of the proposed assignment or sublease, certified by
Tenant as being accurate and complete.
C. Within thirty (30) days from receipt of such request including the
formation described in Section 26(B) above, Landlord shall either: (i)
grant or refuse consent, or (ii) elect to require Tenant (a) if the request
is for consent to a proposed sublease to execute a sublease to Landlord or
its designee for the term and of the space covered by the proposed
sublease, but at the Rent per square foot and otherwise upon the same terms
and conditions as are contained, in this Lease (not including the
restrictions on subleasing set forth in this Section), together with an
assignment of Tenant's interests as sublessor in the proposed sublease, or
(b) if the requests is for consent to a proposed assignment to terminate
this Lease effective as of the date preceding the date upon which the
assignments is to become effective. Any refusal of consent by Landlord to
a proposed sublease or assignment pursuant to Section 6(C)(i) above shall
set forth the specific reasons for such refusal. If Landlord consents to a
sublease or assignments but the space is not subleased or assigned by
Tenant within ninety (90) days from the date Landlord receives Tenant's
request for consent, Tenant shall, prior to entering into a sublease or an
assignment, once again give Landlord written notice required under Section
26(B) and Landlord shall again have the rights set forth in this Section
26(C).
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D. If Landlord shall give its consent to any assignment of this Lease or to
any sublease, except in the case of an assignment or sublease to an
Affiliate pursuant to Section 26(M), Tenant shall in consideration therefor
pay to Landlord, as Additional Rent, one-half of the Sublease Profit. The
term "Sublease Profit" means the sum of the following amounts less the
Sublease Expense (which shall be amortized on a straight line basis over
the term of the sublease or the remaining term of the assignment, as the
case may be)
(i) in the case of an assignment, an amounts equal to all sums and other
consideration received by Tenant from the assignee for or by reason of such
assignment; and
(ii) in the case of a sublease, any rents, additional rents and other
consideration payable under the sublease to Tenant by the subtenant which
are in excess of the Annual Fixed Rent and all Additional Rent payable
under this Lease in respect of the subleased space (at the rate per square
foot payable by Tenant hereunder) for the sublease term.
The sums payable as set forth above shall be paid to Landlord as Additional
Rent as and when paid by the assignee or subtenant to Tenant. The term
"Sublease Expenses" means standard brokerage commissions paid by Tenant to
procure the subtenant or assignee and costs of alterations paid for by
Tenant for the subtenant or assignee.
E. Each assignee hereunder shall assume and be deemed to have assumed this
Lease and shall be and remain liable jointly and severally with Tenant for
all payments and for the due performance of all terms, covenants,
conditions and provisions herein contained on Tenant's part to be observed
and performed. No assignment shall be valid and no assignee shall take
possession unless the assignee shall deliver to Landlord an instrument
containing a covenant of assumption by the assignee and confession of
judgment provisions which are substantially the same as those contained in
this Lease. The failure or refusal of an assignee to execute the same
shall not release such assignee from its liability as set forth herein. No
subleases shall be valid and no subtenant shall take possession until an
executed counterpart of the sublease has been delivered to Landlord.
F. [Intentionally Deleted]
G. Any consent by Landlord hereunder shall not constitute a waiver of strict
future compliance by Tenant with the provisions of this Section 26 or a
release of Tenant from the full performance by Tenant of any of the terms,
covenants, provisions or conditions contained in this Lease. Tenant shall
reimburse landlord, without thirty (30) days of being billed therefor for
all reasonable costs incurred by Landlord in connection with this review of
any request for approval of a proposed assignment or sublease, including
without limitation, all reasonable attorneys' fees and architects' fees.
H. If an Event of Default shall occur hereunder, Landlord may collect Rent
from the assignee, subtenant or occupant, and apply the net amount
collected to the Rent herein reserved, but no such assignment, subletting,
occupancy or collection shall be deemed a waiver of the provisions of this
Section 26 or the acceptance of the assignee, subtenant or occupant as
Tenant.
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I. Subject to Section 26-A of this Lease, if Tenant is a corporation (other
than a corporation whose stock is traded through a national or regional
exchange or over-the-counter), any transaction or series of transactions
(including without limitation any dissolution, merger, consolidation or
other reorganization of Tenant, or any issuance, sale, gift, transfer or
redemption of any capital stock of Tenant, whether voluntary, involuntary,
or by operation of law, or any combination of any of the foregoing
transactions) resulting in the transfer of control of Tenant, other than by
reason of death, shall be deemed to be an assignment of Tenant's interest
under this Lease for the purpose of this Article. If Tenant is a
partnership, any transaction or series of transactions (including without
limitation any withdrawal or admittance of a partner or any change in any
partners interest in Tenant, whether voluntary, involuntary or by operation
of law, or any combination of any of the foregoing transactions) resulting
in the transfer of control of Tenant, other than by reason of death, shall
be deemed to be an assignment of Tenant's interest under this Lease for the
purpose of this Article. The term "control" as used in this Article means
the power to directly or indirectly direct or cause the direction of the
management or policies of Tenant. If Tenant is a corporation, a change or
series of changes in ownership of stock which would result in a direct or
indirect change in ownership by the stockholders or an affiliated group of
stockholders of more than fifty percent (50%) of the outstanding voting
stock of Tenant as of the date of the execution and delivery of this Lease
shall be considered a change of control.
J. The listing of any name other than that of Tenant, whether on the doors of
the Leased Premises or on the directory or otherwise, shall not operate to
vest any right or interest in this Lease or in the Leased Premises or be
deemed to be the consent of Landlord to an assignment or subletting, it
being expressly understood that any such listing is a privilege extended by
Landlord revocable at will be written notice to Tenant.
K. [Intentionally Deleted].
L. Notwithstanding anything to the contrary set forth herein, Tenant covenants
and agrees that it shall not enter into any lease, sublease, license,
concession or other agreement for use, occupancy or utilization of space in
the Leased Premises which provides for a rental or other payment for such
use, occupancy or utilization based in whole or in part on the income or
profits derived by any person from the property leased, used, occupied or
utilized (other than an amount based on a fixed percentage or percentages
of receipts or sales). Any such lease, sublease, license, concession or
other agreement shall be absolutely void and ineffective as a conveyance of
any right or utilization of any part of the Leased Premises. Tenant
further covenants and agrees that it shall include in each lease, sublease,
license, concession or other agreement for use, occupancy or utilization of
space in the Leased Premises, a provision that neither subtenant nor an
other person having an interest in thc possession, use, occupancy or
utilization of the Leased Premises shall any Lease, sublease, license,
concession or other agreement for use, occupancy or utilization of space in
the Leased Premises which provides for a rental or other payment for such
use, occupancy or utilization based in whole or in part on the income or
profits derived by any person from the property leased, used, occupied or
utilized (other than an
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amount based on a fixed percentage or percentages of receipts or sales),
and that any such purported lease, sublease, license, concession or other
agreement shall be absolute, void and ineffective as a conveyance of any
right or interest in the possession, use, occupancy, or utilization of any
part of the Leased Premises, and Tenant further agrees to use reasonable
efforts to enforce such provisions.
M. Notwithstanding anything to the contrary set forth in this Lease. Tenant
shall have the right, without the consent of Landlord to assign this Lease
or sublease all or any portion of the Leased Premises to any Affiliate of
Tenant, provided, however, that:
(i) the intended use by the assignee or subtenant does not conflict with
the provisions of Section 10 of this Lease or with any commitment made by
Landlord to any other tenant in the Complex; provided. however, Landlord
agrees that it shall not make any commitment to another tenant which would
prohibit the use of the Leased Premises for general office purposes related
to publishing, media or broadcasting;
(ii) Tenant shall promptly advise Landlord of any such assignment of this
Lease or sublease of the Leased Premises;
(iii) Tenant's right to assign or sublease this Lease to an Affiliate
shall not be applicable to an assignment of the nature described in Section
26(I), regardless of whether such transaction is with an Affiliate;
(iv) all of the provisions of this Section 26. other than the requirement
for obtaining Landlord's consent and the provisions of Section 26(D), shall
apply to any such assignment of this Lease or sublease of the Leased
Premises. Without limiting the generality of the foregoing. no assignment
of this Lease or sublease of the Leased Premises shall release or relieve
Tenant from any of liabilities or obligations under this Lease.
The term "Affiliate" shall mean any entity which, directly or indirectly,
through one or more intermediaries. Controls, is controlled by or is
under common control with Landlord or Tenant.
26A. MERGERS.
A. Notwithstanding the provisions of Section 26(I) of this Lease, the
occurrence of a Merger (as hereinafter defined) shall not constitute a
breach of Section 26 this Lease, provided that Tenant otherwise complies
with the requirements set forth in this Section. The term "Merger" as used
in this Lease means any merger, reorganization, consolidation,
reincorporation, or sale of all or substantially all of any entity's
assets, whether voluntarily or by operation of law. A transaction involving
the issuance of treasury stock (or the creation and issuance of new stock)
of a controlling interest in the shares of the corporation being merged, or
a transfer of a majority of the total interest in the partnership or trust
being merged, whether by operation of law or otherwise, at any one time or
over a period of time through a series of transfers, shall constitute a
Merger for purposes of this Lease and shall be subject to all of the
provisions of this Section.
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B. Tenant covenants and agrees that in the event of a Merger, the legal entity
which survives as or succeeds to the interest of Tenant under this Lease
shall have a net worth (defined as assets minus liabilities, each
determined in accordance with generally accepted accounting principles) of
not less than Tenant's net worth as of December 31, 1994. Tenant's net
worth as of December 31, 1994 was $7,000,000. Prior to any contemplated
Merger, Tenant shall deliver to Landlord evidence that the successor entity
meets the requirements of this Section.
C. Tenant covenants that any corporation or other entity which succeeds to
Tenant's interest under this Lease as a result of a Merger shall comply
with the requirements of Section 26(E) of this Lease.
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28. DEFAULT. Any other provisions in the Lease notwithstanding, it shall be an
"Event of Default" under this Lease if (A) Tenant fails to pay any installment
of Annual Fixed Rent or Additional Rent when due and such failure continues for
a period of ten (10) days after written notice given by or on behalf of Landlord
to Tenant, provided, however, Landlord need not give any such written notice,
and Tenant shall not be entitled to any such written notice, and Tenant shall
not be entitled to any such period of grace, more than twice in any twelve month
period, (B) Tenant fails to take occupancy of the Leased Premises within thirty
(30) days after the date of Substantial Completion, or Tenant vacates the Leased
Premises or uses or occupies the Leased Premises otherwise than as permitted by
Sections 1 or 10 hereof, or assigns or sublets, or purports to assign or sublet,
the Leased Premises or any part thereof otherwise than in the manner and upon
the conditions set forth in Section 26 hereof, (C) Tenant fails to observe or
perform any other covenant or agreement of Tenant herein contained and such
failure continues after written notice given by or on behalf of Landlord to
Tenant for more than thirty (30) days and such additional time, if any, as is
reasonably necessary to cure such failure, provided Tenant commences to use such
failure within such thirty-day period and diligently thereafter prosecutes such
cure to completion, (D) without Landlord's prior written consent, Tenant removes
or attempts to remove or manifests an intention to remove any or all of Tenant's
property from the Leased Premises otherwise than in the ordinary and usual
course of business, (E) Tenant makes any assignment for the benefit of
creditors; Tenant commits an act of bankruptcy or files a petition or commences
any proceeding under any bankruptcy or insolvency law; a petition is filed or
any proceeding commenced against Tenant under any bankruptcy or insolvency law
and such petition or proceeding is not dismissed within ninety (90) days; Tenant
is adjudicated a bankrupt; Tenant by any act indicates its consent to, approval
or acquiescence in, or a court approves, a petition filed or proceeding
commenced against Tenant under any bankruptcy or insolvency law, a receiver or
other official is appointed for Tenant or for a substantial part of Tenant's
assets for Tenant's interest in this Lease; any attachment or execution against
a substantial part of Tenant's assets or of Tenant's interest in this Lease
remains unstayed or undismissed for a period of more than thirty (3) days; a
substantial part of Tenant's assets or Tenant's interest in this Lease is taken
by legal process in any action against Tenant, or (F) any of the foregoing occur
as to any guarantor or surety of Tenant's performance under this Lease, or such
guarantor or surety defaults on any provision under its guaranty or suretyship
agreement.
29. LANDLORD'S REMEDIES.
A. If an Event of Default hereunder shall have occurred, Landlord may, at its
option:
(i) declare due and payable and sue for and recover, all unpaid Annual
Fixed Rent for the unexpired period of the Lease Term, not including
any unexercised Renewal Options and also all Additional Rent as
determined or, reasonably estimated by Landlord) as if by the terms of
this Lease the same were payable in advance, discount to present value
over such period at the Prime Rate in effect on the date of demand,
together with all legal fees and other expenses incurred by Landlord
in connection with the enforcement of any of Landlord's rights and
remedies hereunder, and upon payment of the same, Tenant shall be
entitled to continue in
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possession of the Leased Premises for the balance of the Term,
subjects to compliance with the other terms and conditions of this
Lease, and/or
(ii) file a Proof of Claim in any bankruptcy or insolvency proceeding for
such Annual Fixed Rent and Additional Rent determined in accordance
with the provisions of Section 28(A)(i), or institute any other
proceedings, whether similar or dissimilar to the foregoing, to
enforce payment thereof, and/or
(iii) terminate the Lease Term by giving written notice thereof to Tenant
and, upon the giving of such notice, the Lease Term and the estate
hereby granted shall expire and terminate with the same force and
effect as if the date of such notice was the date hereinbefore fixed
for the expiration of the Lease Term, and all rights of Tenant
hereunder shall expire and terminate, but Tenant shall remain liable
as hereinafter provided, and/or
(iv) exercise any other rights and remedies available to Landlord at law
or in equity.
B. If any Event of Default shall have occurred, Landlord may, whether or not
the Lease Term has been terminated as herein provided, reenter and
repossess the Leased Premises or any part thereof by summary proceedings,
ejectment or otherwise and Landlord shall have the right to remove all
persons and property therefrom. Landlord shall be under no liability for
or by reason of any such entry, repossession or removal; and no such
reentry or taking of possession of the Leased Premises by Landlord shall be
construed as an election on Landlord's part to terminate the Lease Term
unless a written notice of such intention be given to Tenant pursuant to
Section 28(A)(iii).
C. At any time or from time to time after the repossession of the Leased
Premises or any part thereof pursuant to Section 28(B) whether or not the
Lease Term shall have been terminated pursuant to Section 28(A)(iii),
Landlord may relet all or any part of the Leased Premises for the account
of Tenant for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Lease
Term) and on such conditions (which may include concessions or free rent)
and for such uses as Landlord, may reasonably determine, and Landlord may
collect and receive any rents payable by reason of such reletting. For the
purpose of such reletting, Landlord may decorate or make repairs, changes,
alterations or additions in or to the Leased Premises or any part thereof
to the extent deemed by Landlord desirable or convenient, and the
reasonable cost of such decoration, repairs, changes, alterations or
additions shall be charged to and be payable by Tenant as Additional Rent
hereunder, as well as any reasonable brokerage and legal fees expended by
Landlord.
Landlord shall use commercially reasonable efforts to relet the Leased
Premises on commercially reasonable terms, but Landlord shall in no event
be liable in any way whatsoever for failure to relet the Leased Premises
or, in the event that the Leased Premises or any part or pans thereof are
relet, for failure to collect the rent under such reletting. The foregoing
shall no be construed to impose upon Landlord any obligation to
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offer the Leased Premises (or portion thereof) for lease at terms more
favorable than those being offered by Landlord for other space in the
Complex; nor shall Landlord be obligated to lease the Leased Premises (or
portion thereof) before, in lieu of, or in preference over any) other
portion of the Complex available for lease.
D. No expiration or termination of the Lease Term pursuant so Section
28(A)(iii), by operation of law or otherwise, and no repossession of thc
Leased Premises or any part thereof pursuant to Section 28(B), or
otherwise. and no reletting of the Leased Premises or any part thereof
pursuant to Section 28(C) shall relieve Tenant of its liabilities and
obligations hereunder, all of which shall survive such expiration,
termination, repossession or reletting.
E. In the event of any expiration or termination of this Lease or repossession
of the Leased Premises or any part thereof by reason of an occurrence of an
Event of Default, and Landlord has not elected to accelerate Rent pursuant
to Section 28(A)(i), Tenant shall pay to Landlord the Annual Fixed Rent and
Additional Rent required to be paid by Tenant to and including the date of
such expiration, termination or repossession; and, thereafter, Tenant
shall, until the end of what would have been the expiration of the Lease
Term in the absence of such expiration, termination or repossession, and
whether or not the Leased Premises or any part thereof shall have been
relet, be liable to Landlord for, and shall pay to landlord, the Annual
Fixed Rent and Additional Rent which would be payable under this Lease by
Tenant in the absence of such expiration, termination or repossession, less
the net proceeds, if any, of any reletting effected for the account of
Tenant pursuant to Section 28(C), after deducting from such proceeds all of
Landlord's expenses in connection with such reletting (including, without
limitation, all related repossession costs, brokerage commissions, legal
expenses, attorney's fees, employees' expenses, alteration costs and
expenses of preparation of such reletting). Tenant shall pay such current
damages on the days on which the annual Fixed Rent would have been payable
under this Lease in the absence of such expiration, termination or
repossession, and Landlord shall be entitled to recover the same from
Tenant on each such day.
F. At any time after such expiration or termination of this Lease or
repossession of the Leased Premises or any part thereof by reason of the
occurrence of an Event of Default, whether or not Landlord shall have
collected any current damages pursuant to Section 28(E), Landlord shall be
entitled to recover from Tenant, and Tenant shall pay to Landlord on
demand, unless Tenant has paid the whole of accelerated Rent pursuant to
Section 28(A)(i), as and for liquidated and agreed final damages for
Tenant's Event of Default and in lieu of all current damages beyond the
date of such demand (it being agreed that it would be impracticable or
extremely difficult to fix the actual damages), an amount equal to the
excess, if any, of (i) Annual Fixed Rent and Additional Rent (as such
Additional Rent is determined or reasonably estimated by Landlord) which
would be payable under this Lease for the remainder of the Lease Term from
the date of such demand (or, if it be earlier, the date to which Tenant
shall have satisfied in full its obligations under Section 28(E) to pay
current damages), for what would have been the then unexpired Lease Term in
the absence of such expiration, termination or
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repossession, discounted at the Prime Rate in effect on the date of demand,
over (ii) the then fair rental value of the Leased Premises for the same
period, discounted at the Prime Rate in effect on the date of demand. If
any statute or rule of law shall validly limit the amount of such
liquidated final damages to less than the amount above agreed upon,
Landlord shall be entitled to the maximum amount allowable under such
statute or rule of law.
G. Tenant, in consideration for the execution of this Lease by landlord and
for the covenants and agreements on the part of Landlord herein contained,
and fully comprehending the relinquishment of certain rights including
rights of prejudgment notice and hearing, hereby expressly authorizes any
attorney of any Court of Record to appear for and to confess judgment
against Tenant in any and all actions brought hereunder by Landlord against
Tenant in any court to recover possession from time to time of the Leased
Premises (and Tenant agrees that upon the entry of each judgment for said
possession a Writ of Possession or other appropriate process may issue
forthwith). The authority to confess judgment against Tenant hereunder
shall not be exhausted by one exercise thereof, but judgment may be
confessed as provided herein from time to time as often as an Event of
Default occurs under this Lease, and such authority may be exercised as
well after the expiration of the Lease Term and/or during or after the
expiration of any extended or renewal term.
H. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy herein or by law
provided, but each shall be cumulative and in addition to every right or
remedy given herein or now or hereafter existing at law or in equity or by
statute. Notwithstanding the foregoing, if, by reason of the occurrence of
an Event of Default, Landlord accelerates the Rent due for the balance of
the Term pursuant to Section 28(A)(i) of this Lease, and if Tenant pays all
amounts due pursuant to such acceleration, Landlord shall not have the
right thereafter to terminate the Lease Term or exercise any of its other
remedies under Section 28 of this Lease by reason of the occurrence of such
Event of Default. The foregoing shall not be construed to release or
relieve Tenant from thereafter complying with all of the terms and
conditions of this Lease or to limit or restrict Landlord's remedies if a
subsequent Event of Default should occur.
I. No waiver by Landlord of any breach by Tenant of any of Tenant's
obligations, agreements or covenants, herein shall be a waiver of any
subsequent breach of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a
waiver by Landlord of any rights and remedies with respect to such or any
subsequent breach.
J. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction
and right to invoke any remedy allowed allowed at law or in equity as if
reentry, summary proceedings and other remedies were not provided for in
this Lease.
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K. Tenant hereby expressly waives any and all rights of redemption granted by
or under any present or future laws in the event Tenant is evicted or
dispossessed for any cause, or in the event Landlord obtains possession of
the Leased Premises, by reason of the violation of this Lease, or
otherwise.
L. Tenant shall pay upon demand all reasonable legal fees and other expenses
actually incurred by Landlord in connection with the enforcement of any of
Landlord s rights or remedies under this Lease.
30. UNDERLYING LEASES AND ESTATES. This Lease and the estate, interests and
rights herein created shall be and remain subject and subordinate to any and all
underlying agreements, leases or other instruments and to any extensions or
modifications thereof, by virtue of which Landlord is or may be entitled to
possession of the Complex and Lot and which are now of record, and/or expressly
referred to herein or which in the future may be of record and which by their
terms are not expressly made subject and subordinate to this Lease. The
foregoing is subject, however, to the provisions of Section 25 of this Lease.
31. SUCCESSORS AND ASSIGNS, LIMITATION OF LANDLORD'S LIABILITY. This Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that Landlord and each successive
owner of the Complex and/or the Lot shall be liable only for obligations
accruing during the period of its ownership or interest in the Complex or the
Lot; and from and after the transfer by Landlord or such successive owner of its
ownership or other interest in the Complex or the Lot, Tenant shall look solely
to the successors in title for the performance of Landlord's obligations
hereunder. The liability of Landlord or any successive owner of the Complex
and/or the Lot hereunder and all of its officers, employees, shareholders or
joint ventures or partners, if any, whether general or limited, shall be limited
to Landlord's estate or other title or interest in the Complex and/or the Lot
and Landlord's interest in the rents therefrom.
32. LETTER OF CREDIT.
A. Simultaneously with the execution of this Lease, Tenant shall deliver to
Landlord an irrevocable transferable standby letter of credit in an amount
equal to Five Hundred Thousand Dollars ($500,000) issued by a bank
reasonably acceptable to Landlord (the "Initial Letter". The Initial
Letter and any replacement for the Initial Letter (a "Replacement Letter")
shall (i) be addressed to Landlord, (ii) be a "clean" irrevocable
transferable standby letter of credit (i.e., it must require that payment
----
be made upon presentation of only a draft and a simple statement that the
sum drawn is presently due, with no additional documents required), (iii)
state expressly that it is irrevocable and that it shall be honored
immediately upon presentation, (iv) be issued by a bank reasonably
acceptable to Landlord, (v) be transferable with no fee, (vi) be in
compliance with all applicable laws and regulations, including without
limitation applicable regulations of the Comptroller of the Currency, (vii)
provide for automatic renewal from year to year and shall state the
following: "It is a condition of this Letter of Credit that it be deemed
to be automatically extended without amendment for one year from the expiry
date hereof, or
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any future expiration date, unless 60 days prior to any expiration date we
notify the beneficiaries by registered mail that we elect not to consider
this Letter of Credit renewed for such period; (viii) provide that the
Letter of Credit shall be governed by the laws of the State of New York;
and (ix) otherwise be in form, scope and substance satisfactory to
Landlord. The term "Letter of Credit" as used in this Lease means the
Initial Letter or any Replacement Letter Landlord is then holding. The
parties agree that if Landlord elects to transfer the Letter of Credit,
such transfer shall be accomplished by an amendment to the Letter of
Credit, rather than through the issuance of a Replacement Letter.
B. It is the intention of Landlord and Tenant that at all times during the
Term of this Lease, Landlord shall have in its possession an unexpired
Letter of Credit, being either the Initial Letter or a Replacement Letter
meeting each of the requirements of this Section 31. Accordingly, Tenant
agrees that in the event Landlord receives from the issuer of the Letter of
Credit written notice of non-renewal not less than sixty (60) days prior to
the end of the then current term of such Letter of Credit, as stipulated
under the terms of the Letter of Credit, then not later than sixty (60)
days prior to the expiration of the Letter of Credit Tenant shall either
(y) deliver to Landlord an amendment from the issuer of the Letter of
Credit extending the term thereof for not less than one year (or a
revocation of thc non-renewal notice), which extension (or revocation)
shall not modify any provision of the Letter of Credit (other than to
extend the term and to reduce the amount as permitted by this Section), or
(z) deliver to Landlord the Replacement Letter.
Failure by Tenant to comply with any of the provisions of Section 31(B)
shall constitute an Event of Default under this Lease, without any
requirement for notice or opportunity to cure.
C. The Letter of Credit shall provide that: (i) during the period from the
date of delivery through September 30, 1996, the amount of the Letter of
Credit shall be $500,000; (ii) during the period from October 1, 1996
through September 30, 1997, the amount of the Letter of Credit shall be
S400,000; (iii) during the period from October 1, 1997 through September
30, 1998, the amount of the Letter of Credit shall be $300,000; (iv) during
the period from October 1, 1998 through September 30, 1999, the amount of
the Letter of Credit shall be $200,000; (v) during the period from October
1, 1999 and for the balance of the Term, the amount of the Letter of Credit
shall be $100,000.
D. [INTENTIONALLY OMITTED]
E. Upon the occurrence of any Event of Default under this Lease, Landlord
shall have the right, in addition to all other remedies which it may have,
to present the Letter of Credit for payment. In such event, Landlord shall
apply all or any part of the Proceeds thereof (the "LC Proceeds") to the
payment of any obligations of Tenant under this Lease which are then in
default (after the expiration of any applicable notice and grace periods)
and to any damages sustained by Landlord by reason of such default. If any
LC Proceeds remain after such application, Landlord shall retain the
remaining LC Proceeds in its
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possession as security for Tenant's obligations under this Lease. Landlord
may commingle the LC Proceeds with other funds of Landlord.
Upon the occurrence of any Event of Default, Landlord may apply all or any
part of the remaining LC Proceeds to the payment of obligations of Tenant
under this Lease which are then in default (after the expiration of any
applicable notice and grace periods) and to any damages sustained by
Landlord by reason of any such default.
F. Any LC Proceeds which have not been applied by Landlord pursuant to this
Section 31 shall be returned to Tenant within thirty (30) days after the
expiration of the Term and Tenant's surrender of possession of the Leased
Premises to Landlord. If the Letter of Credit has not been presented for
payment, Landlord shall return the Letter of Credit to Tenant within thirty
(30) days after the expiration of Term.
G. In the event of a sale or transfer of Landlord's estate or interest in the
Complex, Landlord shall transfer the Letter of Credit and/or LC Proceeds to
the vendee or transferee, and Landlord shall thereupon be released from all
liability for the return of the Letter of Credit and/or LC Proceeds and
Tenant shall look solely to the vendee or transferee for their return.
This Section 31(G) shall apply to every transfer or assignment of the
Letter of Credit and/or LC Proceeds to a new transferee or assignee.
33. SPRINKLER SYSTEM; LIFE SAFETY SYSTEM.
If the life safety or sprinkler systems in the Complex shall be damaged or
injured by Tenant or its agents, servants, employees, invitees, licensees or
visitors, Tenant shall forthwith restore the same to good working condition at
its own expense; and if the Board of Fire Underwriters or First Insurance
Exchange or any governmental bureau, department or official requires or
recommends that any changes, modification, alterations or additional sprinkler
heads or other equipment be made or supplied by reason of Tenant's business, or
the location of partitions, trade fixtures, or other contents in the Leased
Premises, or for any other reason attributable to Tenant, or if by reason of
Tenant's business or the location of partitions, trade fixtures, or other
contents of the Leased Premises, or for any other reason attributable to Tenant,
any such changes, modifications, alterations, additional sprinkler heads or
other equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system or life safety system
under the fire insurance rate as fixed by said Exchange, or by any fire
insurance company, Tenant shall, at Tenant's sole cost and expense, promptly
make and supply such changes, modifications, alterations, additional sprinkler
heads or other equipment.
34. ENVIRONMENTAL CONSIDERATIONS.
A. For purposes of this Section 33, the following definitions shall apply:
(i) "Environmental Release": The term Environmental Release shall mean any
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intentional or unintentional releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, infecting, escaping, leaching,
disposing, abandoning, discarding or dumping
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of any Toxic Substance (as hereinafter defined) from, on, into or about
the Leased Premises, the Lot or the Complex.
(ii) "Toxic Substance": The term Toxic Substance shall mean a hazardous
---------------
substance, hazardous waste, pollutant or contaminant, as such terms are
now or hereafter defined in all applicable federal, state and local laws,
[BALANCE OF PAGE INTENTIONALLY BLANK]
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ordinances or regulations now or hereafter enacted or amended, and any and
all other terms which are or may be used in any or all applicable laws now
or hereafter enacted to define prohibited or regulated substances.
B. Tenant shall not use the Leased Premises, the Lot or the Complex for the
purpose of treating, producing, handling, transferring, processing,
transporting, disposing, using or storing a Toxic Substance.
C. Tenant and its agents, employees, contractors, licensees and invitees shall
not cause or permit to exist, as the result of an action or omission by one
or more of them, an Environmental Release. The occurrence of an
Environmental Release, or a violation of any covenant, representation or
warranty of this Section 33, shall be an Event of Default under this Lease.
D. Notwithstanding the foregoing, Tenant may use cleaning materials and office
supplies in the ordinary course of Tenant's business, in reasonable
quantities and provided that such materials and supplies are used, stored
and disposed of in compliance with all applicable laws, ordinances and
regulations, as now or hereafter enacted.
E. Tenant and its agents, employees, contractors, licensees and invitees shall
not place or permit the placement of any Toxic Substance in any waste
receptacle located in or about the Leased Premises, the Lot, the Complex or
the plumbing or sewer systems of the Complex.
F. Tenant shall comply with all applicable laws, ordinances and regulations of
all governmental authorities, as now or hereafter enacted, governing Toxic
Substances.
G. Tenant shall pay, defend, indemnify, and hold harmless Landlord from and
against all claims, losses, costs, damages, liabilities and fines arising
from or relating to Environmental Releases to the extent caused by the
acts, negligence, misconduct or other fault of Tenant, its agents,
employees, contractors, licensees, invitees or subTenant's or failure of
Tenant, or its agents, employees, contracts, or licensees, invitees or
subTenant's to comply with the provisions of this Section.
35. HOLDING OVER. If Tenant retains possession of the Leased Premises or any
part thereof after the termination of this Lease by expiration of the Lease Term
or otherwise, Tenant shall pay Landlord (A) an amount, calculated on a per diem
basis for each day of such unlawful retention, equal to the greater of (i) one
hundred fifty percent (150%) of the Annual Fixed Rent (as hereinafter defined)
in effect immediately prior to the expiration or earlier termination of the
Term, or (ii) the market rental for the Leased Premises, as determined by
Landlord, for the time Tenant thus remains in possession, plus, in each case,
all Additional Rent payable hereunder, and (B) all damages, costs and expenses
sustained by Landlord by reason of Tenant's holding over. All of Tenant's
obligations with respect to the use, occupancy and maintenance of the Leased
Premises shall continue during such period of retention; however, neither the
compliance with such obligations nor the payment of the amounts set forth above
in this Section shall create any
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right in Tenant to continue in possession of the Leased Premises or limit any
rights or remedies of Landlord resulting from such holdover.
36. RENTABLE SQUARE FEET.
A. Landlord and Tenant hereby acknowledge and agree that (i) the 27th and 28th
floors of the Building each contain 30,864 Rentable Square Feet, (ii) the
portion of the 27th floor which is included in the Leased Premises contains
10,918 Rentable Square Feet, and (iii) the portion of the Lower Mezzanine
which is included in the Leased Premises contains 5,941 Rentable Square
Feet.
B. If any additional space is hereafter included in the Leased Premises
pursuant to Section 38 of this Lease, the Rentable Square Feet in such
space shall equal the product of (i) 1.2814, and (ii) the number of useable
square feet of the space in question. The useable square footage shall be
computed by measuring to the finished surface of the office side of the
corridor and other permanent walls, to the center of tenant demising walls,
and to the inside surface of the dominant exterior element. No deductions
shall be made for columns and projections necessary to the Building.
To the extent that from time to time during the Lease Term, it becomes
necessary to measure the Rentable Square Feet of any such space, the
measurement shall be performed by Landlord in accordance with the formula
set forth above, and all costs associated with such measurement shall be
the responsibility of Landlord; provided, however, that if Tenant desires
to verify such measurement, all costs associated with such verification
shall be the responsibility of Tenant.
37. LOWER MEZZANINE SPACE. As set forth in Section 1 and Section 5 of this
Lease, the Leased Premises includes, inter alia, the Lower Mezzanine Space
which consists of approximately 5,941 Rentable Square Feet of space located
on the Lower Mezzanine of the Complex. Except as hereinafter set forth,
Landlord shall deliver the Lower Mezzanine Space in its current condition,
"as is." Notwithstanding the foregoing, Landlord shall, on or before the
Commencement Date (A) construct the demising walls at the locations shown
on Exhibit 36.1; (B) construct as multi-tenant corridor at the location
shown on Exhibit 36.1; and (C) complete the work described in Exhibit 36.2.
38. EXPANSION OPTION.
A. Tenant is hereby granted an option (the "Expansion Option") to lease
certain space (the "Expansion Space") containing approximately 8,942
Rentable Square Feet on the 27th floor of the Building. The Expansion
Space is contiguous to the Leased Premises and is shown on Exhibit 1 to
this Lease.
B. Tenant shall exercise the Expansion Option, if at all, by giving notice
(the "Expansion Exercise Notice") in writing to Landlord on or before the
first day of the fourth month of
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the fifth lease year of the Term (the "Expansion Exercise Date"). If Tenant
fails to give the Expansion Exercise Notice on or before the Expansion
Exercise Date, the Expansion Option shall be null and void and of no
further force and effect. At the time Tenant gives the Expansion Exercise
Notice, and also as of the Expansion Space Commencement Date (as
hereinafter defined), this Lease must be in full force and effect and there
may be no outstanding uncured Event of Default in the performance of
Tenant's obligations under this Lease.
C. If Tenant elects to exercise the Expansion Option:
(i) The Expansion Space shall become part of the Leased Premises and all
of the terms and conditions of this Lease shall apply to the
Expansion Space, except as otherwise provided herein.
(ii) Landlord shall construct improvements in the Expansion space (the
"Expansion Space Improvements") in accordance with the provisions of
Exhibit 37.1. To the extent not previously constructed in the
Expansion Space, Landlord shall construct those items of the
Landlord Improvements set forth in Sections 2, 3 and 4 of Exhibit 7.
With respect to the work required under Section 3(b) of Exhibit 7,
Landlord shall provide one VAV box for every 2,000 Rentable Square
Feet included in the Expansion Space. Landlord shall have no
obligation to complete the work set forth in Section 1 of Exhibit 7.
(iii) The date for the commencement of the Term as to the Expansion Space
(the "Expansion Space Commencement Date") shall be the earlier of
(a) the date that Tenant commences the operation of its business in
the Early Exercise Space, or (b) the date of substantial completion
of the Expansion Space Improvements. In no event, however, will the
Expansion Space Commencement Date occur prior to the first day of
the sixth lease year of the Term. Tenant shall commence paying
Annual Fixed Rent, the Operating Expense Adjustment and the Tax
Adjustment for the Expansion Space on the Expansion Space
Commencement Date.
(iv) The term with respect to the Expansion Space shall terminate at the
same time as the Term with respect to the balance of the Leased
Premises terminates.
(v) The Annual Fixed Rent for the Expansion Space per Rentable Square
Foot shall be the same as the Annual Fixed Rent for the balance of
the Leased Premises per Rentable Square Foot in effect from time to
time (other than the Lower Mezzanine Space), and shall change at the
same times and in the same amounts per Rentable Square Foot as the
Annual Fixed Rent for the balance of the Leased Premises (other than
the Lower Mezzanine Space). Fox example, the Annual Fixed Rent for
the Expansion Space during the sixth lease year of the Term would be
$18.00 per Rentable Square Foot, even though it is the first year
that the Expansion Space is actually leased by Tenant. The Annual
Fixed Rent per Rentable Square Foot for the Leased Premises (other
than the Lower Mezzanine Space) is set forth in Exhibit 37.2 to this
Lease.
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(vi) Tenant's Expense Proportionate Share and Tax Proportionate Share
shall be increased based upon the number of additional Rentable
Square Feet included in the Expansion Space. The Operating Expense
Adjustment and the Tax Adjustment for the Expansion Space shall be
determined based upon the Operating Expense Allowance and the Real
Estate Tax Allowance set forth in Section 1 of this Lease.
(vii) At the time that Tenant exercises its rights hereunder, the parties
shall enter into an amendment to this Lease confirming the change in
the Leased Premises, the increase in the Annual Fixed Rent, and
Tenant's Expense Proportionate Share and Tax Proportionate Share in
accordance with the foregoing provisions.
D. In the event that Landlord is unable to deliver possession of the Expansion
Space due to a wrongful holdover by a previous tenant or other
circumstances beyond Landlord's reasonable control, Landlord shall not be
subject to any liability to Tenant; however, the Expansion Space
Commencement Dated shall not occur until possession of the Expansion Space
has been delivered to Tenant in the required condition.
E. Pursuant to a certain lease dated June, 1993 between Landlord and Stein &
Perri, P.C. ("S&P"), Landlord has granted to S&P a right of first offer
(the "S&P ROFO") with respect to approximately 542 Rentable Square Feet
located on the 27th floor of the Building (the "S&P ROFO Space"). The S&P
ROFO Space is shown in Exhibit 1 to this Lease, and as indicated in Exhibit
1, the Expansion Space includes the S&P ROFO Space. Notwithstanding
anything to the contrary set forth in this Lease, Tenant's Expansion Option
is, as to the S&P ROFO Space, subject and subordinate to the S&P ROFO.
If Landlord is unable to deliver possession of the S&P ROFO Space to Tenant
due to the exercise of the S&P ROFO, then (i) the Expansion Space shall not
include, and Tenant's Expansion Option shall not apply to, the S&P ROFO
Space (provided, however, Tenant's exercise of the Expansion Option shall
be binding as to the balance of the Expansion Space), (ii) the Annual Fixed
Rent, Tenant's Tax Proportionate Share, Tenant's Expense Proportionate
Share, and the Addition Construction Allowance for the Expansion Space to
be provided pursuant to Paragraph E of Exhibit 37.1, shall all be
determined upon the basis of the reduced number of Rentable Square Feet
included in the Expansion Space.
39. RIGHT OF FIRST OFFER.
A. Subject to the terms and conditions set forth in this Section, in the event
that during the First Offer Period (as hereinafter defined) any First Offer
Space (as hereinafter defined) becomes available for lease, Tenant shall
have the right (a "Right of First Offer") to lease the same upon the terms
and conditions set forth in this Section. The term "First Offer Period"
means the period from the Commencement Date through the date which is three
(3) years prior to the expiration of the Initial Term (as hereinafter
defined). The term
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"First Offer Space" means any space on the 27th floor of the Building,
including the Expansion Space.
B. If and when any First Offer Space becomes available for lease ("Available
First Offer Space"), Landlord shall give notice thereof to Tenant. Subject
to Section 38(E), Tenant may, at any time thereafter, give notice in
writing to Landlord (a "First Offer Notice") exercising its Right of First
Offer with respect to all or a portion of the Available First Offer Space.
At the time of the exercise of the Right of First Offer, this Lease must be
in full force and effect and there may be no outstanding uncured Event of
Default in the performance of Tenant's obligations under this Lease.
C. If Tenant exercises a Right of First Offer, Tenant shall specify in the
First Offer Notice the amount of Available First Offer Space that Tenant
desires to include in the Leased Premises. Tenant may not, however,
exercise the Right of First Offer for an amount of space which would leave
unleased a block of Available First Offer Space containing less than 2,000
Rentable Square Feet. In the case of the Expansion Space, however, the
provisions of Section 38-A shall control. The additional space which is
included in the Leased Premises as a result of Tenant's exercise of the
Right of First Offer is referred to hereinafter as the "Included Space."
The location of the Included Space shall be mutually determined by Landlord
and Tenant at the time that Tenant exercises its Right of First Offer.
D. If Tenant elects to exercise a Right of First Offer:
(i) The Included Space shall become part of the Leased Premises and all
of the terms and conditions of this Lease shall apply to the
Included space, except as otherwise provided herein.
(ii) Landlord shall construct improvements in the Included Space (the
"Included Space Improvements") in accordance with the provisions of
Exhibit 37. To the extent not previously constructed in the
Included Space, Landlord shall construct those items of the Landlord
Improvements set forth in Sections 2, 3 and 4 of Exhibit 7. With
respect to the work required under Section 3(b) of Exhibit 7,
Landlord shall give Tenant one VAV box for every 2,000 Rentable
Square Feet in the Included Space. Landlord shall have no
obligation to complete the work set forth in Section 1 of Exhibit 7,
with respect to the Included Space.
(iii) The date for the commencement of the Term as to the Included Space
(the "Included Space Commencement Date") shall be the earlier of (a)
the date that Tenant commences the operation of its business in the
Included Space, or (b) the date of substantial completion of the
Included Space Improvements. Tenant shall commence paying Annual
Fixed Rent, the Operating Expense Adjustment and the Tax Adjustment
for the Included Space on the Included Space Commencement Date.
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(iv) The term with respect to the Included Space shall terminate at the
same time as the Term with respect to the balance of the Leased
Premises.
(v) The Annual Fixed Rent for the Included Space per Rentable Square
Foot shall be the same as the Annual Fixed Rent for the balance of
the Leased Premises per Rentable Square Foot in effect from time to
time (other than the Lower Mezzanine Space), and shall change at the
same times and in the same amounts per Rentable Square Foot as the
Annual Fixed Rent for the balance of the Leased Premises (other than
the Lower Mezzanine Space). The Annual Fixed Rent per Rentable
Square Foot for the Leased Premises is set forth in Exhibit 37.2 of
this Lease.
(vi) Tenant's Expense Proportionate Share and Tax Proportionate Share
shall be increased based upon the number of additional Rentable
Square Feet in the Included Space. There shall be no change in the
Real Estate Tax Allowance or the Operating Expense Allowance.
E. Tenant acknowledges that Landlord intends to market any Available First
Offer Space for lease to other prospective Tenant's. In the event that
Landlord procures a prospective tenant for Available First Offer Space or
any portion thereof and is engaged in serious negotiations with such
prospective tenant, Landlord shall give notice thereof (an "Available Space
Activity Notice") to Tenant. The Available Space Activity Notice shall
specify the portion of the Available First Offer Space which Landlord
intends to lease to a prospective tenant. Tenant shall then have ten (10)
business days from receipt of the Available Space Activity Notice within
which to exercise its Right of First Offer, with respect to the portion of
the Available First Offer Space identified in the Available Space Activity
Notice. If Tenant fails to exercise its Right of First Offer within such
period, Landlord may thereafter enter into a lease with another tenant for
the Available First Offer Space identified in the Available Space Activity
Notice, upon such terms as Landlord determines. Tenant's Right of First
Offer with respect to such Available First Offer Space shall be null and
void and of no further force or effect. In the case of the Expansion
Space, however, any lease to another tenant shall be subject to Tenant's
Expansion Option, if it may still be exercised by Tenant.
F. Space shall not be deemed Available First Offer Space for purposes of this
Lease, if it is leased to another tenant or if it is subject to any
unexercised expansion or renewal options which may thereafter be exercised
by another tenant.
In addition to the foregoing, with respect to the portion of the First
Offer Space which also constitutes the S&P ROFO Space. Tenant's Right of
First Offer is subject and subordinate to the S&P ROFO. If Landlord is
unable to deliver possession of the S&P ROFO Space to Tenant due to the
exercise of the S&P ROFO, then (i) the Included Space shall not include,
and Tenant's Right of First Offer shall not apply to, the S&P ROFO Space
(provided, however, Tenant's exercise of its Right of First Offer shall be
binding as to the balance of any Included Space), and (ii) the Annual Fixed
Rent. Tenant's Tax
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Proportionate Share, Tenant's Expense Proportionate Share, and the Addition
Construction Allowance for the Included Space to be provided pursuant to
Paragraph E of Exhibit 37.1, shall all be determined upon the basis of the
reduced number of Rentable Square Feet in the Included Space.
G. At the time that Tenant exercises its rights hereunder, the parties shall
enter into an amendment to this Lease confirming the change in the Leased
Premises, the increase in the Annual Fixed Rent, and Tenant's Expense
Proportionate Share and Tax Proportionate Share and Tax Proportionate Share
in accordance with the foregoing provisions.
H. Notwithstanding anything to the contrary set forth in this Lease, if
Landlord intends to lease any Available First Offer Space to a third party,
together with other space in the Building which is not included in the
Available First Offer Space (the "Additional Space"), then Tenant shall not
have the right to lease the Available First Offer Space unless Tenant also
agrees to lease the Additional Space upon the same terms as Landlord
proposes to lease the Additional Space to such third party.
I. In the event that Landlord is unable to deliver possession of any Included
Space due to wrongful holdover by a previous tenant or other circumstances
beyond Landlord's reasonable control, Landlord shall not be subject to any
liability to Tenant; however, in such case, the commencement date for the
First Offer Space shall not occur until possession of the First Offer Space
has been delivered to Tenant.
38-A. EXPANSION SPACE RIGHT OF FIRST OFFER.
A. As set forth in Section 38(A) of this Lease, the First Offer Space includes
the Expansion Space. (Tenant's Right of First Offer, as it applies to the
Expansion Space, is referred to hereinafter as the "Expansion Space Right
of First Offer".) The Expansion Space is currently available for Lease,
and Landlord hereby gives Tenant notice of the same. Accordingly, the
Expansion Space constitutes Available First Offer Space and Tenant may, at
any time hereafter, give Landlord a First Offer Notice with respect
thereto, subject to the provisions of Section 38(E) and Section 38(F).
B. Tenant may not exercise the Expansion Space Right of First Offer for less
than 4,500 Rentable Square Feet; nor may Tenant exercise the Expansion
Space Right of First Offer for more than 6,942 Rentable Square Feet but
less than the total Rentable Square Feet included in the Expansion Space
(i.e., approximately 8,942 Rentable Square Feet).
C. In the event that Tenant exercises the Expansion Space Right of First Offer
prior to the time that Tenant is required to exercise the Expansion Option,
Tenant's Expansion Option shall no longer apply to, and the Expansion Space
shall no longer include, that portion of the Expansion Space which is
included in the Leased Premises pursuant to the Expansion Space Right of
First Offer.
D. The Expansion Space Right of First Offer shall automatically terminate if
and when Tenant exercises the Expansion Option.
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40. OPTION TO RENEW.
A. Tenant is hereby granted options to extend the Lease Term for two
additional periods of five (5) years each (collectively, "Renewal Terms"
and individually a "Renewal Term"). The first Renewal Term (the "First
Renewal Term") shall commence on the first day following the expiration of
the initial ten year term (the "Initial Term") and shall terminate without
further notice or act on the last day of the fifth year following the
expiration of the Initial Term. The second Renewal Term shall commence on
the first day of the sixth year following the expiration of the Initial
Term and shall terminate without further notice or act on the last day of
the tenth year following the expiration of the Initial Term.
B. The option granted with respect to the First Renewal Term (the "First
Renewal Option") must be exercised, if at all, by notice from Tenant to
Landlord given on or before the date which is nine (9) months prior to
expiration of the Initial Term. The option granted with respect to the
Second Renewal Term (the "Second Renewal Option") must be exercised, if at
all, by notice from Tenant to Landlord given on or before the date which is
nine months prior to the expiration of the First Renewal Term.
C. The First Renewal Option and the Second Renewal Option (collectively, the
"Renewal Options" and individually a "Renewal Option") are granted subject
to the following conditions:
(i) Each Renewal Option must be exercised, if at all, for all space then
included in the Leased Premises, including any Expansion Space and
First Offer Space which is then part of the Leased Premises.
(ii) At the time of the exercise of each Renewal Option, this Lease must
be in full force and effect, and at such time and also at the
commencement of the Renewal Term there may be no outstanding uncured
Event of Default by Tenant in the performance of its obligations
under this Lease.
(iii) Tenant shall not have the right to exercise the Second Renewal
Option unless Tenant has also exercised the First Renewal Option.
D. The Renewal Terms shall be upon the following terms and conditions:
(i) All terms, provisions and conditions contained in this Lease shall
continue to apply during each Renewal Terms, except as hereinafter
set forth:
(ii) The Leased Premises during each Renewal Term shall consist of all
space included in the Lease Premises immediately preceding the
expiration of the Initial Term (including all space leased by Tenant
pursuant to the Expansion Option and Right of First Offer).
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(iii) During each Renewal Term, Tenant shall have the use of the Parking
Spaces in the Complex Parking Lot (as such terms are defined in
Section 42 of this Lease). The Annual Fixed Rent payable for the
Parking Spaces during each Renewal Term shall be the market rent, as
determined from time to time by the operator of the Complex Parking
Lot. Such determination shall not be subject to the provisions of
Section 40 of this Lease.
(iv) The Annual Fixed Rent for the Leased Premises for each Renewal Term
shall be the Market Rent for the entire Leased Premises as of the
date of commencement of such Renewal Term. The Market Rent shall be
determined in the manner set forth in Section 40 of this Lease. In
no event, however, shall the Annual Fixed Rent for the Leased
Premises be less than the Annual Fixed Rent for the Leased Premises
in effect immediately prior the commencement of the Renewal Term.
(v) During the Renewal Terms, the Operating Expense Adjustment and the
Tax Adjustment will continue to be determined based upon the
Operating Expense Allowance and the Real Estate Tax Allowance set
forth in Section 1 of this Lease.
(vi) There shall be no further right of renewal upon the expiration of
the Second Renewal Term.
41. DETERMINATION OF MARKET RENT.
A. In the event Tenant exercises a Renewal Option, then during the period
beginning on the date of exercise (but no sooner than sixty (60) days prior
to the last date that the Renewal Option can be exercised) and ending
thirty (30) days thereafter (the "Negotiation Period"), the parties shall
attempt, in good faith, to determine and agree upon the Market Rent for the
Leased Premises.
B. In the event that Landlord and Tenant are unable to agree upon the Market
Rent within the Negotiation Period, then the Market Rent shall be
determined in accordance with the following procedure:
(i) During the first two (2) weeks following the Negotiation Period,
Landlord and Tenant shall attempt to agree upon a single appraiser who
(a) shall be MAI certified, (b) shall have a minimum of ten (10)
years' experience in real estate leasing in center city Philadelphia
or appraisal of leases in first class office buildings in center city
Philadelphia, and (c) has not conducted within the previous three (3)
years, does not presently conduct, and does not anticipate conducting
a material amount of business with either Landlord or Tenant or their
affiliates, or otherwise have a financial interest in either Landlord
or Tenant or their affiliates and who is otherwise independent (the
"Appraiser Qualifications"). If Landlord and Tenant are unable to
agree upon a single appraiser within such two (2) week period, then
Landlord and Tenant shall draw by lot to determine which of them (the
"First Party") within the following seven (7) days shall provide the
other party (the "Second Party") with the names and qualifications of
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five (5) appraisers who are acceptable to the First Party and who meet
the Appraiser Qualifications. Such list shall be accompanied by a
statement of all business conducted by each such proposed appraiser
with the First Party and its affiliates within the previous three (3)
years. The Second Party within seven (7) days thereafter shall select
one (1) of the five (5) appraisers and shall notify the First Party in
writing of its selection. The appraiser so selected shall be the
appraiser hereunder for purposes of the determination of Market Rent.
The parties shall share equally the cost of the appraiser.
(ii) Within fifteen (15) days following the selection of the appraiser,
Landlord and Tenant shall each notify the other (but not the
appraiser) of their determination of the Market Rent. During the next
seven (7) days, both Landlord and Tenant shall prepare a written
critique of the other's determinations, and on the seventh (7th) day
Landlord and Tenant shall deliver to each other their written
critiques. On the tenth (10th) day following delivery of the
critiques to each other, Landlord's and Tenant's determinations (as
originally submitted to the other party, with no modifications or
additions whatsoever permitted) and Landlord's and Tenant's critiques
shall be submitted to the appraiser. Within fifteen (15) days
thereafter, the appraiser shall decide in writing whether the
Landlord's or the Tenant's determination of the Market Rent is more
correct, and shall state in detail the reasons therefor. The
determination so chosen shall be the Market Rent for the applicable
space. The appraiser shall be empowered to choose only between the
Landlord's and the Tenant's determinations, and shall reach no other
or compromise decision. The appraiser's decision shall be final and
binding on Landlord and Tenant.
C. Market Rent means the amount of fixed rent which a willing landlord (a
landlord with space available) and willing tenant (a tenant needing or
desiring to lease space) should agree upon (i) for space comparable to the
Leased Premises in its then existing condition (including improvements in
place), (ii) situated in the Building or in a building comparable to the
Building located in center city Philadelphia, (iii) for the applicable
Renewal Term, (iv) with similar provisions in effect for escalation of
taxes and operating expenses as those contained in Section 6 of this Lease,
and (v) otherwise upon the same terms and conditions set forth in this
Lease.
D. If, for any reason, the Market Rent is not determined until after the
commencement of the applicable Renewal Terms, tenant shall pay Annual Fixed
Rent for such space at the rate then in effect until the Market Rent has
been determined. On the first day of the month following the determination
of the Market Rent, Tenant shall (a) commence paying Annual Fixed Rent at
the Market Rent (if it is higher than the Annual Fixed Rate then in effect)
and, (b) pay to Landlord an amount equal to the excess, if any, of the
Market Rent for the relevant space over the Annual Fixed Rent which is paid
for the Leased Premises, during the period prior to the time that the
Market Rent was determined.
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42. SATELLITE DISH.
A. Tenant may install on the roof of the Building and operate throughout the
Lease Term one satellite antenna not exceeding three feet in diameter and
two additional satellite antennae not exceeding eighteen (18) inches in
diameter (collectively, the "Antennae"), all with a non-penetrating mast
mount design or other non-damaging current technology design. Tenant may
connect the Antennae to the Leased Premises through existing Building
systems, all subject to Landlord's approval as to location and method of
attachment (which approval shall not be unreasonably withheld), and subject
to Tenant's compliance with all applicable laws, ordinances and
regulations.
B. Upon prior notice, Landlord shall provide Tenant with reasonable access
from time to time to those parts of the Building outside the Leased
Premises as are necessary for the installation and operation of the
antennae. Tenant covenants and agrees that neither Tenant nor its agents
or contractors will cause any damage to the Building during the
installation, operation, maintenance or removal of the Antennae. Tenant
agrees to indemnify and defend Landlord against all claims, actions,
damages, liability and expenses in connection with the loss of life,
personal injury, damage to property or business or any other loss or injury
arising out of the installation, operation, maintenance or removal of the
Antennae. Tenant shall cause its policy of liability insurance to cover
claims made in respect of damage to property or personal injury arising out
of the installation, operation, maintenance or removal of the Antennae.
C. Tenant may remove the Antennae during the Term at its own cost. At the
expiration or sooner termination of the Term or upon the termination of the
operation of the Antennae, Tenant shall remove the Antenna eat its own
cost. Tenant shall leave the portion of the Building where the Antennae
were located in good order and repair, reasonable wear and tear excepted.
If Tenant does not remove the Antennae at the end of the Term, Tenant
hereby authorizes Landlord to remove and dispose of the Antennae and charge
the Tenant for all costs and expenses incurred. Tenant agrees that
Landlord shall not be liable for any property disposed of or removed by
Landlord.
D. Landlord makes no representations or warranties as to the suitability or
effectiveness of any Antennae, or as to the governmental requirements
applicable thereto. The permission granted in this Section 41 for Tenant
to install and operate the Antennae shall not be deemed to make the roof
and/or Building systems part of the Leased Premises for any purpose under
this Lease, not shall this Section 41 be construed to require any services
from Landlord with respect to the roof or Building systems by reason of the
existence of the Antennae.
E. The permission granted herein is non-exclusive. Landlord reserves the
right from time to time to permit other Tenant's of the Building to
install, operate and maintain communications equipment on the roof of the
Building or elsewhere, so long as such operation does not interfere with
Tenant's operation of the Antennae. Landlord further reserves the right to
relocate the Antennae from time to time, which shall be done at
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Landlord's sole cost and expense, and provided such relocation does not
interfere with Tenant's operation of the Antennae.
F. Notwithstanding anything to the contrary set forth herein, Landlord may, at
its election, perform on behalf of Tenant any of the installation,
maintenance or removal work which Tenant is authorized or obligated to
perform under this Section 41. If Landlord elects to perform such work on
behalf of Tenant, Tenant shall pay Landlord all costs incurred by Landlord
in connection with such work within thirty (30) days after Tenant is billed
therefor.
G. Tenant shall be responsible for the entire cost of supplying electricity to
the Antennae. Electric usage shall be measured, at Landlord's option,
either (i) by meter installed by Landlord at Tenant's expense, or (ii) by
Landlord's reasonable estimate. Tenant shall pay Landlord monthly, within
thirty (30) days of being billed therefor, for all electricity used in
connection with the operation of the Antennae at the general service rate.
43. PARKING. There is a parking lot located in the Complex (the "Complex
Parking Lot"), below the concourse level. Tenant shall have the use of four
reserved and two unreserved parking spaces in the Complex Parking Lot during the
Term (the "Parking Spaces"). As set forth in Section 5, the Annual Fixed Rent
payable by Tenant includes an amount for the Parking Spaces. A copy of
Landlord's agreement with the operator of the Complex Parking Lot is attached
hereto as Exhibit 42.
44. WAIVERS. No delay or forbearance by Landlord in exercising any right or
remedy hereunder or in undertaking or performing any act or matter which is not
expressly required to be undertaken by Landlord shall be construed to be a
waiver of Landlord's rights or to represent any agreement by Landlord to
undertake or perform such act or matter thereafter.
45. WAIVER OF TRIAL BY JURY; WAIVER OF NOTICES. Landlord and Tenant each
hereby respectively waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on any
matter whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of the Leased
Premises and/or any claim for injury or damage and any emergency or any other
statutory remedy. It is further mutually agreed that in the event Landlord
commences any summary proceeding for nonpayment of Rent, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceedings.
Tenant hereby waives the right to any notices not expressly required pursuant to
the terms of this Lease. If proceedings shall be commenced by Landlord to
recover possession under the Acts of Assembly, either at the end of the Term or
any extension thereof or on sooner termination thereof, or for non-payment of
Rent or any other reason, Tenant specifically waives the right to the three (3)
months' notice, and/or the fifteen (15) or thirty (30) days' notice required by
the Pennsylvania Landlord and Tenant Act.
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46. SEVERABILITY. If any provision in this Lease or the application thereof
shall to any extent be invalid, illegal or otherwise unenforceable, the
remainder of this Lease, and the application of such provision other than as
invalid, illegal or unenforceable, shall not be affected thereby; and such
provisions in this Lease shall be valid and enforceable to the fullest extent
permitted by the law.
47. NOTICES. All notices and other communications required to be given or
which may be given under this Lease shall be in writing and shall be sent to the
address of the party for whom such notice is intended set forth in Section 1 of
this Lease. Any such notice or communication shall be sufficient if sent by
registered or certified mail, return receipt requested, postage prepaid; by
prepaid overnight delivery service; or by personal delivery. Notices sent by
registered or certified mail shall be effective three (3) business days after
being deposited in the U.S. Mail. Notices sent by overnight delivery service
shall be effective on the next business day following the date that the notice
is deposited with the overnight delivery service for delivery. Notices sent by
personal hand delivery shall be effective when actually received or refused by
the party to which the same is directed; provided, however, if any notice is
received after Business Hours, it shall not be effective until the next business
day.
Either party may, by notice to the other party given in accordance with the
terms of this Section 46, change the address to which notice is to be sent
hereunder.
48. BROKERS.
A. Tenant covenants, represents and warrants that Tenant has had no dealing or
negotiations with any broker or agent or finder in connection with the
consummation of this Lease except those parties set forth in Section 1
hereof, and Tenant covenants and agrees to pay, hold harmless and indemnify
Landlord from and against any and all costs, expenses, including reasonable
attorney's fees and liability for any compensation, commissions or charges
claimed by any other broker or agent with whom Tenant has had any dealings
or negotiations with respect to this Lease or the negotiation thereof.
B. Landlord covenants, represents and warrants that Landlord has had no
dealing or negotiations with any broker or agent or finder in connection
with the consummation of this Lease except those parties set forth in
Section 1 hereof, and Landlord covenants and agrees to pay, hold harmless
and indemnify Tenant from and against any and all costs, expenses,
including reasonable attorney's fees and liability for any compensation,
commissions or charges claimed by any broker or agent with whom Landlord
has had any dealings or negotiations with respect to this Lease or the
negotiation thereof. Landlord shall be responsible for payment of any
commissions or other compensation payable to The Galbreath Company and
Julien J. Studley, Inc. in connection with this Lease.
49. NON-LIABILITY OF AGENT. Landlord and Tenant hereby acknowledge that The
Galbreath Company is acting as agent only. Managing Agent shall not be held
liable to Tenant
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for the fulfillment or non-fulfillment of any of the terms and conditions of
this Lease or for any action or proceedings that may be taken by Landlord
against Tenant.
50. AMENDMENT AND MODIFICATION. This Lease contains the entire agreement
between the parties hereto, and shall not be amended, modified or supplemented
unless by agreement in writing signed by both Landlord and Tenant.
51. HEADINGS AND TERMS. The title and headings and table of contents of this
Lease are for convenience of reference only and shall not in any way be utilized
to construe or interpret the agreement of the parties as otherwise set forth
herein.
52. GOVERNING LAW. This Lease shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
53. REDEVELOPMENT AUTHORITY PROVISIONS. Tenant hereby covenants and agrees to
and with the Landlord and the Redevelopment Authority of the City of
Philadelphia and their respective successors and assigns as follows:
A. No person shall be deprived of the right to occupy the Leased Premises or
use and facilities therein by reason of race, creed, color or national
origin.
B. There shall be no discrimination in the use or sublease of the Leased
Premises because of race, color, religion or national origin.
54. DELIVERY FOR EXAMINATION. The submission of this instrument to Tenant for
review and examination does not constitute an offer by Landlord or reservation
of space in the Complex for Tenant. This instrument shall not become effective
as a lease, nor shall Landlord have any obligation hereunder, unless and until
this instrument has been executed by Landlord and delivered to Tenant.
55. SURVIVAL. Any covenants set forth in this Lease which, by their nature,
would reasonably be expected to be performed after the expiration or earlier
termination of this Lease shall survive the expiration or earlier termination of
this Lease.
56. TIME OF ESSENCE. Time shall be of the essence with respect to all dates,
times and periods set forth in this Lease.
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57. JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more than one
signatory, each signatory shall be jointly and severally liable with each other
signatory for payment and performance according to this Lease.
58. TENANT'S REMEDIES. If Landlord shall fail to observe or perform any
covenant or agreement of Landlord herein contained and such failure continues
beyond the notice and grace period set forth in Section 58 of this Lease, then,
in addition to any other rights Tenant may have in law or equity, Tenant may
(but shall not be obligated to), after at least five (5) days notice of Tenant's
intention to do so, cure such default on behalf of Landlord, and Landlord shall
reimburse Tenant upon demand for all actual and reasonable costs incurred by
Tenant in curing such default. Notwithstanding the foregoing, Tenant shall not
have any right in exercising its remedies under the preceding sentence (A) to
make any repair or modifications to areas outside the Leased Premises or to base
building systems, (B) to provide any services for the benefit of any occupants
of the Complex other than Tenant, (C) to retain any contractors or
subcontractors to perform such services which are not responsible contractors
and subcontractors, and which are not financially responsible or may prejudice
Landlord's relationship with Landlord's contractors or subcontractors or the
relationship between such contractors and their subcontractors or employees, or
may disturb harmonious labor relations, or (D) to set off any sums against Rent
or withhold any amounts otherwise due under this Lease.
59. LANDLORD'S CURE PERIOD. Any other provision in the Lease notwithstanding,
in no event shall Landlord be deemed to be in default under the terms of this
Lease, nor shall Tenant have the right to exercise any remedy that it may have
under this Lease, at law or in equity, unless Landlord fails to observe or
perform any covenant or agreement of Landlord herein contained and such failure
continues after written notice given by Tenant to landlord for more than thirty
(30) days and such additional time, if any, as is reasonably necessary to cure
such failure, provided Landlord commences to cure such failure within such
thirty-day period and diligently thereafter prosecutes such cure to completion.
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IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed with date first mentioned.
LANDLORD:
CENTRE SQUARE, by its authorized
general partner:
METROPOLITAN LIFE INSURANCE
ATTEST OF WITNESS: COMPANY
By: /s/ Christine Madigan By
----------------------------- ----------------------------------
Title: Sr. Investment Analyst Title: A.V.P.
-------------------------- ----------------------------
TENANT:
ATTEST OR WITNESS: FARM JOURNAL, INC.
By: Kenneth J. Venuti By /s/ Michael Gart
----------------------------- --------------------------------
Title: V.P./Controller Title: V.P./Finance and Operations
--------------- ----------------------------
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EXHIBIT 6
ITEMS OF OPERATION EXPENSE
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
Operating Expense shall include, without limitation, the expenses actually
incurred for the following items:
1. gas, oil, electricity, steam, fuel, water, sewer and other utility charges
(including surcharges) of whatever nature;
2. insurance premiums and the amounts of any deductibles paid by Landlord; if
Landlord self-insures, (a) to the extent that Landlord actually pays
another department or profit center of Landlord for such coverage,
Operating Expense shall include the amount of such payment, or (b) if there
is no such payment, Operating Expense shall include an amount equal to the
premiums and other charges that would otherwise be incurred for insurance
coverage at levels comparable to that maintained by Landlord's in first-
class office buildings in center city Philadelphia;
3. personnel costs directly related or appropriately attributed to the
operation, management, maintenance, repair and replacement of the Lot and
Complex, including, but not limited to, salaries, wages, fringe benefits,
taxes, insurance and other direct and indirect cost;
4. costs of service and maintenance contracts including, but not limited to,
cleaning and security services;
5. all other maintenance, repair and replacement expenses (excluding repairs
or replacements paid by proceeds of insurance), and the cost of materials,
supplies and uniforms;
6. administrative costs and overhead applicable to the Complex;
7. all professional fees incurred in connection with the operation of the
Complex, including, without limitation, accounting fees for preparing the
Operating Expense Statement and Tax Statement.
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8. management fees payable to the managing agent: if Landlord performs the
functions of a managing agent, Operating Expense shall include an amount
equal to the management fees that would customarily be charged for
management of a building comparable to the Complex in center city
Philadelphia;
9. sales and use taxes and any taxes imposed on personal property owned by
Landlord and used in connection with the Complex and taxes on any of the
expenses which are included in Operating Expense;
10. decorations for the lobby and other public portions of the Complex; and
11. the cost of any Essential Capital Improvement made by Landlord, amortized
on a straight line basis over an appropriate period (but not more than ten
(10) years) with an interest factor of ten percent (10%) per annum). If
Landlord shall lease such Essential Capital Improvement, then the rentals
or other operating costs paid pursuant to such lease shall be included in
Operating Expense for each year in which they are incurred. "Essential
Capital Improvement" shall mean (a) a labor saving device, energy saving
device or other installation, improvement or replacement which is intended
to reduce Operating Expense, whether or not voluntary or required by
governmental mandate, or (b) an installation or improvement required by
reason of any law, ordinance or regulation which was not applicable to the
Complex on the date of the execution of this Lease, or (c) an installation
or improvement intended to improve the safety of Tenant's in the Complex
generally, whether or not voluntary or required by governmental mandate.
With respect to any Essential Capital Improvement made under subparagraph
11(a), the amount which may be included in Operating Expense for an
Operating Year shall not exceed the amount of the reduction in Operating
Expense for such Operating Year which is reasonably attributable to such
Essential Improvement.
Operating Expense shall not include:
(a) Leasing commissions, costs, disbursements and other expense incurred
in leasing, renovating or improving spaces for Tenant's;
(b) Costs (including permit, license and inspection fees) incurred in
renovating, improving, decorating, painting or redecorating space
which is leased or available for lease to Tenant's;
(c) Depreciation of the Complex, except as set forth above with respect to
Essential Capital Improvements.
(d) Costs incurred because Landlord or another tenant has violated the
terms of any lease;
(e) That portion of any payment made to an entity or person related to
Landlord which is in excess of the amount which would have been paid
in the absence of such relationship.
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(f) Debt-service or other similar payments on any ground lease or
mortgages;
(g) Compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord;
(h) Rental or other elated expenses incurred in leasing equipment
considered to be of a capital nature, except to the extent that such
equipment would constitute an Essential Capital Improvement;
(i) Advertising expenses;
(j) Costs incurred in operating the parking facilities for the Complex,
except if the expense cost of operating the parting facilities exceeds
the revenues generated from operating of parking facilities;
(k) Any fines or penalties incurred because Landlord has violated any
governmental rules, regulations or statutes, including the Americans
With Disabilities Act and any and all environmental laws now or
hereafter applicable to the Complex, in whole or in part; the
foregoing shall not be construed to affect the provisions of
subparagraph 11(b) of this Exhibit.
(l) Costs of capital improvements (except for costs of any Essential
Capital Improvement, as defined in Exhibit 6).
(m) Legal expenses of negotiating and enforcing leases.
(n) Any cost or expenditure for which Landlord is reimbursed, whether by
insurance proceeds or otherwise, but not including costs and
expenditures for which Landlord is reimbursed by Tenant's of the
Complex pursuant to operating expense, escalation, rent adjustment and
similar additional rent provisions. With respect to any reimbursement
(other than costs and expenditures for which Landlord is reimbursed by
Tenant's of the Complex pursuant to Operating Expense reimbursement
provisions) to which Landlord is entitled but which has not actually
been received, Landlord shall be permitted to include the applicable
cost in Operating Expense on the condition that (i) Landlord
thereafter uses commercially reasonable efforts to collect such
reimbursement, and (ii) in the event Landlord subsequently collects
such reimbursement, Landlord shall reduce Operating Expense by the
amount of such reimbursement.
Subject to Section 6(B)(v) of the Lease and also subject to the
provisions of paragraphs 2 and 8 of Exhibit 6, Operating Expense shall
be determined based upon the actual costs paid or incurred by
Landlord.
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EXHIBIT 7
LANDLORD IMPROVEMENTS
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
The Landlord Improvements shall consist of the following:
1. Demolition/Preparation. Landlord has performed or shall perform the
following demolition in the Leased Premises (unless otherwise noted):
(a) Remove all existing ceilings and lights and all wiring which would be
abandoned in connection with removal of existing lights.
(b) Remove all mechanical system components including but not limited to
duct work and diffusers.
(c) Remove all unused electrical components including but not limited to
conduits, wiring, switches and panels.
(d) Remove all debris in and surrounding mechanical and electrical
systems.
(e) Where necessary, tape, spackle and sand existing drywall and soffits;
where necessary, furr, drywall, tape and spackle and sand al perimeter
walls, columns and perimeter top and bottom bulkheads.
(f) All bulkheads in the soffits will be insulated with fiberglass
insulation having an R Factor of no less than R7.6.
(g) Where necessary, scrape floor to accept carpet.
2. Sprinkler Loop. Landlord shall install the distribution loops and branches
to permit a finished ceiling height with building standard light fixtures
throughout the Leased Premises of not less than 8'6" above standard
finished floor.
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3. HVAC.
(a) Existing perimeter induction units and primary fan system shall be
inspected, evaluated, repaired or replaced to achieve optimal operating
levels. This work shall include without limitation the following:
(i) Filters
Inspect, evaluate and repair/replace as required:
(a) Filter racks
(b) Filter media
(c) Manometers
(d) Filter supports
(e) Insulation
(f) Blank offs and panels/doors/hatches
(g) Lighting
(h) Motors, belts, miscellaneous components
(ii) Coils: (Preheat & Cooling)
(a) Clean coil fins
(b) Align and support coil sections
(c) Blank offs, panels, doors and hatches
(d) Lighting
(iii) Fans and Dampers:
(a) Clean housing
(b) Casing, seal leaks at penetrations
(c) Cleaning and lubrication of all operating parts
(iv) Repair where necessary induction unit covers, to include room
temperature sensors and control valves (built into units) and
cleaning of induction unit coils and air jets.
(b) Interior offices shall be cooled by the variable air volume control air
conditioning system. Landlord shall provide a medium pressure looped trunk
duct on each Tenant floor sized for an air velocity of 2300 fpm maximum.
The maximum velocity on the low pressure side of the VAV boxes will be 1200
fpm. The main direct loop will be externally insulated. Landlord shall
provide, on the 28/th/ floor sixteen (16), and on the 27/th/ floor five
(5), 100% shutoff type variable air volume terminals (VAV) and the medium
pressure ducts from the main loop duct to the VAV boxes. The size and
location of the boxes shall be set forth in Tenant's Final Plans.
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A space wall mountable thermostat with fifty (50) feet of wire shall be
provided by Landlord for each VAV box. The wall mounted thermostat shall
be installed by Tenant.
Each VAV unit shall be controlled by a terminal equipment type controller
which interfaces with the Building management system for remote monitoring
and control.
4. Window Coverings. Landlord shall install building standard thin slat,
brushed aluminum Levelor mini-blinds on all exterior windows of the Leased
Premises.
5. Building Standard Restrooms.
The restroom on the 27/th/ floor has been, and the restroom on the 28/th/
floor shall be, renovated as follows:
A. CEILING: Donn Fineline Grid with 2' x 2" metal
acoustical panels with baked-on white enamel
finish. Pattern: Diagonal uniform
perforations.
B. LIGHTING: Cove Lights (fluorescents) with prismatic
acrylic lenses above mirrors and water
closets. A&L Lighting Ltd. #'s RA230 and
RA240.
C. WALL SURFACES: 6'-0" high, 4-1/4" x 4-1/4" wainscoat behind
toilets and urinals: VWC on other surfaces.
D. FLOOR FINISH AND BASE: 2' x 2" ceramic mosaic tile.
E. PAINTING: Painting of existing entrance door and frame.
F. VANITY: Full-length vanity top and skirt of corian
material (wall-mounted).
G. LAVATORIES: Kohler Caxton #K2210 vitreous china
undercounter lavatory (19" x 15") overall
dimensions.
H. MIRRORS: Full-length of vanity. Height to underside of
cove light with 18-gauge, stainless-steel
frame.
I. TOILET PARTITIONS: Metal, baked enamel, ceiling-hung toilet
partition.
J. RESTROOM: New, as indicated on drawings.
ACCESSORIES: A. Partition-mounted toilet seat dispenser
and toilet tissue dispenser. Bobrick B-
3471.60 or A.S.1. Equal.
B. Toilet paper holder. Bobrick B-6867.60 or
7-3
<PAGE>
A.S. 1 Equal.
C. Surface-mounted toilet seat cover
dispenser. Bobrick B-221 or A.S.1 Equal.
D. Partition-mounted toilet seat dispenser,
toilet tissue dispenser and napkin
disposal. Bobrick B-357.60 or A.S.1 Equal.
E. Same as D. Bobrick B-351.60 or A.S.1
Equal.
F. Surface-mounted towel dispenser and waste
receptacle. Bobrick B-3909 or A.S.1.
Equal.
G. Grab Bar. Bobrick B-55 or A.S.1 Equal.
H. Surface-mounted sanitary napkin vendor.
Bobrick B-2803 or A.S. Equal.
I. Lavatory-mounted, all-purpose soap
dispenser. Bobrick B-822 or a.S.1 Equal.
K. LAVATORY TRIM GRILLES: Chrome-plated supply fitting, water
economy aerator, crystal-like acrylic
handles, chrome-plated 17-gauge brass P-
Trap. Kohler #K-7436-FCV.
L. WATER CLOSET SEATS: New, solid-white plastic, open front,
extended back, self-sustaining hinge,
brass bolts, without cover.
M. CEILING EXHAUST GRILLS: 20-gauge aluminum with 1/2" x 1/2" x 1/2"
louvers. Tiutus #50F, 14" duct size with
lay-in type border for 24" x 24" ceiling
module.
N. FLUSH VALVES: Repaired or replaced as necessary.
The cost of any changes or upgrades to the building standard restrooms shall be
included in the Tenant Improvements.
7-4
<PAGE>
EXHIBIT 8
TENANT IMPROVEMENTS
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
This Exhibit is attached to and made part of that certain Lease (the
"Lease"), dated ________, between CENTRE SQUARE (the "Landlord") and FARM
JOURNAL, INC. (the "Tenant") for certain space in the Complex known as Centre
Square, 1500 Market Street, Philadelphia, Pennsylvania. Capitalized terms used
herein which are not separately defined in this Exhibit shall have the same
meanings as in the Lease.
In consideration of the parties entering into the Lease and of the
mutual promises and covenants hereinafter contained, Landlord and Tenant hereby
agree as follows:
ARTICLE 1.
DESCRIPTION AND COORDINATION OF WORK
------------------------------------
1.1. Work to be Performed by Landlord. Land has agreed to perform
--------------------------------
certain work for Tenant in connection with its occupancy of the Leased Premises
(other than the Lower Mezzanine Space, as to which the provisions of Section 36
shall be applicable). A portion of the work, which portion is referred to as
the "Landlord Improvements," will be performed by Landlord at Landlord's cost
and expense. The Landlord Improvements are described in Exhibit 7 to this
Lease. The balance of the work to be performed by Landlord pursuant to this
Exhibit consists of the construction of certain improvements for the Leased
Premises (the "Tenant Improvements") in accordance with plans and specifications
to be provided by Tenant, as hereinafter set forth. The cost of completing the
Tenant Improvements shall be paid for from the Construction Allowance and, to
the extent hereinafter set forth, from Tenant's own funds. The Landlord
Improvements and the Tenant Improvements are sometimes referred to collectively
hereinafter as the "Improvements."
The provisions of this Exhibit 8 do not apply to the Lower Mezzanine
Space and Landlord shall have no obligation to construct any of the Improvements
in the Lower Mezzanine Space. Except as otherwise set forth in Section 36, the
Lower Mezzanine Space is being delivered to Tenant in its current condition, "as
is".
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1.2. Construction Representatives.
----------------------------
1.2.1. Appointment of Construction Representatives. Landlord and
-------------------------------------------
Tenant have appointed or shall appoint representatives to act for each of them
with respect to all construction and construction related matters involving the
Improvements (respectively "Landlord's Construction Representative" and
"Tenant's Construction Representative", and together, the "Construction
Representatives"). The Construction Representatives shall be available to
attend (a) regularly scheduled and special meetings with each other prior to the
selection of the General Contractor (as defined below), (b) all pre-bid and
post-bid meetings and interviews with Qualified General Contractors (as defined
below) prior to the selection of the General Contractor, and (c) periodic
meetings as necessary with the General Contractor.
1.2.2 Tenant's Construction Representative. During the construction
------------------------------------
of the Improvements, Tenant's Construction Representative shall be generally
available at the Building. Tenant's Construction Representative shall have the
authority to act on Tenant's behalf at all times (including at all construction
meetings and inspections) and specifically to bind Tenant with respect to all
issues relating to the construction of the Tenant Improvements. Tenant's
Construction Representative shall have the right to inspect the improvements
from time to time, when Landlord's Construction Representative is present and
without interfering with the work, to review compliance with requirements of the
Exhibit. Tenant's Construction Representative will be Mr. William R. Smith of
Smith Advisory Group, provided, however, Tenant may change Tenant's Construction
Representative from time to time to another person skilled in the construction
of tenant fit-outs of Class A office buildings, which change shall be effective
upon receipt by Landlord of written notice of such change.
1.2.3. Landlord's Construction Representative. Landlord hereby
--------------------------------------
designates William Aldrich of the Galbreath Company as Landlord's Construction
Representative; provided, however, that Landlord may change Landlord's
Construction Representative from time to time to another person skilled in the
construction of tenant fit-outs in class A office buildings, which change shall
be effective upon the receipt by Tenant of written notice of such change.
Landlord's Construction Representative shall be generally available at the
Building during the construction of the Improvements.
ARTICLE 2.
TENANT'S PLANS
--------------
2.1 Approved Design Professionals. Tenant has engaged Deborah Meyer
-----------------------------
Associates, Inc. as its architect ("Tenant's Architect") to design the Tenant
Improvements, and shall engage or cause Tenant's Architect to engage such
engineers and other design professionals as shall be necessary to design and
engineer the Tenant Improvements (together with Tenant's Architect, the "Tenant
Design Professionals"). Each of Tenant's Design Professionals shall maintain at
all times errors and omissions professional liability insurance in an amount
reasonably satisfactory to Landlord covering any negligent act, error or
omission of such party. Evidence of such insurance as maintained by Tenant's
Architect shall be provided to Landlord upon the execution of this Lease.
Tenant shall provide Landlord with evidence of such insurance
8-2
<PAGE>
for each of the other Tenant Design Professionals upon their respective
engagements by Tenant to perform work in connection with the Tenant
Improvements.
Each of Tenant's Design Professionals shall (a) be a reputable design
professional, experienced in the design of tenant space in Class A office
buildings, (b) possess good labor relations, and (c) not have had a prior
experience with Landlord which resulted in Landlord's dissatisfaction with such
design professional's performance in any material respect.
2.2. Tenant's Proposed Plans. On or before July 19, 1995 (the "Plan
-----------------------
Delivery Date") Tenant shall cause to be prepared by the Design Professionals
and delivered to Landlord for Landlord's approval as described below, complete
architectural, mechanical, electrical and structural drawings and specifications
(the "Proposed Plans") for the construction of the Tenant Improvements. The
Proposed Plans shall (a) conform with all applicable laws, ordinances, codes,
regulations and requirements including, without limitation, the ADA and all
regulations promulgated thereunder from time to time (together, "Laws and
Requirements"), (b) contain, at a minimum, floor plans, reflected ceiling plans,
mechanical plans, electrical plans, fire protection plans, life safety plans,
plumbing plans and all related details and schedules, and show the general
layout of telephone and data distribution lines and equipment and all specialty
systems and equipment, (c) include a coordinated set of all mechanical, plumbing
and electrical drawings, showing locations and elevations by system, and (d) be
signed and sealed by Tenant's Architect and (where applicable) an engineer,
licensed and registered in the Commonwealth of Pennsylvania.
2.3. Landlord Approval of Complete Proposed Plans.
--------------------------------------------
2.3.1. Standards for Approval. Within five (5) days after Landlord's
----------------------
receipt of the Proposed Plans, Landlord shall give notice to Tenant either
approving or disapproving the same. Any notice of disapproval from Landlord
shall state the specific reasons for such disapproval. Landlord's approval of
the Proposed Plans shall not be unreasonably withheld. It shall not be
unreasonable for Landlord to disapprove the Proposed Plans if the Tenant
Improvements as delineated therein (a) do not conform with all Laws and
Requirements, (b) would, in Landlord's reasonable judgment, adversely affect any
base building system, including, without limitation, the HVAC, electrical,
plumbing, fire protection, sprinkler, security or life safety systems, (c) would
impair the structural integrity of the Building, (d) would adversely affect the
appearance of the Building from outside the Building, (e) do not otherwise
conform with the requirements set forth in Section 2.2 above, or (f) would, in
Landlord's reasonable opinion, create a health hazard within the Building.
Landlord's review of the Tenant's Proposed Plans shall be solely for the benefit
of Landlord and may not be relied upon by Tenant or any other party for any
purpose including, without limitation, compliance with any Laws or Requirements.
2.3.2. Rejection of Proposed Plans by Landlord. In the event
---------------------------------------
Landlord rejects the Proposed Plans. Tenant shall resubmit such Proposed Plans
or relevant portion thereof, including the revisions required by Landlord within
three (3) days after receipt of Landlord's notice of rejection. Landlord shall
review and approve the revised Proposed Plans within five (5)
8-3
<PAGE>
days after receipt, provided they contain all of the revisions, modifications
and other changes requested by Landlord, and no other revisions, modifications
or changes which are unacceptable to Landlord. The Proposed Plans, in the form
finally approved by Landlord are referred to hereinafter as the "Tenant's Final
Plans."
2.3.3. Tenant's Changes to Final Plans. Tenant shall not make any
-------------------------------
changes in the Tenant's Final Plans without Landlord's prior approval, which
approval shall not be unreasonably withheld or delayed. Any notice of
disapproval or request for clarification sent by Landlord shall state the
specific reasons for such disapproval and/or the items to be clarified, if
applicable. Any changes to Tenant's Final Plans shall be documented in writing
prior to the commencement of any work reflected by such changes at the regular
job meetings and shall be communicated by Tenant's Construction Representative
to Landlord's Construction Representative. In addition, Tenant shall reflect
all changes and additions to Tenant's Final Plans in a set of marked as-built
drawings reflecting all changes and conditions, by discipline, to be delivered
to Landlord within thirty (30) days after completion of the Tenant Improvements.
2.3.4. Cost of Tenant's Proposed Plans and Tenant's Final Plans.
--------------------------------------------------------
Except as hereinafter provided, Tenant shall be solely responsible for all costs
of preparing Tenant's Proposed Plans and Tenant's Final Plans. Tenant may draw
funds against the Construction Allowance for payment of such costs from time to
time in accordance with the requirements and procedures in Section 4.4 hereof.
2.3.5. Permits. Landlord, at Tenant's sole cost and expense, shall
-------
file (or cause the General Contractor to file) Tenant's Final Plans with the
governmental agencies having jurisdiction and shall obtain all permits and
approvals necessary for the construction of the Tenant Improvements. The cost
thereof may, at Tenant's election, be paid from the Construction Allowance in
accordance with the requirements and procedures set forth in Section 4.4 and 4.5
hereof.
ARTICLE 3.
SELECTION OF CONTRACTOR
FOR TENANT IMPROVEMENTS
-----------------------
3.1. Selection of General Contractor. Landlord and Tenant hereby
-------------------------------
agree that the general contractor for the construction of the Tenant
Improvements shall be mutually selected by Landlord and Tenant from among the
general contractors identified in Schedule 1 attached to this Exhibit (the
"Qualified General Contractors"). If Landlord and Tenant are unable to mutually
agree upon the selection of the general contractor, Landlord shall select the
general contractor; provided, however, Landlord agrees to select the lowest
bidder which is responsive to the RFP and which demonstrates the capacity to
complete the Improvements (a) in accordance with the standards set forth in
Section 5.1 of Exhibit 8, and (b) by the Scheduled Completion Date. The general
contractor ultimately selected from the Qualified General Contractors is
referred to hereinafter as the "General Contractor".
8-4
<PAGE>
3.2. RFP and Interviews; Selection.
-----------------------------
3.2.1. On or before July 20, 1995, the Construction Representatives
shall prepare jointly a request for proposal (the "RFP") and furnish it to each
of the Qualified General Contractors. The RFP shall describe, in as much detail
as is reasonably possible, the Tenant Improvements, and shall require each
Qualified General Contractor to furnish a lump sum price based upon Tenant's
Final Plans.
3.2.2. On or before July 25, 1995, Landlord and Tenant shall hold
pre-bid meetings with each Qualified General Contractor responding to the RFP to
address preliminary questions which the Qualified General Contractors may have
regarding the RFP. Each Qualified General Contractor shall be required to
furnish its bid no later than July 28, 1995. During post-bid interviews,
Landlord's Construction Representative and Tenant's Construction Representative
shall, to the extent necessary, solicit clarifications to bids and shall
negotiate with each candidate to obtain competitive pricing.
3.2.3. The General Contractor shall be selected on or before August
2, 1995. The contract with the General Contractor shall include a warranty,
extending from the date that the work is placed in service until one year from
the date the work is placed in service, for defective or non-conforming work.
ARTICLE 4.
CONSTRUCTION COSTS
------------------
4.1. Estimated Project Costs. No later than August 4, 1995, Landlord
-----------------------
shall submit to Tenant an estimate of the cost of constructing the Tenant
Improvements (the "Estimate of Landlord's Costs"), which shall be based on the
amount of the construction contract plus contingencies, and Landlord's
Additional Costs. "Landlord's Additional Costs" shall consist of (a) fees and
reimbursables payable by Landlord to the General Contractor and other third
parties, but excluding (i) fees or salaries of Landlord's Managing Agent and its
employees and Landlord's Construction Representative, and (ii) fixed costs and
overhead for the Building management offices, (b) to the extent not included in
the contract with the General Contractor, all expenses reasonably incurred by
landlord in connection with the Tenant Improvements including but not limited to
the cost of permits, independent laboratory testing and inspections, hoisting,
rubbish removal (including the cost of renting and removing dumpsters and
disposing of contents), bonding premiums for the Tenant Improvements, the costs
associated with increased security, increased utilities, increased cleaning
services at the Building during the construction of the Tenant Improvements and
any other reasonable costs or expenses actually incurred by Landlord in
connection with the Tenant Improvements, and (c) a fee in the amount of three
percent (3%) of all construction costs (the "landlord's Fee").
The Estimate of Landlord's Costs shall be updated twice during the
construction period. The actual costs of constructing the Tenant Improvements
(together with the Landlord's Fee), whether the same as or different than those
set forth in the Estimate of Landlord's Costs (as
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<PAGE>
the Estimate of Landlord's Costs may be modified or amended pursuant to this
Section ) are sometimes referred to herein as "Landlord's Construction Costs.".
4.2. Construction Allowance. Landlord shall pay the first monies
----------------------
expended for Landlord's Construction Costs until the process payments toward
such costs equal $1,253,460 (the "Construction Allowance") (less all amounts
advanced by Landlord for Plans Costs and Non-Construction Purposes pursuant to
Section 4.4 of this Exhibit). Thereafter, Tenant shall pay for all Landlord's
Construction Costs as they are incurred by Landlord, within thirty (30) days
after Tenant is billed therefor by Landlord. Notwithstanding anything to the
contrary set forth herein, unless the parties mutually agree otherwise, at least
$835,640 of the Construction Allowance shall be expended for Landlord's
Construction Costs.
4.3. [Intentionally Deleted.]
4.4. Use of Construction Allowance for Non-Construction Purposes.
-----------------------------------------------------------
Tenant may use for Non-Construction Purposes a portion of the Construction
Allowance, which portion (the "Non-Construction Portion") shall not exceed
$417,820, unless the parties mutually agree otherwise. Following selection of
the General Contractor, the parties shall reconsider the proportionate amounts
of the Construction Allowance allocated for Landlord's Construction Costs and
Non-Construction Purposes and shall negotiate in good faith with respect to any
reallocation of the Construction Allowance between Landlord's Construction Costs
and Non-Construction Allowance. The terms "Non-Construction Purposes" shall
mean all amounts paid or payable by Tenant to unrelated third parties for the
following: (a) the preparation of Tenant's Proposed Plans and Final Plans; (b)
the costs of obtaining all permits necessary for the construction of the Tenant
Improvements; (c) the cost of moving Tenant's personal property to the Leased
Premises; (d) purchase of furniture, fixtures and equipment for the Leased
Premises; (e) installation of data and telecommunications wiring and cabling in
the Leased Premises; and (f) improvements for the Lower Mezzanine Space.
4.5. Advance of Non-Construction Portion.
-----------------------------------
4.5.1. Tenant may draw funds against the Non-Construction Portion
from time to time upon the following terms and conditions:
(a) no Event of Default shall have occurred and be continuing under
this Lease;
(b) Tenant may not make more than one draw in any calendar months,
and
(c) the minimum amount which may be drawn at any one time shall be
$20,000, except for the final draw, which may be lower.
4.5.2. Each draw request shall be submitted to Landlord by the tenth
of the month and shall include the request for the previous month and a
reasonable estimate of the amount of the draw request for the next month.
Landlord shall pay the amount of the request by the end of the month. Landlord
shall not be required to disburse funds in any month in excess of the estimate
of the disbursement request previously given by Tenant to Landlord for such
month.
8-6
<PAGE>
4.5.3. With each draw request, Tenant shall submit paid receipts or
bills for the costs to be paid from the draw request and, for any such costs
which may be subject to mechanics' or other liens, appropriate releases of
liens.
ARTICLE 5.
COMPLETION OF TENANT IMPROVEMENTS
---------------------------------
5.1. Completion of Tenant Improvements. Landlord shall cause the
---------------------------------
General Contractor to construct the Tenant Improvements in a thorough, first-
class and workmanlike manner, using only new materials, and in accordance with
the Tenant's Final Plans.
5.2. Substantial Completion. Subject to Section 5.3 of this Exhibit,
----------------------
Landlord shall cause the Improvements to be Substantially Completed in
accordance with the Tenant's Plans no later than October 1, 1995 (the "Scheduled
Completion Date"). The Improvements shall be deemed substantially completed
("Substantial Completion or "Substantially Completed") when
5.2.1. the Improvements have been completed as aforesaid, except for:
5.2.1.1. With respect to the Tenant Improvements, minor items of
finishing and construction which are not necessary to make the Leased Premises
reasonably tenantable for Tenant's use as stated herein;
5.2.1.2. With respect to the Landlord Improvements, minor items of
finishing and construction which are not necessary to make the Landlord
Improvements useable for their intended purposes;
5.2.1.3. Items not then completed because of:
(a) failure by Tenant to provide the Tenant's Proposed Plans by the
Plan Delivery Date, or to promptly make changes in the Tenant's Proposed Plans
reasonably required by Landlord in connection with the approval thereof, or to
otherwise perform its obligations under this Lease; or
(b) changes in the Final Plans requested by Tenant; or
(c) delays, not caused by Landlord, in furnishing materials or
procuring labor required for installations or work in the Leased Premises which
are not customarily provided by Landlord for office Tenant's in the Complex,
provided that Tenant shall be notified of Landlord's good faith estimate of the
anticipated delay promptly after discovery thereof by Landlord, and shall be
given an opportunity so specify alternative materials or requirements
customarily provided by Landlord for office Tenant's; or
(d) the performance of any work or activity in the Leased Premises by
Tenant or any of its employees, agents or contractors.
8-7
<PAGE>
Delays resulting from the occurrences described in 5.2.1.3 are
sometimes hereinafter referred to as "Tenant Delays."
5.2.2. The City of Philadelphia has signed the building permit for
the Improvements indicating compliance with the Final Plans, and allowing
occupancy of the Leased Premises, or would have done so, but for work which is
not completed due to Tenant Delays.
5.2.3. The Leased Premises has been cleaned (including vacuuming of
carpets and polishing of floors), or would have been so, but for work which is
not completed due to Tenant Delays.
5.2.4. All of the services which Landlord has agreed to provide are
available to the Leased Premises in accordance with the terms of this Lease, or
would have been so, but for Tenant Delays.
5.2.5. Landlord has obtained a report from an independent testing
service which shows that airborne asbestos fiber concentrations in the Leased
Premises are equal to or less than 0.01 fibers per cubic centimeter, with
ninety-five percent (95%) confidence as measured by phased contrast microscopy.
5.3. Late Completion. Landlord presently estimates that the date of
---------------
Substantial Completion will be the Scheduled Completion Date. If the
Improvements are not substantially completed by the Scheduled Completion Date
because of delays due to holdover by a prior tenant, governmental regulation,
unusual scarcity of or inability to obtain labor or materials, labor
difficulties, delays by contractors or subcontractors, casualty or any other
causes which are not within the reasonable control of Landlord ("Force Majeure
Delays"). Landlord shall not be subject to any liability to Tenant. No such
failure to give possession shall in any other respect affect the validity of
this Lease or any obligation of the Tenant hereunder. If the delay was not the
result of a Tenant Delay, the Commencement Date shall not be deemed to have
occurred until the date which is seven days after the Improvements are in the
required state (unless Tenant takes possession of the Leased Premises prior
thereto). In the event of any delay in the date of Substantial Completion as a
result of a Tenant Delay, Tenant acknowledges that the Commencement Date shall
occur before Leased Premises have been delivered to Tenant for its occupancy.
In the event that the Improvements are not Substantially Completed by
the Scheduled Completion Date due to a Landlord Delay (as hereinafter defined),
the Commencement Date shall not occur on the date which is seven days after the
date of Substantial Completion, but instead shall occur on the day following the
expiration of the Preliminary Period. The Preliminary Period shall commence on
the Substantial Completion of the Improvements and shall extend for a period
equal to the Landlord Delay Period plus one week. Thus, for example, if there
were a Landlord Delay Period of fifteen (15) days, and the date of Substantial
Completion was October 16, 1995, the Preliminary Period would extend from
October 16, 1995 through November 7, 1995 and the Commencement Date would be
November 8, 1995. During the Preliminary Period; (a) Tenant shall have the
right to use and occupy the Leased Premises for the conduct of its business
without payment of any Annual Fixed Rent other
8-8
<PAGE>
than that portion of the Annual Fixed Rent which is attributable to the Parking
Spaces, as set forth in Section 5 of this Lease, and (b) Tenant shall comply
with all of the other terms and conditions of this Lease, as if the Commencement
Date of the Term had occurred. Nothing herein shall be construed to reduce or
otherwise affect the Fixed Rent Credit which shall be applied following the
Commencement Date, as set forth in Section 5 of this Lease. The foregoing shall
constitute the sole and exclusively remedy of Tenant by reason of the occurrence
of a Landlord Delay.
The term "Landlord Delay" as used herein means any delay in the date
of Substantial Completion of the Improvements beyond the Scheduled Completion
Date which is due to any cause other than a Force Majeure Delay or a Tenant
Delay. The term "Landlord Delay Period" means the length of any delay in the
date of Substantial Completion beyond the Scheduled Completion Date which is due
to a Landlord Delay.
5.4. Inspection. At such time as Landlord believes that the
----------
Improvement are Substantially Completed, Landlord shall so notify Tenant's
Construction Representative in writing. Tenant's Construction Representative
shall, within three (3) days after receipt of such notice, inspect the
Improvements with Landlord's Construction Representative and the General
Contractor. At the time of such inspection, the Construction Representative
shall identify all punchlist items and incomplete work caused by Tenant Delays.
No items may be added to the punchlist items following such inspection.
Notwithstanding the foregoing, if Tenant later discovers any defective or non-
conforming work which was not visible, observable or susceptible of detection at
the time of such inspection, and Tenant gives notice of the specific defect or
non-conforming work to Landlord at least thirty (30) days prior to the
expiration of the applicable warranty period, Landlord shall cause the General
Contractor, at its sole cost and expense, to correct any defective or non-
conforming work.
5.5. Final Completion. Final completion of the Improvements shall be
----------------
achieved as follows: (a) Landlord shall cause all punchlist items to be
completed within thirty (30) days after the date of the inspection; and (b)
Landlord shall cause all incomplete work caused by Tenant Delays to be completed
with an additional period of time equal to the duration of such Tenant Delays.
5.6. Computer Room. Notwithstanding anything to the contrary set
-------------
forth herein, Landlord shall cause Tenant's computer room to be completed to
Wiring Ready Conditions (as hereinafter defined) on or before September 15,
1995, subject to the Force Majeure Delays and Tenant Delays. The term "Wiring
Ready Condition" shall mean that the Tenant Improvements in the computer room
have reached a level of competition which will enable Tenant to perform its
wiring work in the computer room.
ARTICLE 6.
RENT CREDIT REDUCTION
---------------------
6.1. Definitions. The following terms shall have the meanings set
-----------
forth below:
8-9
<PAGE>
6.1.1. "Aggregate Costs" shall mean the sum of (a) Landlord's
Construction Costs, and (b) amounts advanced by Landlord for Non-Construction
Purposes.
6.1.2. "Construction Allowance Excess" shall mean the amount, if any,
by which the Construction Allowance exceeds the Aggregate Costs.
6.2. Rent Credit. In the event that there is a Construction
-----------
Allowance Excess, the amount thereof shall be applied as a credit (the "Rent
Credit") against the first installments of Rent coming due under this Lease,
until exhausted.
6.3. Lease Amendment. In the event that Tenant receives a Rent
---------------
Credit, then promptly following the Commencement Date, Landlord and Tenant shall
enter into an Amendment to this Lease setting forth the amount of the Rent
Credit.
ARTICLE 7.
MISCELLANEOUS
-------------
7.1. Tenant's Work. All data and telecommunications wiring and all
-------------
furniture systems for, and all other work to be performed by Tenant in , the
Leased Premises, none of which shall constitute Tenant Improvements hereunder,
shall be furnished and installed or performed by Tenant at Tenant's sole cost
and expense (subject to Section 4.4 of this Exhibit). Tenant shall employ with
the provisions of Section 9 of the Lease and such additional requirements as
reasonably requested by Landlord or the General Contractor in connection with
any work which it performs pursuant to this Section. All such work shall be
subject to coordination by the General Contractor. Tenant shall have access to
the Leased Premises prior to the Commencement Date for purposes of completing
such work, provided, however, that in connection with the performance of such
work, Tenant shall not interfere with or delay the completion of the Tenant
Improvements.
7.2. Notices. All notices required under this Exhibit shall be sent
-------
in the manner prescribed in Section 44 of the Lease but shall be addressed to
the parties at the following addresses or at such other addresses as parties
shall designate from time to time by written notice to the other parties:
If to Tenant:
------------
Farm Journal, Inc.
230 West Washington Square
Philadelphia, PA 19105
Attention: Mr. Michael Gart
Vice President of Finance and Operation
8-10
<PAGE>
If to Tenant's Architect:
------------------------
Deborah Meyer Associates, Inc.
227 E. Lancaster Avenue
Ardmore, PA 19003
If to Tenant's Construction Representative:
------------------------------------------
Smith Advisory Group
1650 Market Street, Suite 3000
Philadelphia, PA 19103
Attention: Mr. William R. Smith
If to Landlord:
--------------
Centre Square
c/o Metropolitan Life Insurance Company
8300 Boone Blvd.
Suite 750
Vienna, VA 22182
Attention: Mr. Michael J. Curran, Esquire
With a Copy to:
--------------
The Galbreath Company
2000 Market Street
14th Floor
Philadelphia, PA 19103
Attention: Mr. Wayne Hunt
If to Landlord's Construction Representatives:
---------------------------------------------
The Galbreath Company
2000 Market Street
14th Floor
Philadelphia, PA 19103
Attention: Mr. William Aldrich
In addition to the foregoing, Landlord and Tenant shall provide each
other with additional names and addresses of relevant parties from time to time
as necessary.
8-11
<PAGE>
Schedule I
----------
List of Qualified General Contractors
Barclay White Inc.
Turner Construction Company
Intech Construction Inc.
Clemens Construction
8-12
<PAGE>
EXHIBIT 9
STANDARDS FOR WORK TO BE PERFORMED BY TENANT
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
and
Farm Journal, Inc., TENANT
A. Prior to commencing any work under either Section 9 of this Lease or
Section 7.1 of Exhibit 8 of this Lease (referred to collectively
hereinafter as the "Tenant's Work"), Tenant shall obtain the approval of
Landlord, in writing, of the specific work it proposes to perform. In
connection with any request for Landlord's approval, Tenant shall submit to
Landlord reasonably detailed plans and specifications for the proposed
Tenant's Work, which shall include all of the detail described in Section
6(A)(i) through (x) of the Lease, if applicable. (The foregoing
requirements shall not apply, however, to any Alteration which is not a
Material Alteration.) All architects, engineers and other design
professionals engaged in connection with the Tenant's Work shall be subject
to the approval of the Landlord, which approval shall not be unreasonably
withheld.
B. All construction managers, contractors, subcontractors, and sub-
subcontractors engaged in connection with the Tenant's Work (collectively,
the "Tenant's Contractors" and individually, a "Tenant's Contractor") shall
be subject to the approval of Landlord, which approval shall not be
unreasonably withheld. To the end that there shall be no labor disputes
which would interfere with any construction occurring in the Complex or the
operation thereof, or any part thereof including, but not limited to, the
Leased Premises, in performing any work in or about the Leased Premises.
Tenant agrees to engage the services of only such contractors and
subcontractors as will work in harmony and without causing any labor
dispute with each other, with Landlord's contractors and subcontractors and
with the contractors and subcontractors of all others working in or upon
the Complex or any part thereof. Tenant shall employ and shall require
Tenant's Contractors to employ only such labor as will work in harmony and
without causing any labor dispute with all other labor then working in the
Complex or any part thereof including, but not limited to, the Leased
Premises. Furthermore, all Tenant's Contractors shall be licensed by the
authority having jurisdiction over the appropriate profession.
9-1
<PAGE>
C. Prior to commencing the Tenant's Work, Tenant shall obtain all permits
required by any governmental authority having jurisdiction and shall
deliver copies thereof to Landlord. All of the Tenant's Work shall be done
in accordance with the plans approved by Landlord, the requirements of all
applicable laws, ordinances, regulations, codes and other requirements of
governmental authorities and with the regulations of Landlord's
underwriter. In addition, the Tenant's Work shall be performed in a
thorough, first-class and workmanlike manner, shall incorporate only new
materials and shall be in good and usable condition at the date of
completion. At any time and form time to time during the performance of
the Tenant's Work, Landlord, Managing Agent, Landlord's architect and
Landlord's general contractor may enter upon the Leased premises and
inspect the Tenant's Work and take such steps as they may deem necessary or
desirable to assure the proper performance of the Tenant's work and/or for
the protection of the Complex and/or any premises adjacent to the Leased
Premises. Such inspection shall, however, be for Landlord's benefit only
and may not be relied upon by Tenant or any other party.
D. All Tenant's Contractors shall maintain the following insurance coverages
in the minimum amounts specified below or such greater amounts as may be
required by Landlord based upon the risks of the project or good insurance
practices:
(i) Commercial General Liability Insurance including Products Completed
Operation, Owners and Contractors Protective Liability and Broad
Form Contractual Liability with the exclusion pertaining to
explosion collapse and underground property damage hazards
eliminated,
(ii) Business Automobile Liability Insurance including owned, hired, and
non-owned automobiles,
(iii) Statutory Workers' Compensation Insurance, including occupational
disease with employers' liability limits no less than mandated by
statute,
(iv) In addition to the foregoing insurance coverages, during the course
of construction, Tenant or Tenant's general contractor or
construction manager shall maintain "All-risk" builder's risk
insurance for the full replacement cost of the Tenant's Work.
The insurance identified under D(i) and (ii) above shall (a) be in such amounts
as may be reasonably determined by Landlord (but not less than $1,000,000 or
more than $5,000,000), depending on the scope and nature of the Tenant's Work,
(b) name Landlord, Managing Agent and any other parties designated by Landlord
as additional insureds, (c) be in companies licensed to do business in
Pennsylvania and reasonably satisfactory to Landlord, and (d) provide that the
policies will be changed, canceled or expire until at least thirty (30) days
prior written notice has been given to Landlord. Evidence of all coverage shall
be delivered to Landlord prior to any such contractor or subcontractor
commencing in the Leased Premises. The Liability of Tenant, its contractors and
subcontractors shall not be limited because of the insurance required hereunder
nor to the amounts thereof nor because of any exclusions from coverage in any
insurance policy.
9-2
<PAGE>
E. Unless Tenant or its general contractor or construction manager provides
payment and performance bonds for the full cost of the Tenant' Work, each
contract and subcontract providing for material and/or services with a
value in excess of $25,000 shall require the Tenant's Contractor thereunder
to obtain payment and performance bonds in the full amount of its contract
or subcontract. All bonds required pursuant to this provision shall be in
form reasonably acceptable to Landlord, shall be issued by reputable surety
companies licensed to do business in Pennsylvania and shall name Landlord
and Tenant as obligees.
F. Tenant shall comply with all procedures and policies established by
Landlord from time to time relating to construction by tenants in the
Complex. Tenant has received a copy of Landlord's "Handbook of General
Requirements--Tenant Improvements and Alteration Projects" and shall comply
therewith.
G. The Tenant's Work shall be coordinated with all work being performed by
Landlord and other occupant of the Complex to the end that the Tenant's
Work will not interfere with the operation of the Complex or interfere with
or delay the completion of any other construction within the Complex. Each
Tenant's Contractor shall comply with all procedures and regulations
prescribed by Landlord or its Management Agent for integration of the
Tenant's Work with that to be performed in a manner so as not to disturb or
annoy other tenants or occupants of the Complex and shall be performed only
during such hours and under such conditions as shall be established by
Landlord.
H. Tenant shall cause each Tenant's Contractor to provide picture I.D. badges
for all employees. Individuals without proper I.D. badges may be required
to leave the Complex. Employees of Tenant's Contractors shall not enter
any portion of the Complex (other than the leased Premises, loading dock,
dumpster areas, freight elevators and designated washrooms) whether
occupied or unoccupied, without prior written notification to and approval
from Landlord's Managing Agent. Tenant shall cause Tenant's Contractors to
comply with all reasonable rules and regulations established by Landlord in
connection with the Operation of the Complex.
I. Tenant shall cause Tenant's Contractors to (i) take all precautions
necessary for the prevention of accidents and for the safety of persons and
property, (ii) comply with all applicable laws, ordinances, rules,
regulations, and orders of any public authority relating thereto, and (iii)
promptly report to Landlord any injury and furnish Landlord a written
accident report within 24 hours of the accident and a copy of the accident
report filed with its insurance carrier at the time of filing of such
report.
J. Tenant and Tenant's Contractors shall be responsible for the
transportation, safekeeping and storage of materials and equipment used in
the performance of the Tenant's work, for the removal of waste and debris
resulting therefrom, and for any damage caused by them to any part of the
Complex, including the Leased Premises. It shall be Tenant's
responsibility to cause each of Tenant's Contractors to maintain continuous
protection of the Tenant's Contractor to properly protect the Tenant's
Work. Any damage caused by
9-3
<PAGE>
Tenant's Contractors to any portion of the Complex or to any property of
Landlord or of any occupant or tenant or the Complex shall be repaired to
its condition prior to such damage at no expense to Landlord.
K. Tenant shall cause Tenant's Contractors to (i) keep the Leased Premises and
adjacent areas, as well as the loading dock, elevators, logistic areas and
surrounding areas, free from accumulations of waste material or rubbish,
(ii) keep dirt and dust from infiltrating into adjacent tenant, common and
mechanical areas, (iii) protect the front and top of all perimeter HVAC
units and thoroughly clean them upon completion of work, (iv) block off
supply and return grills, diffusers and ducts to keep dust from entering
into the building HVAC system, (iii) for with remove al rubbish, tools,
equipment and materials from in and about the Leased Premises and the
Complex upon completion of the work.
L. Tenant's Contractors may not use any space within the Complex for storage
handling or moving of materials or equipment and/or for the location of a
field office or facilities for the employees of such contractor or
subcontractor without obtaining Landlord's prior written approval for each
such use. If any Tenant's Contractor shall use any space in the Complex
for any or all of the aforesaid enumerated purposes or any other similar
purpose without obtaining Landlord's written approval therefor, Landlord
shall have the right to terminate such use and remove all of such Tenant's
Contractor's materials, equipment and other property from such space,
without Landlord being liable to Tenant and/or to such Tenant's Contractor,
and the cost of such termination and/or removal shall be paid by Tenant to
Landlord.
M. Tenant shall secure from all Tenant's Contractors, and shall cause to be
properly filed prior to the commencement of any of the Tenant's Work,
effective waivers of mechanics liens. Copies of filed waivers shall be
delivered to Landlord prior to the commencement of any of the Tenant's
Work.
N. Tenant shall promptly pay all Tenant's Contractors. Should any lien be
made or filed in connection with the Tenant's Work, Tenant shall bond
against or discharge the same within forty-five (45) days after receiving
notice thereof. If Tenant shall fail to cause such lien to be bonded
against or to be discharged within such period, then, in addition to any
other right or remedy which Landlord may have under this Lease, as law or
in equity, Landlord may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge
of such lien by deposit or by bonding. Any amount so paid by Landlord and
all costs and expenses incurred by Landlord in connection therewith,
together with interest at the Overdue Interest Rate from the respective
dates of Landlord's making of the payment and incurring of the cost and
expense, shall constitute Additional Rent payable by Tenant under this
Lease and shall be paid by Tenant to Landlord on demand.
O. Nothing set forth in this Lease shall be deemed or construed as (i) a
consent or request by Landlord, expressed or implied, by inference or
otherwise, to any contractor, laborer or materialman for the performance of
any labor or the furnishing of any materials for any
9-4
<PAGE>
specific or general improvement, alteration or repair of or to the Leased
Premises or of or to the Complex or any improvement therein, or to any part
thereof; or (ii) giving Tenant or any other person, firm or corporation any
right to contract for or to perform any labor or furnish any services or
materials that would permit or give rise to a lien against the Leased
Premises, the Complex or any part thereof. Notwithstanding anything in
this Lease nor any other writing signed by Landlord to the contrary,
neither this Lease nor any other writing signed by Landlord shall be
construed as evidencing, indicating, or causing an appearance that any
erection, construction, alteration or repair to be done, or caused to be
done, by Tenant is or was for the immediate use or benefit of Landlord.
P. Tenant shall pay Landlord promptly upon being billed therefor for the cost
of any work or services provided by landlord in connection with the
Tenant's Work, including, without limitation the cost of (i) any
architectural or engineering consultants engaged by Landlord to review the
Tenant's plans and specifications and the Tenant's Work, (ii) all
structural, mechanical, plumbing, electrical, fire protection and other
work required to extend or adapt Landlord's systems to the Tenant's Work,
(iii) hoisting, rubbish removal (including the cost of renting and removing
dumpsters and disposing of contents) and utilities. In addition to the
foregoing, upon completion of each Material Alteration, Tenant shall pay
Landlord a fee in the amount of three percent (3%) of the cost of all
Tenant's Work included in such Material Alteration.
Q. Upon completion of the Tenant's Work, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of liens and receipted
bills covering all labor and materials.
R. Within ninety (90) days after any Material Alternation has been completed.
Tenant shall provide Landlord with a complete set of reproducible, record
drawings for the Leased Premises showing as-built conditions.
S. Tenant shall indemnify, defend and hold harmless Landlord, its agents,
contractors and employees from and against all claims, damages,
liabilities, losses and expenses of whatever nature, including but not
limited to, reasonable attorneys' fees, arising out of or resulting from
the negligence or willful misconduct of Tenant, Tenant's Contractors, or
their respective agents or employees. Tenant shall provide or caused to be
provided in all contracts with each Tenant's Contractor that such Tenant's
Contractor shall indemnify, defend and hold harmless Landlord, its agents
and employees, from and against all claims, damages, liabilities, losses
and expenses of whatever nature, including but not limited to, reasonable
attorneys' fees, arising out of or resulting from the negligence or willful
misconduct of such Tenant's Contractor or its agents or employees in
connection with the performance or the Tenant's Work. The foregoing
indemnities shall be in additions to the insurance requirements set forth
in Section D of this Exhibit and shall not be in discharge or substitution
of same, and shall not be limited in any way by any limitations on the
amount or type of damages.
9-5
<PAGE>
EXHIBIT 11.1
HVAC SPECIFICATION
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
The Complex HVAC System shall provide during Business Hours the following
temperature conditions in the Leased Premises:
(i) Cooling -- not to exceed 76 (degrees) F dry bulb with 50 percent
relative humidity, when outside conditions are not above 90 (degrees) F,
dry bulb and 74 (degrees) F wet bulb outside conditions 2 1/2% design dry
bulb and mean coincident wet bulb. ASHRAE 1989; heating -- not less than
68 (degrees F interior temperature, when outside conditions are not below
14 (degrees) F dry bulb,; 97 1/2% design dry bulb, ASHRAE 1989.
(ii) The air conditioning systems will provide air of not less than
the following amount per floor:
(A) North side fan system--
7110 CFM to interior zone, 570 CFM to elevator lobbies.
(B) South side fan system--
7485 CFM to interior zone.
(C) Induction units--
6660 CFM.
11.1-1
<PAGE>
EXHIBIT 11.2
JANITORIAL SPECIFICATIONS
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
NIGHTLY CLEANING
Sweep floors with treated mop to maintain in clean condition throughout the
Complex, including Tenant space, entrance foyers, lobbies and vestibules
and all common areas, including building corridors, all stone, ceramic
tile, marble, terrazzo, asphalt tile, linoleum, rubber vinyl and other type
flooring to insure dust-free floors with special attention given to hard-
to-reach areas.
If carpeted, vacuum and spot clean carpets of all split-floor, multi-
tenanted corridors nightly, thoroughly clean and shampoo as needed.
If resilient tile, clean and buff wax floors of all common corridors so as
to maintain a clean and highly-polished surface. Strip and re-wax as
needed. All elevator corridors and car thresholds and saddles are to b
cleaned and polished to remove all stains and dirt, paper clips, cigarettes
or other similar debris.
Clean and wash and scrub weather mats, as needed.
Keep locker and slop sink rooms in clean and orderly condition.
Wipe clean all metal door knobs, kick plates, directional signs, door
saddles, mail chutes and all metals.
Upon completion of all nightly chores, all lights shall be turned off,
doors locked and offices left in a neat and orderly condition. Venetian
blinds shall be lowered and tilted to keep out the sun. All slop sinks,
locker area and other utility areas shall be cleaned thoroughly and
cleaning equipment stored in a central location.
Vacuum all carpeted areas and rugs, moving light furniture other than
desks, file cabinets, etc.
11.2-1
<PAGE>
Empty and clean all wastepaper baskets and disposal receptacles (damp dust
as necessary). Install liners, if provided by tenant, as necessary.
Clean all cigarette urns and replace sand or water and ash trays as
necessary.
Collect and remove wastepaper, cardboard boxes and waste material to
designated area.
Move and dust under all desk equipment, ash trays and telephone and other
similar equipment, replacing and dusting said equipment using treated
cloth.
Sweep private stairways and wash as necessary, vacuum carpeted stairways,
dust hand rails, balustrades and stringers as necessary.
Dust and wipe clean all furniture, fixtures, shelving, desk equipment,
telephones, cabinets, window sills, door casings, map boards and clean all
glass tables and desk tops with impregnated cloths as needed.
Dust and clean all chair rails, paneling, trim, door and other
architectural louvers, lattices and ornamental work, grilles, pictures,
vinyl or fabric of chairs and settees, ventilating louvers, charts,
baseboards; spot clean doors, walls and woodwork, as well as all directory
board glass and display glass. Wash as needed.
Removal of all finger marks, smudges, scuff marks, gum or foreign matter
form glass desk tops, glass table tops, glass entrances, private entrances
to offices and elevator doors, glass directory boards, mail chutes (if
any), metal partitions and other marks from walls, window sills, frames and
other similar surfaces and glass tables as necessary. Clean glass entrance
doors nightly.
Scour, wash clean all water fountains and coolers, emptying waste water as
needed.
Wash window sills and frames, convectors and convector covers and removal
of all ink stains and smudges, as necessary.
Mop up and wash floors for coffee stain spills, smears and foot tracts
throughout, including Tenant's spaces, as needed.
Dust and wash all closet and coatroom shelving, coatroom shelving, coat
racks and flooring. Wash all chalk boards.
During the performance of all nightly chores, all unnecessary lights shall
be switched off.
11.2-2
<PAGE>
LAVATORIES AND RESTROOMS
A. NIGHTLY
Sweep, rinse, scrub and/or wash and dry all flooring with approved
germicidal detergent solution using spray tank method, to remove all
spills, urine stains, smears scuff marks and foot tracks throughout.
Wash and polish all mirror, powder shelves, bright work, enamel surfaces,
including flushometers, piping, toilet seat hinges and all metals.
Scour, wash and disinfect all basins, bowls, and urinals with approved
germicidal detergent solution, including tile walls near urinal.
Wash both sides of all toilet seats with approved germicidal detergent
solution.
Disinfect and damp wipe and wash all partitions, enamel surfaces, tile
walls, dispensers, doors and receptacles. Empty and clean paper towel and
sanitary disposal receptacles.
Remove wastepaper and refuse, including soiled sanitary napkins to a
designated area. All wastepaper receptacles to be thoroughly cleaned and
washed.
Fill and maintain mechanical operation of all toilet tissue holders, soap
dispensers, tower dispenser and sanitary napkin dispensers. The filling of
such receptacles to be in such quantity as to last the entire business day
wherever possible.
Remove stains as necessary, clean underside of rims of urinals and bowls.
It is the intention to keep lavatories thoroughly clean and not to use a
disinfectant to mask odors. If disinfectants are necessary, an odorless
disinfectant shall be used.
Wash and wax, if applicable, all tile floors or vacuum and remove spots, if
carpeted.
B. PERIODIC CLEANING, LAVATORIES
Machine scrub flooring, as necessary, but no less than weekly, with
approved germicidal detergent solution.
Scrub, wash and polish al partitions, tile walls and enamel surfaces from
ceiling to floor as necessary, but not less than once every two (2) weeks
during proper disinfectant, graffiti to be removed nightly.
Wash all lighting fixtures, as necessary, but not less than twice a year.
Do all high dusting once a month.
11.2-3
<PAGE>
Wash all painted, vinyled and tiled wall surfacing as needed, but not less
than once every two months.
Clean and disinfect all equipment drains.
Vacuum and wash all ceiling, including washable acoustical tile, as
necessary, but not less than four times a year.
Clean urinals and bowls with scale-solvent as needed, but not less than
once a week.
COMMON AREAS
A. NIGHTLY
Sweep and wash flooring, vacuum carpeting (if applicable).
Sweep, vacuum and spot clean and scrub, as required, all mats and lobby
runners.
Pick up and put out rain mats, when necessary, making sure they are clean
at all times.
Clean all cigarettes urns and replace sand or water as necessary.
Maintain floors in elevator cabs as needed and clean thoroughly. If
carpeted, remove soluble spots which safely respond to standard spotting
procedure without risk of injury to color or fabric. Cabs to be vacuumed
nightly. Remove all chewing gum to floors, walls and rails, nightly.
Clean entrance door glass.
Dust and rub down elevator doors, mail depository and walls, metal work and
saddles in elevator cabs.
Maintain metal work thorough out, including elevator cabs and all lobby
bright metal by cleaning and polishing, as necessary.
Clean telephone booths, storage rooms, freight elevators, lobby consoles,
information directories, perimeter heating grilles.
Vacuum elevator door tracks and saddles. Treat and polish all wood,
synthetic paneling and metal work in the elevator cabs as necessary. Sweep
and clean elevator passenger pits weekly; freight elevator pits nights.
(Re-lamp lobby lighting and clean fixtures and ceiling, as needed).
B. PERIODIC CLEANING
Machine scrub flooring as necessary, and apply appropriate approved coating
or sealant to maintain luster as needed.
11.2-4
<PAGE>
Clean lights, globes, diffusers and fixtures as often as necessary. Wash
lighting fixtures, as necessary, but not less than twice a year.
Dust down and wash lobby and stairway walls, steps and stringers, as
necessary, but not less than once per month.
Rub down metal and other high-level bright work, as necessary.
Shampoo carpets in elevator cabs not less than weekly, including spare
carpets, if made available for replacement. Shampoo lobby corridor carpet,
if applicable, as needed. Remove all necessary soluble spots which safely
respond to standard spotting procedure without risk or injury to color or
fabric.
HIGH DUSTING
A. OFFICE AREAS
Do all high dusting monthly unless otherwise specified including the
following:
Vacuum and dust all pictures, frames, charts, graphs and similar wall
hangings and other items not reached in nightly cleaning. Damp dust
as required.
Vacuum and dust all vertical surfaces such as walls, partitions,
doors, bucks and ventilating louvers, grilles, high moldings and other
surfaces not reached in nightly cleaning.
Dust all venetian blinds. Dust all window frames.
Dust exterior of lighting fixtures.
Wash all furniture glass, as needed.
Vacuum and dust ceiling tiles around ventilators and clean air
conditioning diffusers, as required.
FLOOR MAINTENANCE
A. COMMON AREAS
Wash, strip, wax, buff and polish all tile floors of all common areas so as
to maintain a highly polished surface at all times, as needed. No floor
finish or sealer, however, shall be applied to any marble or granite floors
on the main level or any other level of the building without specific
written authorization.
Scrub, wash, strip or coat with appropriate approved sealant, buff and
polish all other flooring (stone, marble, travertine, etc.) as necessary to
maintain in clean and bright condition.
11.2-5
<PAGE>
B. GENERAL
A non-staining floor finish that provides a high degree of slip prevention
shall be used in all floor maintenance work.
Wash and wipe clean all base boards, saddles, kick plates, etc. during
nightly cleaning operations.
MISCELLANEOUS PERIODIC CLEANING (to be performed as needed unless otherwise
specified, but not less than once each week or as hereinafter provided):
A. OFFICE AREAS, CORRIDORS AND STAIRWELLS
Sweep all building stairways, dust rails and fire equipment. Mop as
needed.
Wipe clean and polish all aluminum, chrome, stainless steel, brass and
other metal work including trim and hardware, as necessary.
Elevators (including freight elevators), office and utility doors on all
floors to be checked for general cleanliness as necessary.
Clean and sweep all vacant areas.
Clean glass entrance doors, as needed, not less than nightly.
Once a week, dust and wash all door louvers and other ventilating louvers
within reach.
Wash and remove all fingermarks, ink stains, smudges, scuff marks and other
marks from metal partitions, sills, all vertical surfaces (doors, walls,
window sills), including elevator doors and other surfaces, as necessary.
All granite and/or travertine walls, elevators, stairways, office and
utility doors to be washed as necessary using clear water and approved
cleanser.
Dust and clean electric fixtures, all baseboards and any other fixtures or
fittings in common corridors, as necessary, but no less than once a week.
Vacuum clean and polish cars and corridor saddles of elevator doors on all
floors as needed.
WINDOW CLEANING
Wash and clean all vision glass, inside and outside. Wash all spandrel
glass and keep all metal, mullions and sash free from water stain and wiped
down during exterior cleaning operation. Frequency will be four times per
year.
11.2-6
<PAGE>
Building entrance doors and lobby glass shall be cleaned daily and keep in
clean condition at all times during the day.
11.2-7
<PAGE>
EXHIBIT 11.3
SECURITY GUARD SERVICE
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc. TENANT
Landlord shall provide security guard service 24 hours per day, seven
days a week as follows:
Security Control Center Operator -- Monitor all equipment in the
--------------------------------
control center and dispatch guards.
West Tower Security Station -- Monitor West Tower activity and serve
---------------------------
as West Tower after hours check point.
East Tower Security Station -- Monitor East Tower activity and serve
---------------------------
as East Tower after hours check point.
Roving Guard -- Perform Complex security tours of garage, building
------------
exterior, lobby, concourse, galleria and both towers.
11.3-1
<PAGE>
EXHIBIT 19
RULES AND REGULATIONS
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc. TENANT
1. Tenant shall not obstruct the sidewalks, driveways, entrances, lobbies,
elevators, vestibules, stairways, corridors or halls of the Building
complex or use them for any purpose other than ingress to and egress from
the Leased Premises.
2. Tenant shall not place anything on the exterior surfaces of the Building
Complex. The window, skylights, doors and transoms which admit light from
outside the Leased Premises shall not be covered or obstructed by Tenant.
Without limiting the generality of the foregoing, no window shares, blinds,
curtains, screens, storm windows, awnings or other materials shall be
installed or placed on windows or in any of the window spaces, without the
prior written approval of Landlord.
3. All electric fixtures hung by Tenant in offices or spaces along the
perimeter of the Leased Premises must be fluorescent, and of a quality,
type, design and bulb color approved by Landlord.
4. No sign, lettering, insignia, advertisement or notice shall be inscribed,
painted, installed or placed in any of the following locations without the
prior written approval of Landlord: (a) outside of the Leased Premises;
(b)any window or window space; and (c) any part of the Leased Premises
which is visible from outside of the Leased Premises.
5. Tenant shall use the electrical, mechanical, plumbing, and other
Building/Complex systems, fixtures and apparatus only for such purposes as
they are intended. Without limiting the generality of the foregoing, Tenant
shall not dispose of sweepings, rubbish, rags, ashes, coffee grounds, acids
or harmful substances in the Building plumbing systems. Tenant shall not
enter any electrical, mechanical or telephone closets (whether inside or
outside of the Leased Premises) without the prior written approval of
Landlord. Tenant shall not enter upon the roof of the Building/Complex at
any time.
6. Tenant shall not lay floor tile or any other floor covering in the Leased
Premises without the prior written approval of Landlord.
19-1
<PAGE>
7. Tenant shall not install any signaling, telegraphic, telephonic, protective
alarm or other wires, apparatus or devices without the prior written
approval of Landlord and then only in accordance with such reasonable
requirements and procedures as Landlord may impose. All wires installed by
Tenant must be clearly tagged at the distributing boards and junction boxes
and elsewhere where required by Landlord, with the number of the office to
which the wires lead and the purpose for which the wires are used.
8. Tenant shall not at any time bring into or keep upon the Leased Premises
any substance or material which is flammable, combustible, caustic,
poisonous, hazardous, explosive, or which has an offensive odor.
9. No additional locks or bolts of any kind shall be placed upon any doors or
windows, nor shall any changes be made in existing locks or the mechanics
thereof (whether operated by keys, entry cards or otherwise). At the end of
the Term, Tenant shall surrender all keys, entry cards and other means of
unlocking all locks. Landlord and the managing agent may at all times keep
pass keys, entry cards or other means of opening all locks into or on the
Leased Premises.
10. No bicycles or vehicles of any kind may be brought into the Leased Premises
or the Building/Complex by Tenant.
11. Tenant shall not bring into or keep in the Leased Premises any birds, fish
or other animals of any kind (other than a seeing eye dog for a blind
person).
12. Landlord may require persons in or entering the Building/Complex to comply
with security policies of the Building/Complex and reserves the right to
bar or limit access to the Building/Complex for the safety of occupants or
protection of property. Landlord, is not, however, responsible for the
theft, loss of damage of any property. Any persons in the Building/Complex
may be subject to identification by Landlord.
13. Tenant shall keep doors to unattended areas locked and shall otherwise
exercise reasonable precautions to protect property from theft, loss or
damage. Tenant shall see each day that the lights are turned off and the
doors securely locked before leaving the Leased Premises.
14. Tenant shall not engage in, and shall cooperate with Landlord in attempting
to prevent, canvassing, soliciting and peddling in the Building/Complex.
15. Tenant shall give immediate notice to Landlord in case Tenant becomes aware
of any unauthorized solicitation, accident or casualty, theft or other
crime, dangerous or defective condition or emergency situation in the
Leased Premises or the Building/Complex.
16. No freight, furniture or bulky matter of any kind of Tenant shall be
received into the Building/Complex or carried up or down in the elevator or
stairways, except during such hours as shall be designated by Landlord, and
Landlord in all cases shall also have the
19-2
<PAGE>
right to prescribe the manner in which the same shall be brought into or
taken out of the Building/Complex. Moving will not be permitted during
normal business hours. Any hand trucks, carryalls, or similar appliances
used for the delivery or receipt of merchandise or equipment shall be
equipped with rubber tires, side guards and such other safeguards as
Landlord may require. The cost of repairing any damage to the
Building/Complex caused by any item being brought into the Building/Complex
for or by Tenant shall be paid by Tenant.
17. If Tenant wishes to move any freight, furniture or other bulky matter into,
out of or between floors within the Building/Complex. Tenant must notify
Landlord at least one week in advance of its intended move. Such
notification shall include the proposed date and time of the move and a
description of the property to be moved.
18. The Building/Complex loading docks may be used only for loading and
unloading procedures. Tenant may not use the loading dock area for parking.
Tenant may not place any dumpsters at the loading docks or any portion of
the property without the prior written approval of Landlord.
19. Tenant shall not place, leave or discard rubbish, paper, refuse or any
objects of any kind whatsoever outside the Leased Premises.
20. Tenant shall not do anything which would disturb other tenants of the
Building/Complex or which would obstruct or interfere with the rights of
other tenants of the Building/Complex. Without limiting the generality of
the foregoing, Tenant shall not make excessive noises, create any offensive
odors, or use any electrical or mechanical equipment that emits excessive
sound or other waves or that would interfere with the operation, reception
or broadcasting of any equipment from or within the Building/Complex.
21. Tenant shall not serve or permit the serving of alcoholic beverages in the
Leased Premises unless Tenant shall have procured host liquor liability
insurance, issued by companies and in amounts reasonably satisfactory to
Landlord, naming Landlord and its managing agent as additional insureds.
22. Tenant shall not conduct a restaurant, luncheonette or cafeteria for the
sale or service of foods or beverages to its employees or others. Nor shall
Tenant operate a stove or allow cooking of any kind (other than in a
microwave oven) on the Leased Premises. Tenant shall not install or
operate, or permit the installation or operation of any vending machines on
the Leased Premises without the prior written approval of Landlord.
23. Tenant shall not keep upon or attached to the Leased Premises any
furniture, fixtures or equipment which is subject to a security interest or
security agreement. All furniture and equipment located on the Leased
Premises shall be owned or leased by Tenant, but no property may be leased
by Tenant with the understanding that it is exempt from levy for rent or
other charges of Landlord. Without limiting the generality of the
foregoing,
19-3
<PAGE>
Tenant shall not execute or deliver any security agreement or financing
statement which may be considered a lien on the Leased Premises or the
Building/Complex.
24. The Building/Complex is a non-smoking building. This means that smoking is
not permitted in any common areas, including, without limitation, the
restrooms and corridors on multi-tenant floors, elevators, lobbies,
stairways, fire towers, patios and vestibules of the Building/Complex.
25. Landlord reserves the right at any time and from time to time, to rescind,
alter, waive, modify, add to or delete, in whole or in part, any of these
rules and regulations, provided, however, any additions or modifications
shall apply to all office tenants generally. In the event of any conflict
between the express provisions of the Lease and such additions or
modifications, the Lease shall control. Tenant shall not have any rights or
claims against Landlord by reason of non-enforcement of these rules and
regulations against tenant, and such non-enforcement will not constitute a
waiver as to Tenant.
19-4
<PAGE>
EXHIBIT 24
ESTOPPEL CERTIFICATE
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
FARM JOURNAL, INC. ("Tenant"), the tenant under a certain Office Lease Agreement
("Lease") dated with Centre Square ("Landlord"), as landlord, for
certain premises (the "Leased Premises"), situate at 1500 Market Street,
Philadelphia, Pennsylvania, for good and valuable consideration, and intending
to be legally bound, hereby certifies to Landlord that:
(1) The Lease executed by Tenant and attached hereto is a true, complete
and correct copy of the Lease, and there has been no amendment,
modification or supplement of any kind of nature varying the stated
terms and conditions thereof, except as so attached;
(2) The Lease is presently in full force and effect;
(3) The Lease Term commenced on and full rental is now
accruing thereunder; and the Lease Term expires ;
(4) Tenant has accepted possession of the Leased Premises, and any and all
improvements thereto required to be made by Landlord have been
completed in accordance with the Lease;
(5) No Rent under the Lease has been paid more than thirty (30) days in
advance of its due date;
(6) Tenant, as of this date, has no charge, lien, claim or offset under
the Lease or otherwise, against rents or other charges due or to
become due thereunder;
(7) All Annual Fixed Rent and Additional Rent due and payable under the
Lease by Tenant have been paid up to ________ except escalation, if
any, not yet billed by Landlord;
(8) No notice has been received by Tenant of a failure to perform or a
violation of any term, covenant or condition under the Lease which has
not been cured by Tenant;
24-1
<PAGE>
(9) Tenant has not given Landlord any notices of defaults by Landlord
under the Lease which have not been cured, and there are no defaults
by Landlord under the Lease as of the date hereof;
(10) Landlord is holding a security deposit as security for the performance
of Tenant's obligations under the Lease in the amount of $________;
(11) Tenant has no option or right to purchase property of which the Leased
Premises is a part, or any part thereof.
DATE: TENANT:
FARM JOURNAL, INC.
BY:_________________________________
24-2
<PAGE>
EXHIBIT 25
GROUND LESSOR'S NON-DISTURBANCE AGREEMENT
AND
LESSEE'S AGREEMENT TO ATTORN
THIS AGREEMENT, made this ____ day of ___________, 1995, by and between
Centre Square Two, a general partnership (the "Major Lessor") and Farm Journal,
Inc., a ________________ corporation, currently having a place of business at
230 West Washington Square, Philadelphia, PA 19105 (the "Tenant").
W I T N E S E T H :
WHEREAS, Tenant has entered into a certain lease, of even date herewith
(the "Lease") with Centre Square as landlord (the "Landlord"), covering certain
space (the "Leased Premises"), in the West Tower of the Complex located at 1500
Market Street, Philadelphia, Pennsylvania (the "Complex"); and
WHEREAS, the Complex is subject to a prior Ground Lease dated November 12,
1970 (the "Ground Lease") with respect to the land described in Exhibit "A"
attached hereto, from the Trustees of The General Electric Pension Trust (the
"Original Lessor") to Centre Square, Inc. and Tishman Construction Company of
Pennsylvania, Inc. (collectively, the "Original Lessee"), a memorandum of which
Ground Lease was recorded on 11/19/70 in Deed Book PLMcS 163, Page 432, as
amended by Agreement dated 12/26/73, recorded 1/1/74 in Deed book DDC 539, Page
571 in the Philadelphia Office of the Recorder of Deeds and the Second Amendment
to Lease dated July 28, 1992 recorded August 4, 1992 in Deed Book VCS126, page
479, in the Philadelphia Office of the Recorder of Deeds; and
WHEREAS, Major Lessor has succeeded to the interest or Original Lessor
under the Ground Lease; and
WHEREAS, Landlord has succeeded to the interest or Original Lessor under
the Ground Lease; and
WHEREAS, Tenant has requested that Major Lessor agree not to disturb
Tenant's possessory rights in the Leased Premises in the event Major Lessor
should terminate the Ground Lease provided that Tenant is not in default under
the Lease and provided that Tenant attorns to Major Lessor; and
WHEREAS, Major Lessor is willing to so agree on the terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and TEN ($10.00) DOLLARS and other good and valuable
consideration each to the other
25-1
<PAGE>
in hand paid, receipt of which is hereby acknowledged, Major Lessor and Tenant
hereby agree as follows:
1. The Lease is and shall be subject and subordinate in all respects to
the Ground Lease and to any renewals, modifications or extensions of the
same.
2. If there is no "Event of Default" by Tenant under and as defined in
the Lease (i) Tenant shall not be made a party in any action or proceeding
by Major Lessor to recover possession of the Complex, (ii) Tenant's
possession and use of the Leased Premises shall remain undisturbed
regardless of any action taken by Major Lessor, and (iii) the provisions of
the Lease, and all of Tenant's rights and privileges thereunder, shall
remain in full force and effect regardless of any action taken by Major
Lessor.
3. Upon request by Major Lessor, or any subsequent owner, Tenant will
execute a written agreement, pursuant to which Tenant shall (i) attorn to
Major Lessor or any such subsequent owner, (ii) affirm Tenant's obligations
under the Lease, and (iii) agree that, in the event of a default by
Landlord under the Ground Lease, and following written notice thereof from
Major Lessor to Tenant, Tenant shall pay to Major Lessor all rentals and
charges then due or to become due as they become due to Major Lessor or
such subsequent owner. Landlord hereby authorized Tenant to make such
payments to Major Lessor and agrees that if Tenant pays any sum required
under the Lease to Major Lessor pursuant to this Section, such payment
shall discharge Tenant's obligation to pay such sum to Landlord under the
Lease.
4. No modification, amendment, waiver of release of any provision of this
Agreement or of any right, obligation, claim or cause of action arising
hereunder shall be valid, or binding for any purpose whatsoever unless in
writing and duly executed by the party against whom the same is sought to
be asserted.
5. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, their successors and assigns; provided, however, that in
the event of the assignment or transfer of the interest of Major Lessor
under the Ground Lease, all obligations and liabilities of Major Lessor
under this Agreement shall terminate and thereupon all such obligations and
liabilities under this Agreement shall be the responsibility and obligation
of the party to whom Major Lessor's interest is assigned or transferred
without the need for such party to execute any other documents.
6. Notwithstanding anything contained herein to the contrary, upon the
termination of the Ground Lease, Major Lessor shall not be (i) liable for
any act or omission of Landlord under the Lease, (ii) liable for the
performance of Landlord's covenants under the Lease which arise and accrue
prior to Major Lessor succeeding to the interest of Landlord under the
Lease, (iii) subject to any offsets or defenses which Tenant may have at
any time against any prior Landlord, (iv) bound by any rent which Tenant
may have paid previously for more than one month in advance, (v) liable for
the return of any security deposit which it did not actually receive, or
(vi) bound by any rent amendment or modification of the Lease relating to
the reduction of rent, shortening of term or effecting
25-2
<PAGE>
a cancellation or surrender thereof made without the consent of Major
Lessor. The provisions of this Section 6 shall not be enforceable by or
applicable to Major Lessor or any holder of Major Lessor's interest in the
Ground lease so long as such entity is an Affiliate of the then holder of
the interest of Landlord under the Lease. "Affiliate" as used herein shall
mean any entity which controls, is controlled by, or is under common
control with, Landlord. "Control," as such concept is used in the
immediately preceding sentence, shall mean the power to directly or
indirectly direct or cause the direction of the management or policies of
Landlord or other applicable entity.
7. Tenant agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance
agreement.
8. Tenant covenants and acknowledges that it has no right or option of
any nature whatsoever, whether pursuant to the Lease or otherwise, to
purchase the Leased Premises or the rental property of which the Leased
Premises are a part, or any portion thereof or any interest therein and to
the extent that Tenant has had, or hereafter acquires any such right or
option, the same is hereby acknowledged to be subject to and subordinate to
the Ground Lease and is hereby waived and released as against Major Lessor.
9. Anything herein or in the Lease to the contrary notwithstanding, in
the event that Major Lessor shall acquire title to the Complex. Major
Lessor shall have no obligation, nor incur any liability beyond Major
Lessor's then interest, if any, in the Complex and Tenant shall look
exclusively to such interest of Major Lessor, if any, in the Complex for
the payment and discharge of any obligations imposed upon Major Lessor
hereunder or under the Lease. Tenant agrees that with respect to any money
judgment which may be obtained or secured by Tenant against Major Lessor.
Tenant shall look solely to the estate or interest owned by the Major
Lessor in the Complex or the real property of which the Complex is a part,
or any portion thereof, or interest therein and Tenant will not collect or
attempt to collect any such judgment out of any other assets of Major
Lessor.
10. This Agreement may be executed in counterparts, all of which taken
together constitute the Agreement.
25-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have respectively signed and sealed
this Agreement as of the day and year first above written.
TENANT:
ATTEST/WITNESS FARM JOURNAL, INC.
By:__________________________ By:______________________________________
(Corporate Seal) Title:___________________________________
MAJOR LESSOR:
CENTRE SQUARE, TWO, a Pennsylvania
partnership, by its authorized partner
By: CENTRE SQUARE THREE, a
Pennsylvania partnership, by its
authorized partner
By: CENTRE SQUARE FIVE, a
Pennsylvania partnership, by its
authorized partner
ATTEST/WITNESS METROPOLITAN LIFE INSURANCE
COMPANY, a New York corporation
By:__________________________ By:______________________________________
(Corporate Seal) Title:___________________________________
As to Section 3:
CENTRE SQUARE, by its authorized
general partner:
METROPOLITAN LIFE INSURANCE
COMPANY
By:______________________________________
Title:___________________________________
25-4
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: SS:
COUNTY OF PHILADELPHIA :
On this, the _____ day of _________, 1995, before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared __________________, who acknowledged himself to be the
__________________ of METROPOLITAN LIFE INSURANCE COMPANY, a New York
corporation, which is an authorized general partner of Centre Square, and that
he as such officer, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My Commission Expires:
25-5
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: SS:
COUNTY OF PHILADELPHIA :
On this, the _____ day of _________, 1995, before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared __________________, who acknowledged himself to be the
__________________ of METROPOLITAN LIFE INSURANCE COMPANY, a New York
corporation, which is an authorized general partner of Centre Square Five, a
Pennsylvania partnership, which is an authorized general partner of Centre
Square Three, a Pennsylvania partnership, which is an authorized general partner
of Centre Square Two, a Pennsylvania partnership, and that he as such officer,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My Commission Expires:
25-6
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: SS:
COUNTY OF PHILADELPHIA :
On this, the _____ day of _________, 1995, before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared __________________, who acknowledged himself to be the
__________________ of FARM JOURNAL, INC. a ___________ corporation, and that he
as such officer, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My Commission Expires:
25-7
<PAGE>
EXHIBIT 36.2
LOWER MEZZANINE WORK
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
. Re-lamp all existing light fixtures, and re-ballast where needed.
. Remove old telephone controller equipment.
. Replace approximately fifty (50) ceiling tiles.
. Remove old phone jacks and install blank cover plates, approximately twenty
(20).
. Replace missing electrical receptacle covers, approximately twenty (20).
. Patch approximately 100 SF of drywall partition.
. Reinstall one (1) light fixture.
. Replace approximately ten (10) prismatic fixture lenses.
. Repair or Replace binds as needed.
. Make existing floor coverings safe for use.
. Conform electrical outlets, switchplates and lighting fixtures within newly
demised areas.
36-2
<PAGE>
EXHIBIT 37.1
ADDITIONAL SPACE IMPROVEMENTS
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
A. GENERAL. Pursuant to Sections 37 and 38 of the Lease, Tenant has been
granted, respectively, the Expansion Option and the Right of First Offer
(collectively, the "Additional Space Rights," and individually, an "Additional
Space Right"). If Tenant exercises an Additional Space Right, Landlord shall
construct certain improvements (the "Additional Improvements") in the space
leased by Tenant pursuant to the exercise of the Additional Space Right (the
"Additional Space"). The cost of completing the Addition Improvements shall be
paid for from the construction allowance to be provided by Landlord pursuant to
paragraph E of this Exhibit (the "Addition Construction Allowance"), and to the
extent hereinafter set forth, from Tenant's own funds. The Addition
Improvements shall be constructed in accordance with the provisions of this
Exhibit.
B. PLANS. Within sixty (60) days following the exercise by Tenant of an
Additional Space right, Tenant shall deliver to Landlord proposed plans for the
construction of the Addition Improvements (the "Proposed Addition Plans"). The
Proposed Addition Plans shall comply with the requirements of Section 2.2 of
Exhibit 8 and shall be subject to review and approval by Landlord in accordance
with the provisions of Section 2.3 of Exhibit 8. The Proposed Addition Plans,
as finally approved by Landlord, are referred to hereinafter as the "Final
Addition Plans." The parties shall comply with the provisions of Section 2.3.3
of Exhibit 8 in connection with any proposed changes to the Final Addition
Plans.
Landlord, at Tenant's sole cost and expense, shall file (or cause the
general contractor to file) the Final Additional Plans with the governmental
agencies having jurisdiction and shall obtain all permits and approvals
necessary for the construction of the Addition Improvements. The cost thereof
may, at Tenant's election, be paid from the Addition Construction Allowance.
C. THE CONSTRUCTION SCHEDULE. Following the submission and approval of
the Proposed Addition Plans, the parties shall develop a reasonable schedule
(the "Construction Schedule") for (i)solicitation of bids from prospective
general contractors for the construction work included in the Addition
Improvements; (ii) pre-bid meetings and interviews with prospective general
contractors; and (iii) selection of the general contractor. The parties shall
37.1-1
<PAGE>
comply substantially with the procedures set forth in Article 3 of Exhibit 8 in
connection with the foregoing.
The Construction Schedule to be agreed upon by Landlord and Tenant shall
also include dates for (i) submission by Landlord to Tenant of an estimate of
construction costs; and (ii) substantial completion of the Addition
Improvements. The date for substantial completion of the Addition Improvements
shall be reasonably determined based upon the number of Rentable Square Feet in
the Addition Space and the nature of the Addition Improvements. With respect to
the Expansion Space leased by Tenant pursuant to Section 37 of the Lease, in no
event shall Landlord be obligated to complete the Addition Improvements prior to
the first day of the sixth lease year of the Term.
D. COSTS. Landlord's costs in connection with the construction of the
Addition Improvements (the "Addition Construction Costs") shall be determined in
the same manner as set forth in Article 4 of Exhibit 8 with respect to
Landlord's Construction Costs. Without limiting the generality of the
foregoing, the Addition Construction Costs shall include a fee to Landlord in
the amount of three percent (3%) of all construction costs in connection with
the completion of the Addition Improvements.
E. ADDITION CONSTRUCTION ALLOWANCE. Landlord shall pay the first monies
expended for the Addition Construction Costs until the progress payments towards
such costs equal the Addition Construction Allowance (as hereinafter defined)
(less amounts advanced by Landlord for other purposes as set forth in paragraph
F of this Exhibit). Thereafter, Tenant shall pay for all Addition Construction
Costs as they are incurred by Landlord, within thirty (30) days after Tenant is
billed therefor. Notwithstanding anything to the contrary set forth herein, at
least eighty percent (80%) of the Addition Construction Allowance must be
expended for Addition Construction Costs.
The term "Addition Construction Allowance" shall mean the product of (i)
the number of Rentable Square Feet in the Addition Space, and (ii) the number of
months between the date that Tenant will commence paying Rent for the Addition
Space (the "Addition Space Commencement Date") and the termination of the
Initial Term (pro rated for any partial months), and (iii) $.25 (i.e., twenty-
----
five cents).
F. USE OF CONSTRUCTION ALLOWANCE FOR OTHER PURPOSES. Tenant may use up
to twenty percent (20%) of the Additional Construction Allowance for amounts
paid or payable to unrelated third parties for the following purposes: (i)
preparation of the Proposed Addition Plans and Final Addition Plans; (ii) the
costs of obtaining all permits necessary for the construction of the Addition
Improvements; (iii) purchase of furniture, fixtures and equipment for the
Additional Space; and (iv) installation of data and telecommunications wiring
and cabling in the Additional Space. Landlord shall advance the Addition
Construction Allowance for such purposes in accordance with the procedures and
requirements set forth in Section 4.5 of Exhibit.
G. COMPLETION OF THE ADDITION IMPROVEMENTS. Landlord shall cause the
general contractor to construct the Addition Improvements in a thorough, first-
class and workmanlike manner, using only new materials, and in accordance with
the Final Addition Plans. The date of
37.1-2
<PAGE>
substantial completion of the Addition Improvements shall be determined in
accordance with the standards and procedures set forth in Section 5.2 and 5.4 of
Exhibit 8. Final completion of the Addition Improvements shall be completed
within the time period set forth in Section 5.5 of Exhibit 8.
As set forth in paragraph C of this Exhibit, the Construction Schedule to
be agreed upon by Landlord and Tenant will include a reasonable date for
substantial completion of the Addition Improvements (the "Scheduled Addition
Space Commencement Date"). Landlord shall use commercially reasonable efforts
to substantially complete the Addition Improvements by the Scheduled Addition
Space Commencement Date. Landlord shall not, however, be subject to any
liability to Tenant if Landlord fails to substantially complete the Addition
Improvements by the Scheduled Addition Space Commencement Date. No such failure
to give possession shall in any respect affect the validity of this Lease or any
obligation of the Tenant hereunder. If the delay was not the result of a Tenant
Delay, the Addition Space Commencement Date shall not be deemed to have occurred
until the Addition Improvements are in the required state (unless Tenant takes
possession of the Additional Space prior thereto for the operation of its
business). In the event of any delay in the date of substantial completion as a
result of a Tenant Delay, Tenant acknowledges that the Addition Space
Commencement Date shall occur before the Additional Space has been delivered to
Tenant for its occupancy.
H. RENT CREDIT. In the event that the Addition Construction Allowance
exceeds the amounts advanced by Landlord pursuant to paragraphs E and F of this
Exhibit 37, the amount of such excess shall be applied as a credit against the
first installments of rent coming due under the Lease after the Scheduled
Addition Space Commencement Date, until exhausted.
37.1-3
<PAGE>
EXHIBIT 37.2
ANNUAL FIXED RENTS PER RENTABLE SQUARE FOOT
Attached to and made part of Lease dated
Between
Centre Square, LANDLORD
And
Farm Journal, Inc., TENANT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Year Annual Fixed Rent
- ----------
- --------------------------------------------------------------------------------
<S> <C>
1 $ 0.00
- --------------------------------------------------------------------------------
2 $13.50
- --------------------------------------------------------------------------------
3-4 $14.00
- --------------------------------------------------------------------------------
5 $14.50
- --------------------------------------------------------------------------------
6-9 $18.00
- --------------------------------------------------------------------------------
10 $19.00
- --------------------------------------------------------------------------------
</TABLE>
37.2-1
<PAGE>
EXHIBIT 42
SQUARE PLUS OPERATING CORP.
(DIVISION OF SQUARE INDUSTRIES INC.)
N.W. CORNER 15TH & BANSOM STREETS, PHILA. PA. 19102
TELEPHONE: (215) 684-4242 FAX: (215) 564-5209
July 11, 1995
Chris Bloomfield
The Galbreath Company
Centre Square
1500 Market Street
Philadelphia, PA 19102
Re: Centre Square Garage, tenant parking
Dear Chris:
Pursuant to our conversation, this letter will confirm that we will provide two
(2) unreserved parking spaces for ten (10) years at $250.00 per month, per
space, and, we will provide four (4) reserved spaces for ten (10) years at
$385.00 per month, per space.
In addition to the above, these spaces will be guaranteed at these market rates
for two (2) additional five (5) year periods, contingent upon tenants renewal of
leases.
All of the spaces referenced above will be billed to Metlife, c/o The Galbreath
Company at your office.
We look forward to the successful completion of your agreement.
Sincerely,
Jim Corr
Vice President
42
<PAGE>
EXHIBIT 10.7
FARM JOURNAL HOLDINGS, INC.
INCENTIVE STOCK OPTION PLAN
---------------------------
SECTION 1.01. The purpose of this Incentive Stock Option Plan (the "Plan")
is to promote the growth and general prosperity of Farm Journal Holdings Inc.
(the "Company") by permitting the Company to grant options to purchase shares of
its Class A common stock, $0.01 per value per share (the "Common Stock"), to
persons whose contributions are important to the success of the Company. The
Plan is designed to help attract and retain superior personnel, and to offer
them an additional incentive to contribute to the success of the Company. The
Company intends that options granted to employees pursuant to the provisions of
the Plan will qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and Treasury
Regulations promulgated thereunder ("ISOs"), unless an option, by its terms,
would not qualify thereunder. As used in the Plan, the terms "corporation" and
"subsidiary" shall have the meanings set forth in subsections (e) and (f),
respectively, of Section 424 of the Code.
SECTION 2.01. ADMINISTRATION. The Plan shall be administered by the
entire board of directors of the Company or by a committee of the board of
directors consisting of two or more directors to whom administration of the Plan
has been delegated by resolution of the board of directors and none of whom are
eligible to participate in the Plan. The members of the board or that
committee, as the case may be, are hereafter referred to as the "Plan
Administrators." Actions of the Plan Administrators shall be taken by a majority
vote or by unanimous written consent. In the event that the Company is subject
to Section 16 of the Securities Exchange Act of 1934, as amended ("Act"), all
plan Administrators shall be "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) of the General Rules and Regulations under the Act, if less than all
the members of the Board are Plan Administrators. In the event that the Company
is the issuer of any common equity securities required to be registered under
Section 12 of the Act, all Plan Administrators shall be "outside directors"
within the meaning of the Regulations underlying Section 162(m) of the Code.
SECTION 2.02. AUTHORITY OF PLAN ADMINISTRATORS. Subject to the provisions
of the Plan, and with a view to effecting its purpose, the Plan Administrators
shall have sole authority, in their absolute discretion, (a) to construe and
interpret the Plan, (b) to define the terms used herein, (c) to prescribe,
amend, and rescind rules and regulations relating to the Plan, (d) to determine
the individuals to whom options to purchase Common Stock shall be granted under
the Plan, (e) to determine the time or times at which option shall be granted
under the Plan, (f) to determine the number of shares of Common Stock subject to
each options, the option price, vesting schedule and the duration of each option
granted under the Plan, (g) to determine all of the other terms and conditions
of options granted under the Plan, and (h) to make all other determinations
necessary or advisable for the administration of the Plan and do everything
necessary or appropriate to administer the Plan. All decisions, determinations
and interpretations made by the Plan Administrators shall be binding and
conclusive on all participants in the Plan and on their legal representatives,
heirs and beneficiaries. The Plan Administrators shall endeavor to ensure that
option agreements entered into pursuant to the Plan which are intended to be
ISOs meet all the requirements for incentive stock options described in Section
422 of the Code.
SECTION 2.03. TERMS, CONDITIONS AND METHOD OF GRANT. The terms and
conditions of options granted under the Plan may differ from one another as the
Plan Administrators, in their
<PAGE>
absolute discretion, shall determine as long as all options granted under the
Plan satisfy the requirements of the Plan. All options granted hereunder shall
be evidenced by a written option agreement (with a copy of the Plan attached)
between the Company and the optionee. The option agreement shall be in the form
and shall contain such provisions consistent with the Plan as the Plan
Administrators, acting with the benefit of legal counsel, shall deem advisable.
No option under the Plan shall be granted, the exercise of which shall be
conditioned upon the exercise of any other option under the Plan or any other
plan.
SECTION 3.01. MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO
THE PLAN. Subject to the provisions of Section 12.01, the maximum aggregate
number of shares with respect to which options may be granted under the Plan is
9,870 shares of Common Stock. The maximum number of shares subject to the Plan
may be adjusted pursuant to the provisions of Section 12.01 of the Plan. If any
of the options granted under the Plan expire or terminate for any reason before
they have been exercised in full, the unpurchased Common Stock subject to those
expired or terminated options shall again be available for the purpose of the
Plan.
SECTION 4.01. ELIGIBILITY AND PARTICIPATION. Officers and employees of
the Company and its subsidiaries shall be eligible for selection by the Plan
Administrators to participate in the Plan.
SECTION 5.01. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective upon its adoption by the board of directors of the Company, subject to
approval of the Plan by the stockholders of the Company, as provided in Section
14.01. The Plan shall continue in effect for a term of 10 years unless sooner
terminated under Section 13.01.
SECTION 5.02. DURATION OF OPTIONS. Each option and all rights thereunder
granted pursuant to the terms of the Plan shall expire on the date determined by
the Plan Administrators, but in no event shall any option granted under the Plan
expire later than ten (10) years from the date on which the option is granted.
In addition, each option shall be subject to early termination as provided in
this Plan.
SECTION 5.03. PURCHASE PRICE. The purchase price for shares of Common
Stock acquired pursuant to the exercise (in whole or in part ) of any option
shall not be less than the fair market value per share of the Company's Common
Stock at the time of the grant of the option. Fair market value shall be
determined by the Plan Administrators on the basis of those factors they deem
appropriate; provided that the Plan Administrators shall make a good faith
effort to determine such fair market value in selecting such factors; and
provided further, that if at the time the determination is made the Common Stock
is admitted to trading on a national securities exchange, the fair market value
of the shares shall be not less than the greater of (i) the mean between the
high bid and low ask prices reported for the Common Stock on that exchange on
the day the option is granted or the most recent trading day preceding the date
on which the option is granted or (ii) the last reported sale price reported for
the Common Stock on that exchange on the day the option is granted or most
recent trading day preceding the date on which the option is granted. The
phrase "national securities exchange" shall include, but not be limited to, the
National Association of Securities Dealers Automated Quotation System and the
over-the-counter market.
SECTION 5.04. TERM AND PURCHASE PRICE OF OPTION GRANTED TO MORE THAN TEN
PERCENT STOCKHOLDER. Notwithstanding anything to the contrary in Sections 5.02
and 5.03, an option
-2-
<PAGE>
granted to an optionee who at the time the option is granted owns (or under
Section 424(d) of the Code is deemed to own) more than 10 percent of the voting
power or value of all classes of stock of the Company shall not be an ISO unless
the option, by its terms, shall not be exercisable after the expiration of five
years after the date that option is granted, and (ii) the purchase price for
shares acquired pursuant to the exercise (in whole or in part ) of that option
shall be at least 110 percent of the fair market value (as determined under
Section 5.03) of the shares subject to the option at the time the option is
granted.
SECTION 5.05. MAXIMUM AMOUNT OF OPTIONS TO ANY OPTIONEE. To the extent
that the aggregate fair market value of common Stock with respect to which
options under this Plan and all other such option plans of the Company (or a
parent or subsidiary as defined in Section 424 of the Code), and which would
otherwise by ISOs, are exercisable for the first time by an Optionee in any
calendar year exceeds $100,000, such options shall not be treated as ISOs.
Subject to the provisions of Section 12.01, the maximum aggregate number of
shares which may be granted under the Plan to any individual during its term is
5,483 shares of Common Stock.
SECTION 6.01. EXERCISE OF OPTIONS BY OPTIONEE. Each option shall be
exercisable in one or more installments during its term, and the right to
exercise may be cumulative as determined by the Plan Administrators. No option
may be exercised for a fraction of a share of Common Stock. In addition, no
option may be exercised other than on a business day of the Company. The full
purchase price of any shares purchased shall be paid at the time of exercise of
the option by a combination of cash, certified or cashier's check payable to the
order of the Company or shares of Common Stock. If any portion of the purchase
price is paid in shares of Common Stock, those shares shall be tendered at their
fair market value, as determined by the Plan Administrators in accordance with
Section 5.03 of the Plan. In addition, the optionee may purchase all or any
portion of the shares subject to an option by directing the Company to withhold
from delivery to the optionee the number of shares having a fair market value
equal to the aggregate exercise price of the total number of shares purchased.
No option may be exercised on a date later than 10 years from the date it is
granted.
SECTION 6.02. EXERCISE OF OPTIONS BY ESTATE OR BENEFICIARIES. Subject to
the provisions of Section 11.01, if an option shall have been transferred to an
estate of an optionee, or to any beneficiary thereof who shall have acquired
such option by bequest or inheritance by reason of the death of such optionee,
the option shall be exercisable in the same manner as if exercised by such
optionee pursuant to Section 6.01. Such options, if so exercised, shall be
eligible for treatment under Section 422 of the Code without regard to whether
such executor, administrator or beneficiary is then employed by the Company,
provided the optionee shall have met the employment requirements of Section 422
of the code on the date of his or her death. If an ISO had not been exercised
by an optionee prior to the expiration of the applicable holding period of
Section 422(a)(1) of the Code, the executor, administrator or beneficiary of the
estate of such optionee may exercise such option, and such option shall be
treated as an ISO, notwithstanding whether the shares of Common Stock acquired
thereunder shall be disposed of prior to the expiration of such applicable
period.
SECTION 6.03. WRITTEN NOTICE REQUIRED. Any option granted pursuant to the
terms of the Plan shall be considered exercised when written notice of that
exercise, together with the investment representations described in Section
7.01, if any, have been given to the Company at its principal
-3-
<PAGE>
office by the person entitled to exercise the option and full payment for the
shares with respect to which the option is exercised has been received by the
Company. Upon receipt thereof, and in connection with the transfer of Common
Stock pursuant to the exercise of an ISO, the Company shall provide optionee
with a written statement containing the information required by Section 6039(a)
of the Code.
SECTION 7.01. COMPLIANCE WITH STATE AND FEDERAL LAWS. Shares of Common
Stock shall not be issued with respect to any option granted under the Plan
unless the exercise of that option and the issuance and delivery of the Common
Stock pursuant to that exercise shall comply with all relevant provisions of
state and federal laws, rules and regulations, and the requirements of any stock
exchange upon which the Common Stock may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to that
compliance. If any law or any regulation of any federal or state body having
jurisdiction shall require the Company or the optionee to take any action in
connection with the shares specified in the optionee's notice, then the date for
the delivery of the shares shall be postponed until the completion of the
necessary action. The Plan Administrators also shall require (to the extent
required by applicable laws, rules and regulations) an optionee to furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by any transfer restrictions
imposed by law, legend, condition, or otherwise) that the Common Stock is being
purchased only for investment and without any present intention to sell or
distribute the Common Stock in violation of any law, rule or regulation.
Further, each optionee shall consent to the imposition of a legend on the shares
of Common Stock subject to his or her option restricting their transferability
as may be required by applicable laws, rules and regulations.
SECTION 8.01. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT.
(a) If an optionee's employment with the Company terminates for any
reason, or for no reason, other than as a result of the optionee's death or
permanent and total disability, any ____________ portion of his or her option
shall immediately terminate, unless an option agreement allows the option to be
exercised at any time within 3 months after the date of termination. For this
purpose, the employment in respect of which an option shall have been granted
shall be deemed to continue while the optionee to whom said option shall have
been granted shall be on military leave, leave on account of illness or other
bona fide leave determined in the discretion of the Plan Administrators,
provided the period of such leave shall not exceed 90 days, or if longer, so
long as the right of an optionee who is an employee to reemployment with the
Company is guaranteed either by operation of law or contract. If such
reemployment is not so guaranteed by operation of law or contract, then such
employment shall be deemed to terminate on the 91/st/ day of such leave.
(b) Nothing in this Plan shall be deemed to obligate the Company to
continue an optionee's employment for any particular time.
SECTION 9.01. OPTION RIGHTS UPON DEATH OR DISABILITY. Except as otherwise
limited by the Plan Administrators in the option agreement, if an optionee dies
or becomes permanently and totally disabled within the meaning of Section
22(e)(3) of the Code while in the employ of the Company or a subsidiary thereof,
or dies within 3 months following termination of employment, his or her option
shall expire one year after the date of death or the date of permanent and total
disability, unless in either case the option agreement or the Plan otherwise
provides for earlier
-4-
<PAGE>
termination. During that period, the unexercised portion of the option may be
exercised by the optionee, if living, or by the person or persons to whom the
optionee's rights under the option shall pass by will or by the laws of descent
and distribution, but only to the extent that the optionee was entitled to
exercise the option at the date of his or hear death or permanent and total
disability, as the case may be.
SECTION 10.01. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the
exercise of any option granted pursuant to the Plan, no optionee shall have any
of the rights or privileges of a stockholder of the Company in respect of any
shares of Common Stock issuable upon the exercise of his or her option until the
optionee becomes a stockholder of record.
SECTION 11.01. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the
terms of the Plan may not be sold, pledge, assigned or transferred in any manner
other than by will or the laws of descent or distribution and may be exercised
during the lifetime of an optionee only by that optionee.
SECTION 12.01. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION OR ORGANIZATION;
ACCELERATION OF RIGHT TO EXERCISE OPTION. All options granted pursuant to this
Plan shall be adjusted in the manner prescribed by this section.
(a) If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities through recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment shall be made in the maximum number and kind of shares of Common
Stock as to which options may be granted under the Plan. A corresponding
adjustment changing the number or kind of shares of Common Stock allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change, shall likewise be made. Any such adjustment in outstanding
options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the option, but with a corresponding adjustment in
this price for each share of Common Stock or other unit of any security covered
by the option.
(b) Upon the effective date of the dissolution or liquidation of the
Company, or of a reorganization, merger, combination or consolidation of the
Company with one or more other corporations in which the Company is not the
surviving corporation, or of the transfer of substantially all of the assets or
stock of the Company to another corporation, the Plan and any option
theretofore granted hereunder shall terminate unless provision is made in
writing in connection with that transaction for the continuance of the Plan and
for the assumption of options theretofore granted hereunder, or the substitution
for those options of new options covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments, as
determined or approved by the Plan Administrators, as to the number and kind of
shares of stock subject to the substituted options and prices therefor, in which
event the Plan and the options theretofore granted, or the new options
substituted therefor, shall continue in the manner and under the terms so
provided. For the purposes of the preceding sentence, the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitutioner assumption over the aggregate option price of those
shares shall not be more than the excess of the aggregate fair market value of
the shares subject to the option immediately before the substitution or
assumption over the aggregate option price of those shares, and the new option
or assumption of the old option
-5-
<PAGE>
shall not give the optionee additional benefits which the optionee did not have
under the old option.
In the event of (i) such dissolution, liquidation, reorganization, merger,
combination, consolidation or sale or transfer of assets or stock in which
provision is not made in the transaction for the continuance of the Plan and for
the assumption of options theretofore granted or the substitution for those
options of new options covering the securities of a successor corporation or a
parent or subsidiary thereof or (ii) a difference between the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitution or assumption over the aggregate option price of those
shares and the excess of the aggregate fair market value of the shares subject
to the option immediately before the substitution or assumption over the
aggregate option price of those shares, each optionee (or that person's estate
or a person who acquired the right to exercise the option from the optionee by
bequest or inheritance) shall be entitled, prior to the effective date of the
consummation of any such transaction, to purchase, in whole or in part, the full
number of shares of Common Stock under the option or options granted to him or
her which he or she would otherwise have been entitled to purchase during the
remaining term of the option agreement. To the extent that any such exercise
options to stock that is not otherwise available for purchase through the
exercise of the options by the optionee at that time, the exercise shall be
contingent upon the consummation of that dissolution, liquidation,
reorganization, merger, combination, consolidation, or sale or transfer of
assets or stock.
(c) Notwithstanding the foregoing, in the event of a complete liquidation
of the Company, or in the event that such corporation ceases to be a subsidiary
as that term is defined herein, any unexercised option theretofore granted to an
employee of the subsidiary financial institutions shall be deemed canceled three
months after the occurrence of any such event unless the employee shall become
employed by the Company or by any other subsidiary financial institution on or
before the occurrence of any such event.
SECTION 13.01. TERMINATION AND AMENDMENT OF PLAN. The Plan shall
terminate 10 years after the earlier of its adoption by the Board of Directors
or its approval by the stockholders of the Company, and no options shall be
granted under the Plan after that date; provided, however, that termination of
the Plan shall not terminate any option granted prior thereto, and options
granted prior to termination of the Plan and existing at the time of termination
of the Plan shall continue to be subject to all the terms and conditions of the
Plan as if the Plan had not terminated. Subject to the limitation contained in
Section 14.02, the Plan Administrators may at any time amend or revise the terms
of the Plan (including the form and substance of the option agreements to be
used hereunder), provided that no amendment or revisions shall (i) increase the
maximum aggregate number of shares of Common Stock provided for in Section 3.01
that may be sold pursuant to options granted under the Plan, except with the
approval of the stockholders of the Company or except as required under the
provisions of Section 12.01(a), (ii) permit the granting of an option to anyone
other than as provided in Section 4.01, (iii) increase the maximum term provided
for in Section 5.02 and 5.04 of any option, or (iv) change the minimum purchase
price for shares of Common Stock under sections 5.03 and 5.04.
SECTION 14.01. APPROVAL OF STOCKHOLDERS. Within 12 months after its
adoption by the board of directors of the Company, as provided by Section 5.01,
the Plan must be approved by stockholders of the Company holding at least a
majority of the voting stock of the Company voting in person or by proxy at a
duly held stockholders' meeting. Options may be granted under the Plan
-6-
<PAGE>
prior to obtaining approval, subject to the limitations of Section 13.01
concerning the period during which options may be granted, but those options
shall be contingent upon approval being obtained and may not be exercised prior
to the receipt of that approval.
SECTION 14.02. PRIOR RIGHTS AND OBLIGATIONS. No amendment, suspension or
termination of the Plan shall, without the consent of the optionee, alter or
impair any of that optionee's rights or obligations under any option granted
under the Plan prior to that amendment, suspension or termination.
SECTION 15.01. RESERVATION OF SHARES OF COMMON STOCK. The Company, during
the term of the Plan, will at all times reserve and keep available a sufficient
number of shares of Common Stock to satisfy the requirements of the Plan. In
addition, the Company will from time to time, as is necessary to accomplish the
purposes of the Plan, seek to obtain from any regulatory agency having
jurisdiction any requisite authority in order to grant options under the Plan
and to issue and sell shares of Common Stock hereunder. The inability of the
Company to obtain from any regulatory agency having jurisdiction the authority
deemed by the Company's consent to be necessary to the lawful issuance and sale
of Common Stock hereunder shall relieve the Company of any liability in respect
of the non-issuance or sale of the Common Stock as to which the requisite
authority shall not have been obtained.
SECTION 16.01. HEADINGS. The headings of the sections of the Plan are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation.
SECTION 17.01. BROKERS' COMMISSIONS. No commission may be paid to brokers
on the sale by the Company to the optionee of Common Stock that is optioned and
sold under the Plan.
SECTION 18.01. ADOPTION. The Plan has been adopted by a resolution duly
adopted by the board of directors of the Company.
SECTION 19.01. APPLICABLE LAW. The Plan and Options granted hereunder
shall be governed by the laws of the State of Delaware, without regard to
principles of conflicts of law.
-7-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Farm Journal, Inc.
Professional Farmers of America, Inc.
Professional Market Management, Inc.
<PAGE>
Exhibit 23.1
THE ACCOMPANYING FINANCIAL STATEMENTS REFLECT CHANGES TO THE TYPE AND NUMBER
OF COMMON SHARES AUTHORIZED AND A CONVERSION OF PREVIOUSLY OUTSTANDING COMMON
STOCK INTO NEWLY CREATED CLASSES OF COMMON STOCK, ALL OF WHICH IS TO BE
EFFECTED PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE
FOLLOWING CONSENT IS IN THE FORM WHICH WILL BE SIGNED BY DELOITTE & TOUCHE LLP
UPON CONSUMMATION OF THE ABOVE EVENTS, WHICH ARE DESCRIBED IN NOTE 19 OF NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND ASSUMING THAT FROM JANUARY 23, 1998
TO THE DATE OF SUCH EVENTS, NO OTHER EVENTS HAVE OCCURRED WHICH WOULD AFFECT
THE ACCOMPANYING FINANCIAL STATEMENTS AND NOTES THERETO.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
June 10, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The Farm Journal
Corporation on Form S-1 of our report dated January 23, 1998 except for Note
19 as to which the date is , 1998 (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the new cost basis for
assets and liabilities when the Company acquired the Predecessor), appearing
in the Prospectus, which is part of this Registration Statement, and of our
report relating to the financial statement schedules appearing elsewhere in
this Registration Statement. We also consent to the reference to us under the
headings "Experts" in such Prospectus.
Philadelphia, Pennsylvania
, 1998
<PAGE>
Exhibit 23.2
To the Board of Directors
Professional Farmers of America, Inc. and
Professional Market Management, Inc.
Cedar Falls, Iowa
We hereby consent to the use in this Registration Statement on Form S-1, dated
June 10, 1998, of our report, dated January 20, 1998 (except for Note 7 as to
which the date is April 2, 1998) on the combined financial statements of
Professional Farmers of America, Inc. and Professional Market Management, Inc.
as of and for the years ended December 31, 1996 and 1997. We also consent to
the reference to our Firm under the caption "Experts" in the Prospectus.
McGLADREY & PULLEN, LLP
Des Moines, Iowa
June 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> APR-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 4,741,380 4,949,325
<SECURITIES> 0 0
<RECEIVABLES> 3,654,670 9,023,079
<ALLOWANCES> 148,000 227,000
<INVENTORY> 150,354 120,997
<CURRENT-ASSETS> 8,852,175 14,418,214
<PP&E> 2,732,271 2,877,262
<DEPRECIATION> 490,331 656,669
<TOTAL-ASSETS> 22,508,225 27,945,584
<CURRENT-LIABILITIES> 2,725,740 6,168,788
<BONDS> 0 0
0 0
0 0
<COMMON> 1,107 1,028
<OTHER-SE> 8,447,649 10,463,224
<TOTAL-LIABILITY-AND-EQUITY> 22,508,225 27,945,584
<SALES> 14,534,071 12,008,386
<TOTAL-REVENUES> 14,534,071 12,008,386
<CGS> 8,834,551 5,772,395
<TOTAL-COSTS> 16,104,200 8,774,171
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 814,800 261,518
<INCOME-PRETAX> (2,160,712) 3,042,757
<INCOME-TAX> (679,828) 1,390,371
<INCOME-CONTINUING> (1,480,884) 1,652,386
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,480,884) 1,652,386
<EPS-PRIMARY> (13.80) 0
<EPS-DILUTED> (13.80) 0
</TABLE>
