UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10475
PAGES, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 34-1297143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 94th Avenue North, St. Petersburg, Florida 33702
(Address of principal executive offices)
Registrant's telephone number: (813) 578-3300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value per Share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting stock held by non-
affiliates of the registrant as of March 13, 1998, was $8,084,998 (computed
by reference to the last sale price of such stock as reported on the Nasdaq
National Market).
The number of Common Shares, each with $0.01 par value, of the registrant
outstanding as of March 13, 1998, was 6,564,009.
<PAGE>
PART I
ITEM 1. BUSINESS
- -----------------
General development of business
Pages, Inc. (the "Company") was formed as an Ohio corporation in 1980,
but on October 14, 1994, it reincorporated under the laws of the State of
Delaware. The Company operates principally through its wholly-owned
subsidiaries, Pages Book Fairs, Inc., a Florida corporation and its
affiliates ("PBF"). PBF, which the Company acquired in 1992, publishes
and distributes children's literature throughout the United States,
primarily through book fairs. The Company's United Kingdom subsidiary was
sold and its Canadian distribution channel closed in March, 1996. A spin-
off of CASCO INTERNATIONAL, INC., ("CASCO"), formerly a wholly-owned
subsidiary of the Company, was completed on December 31, 1996. This
discontinued operation represented the entire previously reported
incentive/awards segment of the Company's business.
Narrative description of business
Market Overview. The Company markets its children's leisure-based
literature primarily through book fairs held at pre-schools, elementary
schools, and middle schools. The Company's primary focus group is
kindergarten through grade 6. There are approximately 107,000 potential
schools which conduct 100,000-120,000 school book fairs in the U.S. market.
On average, schools hold slightly more than one fair per year primarily in
the spring and fall. The U.S. student enrollment is over 38 million. The
Company also markets children's literature directly to elementary and
middle school librarians and teachers. There are over 1,800,000 elementary
and middle school teachers in the United States. In addition, the Company
markets directly to librarians at public libraries through its Pages
Library Services division. There are over 16,000 public libraries in the
United States.
Publishing. The Company publishes and markets reasonably priced,
leisure-based children's printed literature and media products. The
Company's books generally have a retail price ranging from $0.99 to $19.99,
depending largely on whether the books are soft or hardcover. Most of the
books sold are softcover having a retail price of less than $5.95. In
1997, approximately 70% of the titles offered by the Company were
purchased from other publishers or were reprints licensed from other
publishers. The remaining titles offered by the Company were proprietary
titles produced and published by the Company's Pages Publishing Group
division under its Willowisp Press (R), Hamburger Press (R), Worthington
Press (R), and Riverbank Press(R) imprints. In 1997, the Company's book
fairs included over 110 fiction and non-fiction books and related products
published under its proprietary imprints. The Company's 850 proprietary
titles consistently rank at the top of the best selling books in the
Company's book fairs. In 1997, 50% of the top-selling 50 books through the
Company's book fair distribution channel were proprietary titles. All of
the Company's proprietary books are manufactured by independent printers,
which are generally selected on the basis of price and quality. The
Company has no agreements or contractual arrangements with any printer
other than purchase order commitments issued in the normal course of
business. The Company believes that it is not dependent on any one
printer.
Pages Book Fairs. The principal distribution channel for the Company's
children's literature is through its school book fairs. The Company
currently markets its book fairs under its "Pages Book Fairs, the Original
School Book Fair Company(SM)" trade name. The Company sold more than 12
million children's books and related items in 1997 through its book fairs.
Based on information obtained through the conduct of its business, the
Company believes that it currently operates the second largest book fair
business in the United States.
The Company's typical book fair is generally one week in duration, is
conducted at a central location on school premises, and is sponsored as a
fund-raising event by parent groups, librarians, or media specialists. A
school typically conducts one or two book fairs during the school year.
Book fairs give students the opportunity to browse and purchase quality,
reasonably-priced, leisure-based paperback books, hardcover books, and
related products such as posters, pencils, erasers, and bookmarks. The
Company provides to the schools child-friendly display cases which are
fully stocked with books and related products. The sponsor conducts the
book fair, retains a percentage of the sales receipts, and remits the
balance to the Company. The amount of this net sale, after the sponsor's
profit, is recorded by the Company as revenue.
Distribution. Approximately 95% of the Company's elementary and middle
school book fairs are "case fairs," in which fully stocked book cases are
delivered to and retrieved from the schools by the Company's independent
distributors. The balance of the Company's book fairs are "direct-marketed
fairs," in which the books and merchandise are delivered and retrieved
through the mail. Direct-marketed fairs are utilized for elementary and
middle schools located in sparsely populated areas with a small number of
schools where a case fair would not be cost-effective and for pre-schools
because fewer titles are offered. Books and related merchandise for case
fairs are distributed by the Company to its distributors from its warehouse
in Worthington, Ohio. Books and merchandise for direct-marketed fairs are
distributed directly to the schools from the Company's warehouse.
As of March 13, 1998, the Company had 8 company and 67 independent
distributors located in territories throughout the United States. The
Company's independent distributors are independent contractors who are
compensated by the Company on a commission basis. All distributors are
responsible for the custody and care of an inventory of the Company's
products and for delivery, setup, resupply during the fair, and retrieval
of the products after book fairs. The Company believes its distribution
structure is superior to others in the book fair business because of the
ability of the independent distributor to provide superior, personalized
service at all hours of the day or night. The distributors are exclusive
as it relates to the distribution of book fairs and related products and
non exclusive as it relates to other business endeavors.
Library Sales. The Company markets directly to school and public
libraries through Pages Library Services Inc. The Junior Library Guild
(JLG) division, which was founded in 1929, offers high quality, award-
winning children's literature in nine reading levels through a 12-month
subscription program. The JLG name is a valued trademark and identity in
the children's library market. A JLG signia on a book is the equivalent of
the "Good Housekeeping Seal of Approval" on a consumer product. A JLG
subscription provides libraries with some of the best current children's
literature in first edition hardcover books at up to 50% off of publishers'
cover prices. The National Library Services (NLS) division markets high
quality, hardcover books at prices up to 60% off of publishers' cover
prices. Both JLG and NLS market to the libraries primarily through
telemarketing.
Marketing and Customer Service. Currently, the Company markets its book
fairs and children's literature through approximately 41 trained telephone
sales representatives located in its offices in Worthington, Ohio; St.
Petersburg, Florida; and Atlanta, Georgia, as well as through its network
of distributors. The telephone sales representatives undergo extensive
training, monitoring, and supervision to ensure quality control and
consistency. The Company's computer system allows telephone sales
representatives to sequence solicitations according to account
profitability.
In elementary and middle schools, decisions relating to book fairs and
literature are usually made by school librarians, media specialists or
coordinators, or parent-teacher organizations, which also sponsor,
organize, and conduct the fairs. Surveys conducted by the Company indicate
that product quality, quantity, and customer service are the three most
important factors considered by sponsors of book fairs in selecting one
book fair company over another. The Company has established an on-line
system which can be accessed by each of its distributors and customer
service representatives to retrieve messages and special requests from
customers and to monitor and order inventory. Additionally, the Company
maintains a customer service department with a national toll-free number.
The customer service department collects a representative number of book
fair customer evaluations and incorporates information derived from such
evaluations into a database, which enables the Company to measure the
effectiveness of its marketing programs and monitor the performance of its
distributors.
The Company currently offers between 375 and 1,200 book titles and
other items in its book fairs. The Company's product development and
acquisition department selects book titles and other items for sale at its
book fairs based upon such factors as sales potential, literary quality,
and educational and entertainment value. The Company determines the sales
potential for a particular book title or other item, in part, from
historical sales data and from qualitative and quantitative readership
surveys it conducts.
Growth opportunities. In 1997, the Company's 19,000 book fairs gave it
direct access to approximately 12 million students and teachers. This
access affords the Company an opportunity to cross-market other products
and to increase sales of its products directly to teachers and librarians.
The Company believes that its existing book fair sales organization and its
marketing system are capable of absorbing additional volume and can be
utilized to increase its share of the existing elementary school and middle
school book fair markets.
The Company did not operate in any foreign countries in 1997.
Countries in Western Europe and South America could offer longer-range
opportunities for sales of non-English language products. However, the
Company is subject to a Non-competition Agreement with Scholastic
Corporation which was entered into in conjunction with the sale of its
United Kingdom operations which until after March 6, 2001, precludes it
from competing in Canada, the United Kingdom, Ireland, Germany, Italy,
Greece, and Eastern Europe. There is a demand in the United States for
Spanish language products which are currently integrated into the Company's
current marketing and distribution systems.
Employees
As of March, 1998, the Company employed a total of approximately 120
permanent and 44 seasonal persons in the United States. The number of
seasonal employees fluctuated during 1997 from a high of 117 to a low of
44 due to the cyclical nature of the Company's business. As part of
management's strategic expense reduction initiative, approximately fifty
employees were reduced from the Company's workforce in February, 1998.
None of the Company's employees are represented by a labor union. The
Company considers its relationship with its employees to be excellent.
Trademarks, Copyrights, and Licenses
The Company owns or licenses the rights to the principal trademarks
used in its business. The Company's principal trademarks are registered
and the Company considers protection of such trademarks to be important to
its business. U.S. trademarks expire ten years after they are granted,
but are renewable. It is the Company's policy to renew all of its active
trademarks. The names "Willowisp Press(R)," "Hamburger Press(R),"
"Rainbow Book Fairs(R)," "Worthington Press(R)," "Reading Resources(R),"
"Riverbank Press,(R)," "Good Book Program(R)," "Good Book for Kids(R),"
"Books on Break(R)," and others are registered trademarks or have trademark
registrations pending in the United States. The Company is not aware of
any other pending claims of infringement or challenges to the Company's
right to use its trademarks.
The Company sometimes acquires license rights to reproduce characters
or images such as cartoon characters or pictures of sports figures, but
such licensing is not critical to its children's literature business.
Competition
The distribution of children's leisure-based literature is a highly
competitive business. Three companies, including the Company, service
approximately 95% of the school book fair market. The Company's major
competitors are Scholastic Corporation and Troll Associates, which are
significantly larger and better capitalized than the Company, and numerous
small independent companies. The Company competes on the basis of customer
service, product quality, and competitive pricing.
Seasonality and Working Capital
The children's literature business is highly seasonal and correlates
closely to the school year. As a result, most of the Company's income is
generated between the months of September and May. Due to the seasonality,
the Company experiences negative cash flow during the summer months.
Further, in order to build its inventory for its fall sales, the Company's
borrowings increase over the summer and generally peak during late fall.
Inventory and receivables reach peak levels during the months of October
through December.
<PAGE>
ITEM 2. PROPERTIES
- --------------------
The principal facilities of the Company are as follows:
<TABLE>
<CAPTION>
Owned/
Location Use Size Leased Expiration
- ----------------------- ------------------- ------------- ------- ----------
<C> <S> <S> <S> <S>
St. Petersburg, Florida Office 48,760 sq. ft. Leased 12/2002
Worthington, Ohio Office and Warehouse 29,100 sq. ft. Leased 2/2000
Worthington, Ohio Office and Warehouse 61,530 sq. ft. Owned
Dublin, Ohio Office 4,700 sq. ft. Leased M/M
Silver Spring, Maryland Office and Warehouse 5,200 sq. ft. Leased 6/98
Anaheim, California Office and Warehouse 11,600 sq. ft. Leased 8/98
New York, New York Office 750 sq. ft. Leased 5/99
Marietta, Georgia Office and Warehouse 13,000 sq. ft. Leased 5/98
Oklahoma City, Oklahoma Office and Warehouse 8,900 sq. ft. Leased 6/98
Nashville, Tennessee Warehouse 2,500 sq. ft. Leased 10/98
Memphis, Tennessee Warehouse 5,000 sq. ft. Leased 6/2002
</TABLE>
These facilities are all located in appropriately designed buildings
which are kept in good repair. The property owned by the Company in
Worthington, Ohio, is pledged to The Huntington National Bank.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection
with the examination of the tax returns of Pages Book Fairs, Inc. ("PBF",
formerly School Book Fairs), and its affiliates for the fiscal years ending
July 31, 1988, 1989, 1990, and 1991. In June, 1993, the Company recorded a
$2 million adjustment to its purchase price allocation of PBF assets, which
increased the cost in excess of assets acquired (i.e. - goodwill), and
recorded a corresponding increase in accrued tax liabilities and related
costs.
In October, 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988
(before PBF was acquired by the Company), in which, along with other
events, certain assets were transferred between related companies. The IRS
had challenged, among other things, the values assigned to those assets by
the parties to the transaction, contending that the assets were undervalued
and that PBF recognized a substantial taxable gain in the transaction. In
January 1996, the Company filed petitions with the Tax Court disputing the
IRS valuation of the assets transferred, and other points in the IRS
assessment.
On October 28, 1996, the Company entered into a settlement with the IRS
regarding the four Notices of Deficiencies and was assessed additional
taxes for the fiscal years 1988, 1989, 1990, and 1991. The settlement
included income taxes of $750,000, plus interest of approximately $750,000,
for a total of approximately $1,500,000. The Company negotiated a payment
plan with the IRS that spreads the payments, including interest, over
twelve months starting in March, 1997. At December 31, 1997, the balance
due was approximately $300,000.
On December 27, 1996, the Company filed an action in U.S. District
Court for the Northern District of Ohio against Arthur Andersen & Co. LLP
seeking in excess of $16,000,000 in damages. The complaint is a result of
the final outcome of the IRS assessment described above and representations
made by Arthur Andersen & Co. during the Company's purchase of PBF in 1992.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
<PAGE>
PART II
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON STOCK AND RELATED
- ----------------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
The Common Stock is traded on the Nasdaq National Market under the
symbol "PAGZ." The following table sets forth for the periods indicated
the high and low sale prices for shares of the Common Stock, as reported
on the Nasdaq National Market.
Trade Price
-----------------------
High Low
----- -----
Calendar Year Ended December, 1997
Fourth Quarter 2 5/8 1 1/2
Third Quarter 2 7/8 1 3/8
Second Quarter 2 1/8 1 3/8
First Quarter 3 1/4 1 3/4
Calendar Year Ended December, 1996
Fourth Quarter 3 2
Third Quarter 2 1/4 1 1/2
Second Quarter 2 7/8 1 3/4
First Quarter 2 3/8 1 1/2
As of March 9, 1998, the Company had approximately 625 holders of
record of its Common Stock.
<PAGE>
The Company has not paid dividends since December 27, 1985. The
Company anticipates that for the foreseeable future it will retain any
earnings in order to finance the expansion and development of its
business, and no cash dividends will be paid on its common stock. The
Loan Agreement between the Company and The Huntington National Bank (the
"Loan Agreement") does not allow the Company to pay cash dividends which
total in excess of $100,000 on its Common Stock and only then when the
Company is not in default under the Loan Agreement.
Effective February 23, 1998, Nasdaq implemented new listing
standards. One of these requirements is that the Company have net
tangible assets (total assets, excluding goodwill, minus total
liabilities) of at least $4 million. As of December 31, 1997, the
Company had net tangible assets of $760,700. The Company was notified by
The Nasdaq Stock Market, Inc. that the Common Stock is scheduled for
delisting at the close of business on March 16, 1998, unless the Company
requested a temporary exception to the new requirements by sending a
hearing request prior to the close of business on March 13, 1998.
The Company mailed a hearing request on March 9, 1998, and requested
an expedited written hearing, the effect of which was to stay the
delisting. On March 26, 1998, the Company delivered a written submission
supporting its argument in favor of an exception and requesting a period
of 120 days to implement a plan to increase its net assets. The plan
includes a strategic expense reduction initiative underway by management,
the offer by the Company of convertible preferred stock, discussions the
Company is currently having with manufacturers of various products with
respect to purchasing their products for resale in the Company's book
fairs but paying the purchase price with Common Stock rather than cash,
and an exchange of the Company's convertible preferred stock for
convertible preferred stock issued by another company.
There can be no assurance that the Company will receive an exception
to the delisting of the Common Stock or that even if an exception is
granted, the Company will be successful in increasing its net assets
above $4 million within the time allowed by Nasdaq. If the Company is
delisted form the Nasdaq National Market, it intends to apply for a
listing on the Nasdaq SmallCap Market, also operated by the Nasdaq Stock
Market, Inc.
<PAGE>
<TABLE>
<CAPTION>
1997 Sales of Unregistered Securities
- -------------------------------------
Terms of
Offering Price/ Registration Conversion
Date Title Amount Name of Purchaser Nature of Transaction Exemption Claimed or Exercise
- ------- ------------ --------- -------------------- ---------------------- --------------------- -------------------
<C> <S> <S> <S> <S> <S> <S>
7/15/97 Subordinated $350,000 Accredited Investors Cash - Face Value Reg. D Up to 85% of face
- - Convertible convertible at
8/15/97 Debt $1.875 per share
7/16/97 Subordinated $500,000 S. Robert Davis, Cash - Face Value Reg. D Up to 85% of face
Convertible Chairman of Pages, Inc. convertible at
Debt (Accredited Investor) $1.875 per share
8/1/97 Common Stock 240,000 sh Standard Printing Stock in exchange for Reg. D and Securities N/A
printing services at Act of 1933 Section
$1.75 per share 4(2) Exemption
8/27/97 Warrant 100,000 sh Huntington Bank 3 year warrant Securities Act of 3 year warrant
exercisable at $2.00, 1933 Section 4(2) exercisable at
in consideration for Exemption $2.00 per share
$1.0 million time note
9/02/97 Warrant 50,000 sh S. Robert Davis, 3 year warrant Securities Act of 3 year warrant
Chairman of Pages, Inc. exercisable at $2.25, 1933 Section 4(2) exercisable at
(Accredited Investor) in exchange for Exemption $2.25 per share
guaranty of $1.0
million note
9/03/97 Common Stock 30,000 sh Boutcher & Boutcher Stock in exchange for Reg. D and Securities N/A
public relations Act of 1933 Section
service at $1.59 per 4(2) Exemption
share
9/03/97 Options 130,000 sh Boutcher & Boutcher Two 3 year options at Reg. D and Securities 3 year options
65,000 shares each, Act of 1933 Section exercisable at
exercisable at $1.75 4(2) Exemption $1.75 and $2.50
and $2.50 per share, per share
respectively
12/24/97 Common Stock 100,000 sh Accredited Investor Cash at $1.875 per Reg. D and Securities N/A
share Act of 1933 Section
4(2) Exemption
12/24/97 Warrant 50,000 sh Accredited Investor 5 year warrant Reg. D and Securities 5 year warrant
exercisable at $1.875 Act of 1933 Section exercisable at
per share 4(2) Exemption $1.875 per share
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Consolidated Statements of Operations Data:
Revenues $ 27,787 $ 29,887 $ 50,201 $ 51,178 $ 47,622
Costs and expenses 31,668 32,525 54,299 51,738 47,491
Valuation adjustment - note receivable 1,500 -- -- -- --
Gain on sale of distribution channel -- (3,255) -- -- --
--------- --------- --------- --------- --------
Income from continuing operations
before income taxes (5,381) 617 (4,098) (560) 131
(Provision) benefit for income taxes -- -- (2,119)(1) 169 (568)
--------- --------- --------- --------- --------
Income (loss) from continuing operations (5,381) 617 (6,217) (391) (437)
Income (loss) from discontinued
operations net of cumulative effect of
accounting change of $995 in 1996 -- 912 (3,002) (81) 1,448
--------- --------- --------- --------- --------
Net income (loss) $ (5,381) $ 1,529 $ (9,219) $ (472) $ 1,011
========= ========= ========== ========= ========
Per Share Data:
Basic :
Income (loss) from continuing operations $(0.85) $ 0.11 $ (1.26) $ (0.10) $ (0.14)
Discontinued operations, net of cumulative effect
of accounting change of $0.18 in 1996 -- 0.17 (0.61) (0.02) 0.45
--------- --------- --------- --------- --------
Net income (loss) available to common stockholders $(0.85) $ 0.28 $ (1.87) $ (0.12) $ 0.31
========= ========= ========== ========= ========
Cash dividends per common share -- -- -- -- --
Weighted average common shares 6,306 5,551 4,930 4,055 3,214
Diluted:
Income (loss) from continuing operations $ (0.85) $ 0.10 $ (1.26) $ (0.10) $ (0.08)
Discontinued operations, net of cumulative effect
of accounting change of $0.17 in 1996 -- 0.16 (0.61) (0.02) 0.25
--------- --------- --------- --------- --------
Net income (loss) $ (0.85) $ 0.26 $(1.87) $(0.12) $ 0.17
========= ========= ========== ========= ========
Weighted average common shares and potential common
stock 6,306 5,857 4,930 4,055 5,757
At December 31
---------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
Consolidated Balance Sheets Data:
Working capital $ 159 $ 3,935 $ 15,719 $ 13,527 $ 10,054
Total assets 28,083 41,320 54,849 68,005 53,761
Long-term obligations 2,044 4,265 19,360 8,927 10,362
Stockholders' equity 5,202 12,876 10,674 19,593 12,814
</TABLE>
NOTE 1: The tax provision was an allowance against previously recorded
deferred tax assets.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Forward-Looking Statements
Certain statements contained in this Form 10-K under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and other statements contained elsewhere in this Form 10-K regarding
matters that are not historical facts are "forward-looking statements" (as
such term is defined in the Private Securities Litigation Reform Act of
1995) and because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Those statements appear in a number of places
in this Form 10-K and include remarks regarding the intent, belief or
current expectations of the Company, its directors or its officers with
respect to, among other things: (i) the Company's ability to raise
additional capital; (ii) future operating cash flows; (iii) ability of the
Company to absorb additional volume; (iv) the Company's growth strategy,
including the introduction of new book fair concepts; and (v) trends
affecting the Company's financial condition or results of operations.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected, anticipated or expected in the forward-looking statements as a
result of various factors, many of which, such as the Company's ability to
raise additional capital, are beyond the control of the Company. The
accompanying information contained in this Form 10-K, including, without
limitation, the information set forth under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
and "Business," identifies important factors that could cause such
differences.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997, approximated $27.8
million compared to approximately $29.9 million for the year ended December
31, 1996, a decrease of 7.0% or approximately $2.1 million. The decrease
in revenues is principally attributable to the following: the sale of the
United Kingdom operation in March 1996 (4.7% or $1.4 million) and the
discontinuance of the Canadian distribution channel and some product lines
in early 1996 (2.5% or $800,000). 1997 revenues from U.S. book fair events
and the Pages Library Services division approximated 1996 levels.
Cost of goods sold was approximately $17.5 million for the year ended
December 31, 1997, compared to approximately $17.6 million for the year
ended December 31, 1996, a decrease of 1% or approximately $100,000. Cost
of goods sold as a percentage of revenues was 63.1% for 1997, compared to
59.0% for 1996. The increase in cost of goods sold as a percentage of
revenues is due to the increased cost of new product presented in the new
fair concepts introduced in 1997, as well as in the additional reading
levels added in the Pages Library Services product line. As the sales from
Pages Plus, Good Book, and Books on Break fairs, and from the new reading
levels increase, the Company should be able to obtain this product at more
favorable pricing and reduce the cost of goods sold percentage.
Selling, general, and administrative expense approximated $12.4 million
for the year ended December 31, 1997, compared to approximately $13.2
million for the year ended December 31, 1996, a decrease of 5.6% or
$800,000. The decrease is mainly attributable to the reduction of expenses
from the sale of the United Kingdom operations and the discontinuance of
the Canadian distribution channel and certain product lines in early 1996.
Interest expense was approximately $921,000 for the year ended December
31, 1997, compared to approximately $1.0 million for the year ended
December 31, 1996. Netted in interest expense in 1997 is approximately
$350,000 of interest income earned on the $5.0 million note receivable from
the former subsidiary, CASCO INTERNATIONAL, INC. The average outstanding
debt in 1997 approximated $12.8 million, compared to $11.8 million for
1996. The average interest rate for 1997 approximated 9.6%, compared to
approximately 8.4% for 1996.
Depreciation and amortization expense was approximately $762,000 for
the year ended December 31, 1997, compared to $701,000 for the year ended
December 31, 1996, an increase of 8.7% or $61,000.
There was no income tax provision for 1997 due to the Company's net
operating loss position and the full valuation of any resulting deferred
tax benefit.
1997 resulted in a loss from operations of $3.0 million, compared to an
operating loss of $1.6 million in 1996. The increased loss is primarily
attributed to the reduction in gross profit for 1997 associated with the
introduction of new fair concepts and additional reading levels in Pages
Library Services division. For 1998, management has instituted major
expense reductions to reduce the Company's loss and return to profitability
given current revenue levels.
1997 resulted in a net loss of $5.4 million, versus a net income of
$1.5 million in 1996. Included in the 1997 net loss was a $1.5 million
valuation adjustment on the CASCO INTERNATIONAL, INC. note receivable and
approximately $900,000 in interest expense. Included in the 1996 net
income was a $3.3 million gain recorded on the sale of the United Kingdom
distribution channel, $1.0 million in interest expense, and approximately
$900,000 of income from the discontinued operations of the Company's former
subsidiary, CASCO INTERNATIONAL, INC. Earnings per share decreased to a
loss of $.85 per share for 1997, versus a net income per share of $.28 in
1996. The weighted average common and common equivalent shares for 1997
increased to 6,306,000 from 5,551,000 in 1996.
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996, approximated $29.9
million, compared to approximately $50.2 million for the year ended
December 31, 1995, a decrease of 40.4% or approximately $20.3 million. The
decrease in revenues is principally attributable to the following: the sale
of the United Kingdom operations in early March, 1996; the discontinuance
of the Canadian distribution channel in early March, 1996; the disposal and
phase out of certain other children's literature distribution channels in
the third and fourth quarters of 1995; and a reduction in the number of
domestic book fair events held in 1996 compared to 1995.
Cost of goods sold was approximately $17.6 million for the year ended
December 31, 1996, compared to approximately $31.2 million for the year
ended December 31, 1995, a decrease of 43.6% or approximately $13.6
million. The decrease in cost of goods sold is due to the reduction in
revenues discussed above and improvements in the cost of book fair
products. Cost of goods sold as a percentage of revenues was 59.0% for
1996, compared to 62.1% for 1995.
Selling, general, and administrative expense was approximately $13.2
million for the year ended December 31, 1996, compared to approximately
$20.1 million for the year ended December 31, 1995, a decrease of 34.3% or
approximately $6.9 million. The decrease in selling, general, and
administrative expense is attributable to the sale of the United Kingdom
operations in early March, 1996; the discontinuance of the Canadian
distribution channel in early March, 1996; and the disposal and phase out
of certain other children's literature distribution channels in the third
and fourth quarters of 1995.
Interest expense was approximately $1.0 million for the year ended
December 31, 1996, compared to $1.8 million for the year ended December 31,
1995, a decrease of 44.4% or $800,000. In connection with the sale of the
United Kingdom distribution channel in March, 1996, a portion of the
proceeds was used to pay down outstanding debt. The average outstanding
debt in 1996 approximated $11.8 million compared to $23.9 million for 1995.
Additionally, the average interest rate for 1996 approximated 8.4%,
compared to approximately 9.3% for 1995.
Depreciation and amortization expense was approximately $701,000 for
the year ended December 31, 1996, compared to $1.2 million for the year
ended December 31, 1995, a decrease of 41.6% or approximately $499,000.
The decrease is principally attributable to the disposal of the United
Kingdom distribution channel in early March 1996 and its related fixed
assets.
There was no income tax provision for 1996 due to the Company's net
operating loss position and the full valuation of any resulting deferred
tax benefit.
1996 resulted in a loss from operations of $1.6 million, compared to an
operating loss of $2.3 million in 1995.
1996 resulted in a net income of $1.5 million versus a net loss of $9.2
million in 1995. Included in the 1996 net income was a $3.3 million gain
recorded on the sale of the United Kingdom distribution channel, $1.0
million in interest expense, and approximately $900,000 of income from the
discontinued operations of the Company's former subsidiary, CASCO
INTERNATIONAL, INC., (formerly known as C.A. Short Company, Inc.).
Included in the 1995 net loss was $1.8 million in interest expense, a $2.1
million provision for income taxes and approximately $3.0 million of loss
from discontinued operations. Earnings per share increased to $.28 per
share for 1996, versus a net loss per share of $1.87 in 1995. The weighted
average common and common equivalent shares for 1996 increased to 5,551,000
from 4,930,000 in 1995.
Liquidity and Capital Resources
The Company had a net increase in cash for the year ended December 31,
1997, of $94,000, compared to a net decrease in 1996 of $215,000. Cash
provided by financing activities funded the net cash used in operating and
investing activities during the year ended December 31, 1997. Cash on hand
was $412,000 at December 31, 1997, compared to $318,000 at December 31,
1996.
For the year ended December 31, 1997, continuing operations used $2.5
million in cash as compared to $3.6 million during the year ended December
31, 1996. Included in operating cash outlays in 1997 was $375,000 and $1.2
million, relating to the settlements of the previously disclosed litigation
with Gruner + Jahr and the Internal Revenue Service, respectively. The
decrease in cash used in operations in 1997 versus 1996 is primarily from
slower payment of trade accounts payable in 1997 than in 1996. At December
31, 1997, $4.5 million in trade accounts payable were 46 days past their
agreed upon due date. At February 28, 1998, $3.2 million in trade accounts
payable were 75 days past their agreed upon due date.
Cash used in investing activities was $265,000 for the year ended
December 31, 1997, representing payments for capital expenditures. In the
year ended December 31, 1996, cash provided by investing activities was
$11.0 million, primarily representing the proceeds form the sale of the
United Kingdom distribution channel.
For the year ended December 31, 1997, net cash provided by financing
activities was $3.0 million. This compares to net cash used in financing
activities of $7.6 million for the year ended December 31, 1996. Financing
activities in 1997 consisted primarily of net borrowings of approximately
$1.4 million on the Company's line of credit and time note, approximately
$600,000 of stock issued for inventory purchases and consulting services,
and approximately $1.0 million raised though private placement of
subordinated debt. In 1996, proceeds from the sale of the United Kingdom
distribution channel were used to repay debt obligations. The Company's
primary source of liquidity has been amounts available under its existing
credit facilities. At December 31, 1997, the Company had an $11.5 million
revolving credit facility ($1.4 million unused at December 31, 1997)
bearing interest at the lender's prime rate plus 1%, due June 30, 1998, and
a $1.0 million time note (none unused at December 31, 1997) bearing
interest at the lender's prime rate plus 2%, due February 28, 1998. On
January 21, 1998, the Company agreed to an early repayment of the $5.0
million note receivable from CASCO INTERNATIONAL, INC., at a discounted
amount of $3.5 million. The $3.5 million in proceeds was used to pay down
the Company's existing line of credit and payoff the $1.0 million time
note. A revolving credit facility was simultaneously executed, replacing
all prior revolving credit facilities, for $8.0 million due on January 1,
2000. Additionally, on January 21, 1998, the Company borrowed from
Provident Bank $3.0 million through a subordinated debt agreement, with
warrants, bearing interest at 12.5 % and due January 21, 2004.
The Company does not anticipate any material expenditures for property
and equipment during the next twelve months.
The Company estimates that during the next twelve months, to cover
operating expenditures, bring trade payables current, and meet the current
maturities on debt obligations, its operating cash flow, coupled with the
revolving credit facility, must be supplemented by raising additional
capital (in the form of debt or equity financing). Management has been
actively seeking and obtaining ($3.0 million in subordinated debt to date
in 1998) capital and will endeavor to raise additional capital in the first
half of 1998. No assurance can be given that this will occur. If the
Company is unable to raise the needed capital, product line expansion will
be curtailed, an operating division possibly sold, purchase commitments
canceled, existing vendor payments restructured, and the Company will
endeavor to obtain extensions on due dates of debt facilities, so that operating
expenditures and debt obligations may be covered by operating cash flow
and the existing debt facilities. For 1998, management has instituted
major expense reductions to reduce the Company's loss and return to
profitability, given current revenue levels.
Seasonality
The children's literature business is highly seasonal and correlates
closely to the school year. As a result, most of the Company's income is
generated between the months of September and May. Due to the seasonality,
the Company experiences negative cash flow during the summer months.
Further, in order to build its inventory for its fall sales, the Company's
borrowings increase over the summer and generally peak during late fall.
Inventory and receivables reach peak levels during the months of October
through December.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- ---------------------------------------------------------------------
None.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------------------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- --------------------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
- ------------------------
The Company filed a report on Form 8-K dated July 17, 1997, under item
4 announcing the dismissal of Deloitte & Touche, LLP as its principal
independent accountant.
The Company filed a report on Form 8-K dated December 23, 1997, under
item 4 announcing the appointment of new independent accountants, Hausser +
Taylor, LLP.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
Directors and Executive Officers
The following table sets forth certain information concerning the
directors and executive officers of the Company.
Director
or
Executive
Name Age Position (1) Officer
Since
- ------------------ --- --------------------------------------- ---------
S. Robert Davis 59 Chairman of the Board, President,
Assistant Secretary, and Director 1990
Randall J. Asmo 33 Vice President and Director 1992
Juan F. Sotos, M.D. 70 Director 1992
Robert J. Tierney 50 Director 1992
William L. Clarke 61 Senior Vice President; Chief Executive 1996
Officer and President of Pages Book Fairs
Steven L. Canan 50 Chief Financial Officer and Treasurer 1997
(1) All positions are those held with the Company, except as otherwise
indicated.
Executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualify, subject to earlier removal
by the shareholders. Directors are elected at the annual meeting of
shareholders to serve for one year and until their respective successors
are duly elected and qualify, or until their earlier resignation, removal
from office, or death. The remaining directors may fill any vacancy in
the Board of Directors for an unexpired term.
Business Experience of Directors and Executive Officers
S. Robert Davis was elected a director and Chairman of the Board in
1990, and Assistant Secretary in 1992. Prior to his election to the Board
of Directors, he served as Assistant to the President from 1988 to 1990, on
a part-time basis. Additionally, during the past five years, Mr. Davis has
operated several private businesses involving the developing, sale and/or
leasing of real estate but devotes substantially all of his business time
to the Company. Mr. Davis is also the Chairman and a director of CASCO
INTERNATIONAL, INC., a company with a class of securities registered
pursuant to section 12 of the Securities Exchange Act of 1934.
William L. Clarke was elected Senior Vice President in 1996. Shortly
before this election, he joined Pages Book Fairs, Inc. as President and
Chief Executive Officer. Prior to that time, he was president of Clarke &
Associates, a management consulting firm. Mr. Clarke's background also
includes twelve years as a partner of Deloitte & Touche LLP and Ernst &
Young LLP in their national retail practices.
Steven L. Canan was elected Chief Financial Officer and Treasurer in
1997. Previously, Mr. Canan served as Vice President of Administration for
Pages Book Fairs, Inc. Mr. Canan joined Pages Book Fairs in 1988 as its
Controller and has held several positions within Pages Book Fairs since
that time. Prior to joining Pages Book Fairs, Mr. Canan served in
financial positions with Xerox Education Publications, manufacturing
companies, and Arthur Andersen & Co.
Randall J. Asmo was elected Vice President in 1992 and a director in
1997. Prior to that time, he served as Assistant to the President from
1990 to 1992. Additionally, since 1987, Mr. Asmo has served as Vice
President of Mid-States Development Corp., a privately-held real estate
development and leasing company, as Vice President of American Home
Building Corp., a privately-held real estate development company, and as an
officer of several other small business enterprises.
Juan F. Sotos, M.D. was elected as a director in 1992. Dr. Sotos has
been a Professor of Pediatrics at The Ohio State University College of
Medicine since 1962 and also serves as Chief of Endocrinology and
Metabolism at Children's Hospital in Columbus, Ohio.
Robert J. Tierney was elected as a director in 1992. Dr. Tierney
currently serves as the Acting Chairperson of the Ohio State University
Department of Education Theory and Practice. Dr. Tierney is also active in
education research and has served as a professor at The Ohio State
University since 1984.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than 10% of
the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than 10% beneficial owners are required by
SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms
furnished to the Company and written representations from the executive
officers and directors, the Company believes that all Section 16(a) filing
requirements applicable to its executive officers, directors, and greater
than 10% beneficial owners were complied with.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Each director who is not an officer of the Company receives a fee of
$1,100 for attendance at each Board meeting, a fee of $550 for attendance
at each telephonic Board meeting, and a fee of $500 for attendance at each
meeting of a Board committee of which he is a member. Directors who are
also officers of the Company receive no additional compensation for their
services as directors.
The following table shows, for the fiscal years ended December 31,
1997, 1996, and 1995, the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued for
those years, to the Company's President and each of its four other most
highly paid executive officers whose total salary and bonus during 1997
exceeded $100,000 (the "Named Executive Officers"), and the principal
capacity in which they served:
Summary Compensation Table
Annual Compensation
------------------------------------------------------
Securities
Other Underlying Options
Name and Annual /Warrants /SAR's(#)
Principal Position Year Salary Bonus Compensation (1)(2)
- ---------------------- ---- -------- ----- ------------ ---------------
S. Robert Davis, 1997 $192,115 $0 $0 193,263
Chairman and President 1996 $167,704 $0 $138,086(3) 244,078
1995 $183,180 $0 $209,368(3) 0
William L. Clarke(4) 1997 $145,140 $0 $541(5) 29,168
Senior Vice President 1996 $88,346 $0 $166(5) 151,867
(1) Stock options previously granted to the Named Executive Officers, by
their terms, automatically adjust to reflect certain changes in the
outstanding Common Shares of the Company, including stock dividends.
2) Stock Appreciation Rights were awarded under the executive incentive
compensation plan dated October 8, 1996. Effective April 1, 1997, the
Stock Appreciation Rights program was canceled and these shares rescinded,
(S. Robert Davis, 244,078 shares and William L. Clarke, 51,867 shares).
(3) Represents the difference between the fair market value of the Common
Shares received and the stock option exercise price on the date of
exercise.
(4) Mr. Clarke was elected Senior Vice President of the Company in May,
1996.
(5) Represents life insurance premiums paid for term life insurance
provided as part of the health insurance plan provided to employees of PBF
generally.
Neither of the Named Executive Officers have an employment agreement with
the Company.
Compensation Committee Interlocks and Insider Participation
Juan F. Sotos, M.D. and Robert J. Tierney served as the Executive
Compensation Committee during the last fiscal year. Neither Dr. Tierney
nor Dr. Sotos serve or have served as an officer or employee of the Company
or any of its subsidiaries. Neither of such persons serves on the Board of
Directors of any other public company.
Option/Warrant Grants in Last Fiscal Year
The following table sets forth certain information with respect to
options/warrants granted to the Named Executive Officers during the last
fiscal year.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/Warrants
Name Underlying Granted to Exercise or
and Principal Options/Warrants Employees in Base Price Expiration Grant Date
Position Granted Fiscal Year $/Share Date Value (1)
- --------------------- ---------------- ---------------- ------------ --------------- -----------
<C> <S> <S> <S> <S> <S>
S. Robert Davis 143,263 51.53% $1.38 July, 2003 $127,504
Chairman of the 50,000 17.98% $2.25 September, 2000 53,500
Board and President
William L. Clarke 29,168 10.49% $1.38 July, 2003 25,960
Senior Vice President
</TABLE>
(1) The Grant Date Value was calculated using the Black-Scholes option
pricing model with the following assumptions: expected volatility of .658,
risk free interest rates from 5.57% to 5.65%, and expected lives ranging
from three to six years.
Aggregated Options Exercised in 1997 and Fiscal Year-End Option/Warrant
Values
The following table provides certain information with respect to
options exercised in fiscal 1997 by the Named Executive Officers and the
value of such officers' unexercised options/warrants at December 31, 1997.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money (1)
Acquired on Value Options /Warrants at Year Options/Warrants
End(#) at Year End($) (2)
----------------------------- ----------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ---------- ---------- ------------ -------------- ------------ ------------
<C> <S> <S> <S> <S> <S> <S>
S. Robert Davis None N/A 243,916 0 $ 17,192 0
William L. Clarke None N/A 144,948 0 $ 3,500 0
</TABLE>
(1) "In-the-Money" options are options whose base (or exercise) price was
less than the market price of Common Stock at December 31, 1997.
(2) Assuming a stock price of $1.50 per share, which was the closing price
of a share of Common Stock reported for the Nasdaq National Market on
December 31, 1997.
<PAGE>
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------
The following table sets forth, to the best of the Company's knowledge,
certain information as of March 9, 1998, with respect to the beneficial
ownership of shares of the Company's common stock by each person known to
the Company to be the beneficial owner of more than 5% of the Company's
outstanding common stock, by each director, by the President, and each of
the Named Executive Officers serving as of December 31, 1997, and by all
directors and executive officers of the Company as a group:
Amount and Nature Percent
Name and Address of Beneficial Ownership(1) of Class(2)
- ---------------------------- ----------------------- ---------
S. Robert Davis 1,545,525(3) 21.62%
801 94th Avenue North
St. Petersburg, Florida 33702
Charles R. Davis 535,253 8.15%
2124 Pine Valley Club Drive
Charlotte, North Carolina 28277
William L. Clarke 149,248(4) 2.09%
801 94th Avenue North
St. Petersburg, Florida 33702
Juan F. Sotos, M.D. 69,390(5) 0.97%
4400 Squirrel Bend
Columbus, Ohio 43220
Robert J. Tierney 14,338(6) 0.20%
4805 Olentangy Blvd.
Columbus, Ohio 43214
- ---------------------------- ----------------------- ---------
All executive officers and directors
as a group (6 persons) 1,972,791(7) 26.67%
====================== =========
(1) Represents sole voting and investment power unless otherwise
indicated.
(2) Based on 6,564,009 shares of common stock outstanding as of March 9,
1998, plus, as to each person listed, that portion of the 1,434,006
unissued shares of common stock subject to outstanding options and warrants
which may be exercised by such person, and as to all executive officers and
directors as a group, unissued shares of common stock as to which the
members of such group have the right to acquire beneficial ownership upon
the exercise of stock options/warrants within the next 60 days.
(3) Includes 25,100 shares owned by Mr. Davis' wife as to which Mr. Davis
disclaims beneficial ownership and includes 243,916 unissued Common Shares
as to which Mr. Davis has the right to acquire beneficial ownership upon
the exercise of stock options and warrants within the next 60 days.
(4) Includes 144,948 unissued Common Shares as to which Mr. Clarke has the
right to acquire beneficial ownership upon the exercise of stock options
within the next 60 days.
(5) Includes 11,578 unissued common shares as to which Dr. Sotos, a
Director of the Company, has the right to acquire beneficial ownership upon
the exercise of stock options within the next 60 days.
(6) Includes 11,578 unissued common shares as to which Dr. Tierney, a
Director of the Company, has the right to acquire beneficial ownership upon
the exercise of stock options within the next 60 days.
(7) The number of shares of common stock beneficially owned by all
executive officers and directors as a group includes 583,181 unissued
shares of common stock as to which they have the right to acquire
beneficial ownership upon the exercise of stock options and warrants within
the next 60 days, and 25,100 shares of common stock owned by Mrs. S. Robert
Davis as to which Mr. Davis disclaims any beneficial ownership. Includes
23,125 shares owned by Randall J. Asmo, Vice President and 105,309 unissued
shares as to which Mr. Asmo has the right to acquire beneficial ownership
upon the exercise of stock options within the next 60 days. Includes 4
shares owned by Steven L. Canan, Chief Financial Officer and 65,852
unissued common shares as to which Mr. Canan has the right to acquire
beneficial ownership upon the exercise of stock options within the next 60
days.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
In July, 1997, the Company entered into a 12 percent subordinated
convertible debt agreement for $500,000 with S. Robert Davis, Chairman of
Pages, Inc. After one year from the debt's issue date, up to 85 percent
of the face value of the debt is convertible at $1.875 per share into
common stock of Pages, Inc.
In August, 1997, the Company issued a $130,000 13.5 percent
subordinated note to Charles R. Davis, son of S. Robert Davis and an 8
percent owner of Pages, Inc. This note was originally due February 22,
1998, and has been extended to June 30, 1998.
In September, 1997, in exchange for personally guaranteeing the
Company's $1.0 million time note, S. Robert Davis, Chairman, received a
three year warrant for 50,000 shares of common stock, exercisable at $2.25
per share.
In December, 1997, the Company recognized a valuation loss of $1.5
million on the CASCO INTERNATIONAL, INC. ("CASCO") $5.0 million note
receivable. In January, 1998, an early repayment of $3.5 million was made
by CASCO to Pages, Inc. S. Robert Davis is the Chairman of Pages, Inc. and
of CASCO, owning 11.9 percent of CASCO's common stock. Charles R. Davis is
the son of S. Robert Davis and the President of CASCO. Charles Davis owns
8 percent of Pages, Inc.'s common stock.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements:
See Index to Consolidated Financial Statements and Financial Statement
Schedule following "Signatures."
2. Exhibits:
See the Exhibit Index.
(b) Reports on Form 8-K filed by Pages, Inc. during the quarter ended
December 31, 1997.
The Company filed a report on Form 8-K dated December 23, 1997, under
item 4 announcing the appointment of new independent accountants,
Hausser + Taylor, LLP.
The Company filed a report on Form 8-K dated January 28, 1998, under
items 2 and 5. The Company announced the sale of its $5.0 million,
CASCO INTERNATIONAL, INC. note receivable for $3.5 million. The Company
also announced the consummation of the $3.0 million in subordinated debt
financing from Provident Bank.
(d) Financial Statement Schedule
See Index to Consolidated Financial Statements and Financial
Statement Schedule following "Signatures."
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, Pages, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Pages, Inc.
(Registrant)
Dated: By:/s/ S. Robert Davis
----------------------- -----------------------------------
S. Robert Davis
Chairman of the Board, President,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Pages, Inc. and in the capacities and on the date indicated.
Dated: By: /s/ S. Robert Davis
----------------------- -----------------------------------
S. Robert Davis
Chairman of the Board, President,
and Director
(Principal executive officer)
Dated: By: /s/ Steven L. Canan
----------------------- -----------------------------------
Steven L. Canan
Chief Financial Officer and Treasurer
(Principal financial and accounting officer)
Dated: By: /s/ Randall J. Asmo
----------------------- -----------------------------------
Randall J. Asmo
Director
Dated: By: /s/ Juan F. Sotos, M.D.
----------------------- -----------------------------------
Juan F. Sotos, M.D.
Director
Dated: By: /s/ Robert J. Tierney
----------------------- -----------------------------------
Robert J. Tierney
Director
<PAGE>
PAGES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
-------
Independent Auditors' Reports 24, 25
Consolidated statements of operations 26
Consolidated balance sheets 27, 28
Consolidated statements of cash flows 29
Consolidated statements of stockholders' equity 30
Notes to the consolidated financial statements 31 - 46
Schedule II--Valuation and qualifying accounts 47
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Pages, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Pages, Inc.
and subsidiaries (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, cash flows and stockholders' equity
for the year then ended. Our audit also includes the information in the
consolidated financial statement schedule for the year ended December 31,
1997, listed in the index at Item 14(d). These consolidated financial
statements and consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements and
consolidated financial statement schedule based on our audit. The
consolidated financial statements and consolidated financial statement
schedule of the Company as of December 31, 1996 and 1995, were audited by
other auditors whose report dated March 21, 1997, expressed an unqualified
opinion on those statements.
We conducted our audit 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 as of December
31, 1997, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the consolidated financial statement schedule for the
year ended December 31, 1997, 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.
Columbus, Ohio
March 25, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Pages, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Pages, Inc.
and subsidiaries (the "Company") as of December 31, 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity
for each of the two years in the period then ended. Our audits also
included the information in the consolidated financial statement schedule
for the years ended December 31, 1996 and 1995, listed in the index at Item
14(d). These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and consolidated financial statement schedule 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 as of December
31, 1996, and the results of its operations and its cash flows for each of
the two years in the period then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the consolidated
financial statement schedule for the years ended December 31, 1996 and
1995, 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.
As discussed in Note 8 to the financial statements, effective January 1,
1996, the Company changed its method of accounting for the recognition of
deferred revenue for prepaid safety award programs.
Tampa, Florida
March 21, 1997
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
--------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues $27,787,371 $29,886,897 $50,200,870
Costs of goods sold 17,543,190 17,645,575 31,196,346
----------- ----------- -----------
Gross profit 10,244,181 12,241,322 19,004,524
Operating expenses:
Selling, general and administrative 12,442,059 13,179,673 20,106,041
Depreciation and amortization 762,477 700,977 1,182,804
----------- ----------- -----------
Income (loss) from operations (2,960,355) (1,639,328) (2,284,321)
Other expense (income):
Interest, net 920,947 998,794 1,813,636
Valuation adjustment - note receivable 1,500,000 -- --
Gain on sale of distribution channel -- (3,255,337) --
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (5,381,302) 617,215 (4,097,957)
Provision for income taxes -- -- (2,119,400)
----------- ----------- -----------
Income(loss) from continuing operations (5,381,302) 617,215 (6,217,357)
Discontinued operations:
Loss from operations -- (83,181) (2,352,362)
Loss on disposal -- -- (650,000)
Cumulative effect of change in -- 994,664 --
accounting principle
----------- ----------- -----------
NET INCOME (LOSS) $(5,381,302) $ 1,528,698 $(9,219,719)
=========== =========== ===========
Basic earnings per common share:
Income (loss) from continuing operations $ (0.85) $ 0.11 $ (1.26)
Net income (loss) $ (0.85) $ 0.28 $ (1.87)
=========== =========== ===========
Basic weighted average number of common
shares outstanding 6,306,000 5,551,000 4,930,000
=========== =========== ===========
Diluted earnings per common share:
Income (loss) from continuing operations $ (0.85) $ 0.10 $ (1.26)
Net income (loss) $ (0.85) $ 0.26 $ (1.87)
=========== =========== ===========
Diluted weighted average number of common
shares outstanding 6,306,000 5,857,000 4,930,000
=========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
------------------------
ASSETS 1997 1996
---------- ---------
Current Assets:
Cash $ 412,060 $ 317,911
Accounts receivable, net of allowance for
doubtful accounts of $356,000 and $316,000,
respectively 2,662,140 6,896,366
Inventory 12,991,795 19,358,374
Prepaid expenses 1,429,726 1,541,964
Note receivable from CASCO INTERNATIONAL, INC. 3,500,000 --
---------- ---------
Total current assets 20,995,721 28,114,615
---------- ---------
Property and equipment:
Buildings 1,070,201 4,264,259
Equipment 1,988,863 4,045,248
---------- ---------
3,059,064 8,309,507
Less accumulated depreciation (1,100,657) (2,448,860)
---------- ---------
1,958,407 5,860,647
Land 420,000 631,468
---------- ---------
Total property and equipment, net 2,378,407 6,492,115
---------- ---------
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $899,000 and
$645,000, respectively 4,441,484 5,828,757
Other 267,654 884,752
---------- ---------
4,709,138 6,713,509
---------- ---------
TOTAL ASSETS $28,083,266 $41,320,239
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---------- ---------
Current Liabilities:
Accounts payable $ 6,173,483 $ 3,388,341
Short-term debt obligations 11,082,227 13,120,561
Accrued liabilities 880,693 2,060,637
Accrued tax liabilities 1,103,501 2,283,836
Deferred revenue 1,265,366 3,068,320
Current portion of long-term debt obligations 256,488 158,160
Current portion of capital lease obligations 74,872 100,123
---------- ---------
Total current liabilities 20,836,630 24,179,978
---------- ---------
Long-term debt and capital lease obligations 2,044,452 1,328,986
Deferred revenue -- 2,935,626
---------- ---------
Total liabilities 22,881,082 28,444,590
---------- ---------
Commitments and contingencies
Stockholders' Equity
Preferred shares: $.01 par value; authorized 300,000
shares; none issued and outstanding
Common shares: $.01 par value; authorized 20,000,000
shares; issued 6,862,722 shares and 6,497,268
shares, respectively 68,627 64,973
Capital in excess of stated value 21,908,833 23,951,788
Notes receivable from stock sales (902,373) (903,123)
Accumulated deficit (15,631,780) (9,996,866)
---------- ---------
5,443,307 13,116,772
Less 298,713 shares of common stock in
treasury, at cost (241,123) (241,123)
---------- ---------
Total stockholders' equity 5,202,184 12,875,649
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,083,266 $41,320,239
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<C> <S> <S> <S>
Cash Flow From (Used In) Operations:
Income (loss) from continuing operations $(5,381,302) $ 617,215 $(6,217,357)
----------- ----------- -----------
Reconciliation to net cash flow used in continuing
operations:
Depreciation and amortization 762,477 700,977 1,182,804
Deferred income taxes -- -- 2,119,400
Valuation adjustment - note receivable 1,500,000 -- --
Gain on sale of distribution channel -- (3,255,337) --
Bad debt expense -- -- 146,000
Write-off of intangible assets -- -- 349,753
Other -- -- 28,154
Changes in working capital items of continuing
operations:
Accounts receivable (409,801) 511,456 1,555,974
Inventory (796,574) 2,338,773 2,039,517
Prepaid expenses and other assets (757,351) 472,491 613,975
Accounts payable and accrued liabilities 2,428,161 (4,769,738) (2,024,430)
Deferred revenue 149,363 (206,110) (952,486)
----------- ----------- -----------
Net cash used in continuing operations (2,505,027) (3,590,273) (1,158,696)
----------- ----------- -----------
Net cash from (used in) discontinued operations (152,787) 30,909 2,759,411
----------- ----------- -----------
Net cash from (used in) operations (2,657,814) (3,559,364) 1,600,715
----------- ----------- -----------
Cash Flow From (Used In) Investing Activities:
Payments for purchases of property and equipment (265,209) (308,243) (287,706)
Proceeds from disposition of distribution channel -- 11,287,500 --
Payments for acquisitions, net of cash and debt
acquired and stock issued -- -- (779,346)
----------- ----------- -----------
Net cash flow from (used in) investing activities (265,209) 10,979,257 (1,067,052)
----------- ----------- -----------
Cash Flow From (Used In) Financing Activities:
Proceeds from issuance of stock 597,217 298,698 275,013
Proceeds from debt and lease obligations 25,922,362 31,129,222 32,653,241
Proceeds from subordinated debt issued 980,000 -- --
Payments on debt and lease obligations (24,482,407) (39,062,757) (33,600,664)
----------- ----------- -----------
Net cash flow from (used in) financing activities 3,017,172 (7,634,837) (672,410)
----------- ----------- -----------
Increase (decrease) in cash 94,149 (214,944) (138,747)
Cash, beginning of year 317,911 532,855 671,602
----------- ----------- -----------
Cash, end of year $ 412,060 $317,911 $532,855
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Notes
Capital In Receivable Foreign
Common Excess of from Currency Accumulated Treasury
Shares Stock Par Value Stock Sales Translation Deficit Stock Total
--------- -------- ----------- ----------- ----------- ----------- ----------- -----------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
Balance December 31, 1994 5,087,921 $ 50,879 $22,489,048 $ -- $(400,295) $(2,305,845) $(241,123) $19,592,664
Year ended December 31, 1995:
Exercise of stock options 313,923 3,140 271,873 275,013
Other 72,712 727 (727) --
Foreign currency translation 25,641 25,641
Net loss (9,219,719) (9,219,719)
--------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 5,474,556 54,746 22,760,194 -- (374,654) (11,525,564) (241,123) 10,673,599
Year ended December 31, 1996:
Exercise of stock options 1,022,712 10,227 1,191,594 (903,123) 298,698
Foreign currency translation 374,654 374,654
Net income 1,528,698 1,528,698
--------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 6,497,268 64,973 23,951,788 (903,123) $ -- (9,996,866) (241,123) 12,875,649
Year ended December 31, 1997:
Spin-off of CASCO INTERNATIONAL, INC (2,635,768) (253,612) (2,889,380)
Proceeds from in-kind inventory
purchases, services, and private
placements 365,454 3,654 592,813 750 597,217
Net loss (5,381,302) (5,381,302)
--------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 6,862,722 $ 68,627 $21,908,833 $(902,373) $ -- $(15,631,780) $(241,123)$ 5,202,184
========= ======== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Pages,
Inc. and its wholly-owned subsidiaries after elimination of all material
intercompany accounts and transactions, collectively referred to as "the
Company." The Company's children's literature business segment is operated
principally through Pages Book Fairs, Inc. and related entities ("PBF") and
the Company's discontinued incentive/recognition awards business segment
was operated through CASCO INTERNATIONAL , INC., ("CASCO," formerly known
as C.A. Short Company, Inc.).
Use of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain
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. The reported amounts of revenues and expenses
during the reporting period may be affected by the estimates and
assumptions management is required to make. Actual results could differ
from those estimates.
Revenue Recognition
Revenues from the sale of children's literature are recognized upon
shipment and delivery of the related merchandise. Revenues from services
are insignificant. The Company provides for estimated returns from the
sale of children's literature when those products are shipped.
Accounts Receivable
The Company mainly sells its products to schools, organizations,
public libraries, and corporations across the United States. The accounts
receivable are well diversified and are expected to be repaid in the normal
course of business.
Inventory
Inventory consists of finished goods which are comprised of books and
general retail merchandise. Inventory is valued at the lower of cost or
market using the first-in, first-out (FIFO) method. Internal and external
production costs (which include costs for design, art, editorial services,
and color separations in the publishing of finished goods inventory) are
capitalized and expensed over the respective lives of the titles published
by the Company.
Prepaid Expenses
Prepaid expenses at December 31, 1997 and 1996, include approximately
$1,000,000 and $1,500,000, respectively, of prepaid selling costs that
include employee costs and incentive payments to distributors and
salespeople for the scheduling of future sales events and sales of book
subscriptions. Such costs are directly attributable to obtaining specific
future commitments to hold a selling event or start a subscription and are
expensed in the year the related sales occur.
Buildings and Equipment
Buildings and equipment are recorded at cost and depreciated over
their estimated useful life on the straight-line method. Estimated useful
lives range from three to thirty-one years. Major repairs and betterments
are capitalized; minor repairs are expensed as incurred. Depreciation
expense for the years ended December 31, 1997, 1996, and 1995, totaled
$447,000, $491,000, and $958,000, respectively.
Cost In Excess of Net Assets Acquired and Other Assets
The majority of cost in excess of net assets acquired are amortized on
a straight line basis over 40 years. Management periodically evaluates its
accounting for cost in excess of net assets acquired by considering such
factors as historical performance, current operating results, and future
operating income. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectation of nondiscounted cash
flows from operations and eventual disposition for each subsidiary having a
material goodwill balance. Based upon its most recent analysis, the
Company believes that no material impairment of goodwill exists at December
31, 1997. Based on this periodic review, management believes that the
carrying value of cost in excess of net assets acquired is reasonable and
the amortization period is appropriate. Amortization expense on cost in
excess of net assets acquired for the years ended December 31, 1997, 1996,
and 1995 totaled $254,000, $132,000, and $133,000, respectively.
Other assets include payments for covenants not to compete, cash
surrender value of life insurance and deferred loan costs. The covenants
not to compete and deferred loan costs are amortized using the straight
line method over the terms of the related contracts. Amortization expense
totaled $61,000, $78,000, and $92,000, for the years ended December 31,
1997, 1996, and 1995, respectively.
Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." The Statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets. There was
no material effect on the financial statements from the adoption because
the Company's prior impairment recognition practice was consistent with the
major provisions of the Statement. Under provisions of the Statement,
impairment losses are recognized when expected future cash flows are less
than the assets' carrying value. Accordingly, when indicators of
impairment are present, the Company evaluates the carrying value of
property and equipment and intangibles in relation to the estimated future
cash flows expected to result from the asset and its eventual disposition.
The Company adjusts the net book value of the underlying assets if the sum
of expected future cash flows is less than book value.
Deferred Revenue
Deferred revenue represents customer prepayments for goods and
services that the Company will deliver in the future. Upon delivery of
such goods and services, deferred revenues are recognized as revenues.
Effective January 1, 1996, CASCO adopted a change in accounting principle
relating to deferred revenues and prepaid expenses (See Note 8).
Per Share Data
Per share amounts are computed in accordance with SFAS No. 128, "Earnings
Per Share", which requires companies to present basic earnings per share and
diluted earnings per share. Basic earnings per share are computed by dividing
net income/(loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per share are computed by
dividing net income/(loss) by the weighted average number of shares of common
stock outstanding and dilutive options and warrants outstanding during the year.
Stock-Based Compensation
The Company has stock option plans which reserves shares of common
stock for issuance to executives, key employees and directors. The Company
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date for
awards in 1997 been consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to
the proforma amounts indicated below:
1997 1996
------------ ---------
Net earnings (loss) - as reported $(5,381,302) $1,528,698
Net earnings (loss)- proforma $(5,646,580) $1,058,000
Basic earnings (loss) per share -
as reported $ (.85) $ .28
Basic earnings (loss) per share -
proforma $ (.89) $ .18
The assumption regarding all outstanding stock options issued to
executives and key employees as of December 31, 1997, was that all but one
of such options were vested in 1997.
Normal vesting of incentive stock options under the stock option plans
is immediate. Vesting of non-statutory stock options are at the discretion
of the compensation committee.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997: expected volatility of .658,
risk-free interest rate ranging from 5.53% to 5.63%, and expected lives
ranging from three to six years.
Concentration of Credit Risk
The Company's cash balances, which are in excess of federally insured
levels, are maintained at large regional financial institutions. The
Company continually monitors its balances to minimize the risk of loss for
these balances.
The Company grants credit to customers throughout the country. No one
customer accounts for any significant percentage of sales or receivables.
Fair Value of Financial Instruments
Statement of Accounting Standards (SFAS) No. 107, "Disclosure about
the Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. During 1997, the Company acquired
a $5.0 million note receivable from CASCO in connection with the spin-off
of this wholly-owned subsidiary. The note was to be repaid over a five
year period. The Company agreed to early repayment of the note at a $1.5
million discount in January, 1998. Accordingly, at December 31, 1997, the
Company recognized the $1.5 million valuation adjustment since the fair
value of the note was established shortly thereafter.
The fair value of cash and long-term debt approximate the carrying
amounts as of December 31, 1997. The fair value of the Company's long-term
debt was estimated based on current rates for debt with similar remaining
maturities.
Accounting Pronouncements for 1998
The Financial Accounting Standards Board ("FASB") has issued three
pronouncements for fiscal years beginning after December 15, 1997. These
include SFAS No. 130 - "Reporting of Comprehensive Income", SFAS No. 131 -
"Disclosures About Segments of an Enterprise and Related Information", and
SFAS No. 132 - "Employers' Disclosures About Pensions and Other
Postretirement Benefits". The Company believes that the effect of the
adoption of the above will not be material to its financial position or
results of operations.
Reclassifications
Certain reclassifications to the 1996 and 1995 consolidated financial
statements have been made to conform with the current year's presentation.
<PAGE>
2. STOCK OPTIONS, WARRANTS AND STOCK APPRECIATION RIGHTS
At December 31, 1997, 537,500 common shares of the Company were
reserved for issuance under the incentive stock option plan, 233,475 shares
were reserved under non-statutory stock options, and 205,789 shares were
reserved under outstanding warrants. Information for the stock options and
warrants is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------
1997 1996 1995
---------- ---------- ---------
Incentive Stock Option Plan
- -------------------------------
<C> <S> <S> <S>
Outstanding, beginning of year 360,745 58,125 122,450
Adjusted shares due to spin-off of CASCO
INTERNATIONAL, INC. 56,892
Granted 228,000 459,500 55,625
Canceled (126,619) (60,280) (119,950)
Exercised -- (96,600) --
---------- ---------- ---------
Outstanding, end of year 519,018 360,745 58,125
========== ========== =========
Exercise price range of options outstanding $1.38 to $9.40 $1.75 to $10.88 $2.57 to $10.88
Exercise price range of options exercised during the year -- $1.875 to $2.69 --
Non-Statutory Stock Options
- --------------------------------
Outstanding, beginning of year 158,125 2,045,016 2,666,821
Adjusted shares due to spin-off of CASCO
INTERNATIONAL, INC. 24,947 -- --
Granted 130,000 20,000 92,308
Canceled (79,597) (980,779) (400,190)
Exercised -- (926,112) (313,923)
---------- ---------- ---------
Outstanding, end of year 233,475 158,125 2,045,016
========== ========== =========
Exercise price range of options outstanding $1.75 to $6.22 $2.125 to $7.20 $0.80 to $11.75
Exercise price range of options exercised during the -- $0.80 to $1.20 $0.80 to $0.88
year
Warrants
Outstanding, beginning of year 5,000 -- --
Adjusted shares due to spin-off of CASCO
INTERNATIONAL, INC. 789 -- --
Granted 200,000 5,000 --
Canceled -- -- --
Exercised -- -- --
---------- ---------- ---------
Outstanding, end of year 205,789 5,000 --
========== ========== =========
Exercise price range of warrants outstanding $1.73 to $2.25 $2.00 --
Exercise price range of warrants exercised during the -- -- --
year
</TABLE>
The Incentive Stock Options are exercisable at the fair market value
on the date of grant, and were granted from shares available for issuance
from the Company's 1993 Incentive Stock Option Plan. The options
outstanding at December 31, 1997, are all presently exercisable and expire
six years from grant date at various dates through July, 2003. All options
are 100% vested.
The non-statutory options are priced at the fair market value on the
date of grant. All but one of the non-statutory options outstanding at
December 31, 1997, are exercisable and expire at various dates through
November 2001.
Warrants to purchase 205,789 shares of Pages, Inc. common stock were
issued in connection with the Company's ability to raise additional
capital. The warrants are priced at either the market value of the common
stock at date of the agreement to issue the warrants or at market, or 1/8
above the market value of the common stock at date of issuance of the
warrant. All but one of the warrants are exercisable and expire various
dates through December, 2002.
The Stock Appreciation Rights issued November 1, 1996, were canceled
April 1, 1997. The expense and related liability of $431,287, recorded in
1996, was reversed in 1997.
A summary of options and warrants outstanding at December 31,
1997, is as follows:
<TABLE>
<CAPTION>
Proceeds to
Company Upon
Date Granted or Issued Shares Reserved Shares Exercisable Exercise Price Exercise
- ---------------------------- ------------- ---------- ----------- --------
<C> <S> <S> <S> <S>
Incentive Stock Options:
November 18, 1993 1,157 1,157 $9.400 $10,875
September 29, 1995 8,308 8,308 2.320 19,275
November 13, 1995 10,997 10,997 2.220 24,413
May 8, 1996 194,510 194,510 2.060 400,691
July 24, 1996 52,101 52,101 1.510 78,673
November 8, 1996 28,945 28,945 1.840 53,259
March 14, 1997 23,000 23,000 2.150 49,450
July 14, 1997 200,000 200,000 1.380 276,000
------------- ---------- --------
519,018 519,018 912,636
------------- ---------- --------
Non-Statutory Stock Options:
May 19, 1992 18,812 18,812 3.370 63,396
June 2, 1992 50,653 50,653 3.630 183,870
June 15, 1992 7,236 7,236 3.890 28,148
April 30, 1993 3,618 3,618 6.220 22,504
November 1, 1996 23,156 23,156 1.840 42,607
August 8, 1997 65,000 65,000 1.750 113,750
August 8, 1997 65,000 0 2.500 162,500
------------- ---------- --------
233,475 168,475 616,775
------------- ---------- --------
Warrants:
August 14, 1996 5,789 5,789 1.730 10,015
August 27, 1997 100,000 100,000 2.00 200,000
September 2, 1997 50,000 50,000 2.25 112,500
December 24, 1997 50,000 0 1.875 93,750
------------- ---------- --------
205,789 155,789 416,265
------------- ---------- --------
Total Options and Warrants 958,282 843,282 $ 1,945,676
============= ========== ========
</TABLE>
<PAGE>
3. NOTES RECEIVABLE FROM STOCK SALES
----------------------------------
In the Third and Fourth Quarters of 1996, certain officers and
employees exercised stock options for notes. These notes are full recourse
promissory notes bearing interest at 7 percent. The principal sum is due
in September, 1999. The interest is payable only in the event and only to
the extent that the fair market value of the shares of common stock at the
close of business in September, 1999 exceeds the exercise price. No
provision has been made in the 1997 or 1996 financial statements for such
interest.
<PAGE>
4. DEBT OBLIGATIONS
----------------
Debt obligations consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<C> <S> <S>
Line of credit with interest at prime plus 1 percent; interest payable monthly, maturing
on June 30, 1998, collateralized by substantially all assets of the Company ($1,417,773
unused at December 31, 1997) $10,082,227 $9,450,815
Line of credit with interest at prime plus 1 percent; interest payable monthly, maturing
on June 30, 1997, collateralized by substantially all assets of the Company ($830,254
unused at December 31, 1996) -- 3,669,746
Time note with interest at prime plus 2 percent; due February 28, 1998 1,000,000 --
Mortgage payable with interest at prime plus 1 1/4 percent; principal and interest payable
in monthly installments of $11,280, maturing on March 1, 2008, collateralized by office
and warehouse facility 581,217 657,238
Second mortgage note payable with interest at 12.825 percent; principal and interest
payable in monthly installments of $5,313, maturing on November 1, 2008, collateralized by
office and warehouse facility 384,852 400,867
Subordinated notes payable with interest payable quarterly at 12 percent, due August 1,
2000, 85 percent of face value of notes convertible into common stock after one year from
purchase at conversion prices of $1.875 - $2.75. $500,000 of the notes payable are to S.
Robert Davis, Chairman of Pages, Inc. 850,000 --
Subordinated note payable with interest payable quarterly at 10 percent, due in 2005 250,000 250,000
Subordinated note payable to Charles R. Davis, son of S. Robert Davis, Chairman of Pages,
Inc. with interest payable quarterly at 13.5 percent, due June 30, 1998 130,000 --
Promissory note payable with interest at 10 percent, payable in
five annual installments through April 29, 1998 27,539 53,038
Promissory note payable with interest at 7 percent, payable quarterly through August 16,
1997 -- 40,476
----------- -----------
Total debt obligations 13,305,835 14,522,180
Less short-term obligations 11,338,715 13,278,721
----------- -----------
Total long-term obligations $ 1,967,120 $ 1,243,459
=========== ===========
The prime interest rate at December 31, 1997 and 1996, was 8 1/2 and 8 1/4 percent, respectively.
</TABLE>
Future maturities on debt as of December 31, 1997, and during the next five
years and thereafter are as follows:
1998 $11,338,715
1999 109,735
2000 971,706
2001 134,991
2002 149,731
Thereafter 600,957
-----------
$13,305,835
===========
The maximum line amount on the line of credit is calculated, in part,
based on the Company's eligible borrowing base that includes inventory and
other eligible accounts. The facility contains certain restrictive
provisions including, among others, maintaining a minimum tangible net
worth, limitation on dividends paid on common stock to $100,000 annually
and certain other restrictions on actions which require lender pre-
approval.
On January 21, 1998, the Company also entered into two new credit
agreements. Pages obtained $3.0 million in subordinated debt financing
bearing interest at 12.5 percent payable monthly, due in 2004. Warrants to
purchase shares of the Company's common stock were issued in connection
with this subordinated debt financing. Additionally, an $8.0 million line
of credit was obtained from the Company's primary lender, replacing all
prior lines of credit, with interest at prime plus 1 percent payable
monthly, due in 2000 and collateralized by substantially all assets of the
Company.
<PAGE>
5. LEASE OBLIGATIONS
------------------
The Company is obligated under various noncancelable operating and
capital leases. Operating leases are principally for office and warehouse
facilities, equipment, and vehicles. Rent expense under operating leases
amounted to $791,403, $1,071,466, and $1,176,232 for the years ended
December 31, 1997, 1996, and 1995, respectively. Future minimum lease
payments under leases are as follows:
Year Ended
December 31, Capital Operating
- ------------- ---------- ----------
1998 $74,872 $683,442
1999 46,965 551,346
2000 19,744 427,404
2001 10,623 405,447
2002 0 405,447
Thereafter 0 0
---------- -----------
$ 152,204 $ 2,473,086
===========
Less - current installments,
capital lease obligations (74,872)
----------
Long-term lease obligations $ 77,332
==========
The property and equipment under capital leases consisting of office
equipment are recorded at December 31, 1997, as follows:
Property and equipment $ 282,937
Less - accumulated depreciation (130,817)
----------
$152,120
==========
<PAGE>
6. INCOME TAXES
The Company is required to use SFAS No. 109 "Accounting for Income
Taxes." Under SFAS 109, the liability method is used in accounting for
income taxes. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Under
SFAS No. 109, if on the basis of available evidence, it is more likely than
not that all or a portion of the deferred tax asset will not be realized,
the asset must be reduced by a valuation allowance. Based on available
evidence, a valuation allowance has been established for an amount of the
asset that more likely than not, will not be recognized.
Temporary differences between income for financial reporting purposes
and tax reporting purposes relate primarily to accounting methods for
doubtful accounts, inventory costs, accrued and prepaid expenses and
reserves, and depreciation and amortization expense.
For the years presented, the provision (benefit) for income taxes consisted
of the following:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<C> <S> <S> <S>
Current
Federal $ -- $ -- $ -
State and local -- -- -
------------ ------------ ------------
Net current $ -- $ -- $ -
------------ ------------ ------------
Deferred
Federal -- -- $ 1,966,200
State and local -- -- 153,200
------------ ------------ ------------
Net deferred provision (benefit) -- -- 2,119,400
------------ ------------ ------------
Net provision (benefit) for taxes $ -- $ -- $ 2,119,400
============ ============ ============
A reconciliation of income taxes based upon the application of the federal
statutory tax rate is as follows:
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
Provision (benefit) for taxes at statutory rate $(1,910,300) $ 542,700 $(2,414,100)
United Kingdom operations -- (437,500) 406,900
Goodwill amortization 67,000 (88,500) 29,000
State taxes net of federal benefit -- -- (86,100)
Interest -- (227,400) --
Establishment of valuation allowance 1,964,300 367,700 4,385,600
Stock options exercised and stock appreciation rights (153,500) (99,400) (225,200)
Other 32,500 (57,600) 23,300
------------ ------------ ------------
Total provision (benefit) for income taxes $ -- $ -- $ 2,119,400
============ ============ ============
</TABLE>
The components of net deferred tax assets as of December 31, 1997 and 1996, are
as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
--------- -----------
<C> <S> <S>
Assets
Provision for doubtful accounts $ 193,000 $ 116,000
Inventory costs capitalized for tax purposes 321,000 576,600
Accruals and reserves to be expensed as paid for
tax purposes 243,000 708,200
Other 23,000 24,100
Net operating loss carryforwards 6,536,000 5,163,400
Investment tax credit carryforwards 122,000 122,000
Stock appreciation rights -- 153,100
--------- -----------
7,438,000 6,863,400
Less valuation allowance (6,880,200) (5,170,000)
--------- -----------
Deferred tax asset, net of valuation allowance 557,800 1,693,400
--------- -----------
Liabilities:
Costs deducted as paid for tax purposes (410,800) (761,400)
Excess of tax over financial accounting depreciation
and amortization (147,000) (932,000)
--------- -----------
(557,800) (1,693,400)
--------- -----------
Net deferred tax asset $ -- $ --
========= ===========
</TABLE>
At December 31, 1997, operating loss carryforwards of approximately
$18,400,000 are available to offset future taxable income and will expire
during the years 1998 through 2010.
<PAGE>
7. CHILDREN'S LITERATURE ACQUISITIONS AND DISPOSALS
------------------------------------------------
During 1995, the Company acquired several small operations involved in
the publishing and distribution of children's literature. These
acquisitions were accounted for using the purchase method of accounting.
The aggregate cost of there acquisitions approximated $779,000 in cash and
was allocated to the net assets acquired based upon their face values.
Cost assigned to cost in excess of net assets acquired approximated
$471,000 in 1995.
During 1995, the Company disposed of or phased out the operations of
several acquisitions made in 1993 and 1994 and curtailed the distribution
of early childhood product through the mail to pre-schools and daycare
centers. Combined revenues, included in the accompanying consolidated
financial statements, of these operations for 1995, approximated
$2,300,000. The combined costs and expenses associated with these
operations including the loss on disposition or phase out included in cost
of goods sold and selling, general, and administrative expense in the
accompanying consolidated financial statements for 1995, approximated
$2,700,000.
On March 6, 1996, the Company sold to Scholastic Limited, a United
Kingdom subsidiary of Scholastic, Inc. and its affiliates ("Scholastic")
all the capital stock of Pages Book Fairs, Limited ("Limited") , the
Company's United Kingdom subsidiary for $4,764,781 cash. Additionally, as
part of the transaction, (i) Scholastic paid in full (1) the outstanding
balance of $2,129,846 due by Limited to Lloyds Bank and (2) an intercompany
payable due from Limited to the Company in the amount of $2,317,873, and
(ii) the Company signed a Non-Competition Agreement pursuant to which, in
return for the payment of $1,500,000 in cash, the Company agreed for a five-
year period not to compete with the book fair business of Scholastic and
its affiliates in the following countries: Canada, the United Kingdom,
Ireland, Germany, Italy, Greece, Eastern Europe, including without
limitation, the Commonwealth of Independent States, Turkey, the countries
of the Middle East, and Africa.
On March 6, 1996, the Company closed its distribution channel in
Canada and on March 13, 1996, the Company sold a portion of its inventory
in Canada to Scholastic Canada, Ltd., a corporation organized under the
laws of Canada for $575,000 cash.
The net proceeds of the above-described transactions of $8,950,000
after the repayment of the Lloyds Bank debt and estimated transaction costs
were used to reduce the Company's domestic bank indebtedness. Included in
the accompanying 1996 financial statements is a $3,255,337 gain on the
transaction.
<PAGE>
8. DISCONTINUED OPERATIONS
-------------------------------
Effective on the close of business on December 31, 1996, the Company
completed a tax-free spin- off of the common stock of the Company's wholly-
owned subsidiary CASCO INTERNATIONAL, INC. (CASCO) through a distribution
to the stockholders of Pages, Inc. of one and one-half shares of CASCO
common stock for every ten shares of Pages, Inc. common stock outstanding
on the record date. Effective January 1, 1997, CASCO issued a subordinated
debenture to Pages, Inc. in the principal amount of $5.0 million bearing
interest at 7% per annum payable quarterly, with principal payments of
$100,000 each due at the end of the first four years, and a final payment
of $4,600,000 due at the end of the fifth year. This note was repaid at a
$1.5 million discount in January 1998.
No operating results for CASCO are included in these financial
statements. Revenues for CASCO were $22.0 and $22.6 million for 1996 and
1995, respectively. Net income or (losses) were $911,000 and $(126,274)
for 1996 and 1995, respectively. Included in the 1996 CASCO income is the
cumulative effect of an accounting change adopted by CASCO as of January 1,
1996. CASCO changed its method of accounting for the recognition of
revenues relating to advance deposits. Previously, CASCO recognized such
deferred revenue at the conclusion of the respective safety award programs.
Effective with the change, revenues are recognized over the course of the
programs based on CASCO's historical and expected redemption percentages.
The corresponding deferred commission costs (included in prepaid expenses
on the accompanying financial statements) have also been recognized in
association with this change in the same direct proportion as the revenue
recognition. The effect of this accounting change in 1996 was to decrease
the loss before cumulative effect of change in accounting principle by
$209,190, net of associated commission expense of $32,704. The cumulative
effect of the accounting change of $995,000 has not been tax effected based
on the absence of any applicable tax to the Company on a consolidated basis
(see Note 6). The proforma income (loss) amounts for CASCO assuming the
new accounting method is applied retroactively are $(83,181) and $303,512
in 1996 and 1995, respectively.
The components of net assets of the CASCO discontinued operations
included in the consolidated balance sheets at December 31, 1996 follow:
December 31, 1996
-----------------
Cash $ 130,972
Accounts receivable, net 4,644,027
Inventory 7,163,153
Prepaid expenses 803,321
Property, plant and equipment, net 3,931,800
Costs in excess of net assets acquired, net 1,133,023
Other assets 622,257
Accounts payable (1,572,022)
Accrued liabilities (342,156)
Short-term debt obligations (3,669,746)
Deferred revenue (4,887,943)
Additionally, in 1995, the Company adopted a plan to discontinue the
operations of its Read Aloud Book Club division (the "Club"). The
operations of the Club ceased during the second quarter of 1996. The Club
is accounted for as a discontinued operations, and accordingly, its
operations are segregated in the accompanying consolidated statements of
operations. Losses incurred between the measurement date (December 31,
1995) and the date on which operations ceased as well as phase out costs on
the Club, were provided for in the December 31, 1995, consolidated
financial statements. Revenue associated with the discontinued club
operation for 1995 was $2,451,965, and the net loss was $(2,876,000).
<PAGE>
9. SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION
-------------------------------------------------
Cash paid for interest during the years ended December 31, 1997, 1996,
and 1995, aggregated $1,275,000, $1,151,000, and $2,190,000 and cash paid
for taxes was $1,190,000, $18,100, and $0, respectively.
During the years ended December 31, 1997 and 1996, the Company
acquired $82,000 and $75,000, respectively, in equipment through capital
financing leases. In 1996, the Company acquired $250,000 of inventory
through the issuance of a long term note.
During 1997, the Company acquired a $5.0 million note receivable from
CASCO in connection with the spin-off of this wholly-owned subsidiary
effective on the close of business on December 31, 1996. Interest at 7%
was paid quarterly to the Company. This note was repaid early to the
Company at a $1.5 million discount in January 1998.
Also in 1997, the Company issued $420,000 in Common Stock (at $1.75
per share) to a printing vendor in exchange for inventory. $47,700 in
Common Stock (at $1.59 per share) and two 3 year options for 65,000 shares
each, exercisable at $1.75 and $2.50, respectively, were issued in exchange
for public relations services.
<PAGE>
10. INTERIM FINANCIAL INFORMATION (UNAUDITED):
------------------------------------------
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1997
---------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
<C> <S> <S> <S> <S>
Revenues $ 7,144,194 $ 6,943,688 $ 3,121,227 $10,578,262
Gross Profit 3,007,642 2,769,835 1,114,148 3,352,556
Income (loss) from operations before
income taxes (239,626)(4) (845,277) (1,767,220) (2,529,179)(1)
Net income (loss) available to common
stockholders $ (239,626) $ (845,277) $(1,767,220) $(2,529,179)
=========== =========== =========== ===========
Income/(loss) per common share - basic
and diluted:
Net income (loss) $ (0.04) $ (0.14) $ (0.28) $ (0.39)
=========== =========== =========== ===========
Weighted average common shares 6,199,000 6,194,000 6,360,000 6,470,000
=========== =========== =========== ===========
Twelve Months Ended December 31, 1996
--------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
Revenues $ 9,457,068 $ 6,646,418 $ 3,366,483 $10,416,928
Gross Profit 3,757,355 2,671,851 1,564,849 4,247,267
Income (loss) from continuing operations
before income taxes 2,191,495(2) (741,680) (1,401,681) 569,081(4)
Income (loss) from discontinued
operations 1,375,432(3) (302,240) (655,866) 494,157
Net income (loss) available to common
stockholders $ 3,566,927 $(1,043,920) $(2,057,547) $ 1,063,238
=========== =========== =========== ===========
Income/(loss) per common share - Basic:
Discontinued operations $ 0.27 $ (0.06) $ (0.12) $ 0.08
Net income (loss) $ 0.69 $ (0.19) $ (0.38) $ 0.17
=========== =========== =========== ===========
Weighted average common shares 5,180,000 5,436,000 5,483,000 6,103,000
=========== =========== =========== ===========
Income (loss) per common share - Diluted:
Discontinued operations $ 0.24 $ (0.06) $ (0.12) $ 0.08
Net income (loss) $ 0.62 $ (0.19) $ (0.38) $ 0.17
=========== =========== =========== ===========
Weighted average common shares and
potential common stock 5,721,000 5,436,000 5,483,000 6,138,000
=========== =========== =========== ===========
</TABLE>
Per share calculations are based on the average number of shares and
potential common stock outstanding for each quarter using the treasury
stock method. Thus, the sum of the quarters may not necessarily be equal
to the full year's earnings per share amounts.
(1) Includes valuation adjustment on note receivable of $1,500,000 (See
Note 13).
(2) Includes gain on sale of the Company's United Kingdom subsidiary of
$3,255,337 (See Note 7).
(3) Includes cumulative effect of a change in accounting principle of
$994,664 (See Note 8).
(4) Include effect of $431,287 of compensation associated with the
Company's Stock Appreciation Rights recorded as an expense in fourth
quarter of 1996 and reversed into income in first quarter of 1997 when
these shares were canceled and rescinded.
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
-------------------------------
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection
with the examination of the tax returns of Pages Book Fairs ("PBF",
formerly School Book Fairs), and its affiliates for the fiscal years ending
July 31, 1988, 1989, 1990, and 1991. In June, 1993, the Company recorded a
$2 million adjustment to its purchase price allocation of PBF assets, which
increased the cost in excess of assets acquired (i.e. - goodwill), and
recorded a corresponding increase in accrued tax liabilities and related
costs.
In October, 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988,
in which, along with other events, certain assets were transferred between
related companies. The IRS had challenged, among other things, the values
assigned to those assets by the parties to the transaction, contending that
the assets were undervalued and that PBF recognized a substantial taxable
gain in the transaction. In January, 1996, the Company filed petitions
with the Tax Court disputing the IRS valuation of the assets transferred,
and other points in the IRS assessment.
On October 28, 1996, the Company entered into a settlement with the IRS
regarding the four Notices of Deficiency received assessing additional
taxes for the fiscal years 1988, 1989, 1990, and 1991. The settlement
includes income taxes of $750,000, plus interest of approximately $750,000,
for a total of approximately $1,500,000. The Company has negotiated a
payment plan with the IRS that spreads the payments including interest over
twelve months starting in March, 1997. At December 31, 1997, the balance
due approximated $300,000.
On December 27, 1996, the Company filed an action in U.S. District
Court for the Northern District of Ohio against Arthur Andersen & Co. LLP
seeking in excess of $16,000,000 in damages. The complaint is a result of
the final outcome of the IRS assessment and representations made by Arthur
Andersen & Co. during Pages, Inc.'s purchase of School Book Fairs, Inc. at
May 19, 1992.
Other
Additionally, the Company is the subject of a state sales tax audit
for one of its subsidiaries. Management believes the outcome of this audit
will not result in any significant adjustments that would be material to
the Company's consolidated financial statements. Additionally, the Company
is subject to litigation which is incidental to its business and is not
considered material individually or in the aggregate to the Company's
consolidated financial statements.
<PAGE>
12. RETIREMENT PLAN
-------------------
In 1991, the Company established a defined contribution plan pursuant
to Section 401(k) of the Internal Revenue Code, covering all eligible
employees. Employees become eligible upon reaching age 21 and completing a
year of service. The Company's contributions into the Plan are
discretionary. There were no Company contributions in years 1997, 1996 or
1995.
<PAGE>
13. BUSINESS CONTINUATION
----------------------
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern.
As shown in the consolidated financial statements, the Company
incurred a loss of $5,381,302 in 1997. In addition, accounts payable
increased to $6,173,483 in 1997 compared to $3,388,341 in 1996, and working
capital decreased by $3.8 million in 1997.
As a result of the Company's financial difficulties, management has
taken the following actions. On January 21, 1998, the Company agreed to an
early repayment of the $5.0 million note receivable from CASCO, at a
discounted amount. The $3.5 million in proceeds were used to pay down the
Company's existing line of credit and payoff the $1.0 million time note. A
$1.5 million negative valuation adjustment was recorded in the 1997
consolidated financial statements. In addition, as stated in Note 4, the
Company acquired $3.0 million in subordinated debt financing and an $8.0
million line of credit was obtained. In February 1998, the Company
terminated approximately fifty employees as a part of an effort to reduce
selling, general and administrative expenses by approximately $3.0 million
in 1998.
In addition, the Company is exploring the sale of an operating
division. A sale would provide cash proceeds to bring accounts payable
closer to their normal terms. Furthermore, the Company is actively
pursuing private placements and strategic alliances with several companies
in which the Company will receive inventory in exchange for common stock.
As of the date of the audit report, no operating divisions had been sold
and no private placements or strategic alliances were in place.
Management believes the implementation of these actions will enable
the Company to continue its business, survive and operate in the near term.
<PAGE>
14. EARNINGS PER SHARE
-------------------
The following table represents the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<C> <S> <S> <S>
Basic Earnings Per Share:
Weighted average number of common shares outstanding 6,306,000 5,551,000 4,930,000
---------- ---------- ----------
Income/(loss) from continuing operations $(5,381,302) $ 617,215 $(6,217,357)
Discontinued operations before cumulative effect of
accounting change - (83,181) (3,002,362)
Cumulative effect of accounting change - 994,664 --
---------- ---------- ----------
Net income/(loss) available to common stockholders $(5,381,302) $ 1,528,698 $(9,219,719)
========== ========== ==========
Income/(loss) per common share:
Income/(loss) from continuing operations $ (.85) $ 0.11 $ (1.26)
Discontinued operations before cumulative effect of
change in accounting principle - (0.01) (0.61)
Cumulative effect of accounting change - 0.18 -
---------- ---------- ----------
Basic earnings/(loss) per share $ (.85) $ 0.28 $ (1.87)
========== ========== ==========
Diluted Earnings Per Share:
Weighted average number of common shares outstanding -
basic 6,306,000 5,551,000 4,930,000
Effect of Dilutive Securities:
Add dilutive stock options - 771,000 -
Deduct shares that could be repurchased from the
proceeds of the dilutive options - (465,000) -
---------- ---------- ----------
Diluted potential common shares 6,306,000 5,857,000 4,930,000
========== ========== ==========
Income/(loss) per common share:
Income/(loss) from continuing operations $(5,381,302) $ 617,215 $(6,217,357)
Effect of dilutive securities - - -
---------- ---------- ----------
Income/(loss) from operations available to stockholders (5,381,302) 617,215 (6,217,357)
Discontinued operations before cumulative effect of
accounting change - (83,181) (3,002,362)
Cumulative effect of accounting change - 994,664 -
---------- ---------- ----------
Net income/(loss) available to common stockholders
and assumed conversions $(5,381,302) $ 1,528,698 $(9,219,719)
========== ========== ==========
Diluted earnings/(loss) per common share:
Income/(loss) from continuing operations $ (0.85) $ 0.10 $ (1.26)
Discontinued operations before cumulative effect of
change in accounting principle - (0.01) (0.61)
Cumulative effect of change in accounting principle - 0.17 -
---------- ---------- ----------
Diluted earnings/(loss) per share $ (0.85) $ 0 .26 $ (1.87)
========== ========== ==========
</TABLE>
At December 31, 1997 and 1995, options and warrants were outstanding during
the years but were not included in the computation of dilutive EPS because the
potential common stock would be antidilutive. See Note 2 for a summary of
options and warrants issued and the exercise prices.
At December 31, 1996, additional options and warrants were outstanding
during the year but were not included in the computation of dilutive EPS because
the options' and warrants' exercise price was greater that the average market
price of the common stock.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance Charged Charged Balance
at Beginning to Costs to Other at End
Description of Period and Expenses Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
1997:
Allowance for doubtful accounts $ 316,000 $ 51,000 $ 11,000(a) $ 356,000
=========== ============ ========== ========== ===========
Allowance for valuation on
deferred tax assets $5,170,000 $1,964,300(b) $ (254,100)(d) $6,880,200
=========== ============ ========== ========== ===========
1996:
Allowance for doubtful accounts $ 457,000 $ 141,000(a) $ 316,000
=========== ============ ========== ========== ===========
Allowance for valuation on
deferred tax assets $4,802,300 $ 367,700(b) $ 5,170,000
=========== ============ ========== ========== ===========
1995:
Allowance for doubtful accounts $ 168,000 $ 146,000 $ 885,000(c) $ 742,000(a) $ 457,000
=========== ============ ========== ========== ===========
Allowance for valuation on
deferred tax assets $ 416,650 $4,385,650(b) $ 4,802,300
=========== ============ ========== ========== ===========
</TABLE>
(a) Doubtful accounts written off against reserve.
(b) Change in valuation allowance relating to change in assessment as to future
realizability of deferred tax asset.
(c) Amounts charged through discontinued operations.
(d) Amounts related to discontinued operations.
<PAGE>
EXHIBIT INDEX
PAGES, INC. FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
(a) 1.Financial Statements. See Index to Consolidated Financial
Statements and Financial Schedule on page 23.
2.Financial Statement Schedule. See Index to Consolidated Financial
Statements and Financial Statement Schedule on page 23.
3. Exhibits. The following exhibits are required to be filed as
part of this report:
Exhibit No. Description
3(a)1 Certificate of Incorporation dated October 5, 1994.
3(b)1 Bylaws of the Company.
3(c)2 Agreement of merger.
4(a) Warrant dated August 29, 1997, between the Company and The
Huntington National Bank.
4(b) Warrant dated September 2, 1997, between the Company and S. Robert
Davis.
4(c) Warrant dated December 24, 1997, between the Company and John W.
McKitrick.
10(a)3 Lease dated January 1, 1993, for St. Petersburg, Florida, Office
and Warehouse.
10(b) Lease Amendment dated December 10, 1997, for St. Petersburg,
Florida, office and warehouse.
10(c)4 Unconditional Guaranty of Lease Effective January 1, 1993, for
Lease of St. Petersburg, Florida, Office and Warehouse.
10(d)3 Non-Statutory Stock Option Agreement dated May 19, 1992, between
the Company and Randall J. Asmo.
10(e)3 Non-Statutory Stock Option Agreement dated June 3, 1992, between
the Company and S. Robert Davis.
10(f)6 Non-Statutory Stock Option Agreement dated November 1, 1996,
between the Company and Dr. Juan F. Sotos.
10(g)6 Non-Statutory Stock Option Agreement dated November 1, 1996,
between the Company and Robert J. Tierney.
10(h)3 Pages, Inc. 1993 Incentive Stock Option Plan.
10(i)5 Non-Competition Agreement dated as of March 6, 1996.
10(j)7 Second Amended and Restated Loan Agreement dated December 31,
1996, between the Company and the Huntington National Bank.
10(k)7 First Amendment to Second Amended and Restated Loan Agreement dated
June 30, 1997, between the Company and The Huntington National Bank.
10(l)7 Time Note dated August 29, 1997, between the Company and The
Huntington National Bank.
10(m) Second Amendment to Second Amended and Restated Revolving Note Dated
January 21, 1998, between the Company and The Huntington National Bank.
10(n) Credit Agreement by and between Pages, Inc. and the Provident Bank
dated January 21, 1998.
10(o)6 Promissory Note from S. Robert Davis for exercise of stock options
dated September 26, 1996.
10(p)6 Promissory Note from Charles R. Davis for exercise of stock
options dated September 26, 1996.
10(q)6 Promissory Note from employees for exercise of stock options dated
December, 1996.
10(r)7 13 1/2% Subordinated Note Due February 22, 1998, Dated August 21,
1997, between the Company and Charles R. Davis.
10(s)7 Note Purchase Agreement and 12% Convertible Subordinated Note Due
2000, No. 4 between the Company and S. Robert Davis.
21 Subsidiaries of Pages, Inc.
27 Financial Data Schedule (filed only electronically).
___________________
1 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, File Number 0-10475, filed in
Washington, D.C.
2 Incorporated by reference to the Company's Proxy Statement dated August
4, 1994, File Number 0-10475, Filed in Washington, D.C.
3 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, File Number 0-10475, filed in
Washington, D.C.
4 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File Number 0-10475, filed in
Washington, D.C.
5 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, File Number 0-10475, filed in
Washington, D.C.
6 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, File Number 0-10475, filed in
Washington, D.C.
7 Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, File Number 0-10475, filed in
Washington, D.C.
<PAGE>
<PAGE>
EXHIBIT 4(a)
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
APOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, UNLESS EITHER THE SECURITIES HAVE BEEN REGISTERED UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE. IF
THE SECURITIES ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENT, THE COMPANY MAY REQUIRE A WRITTEN OPINION OF
COUNSEL, IN FORM AND CONTENT SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER WILL NOT VIOLATE
SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
PAGES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
Void After 5:00 P.M. Eastern Standard Time on August 29, 2000
_________________________
THIS WARRANT TO PURCHASE SHARES OF COMMON STOCK CERTIFIES THAT, for
value received, THE HUNTINGTON NATIONAL BANK, (referred to herein, together
with any subsequent holder of the Warrant, the "Warrant Holder" or "Holder
of the Warrant"), is entitled to subscribe to and purchase from PAGES,
INC., a Delaware corporation (hereinafter called the "Company"), an
aggregate of one hundred thousand (100,000) shares (subject to adjustment
as specified in Section 4 hereof) of the fully paid and nonassessable
Common Stock of the Company (the "Warrant Stock"), at the price of $2.00
per share (such price, and such other price as shall result, from time to
time, from the adjustments specified in Section 4 hereof, is referred to
herein as the "Exercise Price"), subject to the provisions and upon the
terms and conditions set forth herein.
1. Conditions to Exercise.
The purchase rights represented by this Warrant are exercisable
commencing on the date hereof and expiring at 5:00 p.m. Eastern Time on the
date three years after the date hereof, whereupon this Warrant shall expire
and may thereafter no longer be exercised.
2. Method of Exercise, Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised at any time, and from time to time, by the
surrender of this Warrant (with the Notice of Exercise form attached hereto
as Exhibit "A" duly executed) at the principal office of the Company and by
the payment to the Company, by check in an amount equal to the then
applicable Exercise Price per share multiplied by the number of shares of
the Warrant Stock then being purchased. In the event of any exercise of
the rights represented by this Warrant, certificate(s) for the shares of
the Warrant Stock so purchased shall be delivered to the Warrant Holder
within a reasonable time, but not later than twenty (20) business days
after exercise. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares
of the Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business
on such date. Unless this Warrant has been fully exercised or has expired,
a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised shall also be issued to the
Warrant Holder within such reasonable time, but not later than ten (10)
business days after exercise.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all liens, and charges with respect to the
issue thereof. During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of
its fully paid and nonassessable Common Stock to provide for the exercise
of the rights represented by this Warrant.
4. Adjustment of Purchase Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment, from
time to time, upon the happening of the following events:
4.1 Reclassification, Consolidation, or Merger. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall
be effected, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing
such assets shall, unless it has assumed the obligations of the Company
generally as a matter of law, assume by written instrument executed and
mailed or delivered to the registered holder thereof at the last address of
such holder appearing on the books of the Company, this Warrant, and lawful
and adequate provision shall be made whereby the holder hereof shall
thereafter have the right to purchase and receive in lieu of the shares of
the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to
the number of shares of such Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reorganization, reclassification, consolidation, merger, or
sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder of this Warrant
to the end that the provision hereof (including without limitation
provisions for adjustment of the warrant purchase price and of the number
of shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities, or assets thereafter deliverable upon the
exercise hereof.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Exercise Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
4.3 Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend, or make any other
distribution to its stockholders (except any distribution specifically
provided for in the foregoing Section 4.1 or 4.2) payable in Common Stock,
then the Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price as a result of the events set forth in Section 4.2 or 4.3
above, the number of shares of Warrant Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by
multiplying such number of shares purchasable immediately prior to such
adjustment in the Exercise Price by a fraction, the numerator of which
shall be the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the Exercise Price immediately thereafter.
4.5 Covenant Not to Avoid Terms of the Warrant. The Company
covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in carrying out all those terms and in taking all action
necessary or appropriate to protect the rights of the Warrant Holder
against dilution or other impairment.
5. Notice of Adjustments.
Whenever any Exercise Price shall be adjusted pursuant to Section 4
hereof, the Company shall promptly as practicable prepare a certificate
signed by its Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, the Exercise Price(s) after
giving effect to such adjustment, and the number of shares which may be
purchased upon exercise of a Warrant which immediately prior thereto could
be exercised to purchase one share, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the
Holder of the Warrant.
6. Fractional Shares.
No fractional shares of the Warrant Stock will be issued in connection
with any subscription hereunder. In the event an adjustment in the number
of shares issuable upon exercise of this Warrant made pursuant to Section 4
hereof results in a number of shares issuable upon exercise which includes
a fraction, this Warrant may be exercised for the next larger whole number
of shares.
7. Compliance with Securities Act; Transfer of Warrant and Warrant Stock.
7.1 Compliance with Securities Laws. The Warrant Holder, by
acceptance of this Warrant, agrees that this Warrant and the shares of the
Warrant Stock to be issued upon exercise hereof are being acquired in a non-
public offering and that it will not offer, sell, or otherwise dispose of
this Warrant and any shares of the Warrant Stock to be issued upon exercise
hereof except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended (the "'33 Act"), or applicable state
securities laws. Upon exercise of this Warrant, the holder hereof shall,
if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that the shares of the Warrant Stock so purchased are not
being acquired for distribution except in compliance with all applicable
securities laws.
7.2 Transferability and Ownership of This Warrant. All the covenants
and provisions of this Warrant by or for the benefit of the Company or the
Warrant Holder shall bind and inure to the benefit of their respective
successors and assigns hereunder. This Warrant may be assigned only in
accordance with applicable securities laws and only if, in the opinion of
counsel for the Company or, if required by the Company in its discretion,
the opinion of counsel to the Warrant Holder (the identity of which counsel
shall be reasonably acceptable to the Company), such transfer will not be
in violation of the registration provisions of the '33 Act and any
applicable state securities laws. This Warrant, if properly assigned, may
be exercised by a new holder without first having a new Warrant issued.
Any such assignment shall be on the form of assignment attached hereto as
Exhibit "B."
7.3 Restrictions on Transfer or Disposition of Warrant Stock. No
transfer of the Warrant Stock will be valid or recognized by the Company
unless in the opinion of counsel for the Company or, if required by the
Company in its discretion, the opinion of counsel to the Warrant Holder
(the identity of which counsel shall be reasonably acceptable to the
Company), such transfer will not be in violation of the registration
provisions of the '33 Act or any applicable state securities laws.
7.4 Legend on Warrant Stock Certificates. Unless registered pursuant
to the provision of Section 8 hereof, certificates representing shares of
Warrant Stock will bear a legend restricting transfer as provided herein,
and appropriate stop-transfer instructions will be given to the Company's
transfer agent.
8. No Rights as Stockholder.
The Warrant Holder shall not be entitled by virtue of the terms hereof
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Warrant Holder, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of
directors upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have
been exercised and the Warrant Stock shall have become deliverable as
provided herein.
9. Replacement of This Warrant.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of indemnity reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company,
at Warrant Holder's expense, will execute and deliver, in lieu hereof, a
new Warrant of like tenor.
10. Governing Law.
This Warrant shall be construed and interpreted in accordance with and
governed in all respects by the laws of the State of Delaware.
11. Notice.
All notices, demands, requests, and other communications which any
party hereto desires or is required to deliver or otherwise give to any
other party hereunder shall be in writing and shall be deemed to have been
delivered, given, and received when personally given or on the third day
after it is mailed by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
Notices to the Company: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Notices to the Warrant Holder:The Huntington National Bank
41 South High Street
Columbus, Ohio 43215
Attention: Thomas Myers, Vice President
Notices to the Warrant Holder shall be to the address set forth above.
Notice of a change in the Warrant Holder's address shall be given to the
Company in accordance with this Section 12.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers duly authorized as of the date set forth below.
PAGES, INC.
Dated: August 29, 1997 By:
S. Robert Davis, President
EXHIBIT "A" TO WARRANT
NOTICE OF EXERCISE
To: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Please be advised that ________________________ (the "Warrant Holder")
hereby exercises the Warrant to purchase ______________________________
(__________) shares of common stock of Pages, Inc. at a purchase price of
__________ ($_____) per share. Enclosed is a check payable to "Pages,
Inc." for __________ as payment for the aforementioned common stock. Also
enclosed herewith is my original Warrant to purchase such common stock.
Please mail the stock certificate for my common stock to my attention
at the following address:
_________________________
_________________________
_________________________
Sincerely,
___________________________________
(Name of the Warrant Holder)
By: _____________________________
Its: _____________________________
EXHIBIT "B" TO WARRANT
FORM OF ASSIGNMENT
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the rights represented by the
within Warrant to purchase ____________________ (__________) shares of
Common Stock of PAGES, INC. to which the within Warrant relates, and
appoints ____________________________ attorney to transfer such Warrant on
the books of PAGES, INC., with full power of substitution in the premises.
Dated: _______________
EXHIBIT ONLY - DO NOT SIGN
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
EXHIBIT 4(b)
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
APOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, UNLESS EITHER THE SECURITIES HAVE BEEN REGISTERED UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE. IF
THE SECURITIES ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENT, THE COMPANY MAY REQUIRE A WRITTEN OPINION OF
COUNSEL, IN FORM AND CONTENT SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER WILL NOT VIOLATE
SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
PAGES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
Void After 5:00 P.M. Eastern Standard Time on August 28, 2000
_________________________
THIS WARRANT TO PURCHASE SHARES OF COMMON STOCK CERTIFIES THAT, for
value received, S. ROBERT DAVIS, (referred to herein, together with any
subsequent holder of the Warrant, the "Warrant Holder" or "Holder of the
Warrant"), is entitled to subscribe to and purchase from PAGES, INC., a
Delaware corporation (hereinafter called the "Company"), an aggregate of
fifty thousand (50,000) shares (subject to adjustment as specified in
Section 4 hereof) of the fully paid and nonassessable Common Stock of the
Company (the "Warrant Stock"), at the price of $____ per share (such price,
and such other price as shall result, from time to time, from the
adjustments specified in Section 4 hereof, is referred to herein as the
"Exercise Price"), subject to the provisions and upon the terms and
conditions set forth herein.
1. Conditions to Exercise.
The purchase rights represented by this Warrant are exercisable
commencing on the date hereof and expiring at 5:00 p.m. Eastern Time on the
date three years after the date hereof, whereupon this Warrant shall expire
and may thereafter no longer be exercised.
2. Method of Exercise, Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised at any time, and from time to time, by the
surrender of this Warrant (with the Notice of Exercise form attached hereto
as Exhibit "A" duly executed) at the principal office of the Company and by
the payment to the Company, by check in an amount equal to the then
applicable Exercise Price per share multiplied by the number of shares of
the Warrant Stock then being purchased. In the event of any exercise of
the rights represented by this Warrant, certificate(s) for the shares of
the Warrant Stock so purchased shall be delivered to the Warrant Holder
within a reasonable time, but not later than twenty (20) business days
after exercise. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares
of the Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business
on such date. Unless this Warrant has been fully exercised or has expired,
a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised shall also be issued to the
Warrant Holder within such reasonable time, but not later than ten (10)
business days after exercise.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all liens, and charges with respect to the
issue thereof. During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of
its fully paid and nonassessable Common Stock to provide for the exercise
of the rights represented by this Warrant.
4. Adjustment of Purchase Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment, from
time to time, upon the happening of the following events:
4.1 Reclassification, Consolidation, or Merger. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall
be effected, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing
such assets shall, unless it has assumed the obligations of the Company
generally as a matter of law, assume by written instrument executed and
mailed or delivered to the registered holder thereof at the last address of
such holder appearing on the books of the Company, this Warrant, and lawful
and adequate provision shall be made whereby the holder hereof shall
thereafter have the right to purchase and receive in lieu of the shares of
the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to
the number of shares of such Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reorganization, reclassification, consolidation, merger, or
sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder of this Warrant
to the end that the provision hereof (including without limitation
provisions for adjustment of the warrant purchase price and of the number
of shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities, or assets thereafter deliverable upon the
exercise hereof.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Exercise Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
4.3 Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend, or make any other
distribution to its stockholders (except any distribution specifically
provided for in the foregoing Section 4.1 or 4.2) payable in Common Stock,
then the Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price as a result of the events set forth in Section 4.2 or 4.3
above, the number of shares of Warrant Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by
multiplying such number of shares purchasable immediately prior to such
adjustment in the Exercise Price by a fraction, the numerator of which
shall be the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the Exercise Price immediately thereafter.
4.5 Covenant Not to Avoid Terms of the Warrant. The Company
covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in carrying out all those terms and in taking all action
necessary or appropriate to protect the rights of the Warrant Holder
against dilution or other impairment.
5. Notice of Adjustments.
Whenever any Exercise Price shall be adjusted pursuant to Section 4
hereof, the Company shall promptly as practicable prepare a certificate
signed by its Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, the Exercise Price(s) after
giving effect to such adjustment, and the number of shares which may be
purchased upon exercise of a Warrant which immediately prior thereto could
be exercised to purchase one share, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the
Holder of the Warrant.
6. Fractional Shares.
No fractional shares of the Warrant Stock will be issued in connection
with any subscription hereunder. In the event an adjustment in the number
of shares issuable upon exercise of this Warrant made pursuant to Section 4
hereof results in a number of shares issuable upon exercise which includes
a fraction, this Warrant may be exercised for the next larger whole number
of shares.
7. Compliance with Securities Act; Transfer of Warrant and Warrant Stock.
7.1 Compliance with Securities Laws. The Warrant Holder, by
acceptance of this Warrant, agrees that this Warrant and the shares of the
Warrant Stock to be issued upon exercise hereof are being acquired in a non-
public offering and that it will not offer, sell, or otherwise dispose of
this Warrant and any shares of the Warrant Stock to be issued upon exercise
hereof except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended (the "'33 Act"), or applicable state
securities laws. Upon exercise of this Warrant, the holder hereof shall,
if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that the shares of the Warrant Stock so purchased are not
being acquired for distribution except in compliance with all applicable
securities laws.
7.2 Transferability and Ownership of This Warrant. All the covenants
and provisions of this Warrant by or for the benefit of the Company or the
Warrant Holder shall bind and inure to the benefit of their respective
successors and assigns hereunder. This Warrant may be assigned only in
accordance with applicable securities laws and only if, in the opinion of
counsel for the Company or, if required by the Company in its discretion,
the opinion of counsel to the Warrant Holder (the identity of which counsel
shall be reasonably acceptable to the Company), such transfer will not be
in violation of the registration provisions of the '33 Act and any
applicable state securities laws. This Warrant, if properly assigned, may
be exercised by a new holder without first having a new Warrant issued.
Any such assignment shall be on the form of assignment attached hereto as
Exhibit "B."
7.3 Restrictions on Transfer or Disposition of Warrant Stock. No
transfer of the Warrant Stock will be valid or recognized by the Company
unless in the opinion of counsel for the Company or, if required by the
Company in its discretion, the opinion of counsel to the Warrant Holder
(the identity of which counsel shall be reasonably acceptable to the
Company), such transfer will not be in violation of the registration
provisions of the '33 Act or any applicable state securities laws.
7.4 Legend on Warrant Stock Certificates. Unless registered pursuant
to the provision of Section 8 hereof, certificates representing shares of
Warrant Stock will bear a legend restricting transfer as provided herein,
and appropriate stop-transfer instructions will be given to the Company's
transfer agent.
8. No Rights as Stockholder.
The Warrant Holder shall not be entitled by virtue of the terms hereof
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Warrant Holder, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of
directors upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have
been exercised and the Warrant Stock shall have become deliverable as
provided herein.
9. Replacement of This Warrant.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of indemnity reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company,
at Warrant Holder's expense, will execute and deliver, in lieu hereof, a
new Warrant of like tenor.
10. Governing Law.
This Warrant shall be construed and interpreted in accordance with and
governed in all respects by the laws of the State of Delaware.
11. Notice.
All notices, demands, requests, and other communications which any
party hereto desires or is required to deliver or otherwise give to any
other party hereunder shall be in writing and shall be deemed to have been
delivered, given, and received when personally given or on the third day
after it is mailed by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
Notices to the Company: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Notices to the Warrant Holder:S. Robert Davis
_____________________________
_____________________________
Notices to the Warrant Holder shall be to the address set forth above.
Notice of a change in the Warrant Holder's address shall be given to the
Company in accordance with this Section 12.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers duly authorized as of the date set forth below.
PAGES, INC.
Dated: August 28, 1997 By:
As:
EXHIBIT "A" TO WARRANT
NOTICE OF EXERCISE
To: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Please be advised that ________________________ (the "Warrant Holder")
hereby exercises the Warrant to purchase ______________________________
(__________) shares of common stock of Pages, Inc. at a purchase price of
__________ ($_____) per share. Enclosed is a check payable to "Pages,
Inc." for __________ as payment for the aforementioned common stock. Also
enclosed herewith is my original Warrant to purchase such common stock.
Please mail the stock certificate for my common stock to my attention
at the following address:
_________________________
_________________________
_________________________
Sincerely,
___________________________________
(Name of the Warrant Holder)
By: _____________________________
Its: _____________________________
EXHIBIT "B" TO WARRANT
FORM OF ASSIGNMENT
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the rights represented by the
within Warrant to purchase ____________________ (__________) shares of
Common Stock of PAGES, INC. to which the within Warrant relates, and
appoints ____________________________ attorney to transfer such Warrant on
the books of PAGES, INC., with full power of substitution in the premises.
Dated: _______________
EXHIBIT ONLY - DO NOT SIGN
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
EXHIBIT 4(c)
EXHIBIT "E"
66666
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
APOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, UNLESS EITHER THE SECURITIES HAVE BEEN REGISTERED UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE. IF
THE SECURITIES ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENT, THE COMPANY MAY REQUIRE A WRITTEN OPINION OF
COUNSEL, IN FORM AND CONTENT SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER WILL NOT VIOLATE
SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
PAGES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
Void After 5:00 P.M. Eastern Standard Time on December 24,___________,
20020
_________________________
THIS WARRANT TO PURCHASE SHARES OF COMMON STOCK CERTIFIES THAT, for
value received, _________________________________, (referred to herein,
together with any subsequent holder of the Warrant, the "Warrant Holder" or
"Holder of the Warrant"), is entitled to subscribe to and purchase from
PAGES, INC., a Delaware corporation (hereinafter called the "Company"), an
aggregate of fifty thousand_________________ (50,000_____) shares (subject
to adjustment as specified in Section 4 hereof) of the fully paid and
nonassessable Common Stock of the Company (the "Warrant Stock"), at the
price of $_____ per share (such price, and such other price as shall
result, from time to time, from the adjustments specified in Section 4
hereof, is referred to herein as the "Exercise Price"), subject to the
provisions and upon the terms and conditions set forth herein.
1. Conditions to Exercise.
The purchase rights represented by this Warrant are exercisable
commencing one year after the date hereof and expiring at 5:00 p.m. Eastern
Time on the date fivethree years after the date hereof, whereupon this
Warrant shall expire and may thereafter no longer be exercised.
2. Method of Exercise, Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised at any time, and from time to time, by the
surrender of this Warrant (with the Notice of Exercise form attached hereto
as Exhibit "A" duly executed) at the principal office of the Company and by
the payment to the Company, by check in an amount equal to the then
applicable Exercise Price per share multiplied by the number of shares of
the Warrant Stock then being purchased. In the event of any exercise of
the rights represented by this Warrant, certificate(s) for the shares of
the Warrant Stock so purchased shall be delivered to the Warrant Holder
within a reasonable time, but not later than twenty (20) business days
after exercise. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares
of the Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business
on such date. Unless this Warrant has been fully exercised or has expired,
a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised shall also be issued to the
Warrant Holder within such reasonable time, but not later than ten (10)
business days after exercise.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all liens, and charges with respect to the
issue thereof. During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of
its fully paid and nonassessable Common Stock to provide for the exercise
of the rights represented by this Warrant.
4. Adjustment of Purchase Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment, from
time to time, upon the happening of the following events:
4.1 Reclassification, Consolidation, or Merger. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall
be effected, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing
such assets shall, unless it has assumed the obligations of the Company
generally as a matter of law, assume by written instrument executed and
mailed or delivered to the registered holder thereof at the last address of
such holder appearing on the books of the Company, this Warrant, and lawful
and adequate provision shall be made whereby the holder hereof shall
thereafter have the right to purchase and receive in lieu of the shares of
the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to
the number of shares of such Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reorganization, reclassification, consolidation, merger, or
sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder of this Warrant
to the end that the provision hereof (including without limitation
provisions for adjustment of the warrant purchase price and of the number
of shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities, or assets thereafter deliverable upon the
exercise hereof.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Exercise Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
4.3 Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend, or make any other
distribution to its stockholders (except any distribution specifically
provided for in the foregoing Section 4.1 or 4.2) payable in Common Stock,
then the Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price as a result of the events set forth in Section 4.2 or 4.3
above, the number of shares of Warrant Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by
multiplying such number of shares purchasable immediately prior to such
adjustment in the Exercise Price by a fraction, the numerator of which
shall be the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the Exercise Price immediately thereafter.
4.5 Covenant Not to Avoid Terms of the Warrant. The Company
covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in carrying out all those terms and in taking all action
necessary or appropriate to protect the rights of the Warrant Holder
against dilution or other impairment.
5. Notice of Adjustments.
Whenever any Exercise Price shall be adjusted pursuant to Section 4
hereof, the Company shall promptly as practicable prepare a certificate
signed by its Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, the Exercise Price(s) after
giving effect to such adjustment, and the number of shares which may be
purchased upon exercise of a Warrant which immediately prior thereto could
be exercised to purchase one share, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the
Holder of the Warrant.
6. Fractional Shares.
No fractional shares of the Warrant Stock will be issued in connection
with any subscription hereunder. In the event an adjustment in the number
of shares issuable upon exercise of this Warrant made pursuant to Section 4
hereof results in a number of shares issuable upon exercise which includes
a fraction, this Warrant may be exercised for the next larger whole number
of shares.
7. Compliance with Securities Act; Transfer of Warrant and Warrant Stock.
7.1 Compliance with Securities Laws. The Warrant Holder, by
acceptance of this Warrant, agrees that this Warrant, unless registered
pursuant to the provisions of Section 8 hereof, and the shares of the
Warrant Stock to be issued upon exercise hereof are being acquired in a non-
public offering and that it will not offer, sell, or otherwise dispose of
this Warrant and any shares of the Warrant Stock to be issued upon exercise
hereof except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended (the "'33 Act"), or applicable state
securities laws. Upon exercise of this Warrant, the holder hereof shall,
if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that the shares of the Warrant Stock so purchased are not
being acquired for distribution except in compliance with all applicable
securities laws.
7.2 Transferability and Ownership of This Warrant. All the covenants
and provisions of this Warrant by or for the benefit of the Company or the
Warrant Holder shall bind and inure to the benefit of their respective
successors and assigns hereunder. This Warrant may be assigned only in
accordance with applicable securities laws and, unless registered under the
'33 Act and applicable state securities laws or, in the opinion of counsel
for the Company or, if required by the Company in its discretion, the
opinion of counsel to the Warrant Holder (the identity of which counsel
shall be reasonably acceptable to the Company), such transfer will not be
in violation of the registration provisions of the '33 Act and any
applicable state securities laws. This Warrant, if properly assigned, may
be exercised by a new holder without first having a new Warrant issued.
Any such assignment shall be on the form of assignment attached hereto as
Exhibit "B."
7.3 Restrictions on Transfer or Disposition of Warrant Stock. No
transfer of the Warrant Stock will be valid or recognized by the Company
unless such stock is registered under the '33 Act and applicable state
securities laws or, in the opinion of counsel for the Company or, if
required by the Company in its discretion, the opinion of counsel to the
Warrant Holder (the identity of which counsel shall be reasonably
acceptable to the Company), such transfer will not be in violation of the
registration provisions of the '33 Act or any applicable state securities
laws.
7.4 Legend on Warrant Stock Certificates. Unless registered pursuant
to the provision of Section 8 hereof, Certificates representing shares of
Warrant Stock will bear a legend restricting transfer as provided herein,
and appropriate stop-transfer instructions will be given to the Company's
transfer agent.
8. Registration Under the Securities Act of 1933.
The Subscription and Registration Rights Agreement pursuant to which
the initial Holder purchased this Warrant provides for certain incidental
and demand registration rights, which are incorporated herein by reference.
89. No Rights as Stockholders.
The Warrant Holder shall not be entitled by virtue of the terms hereof
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Warrant Holder, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of
directors upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have
been exercised and the Warrant Stock shall have become deliverable as
provided herein.
910. Replacement of This Warrant.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of indemnity reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company,
at Warrant Holder's expense, will execute and deliver, in lieu hereof, a
new Warrant of like tenor.
101. Governing Law.
This Warrant shall be construed and interpreted in accordance with and
governed in all respects by the laws of the State of Delaware.
112. Notice.
All notices, demands, requests, and other communications which any
party hereto desires or is required to deliver or otherwise give to any
other party hereunder shall be in writing and shall be deemed to have been
delivered, given, and received when personally given or on the third day
after it is mailed by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
Notices to the Company: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Notices to the Warrant Holder: _____________________________
_____________________________
_____________________________
Notices to the Warrant Holder shall be to the address set forth above.
Notice of a change in the Warrant Holder's address shall be given to the
Company in accordance with this Section 112.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers duly authorized as of the date set forth below.
PAGES, INC.
Dated: December 24,____________, 1997 By:
S. Robert Davis, President
EXHIBIT "A" TO WARRANT
NOTICE OF EXERCISE
To: Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: President
Please be advised that ______________________________ (the "Warrant
Holder") hereby exercises the Warrant to purchase
______________________________ (__________) shares of common stock of
Pages, Inc. at a purchase price of __________ ($_____) per share. Enclosed
is a check payable to "Pages, Inc." for __________ as payment for the
aforementioned common stock. Also enclosed herewith is my original Warrant
to purchase such common stock.
Please mail the stock certificate for my common stock to my attention
at the following address:
_________________________
_________________________
_________________________
Sincerely,
___________________________________
(Name of the Warrant Holder)
By: _____________________________
Its: _____________________________
EXHIBIT "B" TO WARRANT
FORM OF ASSIGNMENT
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the rights represented by the
within Warrant to purchase ____________________ (__________) shares of
Common Stock of PAGES, INC. to which the within Warrant relates, and
appoints ____________________________ attorney to transfer such Warrant on
the books of PAGES, INC., with full power of substitution in the premises.
Dated: _______________
EXHIBIT ONLY - DO NOT SIGN
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
EXHIBIT 10(b)
LEASE AMENDMENT
THIS LEASE AMENDMENT, dated December 10, 1997 by and between Koger Equity.,
a Florida Corporation ("Landlord") with its principal office at 3986
Boulevard Center Drive, Jacksonville, Florida, 32207, and SBF Services,
Inc., a Corporation organized and existing under the laws of the State of
Florida, ("Tenant") with its principal office at 801 94th Avenue North, St.
Petersburg, Florida 33702. The Landlord and Tenant executed a Lease
Agreement dated October 7, 1992, and amended N/A for space designated as
Suite 100 (entire building), comprising approximately 48,760 rentable
square feet (as shown on Exhibit "A" attached), located at 801 94th Avenue
North, Suite 100, St. Petersburg, Florida 33702. The parties hereto desire
to alter and modify said Lease Agreement, effective January 1, 1998, as
follows:
1. Lessee exercises its Option to Renew the lease as outlined in
Paragraph 35 of the Lease Agreement. The lease shall renew for a term
of five (5) years commencing January 1, 1998 and expiring December 31,
2002. The new monthly base rent effective January 1, 1997 shall be
$30,475.00 plus sales tax in the current amount of $2,133.25 for a new
monthly total of $32,608.25. Said new base rent shall be escalated
annually as outlined in Paragraph 35 of the Lease Agreement.
Except as specifically amended and modified by this Lease Amendment, all
other terms of the Lease and the Exhibits attached thereto remain in full
force and effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed or caused to
be executed this Amendment on the dates shown below their signatures to be
effective as of the date set forth above.
Tenant: SBF Services, Inc. Landlord: Koger Equity, Inc.
By: /s/ Steven L. Canan By: /s/ J. Velma Keen, II
--------------------------- ----------------------------
Print Name: Steven L. Canan Print Name: J. Velma Keen, II
--------------------------- ----------------------------
Title: Vice President, Secretary Title: Vice President
--------------------------- ----------------------------
Attest: Attest: /s/ Mary Sue Wakeman
--------------------------- -----------------------
Print Name: Print Name: Mary Sue Wakeman
--------------------------- -----------------------
Title: Title:
--------------------------- -----------------------
(Corporate seal) (Corporate seal)
Date: Date: Jan 26, 1998
--------------------------- ----------------------------
Signed and sealed in the presence of: Signed and sealed in the presence of:
(1) /s/ Linda M. Gorbet (1)
--------------------------- -----------------------------
Print Name: Linda M. Gorbet Print Name:
--------------------------- -----------------------------
(2) (2)
--------------------------- -----------------------------
Print Name: Print Name:
--------------------------- ----------------------------------
As to Tenant As to Landlord
--------------------------- ------------------------
<PAGE>
EXHIBIT 10(m)
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") to the Second Amended and
Restated Loan Agreement is entered into as of the ______ day of January,
1998, by and between Pages Book Fairs, Inc., and Pages Library Services,
Inc. (collectively the "Borrowers"), Pages, Inc. (the "Guarantor") and The
Huntington National Bank (the "Bank"). The Borrower and the Guarantor
shall be individually referred to as a "Company" and collectively as the
"Companies."
RECITALS:
A. As of December 31, 1996, the Borrowers and the Bank executed a
certain Second Amended and Restated Loan Agreement, which was amended by a
certain First Amendment to Loan and Security Agreement dated as of June 30,
1997 (collectively the "Loan Agreement"), setting forth the terms of a
certain extension of credit to the Borrowers; and
B. As of December 31, 1996, the Borrowers executed and delivered to
the Bank, inter alia, an Amended and Restated Revolving Note in the
original principal sum of Eleven Million Five Hundred Thousand Dollars
($11,500,000.00), which was thereafter replaced by a certain Amended and
Restated Revolving Note dated June 30, 1997, in the original principal sum
of Eleven Million Five Hundred Thousand Dollars ($11,500,000.00)
(hereinafter the "Note"); and
C. In connection with the Loan Agreement and the Note, the Borrowers
executed and delivered to the Bank certain other loan documents, a lockbox
agreements, consents, assignments, security agreements, agreements,
instruments and financing statements in connection with the indebtedness
referred to in the Loan Agreement (all of the foregoing, together with the
Note and the Loan Agreement, are hereinafter collectively referred to as
the "Loan Documents"); and
D. The Borrowers have requested that the Bank amend and modify
certain terms and covenants in the Loan Agreement to permit the Guarantor
to be discharged from the operation of a certain Subordination Agreement
dated as of December 31, 1996, and to accept payment of certain
subordinated indebtedness held by Guarantor, subject to terms and
conditions satisfactory to the Bank, including without limitation a
permanent reduction to the Note, to permit the issuance of certain
subordinated indebtedness up to the principal sum of $3,000,000.00 to
secure the same with a junior lien position on each of the Companies'
personal property, and to adjust the financial covenants due to the
Borrowers' noncompliance therewith, and the Bank is willing to do so upon
the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties hereto
for themselves and their successors and assigns do hereby agree, represent
and warrant as follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Loan Agreement.
2. Section 1.2, "The Loan," of the Loan Agreement is hereby amended
to recite in its entirety as follows:
1.2 The Loan. The Bank, subject to the terms and
conditions hereof, will make loans and advances on a
revolving basis to the Borrowers, jointly and
severally, (the "Loan") up to the aggregate principal
sum of $8,000,000.00 (the "Maximum Commitment Amount").
The principal sum of the Loan shall not exceed the
lesser of (a) $8,000,000.00 or (b) the Borrowing Base.
3. Section 1.3, "Lending Formula," of the Loan Agreement is hereby
amended to recite in its entirety as follows:
1.3 Lending Formula. "Borrowing Base" shall mean the
sum of (a) Eligible Inventory, multiplied by the
applicable Inventory Advance Rate, up to the Maximum
Inventory Advance, plus (b) 75% of Eligible Accounts.
"Inventory Advance Rate" shall mean up to 50% in each
calendar month other than a Seasonal Month, and up to
30% in a Seasonal Month. "Maximum Inventory Advance"
shall mean up to $6,500,000.00 for each month in the
calendar year other than a Seasonal Month and
$4,750,000.00 in a Seasonal Month. "Seasonal Months"
and a "Seasonal Month" shall mean the period beginning
September 1 and continuing through and including
December 31 of each calendar year.
4. Section 2.3, "Eligible Notes Receivable," of the Loan Agreement
is hereby deleted in its entirety.
5. Section 3.4, "Fees," of the Loan Agreement is hereby amended to
recite in its entirety as follows:
3.4 Fees. The Borrowers jointly and severally agree
to pay a fee in respect of the Loan equal to one-half
of one percent per annum (1/2%) of the difference, if
any, between the Maximum Commitment Amount and the
average daily principal balance of the Loan during any
full or partial calendar quarter the Loan is in effect,
payable quarterly in arrears, beginning on the first
day of April, 1997, and continuing on the first day of
each July, October, January and April thereafter during
the period the Loan is in effect. In addition, the
Borrowers agree to pay to the Bank an arrangement fee
of $5,000.00 on or before the date of this Agreement.
6. Section 7.4, "Negative Pledge, of the Loan Agreement is hereby
amended to recite in its entirety as follows:
7.4 Negative Pledge. Such Company will not cause or
permit or agree or consent to cause or permit in the
future (upon the happening of a contingency or
otherwise), any of its real or personal property,
whether now owned or hereafter acquired, to become
subject to a lien or encumbrance, except: (i) liens in
connection with deposits required by workers'
compensation, unemployment insurance, social security
and other like laws; (ii) taxes, assessments,
reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions,
leases and other similar title exceptions or
encumbrances affecting real property, provided they do
not in the aggregate materially detract from the value
of said property or materially interfere with its use
in the ordinary conduct of business; (iii) inchoate
liens arising under ERISA to secure the contingent
liability of such Company; (iv) liens as set forth in
Exhibit B attached to this Agreement, and (v) security
interest and liens in favor of the holder of the
Subordinated Debt on all personal property of each of
the Borrowers. In addition, such Company has not
agreed and will not agree (upon the happening of a
contingency or otherwise) to enter into an agreement or
grant a "negative pledge" or other covenant similar to
this Section 7.4 in favor of any other lender, creditor
or third party other than the holder of the
Subordinated Debt.
7. Section 7.5, "Other Borrowings and Contingent Liabilities," of
the Loan Agreement is hereby amended to recite in its entirety as follows:
7.5 Other Borrowings and Contingent Liabilities.
Except for the Loan, indebtedness of the Parent or of
the Companies subordinated to the satisfaction of the
Bank from The Provident Bank not to exceed the original
principal sum of $3,000,000.00 and any substitution,
renewal or extension thereof (the "Subordinated Debt"),
, and for the indebtedness or contingent obligations
set forth on Exhibit G to the Agreement including,
without limitation, indemnifications contained in a
Distribution Agreement dated December 31, 1996, between
the Parent and CA Short Company and Exhibit GG to the
Second Amendment to Second Amended and Restated Loan
Agreement dated as of January ___, 1998, such Company
will not, (a) create or incur any extensions of credit
or indebtedness, including without limitation any
indebtedness for borrowed money or advances or through
the execution of capitalized lease agreements or (b)
guarantee, indorse or otherwise become surety for or
upon the obligations of others, except by indorsement
of negotiable instruments for deposit or collection in
the ordinary course of business.
8. Section 7.12, "Consolidated Tangible Net Worth," of the Loan
Agreement is hereby amended to recite in its entirety as follows:
7.12 Tangible Capital Base. The Parent, on a combined
and consolidated basis, shall achieve a Tangible
Capital Base of not less than the amounts specified
below as of the dates also specified below:
As of June 30, 1997 - not less than $4,000,000.00;
As of September 30, 1997 - not less than $2,300,000.00;
As of December 31, 1997 - not less than
$3,000,000.00;
As of March 31, 1998 - not less than $4,250,000.00;
As of June 30, 1998 - not less than $5,150,000.00;
As of September 30, 1998 - not less than $3,100,000.00;
As of December 31, 1998 - not less than $6,250,000.00;
As of March 31, 1999 - not less than $5,250,000.00;
As of June 30, 1999 - not less than $5,150,000.00;
As of September 30, 1999 - not less than $3,150,000.00; and
As of December 31, 1999 - not less than $6,600,000.00.
In addition to the foregoing requirements, the Parent,
on a combined and consolidated basis, shall maintain at
all times for the following periods, a Tangible Capital
Base of not less than the following amounts:
At all times during the fiscal year beginning January
1, 1998 - not less than $3,100,000.00;
At all times during the fiscal year beginning January
1, 1999, and continuing at all times thereafter - not
less than $3,150,000.00.
"Tangible Capital Base" shall mean the sum of the
Companies' Consolidated Tangible Net Worth, plus the
principal amount of any subordinated indebtedness,
subordinated to the satisfaction of the Bank.
"Consolidated Tangible Net Worth" shall mean the
Companies' consolidated equity, minus (i) the excess of
cost over the value of net assets of purchased
businesses, rights, and other similar intangibles, (ii)
organizational expenses, (iii) intangible assets, (iv)
goodwill, (v) deferred charges or deferred financing
costs, (vi) loans or advances to shareholders,
officers, or directors or affiliates and/or accounts or
notes receivable from affiliates, shareholders,
officers, or directors; (vii) leasehold improvements,
(viii) non-compete agreements, and (ix) any asset not
directly related to the operation of the Parent or the
Borrowers.
9. Section 7.14, "Loans and Advances," of the Loan Agreement is
hereby amended to recite in its entirety as follows:
7.14 Loans and Advances. Except for (a) draws to
distributors of one or more of the Borrowers which in
the aggregate do not exceed the sum of $300,000.00 of
advances outstanding at any one time, (b) existing
unsecured loans to officers not to exceed the aggregate
principal sum of $325,000.00, (c) existing secured
loans to employees or former employees of one of the
Companies not to exceed the principal sum of
$581,000.00 in the aggregate outstanding at any one
time, and (d) intercompany advances between entities
comprising the Companies, the Companies in the
aggregate will not make any loans or advances to any
person, corporation or entity if such loans or advances
will exceed an aggregate total outstanding at any one
time of $20,000.00.
10. Section 7.19, "Minimum Pretax Operating Profit or Maximum Pretax
Operating Loss," of the Loan Agreement is hereby amended to recite in its
entirety as follows:
7.19 Minimum Pretax Operating Profit or Maximum Pretax
Operating Loss. Beginning with the fiscal quarter
ending December 31, 1996, and continuing as of the end
of each fiscal quarter thereafter, the Parent, on a
consolidated and combined basis, shall, as the case may
be, either (a) achieve an Accumulated Operating Profit
during any fiscal year on a year-to-date basis of not
less than the amount set forth below, or (b) not incur
an Accumulated Operating Loss during any fiscal year on
a year-to-date basis in excess of the amounts set forth
below:
As of June 30, 1997, Accumulated Operating Loss not to
exceed $1,100,000.00;
As of September 30, 1997, Accumulated Operating Loss
not to exceed $2,900,000.00;
As of December 31, 1997, Accumulated Operating Loss not
to exceed $4,000,000.00;
As of March 31, 1998, Accumulated Operating Loss not to
exceed $1,000,000.00;
As of June 30, 1998, Accumulated Operating Loss not to
exceed $1,100,000.00;
As of September 30, 1998, Accumulated Operating Loss
not to exceed $3,100,000.00;
As of December 31, 1998, Accumulated Operating Profit
of not less than $350,000.00;
As of March 31, 1999, Accumulated Operating Loss not to
exceed $1,000,000.00;
As of June 30, 1999, Accumulated Operating Loss not to
exceed $1,100,000.00;
As of September 30, 1999, Accumulated Operating Loss
not to exceed $3,100,000.00; and
As of December 31, 1999, Accumulated Operating Profit
of not less than $350,000.00.
Accumulated Operating Loss and Accumulated Operating
Profit shall be determined on a fiscal year-to-date
basis, beginning on the first day of each fiscal year
and shall be calculated through the date of
determination. "Accumulated Operating Loss" shall
mean, with respect to the period of determination, the
following calculation, provided that such calculation
results in a number less than zero: (a) the sum of the
Parent's consolidated net income (or loss) after taxes
as determined in accordance with GAAP, plus, the sum of
all extraordinary losses (and any unusual losses
arising outside the ordinary course of business not
included in extraordinary losses determined in
accordance with GAAP), minus (b) the sum of all
extraordinary gains (and any unusual gains arising
outside the ordinary course of business not included in
extraordinary gains determined in accordance with
GAAP). "Accumulated Operating Profit" shall mean, with
respect to the period of determination, the following
calculation, provided that such calculation results in
a number greater than zero: (a) the sum of the
Parent's consolidated net income (or loss) after taxes
as determined in accordance with GAAP, plus, the sum of
all extraordinary losses (and any unusual losses
arising outside the ordinary course of business not
included in extraordinary losses determined in
accordance with GAAP), minus (b) the sum of all
extraordinary gains (and any unusual gains arising
outside the ordinary course of business not included in
extraordinary gains determined in accordance with
GAAP).
11. A new Section 7.20, entitled "Communication with Accountants,"
shall be added to the Loan Agreement and shall recite in its entirety as
follows:
7.20 Communication with Accountants. Each of the
Companies authorizes Bank to communicate directly with
its certified public accountants (the "Accountants")
and authorize Accountants to disclose to Bank any and
all financial statements and other information of any
kind, including copies of any management letter or the
substance of any oral information or conversation that
such Accountants may have with respect to the business,
financial condition and other affairs of the Companies
or any of them.
12. A new Section 7.21, entitled "No Payment of Junior Debt," shall
be added to the Loan Agreement and shall recite in its entirety as follows:
7.21 No Prepayment of Junior Debt. The Parent shall
not voluntarily prepay, redeem, purchase, or retire the
Subordinated Debt, any future subordinated
indebtedness, or any other long-term indebtedness or
amend, supplement or otherwise modify the terms of the
Subordinated Debt (except amendments, supplements, or
other modifications to such terms that, in the judgment
of the Bank, do not adversely affect the rights and
privileges of the Parent under the Subordinated Debt or
the interest of the Bank under this Agreement, the loan
documents associated therewith, or in the Collateral).
13. Subsection (i) of Section 8, "Financial Information and
Reporting," of the Loan Agreement is hereby amended to recite as follows:
(i) within 30 days prior to the end of each fiscal
year, financial projections with respect to each of the
Companies' projected financial conditions for the
forthcoming three fiscal years, year by year, and for
the forthcoming fiscal year, month by month;
The remainder of Section 8 of the Loan Agreement shall remain as originally
written.
14. The following subsections (l) and (m) are hereby added to Section
9.1, "Events of Default," of the Loan Agreement:
(l) any Change of Control shall occur. ("Change of
Control" means the time at which (i) any Person
(including a Person's Affiliates and associates) or
group (as that term is understood under Section 13(d)
of the Exchange Act and the rules and regulations
thereunder), other than S. Robert Davis (the "Control
Group") or a group controlled by the Control Group, has
become the beneficial owner of a percentage (based on
voting power, in the event different classes of stock
shall have different voting powers) of the voting stock
of the Parent equal to at least fifteen percent (15% );
(ii) there shall be consummated any consolidation or
merger of the Parent pursuant to which
the Parent's common stock (or other capital stock)
would be converted into cash, securities or other
property, other than a merger or consolidation of the
Parent in which the holders of such common stock (or
such other capital stock) immediately prior to the
merger have the same proportionate ownership, directly
or indirectly, of common stock of the surviving
corporation immediately after the merger as they had of
the Parent's common stock immediately prior to such
merger; (iii) all or substantially all of the Parent's
assets shall be sold, leased, conveyed or otherwise
disposed of as an entirely or substantially as an
entirety to any Person (including an Affiliate or
associate of the Parent in one or a series of
transactions; (iv) S. Robert Davis shall cease to
perform his duties as a senior executive officer of the
Parent; and
(m) any breach or an "Event of Default" shall occur
under the terms of the Subordinated Debt.
For purpose of the Section 9.1, "Person" shall mean an
individual, a company, a corporation, an association, a
partnership, a joint venture, an unincorporated trade
or business enterprise, a trust, an estate, or other
legal entity or a government (national, regional or
local), court, arbitrator or any agency,
instrumentality or official of the foregoing. For
purposes of this Section 9.1, "Affiliate" means, in
relation to any Person (in this definition called
"Affiliated Person"), any Person (i) which (directly or
indirectly) controls or is controlled by or is under
common control with such Affiliated Person; or (ii)
which (directly or indirectly) owns or holds five
percent (5%) or more of any equity interest in the
Parent; or (iii) five percent (5%) or more of whose
voting stock or other equity interest is directly or
indirectly owned or held by the Parent. For purposes
of this definition, the term "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 to cause the
direction of the management or policies of such Person,
whether through the ownership of shares of any class in
the capital or other voting securities of such Person
or by contract or otherwise.
The remainder of Section 9.1 of the Loan Agreement shall remain as
originally written.
15. Exhibit C to the Loan Agreement is hereby amended and replaced
with the Exhibit C attached hereto and made a part hereof.
16. Notices. The Guarantor hereby agrees to provide copies of any
notices or information it is required to deliver to The Provident Bank
under the terms of the Subordinated Debt to the Bank simultaneously with
the delivery of the same to the holder of the Subordinated Debt..
17. Automatic Debit. Each of the Borrowers hereby irrevocably
authorizes the Bank to make advances under the Loan for the purpose of
making payments of interest, principal, and other amounts due at the time
and in the manner provided for in promissory note or notes evidencing the
Loan. All transfer of funds pursuant to this authorization shall be
evidenced on the statements normally issued by the Bank for the type of
accounts affected by each transfer, it being understood and agreed that the
Bank is under no obligation to issue any other receipt or advice to the
Borrowers, or any others, to reflect such transfer or transfers.
18. Conditions of Effectiveness. This Amendment shall become
effective as of January _____, 1998, upon satisfaction of all of the
following conditions precedent:
(a) The Bank shall have received two duly executed copies of the
Second Amendment to Second Amended and Restated Loan Agreement and such
other certificates, instruments, documents, agreements, and opinions of
counsel as may be required by the Bank, each of which shall be in form and
substance satisfactory to the Bank and its counsel; and
(b) The Bank shall have received a fee in respect of this Amendment
in the amount of $50,000.00.
(c) The Bank shall have been paid in full with respect to a certain
Time Note from the Borrowers to the Bank in the original principal amount
of $1,000,000.00 dated August 29, 1997, from the proceeds of the
Subordinated Debt as defined in paragraph 7 above.
(d) The representations contained in paragraph 19 below shall be true
and accurate.
19. Representations. Each of the Borrowers represents and warrants
that after giving effect to this Amendment (a) each and every one of the
representations and warranties made by or on behalf of such Borrower in the
Loan Agreement or the Loan Documents is true and correct in all respects on
and as of the date hereof, except to the extent that any of such
representations and warranties related, by the expressed terms thereof,
solely to a date prior hereto; (b) such Borrower has duly and properly
performed, complied with and observed each of its covenants, agreements and
obligations contained in the Loan Agreement and Loan Documents; and (c) no
event has occurred or is continuing, and no condition exists which would
constitute an Event of Default or a Pending Default.
20. Amendment to Loan Agreement. (a) Upon the effectiveness of
Section 2 through Section 15 hereof, each reference in the Loan Agreement
to "Second Amended and Restated Loan Agreement," "Loan Agreement,"
"Agreement," the prefix "herein," "hereof," or words of similar import, and
each reference in the Loan Documents to the Loan Agreement, shall mean and
be a reference to the Loan Agreement as amended hereby. (b) Except as
modified herein, all of the representations, warranties, terms, covenants
and conditions of the Loan Agreement, the Loan Documents and all other
agreements executed in connection therewith shall remain as written
originally and in full force and effect in accordance with their respective
terms, and nothing herein shall affect, modify, limit or impair any of the
rights and powers which the Bank may have thereunder. The amendment set
forth herein shall be limited precisely as provided for herein, and shall
not be deemed to be a waiver of, amendment of, consent to or modification
of any of the Bank's rights under or of any other term or provisions of the
Loan Agreement, any Loan Document, or other agreement executed in
connection therewith, or of any term or provision of any other instrument
referred to therein or herein or of any transaction or future action on the
part of the Borrowers which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. The Borrowers ratifies and confirms each term,
provision, condition and covenant set forth in the Loan Agreement and the
Loan Documents and acknowledges that the agreement set forth therein
continue to be legal, valid and binding agreements, and enforceable in
accordance with their respective terms.
21. Authority. Each of the Borrowers hereby represents and warrants
to the Bank that (a) such Borrower has legal power and authority to execute
and deliver the within Amendment; (b) the officer executing the within
Amendment on behalf of such Borrower has been duly authorized to execute
and deliver the same and bind such Borrower with respect to the provisions
provided for herein; (c) the execution and delivery hereof by such Borrower
and the performance and observance by such Borrower of the provisions
hereof do not violate or conflict with the articles of incorporation,
regulations or by-laws of such Borrower or any law applicable to such
Borrower or result in the breach of any provision of or constitute a
default under any agreement, instrument or document binding upon or
enforceable against such Borrower; and (d) this Amendment constitutes a
valid and legally binding obligation upon such Borrower in every respect.
22. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same
document. Separate counterparts may be executed with the same effect as if
all parties had executed the same counterparts.
23. Governing Law. This Amendment shall be governed by and construed
in accordance with the law of the State of Ohio.
24. Indemnity. The Companies shall indemnify the Bank from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against the Bank
in any litigation, proceeding or investigation instituted or conducted by
any governmental agency or instrumentality or any other person or entity
with respect to any aspect of, or any transaction contemplated by, or
referred to in, or any matter related to, the Loan Agreement or this
Amendment, whether or not the Bank is a party thereto, except to the extent
that any of the foregoing arises out of the willful misconduct of the Bank,
as determined in a final, non-appealable judgment by a court of competent
jurisdiction.
IN WITNESS WHEREOF, the Borrowers and the Bank have hereunto set their
hands as of the date first set forth above.
THE BORROWERS:
PAGES BOOK FAIRS, INC.
By:
Its:
PAGES LIBRARY SERVICES, INC.
By:
Its:
THE GUARANTOR:
PAGES, INC.
By:
Its:
THE BANK:
THE HUNTINGTON NATIONAL BANK
By:
Its:
<PAGE>
EXHIBIT 10(n)
<PAGE>
EXHIBIT 10(n)
CREDIT AGREEMENT
BY AND BETWEEN
PAGES, INC.,
Borrower,
and
THE PROVIDENT BANK,
Lender
As of January 21, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION 1
Section 1.1 Provisions Pertaining to Definitions. 1
Section 1.2 Definitions 1
ARTICLE 2 THE LOAN 15
Section 2.1 Commitments 15
Section 2.2 Term Loan 15
Section 2.3 The Note 15
Section 2.4 Interest Payable on the Loan 15
Section 2.5 Repayments and Prepayments of Principal. 16
Section 2.6 Payments and Computations. 17
Section 2.7 Payments to be Free of Deductions 18
Section 2.8 Use of Proceeds 19
Section 2.9 Additional Costs. 19
Section 2.10 Lender Statements 19
ARTICLE 3 SECURITY AGREEMENT 20
Section 3.1 Security Interest 20
Section 3.2 Financing Statements; Additional Documents 20
Section 3.3 Accounts; Chattel Paper; Lease Agreements 21
Section 3.4 Pledge of Stock 21
Section 3.5 Release of Collateral 21
ARTICLE 4 CONDITIONS PRECEDENT TO DISBURSEMENTS 21
Section 4.1 Conditions Precedent to Initial Closing. 21
ARTICLE 5 GENERAL REPRESENTATIONS AND WARRANTIES 24
Section 5.1 Existence 25
Section 5.2 Authority 25
Section 5.3 Binding Effect of Documents 26
Section 5.4 No Events of Default 27
Section 5.5 Financial Statements 27
Section 5.6 Changes; None Adverse 27
Section 5.7 Title to Assets; Material Leases 27
Section 5.8 Intellectual Property 27
Section 5.9 Indebtedness for Borrowed Money 28
Section 5.10 Litigation 28
Section 5.11 No Materially Adverse Contracts 28
Section 5.12 Taxes and Tax Returns 28
Section 5.13 Contracts with Affiliates. 29
Section 5.14 Employee Benefit Plans. 29
Section 5.15 Governmental Regulation. 30
Section 5.16 Securities Activities 30
Section 5.17 Disclosure. 30
Section 5.18 No Material Default. 30
Section 5.19 Environmental Conditions 30
Section 5.20 Licenses and Permits 31
Section 5.21 General Collateral Representation 32
ARTICLE 6 AFFIRMATIVE COVENANTS OF BORROWER 33
Section 6.1 Reports and Other Information 33
Section 6.2 Maintenance of Property; Authorization;
Insurance 37
Section 6.3 Key Man Life Insurance 37
Section 6.4 Corporate Existence 38
Section 6.5 Inspection Rights 38
Section 6.6 Payment of Taxes and Claims 38
Section 6.7 Compliance with Laws 38
Section 6.8 Notice of Other Events. 38
Section 6.9 Communication with Accountants. 39
Section 6.10 Payment of Indebtedness 39
Section 6.11 Payment of Fees. 39
Section 6.12 Performance of Obligations Under Certain
Documents 39
Section 6.13 Governmental Consents and Approvals 39
Section 6.14 Employee Benefit Plans and Guaranteed Pension
Plans 40
Section 6.15 Further Assurances 40
Section 6.16 Use of Proceeds 40
Section 6.17 Cash Equity Contribution 40
Section 6.18 Observation Rights 41
ARTICLE 7 FINANCIAL COVENANTS 41
Section 7.1 Tangible Capital Base 41
Section 7.2 Minimum Pre-Tax Operating Profit or Maximum
Pre-Tax Operating Loss 43
Section 7.3 Fixed Charge Covenant 44
Section 7.4 Lease Obligations 44
ARTICLE 8 NEGATIVE COVENANTS OF BORROWER 44
Section 8.1 Limitation on Nature of Business 44
Section 8.2 Limitation on Fundamental Changes 45
Section 8.3 Restricted Payments 45
Section 8.4 Limitation on Disposition of Assets 45
Section 8.5 Limitation on Investments. 46
Section 8.6 Acquisition of Margin Securities 47
Section 8.7 Limitation on Mortgages, Liens and Encumbrances 47
Section 8.8 No Additional Negative Pledges 48
Section 8.9 No Restrictions on Subsidiary Distributions
to Borrower 48
Section 8.10 Limitation on Indebtedness 48
Section 8.11 Limitation on Sales and Leasebacks 49
Section 8.12 Transactions with Affiliates 49
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES 49
Section 9.1 Events of Default 49
(a) Principal and Interest 49
(b) Representations and Warranties 49
(c) Certain Covenants 49
(d) Other Covenants 49
(e) Loan Documents 49
(f) Litigation 50
(g) Default by Borrower under Senior Debt and
Other Agreements 50
(h) Insolvency 50
(i) Judgment 50
(j) ERISA 51
(k) Change of Control 51
(l) Material Adverse Change 51
Section 9.2 Termination of Commitments and Acceleration
of Obligations 51
Section 9.3 Remedies 52
Section 9.4 No Implied Waiver; Rights Cumulative 53
Section 9.5 Set-Off; Pro Rata Sharing 54
ARTICLE 10 PROVISIONS OF GENERAL APPLICATION 54
Section 10.1 Term of Agreement 54
Section 10.2 Notices 54
Section 10.3 Survival of Representations 56
Section 10.4 Costs, Expenses, Taxes and Indemnification 56
Section 10.5 Language 57
Section 10.6 Binding Effect; Assignment 57
Section 10.7 Governing Law; Jurisdiction and Venue. 57
Section 10.8 Waiver of Jury Trial. 57
Section 10.9 Waivers. 58
Section 10.10 Interpretation and Proof of Loan Documents 58
Section 10.11 Integration of Schedules and Exhibits 58
Section 10.12 Headings 58
Section 10.13 Counterparts 58
Section 10.14 Severability. 58
Section 10.15 One General Obligation. 58
<PAGE>
EXHIBITS
Exhibit A Form of Assignment of Copyrights
Exhibit B Form of Compliance Certificate
Exhibit C Form of Pledge Agreement
Exhibit D Form of Term Loan Promissory Note
Exhibit E Form of Letter of Understanding
Exhibit F Form of Opinion of Counsel to Borrower
Exhibit G Form of Officer's Certificate
Exhibit H Form of Warrant
Exhibit I Form of Warrant Agreement
Exhibit J Form of Guaranty Agreement
<PAGE>
SCHEDULES
5.1(a) Jurisdictions where qualified to do business
5.1(b) Options, Rights, Warrants, Convertible Securities
5.1(c) Subsidiaries
5.1(d) Ownership of Capital Shares, Partnership Interests, Joint Ventures
5.7 Title to Assets; Material Leases of Property
5.8(a) Patents and Copyrights
5.8(b) Licenses and User Agreements
5.9 Indebtedness for Borrowed Money
5.10 Pending Litigation
5.12(c) Tax Deficiencies
5.13(b) Indebtedness with Affiliates
5.21 UCC Filing Offices
6.2(b) Property Insurance
7.4 Capital and Non-Capital Leases
8.7(f) Existing Liens
8.10 Limitation on Indebtedness
<PAGE>
THIS CREDIT AGREEMENT dated as of January 21, 1998 ("Loan Agreement"),
is by and between PAGES, INC., a Delaware corporation (hereinafter,
together with its successors in title and assigns called "Borrower"), and
THE PROVIDENT BANK, an Ohio banking corporation ("Provident" or the
"Lender").
ARTICLE 1
INTERPRETATION
Section 1.1 Provisions Pertaining to Definitions. For all purposes
of this Loan Agreement (except where such interpretations would be
inconsistent with the context or the subject matter):
(a) The expression "this Agreement" shall mean this Loan
Agreement (including all of the Schedules and Exhibits annexed hereto) as
originally executed, or, if supplemented, amended or restated from time to
time, as so supplemented, amended or restated;
(b) Where appropriate, words importing the singular only shall
include the plural and vice versa, and all references to dollars shall be
United States Dollars; and
(c) Accounting terms not otherwise defined herein shall have the
meanings customarily given in accordance with Generally Accepted Accounting
Principles (as hereinafter defined) and all financial computations or
determinations to be made under this Loan Agreement shall, unless otherwise
specifically provided herein, be made in accordance with the financial
statements delivered pursuant to Section 4.1(s) and shall be made on a
Consolidated basis.
Section 1.2 Definitions. In addition to terms defined elsewhere in
this Agreement, the following terms shall have the following meanings in
this Agreement:
"Accountants" mean Hausser & Taylor, or other nationally recognized
firm of certified public accountants selected by Borrower and acceptable to
Lender.
"Account Debtor" means any Person obligated for the payment of an
Account.
"Accounts" mean, with respect to any person, Person's accounts (as
that term is defined in the UCC), rental agreements and other contract
rights, rights to payment and other forms of obligation for the payment of
money, whether now existing or existing in the future, including, without
limitation, all (i) accounts receivable (whether or not specifically listed
on schedules furnished to the Lender), all accounts created by or arising
from all of Person's sales of goods, financial instruments, documents,
permits or other items, or rendition of services, including funds transfer
services, made under any of Person's trade names or styles, or through any
of Person's subsidiaries or divisions, and all accounts acquired by
assignment in the ordinary course of business; (ii) unpaid seller's rights
(including rescission, replevin, reclamation and stopping in transit)
relating to the foregoing or arising therefrom; (iii) rights to any goods
represented by any of the foregoing, including returned or repossessed
goods; (iv) reserves and credit balances held by such Person with respect
to any such accounts receivable or Account Debtors; (v) guarantees or
collateral for any of the foregoing; and (vi) insurance policies or rights
relating to any of the foregoing.
"Affiliate" means, in relation to any Person (in this definition
called "Affiliated Person"), any Person (i) which (directly or indirectly)
controls or is controlled by or is under common control with such
Affiliated Person; or (ii) which (directly or indirectly) owns or holds
five percent (5%) or more of any equity interest in any Borrower; or (iii)
five percent (5%) or more of whose voting stock or other equity interest is
directly or indirectly owned or held by such Borrower. For the purposes of
this definition, the term "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 to cause the direction of the management or the
policies of such Person, whether through the ownership of shares of any
class in the capital or any other voting securities of such Person or by
contract or otherwise.
"Assignment of Copyrights" means the Assignment of Copyrights from
Borrower to Lender in the form of Exhibit A hereto.
"Bank Facility" means the loans and advances and all Indebtedness made
by Senior Lender to Pages Book Fairs, Inc., Pages Library Services, Inc.,
or any other Subsidiary of the Borrower pursuant to a Second Amended and
Restated Loan Agreement dated as of December 31, 1996, as amended,
modified, supplemented or amended and restated from time to time or
otherwise modified at the option of the parties thereto; provided, however,
the maximum amount of such Bank Facility shall not exceed Twenty Million
Dollars ($20,000,000.00).
"Business Day" means any day other than a Saturday or Sunday on which
commercial banking institutions are open for business in Cincinnati, Ohio.
"Capital Expenditure" means any amount paid or incurred in connection
with the purchase of real estate, plant, machinery, equipment or other
similar expenditure (including all renewals, improvements and replacements
thereto, and all obligations under any lease of any of the foregoing) which
would be required to be capitalized and shown on the Consolidated balance
sheet of Borrower in accordance with GAAP.
"Capital Lease" means any lease of Property which has been or is
required to be capitalized on a Borrower's financial statements in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) or corporate stock,
whether common or preferred, including, without limitation, partnership
interests.
"Cash Equivalents" means: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United
States, in each case maturing within three (3) months from the date of
acquisition thereof; (ii) investments in certificates of deposit or
bankers' acceptances maturing within three (3) months from the date of
acquisition issued by Lender or any other commercial bank organized under
the laws of the United States or any state thereof having capital surplus
and undivided profits aggregating at least Two Hundred Fifty Million
Dollars ($250,000,000.00); (iii) investments in commercial paper of Lender
or of any other Person which, at the time of issuance, have a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc. and maturing not more than six (6) months from the
date of acquisition thereof; (iv) obligations of the type described in (i),
(ii) or (iii) above purchased pursuant to a repurchase agreement obligating
the counterparty to repurchase such obligations not later than thirty (30)
days after the purchase thereof, secured by a fully perfected security
interest in any such obligation, and having a market value at the time such
repurchase agreement is entered into of not less than one hundred percent
(100%) of the repurchase obligation of the issuing bank; and (v) time
deposits or Eurodollar time deposits maturing no more than thirty (30) days
from the date of creation with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser
of One Hundred Thousand Dollars ($100,000.00) or the maximum insurance
applicable to the aggregate amount of such Person's deposits in such
institution.
"Cash Flow" means, for any period, the following, each calculated for
such period, without duplication: (i) EBITDA, less (ii) income and
franchise taxes actually paid by Borrower (net of any refunds received)
(including decreases in deferred income taxes resulting from tax payments
actually made), less (iii) Capital Expenditures (to the extent actually
made in cash by Borrower and excluding the non-current portion of Capital
Expenditures which have been financed), less (iv) the gross amount
capitalized for long term assets (net of cash received in respect of long
term assets) and paid in cash.
"Change of Control" means the time at which (i) any Person (including
a Person's Affiliates and associates) or group (as that term is understood
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder), other than Management Shareholder and Affiliates thereof (the
"Control Group") or a group controlled by the Control Group, has become the
beneficial owner of a percentage (based on voting power, in the event
different classes of stock shall have different voting powers) of the
voting stock of Borrower equal to at least fifteen percent (15%), (ii)
there shall be consummated any consolidation or merger of Borrower pursuant
to which Borrower's common stock (or other capital stock) would be
converted into cash, securities or other property, other than a merger or
consolidation of Borrower in which the holders of such common stock (or
such other capital stock) immediately prior to the merger have the same
proportionate ownership, directly or indirectly, of common stock of the
surviving corporation immediately after the merger as they had of
Borrower's common stock immediately prior to such merger, (iii) all or
substantially all of Borrower's assets shall be sold, leased, conveyed or
otherwise disposed of as an entirety or substantially as an entirety to any
Person (including an Affiliate or associate of Borrower) in one or a series
of transactions, or (iv) S. Robert Davis shall cease to perform his duties
as a senior executive officer of Borrower.
"Chattel Paper" means any "chattel paper" as such term is defined in
Section 9-105(1)(b) of the UCC, now owned or hereafter acquired.
"Closing Date" means the day on which the Loan is made pursuant to
this Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, or any successor federal tax code, and any
reference to any statutory provision shall be deemed to be a reference to
any successor provision or provisions.
"Collateral" means all Accounts, Inventory, Equipment, General
Intangibles, fixtures, goods, motor vehicles, leasehold improvements,
Documents, Instruments, Chattel Paper, Intellectual Property, inventory
subject to leases and rights under lease agreements for the leasing of
inventory, money, deposit accounts, rights to draw on letters of credit,
permits, licenses and the cash or noncash Proceeds (including insurance or
other rights to receive payment with respect thereto) of any of the
foregoing and all accessions and additions to and replacements of the
foregoing, and all books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records of Borrower) pertaining to any of the
foregoing or any of the Premises. Lender acknowledges that Collateral
shall not include any real property owned by Borrower or its Subsidiaries.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Loan Agreement, and includes,
without limitation, all series and classes of such common stock.
"Compliance Certificate" means a certificate, substantially in the
form of attached Exhibit B, which certificate evidences the compliance by
Borrower with the covenants of this Agreement.
"Computation Date" means the last day of each March, June, September
and December.
"Consolidated" means, with respect to any accounting matter or amount,
such matter or amount computed on a consolidated basis for Borrower and any
Subsidiaries in accordance with GAAP.
"Contingent Obligation" means any direct or indirect liability,
contingent or otherwise, with respect to any Indebtedness, lease, dividend,
letter of credit, banker's acceptance or other obligation of another if the
primary purpose or intent thereof in incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another 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 (in whole or in part) against loss in respect
thereof. Contingent Obligations shall include, without limitation, (i) the
direct or indirect guaranty, endorsement (otherwise than for collection or
deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of another;
(ii) any liability for the obligations of another through any agreement
(contingent or otherwise) (A) to 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), (B) to
maintain the solvency of any balance sheet item, level of income or
financial condition of another, or (C) to make take-or-pay, pay-or-play or
similar payments if required regardless of nonperformance by any other
party or parties to an agreement, if in the case of any agreement described
under subclauses (A), (B) or (C) of this sentence the primary purpose or
intent thereof is as described in the preceding sentence. The amount of
any Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported.
"Credit Commitment" means the amount of the Term Loan.
"Current Assets" and "Current Liabilities" mean at any time, all
assets or liabilities, respectively, that, in accordance with GAAP should
be classified as current assets or current liabilities, respectively, on
Borrower's balance sheet.
"Default" means any event or occurrence which, with the giving of
notice or the passage of time, or both, would constitute an Event of
Default.
"Default Interest Rate" means an annual rate of interest which shall
(to the extent permitted by applicable law) at all times be equal to two
percent (2%) above the applicable Interest Rate for a Loan.
"Documents" mean any "documents," as such term is defined in Section 9-
105(1)(f) of the UCC, now owned or existing or hereafter arising or
acquired.
"EBITDA" for any period shall mean, without duplication, (i) Net
Income; plus (ii) for such period any Interest Expense deducted in the
determination of Net Income; plus (iii) any income and franchise taxes paid
in cash and included in the determination of Net Income; plus (iv)
amortization and depreciation deducted in determining Net Income for such
period; plus (v) extraordinary losses, losses on sales of assets (other
than sales of inventory in the ordinary course of business) and unrealized
gains from changes in currency; minus (vi) the sum for such period of
interest income, extraordinary gains, gains from sales of assets (other
than sales of inventory in the ordinary course of business) and unrealized
losses from changes in currency.
"Employee Benefit Plan" means an "employee benefit plan" as defined in
Section 3(3) of ERISA.
"Environmental Laws" means individually or collectively any local,
state or federal law, statute, rule, regulation, order, ordinance, common
law, permit or license term or condition, or state superlien or
environmental clean-up or disclosure statutes pertaining to the environment
or to environmental contamination, regulation, management, control,
treatment, storage, disposal, containment, removal, clean-up, reporting, or
disclosure, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as now or
hereafter amended (including, but not limited to, the Superfund Amendments
and Reauthorization Act ("SARA")); the Resource Conservation and Recovery
Act ("RCRA"), as now or hereafter amended (including, but not limited to,
the Hazardous and Solid Waste Amendments of 1984); the Toxic Substances
Control Act ("TSCA"), as now or hereafter amended; the Clean Water Act, as
now or hereafter amended; the Safe Drinking Water Act, as now or hereafter
amended; or the Clean Air Act, as now or hereafter amended.
"Equipment" means any "equipment," as such term is defined in Section
9-109(2) of the UCC, now owned or hereafter acquired and shall include,
without limitation, any and all additions, substitutions, and replacements
of any of the foregoing, wherever located, together with all attachments,
components, parts and accessories installed thereon or affixed thereto.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock or that are measured by the value of
Capital Stock (but excluding any debt security that is convertible into, or
exchangeable for Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
regulations issued thereunder, as amended from time to time and any
successor statute.
"ERISA Affiliate" means, in relation to any Person, any trade or
business (whether or not incorporated) which is a member of a group of
which that Person is a member and which is under common control within the
meaning of the regulations promulgated under Section 414 of the Internal
Revenue Code of 1986, as amended.
"ERISA Liabilities" means the aggregate of all unfunded vested
benefits under any employee pension benefit plan, within the meaning of
Section 3(2) of ERISA, of Borrower or any ERISA Affiliate of Borrower under
any Plan covered by ERISA that is not a Multiemployer Plan and all
potential withdrawal liabilities of any thereof under all Multiemployer
Plans.
"Event of Default" means any event or condition described in Section
9.1 of this Agreement.
"Extraordinary Disposition" means, with respect to Borrower, the
sale, lease, transfer or other disposition of assets, other than assets
transferred or disposed in the ordinary course of business, whether by way
of the sale of assets or the sale of stock or other rights in which
Borrower has any ownership interest, and whether in one transaction or a
series of related or unrelated transactions in excess of Fifty Thousand
Dollars ($50,000.00) in the aggregate in any fiscal year.
"Fixed Charges" means, for any period, the following, each calculated
for such period, without duplication: (i) Interest Expense paid or accrued,
minus (ii) interest income earned or accrued by Borrower as determined in
accordance with GAAP, plus (iii) scheduled payments of principal with
respect to all Indebtedness for Borrowed Money of Borrower including the
principal component of any cash payments made on any Capital Lease.
"General Intangibles" means any "general intangibles" as such term is
defined in Section 9-106 of the UCC, now owned or hereafter acquired and,
in any event, shall include, without limitation, all right, title and
interest now in existence or hereafter arising in or to all customer lists,
trademarks, patents, rights in intellectual property, trade names,
copyrights, trade secrets, proprietary or confidential information,
inventions and technical information, procedures, designs, knowledge, know-
how, software, data bases, data, processes, models, drawings, materials,
and records now owned or hereafter acquired, and any and all goodwill and
rights of indemnification.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United Sates of America in effect
from time to time, consistently applied.
"Guaranteed Pension Plan" means any pension plan maintained by
Borrower or an ERISA Affiliate of Borrower, or to which Borrower or an
ERISA Affiliate contributes, some or all of the benefits under which are
guaranteed by the United States Pension Benefit Guaranty Corporation
("PBGC").
"Hazardous Substances" means any and all hazardous and toxic
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls,
friable asbestos, volatile and semi-volatile organic compounds, oils,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their
composition or state is changed), or any other similar substances or
materials which are included under or regulated by any Environmental Law.
"Head Office" means, in relation to the Lender, the head office of The
Provident Bank located at One East Fourth Street, Cincinnati, Ohio 45202 or
such office designated in writing to Borrower by The Provident Bank or any
successor Lender.
"Indebtedness" means, in relation to any Person, at any particular
time, all of the obligations of such Person which, in accordance with GAAP,
would be classified as indebtedness upon a balance sheet including any
footnote thereto of such Person prepared at such time, and in any event
shall include, without limitation, and without duplication:
(i) all indebtedness of such Person arising or incurred
under or in respect of (A) any guaranties (whether direct or indirect)
by such Person of the indebtedness, obligations or liabilities of any
other Person, or (B) any endorsement by such Person of any of the
indebtedness, obligations or liabilities of any other Person
(otherwise than as an endorser of negotiable instruments received in
the ordinary course of business and presented to commercial banks for
collection of deposit), or (C) the discount by such Person, with
recourse to such Person, of any of the indebtedness, obligations or
liabilities of any other Person;
(ii) all indebtedness of such Person arising or incurred
under or in respect of any agreement, contingent or otherwise made by
such Person (A) to purchase any indebtedness of any other Person or to
advance or supply funds to the payment or purchase of any indebtedness
of any other Person, or (B) to purchase, sell or lease (as lessee or
lessor) Property, products, materials or supplies or to purchase or
sell transportation or services, primarily for the purpose of enabling
any other Person to make payment of any indebtedness of such other
Person or to assure the owner of such other Person's indebtedness
against loss, regardless of the delivery or non-delivery of the
Property, products, materials or supplies or the furnishing or non-
furnishing of the transportation or services, or (C) to make any loan,
advance, capital contribution or other investment in any other Person
for the purpose of assuring a minimum equity, asset base, working
capital or other balance sheet condition for or as at any date, or to
provide funds for the payment of any liability, dividend or stock
liquidation payment, or otherwise to supply funds to or in any manner
invest in any other Person;
(iii) all indebtedness, obligations and liabilities
secured by or arising under or in respect of any Lien, upon or in
Property owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness, obligations and
liabilities;
(iv) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
Property acquired by such Person, even though the rights and remedies
of the seller or lender (or lessor) under such agreement in the event
of default are limited to repossession or sale of such Property; and
(v) all indebtedness arising or incurred under or in
respect of any Contingent Obligation.
"Indebtedness for Borrowed Money" means at any particular time, all
Indebtedness (i) in respect of any money borrowed; (ii) under or in respect
of any Contingent Obligation (whether direct or indirect) of any money
borrowed; (iii) evidenced by any loan or credit agreement, promissory note,
debenture, bond, guaranty or other similar written obligation to pay money;
or (iv) Capital Lease obligations.
"Instruments" mean any "instrument," as such term is defined in
Section 9-105(1)(i) of the UCC, now owned or hereafter acquired.
"Intellectual Property" shall mean all Patents and all Copyrights,
together with (a) all inventions, processes, production methods,
proprietary information, know-how and trade secrets; (b) all licenses or
user or other agreements granted to any obligor with respect to any of the
foregoing, in each case whether now or thereafter owned or used including,
without limitation, the licenses or other agreements with respect to the
Patents or the Copyrights, in Schedule 5.8(a) hereto; (c) all information,
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, engineering
reports, test reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery software
and programs; (d) all field repair data, sales data and other information
relating to sales or service of products now or hereafter manufactured;
(e) all accounting information and all media on which or in which any
information or knowledge or data or records may be recorded or stored and
all computer programs used for the compilation or printout of such
information, knowledge, records or data; (f) all licenses, consents,
permits, variances, certifications and approvals of governmental agencies
now or hereafter held by Borrower; and (g) all causes of action, claims and
warranties now or hereafter owned or acquired by Borrower in respect of any
of the items listed above.
"Interest Rate" means, with respect to the Term Loan, the rate of
interest per annum equal to twelve and one-half percent (12.5%).
"Inventory" means, with respect to any Person, such Person's
inventory, including without limitation: (i) all raw materials, work in
process, parts, components, assemblies, supplies and materials used or
consumed in such Person's business, wherever located and whether in the
possession of such Person or any other Person; (ii) all goods, wares and
merchandise, finished or unfinished, held for sale or lease or leased or
furnished or to be furnished under contracts of service, wherever located
and whether in the possession of such Person or any other Person; and (iii)
all goods returned to or repossessed by such Person.
"Investment" means all investments in any other Person by stock
purchase, capital contribution, loan, advance, guaranty of any Indebtedness
or creation or assumption of any other liability in respect of any
Indebtedness of such other Person (including, without limitation, any
liability of any kind described in clause (i) or (ii) of the definition of
the term "Indebtedness" set forth in this Section 1.2), or the transfer or
sale of Property (otherwise than in the ordinary course of the business) to
any other Person for less than payment in full in cash of the transfer or
sale price or the fair value thereof (whichever of such price or value is
higher).
"Liabilities" means all indebtedness, obligations and other
liabilities of Borrower whether matured or unmatured, liquidated or
unliquidated, direct or indirect, absolute or contingent, joint or several,
secured or unsecured arising by contract, operation of law or otherwise,
classified as liabilities in accordance with GAAP on a balance sheet of
Borrower.
"Licenses and Permits" means all licenses, permits, registrations and
recordings thereof and all applications incorporated into for such
licenses, permits and registrations now owned or hereafter acquired by
Borrower and required from time to time for the business operations of
Borrower.
"Lien" means any lien, mortgage, pledge, security interest, charge or
other encumbrance of any kind including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest.
"Litigation" has the meaning set forth in Section 5.10 hereof.
"Loan Documents" mean this Agreement, the Note, the Security Documents
and any other agreement, instrument, certificate or document executed in
connection with or pursuant to this Agreement whether concurrently herewith
or subsequent hereto.
"Loan" means the Term Loan made or to be made to Borrower by the
Lender pursuant to this Agreement.
"Loan Year" means each period of twelve (12) consecutive months,
commencing on the Closing Date and on each anniversary thereof.
"Management Shareholder" means S. Robert Davis.
"Material Adverse Effect" means any event which will, or is reasonably
likely to, have a material adverse effect upon the financial condition,
operations, assets or prospects of Borrower or the Collateral.
"Material Lease" means any lease under which Borrower shall lease (as
lessee) or acquire the right to possess and/or use any Real Estate or other
Property or any other similar agreement (whether written or oral) pursuant
to which Borrower pays an annual lease payment or rental payment equal to
or greater than Fifty Thousand Dollars ($50,000.00) or which otherwise is
material to the operation of the business of Borrower.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of Borrower,
or any ERISA Affiliate of Borrower.
"Net Income" means, for any period, the aggregate of the net income
(or net loss) of Borrower for such period, determined in accordance with
GAAP, but excluding, without duplication: (i) the income of any Person in
which Borrower has an ownership interest, unless received by Borrower in a
cash distribution; (ii) any after-tax gains or losses attributable to
dispositions of assets; (iii) the income of any Subsidiary of Borrower to
the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at that time
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary; and (iv) any after-tax
extraordinary non-cash gains or extraordinary non-cash losses.
"Net Proceeds" means the aggregate proceeds paid in cash or Cash
Equivalents received by Borrower in respect of any Extraordinary
Disposition, net of (i) direct costs relating to such Extraordinary
Disposition (including without limitation, legal, accounting and investment
banking fees, and sales commissions) (ii) any relocation expenses incurred
as a result thereof, (iii) taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions in any tax
sharing arrangements), (iv) amounts required to be applied in payment of
Indebtedness secured by a Lien or Permitted Lien incurred in accordance
with this Agreement on the assets or assets that are the subject of such
Extraordinary Disposition and which Indebtedness is required to be repaid
pursuant to the terms of the instrument governing such Indebtedness or
Lien, or in order to obtain the necessary consent to such sale from Senior
Lender, regardless of whether Senior Lender has a Lien on the asset or
assets constituting such Extraordinary Disposition, and (v) any reserve for
adjustment in respect of the sale price of or other liability in respect of
such asset or assets.
"Net Worth" means, at any date, Consolidated stockholders' equity
(including the par value or stated value of all outstanding Capital Stock,
additional paid-in capital and retained earnings) of Borrower determined in
accordance with GAAP, except that there shall be deducted therefrom any
amount of treasury stock reflected as an asset of Borrower or any
Subsidiary of Borrower.
"Note" means the Term Loan Note which is to be dated, executed and
delivered to Lender by Borrower on the Closing Date.
"Obligations" means, collectively, all of the indebtedness,
obligations, covenants, promises, agreements, and liabilities existing on
the date hereof or arising from time to time hereafter, whether direct,
indirect, absolute, contingent, joint or several, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract,
operation of law or otherwise, of Borrower to the Lender (i) in respect of
the Loan made pursuant to this Agreement; or (ii) under or in respect of
any one or more of the Loan Documents. Obligations shall also include all
interest, charges and other fees chargeable hereunder to Borrower or due
hereunder from Borrower to Lender from time to time and all costs and
expenses referred to in Section 10.4 herein.
"Patents" shall mean all of the following in which Borrower now holds
or hereafter acquires any interest: (i) all letters patent of the United
States or any country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof or any other country, and
(ii) all reissues, continuations, continuations-in-part or extensions
thereof.
"Permitted Liens" means those Liens and encumbrances permitted
hereunder pursuant to Section 8.7.
"Person" shall include an individual, a company, a corporation, an
association, a partnership, a joint venture, an unincorporated trade or
business enterprise, a trust, an estate, or other legal entity or a
government (national, regional or local), court, arbitrator or any agency,
instrumentality or official of the foregoing.
"Pledge Agreement" means stock pledge agreement or substantially in
the form of Exhibit C.
"Pledge Stock" means all of the Capital Stock of any Subsidiary of
Borrower, whether now existing or hereafter formed or acquired.
"Premises" means, collectively, all real property and leasehold
interests now or hereafter acquired by Borrower.
"Prime Rate" means the rate of interest announced from time to time by
Lender as its prime rate at its Head Office, whether or not Lender shall at
times lend to other borrowers at lower rates of interest, or, if there is
no such prime rate, then such other rate as may be substituted by Lender
for its Prime Rate.
"Proceeds" means "proceeds," as such term is defined in Section 9-
306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty, or guaranty
payable from time to time with respect to any of the Collateral, and (ii)
any and all payments (in any form whatsoever) made or due and payable from
time to time in connection with any requisition, confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral
by any governmental body, authority, bureau, or agency (or any Person
acting under color of governmental authority).
"Projections" means Borrower's forecasted Consolidated and
consolidating: (a) balance sheets, (b) profit and loss statements, and (c)
cash flow statements, all prepared on a division by division and Subsidiary
by Subsidiary basis and otherwise consistent with Borrower's historical
financial statements, together with, if requested by Lender, appropriate
supporting details and statements of underlying assumptions.
"Property" means all types of real, personal, tangible, intangible or
mixed property.
"Real Estate" means all real property owned by Borrower and all real
property hereafter acquired by Borrower, together with all fixtures, rights
of way, privileges, liberties, tenements, hereditaments, and appurtenances
belonging or in any way appertaining thereto, all easements now or
hereafter benefiting such real property and all royalties and rights
appertaining to the use and enjoyment of such real property, together with
all of the buildings, structures, and other improvements thereto.
"Reference Period" means, with respect to a particular Computation
Date, the period of four (4) consecutive calendar quarters ending on such
Computation Date except that with respect to any Computation Date prior to
March 31, 1998, the applicable reference period shall be the period from
and including the calendar quarter in which falls the Closing Date through
such Computation Date.
"Restricted Payment" means: (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of
Borrower or any of its Subsidiaries now or hereafter outstanding, except
(i) a dividend payable solely in shares of that class of stock to the
holders of that class, and (ii) an annual dividend paid by Borrower to its
shareholders of record in an amount not to exceed One Hundred Thousand
Dollars ($100,000.00); (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition
for value, direct or indirect, of any shares of any class of stock of
Borrower or any of its Subsidiaries now or hereafter outstanding; (c) any
payment or prepayment of principal of, premium, if any, or interest on,
redemption, conversion, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to, any subordinated indebtedness
except for the Loan; and (d) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding.
"SEC" means the Securities and Exchange Commission or any successor
agency.
"Securities" means any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participation in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
"Security Documents" shall mean, collectively, this Agreement, the
Pledge Agreement, the Assignment of Copyrights, the Guaranty Agreements and
each other agreement, assignment or instrument creating or purporting to
create a lien in favor of Lender.
"Senior Debt" means, with respect to the Borrower or any of its
Subsidiaries, all Indebtedness or other Obligations owing in respect of the
Bank Facility, including without limitation, all loans, letters of credit
and other extensions of credit thereunder, and all expenses, fees,
reimbursements, indemnities and other amounts owing pursuant thereto.
"Senior Lender" means The Huntington National Bank, a national banking
association.
"Subordination Agreement" has the meaning defined in Section 3.3.
"Subsidiary" means, 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 Borrower
(including Borrower).
"Termination Date" means the earlier of (i) the sixth (6th)
anniversary of the Closing Date; (ii) the date upon which the entire
principal of the Note shall become due pursuant to the provisions hereof
(whether as a result of acceleration by Lender or otherwise); or (iii) the
date on which the Term Loan shall be paid in full.
"Termination Event" means (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, but not
including any such event for which the thirty (30) day notice requirement
has been waived by applicable PBGC regulation; or (ii) the withdrawal of
Borrower or an ERISA Affiliate of Borrower from a Guaranteed Pension Plan
during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; or (iii) the filing of a notice of intent to
terminate a Guaranteed Pension Plan or the treatment of a Guaranteed
Pension Plan amendment as a termination under Section 4041 of ERISA; or
(iv) the institution of proceedings to terminate a Guaranteed Pension Plan
by the Pension Benefit Guaranty Corporation; or (v) the withdrawal or
partial withdrawal of Borrower or an ERISA Affiliate of Borrower from a
Multiemployer Plan; or (vi) any other event or condition which might
reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any
Guaranteed Pension Plan.
"Term Loan" means the loan made pursuant to Section 2.2 hereof.
"Term Loan Note" means the promissory note of Borrower in the face
amount of the Term Loan, in substantially in the form of Exhibit D annexed
hereto.
"Trademarks" shall mean all of the following in which Borrower now
holds or hereafter acquires any interest: (i) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature, all registrations and recordings thereof, and all applications in
connection therewith, including registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office
or agency of the United States, any state or territory thereof or any other
country, and (ii) all reissues, extensions or renewals thereof.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Ohio; provided, however, that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, or priority of Lender's security interest in any of
the Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Ohio, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection,
or priority and for purposes of definitions related to such provisions.
"UCC Financing Statements" mean the UCC financing statements naming
the Borrower, as debtor, and Lender as creditor, which UCC financing
statements describe all or some portion of the Collateral and which
together perfect Lender's security interest in the Collateral.
"Warrant" has the meaning set forth in Section 4.1(t).
"Warrant Agreement" has the meaning set forth in Section 4.1(t).
"Working Capital" means the difference between (i) Current Assets,
excluding cash, Cash Equivalents, prepaid taxes and any amounts due from
Affiliates, and (ii) Current Liabilities, excluding the current portion of
any long term Indebtedness for Borrowed Money, accrued taxes and any
amounts due to Affiliates.
ARTICLE 2
THE LOAN
Section 2.1 Commitments. Lender agrees, upon the terms and subject
to the conditions contained in this Agreement, to make the Term Loan on the
Closing Date in a principal amount equal to such Loan.
Section 2.2 Term Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representation and warranties of
Borrower herein set forth, Lender agrees to lend to Borrower on the Closing
Date the Term Loan. The amount of the Term Loan shall be Three Million
Dollars ($3,000,000.00). The Term Loan shall be funded in one drawing on
the Closing Date. Amounts borrowed under this Term Loan and repaid or
prepaid may not be reborrowed.
Section 2.3 The Note. The absolute and unconditional obligation of
Borrower to repay to Lender the principal of the Loan and the interest
thereon shall be evidenced by a Term Loan Note.
Section 2.4 Interest Payable on the Loan.
(a) Monthly Installments. Borrower shall pay to Lender monthly
in arrears on the first Business Day of each month beginning with the month
following the month in which the Closing Date falls, interest on the
outstanding principal amount of the Loan at the annual rate equal to the
Interest Rate applicable to the Loan.
(b) Interest on Overdue Payments; Default Interest Rate. If any
amount of principal or interest or any other Obligation is not paid when
due, or upon the occurrence and during the continuance of any Event of
Default or if Lender exercises its rights hereunder to accelerate the Note
pursuant to Section 9.2(b), the outstanding principal and all accrued and
unpaid interest as well as any other Obligations due Lender hereunder or
under any Loan Document, shall bear interest at the Default Interest Rate
from the date on which such amount shall have first become due and payable
to Lender to the date on which such Event of Default shall have occurred,
to the date on which such amount shall be paid to Lender (whether before or
after judgment), or such Event of Default shall have been waived or cured.
Interest will continue to accrue until the Obligations in respect of the
payment are discharged (whether before or after judgment).
Section 2.5 Repayments and Prepayments of Principal.
(a) Payments on the Term Loan. Borrower shall pay to Lender,
and Borrower hereby authorizes Lender to charge the account of Borrower
maintained with Lender, beginning on January 1, 2001, and on each the first
Business Day of each month thereafter, monthly installments of principal,
each in the amount of Eighty-Three Thousand Three Hundred Thirty-Three and
34/100 Dollars ($83,333.34), plus accrued interest thereon at the Interest
Rate applicable to the Term Loan; provided that in any event the last
installment of principal on the Term Loan shall be due and payable on the
Termination Date (if not earlier prepaid) and shall be in an amount
sufficient to pay in full the entire unpaid principal amount of the Term
Loan.
(b) Prepayments from Extraordinary Dispositions. Except for Net
Proceeds arising from the sale of the Junior Library Guild as provided in
Section 8.4(a) below, immediately upon receipt by Borrower of Net Proceeds,
Borrower shall prepay the Loan in an amount equal to the total Net Proceeds
then subject to this Section 2.5(b) in accordance with Section 2.5(e).
Notwithstanding the foregoing, in the event that Borrower (1) has an
accrued tax liability with respect to an Extraordinary Disposition, or (2)
reasonably expects the proceeds of such Extraordinary Disposition to be
(i) reinvested within six (6) months of the receipt thereof in productive
assets of a kind then used or useable in the business of Borrower and its
Subsidiaries, or (ii) in the case of insurance and condemnation proceeds,
utilized within six (6) months of the receipt thereof (or such longer
period as the Lender may agree to, such agreement not to be unreasonably
withheld if the Borrower has timely begun and is diligently pursuing the
rebuilding or repair in question but reasonably expects that such
rebuilding or repair will not be completed within such six (6) month
period) to repair the loss or damage to or otherwise rebuild the assets in
respect of which the proceeds were paid, then Borrower shall deliver such
proceeds or portion thereof to Lender to be held by Lender in a cash
collateral account bearing interest payable to Borrower at a rate per annum
(meaning three hundred sixty (360) days) equal to the Interest Rate for
that portion of such proceeds not in excess of the balance outstanding on
the Term Loan. Upon Borrower's request, Lender shall release such proceeds
to Borrower for payment of the accrued tax liability or for reinvestment,
repair or rebuilding. In the event Borrower (1) is not required to pay all
or any portion of the accrued tax liability, or (2) fails to reinvest such
proceeds or utilize them for repair or rebuilding within six (6) months of
the receipt thereof (or such longer period that may be agreed to pursuant
to this Section 2.5(b), Borrower authorizes and directs Lender and Lender
to apply such amount as a prepayment of the Loan to be applied in
accordance with Section 2.5(e).
(c) Prepayment from Key Man Insurance. In the event that
Borrower receives proceeds from payment of the key man life insurance
maintained pursuant to Section 6.3, Borrower shall prepay the Loan in an
amount equal to the lesser of such insurance proceeds or the amount of the
Obligations then outstanding. Prepayments made under this Section 2.5(c)
shall be applied to the Loan in accordance with Section 2.5(e).
(d) Maturity. The Term Loan Note shall, if not sooner paid, be
in any event absolutely and unconditionally due and payable in full by
Borrower on the sixth (6th) anniversary of the Closing Date, the date of
the final maturity of the Note.
(e) Application of Proceeds. With respect to mandatory
prepayments described in Sections 2.5(b) and 2.5(c) above, such prepayments
shall be applied in the inverse order of maturity to the payment of the
remaining installments on the Term Loan, except that with respect to the
payments under Section 2.5(b), such prepayments shall first be paid to
Senior Lender to permanently reduce the obligations of Borrower or its
Subsidiaries on the Senior Debt; then the balance of such prepayment, if
any, shall be applied to the Term Loan.
Section 2.6 Payments and Computations.
(a) Time and Place of Payments. Notwithstanding anything in
this Agreement or any of the other Loan Documents to the contrary, each
payment payable by Borrower to the Lender under this Agreement or any of
the other Loan Documents shall be made directly to the Lender, at Lender's
Head Office, not later than 12:00 noon Eastern Standard or Eastern Daylight
Time, as applicable in Cincinnati, Ohio, on the due date of each such
payment in immediately available and freely transferrable funds.
(b) Application of Funds. Notwithstanding anything herein to
the contrary, the funds received by Lender with respect to the Obligations
shall be applied as follows:
(i) No Default. If the Note has not been accelerated
pursuant to Section 9.2(b) and if no Default or Event of Default
hereunder or under the Note or any of the other Loan Documents shall
have occurred and be continuing at the time Lender receives such
funds, in the following manner: (a) first, to the payment of all
fees, charges, and other sums (with exception of principal and
interest) due and payable to Lender under the Note, this Agreement or
the other Loan Documents at such time; (b) second, to the payment of
all of the interest which shall be due and payable on the principal of
the Note at the time of such payment; (c) third, to the payment of
such amount of principal of the Term Loan Note that is then due; and
(d) fourth, to Borrower.
(ii) Default. If the Note has been accelerated pursuant to
Section 9.2(b), or if a Default or Event of Default hereunder shall
have occurred and be continuing hereunder or under the Note or any of
the other Loan Documents at the time Lender receives such funds, in
the following manner: (a) first, to the payment or reimbursement of
Lender for all costs, expenses, disbursements and losses which shall
have been incurred or sustained by Lender in or incidental to the
collection of the Obligations owed by Borrower hereunder or the
exercise, protection, or enforcement by Lender of all or any of the
rights, remedies, powers and privileges of Lender under this
Agreement, the Note, or any of the other Loan Documents and in and
towards the provision of adequate indemnity to the Lender against all
taxes or Liens which by law shall have, or may have priority over the
rights of the Lender in and to such funds; and (b) second, to the
payment of all of the Obligations in accordance with Section 2.6(b)(i)
above.
(c) Payments on Business Days. If any sum would (but for the
provisions of this Section 2.6(c)) become due and payable to Lender by
Borrower under any of the Loan Documents on any day which is not a Business
Day, then such sum shall become due and payable on the Business Day next
succeeding the day on which such sum would otherwise have become due and
payable hereunder or thereunder, and interest payable to Lender or any
Lender under this Agreement or any of the other Loan Documents shall
continue to accrue and shall be adjusted by the Lender accordingly.
(d) Computation of Interest. All computations of interest
payable under this Agreement, the Note, or any of the other Loan Documents
shall be computed by Lender on the basis of the actual principal amount
outstanding on each day during the payment period and shall be calculated
on the basis of the actual number of days elapsed during such period for
which interest is being charged, predicated on a year consisting of three
hundred and sixty (360) days. The daily interest charge shall be one three-
hundred-sixtieth (1/360th) of the annual interest amount. Each
determination of any interest rate by Lender pursuant to this Agreement,
the Note, or any of the other Loan Documents shall be conclusive and
binding on Borrower in the absence of manifest error. Absent manifest
error, a certificate or statement signed by an authorized officer of Lender
shall be conclusive evidence of the amount of the Obligations due and
unpaid as of the date of such certificate or statement.
Section 2.7 Payments to be Free of Deductions. Each payment
payable by Borrower to Lender under this Agreement, the Note, or any of the
other Loan Documents shall be made in accordance with Section 2.6 hereof,
without set-off or counterclaim and free and clear of and without any
deduction of any kind for any taxes, levies, imposts, duties, charges,
fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
political subdivision or any taxing or other authority therein, unless
Borrower is compelled by law to make any such deduction or withholding or
such set-off or counterclaim in favor of Borrower results from the gross
negligence or willful misconduct of Lender. In the event that any such
obligation to deduct or withhold is imposed upon Borrower with respect to
any such payment payable by Borrower to Lender, (a) Borrower shall be
permitted to make the deduction or withholding required by law in respect
of the said payment, and (b) there shall become and be absolutely due and
payable by Borrower to Lender on the date on which the said payment shall
become due and payable and Borrower hereby promises to pay to Lender on
such date, such additional amount as shall be necessary to enable Lender to
receive the same net amount which Lender would have received on such due
date had no such obligation been imposed by law. Anything in this Section
2.7 to the contrary notwithstanding, the foregoing provisions of this
Section 2.7 shall not apply in the case of any deductions or withholdings
made in respect of taxes charged upon or by reference to the overall net
income, profits or gains of Lender. Borrower shall have no obligation to
make any payment pursuant to this Section 2.7 with respect to any Lender
who is not a party hereto on the Closing Date unless (i) no such payments
would be payable to any such Lender on the date it becomes a party hereto
and no such payments could be reasonably expected to be payable to such
Lender, and (ii) if such Lender is organized under the laws of a foreign
jurisdiction, such jurisdiction is exempt from United States withholding
tax and such Lender has provided Borrower with an Internal Revenue Form
4224 or Form 1001 or other certificate of document required under United
States law to establish entitlement to such exemption.
Section 2.8 Use of Proceeds.
(a) Permitted Uses of Loan Proceeds. Borrower represents,
warrants and covenants to Lender that all proceeds of the Loan shall be
used by Borrower solely for the purpose of providing funds for expansion of
Borrower's business, including inventory purchases and acquisition
financing.
(b) Prohibited Uses. Borrower represents, warrants and
covenants to Lender that no part of the proceeds of the Loan will be used
(directly or indirectly) so as to result in a violation under Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System or for
any other purpose violative of any rule or regulation of such Board.
Section 2.9 Additional Costs. If Lender shall reasonably determine
that any future applicable law, rule or regulation, or any change in any
present law or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) from any such authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on Lender's
capital, as a consequence of its obligations hereunder, to a level below
that which Lender could have achieved but for such adoption, change or
compliance by any amount deemed by Lender to be material and is not
otherwise reflected in the interest and other charges payable by Borrower
hereunder, then Borrower shall pay to Lender upon demand such amount or
amounts, in addition to the amounts payable under the other provisions of
this Agreement, or the Note, as will compensate Lender for such reduction.
Determinations by Lender of the additional amount or amounts required to
compensate Lender in respect of the foregoing shall be conclusive in the
absence of manifest error. In determining such amount or amounts, Lender
may use any reasonable averaging and attribution methods.
Section 2.10 Lender Statements. A statement signed by an officer of
Lender setting forth any additional amount required to be paid by Borrower
to Lender under Sections 2.7 and 2.9 hereof, and the computations made by
Lender to determine such additional amount or amounts, shall be submitted
by Lender to Borrower in connection with each demand made at any time by
Lender under either of such Sections. A claim by Lender for all or any
part of any additional amounts required to be paid by Borrower under
Sections 2.7 and 2.9 hereof may be made before or after any payment to
which such claim relates. Each such statement shall, in the absence of
manifest error, constitute conclusive evidence of the additional amount
required to be paid to Lender, provided it sets out in reasonable detail
the reasons for such notice and the averaging and attribution methods used
by Lender to determine the amounts set forth in such notice.
ARTICLE 3
SECURITY AGREEMENT
Section 3.1 Security Interest. To secure the prompt repayment of
the Note and the Obligations, Borrower hereby grants and hereby pledges and
collaterally assigns to Lender a first lien and security interest in and to
all of Borrower's personal property and fixtures (subject only to the
Obligations of Borrower under the Senior Debt and Permitted Liens),
wherever located, whether now or hereafter owned, existing or acquired or
hereafter arising, including, without limitation, the Collateral. To
further secure the Obligations, Borrower has executed and delivered to
Lender such certificates and the like as necessary from time to time to
secure the Obligations hereunder; and shall deliver to Lender to the extent
required herein or upon Lender's request in accordance with the terms of
this Agreement, all instruments, documents and chattel paper in which
Borrower from time to time has an interest and such other documents as
Lender may request to perfect a security interest in the Collateral.
Section 3.2 Financing Statements; Additional Documents. Borrower
shall take all necessary action or as requested by Lender to continue as
perfected the first lien and security interest (subject only to the
Obligations and Liens of Borrower under the Senior Debt and Permitted
Liens) in the Collateral of Lender, except for such Collateral in which a
first lien can be perfected only by possession. Such filings shall be in
form and substance required by Lender, and Borrower shall pay all costs of
recording and filing the financing statements (and any continuation or
termination statements with respect thereto) and any other documents,
titles, statements, assignments or the like reasonably required to create,
maintain, preserve or perfect the liens or security interests granted under
the Loan Documents, together with costs and expenses of any lien or UCC
searches required by Lender in connection with the making of the Loan. At
Lender's request, Borrower shall execute and deliver to Lender at any time
and from time to time hereafter, all supplemental documentation that Lender
may reasonably request to perfect, maintain, preserve or continue the
security interest and liens granted Lender hereby and under any of the
other Loan Documents, in form and substance acceptable to Lender, and pay
the costs of preparing and recording or filing of the same. Borrower
agrees that a carbon, photographic, or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement. Except
as otherwise provided in this Agreement, Borrower, immediately on acquiring
Inventory or Accounts or Proceeds thereof for which separate perfection is
necessary or reasonably considered desirable by Lender, shall deliver to
Lender any and all evidence of ownership of any such property and shall
take all such action as may be reasonably necessary to perfect Lender's
security interest in such property. Lender (by any of its officers,
employees or agents) shall have the right, at any time or times during
Borrower's usual business hours, to inspect the Collateral, all records
related thereto (and to make extracts from such records) and the Premises
upon which any of the Collateral is located, to discuss Borrower's affairs
and finances with any accountant, Account Debtor or creditor of Borrower
and to verify the amount, quality, quantity, value and condition of, or any
other matter relating to, the Collateral. Borrower shall perform all
reasonable acts and execute or cause to be executed all documents,
including, without limitation, the Assignment of Copyrights for filing with
the United States Patent and Trademark Office, state offices and
corresponding foreign registries as Lender reasonably deems necessary or
desirable, to establish, perfect, record and maintain the security interest
in the Intellectual Property and the goodwill symbolized thereby (whether
now existing or hereafter acquired).
Section 3.3 Accounts; Chattel Paper; Lease Agreements. Subject to
the terms of a Subordination and Intercreditor Agreement among Lender,
Borrower, Borrower's Subsidiaries and The Huntington National Bank
("Subordination Agreement"), which Subordination Agreement may be modified
at the option of the parties thereto, after the occurrence of an Event of
Default and during the continuance thereof, Lender shall have the right at
any time to notify any Person obligated to make payments to Borrower with
respect to Accounts, Chattel Paper and lease agreements to make such
payments directly to Lender or directly into the deposit accounts.
Section 3.4 Pledge of Stock. As additional collateral for the Loan
to be made hereunder, Borrower shall execute and deliver a Pledge Agreement
with respect to all Capital Stock of any Subsidiary of Borrower, which
pledge shall constitute a first lien and security interest in such Capital
Stock (subject only to the Obligations and Liens of Borrower under the
Senior Debt and Permitted Liens). Borrower represents to Lender that
Borrower has delivered to Senior Lender the stock certificates evidencing
the pledged Capital Stock. Borrower agrees to have the Letter of
Understanding attached hereto Exhibit E executed by Senior Lender and
Borrower and to deliver said Letter of Understanding to Lender at Closing.
Section 3.5 Release of Collateral. Upon Borrower's full
performance of the Obligations, Lender shall release its interest in all
Collateral. Upon any sale of Collateral permitted pursuant to Section 8.4,
Lender shall release its interest in the portion of the Collateral being
sold, without prejudice to the continuation of its lien on any other
Collateral.
ARTICLE 4
CONDITIONS PRECEDENT TO DISBURSEMENTS
Section 4.1 Conditions Precedent to Initial Closing. On or prior
to the Closing Date, each of the following conditions precedent shall have
been satisfied:
(a) Certified Copies of Charter Documents and By-Laws. Lender
shall have received from Borrower the charter or other organization
documents of Borrower certified by the applicable Secretary of State.
(b) Proof of Corporate Authority. Lender shall have received
from Borrower copies, certified by the Secretary or an Assistant Secretary
of Borrower to be true and complete on and as of the Closing Date, of
records of all action taken by Borrower to authorize (i) the execution and
delivery of this Agreement and the other Loan Documents and to which it is
or is to become a party as contemplated or required by this Agreement;
(ii) its performance of all of its obligations under each of such
documents; and (iii) the making by Borrower of the borrowings contemplated
hereby. Lender shall have received from the Delaware Secretary of State a
Certificate of Good Standing of recent date certifying the existence and
good standing of Borrower under the laws of the State of Delaware and its
good standing in each state where Borrower is required to qualify to
conduct business.
(c) Authority to execute Pledge Agreements. Each Person
executing a Pledge Agreement which is not an individual shall deliver to
Lender such evidence as Lender shall reasonably deem necessary to evidence
the authority of such Person to execute and deliver each such Pledge
Agreement and to perform its respective obligations thereunder.
(d) Incumbency Certificate. Lender shall have received from
Borrower an incumbency certificate, dated as of the Closing Date, signed by
the Secretary or an Assistant Secretary of Borrower and giving the name and
bearing a specimen signature of each individual who shall be authorized (i)
to sign, in the name and on behalf of Borrower, each of the Loan Documents
to which Borrower is or is to become a party on the Closing Date; and (ii)
to give notices and to take other action on behalf of Borrower under the
Loan Documents.
(e) Officers' Certificates. Lender shall have received from
Borrower a certificate dated as of the Closing Date, signed by a duly
authorized officer and certifying that each of the representations and
warranties made by and on behalf of Borrower to Lender in this Agreement
and in the other Loan Documents was true and correct when made, and is true
and correct on and as of the Closing Date.
(f) Loan Documents. (i) Each of the Loan Documents shall have
been duly and properly authorized, executed and delivered by Borrower and
shall be in full force and effect on and as of the Closing Date; (ii) an
executed original of the Note shall have been delivered to Lender; and
(iii) executed originals or (as the case may be) executed counterparts of
each of the other Loan Documents shall have been delivered to Lender.
(g) Insurance. Lender shall have received copies of certificates
of insurance executed by each insurer or its authorized agent evidencing
the insurance required to be maintained by Borrower pursuant to Section
6.2(b).
(h) Legality of Transactions. No change in applicable law shall
have occurred as a consequence of which it shall have become and continue
to be unlawful (i) for Lender to perform any of its agreements or
obligations under any of the Loan Documents to which it is a party on the
Closing Date; or (ii) for Borrower to perform any of its agreements or
obligations under any of the Loan Documents to which it is a party on the
Closing Date.
(i) Performance. Borrower shall have duly and properly
performed, complied with and observed each of its covenants, agreements and
obligations contained in each of the Loan Documents to which Borrower is a
party or by which Borrower is bound on the Closing Date. No event shall
have occurred on or prior to the Closing Date, and no condition shall exist
on the Closing Date, which constitutes a Default or an Event of Default.
(j) Proceedings and Documents. All corporate, governmental and
other proceedings in connection with the transactions contemplated by this
Agreement, each of the other Loan Documents and all instruments and
documents incidental thereto shall be in form and substance satisfactory to
Lender, and Lender shall have received all such counterpart originals or
certified or other copies of all such instruments and documents as Lender
shall have requested.
(k) Compliance with Laws. The borrowings made under this
Agreement are and shall be in compliance with the requirements of all
applicable laws, regulations, rules and orders, including without
limitation, the Environmental Laws and the requirements imposed by the
Board of Governors of the Federal Reserve System under Regulations U, G and
X, and by the SEC.
(l) Legal Opinion. Lender shall have received a written legal
opinion, addressed to Lender and dated as of the Closing Date, from legal
counsel for Borrower, which shall be substantially in the form of attached
Exhibit F and which legal opinion shall otherwise be acceptable to Lender.
(m) Legal Fees. Borrower shall have reimbursed Lender for all
fees and disbursements of legal counsel to Lender which shall have been
incurred by Lender through the Closing Date in connection with the
preparation, negotiation, review, execution and delivery of the Loan
Documents and the handling of any other matters incidental thereto.
(n) Payment of Closing Fee. Borrower shall have paid to Lender
the closing fee separately agreed to between Lender and Borrower.
(o) Post-Closing Availability. After giving effect to the
consummation of the transactions contemplated hereby, Borrower shall
deliver to Lender a Certificate, in the form of Exhibit G attached hereto,
as of the Closing Date demonstrating Working Capital cash availability of
at least Three Hundred Thousand Dollars ($300,000.00).
(p) Key Man Life Insurance. Borrower shall have secured a
letter from Borrower's insurance agent acknowledging (i) that Borrower has
applied for the key man life insurance policy required by Section 6.3
hereof, and (ii) that such policy will be issued, subject only to normal
underwriting guidelines.
(q) Lien Searches. Lender shall have received the results of a
recent search by a Person satisfactory to Lender, of the UCC, judgment and
tax lien filings which may have been filed with respect to personal
property of Borrower or any of its Subsidiaries in the jurisdictions listed
on Schedule 5.21, and the results of such search shall be satisfactory to
Lender.
(r) Changes; None Adverse. From the date of the Current
Financial Statements referred to in Section 5.5 of this Agreement to the
Closing Date, no changes shall have occurred in the assets, liabilities,
financial condition, business, operations or prospects of Borrower which,
individually or in the aggregate, are materially adverse to Borrower.
(s) Financial Statements. Lender shall have received the
Current Financial Statements referred to in Section 5.5, certified by an
officer of Borrower, and Lender shall have been satisfied that such Current
Financial Statements accurately reflect the financial status and condition
of Borrower.
(t) Warrant. Borrower shall have issued to Lender a warrant
("Warrant"), in the form of Exhibit H attached hereto, to purchase five
percent (5%) (less twenty-five thousand (25,000) shares) of the fully-
diluted Equity Interests of Borrower in form and substance satisfactory to
Lender. The Warrant shall be issued pursuant to a warrant agreement
("Warrant Agreement") in the form of Exhibit I attached hereto. In the
event (i) Borrower's EBITDA (calculated in accordance with Section 1.2
hereof, except excluding from such calculation expenses specifically
related to the raising of additional equity) for the calendar year ended
December 31, 1998 is less than Two Million Six Hundred Fifty Thousand
Dollars ($2,650,000.00), and (ii) the Term Loan has not been completely
repaid prior to December 31, 1998, then Borrower shall issue to Lender a
warrant, in the form of Exhibit H attached hereto, to purchase one and
67/100 percent (1.67%) of the then fully-diluted Equity Interests of
Borrower on the same terms and conditions as the Warrant described in the
preceding sentence.
(u) Guaranty. Lender shall have received an executed Guaranty
Agreement, in the form of that attached hereto as Exhibit J, from each of
Borrower's Subsidiary corporations, to wit: Pages Book Fairs, Inc., a
Florida corporation, and Pages Library Services, Inc., a Florida
corporation.
ARTICLE 5
GENERAL REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
Section 5.1 Existence.
(a) Borrower (i) is duly organized, validly existing and in good
standing under the laws of the State of Delaware; and (ii) has full
corporate power and authority and full legal right to own or to hold under
lease its Property and to carry on its business. Borrower is qualified and
licensed in each jurisdiction wherein the character of the Property owned
or held under lease by it, or the nature of its business makes such
qualification necessary or advisable. Borrower is currently qualified in
good standing as a foreign corporation in each jurisdiction set forth on
Schedule 5.1(a).
(b) As of the Closing Date, there are six million five hundred
sixty-four thousand nine (6,564,009) issued and outstanding shares of
Borrower's common stock (exclusive of two hundred ninety-eight thousand
seven hundred thirteen (298,713) shares held as treasury shares by
Borrower), all of which have been duly authorized and validly issued, fully
paid and nonassessable. Except as listed on Schedule 5.1(b) and as
contemplated by this Agreement, there are no outstanding options, rights or
warrants issued by Borrower for the acquisition of shares of the Capital
Stock of Borrower, nor any outstanding securities or obligations
convertible into such shares, nor any agreements by Borrower to issue or
sell such shares. Except as listed on Schedule 5.1(b) and as contemplated
by this Agreement, there are no options, sale agreements, pledges (other
than the Pledge Agreement in favor of the Lender), proxies, voting trusts,
powers of attorney or any other agreements or instruments binding upon any
of Borrower's shareholders with respect to beneficial or record ownership
of or voting rights with respect to shares of the Capital Stock of
Borrower.
(c) Borrower has no Subsidiaries except as set forth on Schedule
5.1(c). All the Capital Stock of each Subsidiary are free and clear of all
Liens other than those in favor of Senior Lender and Lender. Each
Subsidiary (i) is duly organized, validly existing and in good standing
under the laws of the state of its incorporation, and (ii) has full
corporate power and authority and full legal right to own or to hold under
lease its Property and to carry on its business. Each Subsidiary is
qualified and licensed in each jurisdiction wherein the character of the
Property owned or held under lease by it, or the nature of its business
makes such qualification necessary or advisable. Each Subsidiary is
currently qualified in good standing as a foreign corporation in each
jurisdiction set forth on Schedule 5.1(c).
(d) Except for stock of Subsidiaries or as listed on Schedule
5.1(d), Borrower does not own or hold of record (whether directly or
indirectly) any shares of any class in the capital of any corporation, nor
does Borrower own or hold (whether directly or indirectly) any legal and/or
beneficial equity interest in any partnership, business trust or joint
venture or in any other unincorporated trade or business enterprise.
Section 5.2 Authority.
(a) Borrower has adequate power and authority and has full legal
right to enter into this Agreement and each of the other Loan Documents,
and to perform, observe and comply with all of its agreements and
obligations under each of such documents, including, without limitation the
borrowings contemplated hereby.
(b) The execution and delivery by Borrower of each of the Loan
Documents, the performance by Borrower of all of its agreements and
obligations under such documents, and the making by Borrower of the
borrowings contemplated by this Agreement, have been duly authorized by all
necessary corporate action on the part of Borrower and do not and will not
(i) contravene any provision of its charter documents or by-laws (each as
in effect from time to time); (ii) conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under, or
result in the creation of any Lien upon any of the Property of Borrower
under any agreement, trust deed, indenture, Mortgage or other material
instrument to which Borrower is a party or by which Borrower or any other
Property of Borrower is bound or affected; (iii) violate or contravene any
provision of any law, rule or regulation (including, without limitation,
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System) or any order, ruling or interpretation thereunder or any decree,
order or judgment of any court or governmental or regulatory authority,
bureau, agency or official (all as from time to time in effect and
applicable to Borrower); or (iv) require any waivers, consents or approvals
by any of the creditors or trustees for creditors of Borrower or any other
Person, other than the consent of Senior Lender to the consummation of this
Agreement, which consent is evidenced as part of the Subordination
Agreement.
(c) Other than filings required to perfect the security
interests granted hereunder, no approval, consent, order, authorization or
license by, or giving notice to, or taking any other action with respect
to, any governmental or regulatory authority or agency is required, under
any provision of any applicable law:
(i) for the execution and delivery by Borrower of this
Agreement, the Note, and the other Loan Documents, for the performance
by Borrower of any of the agreements and obligations thereunder or for
the making by Borrower of the borrowing contemplated by this Agreement
or for the conduct by Borrower of its business; or
(ii) to ensure the continuing legality, validity, binding
effect, enforceability or admissibility in evidence of this Agreement,
the Note and the other Loan Documents.
Section 5.3 Binding Effect of Documents. Each of the Loan
Documents which Borrower has or is to have executed and delivered as
contemplated and required to be executed and delivered as of the Closing
Date by this Agreement has been so executed and delivered by Borrower, and
the Loan Document is or will be in full force and effect. The agreements
and obligations of Borrower contained in the Loan Document constitute or
shall constitute legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its respective terms.
Section 5.4 No Events of Default.
(a) No event has occurred and is continuing, and no condition
exists, which constitutes a Default or an Event of Default.
(b) No Default by Borrower and no accrued right of rescission,
cancellation or termination on the part of Borrower, exists under this
Agreement or any of the other Loan Documents.
Section 5.5 Financial Statements. The balance sheets and other
financial statements of Borrower dated September 30, 1997, previously
delivered to Lender ("Current Financial Statements") have been prepared in
accordance with GAAP except as otherwise indicated in the Note to such
financial statements and subject in the case of unaudited statements to
changes resulting from year-end adjustments. The balance sheets contained
in the Current Financial Statements present fairly the financial condition
of Borrower as of the dates thereof in accordance with GAAP. The
statements of income contained in the Current Financial Statements present
fairly the results of operations of Borrower for the fiscal periods then
ended in accordance with GAAP. There are no material liabilities or
obligations, secured or unsecured (whether accrued, absolute or actual,
contingent or otherwise), which were not reflected in the audited balance
sheets of Borrower or that as at such date or in the footnotes thereto, and
which should, in accordance with GAAP, have been reflected in such balance
sheets.
Section 5.6 Changes; None Adverse. No changes have occurred in the
assets, liabilities or financial condition of Borrower from those reflected
in the most recent balance sheet referred to in Section 5.5 hereof (the
"Current Balance Sheet") which, individually or in the aggregate, have been
adverse. Since the date of the Current Balance Sheet, there has been no
adverse development in the business or in the operations or prospects of
Borrower.
Section 5.7 Title to Assets; Material Leases. Subject to the Lien
of Senior Lender and the Permitted Liens, Borrower and its Subsidiaries
have good, sufficient and legal title to, or leasehold interest in, all the
Property and assets reflected in the Current Balance Sheet. Borrower
enjoys peaceful and undisturbed possession of all Property subject to
Material Leases and all such Material Leases are valid and in full force
and effect. All Material Leases in effect on the Closing Date are set
forth in Schedule 5.7.
Section 5.8 Intellectual Property.
(a) Schedule 5.8(a) hereto sets forth a complete and correct
list of all Patents and Copyrights owned by Borrower on the date hereof
which are material to Borrower's business or financial condition. Borrower
owns and possesses the right to use, and has done nothing to authorize or
enable any other Person to use, any Patent or Trademark listed in said
Schedule 5.8(a) and all registrations listed in said Schedule 5.8(a) are
valid and in full force and effect. Borrower owns and possesses the right
to use all Patents and Copyrights.
(b) Schedule 5.8(b) hereto sets forth a complete and correct
list of all licenses and other user agreements included in the Intellectual
Property on the date hereof.
(c) (i) There is no violation by others of any right of Borrower
with respect to any Patent or Trademark listed in Schedule 5.8(a) hereto;
(ii) Borrower is not infringing in any respect upon any Patent or Trademark
of any other Person; (iii) no proceedings have been instituted or are
pending against Borrower or, to Borrower's knowledge, threatened, and no
claim against Borrower has been received by Borrower, alleging any such
violation.
Section 5.9 Indebtedness for Borrowed Money. Except as disclosed
on Schedule 5.9 (which includes Senior Debt) and except for Permitted Liens
and Liens created as a consequence of the execution of this Agreement, no
Indebtedness of Borrower or its Subsidiaries is secured by or otherwise
benefits from any Lien on or with respect to the whole or any part of
Borrower's or its Subsidiaries' properties or assets, present or future.
There exists no default or event or condition which, with the giving of
notice or passage of time, or both, would constitute a default under the
provisions of any instrument evidencing such Indebtedness or of any
agreement relating thereto which would interfere with the priority of
Lender's lien on the Collateral.
Section 5.10 Litigation. Except as listed on Schedule 5.10 hereto,
there is no pending or, to the knowledge of Borrower, threatened action,
suit, proceeding or investigation before any court, governmental or
regulatory authority, agency, commission or official, board of arbitration
or arbitrator against Borrower or its Subsidiaries or in which Borrower or
its Subsidiaries is a participant ("Litigation"). There are no proceedings
pending or, to the knowledge of Borrower, threatened against Borrower or
its Subsidiaries which call into question the validity or enforceability of
any of the Loan Documents.
Section 5.11 No Materially Adverse Contracts. Borrower is not a
party to or bound by any forward purchase contract, futures contract,
covenant not to compete, unconditional purchase, take or pay or other
contracts, agreements or instruments (whether written or oral) which
restricts its ability to conduct its business or, either individually or in
the aggregate has or could reasonably be expected to have a Material
Adverse Effect.
Section 5.12 Taxes and Tax Returns.
(a) Each of Borrower and its Subsidiaries has timely filed
(inclusive of any permitted extensions) or had filed on its behalf with the
appropriate taxing authorities all material returns (including without
limitation, material information returns and other material information) in
respect of taxes required to be filed through the date hereof. The
information filed was complete and accurate in all material respects at the
time of filing. Neither Borrower nor any group of which Borrower is or was
the common parent has requested any extension of time within which to file
returns (including without limitation information returns) in respect of
any taxes other than routine extensions of time for filing returns which
have not involved the payment of material taxes (other than taxes
immaterial in amount) beyond the due date thereof.
(b) All taxes and assessments in respect of periods beginning
prior to the date hereof have been timely paid, or will be timely paid, or
an adequate reserve has been established therefor, as reflected in the most
recent financial statements of Borrower. Neither Borrower nor any of its
Subsidiaries has any liability for taxes in excess of the amounts so paid
or reserves so established.
(c) Except as provided on Schedule 5.12(c), no deficiencies for
taxes have been claimed or, to the knowledge of Borrower, proposed or
assessed by any taxing authority or other governmental authority against
Borrower nor any of its Subsidiaries and no tax liens have been filed.
There are no pending or, to the knowledge of Borrower, threatened audits,
investigations or claims for or relating to any liability in respect to
taxes, and there are no matters under discussion with any taxing
authorities or other governmental authorities with respect to taxes which
are likely to result in an additional liability for taxes. No extension of
a statute of limitations relating to taxes or assessments is in effect with
respect to Borrower.
(d) Neither Borrower nor any of its Subsidiaries has any
obligation under any tax sharing agreement or agreement regarding payments
in lieu of taxes.
Section 5.13 Contracts with Affiliates.
(a) Except as permitted by Section 8.12 hereof, Borrower is not
a party to or otherwise bound by any written agreements, instruments or
contracts (whether written or oral) with any Affiliate.
(b) Except as provided on Schedule 5.13(b), there is no
Indebtedness for Borrowed Money owing by Borrower to any Affiliate nor is
there Indebtedness for Borrowed Money owing by any Affiliate to Borrower.
Section 5.14 Employee Benefit Plans.
(a) Borrower and its ERISA Affiliates are in compliance in all
material respects with any applicable provisions of ERISA and the
regulations thereunder and of the Internal Revenue Code of 1986, as
amended, with respect to all Employee Benefit Plans.
(b) No Termination Event has occurred or is reasonably expected
to occur with respect to any Guaranteed Pension Plan.
(c) The actuarial present value of all benefit commitments under
each Guaranteed Pension Plan does not exceed the assets of that Plan.
(d) Neither Borrower nor any of its ERISA Affiliates has
incurred or reasonably expects to incur any withdrawal liability under
ERISA to Multiemployer Plans.
As used in this Section 5.14, the terms "actuarial present value" and
"benefit commitments" shall have the meanings specified in Section 4001 of
ERISA.
Section 5.15 Governmental Regulation. Borrower and its Subsidiaries
are not "public utility companies," "holding companies" or "subsidiaries"
or "affiliates" of "holding companies," as such terms are defined in the
federal Public Utility Holding Company Act of 1935, as amended. Borrower
is not an "investment company" or a company "controlled" by an "investment
company," as such terms are defined in the Federal Investment Company Act
of 1940, as amended. Borrower is not subject to regulation under the
Public Utility Holding Company Act 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or to any
federal or state statute or regulation limiting its ability to incur
Indebtedness for Borrowed Money.
Section 5.16 Securities Activities. Borrower and its Subsidiaries
are not engaged in the business of extending credit for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such
terms are used in Regulation G, T, U and X of the Board of Governors of the
Federal Reserve System.
Section 5.17 Disclosure. Neither this Agreement, any other Loan
Document, nor any other document, certificate or written statement
furnished to Lender by or on behalf of Borrower for use in connection with
the transactions contemplated by this Agreement, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading as of the
date of such document, certificate or other statement. The assumptions
upon which all projected financial statements which have been delivered to
Lender are based as stated therein and provide reasonable estimations of
future performance. There is no fact known to Borrower which has or which
could reasonably be expected in the future to have a Material Adverse
Effect.
Section 5.18 No Material Default. Borrower and its Subsidiaries are
not in default under any material order, writ, judgment, injunction,
decree, statute or governmental rule, indenture, agreement, contract, lease
or other instrument or contract applicable to them, which default would
have a Material Adverse Effect or adversely effect Borrower's performance
of any covenants or conditions respecting any of its Indebtedness, and no
holder of any Indebtedness of Borrower and its Subsidiaries has given
notice of any asserted default thereunder, and no liquidation or
dissolution of Borrower and no receivership, insolvency, bankruptcy,
reorganization or other similar proceedings relative to Borrower or its
Property is pending or, to the knowledge of Borrower, is threatened.
Section 5.19 Environmental Conditions.
(a) Borrower and its Affiliates have obtained all necessary
permits, licenses, variances, clearances and all other necessary approvals
(collectively the "EPA Permits") for use of the Real Estate and the
operation and conduct of its business from all applicable federal, state,
and local governmental authorities, utility companies or development-
related entities including, but not limited to, any and all appropriate
federal or state environmental protection agencies and other County or City
departments, public water works and public utilities in regard to the use
of the Real Estate and the operation and conduct of its business, and the
handling, transporting, treating, storage, disposal, discharge, or Release
of Hazardous Substances, if any, into, on or from the environment
(including, but not limited to, any air, water, or soil).
Each issued EPA Permit is in full force and effect, has not expired or
been suspended, denied or revoked, and is not under challenge by any
Person. Borrower is in compliance with each issued EPA Permit.
(b) Neither Borrower, the Real Estate, nor any other Property
owned or leased by Borrower is subject to any material private or
governmental litigation, threatened litigation, Lien or judicial or
administrative notice, order or action relating to Hazardous Substances or
environmental problems, impairments or liabilities with respect to the Real
Estate or such other Property.
(c) There has been no "Release" (as defined in Section 101(22)
of CERCLA) into, on or from any Real Estate and no Hazardous Substances
(except "Household Waste" as that term is defined at 40 C.F.R. 261.4(b)(1)
(1990)) are located on or have been treated, stored, processed, disposed
of, handled, transported to or from, disposed of upon the Real Estate
during Borrower's ownership or into, upon or from the environment
including, but not limited to, any air, water, or soil. Borrower has not
allowed any Hazardous Substance to exist or be treated, stored, disposed,
Released, located, discharged, possessed, managed, processed, or otherwise
handled on the Real Estate or in the operation or conduct of its respective
businesses in violation of Environmental Laws, and complied with all
Environmental Laws affecting the Real Estate.
(d) Borrower and its Affiliates do not transport, in any manner,
any Hazardous Substances except in the ordinary course of business in
compliance with Environmental laws.
(e) Borrower has not received written notice of any
circumstances which would result in any material obligation under any
Environmental Law to investigate or remediate any Hazardous Substances in,
on or under the Real Estate.
Section 5.20 Licenses and Permits. Borrower and its Subsidiaries
own or possess all Licenses and Permits and rights with respect thereto,
necessary for the conduct of their business as presently conducted and
proposed to be conducted, without any known conflict with the rights of
others and, in each case, free of any Lien not permitted by Section 8.7 of
this Agreement. All of the foregoing Licenses and Permits are in full
force and effect, and Borrower is in compliance in all material respects
with the foregoing without any known conflict with the valid rights of
others. No event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such
License or Permit, or affect the rights of Borrower thereunder.
Section 5.21 General Collateral Representation.
(a) Borrower is the sole owner of and has good and marketable
title to the Collateral, free from all Liens, in favor of any Person other
than the Senior Lender and the Lender and except Permitted Liens, and has
full right and power to grant the Lender a security interest therein. All
information furnished to the Lender concerning the Collateral is and will
be complete, accurate and correct in all material respects when furnished.
(b) No security agreement, UCC Financing Statement, equivalent
security or Lien instrument or continuation statement covering all or any
part of the Collateral is on file or of record in any public office, except
such as may have been filed (i) by Borrower in favor of the Senior Lender
pursuant to the Senior Debt, (ii) by Borrower in favor of Lender pursuant
to this Agreement, or (iii) in respect of the items of Collateral subject
to the Permitted Liens.
(c) The provisions of this Agreement are sufficient to create in
favor of the Lender, as of the Closing Date, a valid and continuing lien
on, and first security interest in (subject only to the prior lien by
Borrower in favor of the Senior Lender, pursuant to the Senior Debt and the
Permitted Liens), the types of the Collateral hereunder in which a security
interest may be created under Article 9 of the UCC. UCC Financing
Statements have been duly executed on behalf of Borrower and the
description of such Collateral set forth therein is sufficient to perfect
first priority security interests (subject only to the prior lien by
Borrower in favor of the Senior Lender, pursuant to the Senior Debt and the
Permitted Liens) in such Collateral in which a security interest may be
perfected by the filing of UCC Financing Statements. When such UCC
Financing Statements are duly filed in the filing offices listed on
Schedule 5.21 hereto, and the requisite filing fees are paid, such filings
will be sufficient to perfect security interests in such of the Collateral
described in the UCC Financing Statements as can be perfected by filing
(other than Equipment affixed to real property so as to become fixtures),
which perfected security interests will be prior to all other Liens in
favor of others and rights of others, except for Senior Debt and the
Permitted Liens, enforceable as such as against creditors of and purchasers
from Borrower (other than purchasers of Inventory in the ordinary course)
and as against any owner of the Real Estate where any of the Equipment is
located and as against any purchaser of such Real Estate and any present or
future creditor obtaining a Lien on such real property.
(d) Except as provided in Section 3.4, upon delivery to and
possession by Lender of the Pledge Stock pursuant to the terms of the
Pledge Agreement, Lender shall possess a valid, first priority security
interest in such Pledge Stock in accordance with Article 9 of the UCC; and
(e) To the knowledge of Borrower, no person now having
possession or control of any of the Collateral consisting of Inventory or
Equipment has issued, in receipt therefor, a negotiable bill of lading,
warehouse receipt or other document of title.
ARTICLE 6
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants with and warrants to Lender that, from and after
the Closing Date and until all of the Obligations are paid and satisfied in
full:
Section 6.1 Reports and Other Information.
(a) Borrower shall provide to the Lender as soon as available,
and in any event within thirty (30) days after the close of each month of
each fiscal year of Borrower, balance sheets of Borrower as of the end of
such month and consolidated statements of income and statements of cash
flow of Borrower and its divisions and Subsidiaries for such month,
certified by the chief financial officer, principal accounting officer or
chief executive officer of Borrower to the effect that such financial
statements, while not examined by independent public accountants, reflect
in his opinion and in the opinion of senior management of Borrower, all
adjustments necessary to present fairly the consolidated financial position
of Borrower as at the end of such month and the results of its operations
for the month then ended in conformity with GAAP consistently applied,
subject only to year-end and audit adjustments, which statements shall be
delivered at the end of each month, together with a certificate of such
officer (substantially in the form of the attached Exhibit B) stating that
as of the date of such certificate that, to the best of his knowledge,
after reasonable inquiry, no event has occurred which constitutes an Event
of Default or would constitute an Event of Default with the giving of
notice or the lapse of time or both, or, if an Event of Default or such an
event has occurred and is continuing, a statement as to the nature thereof
and the action which Borrower has taken or proposes to take with respect
thereto, and further setting out in such detail as is reasonably required
by the Lender Borrower's compliance with the requirements of Article 7 and
Sections 8.7 and 8.10 hereof.
(b) Borrower shall provide to the Lender as soon as available,
and in any event within forty-five (45) days after the close of each
quarter of each fiscal year of Borrower, balance sheets of Borrower as of
the end of such quarter and consolidated and consolidating statements of
income and statements of cash flow of Borrower and its divisions and
Subsidiaries for such quarter and for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, certified
by the chief financial officer, principal accounting officer or chief
executive officer of Borrower to the effect that such financial statements,
while not examined by independent public accountants, reflect in his
opinion and in the opinion of senior management of Borrower, all
adjustments necessary to present fairly the financial position of Borrower
as at the end of such quarter and the results of its operations for the
quarter then ended in conformity with GAAP consistently applied, subject
only to year-end and audit adjustments, which statements shall be delivered
at the end of each fiscal quarter, together with a certificate of such
officer stating that as of the date of such certificate that, to the best
of his knowledge, after reasonable inquiry, no event has occurred which
constitutes a Default or an Event of Default or would constitute a Default
or an Event of Default with the giving of notice or the lapse of time or
both, or, if a Default or an Event of Default or such an event has occurred
and is continuing, a statement as to the nature thereof and the action
which Borrower has taken or proposes to take with respect thereto, and
further setting out in such detail as is reasonably required by the Lender
Borrower's compliance with the requirements of Article 7 and Sections 8.7
and 8.10 hereof.
(c) Borrower shall provide to the Lender as soon as available
and in any event within ninety (90) days after the end of each fiscal year
of Borrower a copy of the annual financial statements for such year for
Borrower, including therein a copy of the balance sheets of Borrower as of
the end of such fiscal year and consolidated and consolidating statements
of income and statements of cash flow and statements of shareholders'
equity of Borrower and its divisions and Subsidiaries, certified without
qualification by the Accountants, together with a certificate of the chief
financial officer, principal accounting officer or chief executive officer
of Borrower stating that, as of the date of such certificate, to the best
of his knowledge and after reasonable inquiry, no event has occurred which
constitutes a Default or an Event of Default or, if a Default or an Event
of Default or such an event has occurred and is continuing, a statement as
to the nature thereof and the action which Borrower has taken or proposes
to take with respect thereto and further setting out in such detail as is
reasonably required by the Lender, Borrower's compliance with the
requirements of Article 7 and Sections 8.7 and 8.10 hereof.
(d) Together with each delivery of financial statements of
Borrower pursuant to Sections 6.1(a), 6.1(b), or 6.1(c), Borrower will
deliver a management report: (1) describing the operations and financial
condition of Borrower for the period then ended and the portion of the
current fiscal year then elapsed (or for the fiscal year then ended in the
case of year-end financials); (2) setting forth in comparative form the
corresponding figures for the corresponding periods of the previous fiscal
year and the corresponding figures from the most recent Projections for the
current fiscal year delivered to the Lender pursuant to Section 6.1(e); and
(3) discussing the reasons for any significant variations. The information
above shall be presented in reasonable detail and shall be certified by the
chief financial officer or controller of Borrower to the effect that such
information fairly presents the results of operations and financial
condition of Borrower as at the dates and for the periods indicated.
(e) As soon as available and in any event not later than thirty
(30) days prior to the end of each fiscal year, Borrower will deliver
Projections of Borrower for the forthcoming three fiscal years, year by
year, and for the forthcoming fiscal year, month by month.
(f) Borrower shall provide to the Lender, promptly after sending
or filing thereof, copies of all reports and communications which Borrower
sends to its securityholders, and copies of all reports and registration
statements which Borrower files with the Securities and Exchange
Commission.
(g) Borrower shall provide to the Lender as soon as possible,
and in any event within fifteen (15) days after Borrower knows or has
reason to know that any Termination Event with respect to any Plan has
occurred, a statement of the chief financial officer or treasurer of each
entity comprising Borrower describing such Termination Event and the action
which Borrower proposes to take with respect thereto.
(h) Borrower shall provide to the Lender as soon as possible,
and in any event within five (5) days after the occurrence of a Default or
an Event of Default, continuing on the date of such statement, a statement
of the chief financial officer or treasurer of Borrower setting forth the
details of such Default or Event of Default, and the action which Borrower
proposes to take with respect thereto.
(i) If (and on each occasion that) any of the following events
shall occur:
(i) any Loan Document shall at any time be terminated,
canceled or rescinded for any reason whatever; or
(ii) any action at law, suit in equity or other legal
proceeding shall at any time be commenced or threatened in writing by
any person (A) to terminate, cancel or rescind any Loan Document, or
(B) to enforce any other Person's performance or observance of or
compliance with any covenants, agreements or obligations under any
Loan Document; or
(iii) any Person which is a party to or otherwise bound
by any Loan Document shall fail or refuse to perform, comply with or
observe or shall otherwise breach any one or more of the material
covenants, agreements or obligations under such Loan Document;
then Borrower will promptly (and, in any event, within five (5) Business
Days) after Borrower shall have first become aware of the occurrence of any
such event, furnish to Lender written notice setting forth brief
particulars thereof.
(j) Borrower shall provide the Lender with the following
additional reports:
(i) as soon as available and in any event within a
reasonable time after the close of each fiscal year of Borrower copies
of the portions of any and all management letters from the
Accountants, if any, to the board of directors of Borrower or to any
other entity comprising Borrower regarding the various accounting
practices and control procedures used by Borrower;
(ii) promptly after Borrower becomes aware of the
commencement thereof, notice of all actions, suits and proceedings
before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which may
adversely affect Borrower and which are not fully covered by insurance
without the applicability of any co-insurance provisions or which have
not been bonded and in which either (A) the amount in controversy
exceeds Fifty Thousand Dollars ($50,000.00) for any single proceeding
or One Hundred Thousand Dollars ($100,000.00) in the aggregate or (B)
would cause a Material Adverse Effect;
(iii) as soon as practicable after becoming aware of a
claim by any Person that Borrower is in default under any agreement
entered into in connection with Indebtedness for Borrowed Money in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00), notice of
any such claim or default;
(iv) notice of any change in the conduct of the business,
prospects or financial condition of Borrower promptly upon Borrower
becoming aware of any such change which would have a Material Adverse
Effect;
(v) notice of any release of Hazardous Substances on the
Real Estate that is in material violation of Environmental Laws or
would require remediation pursuant to applicable federal or state law
or of any notification having been filed with regard to a release of
Hazardous Substances on or into Real Estate under the Federal
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Section 9601, et seq., or the Federal Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., or any other
applicable environmental law. Such notice shall indicate the steps
Borrower has or will take to remediate all hazardous environmental
conditions if any such steps are required of it by applicable
Environmental Law and the estimated costs of such remediation; and
(vi) if (and on each occasion that) any event shall at any
time occur or any condition shall at any time develop which
constitutes a Default or an Event of Default, then, promptly (and, in
any event, within five (5) Business Days) after Borrower shall have
first become aware of the occurrence or development of any such event
or condition, Borrower will furnish or cause to be furnished to Lender
a written notice specifying the nature and the date of the occurrence
of such event or (as the case may be), the nature and the period of
existence of such condition and what action Borrower is taking or
proposes to take with respect thereto.
(k) Borrower shall also provide the Lender with such other
information relating to Borrower or any of its Subsidiaries (including,
without limitation, any Employee Benefit Plan) as the Lender may from time
to time reasonably request. To the extent the Lender is obligated to do so
by applicable law, rule or regulation, it may deliver to any regulatory
body having jurisdiction over it, copies of the reports and other
information provided by Borrower to the Lender pursuant to this Section
6.1.
(l) Within forty-five (45) days following the Closing Date,
Borrower shall secure and assign to Lender the key man life insurance
policy required to be maintained pursuant to Section 6.3 hereof.
Section 6.2 Maintenance of Property; Authorization; Insurance.
(a) Borrower covenants to keep and maintain (consistent with
past practices and in the ordinary course of business) all of its and its
Subsidiaries' Property in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time to make, or use
all reasonable legal remedies to cause to be made, all proper repairs,
renewals or replacements, betterments and improvements thereto so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
(b) At its own cost and expense, Borrower shall obtain and
maintain during the term of this Agreement (i) insurance against loss,
destruction or damage to its properties as Lender may require from time to
time to fully protect the Lender's interests in the Collateral, and (ii)
insurance against public liability and third party property damage, with
such insurance companies, in the amounts reflected on Schedule 6.2(b) and
covering such risks as are at all times satisfactory to Lender and naming
Lender, along with Senior Lender, as an additional insured as their
respective interests may appear. Borrower agrees to deliver to Lender and
Senior Lender upon request insurance certificates or policies evidencing
compliance with the above requirements. Borrower covenants, warrants and
represents that it will not do any act or voluntarily suffer or permit any
act to be done whereby any insurance required hereunder shall or may be
suspended, impaired or defeated. In the event that any item of Collateral
shall be lost, destroyed or irreparably damaged from any cause whatsoever
during the term hereof, Borrower agrees to proceed diligently and cooperate
fully with Lender in the recovery of any and all proceeds of insurance
applicable thereto, and the carriers named therein are hereby directed by
Borrower to make payment for such loss to Lender, and not to Borrower and
Lender jointly. If any insurance losses are paid by check, draft or other
instrument payable to Borrower and Lender jointly, Lender may endorse the
name of Borrower thereon and do such other things as it may deem advisable
to reduce the same to cash. Provided Borrower is not in Default in any of
its Obligations under any of the Loan Documents, all loss recoveries
received by Lender upon any such insurance shall be paid by Lender to
Borrower so long as such proceeds promptly are reinvested in Borrower's
business. Should Borrower then be in default in any of its obligations to
Lender under any of the Loan Documents, such cash resources may be applied
and credited by Lender to any obligation, subject to Section 2.6(b).
Borrower further covenants that it shall require that the insurer with
respect to each such insurance policy provide for thirty (30) days' advance
written notice to Lender of any cancellation or termination of, or other
change of any nature whatsoever in, the coverage provided under any such
policy.
Section 6.3 Key Man Life Insurance. Borrower shall obtain and
maintain a key man life insurance policy covering William L. Clarke in an
amount not less than Three Million Dollars ($3,000,000.00), and Borrower
shall maintain such insurance in full force and effect until the Loan have
been paid in full and all financing agreements among Borrower, Lender
related thereto have been terminated. Borrower shall assign such policy to
the Lender pursuant to an assignment in form and substance satisfactory to
the Lender with respect to such policy.
Section 6.4 Corporate Existence. Borrower shall preserve and
maintain its existence as a Delaware corporation and all of its rights,
franchises and privileges as a corporation.
Section 6.5 Inspection Rights. At any reasonable time, upon
reasonable notice, and from time to time Borrower shall permit the Lender,
or any of their agents, representatives or current or prospective
participants in the Loan, to inspect the Collateral, to examine and make
copies of and abstracts from the records and books of account of, to visit
the properties of, Borrower and to discuss the affairs, finances and
accounts of Borrower with any of their officers, employees, agents or the
Accountants.
Section 6.6 Payment of Taxes and Claims. Borrower shall pay or
cause to be paid all taxes, assessments and other governmental charges
imposed upon its properties or assets or in respect of any of its
franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable and which by
law have or might become a lien or charge upon any of its properties or
assets, provided that (unless any material item of property would be lost,
forfeited or materially damaged as a result thereof) no such charge or
claim need be paid if the amount, applicability or validity thereof is
currently being contested in good faith and if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made therefor.
Section 6.7 Compliance with Laws.
(a) Borrower will comply with all applicable federal, state and
local laws, rules, regulations and orders pertaining to the operation of
its business, paying before the same become delinquent all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or its properties, and paying all lawful claims which if
unpaid might become a Lien upon any of its properties, except to the extent
contested in good faith by proper proceedings which stay the imposition of
any penalty, fine or Lien resulting from the non-payment thereof and with
respect to which adequate reserves have been set aside for the payment
thereof.
(b) Borrower will promptly notify Lender in the event that
Borrower receives any notice, claim or demand from any governmental agency
which alleges that Borrower is in material violation of any of the terms
of, or has materially failed to comply with any applicable order issued
pursuant to any federal, state or local statute regulating its operation
and business, including, but not limited to, the Occupational Safety and
Health Act, the Federal Comprehensive Environmental Response, Compensation
and Liability Act, the Resource Conservation and Recovery Act and the
Federal Water Pollution Control Act.
Section 6.8 Notice of Other Events. Immediately upon Borrower
first becoming aware of any of the following occurrences, Borrower will
furnish or cause to be furnished to Lender written notice with full
particulars of (i) the business failure, insolvency or bankruptcy of
Borrower; (ii) the rescission, cancellation or termination, or the creation
or adoption, of any agreement or contract to which Borrower is a party;
(iii) any labor dispute, any attempt by any labor union or organization
representatives to organize or represent employees of Borrower, or any
unfair labor practices or proceedings of the National Labor Relations Board
with respect to Borrower; or (iv) any defaults or events of default under
any agreement of Borrower or any violations of any laws, regulations, rules
or ordinances of any governmental or regulatory body.
Section 6.9 Communication with Accountants. Borrower authorizes
Lender to communicate directly with the Accountants and authorizes the
Accountants to disclose to Lender any and all financial statements and
other information of any kind, including copies of any management letter or
the substance of any oral information or conversation that such Accountants
may have with respect to the business, financial condition and other
affairs of Borrower.
Section 6.10 Payment of Indebtedness. Borrower will duly and
punctually pay or cause to be paid principal and interest on the Loan and
all fees and other amounts payable hereunder or under the Loan Documents in
accordance with the terms hereunder. Borrower shall pay all other
Indebtedness (whether existing on the date hereof or arising at any time
thereafter) punctually in accordance with trade practices or within any
applicable period of grace except to the extent that any such obligation is
contested in good faith by proper proceedings or Borrower has provided
Lender evidence that any Lien resulting from the non-payment thereof has
been bonded or with respect to which adequate reserves have been set aside
for the payment thereof.
Section 6.11 Payment of Fees. Borrower shall pay to Lender the
Closing Fee of Forty-Five Thousand Dollars ($45,000.00) at Closing.
Section 6.12 Performance of Obligations Under Certain Documents.
Borrower will duly and properly perform, observe and comply with all of its
agreements, covenants and obligations under this Agreement and each of the
other Loan Documents.
Section 6.13 Governmental Consents and Approvals.
(a) Borrower will obtain or cause to be obtained all such
approvals, consents, orders, authorizations and licenses from, give all
such notices promptly to, register, enroll or file all such agreements,
instruments or documents promptly with, and promptly take all such other
action with respect to, any governmental or regulatory authority, agency or
official, or any central bank or other fiscal or monetary authority, agency
or official, as may be required from time to time under any provision of
any applicable law:
(i) for the performance by Borrower of any of its
agreements or obligations under the Note, this Agreement or any of the
other Loan Documents or for the payment by Borrower to the Lender at
its Head Office of any sums which shall become due and payable by
Borrower to Lender thereunder;
(ii) to ensure the continuing legality, validity, binding
effect or enforceability of the Note or any of the other Loan
Documents or of any of the agreements or obligations thereunder of
Borrower; or
(iii) to continue the proper operation of the business
and operations of Borrower.
(b) Borrower shall duly perform and comply with the terms and
conditions of all such approvals, consents, orders, authorizations and
Licenses and Permits from time to time granted to or made upon Borrower.
Section 6.14 Employee Benefit Plans and Guaranteed Pension Plans.
Borrower will and will cause each of its ERISA Affiliates to (a) comply
with all requirements imposed by ERISA and the Internal Revenue Code of
1986, as amended, applicable from time to time to any of its Guaranteed
Pension Plans or Employee Benefit Plans, (b) make full payment when due of
all amounts which, under the provisions of Employee Benefit Plans or under
applicable law, are required to be paid as contributions thereto, (c) not
permit to exist any accumulated funding deficiency, whether or not waived,
(d) file on a timely basis all reports, notices and other filings required
by any governmental agency with respect to any of its Employee Benefit
Plans, (e) make any payments to Multiemployer Plans required to be made
under any agreement relating to such Multiemployer Plans, or under any law
pertaining thereto, (f) not amend or otherwise alter any Guaranteed Pension
Plan if the effect would be to cause the actuarial present value of all
benefit commitments under each Guaranteed Pension Plan to be less than the
current value of the assets of such Guaranteed Pension Plan allocable to
such benefit commitments, (g) furnish to all participants, beneficiaries
and employees under any of the Employee Benefit Plans, within the periods
prescribed by law, all reports, notices and other information to which they
are entitled under applicable law, and (h) take no action which would cause
any of the Employee Benefit Plans to fail to meet any qualification
requirement imposed by the Internal Revenue Code of 1986, as amended. As
used in this Section 6.14, the term "accumulated funding deficiency" has
the meaning specified in Section 302 of ERISA and Section 412 of the
Internal Revenue Code, and the terms "actuarial present value", "benefit
commitments" and "current value" have the meaning specified in Section 4001
of ERISA.
Section 6.15 Further Assurances. Borrower will execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, any and
all such further assurances and other agreements or instruments, and take
or cause to be taken all such other action, as shall be reasonably
requested by the Lender from time to time in order to give full effect to
any of the Loan Documents.
Section 6.16 Use of Proceeds. Borrower shall use all Loan proceeds
disbursed only in accordance with the purposes set forth in Section 2.8 of
this Agreement.
Section 6.17 Cash Equity Contribution. Within one hundred eighty
(180) days following the Closing Date ("Calculation Date"), Borrower shall
arrange for a Two Million Five Hundred Thousand Dollar ($2,500,000.00) cash
equity contribution ("Cash Equity Contribution") to be made to the equity
of Borrower, which Cash Equity Contribution shall be on such terms and
conditions and shall be made by such Person(s) as shall be acceptable to
Lender. In the event (i) the Cash Equity Contribution is not made on or
before the Calculation Date, and (ii) the Term Loan has not been completely
repaid prior to the Calculation Date, then the Borrower shall immediately
issue a second warrant ("Second Warrant") to Borrower in substantially the
same form as Exhibit H pursuant to a warrant agreement in substantially the
same form as Exhibit I, except that the Second Warrant shall permit Lender
to purchase one and 67/100 percent (1.67%) of the then fully-diluted Equity
Interests of Borrower. In lieu of the Cash Equity Contribution, upon the
request of Borrower, Lender may permit an "in kind" equity contribution
which has a value equal to Two Million Five Hundred Thousand Dollars
($2,500,000.00); provided, however, Borrower shall provide Lender with such
evidence as Lender may require to ascertain the value of such "in kind"
contribution.
Section 6.18 Observation Rights. Borrower shall provide Lender with
the same notice it provides its Directors of all meetings of the Board of
Directors of Borrower ("Board"), including, but not limited to, in-person,
electronic or meetings or actions taken by consent, whether of the Board as
a whole or of its committees. Lender shall have the right to
contemporaneously observe all of the meetings of the Board.
ARTICLE 7
FINANCIAL COVENANTS
Borrower covenants with and warrants to Lender that, from and after
the Closing Date and until all of the Obligations are paid and satisfied in
full except as otherwise expressly consented to in writing by the Lender
(unless the context otherwise requires):
Section 7.1 Tangible Capital Base. Borrower, on a combined and
consolidated basis, shall achieve a Tangible Capital Base of not less than
the amounts specified below as of the dates also specified below:
DATE AMOUNT
As of June 30, 1997 Not less than $4,000,000.00
As of September 30, 1997 Not less than $2,300,000.00
As of December 31, 1997 Not less than $3,000,000.00
As of March 31, 1998 Not less than $4,250,000.00
As of June 30, 1998 Not less than $5,150,000.00
As of September 30, 1998 Not less than $3,100,000.00
As of December 31, 1998 Not less than $6,250,000.00
As of March 31, 1999 Not less than $5,250,000.00
As of June 30, 1999 Not less than $5,150,000.00
As of September 30, 1999 Not less than $3,150,000.00
As of December 31, 1999 Not less than $6,600,000.00
In addition to the foregoing requirements, Borrower, on a combined and
consolidated basis, shall maintain at all times for the following periods,
a Tangible Capital Base of not less than the following amounts:
DATE AMOUNT
At all times during the Not less than $3,100,000.00
fiscal year beginning
January 1, 1998
At all times during the Not less than $3,150,000.00
fiscal year beginning
January 1, 1999 and
continuing at all times
thereafter
"Tangible Capital Base" shall mean the sum of the Borrower's and its
Subsidiaries' Consolidated Tangible Net Worth, plus the principal amount of
any subordinated indebtedness, subordinated to the satisfaction of the
Lender.
"Consolidated Tangible Net Worth" shall mean the Borrower's and its
Subsidiaries' consolidated equity, minus (i) the excess of cost over the
value of net assets of purchased businesses, rights, and other similar
intangibles, (ii) organizational expenses, (iii) intangible assets, (iv)
goodwill, (v) deferred charges or deferred financing costs, (vi) loans or
advances to shareholders, officers, or directors or affiliates and/or
accounts or notes receivable from affiliates, shareholders, officers, or
directors, (vii) leasehold improvements, (viii) non-compete agreements, and
(ix) any asset not directly related to the operation of the Borrower and
its Subsidiaries.
Section 7.2 Minimum Pre-Tax Operating Profit or Maximum Pre-Tax
Operating Loss. Beginning with the fiscal quarter ending December 31, 1997
and continuing as of the end of each fiscal quarter thereafter, the
Borrower, on a consolidated and combined basis, shall, as the case may be,
either (a) achieve an Accumulated Operating Profit during any fiscal year
on a year-to-date basis of not less than the amount set forth below, or (b)
not incur an Accumulated Operating Loss during any fiscal year on a year-to-
date basis in excess of the amounts set forth below:
DATE AMOUNT
As of December 31, 1997 Accumulated Operating
Loss not to exceed
$4,000,000.00
As of March 31, 1998 Accumulated Operating
Loss not to exceed
$1,000,000.00
As of June 30, 1998 Accumulated Operating
Loss not to exceed
$1,100,000.00
As of September 30, 1998 Accumulated Operating
Loss not to exceed
$3,100,000.00
As of December 31, 1998 Accumulated Operating
Profit of not less than
$350,000.00
As of March 31, 1999 Accumulated Operating
Loss not to exceed
$1,000,000.00
As of June 30, 1999 Accumulated Operating
Loss not to exceed
$1,100,000.00
As of September 30, 1999 Accumulated Operating
Loss not to exceed
$3,100,000.00
As of December 31, 1999 Accumulated Operating
Profit of not less than
$350,000.00
Accumulated Operating Loss and Accumulated Operating Profit shall be
determined on a fiscal year-to-date basis, beginning on the first day of
each fiscal year and shall be calculated through the date of determination.
"Accumulated Operating Loss" shall mean, with respect to the period of
determination, the following calculation, provided that such calculation
results in a number less than zero: (a) the sum of the Borrower's
consolidated net income (or loss) after taxes as determined in accordance
with GAAP, plus the sum of all extraordinary losses (and any unusual losses
arising outside the ordinary course of business not included in
extraordinary losses determined in accordance with GAAP), minus (b) the sum
of all extraordinary gains (and any unusual gains arising outside the
ordinary course of business not included in extraordinary gains determined
in accordance with GAAP).
"Accumulated Operating Profit" shall mean, with respect to the period
of determination, the following calculation, provided that such calculation
results in a number greater than zero: (a) the sum of the Borrower's
consolidated net income (or loss) after taxes as determined in accordance
with GAAP, plus the sum of all extraordinary losses (and any unusual losses
arising outside the ordinary course of business not included in
extraordinary losses determined in accordance with GAAP), minus (b) the sum
of all extraordinary gains (and any unusual gains arising outside the
ordinary course of business not included in extraordinary gains determined
in accordance with GAAP).
Section 7.3 Fixed Charge Covenant. Following the complete
repayment of the Senior Debt, Borrower and Lender agree to negotiate in
good faith a new Fixed Charge Covenant (the ratio of Cash Flow to Fixed
Charges) to which Borrower shall comply during the remaining term of the
Junior Debt.
Section 7.4 Lease Obligations.
(a) Except for those existing transactions listed on Schedule
7.4, Borrower will not become or remain liable in any way, whether directly
or by assignment or as a guarantor or other surety, for the obligations of
the lessee under any additional Capital Lease, if the aggregate amount of
all rents paid by Borrower under all such Capital Leases would exceed
Twenty-Five Thousand Dollars ($25,000.00) in any fiscal year.
(b) Except for those existing transactions listed on Schedule
7.4, Borrower will not become or remain liable in any way, whether directly
or by assignment or as a guarantor on other surety, for the obligation to
pay rent under any leases or other rental agreements (excluding Capital
Leases) under which the amount of the aggregate lease or other payments for
all such agreements or arrangements exceeds Fifty Thousand Dollars
($50,000.00) for any twelve (12) month period.
ARTICLE 8
NEGATIVE COVENANTS OF BORROWER
Borrower covenants with and warrants to Lender that from and after the
Closing Date and until all of the Obligations are paid and satisfied in
full:
Section 8.1 Limitation on Nature of Business. Borrower will not at
any time make any material change in the nature of its business as carried
on at the date hereto or undertake, conduct or transact any business in a
manner prohibited by applicable law. Borrower shall not create, capitalize
or acquire any Subsidiary after the Closing Date.
Section 8.2 Limitation on Fundamental Changes. Neither Borrower
nor any of its Subsidiaries shall not at any time consolidate with or merge
into or with any Person or Persons or enter into or undertake any plan or
agreement of consolidation or merger with any Person. Neither Borrower nor
any of its Subsidiaries shall liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), or convey, lease, sell, transfer or otherwise
dispose of, in one transaction or series of transactions, all or
substantially all of Borrower's or any such Subsidiary's business or
property whether now or hereafter acquired. Neither Borrower nor any
Subsidiary shall make or permit any amendment or modification to its
charter documents or by-laws.
Section 8.3 Restricted Payments. Borrower will not and will not
permit any of its Subsidiaries to directly or indirectly declare, order,
pay, make or set apart any sum for any Restricted Payments except that:
(a) So long as no Default or Event of Default exists, Borrower
may make the scheduled periodic payments of interest and principal under
this Agreement (as such Agreement is in effect on the Closing Date) in
accordance with the terms thereof, but subject to the subordination
provisions contained in this Agreement and the Subordination Agreement; and
(b) Subsidiaries of Borrower may make Restricted Payments with
respect to their common stock to the extent necessary to permit Borrower to
pay the Obligations and to make any Restricted Payments permitted under
clause (a) above and to permit Borrower to pay expenses incurred in the
ordinary course of business.
Section 8.4 Limitation on Disposition of Assets.
(a) Except for the proposed sale of the Junior Library Guild, a
division of Borrower, to be conducted on an arms-length basis, neither
Borrower nor any of its Subsidiaries will sell, lease, transfer or
otherwise dispose of any of its property, business or assets ("Asset
Dispositions"), or grant any Person an option to acquire any such property,
business or assets except for (a) bona fide sales of Inventory to customers
in the ordinary course of business and dispositions of obsolete equipment
not used or useful in the business and (b) Asset Dispositions which satisfy
the following conditions:
(i) the market value of assets sold or otherwise disposed
of in any single transaction or series of related transactions does
not exceed Fifty Thousand Dollars ($50,000.00) and the aggregate
market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed One Hundred Thousand Dollars ($100,000.00);
(ii) the consideration received is at least equal to the
fair market value of such assets;
(iii) if the consideration received is not solely in
cash, all non-cash consideration is pledged to the Senior Lender and
secondarily to the Lender pursuant to documents satisfactory to the
Lender so that the Lender has received a first priority perfected
security interest (subject only to the prior interest of the Senior
Lender) in such non-cash consideration to secure the Obligations;
(iv) the Net Proceeds of such Asset Disposition are applied
as required by Sections 2.5(b) and 2.5(e);
(v) after giving effect to the sale or other disposition of
the assets included within the Asset Disposition and the repayment of
Indebtedness with the proceeds thereof, Borrower is in compliance on a
pro forma basis with the covenants set forth in Article 7, recomputed
for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in
this Agreement; and
(vi) no Default or Event of Default shall result from such
sale or other disposition.
(b) Except as permitted elsewhere in this Agreement, Borrower
will not and will not permit any of its Subsidiaries directly or indirectly
to sell, assign, pledge or otherwise encumber or dispose of any shares of
Capital Stock or other equity securities in Borrower or any such Subsidiary
including warrants, rights or options to acquire shares or other equity
securities of any of its Subsidiaries, except to Borrower or another
Subsidiary of Borrower.
Section 8.5 Limitation on Investments. Neither Borrower nor any of
its Subsidiaries shall make any Investments of any kind whatever in any
Person or Persons; excluding, however from the operation of the foregoing
provisions of this Section 8.5:
(a) Property to be used in the ordinary course of business of
Borrower;
(b) Assets arising from the sale of goods and services in the
ordinary course of business of Borrower;
(c) Investments in cash and Cash Equivalents;
(d) Draws to distributors of one or more of the Subsidiaries of
Borrower which, in the aggregate, do not exceed the sum of Three Hundred
Thousand Dollars ($300,000.00) of advances outstanding at any one time;
(e) Existing unsecured loans to officers not to exceed the
aggregate principal sum of Three Hundred Twenty-Five Thousand Dollars
($325,000.00);
(f) Existing secured loans to employees or former employees not
to exceed the principal sum of Five Hundred Eighty-One Thousand Dollars
($581,000.00) in the aggregate outstanding at any one time;
(g) Intercompany advances between Borrower and its Subsidiaries;
and
(h) Loans or advances to any Person, corporation or entity if
such loans or advances will exceed an aggregate total outstanding at any
one time of Twenty Thousand Dollars ($20,000.00), except for those listed
on Schedule 5.13(b).
Section 8.6 Acquisition of Margin Securities. Neither Borrower nor
any of its Subsidiaries shall own, purchase or acquire (or enter into any
contract to purchase or acquire) any "margin security" as defined by any
regulation of the Federal Reserve Board as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, Lender shall have received an opinion of
counsel satisfactory to Lender to the effect that such purchase or
acquisition will not cause this Agreement or the Note to be in violation of
Regulation G, T, U, X or any other regulation of the Federal Reserve Board
then in effect.
Section 8.7 Limitation on Mortgages, Liens and Encumbrances.
Neither Borrower nor any of its Subsidiaries shall at any time create,
assume, incur or permit to exist, any mortgage, Lien or other encumbrance
in respect of any of its Property, assets, income or revenues of any
character, whether heretofore or hereafter acquired by it; excluding,
however, from the operation of the foregoing provisions of this Section 8.7
(each a "Permitted Lien"):
(a) Any Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required by Section 6.7 of
this Agreement;
(b) Any statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent;
(c) Any Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security;
(d) Any easements, rights-of-way, encroachments, leases,
royalties, restrictions and other similar title exceptions or encumbrances
provided such do not, in the aggregate, materially interfere with the
ordinary conduct of the business of Borrower or materially reduce or impair
the value of the Real Estate so encumbered;
(e) Any interest or title of a lessor under any Material Lease
listed in Schedule 5.7 annexed to this Agreement;
(f) Liens granted to Senior Lender and Lender and the additional
existing mortgages, Liens and encumbrances of Borrower, listed and
described, but only to the extent indicated, on Schedule 8.7(f) annexed to
this Agreement;
(g) The Indebtedness of Borrower under or in respect to any
conditional sales agreements, security agreements, equipment leases in the
nature of title retention agreements or security agreements or other
similar title retention agreements entered into by Borrower on, prior to or
after the date of this Agreement in order to secure the payment of the
purchase price of any equipment purchased, leased or otherwise acquired by
Borrower for use in the ordinary course of its business; provided, however,
that Borrower is, by the terms of each of Sections 8.11 or 8.12 hereof,
expressly permitted to enter into such agreement or lease;
(h) The Liens or Obligations of Borrower to Senior Lender under
the Senior Debt; and
(i) Mortgages previously granted by Borrower to National City
Bank and Columbus County Wide Development covering real property located at
401 East Wilson Bridge Road, Worthington, Ohio 43085.
Section 8.8 No Additional Negative Pledges. Subject to the Senior
Debt, neither Borrower nor any of its Subsidiaries will create or otherwise
cause or suffer to exist or become effective, directly or indirectly (a)
any prohibition or restriction (including any agreement to provide equal or
ratable security to any other Person in the event a Lien is granted to or
for the benefit of the Lender) on the creation or existence of any Lien
upon the assets of Borrower; or (b) any contractual obligation which may
restrict or inhibit the Lender's rights or ability to sell or otherwise
dispose of the Collateral or any part thereof after the occurrence of an
Event of Default.
Section 8.9 No Restrictions on Subsidiary Distributions to
Borrower. Except as provided herein, Borrower will not and will not permit
any of its Subsidiaries, directly or indirectly, to create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Subsidiary to: (1) pay
dividends or make any other distribution on any of such Subsidiary's
Capital Stock owned by Borrower or any Subsidiary of Borrower; (2) subject
to subordination provisions, pay any indebtedness owed to Borrower or any
other Subsidiary; (3) make loans or advances to Borrower or any other
Subsidiary; or (4) transfer any of its property or assets to Borrower or
any other Subsidiary.
Section 8.10 Limitation on Indebtedness. Except as listed on
Schedule 8.10, Borrower will not and will not permit any of its
Subsidiaries to create, incur or assume, or become or be liable (directly
or indirectly) in respect of, any Indebtedness for Borrowed Money, other
than indebtedness arising under this Agreement, the other Loan Documents,
the Senior Debt and the Permitted Liens.
Section 8.11 Limitation on Sales and Leasebacks. Borrower will not
and will not permit any of its Subsidiaries, directly or indirectly, to
sell and thereafter lease back any of its respective assets or Property.
Section 8.12 Transactions with Affiliates. Borrower shall not at
any time enter into or participate in any agreements or transactions of any
kind with any Affiliates of Borrower, except (i) agreements or transactions
that produce annual payments of less than Twenty Thousand Dollars
($20,000.00) individually or One Hundred Thousand Dollars ($100,000.00) in
the aggregate; or (ii) agreements or transactions entered into in the
ordinary course of business upon fair and terms determined by Lender to be
no less favorable to Borrower than could be obtained in a comparable arms-
length transaction with an unaffiliated Person.
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
Section 9.1 Events of Default. The occurrence of any one or more
of the following events shall constitute an "Event of Default":
(a) Principal and Interest. Any principal, interest or any
other sum payable under this Agreement or the Note shall not be paid when
due;
(b) Representations and Warranties. Any representation or
warranty at any time made by or on behalf of Borrower in this Agreement,
any Loan Document or in any certificate, written report or statement
furnished to Lender pursuant hereto or thereto shall prove to have been
untrue, incorrect or breached in any material respect on or as of the date
on which such representation or warranty was made or deemed to have been
made or repeated;
(c) Certain Covenants. Borrower shall fail to comply with the
covenants set forth in Sections 6.2(b), Article 7 or Article 8;
(d) Other Covenants. Borrower shall fail to perform, comply
with or observe or shall otherwise breach any other covenant or agreement
contained in this Agreement and such failure or breach shall continue for
more than thirty (30) days after the earlier of the date on which Borrower
shall have first become aware of such failure or breach or Lender shall
have first notified Borrower of such failure or breach;
(e) Loan Documents. The breach or a failure of Borrower to
perform, comply with or observe any Loan Document or any other agreement,
document, instrument or certificate executed or delivered in connection
with this Agreement and if such failure shall continue for more than ten
(10) days after the earlier of the date on which Borrower shall have first
become aware of such failure or breach or Lender shall have first notified
Borrower of such failure or breach, or any Loan Document shall cease to be
legal, valid, binding or enforceable in accordance with the terms thereof;
(f) Litigation. Any action at law, suit in equity or other
legal proceeding to amend, cancel, revoke or rescind any Loan Document
shall be commenced by or on behalf of Borrower or any other Person bound
thereby, or by any court or any other governmental or regulatory authority
or agency of competent jurisdiction; or any court or any other governmental
or regulatory authority or agency of competent jurisdiction shall make a
determination that, or shall issue a judgment, order, decree or ruling to
the effect that, any one or more of the covenants, agreements or
obligations of Borrower under any one or more of the Loan Documents are
illegal, invalid or unenforceable in accordance with the terms thereof;
(g) Default by Borrower under Senior Debt and Other Agreements.
Any default by Borrower or any event of default shall occur under the
Senior Debt and any agreement, instrument or contract relating to
Indebtedness individually or in the aggregate in excess of One Hundred
Thousand Dollars ($100,000.00) to which Borrower is at any time a party or
by which Borrower is at any time bound or affected, or Borrower shall fail
to perform or observe any of its agreements or covenants thereunder, and
such default, event of default or failure shall continue for such period of
time as would permit, or as would have permitted (assuming the giving of
appropriate notice), holders of Indebtedness of Borrower to accelerate the
maturity of all or any part of such Indebtedness under any such document;
(h) Insolvency. Any action shall be taken by or on behalf of
Borrower for the termination, winding up, liquidation or dissolution of
Borrower; or Borrower shall make an assignment for the benefit of
creditors, become insolvent or be unable to pay its debts as they mature;
or Borrower shall file a petition in voluntary liquidation or bankruptcy;
or Borrower shall file a petition or answer or consent seeking the
reorganization of Borrower, or the readjustment of any of the Indebtedness
of Borrower; or Borrower shall commence any case or proceeding under
applicable insolvency or bankruptcy laws now or hereafter existing; or
Borrower shall consent to the appointment of any receiver, administrator,
custodian, liquidator or trustee of all or any part of the Property or
assets of Borrower; or any corporate action shall be taken by Borrower for
the purpose of effecting any of the foregoing; or by order or decree of any
court of competent jurisdiction, Borrower shall be adjudicated as bankrupt
or insolvent; or any petition for any proceedings in bankruptcy or
liquidation or for the reorganization or readjustment of Indebtedness of
Borrower shall be filed, or any case or proceeding shall be commenced,
under any applicable bankruptcy or insolvency laws now or hereafter
existing, against Borrower, or any receiver, administrator, custodian,
liquidator or trustee shall be appointed for Borrower or for all or any
part of the Property of Borrower and such case or proceeding shall remain
undismissed for a period of sixty (60) days, or any order for relief shall
be entered in a proceeding with respect to Borrower under the provisions of
the United States Bankruptcy Code, as amended;
(i) Judgment. Any judgment, order or decree for the payment of
money in excess of One Hundred Thousand Dollars ($100,000.00) shall be
rendered against Borrower, and Borrower shall not discharge the same or
provide for its discharge in accordance with its terms, or procure a stay
of execution thereof, within thirty (30) days after the date of the entry
thereof;
(j) ERISA. Any Termination Event shall occur and as of the date
thereof or any subsequent date, the sum of the various liabilities of
Borrower and its ERISA Affiliates (such liabilities to include, without
limitation, any liability to the Pension Benefit Guaranty Corporation (or
any successor thereto) or to any other party under Sections 4062, 4063, or
4064 of ERISA or any other provision of law and to be calculated after
giving effect to the tax consequences thereof) resulting from or otherwise
associated with such event exceeds Fifty Thousand Dollars ($50,000.00); or
Borrower of any of its ERISA Affiliates as an employer under any
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plans and the plan sponsors of such Multiemployer Plans
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability requiring a payment in an amount exceeding
Fifty Thousand Dollars ($50,000.00);
(k) Change of Control. Any Change of Control shall occur;
(l) Material Adverse Change. Any event or occurrence which has
a Material Adverse Effect.
Section 9.2 Termination of Commitments and Acceleration of
Obligations. If any one or more of the Events of Default shall at any time
occur:
(a) The Lender may by giving notice to Borrower, immediately
terminate the Credit Commitment of Lender in full and Lender shall
thereupon be relieved of all of its obligations to make the Loan
thereunder; except that if there shall be an Event of Default under Section
9.1(h) hereof, the Credit Commitment of Lender shall automatically
terminate in full, and Lender shall thereupon be relieved of all of its
obligations to make the Loan hereunder.
(b) The Lender may by giving notice to Borrower (in this
Agreement and in the other Loan Documents called a "Notice of
Acceleration"), declare all of the Obligations, including the entire unpaid
principal of the Note, all of the unpaid interest accrued thereon, and all
other sums (if any) payable by Borrower under this Agreement, the Note, or
any of the other Loan Documents, to be immediately due and payable; except
that if there shall be an Event of Default under Section 9.1(h), all of the
Obligations, including the entire unpaid balance of all of the Note, all of
the unpaid interest accrued thereon and all other sums (if any) payable by
Borrower under this Agreement, the Note or any of the other Loan Documents
shall automatically and immediately be due and payable without notice to
Borrower. Thereupon, all of such Obligations which are not already due and
payable shall forthwith become and be absolutely and unconditionally due
and payable, without any further notice or any other formalities of any
kind, all of which are hereby expressly and irrevocably waived.
Section 9.3 Remedies. From and after the occurrence of an Event of
Default which is continuing and which has not been waived by the Lender,
provided that any and all remedies hereunder shall be subordinate to Senior
Lender and subject to the terms of the Subordination Agreement, the Lender
may:
(a) proceed to protect and enforce all or any of its rights,
remedies, powers and privileges under this Agreement, the Note or any of
the other Loan Documents by action at law, suit in equity or other
appropriate proceedings, whether for specific performance of any covenant
contained in this Agreement, the Note or any of the other Loan Documents,
or in aid of the exercise of any power granted to Lender herein or therein;
(b) remove from any Premises where same may be located any and
all Inventory or any and all documents, instruments, files and records
(including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts of Borrower, or the
Lender may use (at the expense of Borrower) such of the supplies or space
of Borrower, at Borrower's place of business or otherwise, as may be
necessary to properly administer and control the Accounts of Borrower or
the handling of collections and realizations thereon;
(c) bring suit, in the name of Borrower or the Lender, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
such Accounts and issue credits in the name of Borrower or the Lender;
(d) sell, assign and deliver such Inventory and Accounts and any
returned, reclaimed or repossessed merchandise, with or without
advertisement, at public or private sale, for cash, on credit or otherwise,
at the Lender's sole discretion, and Lender may bid or become a purchaser
at any such sale, free from any right of redemption, which right is hereby
expressly waived by Borrower;
(e) (i) notify the Account Debtor on any Account or chattel
paper of Lender's security interest therein; (ii) demand that monies due or
to become due be paid directly to Lender; (iii) open Borrower's mail and to
collect any and all amounts due Borrower from Account Debtors; (iv) enforce
payment of the accounts receivable or chattel paper by legal proceedings or
otherwise; (v) exercise all of Borrower's rights and remedies with respect
to the collection of the accounts receivable or chattel paper; (vi) settle,
adjust, compromise, modify, extend or renew the accounts receivable or
chattel paper; (vii) settle, adjust or compromise any legal proceedings
brought to collect the accounts receivable or chattel paper; (viii) to the
extent permitted by applicable law, sell or assign the accounts receivable
or chattel paper upon such terms, for such amounts and at such time or
times as Lender deems advisable; (ix) grant waivers or indulgences with
respect to, accept partial payments from, discharge, release, surrender,
substitute any customer security for, make compromise with or release, any
other party liable on, any account receivable or chattel paper; (x) take
control, in any manner, of any item of payment or proceeds from any Account
Debtor; (xi) prepare, file, and sign Borrower's name on any proof of claim
in Bankruptcy or similar document against any Account Debtor; (xii)
prepare, file, and sign Borrower's name on any notice of lien, assignment
or satisfaction of lien or similar document in connection with the accounts
receivable or chattel paper; (xiii) endorse the name of Borrower upon any
chattel paper, document, instrument, invoice, freight bill, bill of lading
or similar document or agreement relating to the accounts receivable or
chattel paper or inventory; (xiv) use Borrower's stationery and sign
Borrower's name to verifications of the accounts receivable or chattel
paper and notices thereof to Account Debtors; and (xv) use the information
recorded on or contained in any data processing equipment or computer
hardware or software relating to the accounts receivable, chattel paper,
inventory, or proceeds thereof to which Borrower has access; and
(f) foreclose the security interests created pursuant to the
Loan Documents by any available judicial procedure, or take possession of
any or all of the Inventory and equipment of Borrower without judicial
process and enter any Premises where any such Inventory and equipment may
be located for the purpose of taking possession of or removing the same.
The Lender shall have the right, without notice of advertisement, to
sell, lease, or otherwise dispose of all or any part of the Inventory and
equipment of Borrower, whether in its then condition or after further
preparation or processing, in the name of Borrower, or the Lender, or in
the name of such other party as the Lender may designate, either at public
or private sale or at any broker's board, in lots or in bulk, for cash or
for credit, with or without warranties or representations, and upon such
other terms and conditions as the Lender in its sole discretion may deem
advisable, and the Lender shall have the right to purchase at any such
sale. If any such Inventory and equipment shall require rebuilding,
repairing, maintenance or preparation, the Lender shall have the right, at
its option, to do such of the aforesaid as is necessary, for the purpose of
putting such Inventory and equipment in such saleable form as the Lender
shall deem appropriate. Borrower agrees, at the request of the Lender, to
assemble such Inventory and equipment and to make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Premises of Borrower or elsewhere, and to make available to the Lender the
Premises and facilities of Borrower for the purpose of the Lender's taking
possession of, removing or putting such Inventory and equipment in saleable
form. However, if notice of intended disposition of any Collateral is
required by law, it is agreed that five (5) Business Days' notice shall
constitute reasonable notification and full compliance with the law. The
Lender shall be entitled to use all intangibles and computer software
programs and data bases used by Borrower in connection with its business or
in connection with the Collateral. The net cash proceeds resulting from
the Lender's exercise of any of the foregoing rights (after deducting all
charges, costs and expenses including reasonable attorneys' fees) shall be
applied by the Lender to the payment of the Obligations, whether due or to
become due, in such order as the Lender may elect. Borrower shall remain
liable to the Lender for any deficiencies, and the Lender in turn agrees to
remit to Borrower or its successors or assigns, any surplus resulting
therefrom. The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of
any other rights, all of which shall be cumulative.
Section 9.4 No Implied Waiver; Rights Cumulative. No delay on the
part of the Lender in exercising any right, remedy, power or privilege
under any of the Loan Documents or provided by statute or at law or in
equity or otherwise shall impair, prejudice or constitute a waiver of any
such right, remedy, power or privilege or be construed as a waiver of any
Default or Event of Default or as an acquiescence therein. No right,
remedy, power or privilege conferred on or reserved to Lender under any of
the Loan Documents or otherwise is intended to be exclusive of any other
right, remedy, power or privilege. Each and every right, remedy, power and
privilege conferred on or reserved to Lender under any of the Loan
Documents or otherwise shall be cumulative and in addition to each and
every other right, remedy, power or privilege so conferred on or reserved
to Lender and may be exercised at such time or times and in such order and
manner as Lender shall (in its sole and complete discretion) deem
expedient.
Section 9.5 Set-Off; Pro Rata Sharing. Borrower hereby confirms to
Lender the continuing and immediate rights of set-off of Lender with
respect to all deposits, balances and other sums credited by or due from
Lender or any of the offices or branches of Lender to Borrower, which
rights are in addition to any other rights which Lender may have under
applicable law. Subject to the terms of the Subordination Agreement, if
any principal, interest or other sum payable by Borrower to Lender under
the Note or any of the Loan Documents is not paid to Lender punctually when
the same shall first become due and payable, or if any Event of Default
shall at any time occur, any deposits, balances or other sums credited by
or due from Lender or any of the offices or branches of Lender to Borrower,
may, without any prior notice of any kind to Borrower, or compliance with
any other conditions precedent now or hereafter imposed by statute, rule or
law or otherwise (all of which are hereby expressly and irrevocably waived
by Borrower), be immediately set off, appropriated and applied by Lender
toward the payment and satisfaction of the Obligations (but not to any
other obligations of Borrower to Lender until all of the Obligations have
been paid in full) in such order and manner as Lender (in its sole and
complete discretion) may determine.
ARTICLE 10
PROVISIONS OF GENERAL APPLICATION
Section 10.1 Term of Agreement. This Agreement shall continue in
full force and effect and the duties, covenants, and liabilities of
Borrower hereunder and all the terms, conditions, and provisions hereof
relating thereto shall continue to be fully operative until all Obligations
to Lender have been satisfied in full.
Section 10.2 Notices.
(a) All notices and other communications pursuant to this
Agreement shall be in writing, either delivered in hand or sent by first-
class mail, postage prepaid, or sent by telex, telecopier, facsimile
transmission or telegraph, addressed as follows:
(i) If to Borrower, at
Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: S. Robert Davis
Chairman and President
Fax Number: (813) 578-3101
with copies to:
Reid & Priest, LLP
40 West 57th Street
New York, New York 10019-4097
Attention: Leonard Gubar, Esq.
Fax Number: (212) 603-2001
(ii) If to Lender, at:
The Provident Bank
One East Fourth Street
Seventh Floor
Cincinnati, Ohio 45202
Attention: Alan R. Henning
Vice President
Fax Number: (513) 579-2858
with a copy to:
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: J. David Rosenberg, Esq.
Fax Number: (513) 579-6457
(b) Except as otherwise expressly provided herein, any notice or
other communication pursuant to this Agreement or any other Loan Document
shall be deemed to have been duly given or made and to have become
effective when delivered in hand to the party to which it is directed, or,
if sent by first-class mail, postage prepaid, or by telex, telecopier,
facsimile transmission or telegraph, and properly addressed in accordance
with Section 10.2(a), (i) when received by the addressee; or (ii) if sent
by first class mail, postage prepaid, on the third (3rd) Business Day
following the day of the dispatch thereof, whichever of (i) or (ii) shall
be the earlier.
Section 10.3 Survival of Representations. All representations and
warranties made by or on behalf of Borrower in this Agreement, or any of
the other Loan Documents shall be deemed to have been relied upon by Lender
notwithstanding any investigation made by Lender and shall survive the
making of each of the Loan.
Section 10.4 Costs, Expenses, Taxes and Indemnification.
(a) Borrower absolutely and unconditionally agrees to pay to the
Lender upon demand by Lender at any time and as often as the occasion
therefor may require, whether or not all or any of the transactions
contemplated by any of the Loan Documents are ultimately consummated
(i) all reasonable out-of-pocket costs and expenses which shall at any time
be incurred or sustained by Lender or any of its directors, officers,
employees or agents as a consequence of, on account of, in relation to or
any way in connection with the preparation, negotiation, execution and
delivery of the Loan Documents and the perfection and continuation of the
rights of the Lender in connection with the Loan, as well as the
preparation, negotiation, execution, or delivery or in connection with the
amendment or modification of any of the Loan Documents or as a consequence
of, on account of, in relation to or any way in connection with the
granting by Lender of any consents, approvals or waivers under any of the
Loan Documents including, but not limited to, reasonable attorneys' fees
and disbursements; and (ii) all reasonable out-of-pocket costs and expenses
which shall be incurred or sustained by Lender or any of its directors,
officers, employees or agents as a consequence of, on account of, in
relation to or any way in connection with the exercise, protection or
enforcement (whether or not suit is instituted) any of its rights,
remedies, powers or privileges under any of the Loan Documents or in
connection with any litigation, proceeding or dispute in any respect
related to any of the relationships under, or any of the Loan Documents
(including, but not limited to, all of the reasonable fees and
disbursements of consultants, legal advisers, accountants, experts and
agents for Lender, the reasonable travel and living expenses away from home
of employees, consultants, experts or agents of Lender, and the reasonable
fees of agents, consultants and experts not in the full-time employ of
Lender for services rendered on behalf of Lender).
(b) Borrower shall absolutely and unconditionally indemnify and
hold harmless Lender against any and all claims, demands, suits, actions,
causes of action, damages, losses, settlement payments, obligations, costs,
expenses and all other liabilities whatsoever which shall at any time or
times be incurred or sustained by Lender or by any of their shareholders,
directors, officers, employees, subsidiaries, Affiliates or agents on
account of, or in relation to, or in any way in connection with, any of the
arrangements or transactions contemplated by, associated with or ancillary
to this Agreement or any of the other Loan Documents, whether or not all or
any of the transactions contemplated by, associated with or ancillary to
this Agreement, or any of such Loan Documents are ultimately consummated.
(c) Borrower hereby covenants and agrees that any sums expended
by Lender which Lender is entitled to be reimbursed for pursuant to this
Section 10.4, shall be immediately due and payable upon demand by Lender,
and shall bear interest at the Default Interest Rate applicable to Term
Loan from the date Lender incurred such expense until the date such payment
is made in full to Lender.
Section 10.5 Language. All notices, applications, certificates,
reports, financial statements and other financial information,
correspondence and all other communications from Borrower to Lender
pursuant to this Agreement or any of the other Loan Documents shall be in
the English language or shall be accompanied by an English translation
thereof completely satisfactory to Lender.
Section 10.6 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors in title and assigns; provided, however, that
Borrower may not assign or delegate any of its rights or obligations
hereunder to any Person or Persons without the express prior written
consent of the Lender.
Section 10.7 Governing Law; Jurisdiction and Venue. The undersigned
agree that inasmuch as this Agreement, the Note and the Loan Documents are
to be executed by Borrower and accepted by Lender in Cincinnati, Ohio and
the funds to be disbursed under the Loan are to be disbursed in Ohio, this
instrument and the rights and obligations of all parties hereunder shall be
governed by and construed under the substantive laws of the State of Ohio,
without reference to the conflict of laws principles of such state.
The Lender and Borrower hereby designate all courts of record sitting
in Cincinnati, Ohio, both state and federal, as forums where any action,
suit or proceeding in respect of or arising out of this Agreement, the
Note, Loan Documents, or the transactions contemplated by this Agreement
may be prosecuted as to all parties, their successors and assigns, and by
the foregoing designations the Lender and Borrower consents to the
jurisdiction and venue of such courts. BORROWER WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN THE STATE OF OHIO FOR THE PURPOSES OF LITIGATION TO ENFORCE SUCH
OBLIGATIONS OF BORROWER. In the event such litigation is commenced,
Borrower agrees that service of process may be made and personal
jurisdiction over Borrower obtained by service of a copy of the summons,
complaint and other pleadings required to commence such litigation upon
Borrower's appointed Lender for Service of Process in the State of Ohio,
which the undersigned hereof designates to be: CT Corporation Systems,
Cincinnati, Ohio. Borrower recognizes and agrees that the agency has been
created for the benefit of Borrower, and agrees that this agency shall not
be revoked, withdrawn, or modified without the consent of the Lender.
Section 10.8 Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR THE LENDER TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING
THE OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS
AGREEMENT OR ARISING IN ANY WAY FROM THE OBLIGATIONS.
Section 10.9 Waivers. Borrower waives notice of nonpayment, demand,
notice of demand, presentment, protest and notice of protest with respect
to the Obligations, or notice of acceptance hereof, notice of the Loan
made, credit extended, or any other action taken in reliance hereon, and
all other demands and notices of any description, except such as are
expressly provided for herein.
Section 10.10 Interpretation and Proof of Loan Documents. Whenever
possible, the provisions of the Loan Document will be construed in such a
manner as to be consistent with this Agreement and each other Loan
Document. If any of the provisions of any Loan Document are inconsistent
with this Agreement, such provisions of this Agreement will supersede such
provisions of such Loan Document. This Agreement, the Loan Documents and
all documents relating hereto, including, without limitation, (a) consents,
waivers and modifications which may hereafter be executed, (b) documents
received by the Lender at the closing or otherwise, and (c) financial
statements, certificates and other information previously or hereafter
furnished to the Lender, may be reproduced by the Lender by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Lender may destroy any original document so
reproduced. Borrower agrees and stipulates that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Lender of Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 10.11 Integration of Schedules and Exhibits. The Exhibits
and Schedules annexed to this Agreement are an integral part of this
Agreement and are incorporated herein by reference.
Section 10.12 Headings. The headings of the Articles, Sections and
paragraphs of this Agreement have been inserted for convenience of
reference only and shall not be deemed to be a part of this Agreement.
Section 10.13 Counterparts. This Agreement may be executed in any
number of counterparts, but all of such counterparts shall together
constitute but one agreement. In making proof of this Agreement, it shall
not be necessary to produce or account for more than one counterpart hereof
signed by each of the parties hereto.
Section 10.14 Severability. Any provision of this Agreement which is
prohibited and 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 or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 10.15 One General Obligation. The Loan and advances by
Lender to Borrower under this Agreement constitute one loan, and all
Obligations of Borrower to Lender under this Agreement constitute one
general obligation. It is expressly understood and agreed that all of the
rights of Lender contained in this Agreement shall likewise apply insofar
as applicable to any modification of or supplement to this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by or on behalf of each of the parties as of the day and in the
year first above written in Cincinnati, Ohio.
SIGNED IN THE PRESENCE OF: PAGES, INC.
By:
Randall J. Asmo
Printed Name Vice President
Printed Name
THE PROVIDENT BANK
By:
Alan R. Henning
Printed Name Vice President
Printed Name
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT OF COPYRIGHTS
WHEREAS, PAGES, INC., a Delaware corporation, with its chief executive
office at St. Petersburg, Florida, ("Assignor") has acquired, adopted and
used, and is using, the copyrights listed on Exhibit "A" attached hereto
and made a part hereof; and
WHEREAS, Assignor and THE PROVIDENT BANK, an Ohio banking corporation,
having its principal office at One East Fourth Street, Cincinnati, Ohio
45202 ("Assignee"), have entered into that certain Credit Agreement dated
of even date herewith (the "Credit Agreement"), by which Assignee has
acquired security interests in said copyrights and the applications or
registrations thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor, does hereby grant,
transfer, assign and convey a security interest to Assignee in all rights,
titles and interests in and to the said copyrights, together with the
goodwill of the business symbolized by the copyrights, and in the
registrations or applications for registration thereof.
Subject to the prior Lien of the Senior Lender (each as defined in the
Credit Agreement), Assignor further covenants and warrants to Assignee:
(b) that Assignor is the sole and exclusive owner of the
copyrights and all rights comprised in the copyrights and has the full
authority to make this assignment;
(c) that the copyrights have not heretofore been pledged,
hypothecated or otherwise encumbered, except such encumbrances as have
been released on or before the date hereof, and are in all aspects
free and clear of any encumbrances;
(d) that the validity of the copyrights has never been
questioned;
(e) that Assignor has not entered into any contract or made any
commitment that will or may impair Assignee's rights hereunder; and
(f) that the copyrights and all rights comprised in the
copyrights shall not be licensed or assigned in any manner without the
prior written consent of Assignee, other than in the ordinary course
of Assignor's business consistent with past practice.
THIS ASSIGNMENT OF COPYRIGHTS SHALL BE DEEMED TO HAVE BEEN MADE IN THE
STATE OF OHIO AND SHALL BE INTERPRETED AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH APPLICABLE FEDERAL LAW AND
THE INTERNAL LAWS OF THE STATE OF OHIO, APPLICABLE TO AGREEMENTS EXECUTED,
DELIVERED AND PERFORMED THEREIN.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment of Copyrights as of this 21st day of January, 1998.
PAGES, INC.
By:
Randall J. Asmo, Vice President
THE PROVIDENT BANK
By:
Alan R. Henning, Vice President
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On this ___ day of January, 1998, before me personally appeared
Randall J. Asmo, the Vice President of PAGES, INC., the corporation which
signed this instrument and acknowledged that he signed it as a free act on
behalf of the corporation.
Notary Public
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On this ___ day of January, 1998, before me personally appeared Alan
R. Henning, the Vice President of THE PROVIDENT BANK, the corporation which
signed this instrument and acknowledged that he signed it as a free act on
behalf of the corporation.
Notary Public
EXHIBIT "A"
Copyrights
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
2. The undersigned hereby certifies that he is an officer of the
corporation set forth above his signature, holding the title set forth
below his signature.
3. Pursuant to Section 6.1(a) of the Credit Agreement ("Credit
Agreement") dated as of January 21, 1998, between Pages, Inc. ("Borrower")
and The Provident Bank ("Bank"), the undersigned hereby certifies that he
has reviewed the provisions of the Credit Agreement and the other Loan
Documents, that to the best of his knowledge after reasonable inquiry, the
Borrower is in compliance with all of the covenants and restrictions set
forth in the Credit Agreement, and that the undersigned is not aware of any
condition which exists on the date hereof which constitutes a Default or
Event of Default under the Credit Agreement, except the following:
Nature of Default __________________________________
Period of Default __________________________________
Action by Borrower ________________________________
4. All capitalized terms used herein shall have the meanings
assigned to them in the Credit Agreement unless the context hereof requires
otherwise.
5. Financial Covenants. In particular, the undersigned certifies
that as of the relevant Computation Date as set forth in the Credit
Agreement ("Computation Date"), the Borrower is in compliance with the
financial covenants set forth in Article 7 of the Credit Agreement, and
compliance with these covenants is evidenced by the following:
a. Tangible Capital Base. Pursuant to Section 7.1 of the
Credit Agreement and on the Computation Date, Borrower shall maintain for
the relevant period a Tangible Capital Base of not less than $_________.
As of _______________, 19__, Tangible Capital Base was
$__________.
b. Minimum Pretax Operating Profit or Maximum Pretax Operating
Loss. Pursuant to Section 7.2 of the Credit Agreement and on the
Computation Date, Borrower shall maintain for the relevant period a Minimum
Pretax Operating Profit or Maximum Pretax Operating Loss, as required by
the Credit Agreement.
As of _______________, 19__, the Minimum Pretax Operating
Profit or Maximum Pretax Operating Loss was $____________.
c. Fixed Charge Coverage. Pursuant to Section 7.3 of the
Credit Agreement and on the Computation Date, Borrower shall maintain a
ratio of Cash Flow to Fixed Charges of not less than __________ to 1.00.
This financial covenant shall only apply following the complete repayment
of the Senior Debt.
d. Capital Lease Obligations. Pursuant to Section 7.4(a) of
the Credit Agreement, Borrower shall not become or remain liable in any
way, whether directly or by assignment or as a guarantor or other surety,
for the obligations of the lessee under any Capital Lease, if the aggregate
amount of all rents paid by Borrower under all such Capital Leases exceeds
$25,000.00 for the relevant Reference Period.
As of the Computation Date, the Borrower has not entered
into or participated in any agreements or transactions involving any
Capital Lease, except:
.
e. Non-Capital Lease Obligations. Pursuant to Section 7.4(b)
of the Credit Agreement, Borrower shall not become or remain liable in any
way, whether directly or by assignment or as a guarantor on other surety,
for the obligation to pay rent under any leases or other rental agreements
(excluding Capital Leases) under which the amount of the aggregate lease or
other payments for all such agreements or arrangements exceeds $50,000.00
for the relevant Reference Period.
As of the Computation Date, the Borrower has not entered
into or participated in any agreements or transactions involving any
leases or other rental agreements, except:
.
6. Limitation on Mortgages, Lien and Encumbrances. Pursuant to
Section 8.7 of the Credit Agreement, Borrower may not create, assume, incur
or permit to exist, any Mortgage, Lien or other encumbrance in respect of
its Property, assets, income or revenues, except as permitted by Section
8.7.
As of the Computation Date, Borrower has not engaged in any of
the foregoing, except:
.
7. Limitation on Indebtedness. Pursuant to Section 8.10 of the
Credit Agreement, Borrower shall not at any time create, incur or assume,
or become liable in respect of any Indebtedness for Borrowed Money, except
as provided in Section 8.10.
As of the Computation Date, Borrower has not engaged in any of
the foregoing, except:
.
Remainder of page intentionally left blank. Signature page follows.
DATED: January 21, 1998 PAGES, INC.
By:
Randall J. Asmo, Vice President
<PAGE>
EXHIBIT C
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge Agreement") dated as of January 21,
1998, between PAGES, INC., a Delaware corporation (hereinafter, together
with its successors in title and assigns called "Pledgor"), and THE
PROVIDENT BANK, an Ohio banking corporation ("Secured Party").
This Pledge Agreement has been executed and delivered by Pledgor to
Secured Party pursuant to the terms of the Credit Agreement of even date
between Pledgor and Secured Party ("Credit Agreement"). Pledgor will
benefit from the Loan made to it under the Credit Agreement. Pledgor owns
one hundred percent (100%) of the issued and outstanding shares of capital
stock of the companies listed on Exhibit "A" attached hereto. To induce
the Lender to enter into the Credit Agreement and to induce the Lender to
make the Loan thereunder, Pledgor has agreed to grant to Secured Party a
security interest in the Pledge Stock. All capitalized terms not defined
in this Pledge Agreement shall have the meanings ascribed to them in the
Credit Agreement.
NOW, THEREFORE, in consideration of the Secured Party extending the
Loan to Pledgor, the parties hereby agree as follows:
1. Defined Terms. As used in this Pledge Agreement, the following
terms shall have the following meanings (such meanings to be equally
applicable to both the singular and the plural forms of the term defined):
"Certificates" mean any and all certificates or other documents
or instruments now or hereafter received or receivable by Pledgor and
representing Pledgor's interest in the Pledge Stock.
"Pledge Stock" means the shares of the common stock owned
beneficially and of record by Pledgor as set forth on Exhibit "B" attached
hereto, together with all substitutions therefor, proceeds thereof and
therefrom and all cash dividends in respect thereof as well as all stock
and other securities or property which are issued pursuant to conversion,
exercise of rights, stock split, recapitalization, stock dividend or other
corporate act which are referable to the Pledge Stock (such stock or other
securities are hereinafter referred to as the "Additional Pledged
Securities") and all distributions, whether cash or otherwise, in the
nature of a partial or complete liquidation, dissolution or winding up
which are referable to the Pledge Stock (such distributions are hereinafter
referred to as "Liquidating Distributions").
All other capitalized terms used herein have the meanings assigned to
them in the Credit Agreement unless the context hereof otherwise requires.
2. Pledge and Grant of Security Interests. Pledgor hereby pledges,
assigns, hypothecates and transfers to Secured Party, its successors and
assigns, all Pledge Stock and hereby grants to and creates in favor of
Secured Party a first lien and security interest in the Pledge Stock
subject only to the prior lien of the Senior Lender under the Senior Debt,
as collateral security for (i) the due and punctual payment when due
(whether at maturity by acceleration or otherwise) in full of all amounts
due under the Loan; (ii) the due and punctual performance and observance by
Pledgor of its agreements, obligations, liabilities and duties under this
Pledge Agreement, the Credit Agreement and all other documents executed in
connection with the Loan (the "Loan Documents"); and (iii) all costs
incurred by Secured Party to obtain, perfect, preserve and enforce the
liens and security interests granted by this Pledge Agreement, to collect
the Obligations Secured Hereby (as hereinafter defined) and to maintain and
preserve the Pledge Stock, with such costs including but not limited to
expenditures made by Secured Party for reasonable attorneys' fees and other
legal expenses and expenses of collection, possession and sale of the
Pledge Stock, together with interest on all such costs at the Default
Interest Rate (as defined in the Loan Documents) (the foregoing
subsections (i), (ii) and (iii) are collectively referred to herein as the
"Obligations Secured Hereby").
3. Delivery of Pledge Stock. At the time of the execution of this
Pledge Agreement, Pledgor has previously pledged to Senior Lender the
Pledge Stock and has delivered the Pledge Stock Certificates to Senior
Lender. Pledgor agrees that when Senior Lender releases its Lien with
respect to the Pledge Stock, Senior Lender shall hold the Pledge Stock
Certificates as agent for Secured Party until Senior Lender delivers the
Pledge Stock Certificates directly to Secured Party. Upon such delivery by
Senior Lender of the Pledge Stock Certificates to Secured Party, Secured
Party shall hold the Pledge Stock Certificates as Secured Party. Pledgor
shall deliver to Secured Party concurrently herewith undated assignments
separate from the Certificates duly executed in blank for each Certificate
representing shares of the Pledge Stock and all other applicable and
appropriate documents and assignments in form suitable to enable Secured
Party to effect the transfer of all or any portion of the Pledge Stock to
the extent hereinafter provided.
4. Delivery of Additional Pledged Securities and Liquidating
Distributions; Proceeds, Cash Dividends and Voting.
a. Except to the extent provided in the Credit Agreement, if
Pledgor shall hereafter become entitled to receive or shall receive any
cash dividends, cash proceeds, any Additional Pledged Securities, any
Liquidating Distributions, or any other cash or non-cash payments on
account of the Pledge Stock, Pledgor agrees to accept the same as Secured
Party's agent and to hold the same in trust on behalf of and for the
benefit of Secured Party and agrees to promptly deliver the same or any
certificates therefor forthwith to Secured Party in the exact form
received, with the endorsement of Pledgor, when necessary, or appropriate
undated assignments separate from the Certificates, duly executed in blank,
to be held by Secured Party subject to the terms hereof.
b. Notwithstanding anything contained in this Pledge Agreement
to the contrary, Pledgor shall be entitled to exercise voting rights with
respect to the Pledge Stock, so long as there has not occurred any Default
or Event of Default under the terms of the Credit Agreement or any other
Loan Documents.
5. Representations and Warranties of Pledgor. To induce Secured
Party to enter into this Pledge Agreement and to induce the Lender to enter
into the Credit Agreement, Pledgor makes the following representations and
warranties to Secured Party:
a. Pledgor is the legal, record and beneficial owner of, and
has good and marketable title to, the Pledge Stock, subject to the prior
Lien of the Senior Lender under the Senior Debt and the liens and security
hereunder.
b. Pledgor holds the Pledge Stock free and clear of all liens,
charges, encumbrances, security interests and restrictions of every kind
and nature whatsoever except only the prior lien of the Senior Lender under
the Senior Debt and the liens and security interests created by this Pledge
Agreement.
c. Each security which is part of the Pledge Stock has been
duly and validly issued and is fully paid and nonassessable. The Pledge
Stock constitutes one hundred percent (100%) of the issued and outstanding
common stock of each of the respective corporations and there are no
outstanding subscriptions, options, warrants, calls, commitments or
agreements to issue any additional shares of stock of such companies or to
purchase, redeem or retire any outstanding shares of such Pledge Stock, nor
are there outstanding any securities or obligations which are convertible
into or exchangeable for any shares of capital stock of such companies.
d. This Pledge Agreement has been duly executed and delivered
by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor enforceable against it in accordance with its terms.
e. No consent or approval of any governmental body, regulatory
authority or securities exchange is required to be obtained by Pledgor in
connection with the execution, delivery and performance of this Pledge
Agreement.
f. The execution, delivery and performance of this Pledge
Agreement will not violate any provision of any applicable law or
regulation or of any writ or decree of any court or governmental
instrumentality or of any indenture, contract, agreement or other
undertaking to which Pledgor is a party or which purports to be binding
upon Pledgor or upon any of its assets and will not result in the creation
or imposition of any lien, charge or encumbrance on or security interest in
any of the assets of Pledgor except as contemplated by this Pledge
Agreement.
g. The pledge, assignment and delivery of the Pledge Stock
pursuant to this Pledge Agreement creates valid first liens and first
security interests in the Pledge Stock which are perfected and senior to
any pledge, lien, mortgage, hypothecation, security interest, charge,
option or encumbrance or to any agreement purporting to grant to any third
party a security interest in the property or assets of Pledgor which would
include the Pledge Stock except for the prior lien of the Senior Lender
under the Senior Debt.
6. Pledgor's Covenants.
a. Pledgor covenants and agrees that it will defend Secured
Party's lien and security interest in and to the Pledge Stock against the
claims and demands of all persons whosoever.
b. Subject to the terms and conditions of the Credit Agreement,
Pledgor covenants and agrees that it will not create, incur or permit to
exist any pledge, lien, mortgage, hypothecation, security interest, charge,
option or any other encumbrance with respect to any of the Pledge Stock, or
any interest therein, or any proceeds thereof, except for the lien and
security interest provided for or referred to in this Pledge Agreement.
c. Pledgor covenants and agrees that it will not consent to the
issuance of any additional shares of capital stock of any class of those
companies set forth on Exhibit B unless such shares are pledged and the
Certificates therefor delivered to Secured Party simultaneously with the
issuance thereof, together with appropriate undated assignments separate
from the Certificates duly executed in blank.
7. Rights and Remedies upon Default. If any Event of Default under
the Credit Agreement or any of the Loan Documents shall occur and be
continuing, Secured Party may, subject to the terms of the Credit
Agreement, by notice of default given to Pledgor, (i) declare the
Obligations Secured Hereby to be forthwith due and payable, whereupon such
Obligations Secured Hereby shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Loan Documents
to the contrary notwithstanding; and/or (ii) proceed to protect and enforce
its rights under this Pledge Agreement, the Credit Agreement or the other
Loan Documents by suit in equity, action at law or any other appropriate
proceeding and Secured Party shall have all of the rights and remedies
provided by applicable law, including, without limitation, the rights and
remedies of a secured party under the Uniform Commercial Code and, in
addition, thereto, Secured Party shall be entitled to register the Pledge
Stock in its name or in the name of its nominee and to exercise all voting
and corporate rights with respect to the Pledge Stock as it may determine,
without liability therefore except to account to Pledgor for property
actually received by it in respect of the Pledge Stock as a result thereof,
but Secured Party shall not have any duty to exercise any voting and
corporate rights in respect of the Pledge Stock and shall not be
responsible or liable to Pledgor or any other person for any failure to do
so or delay in so doing.
Without limiting the generality of the foregoing, but subject to the
terms of the Credit Agreement, Secured Party shall have the right to sell
the Pledge Stock, or any part thereof, at public or private sale or at any
broker's board or on any securities exchange for cash, upon credit or for
future delivery, and at such price or prices as Secured Party may deem
best, and Secured Party may (except as otherwise provided by law) be the
purchaser of any or all of the Pledge Stock so sold and thereafter may hold
the same, absolutely, free from any right or claim of whatsoever kind.
Secured Party is authorized, at any such sale, if it deems it advisable so
to do, to restrict the number of prospective bidders or purchasers and/or
further restrict such prospective bidders or purchasers to persons who will
represent and agree that they are purchasing for their own account, for
investment, and not with a view to the distribution or resale of the Pledge
Stock and may otherwise require that such sale be conducted subject to
restrictions as to such other matters as Secured Party may deem necessary
in order that such sale may be effected in such manner as to comply with
all applicable state and federal securities laws; upon any such sale
Secured Party shall have the right to deliver, assign and transfer to the
purchaser thereof the Pledge Stock so sold.
Each purchaser at any such sale shall hold the property sold,
absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption, of Pledgor, who hereby specifically waives
all rights of redemption, stay or appraisal which it has or may have under
any rule of law or statute now existing or hereafter adopted. Secured
Party shall give Pledgor not less than ten (10) days' written notice of its
intention to make any such public or private sale at broker's board or on a
securities exchange. Such notice, in case of public sale, shall state the
time and place fixed for such sale, and, in case of sale at broker's board
or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Pledge Stock, or that
portion thereof so being sold, will first be offered for sale at such board
or exchange.
Any such public sale shall be held at such time or times within the
ordinary business hours and at such place or places as Secured Party may
fix in the notice of such sale. At any sale the Pledge Stock may be sold
in one lot as an entirety or in parts, as Secured Party may determine.
Secured Party shall not be obligated to make any sale pursuant to any such
notice. Secured Party may, without notice or publication, adjourn any
sale, and such sale may be made at any time or place to which the same may
be so adjourned. In case of any sale of all or any part of the Pledge
Stock on credit or for future delivery, the Pledge Stock so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Pledge Stock so sold
and, in case of any such failure, such Pledge Stock may again be sold upon
like notice.
Secured Party, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit or suits at law or in equity to
foreclose this Pledge Agreement and sell the Pledge Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
On any sale of the Pledge Stock, Secured Party is hereby authorized to
comply with any limitation or restriction in connection with such sale that
it may be advised by counsel is necessary in order to avoid any violation
of applicable law or in order to obtain any required approval of the
purchaser or purchasers by any governmental regulatory authority or officer
or court. Compliance with the foregoing procedures shall result in such
sale or disposition being considered or deemed to have been made in a
commercially reasonable manner.
In furtherance of the exercise by Secured Party of the rights and
remedies granted to it hereunder, Pledgor agrees that, upon request of
Secured Party and at the expense of Pledgor, it will use its best efforts
to obtain all governmental approvals necessary for or incidental to the
exercise of remedies by Secured Party with respect to the Pledge Stock or
any part thereof.
Pledgor hereby acknowledges that, notwithstanding that a higher price
might be obtained for the Pledge Stock at a public sale than at a private
sale or sales, the making of a public sale of the Pledge Stock may be
subject to registration requirements and other legal restrictions
compliance with which could require such actions on the part of Pledgor,
could entail such expenses and could subject Secured Party and any
underwriter through whom the Pledge Stock may be sold and any controlling
person of any thereof to such liabilities, as would make the making of a
public sale of the Pledge Stock impractical. Accordingly, Pledgor hereby
agrees that private sales made by Secured Party in accordance with the
provisions of Section 7 hereof may be at prices and on other terms less
favorable to the seller than if the Pledge Stock were sold at public sale,
and that Secured Party shall not have any obligation to take any steps in
order to permit the Pledge Stock to be sold at a public sale complying with
the requirements of federal and state securities and similar laws, and that
sale may be at a private sale provided that such sale is made at arms
length and in a commercially reasonable manner.
8. Indemnification. Pledgor agrees to indemnify and hold harmless
Secured Party (to the full extent permitted by law) from and against any
and all claims, demands, losses, judgments and liabilities for penalties
and excise taxes of whatever nature, and to reimburse Secured Party for all
costs and expenses, including reasonable legal fees and disbursements,
growing out of or resulting from the Pledge Stock, this Pledge Agreement or
the administration and enforcement or exercise of any right or remedy
granted to Secured Party hereunder. In no event shall Secured Party be
liable to Pledgor for any matter or thing in connection with this Pledge
Agreement other than to account for moneys actually received by it in
accordance with the terms hereof.
9. Distribution of Pledge Stock. Upon enforcement of this Pledge
Agreement following the occurrence of an Event of Default under the Credit
Agreement or any other Loan Documents, the proceeds of the Pledge Stock
shall be applied as received by Secured Party in the manner provided in the
Credit Agreement.
10. Release of Pledge Stock. Upon full payment of the Loan and
satisfaction of all Obligations in connection therewith, Secured Party
shall take all action necessary to terminate the security interest in the
Pledge Stock.
11. Further Assurances. Pledgor agrees that at any time and from
time to time upon the request of Secured Party, Pledgor will execute and
deliver such further documents and do such further acts and things as
Secured Party reasonably requests in order to effect the purposes of this
Pledge Agreement.
12. No Waiver; Cumulative Remedies. Secured Party shall not by any
act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder and no waiver shall be valid unless in
writing, signed by Secured Party, and then only to the extent therein set
forth. A waiver by Secured Party of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which
Secured Party would otherwise have on any future occasion. No failure to
exercise or any delay in exercising on the part of Secured Party any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights and remedies provided by law.
13. Severability of Provisions. The provisions of this Pledge
Agreement are severable, and if any clause or provision hereof shall be
held invalid or unenforceable in whole or in part, then such invalidity or
unenforceability shall attach only to such clause or provision or part
thereof and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision in this Pledge
Agreement in any jurisdiction.
14. Amendments; Choice of Law; Binding Effect.
a. None of the terms or provisions of this Pledge Agreement may
be altered, modified or amended except by an instrument in writing, duly
executed by each of the parties hereto.
b. This Pledge Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Ohio.
c. This Pledge Agreement shall be binding upon an inure to the
benefit of the parties hereto and their respective successors and assigns.
15. Address of Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing, and if addressed
to Pledgor, mailed or delivered at:
Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attention: S. Robert Davis
Chairman and President
with a copy to: Reid & Priest, LLP
40 West 57th Street
New York, New York 10019-4097
Attention: Leonard Gubar, Esq.
and, if to Secured Party, mailed or delivered to it, addressed to it at:
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Alan R. Henning
Vice President
with a copy to: Keating, Muething & Klekamp, P.L.L.
One East Fourth Street
Cincinnati, Ohio 45202
Attention: J. David Rosenberg, Esq.
or, as to each party, at such other address as shall be designated by such
party in a written notice to the other complying as to delivery with the
terms of this section. All notices, requests, demands and other
communications provided for hereunder shall be deemed given or delivered if
in writing addressed as provided above and if either (i) actually delivered
at said address; or (ii) in, the case of a letter, three (3) Business Days
shall have elapsed after the same shall have been deposited in the United
States mail, postage prepaid and registered or certified.
16. Headings. The descriptive headings hereunder used are for
convenience only and shall not be deemed to limit or otherwise effect the
construction of any provision hereof.
17. Counterpart Execution. This Pledge Agreement may be executed in
several counterparts each of which shall constitute an original, but all of
which together shall constitute one and the same agreement.
Remainder of page intentionally left blank. Signature page follows.
IN WITNESS WHEREOF, the undersigned have caused this Pledge Agreement
to be duly executed and delivered as of the day and year first above
written.
WITNESSES: PLEDGOR:
PAGES, INC.
By: Randall J. Asmo, Vice President
SECURED PARTY:
THE PROVIDENT BANK
By: Alan R. Henning
Vice President
EXHIBIT "B"
Pledge Stock
Pledge Shares Certificate No. No. Shares
<PAGE>
EXHIBIT D
FORM OF TERM PROMISSORY NOTE
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE
SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH
IN THAT CERTAIN SUBORDINATION AND INTERCREDITOR
AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS OF
JANUARY 21, 1998, AMONG THE PROVIDENT BANK, PAGES,
INC., AND THE HUNTINGTON NATIONAL BANK, TO THE SENIOR
DEBT (AS DEFINED IN THE SUBORDINATION AGREEMENT) OWED
BY PAGES BOOK FAIRS, INC. AND PAGES LIBRARY SERVICES,
INC., WHOLLY-OWNED SUBSIDIARIES OF PAGES, INC., OR BY
PAGES, INC. TO THE HOLDERS OF ALL SENIOR DEBT IN
ACCORDANCE WITH THE TERMS THEREOF.
$3,000,000.00 Cincinnati, Ohio
January 21, 1998
THIS TERM PROMISSORY NOTE ("Note") is made and entered into as of the
date hereof by PAGES, INC., a Delaware corporation (the "Borrower"), to the
order of THE PROVIDENT BANK, an Ohio banking corporation (hereinafter,
together with its permitted successors and assigns, called "Bank").
This Note has been executed and delivered in connection with a certain
Credit Agreement dated as of January 21, 1998, by and between Borrower and
Bank (the "Credit Agreement") and is subject to the terms and conditions of
the Credit Agreement. All capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement unless the context hereof
requires otherwise.
Borrower, for value received, promises to pay to the order of Bank, at
Bank's Head Office the principal sum of THREE MILLION AND 00/100 DOLLARS
($3,000,000.00), together with interest at the annual rate equal to twelve
and one-half percent (12.5%) ("Term Loan Interest Rate") and at the Default
Interest Rate of two percent (2%) in excess of the Term Loan Interest Rate.
Interest shall be due and payable monthly in arrears on the first day of
each month commencing on February 1, 1998 and thereafter. All interest
under this Note shall be computed on the basis of the actual number of days
elapsed over an assumed year consisting of three hundred sixty (360) days.
Borrower shall pay to Bank, commencing on February 1, 2001 and on the
first day of each month thereafter, monthly installments of principal, each
in the amount of Eighty-Three Thousand Three Hundred Thirty-Three and
34/100 Dollars ($83,333.34), provided that, in any event, the last
installment payable on this Note shall be in an amount sufficient to pay in
full the entire unpaid principal and accrued interest of this Note. All of
the indebtedness evidenced by this Note shall, if not sooner due and
payable as provided in the Credit Agreement, be in any event absolutely and
unconditionally due and payable in full by Borrower on February 1, 2004.
If any payment of principal, interest or other charge due hereunder is
not paid when due, or in the event of an Event of Default under the Credit
Agreement, this Note shall, at the option of Bank, become immediately due
and payable, upon demand by Bank, except that if there shall be an Event of
Default under Section 9.1(h) of the Credit Agreement, this Note shall
automatically and immediately be due and payable without demand.
Borrower hereby (i) waives presentment, demand, notice of demand,
protest, notice of protest and notice of nonpayment and any other notice
required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note, of any indorsement or
guaranty of this Note; and (ii) consents to any and all delays, extensions,
renewals or other modifications of this Note or waivers of any term hereof
or the failure to act on the part of Bank or any indulgence shown by Bank,
from time to time and in one or more instances, (without notice to or
further assent from Borrower) and agrees that no such action, failure to
act or failure to exercise any right or remedy, on the part of Bank shall
in any way affect or impair the obligations of Borrower or be construed as
a waiver by Bank of, or otherwise affect, any of Bank's rights under this
Note, under any indorsement or guaranty of this Note.
Anything herein to the contrary notwithstanding, the obligations of
Borrower under this Note, the Credit Agreement or any other Loan Documents
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by the Bank would
be contrary to the provisions of law applicable to the Bank limiting the
maximum rate of interest that may be charged or collected by the Bank.
Without limiting the generality of the foregoing, all calculations of the
rate of interest contracted for, charged or received under this Note which
are made for the purposes of determining whether such rate of interest
exceeds the maximum rate of interest permitted by applicable law shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full
stated term of this Note, all interest at any time contracted for, charged
or received in connection with the indebtedness evidenced by this Note.
The provisions of this Note shall be governed by and interpreted in
accordance with the laws of Ohio.
The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as forums where any action, suit or proceeding in respect of or
arising from or out of this Note, its making, validity or performance, may
be prosecuted as to all parties, their successors and assigns, and by the
foregoing designation the undersigned consents to the jurisdiction and
venue of such courts.
TIME IS OF THE ESSENCE IN THE PERFORMANCE OF THE OBLIGATIONS OF THIS
NOTE.
Remainder of page intentionally left blank. Signature page follows.
IN WITNESS WHEREOF, the undersigned has executed this Term Promissory
Note the day and year set forth above.
PAGES, INC.,
a Delaware corporation
By:
Randall J. Asmo, Vice President
<PAGE>
EXHIBIT E
FORM OF LETTER OF UNDERSTANDING
January 21, 1998
The Huntington National Bank
41 South High Street
Columbus, Ohio 43215
Attention: Thomas Myers
Vice President
RE: Pages, Inc. ("Pages")
Pages Book Fairs, Inc. ("PBF")
Pages Library Services, Inc. ("PLS")
Dear Mr. Myers:
The Huntington National Bank ("Huntington"), The Provident Bank
("Provident") and Pages are party to a Subordination and Intercreditor
Agreement of even date ("Agreement"). The capitalized terms not defined in
this letter shall have the meanings ascribed to them in the Agreement.
Pursuant to the terms of the Junior Credit Agreement, Provident has
agreed to make a $3,000,000.00 loan to Pages ("Junior Debt"), which loan is
subordinated to the loan made by Huntington to PBF and PLS pursuant to the
terms of the Senior Credit Agreement ("Senior Debt"), all as more
particularly described in the Agreement.
As part of the collateral security for the Senior Debt, Pages has
granted to Huntington a security interest and pledge of all the capital
stock of PBF and PLS ("Pledged Securities"). A description of the Pledged
Securities is attached hereto. In connection with such security interest
and pledge, Pages has delivered the stock certificates representing the
Pledged Securities into the possession of Huntington.
As part of the collateral security for the Junior Debt, Pages has
granted to Provident a security interest and pledge in the Pledged
Securities, which security interest and pledge is subordinate to that of
Huntington as provided in the Agreement.
Pages authorizes and instructs Huntington to hold the Pledged
Securities for purposes of perfecting Provident's security interest
therein. Pages, Borrowers and Huntington agree that if and when Huntington
releases its security interest and pledge in the Pledged Securities,
Huntington shall deliver such Pledged Securities directly to Provident, at
the address set forth in the Credit Agreement, except to the extent that
Huntington is restrained or enjoined by any order of any court or ruling of
any administrative agency; provided, however, that Huntington shall not be
required to take any action which exposes Huntington to any liability or is
contrary to any applicable law, unless Huntington shall be furnished with
an indemnification reasonably satisfactory to Huntington with respect
thereto. In performing any contractual obligation hereunder, Huntington
does not assume and shall not be deemed to have assumed any obligation or
relationship of agency, trustee or fiduciary with any of the other parties
to this letter agreement.
Please indicate your concurrence with the foregoing by signing this
letter in the space below.
Very truly yours,
THE PROVIDENT BANK
By:
Alan R. Henning, Vice President
AGREED AND ACCEPTED:
THE HUNTINGTON NATIONAL BANK PAGES BOOK FAIRS, INC.
By: By:
Its: Its:
PAGES, INC. PAGES LIBRARY SERVICES, INC.
By: By:
Its: Its:
Description of Pledged Securities
Certificate No. Dated Issuer No. of
Shares
<PAGE>
EXHIBIT F
FORM OF OPINION OF COUNSEL TO BORROWER
January 21, 1998
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Gentlemen:
We have acted as counsel to Pages, Inc., a Delaware corporation
("Borrower"), and its two wholly-owned subsidiaries, Pages Book Fairs,
Inc., a Florida corporation ("PBF"), and Pages Library Services, Inc., a
Florida corporation ("PLS"), in connection with the Credit Agreement dated
as of January 21, 1998 (the "Credit Agreement"), by and between the
Borrower and The Provident Bank ("Lender"). Capitalized terms defined in
the Credit Agreement and not defined herein shall have their defined
meanings when used herein. This opinion letter is delivered to you
pursuant to Section 7.1 of the Credit Agreement.
In connection with our opinions expressed herein, we have examined
executed copies of the following documents: (i) the Credit Agreement, (ii)
the Term Promissory Note in the stated principal amount of $3,000,000.00,
dated as of even date and made by the Borrower in favor of the Lender
("Note"), (iii) the Pledge Agreement dated as of even date ("Pledge
Agreement"), (iv) the Guaranty Agreements dated as of even date, (v) copies
of the financing statements on Form UCC-1 (the "Financing Statements")
filed in the Office of the Secretary of State of the states of California,
Florida, Georgia, Ohio, Oklahoma, Maryland and Tennessee, and the county
offices of Orange County, California, Pinellas County, Florida, Cobb
County, Georgia, Franklin County, Ohio, Oklahoma County, Oklahoma,
Montgomery County, Maryland and Davidson County, Tennessee
(collectively, the "Filing Offices"), executed by the Borrower, PBF and
PLS, as debtors, in favor of the Lender, and (vi) originals or copies,
certified or otherwise identified to our satisfaction, of such other
documents, corporate records, certificates of public officials and other
instruments as we have deemed necessary, relevant, or advisable for
purposes of this opinion letter. The Credit Agreement, the Note, Pledge
Agreement, Guaranty Agreements and the Financing Statements are
collectively referred to herein as the "Loan Documents."
For purposes of this opinion letter, we have assumed (i) the
genuineness of the signatures and of, except with respect to the Borrower,
the authority of individuals signing all documents in connection with which
this opinion letter is rendered on behalf of the parties thereto, (ii) the
authenticity of all documents submitted to us as originals, (iii) the
conformity to original documents of all documents submitted to us as
copies, (iv) the correctness and accuracy of all facts set forth in all
certificates and reports identified in this opinion letter, and (v) the due
authorization, execution, delivery of and the validity and binding effect
of the Loan Documents with respect to the Lender.
Based upon and subject to the foregoing and the other assumptions,
qualifications and limitations set forth herein, we are of the opinion
that, as of the date of this opinion letter:
i. Borrower, PBF and PLS (collectively, "Signers") are
corporations duly incorporated, validly existing and in good standing under
the laws of the States of Delaware and Florida and are duly qualified and
authorized to do business as a foreign corporation in the each state set
forth on Schedule 2.
ii. The execution and delivery by Signers of each of the Loan
Documents to which it is a party, and the performance by Signers, of their
obligations thereunder, are within the corporate powers of Signers, has
been duly authorized by all necessary corporate action on the part of
Signers, are not in contravention of any law which, to our knowledge, is
applicable to Signers, or the terms of the certificates of incorporation or
by-laws of Signers, and do not require the consent or approval of any
governmental body, agency or authority which has not been received. Each
of the Loan Documents to which Signers are parties constitutes the valid
and binding obligation of Signers against them in accordance with its
terms.
iii. To our knowledge, no litigation or other proceeding before
any court or administrative agency is pending or threatened against
Signers, except as noted in Schedule 5.10 to the Credit Agreement.
iv. No portion of the loans made pursuant to the Credit
Agreement will constitute a loan for the purpose of purchasing or carrying
out "margin security" or "margin stock" as such terms are used in
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System.
v. The provisions of the Loan Documents are sufficient to
create in the Lender's favor a security interest in all right, title and
interest of each of Signers in the Collateral described in the Financing
Statements in which a security interest may be created under Article 9 of
the Uniform Commercial Code (the "Code"). The description of Collateral as
set forth in the Financing Statements is sufficient to perfect a security
interest in the items and types of collateral described therein in which a
security interest may be perfected by the filing of financing statements
under the Code, except that we express no opinion as to the factual
accuracy of any description of the Collateral. Assuming that the Financing
Statements were filed in the filing offices set forth in Schedule 1, and
have not subsequently been released, terminated or modified, the Lender's
security interest in the Collateral described in such Financing Statements
has been perfected, to the extent such a security interest may be perfected
under the Code by the filing of financing statements.
vi. The Pledge Agreement is effective under the Code to create a
valid and enforceable security interest in favor of Lender in all right,
title and interest of Signers in the Pledge Stock (as such term is defined
in the Pledge Agreement) as security for payment of the Obligations secured
hereby (as such term is defined in the Pledge Agreement). Upon delivery
pursuant to the Pledge Agreement by Signers to Lender of the stock
certificates representing the Pledge Stock accompanied by undated stock
powers duly executed in blank, and assuming continued possession thereafter
of such stock certificates and stock powers by the Lender, the security
interest created by the Pledge Agreement will constitute a perfected
security interest under the Code.
<PAGE>
EXHIBIT G
OFFICER'S CERTIFICATE
OF
PAGES, INC.
Pursuant to Section 4.1(o) of the Credit Agreement dated as of January
21, 1998 ("Credit Agreement"), by and among PAGES, INC., a Delaware
corporation, together with its successors and assigns (hereinafter
"Borrower"), and THE PROVIDENT BANK, an Ohio banking corporation
(hereinafter "Lender"), the undersigned hereby certifies to the best of its
knowledge that:
1. All representations and warranties of the Borrower under the
Credit Agreement are true and correct in all material respects on and as of
the date hereof.
2. The Borrower has performed and complied with all the covenants,
agreements and conditions required by the Credit Agreement to be performed
or complied with by it prior to or at the Closing Date.
3. All documents to be executed and delivered by the Borrower at the
Closing Date have been duly executed and authorized by the Board of
Directors of the Borrower.
4. As of the date hereof, Borrower has working capital cash
availability under its Senior Debt facility of at least Three Hundred
Thousand Dollars ($300,000.00).
Capital terms used herein without definition shall have the meanings
ascribed to them in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of January 21, 1998.
BORROWER:
PAGES, INC., a Delaware corporation
By:
Randall J. Asmo, Vice President
WARRANT
Neither this Warrant, nor the shares of capital stock for which
it is exercisable, have been registered under the Securities Act
of 1933 or any applicable state securities laws, and no transfer
or assignment of this Warrant or the shares issuable upon its
exercise may be made in the absence of an effective registration
statement under such laws or the availability of exemptions from
the registration provisions thereof in respect of such transfer
or assignment in the opinion of counsel satisfactory to the
Company. Moreover, this Warrant and the shares of capital stock
for which it is exercisable are subject to restrictions on
transferability and similar restrictions as set forth in a
Warrant Agreement dated as of January 21, 1998, relating to the
issuance of this Warrant (a copy of which Agreement is on file
with the Company's Secretary and will be made available upon
request of a Warrant Holder or proposed transferee).
Warrant Certificate No. 1 Warrants for 391,514 Shares
Original Issue Date: January 21, 1998
WARRANT TO PURCHASE COMMON STOCK
OF
PAGES, INC.
This certifies that THE PROVIDENT BANK, an Ohio banking corporation,
or its registered assigns ("Holder"), is entitled, subject to the terms set
forth below, at any time on or after the date hereof until January 21,
2008, to purchase from PAGES, INC., a Delaware corporation (the "Company"),
up to three hundred ninety-one thousand five hundred fourteen (391,514)
fully-paid and non-assessable shares of the Company's common stock ("Common
Stock") upon surrender hereof, at the principal office of the Company, with
the subscription form annexed hereto duly executed, and simultaneous
payment therefor, at the purchase price of Two and 25/100 Dollars ($2.25)
per share (the "Exercise Price"). The number and character of such shares
of Common Stock are subject to adjustment as provided below.
1. The Warrants. This Warrant is issued to Holder in connection
with a certain Warrant Agreement dated as of January 21, 1998, between the
Company and The Provident Bank (the "Warrant Agreement"). The term
"Warrants" as used herein shall include all Warrants issued in connection
with the Warrant Agreement and also any warrants delivered in substitution
or exchange therefor as provided herein. This Warrant does not entitle the
Holder to any rights as a stockholder of the Company except as set forth
herein or in the Warrant Agreement.
2. Exercise.
a. Full Exercise. Subject to compliance with the provisions
hereof, this Warrant may be exercised by the Holder, in whole or in part,
during the period of exercise specified above, at any time or from time to
time, on any business day, by surrendering the Warrant at the principal
office of the Company, 801 94th Avenue North, St. Petersburg, Florida
33702, with the form of Election to Exercise in substantially the form of
Exhibit A fully executed, together with payment in cash or immediately
available funds of the sum obtained by multiplying: (i) the number of
shares of Common Stock for which the Warrant is being exercised; by (ii)
the Exercise Price, provided, however, that all or part of such payment may
be made by the surrender by such Holder to the Company, at the aforesaid
office or agency, of any instrument evidencing indebtedness of the Company,
or any other corporation of which the Company owns at least fifty percent
(50%) of the voting stock. All indebtedness so surrendered shall be
credited against such Exercise Price in an amount equal to the outstanding
principal amount thereof plus accrued but unpaid interest to the date of
surrender.
b. Partial Exercise. This Warrant may be exercised for less
than the full number of shares of Common Stock or any fraction thereof
called for hereby, during the period of exercise specified above, at any
time or from time to time, in the manner set forth in Section 6.a. Upon
any partial exercise, the number of shares receivable upon the exercise of
this Warrant as a whole, and the sum payable upon the exercise of this
Warrant as a whole, shall be proportionately reduced. Upon such partial
exercise, this Warrant shall be surrendered and a new Warrant of the same
tenor and for the purchase of the number of such shares not purchased upon
such exercise shall be issued by the Company to the registered Holder
hereof within five (5) days after such exercise. A Warrant shall be deemed
to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such exercise
shall be treated for all purposes as the Holder of such shares of record as
of the close of business on such date. As soon as practicable on or after
such date, but in any event within five (5) days after payment of the
Exercise Price pursuant to this Section 6, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate
or certificates for the number of shares of Common Stock issuable upon such
exercise.
3. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be validly issued, fully paid and non-
assessable and free of any security interest or other adverse claims or
encumbrances and free of claims of pre-emptive rights. The Company shall
pay all issuance taxes and similar governmental charges that may be imposed
in respect of the issue or delivery thereof, but in no event shall the
Company pay a tax on or measured by the net income or gain attributed to
such exercise. The Company shall not be required, however, to pay any tax
or other charge imposed in connection with any transfer of a Warrant or any
transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered Holder of the Warrant
surrendered in connection with the purchase of such shares, and in such
case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the Company's reasonable satisfaction that no tax or other
charge is due.
4. Unregistered Securities. The Holder acknowledges that, in taking
unregistered Warrants, it must continue to bear the economic risk of its
investment for an indefinite period of time because of the fact that such
Warrants have not been registered under the Securities Act of 1933 and
further realizes that such Warrants cannot be sold unless they are
subsequently registered under the Securities Act or 1933 or an exception or
exemption from such registration is available. The Holder also
acknowledges that appropriate legends reflecting the status of the Warrants
under the Securities Act of 1933 may be placed on the face of the Warrant
certificates at the time of their transfer and delivery to the Holder
hereof. The transfer of this Warrant and the shares issuable upon exercise
of this Warrant is subject to the terms of this Warrant and the terms and
provisions of the Warrant Agreement.
5. Exchanges. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company together with
the form of transfer authorization attached hereto as Exhibit B duly
executed, for new Warrants for the same aggregate number of shares of
Warrant Stock, each new Warrant to represent the right to purchase such
number of shares as the Holder shall designate at the time of such
exchange.
6. Adjustments.
a. Adjustments for Issue or Sale of Common Stock at Less Than
Exercise Price. If the Company shall issue or sell shares of its Common
Stock (other than those excepted by Section 10.b..(12)) for a consideration
per share less than the Exercise Price (or, if an Adjusted Exercise Price
shall be in effect by reason of a previous adjustment under this Section
10.a as provided below, then less than such Adjusted Exercise Price), then
and in each such case the Holder of this Warrant, upon the exercise hereof,
shall be entitled to receive, in lieu of the shares of Common Stock
theretofore receivable upon the exercise of this Warrant, a number of
shares of Common Stock determined by (a) dividing the Exercise Price by an
Adjusted Exercise Price to be computed as provided below in this Section
10.a, and (b) multiplying the resulting quotient by the number of shares of
Common Stock called for on the face of this Warrant. Such Adjusted
Exercise Price shall be computed (to the nearest cent, a half cent or more
being considered a full cent) by dividing:
(1) the sum of (x) the result obtained by multiplying the
number of shares of Common Stock of the Company outstanding
immediately prior to such issue or sale by the Exercise Price (or, if
an Adjusted Exercise Price shall be in effect by reason of a previous
adjustment under this Section 10.a, by such Adjusted Exercise Price),
and (y) the consideration, if any, received by the Company upon such
issue or sale; by
(2) the number of shares of Common Stock of the Company
outstanding immediately after such issue or sale.
No adjustment of the Warrant Exercise Price, or Adjusted Exercise Price if
in effect, however, shall be made in an amount less than $.01 per share,
but any such lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together
with any adjustments as so carried forward shall amount to $.01 per share
or more. For the purpose of this Section 10.a, the following Sections
5.1.1 to 10.b..(12) shall be applicable;
b. Dividends in Common Stock or Convertible Securities.
(1) In case at any time the Company shall declare any
dividend or order any other distribution, upon any stock of the
Company of any class payable in Common Stock, or in any stock or other
securities directly or indirectly convertible into or exchangeable for
Common Stock (any such stock or other securities being hereinafter
called "Convertible Securities"), such declaration or distribution
shall be deemed to be an issue and sale (as of the record date),
without consideration, of such Common Stock or the Common Stock
covered by such Convertible Securities, as the case may be.
(2) Dividends in Other Stock, Securities or Property. In
case at any time the Company shall declare any dividend or order any
other distribution, upon any class of stock of the Company payable in
stock of the Company of a different class (other than Common Stock or
Convertible Securities covered by Section 10.b), other securities of
the Company or other property of the Company (other than cash), such
declaration or distribution shall be deemed an issue and sale, without
consideration, of shares of Common Stock in an amount determined as
follows:
(a) if there is a public market for such distributed
stock, securities or property, then the value of such distributed
stock, securities or property shall equal the then current market
value of such stock, securities or property determined as of the
close of business on the trading day immediately preceding the
date of declaration of such dividend or distribution;
(b) if there is not a public market for such
distributed stock, securities or property, then:
(i) the value of such distributed stock,
securities, or property shall be determined in good faith by
the Board of Directors of the Company as of the record date
of the dividend or distribution;
(ii) the value of a share of the Common Stock
shall be determined in good faith by the Board of Directors
of the Company as of the record date of the aforesaid
dividend or distribution;
(iii) the amount determined under clause (i)
shall be divided by the amount determined under clause (ii)
and the quotient to the next higher full number shall be
deemed the number of shares of Common Stock of the Company
issued, without consideration, by reason of said dividend or
distribution.
Provided, however, that in the event of a distribution to
shareholders of stock of a subsidiary or securities convertible
into or exercisable for such stock, the Holder of this Warrant,
upon the exercise hereof, at any time after such distribution,
shall be entitled to receive the stock or other securities to
which such Holder would have been entitled if such Holder had
exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided in Section 10.a, and no Common
Stock shall have been deemed to have been issued.
(3) Dividends in Cash Out of Capital or Surplus. If the
Company shall declare any dividend or order any other distribution
upon any stock of the Company, in cash paid or payable out of stated
capital or paid-in surplus or surplus created as a result of a re-
evaluation of property (determined in each case on a consolidated
basis) then to the extent that the amount so paid or payable shall
exceed the earned surplus on a consolidated basis, such excess shall
be deemed an issue and sale (as of the record date), without
consideration, of shares of Common Stock in an amount determined as
follows:
(a) the value of a share of Common Stock, as of the
record date, shall be determined in good faith by the Board of
Directors of the Company;
(b) amount of said excess shall be divided by the
value determined under clause (i) and the quotient so determined
to the next higher whole number shall be deemed the number of
shares of Common Stock issued and sold without consideration.
(4) Reclassification. If the Company shall order any
distribution of any stock of the Company (including Common Stock) or
other securities (including Convertible Securities) or property
(including cash) by way of stock split, spin-off, split-up,
reclassification, reverse stock split, combination of shares or
similar corporate rearrangement, such distribution shall be deemed an
issue and sale, without consideration, of shares of Common Stock as
follows:
(a) in the case of a distribution in shares of the
Common Stock in the amount of said distribution;
(b) in the case of a distribution of Convertible
Securities as provided in Section 10.b..(5);
(c) in the case of a distribution of other stock,
securities or property (including cash) as provided in Section
10.b..(2) (for this purpose treating cash as other property).
(5) Issuance or Sale of Convertible Securities. If the
Company shall issue or sell any Convertible Securities, there shall be
determined the price per share for which Common Stock is issuable upon
the conversion or exchange thereof, such determination to be made by
dividing the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by
the maximum number of shares of Common Stock of the Company issuable
upon conversion or exchange of all of such Convertible Securities; and
such issue or sale shall be deemed to be an issue or sale for cash (as
of the date of issue or sale of such Convertible Securities) of such
maximum number of shares of Common Stock at the price per share so
determined.
If such Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the
amount of additional consideration, if any, payable to the Company, or
in the rate of exchange, upon the conversion or exchange thereof, the
Adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be readjusted (but to no greater extent than
originally adjusted) to reflect the same.
If any rights of conversion or exchange evidenced by
such Convertible Securities shall expire without having been
exercised, the Adjusted Exercise Price shall forthwith be readjusted
to be the Adjusted Exercise Price which would have been in effect had
an adjustment been made on the basis that the only shares of Common
Stock actually issued or sold were those issued upon the conversion or
exchange of such Convertible Securities, and that they were issued or
sold for the consideration actually received by the Company upon such
conversion or exchange, plus the consideration, if any, actually
received by the Company for the issue or sale of each of the
Convertible Securities as were actually converted or exchanged.
(6) Grant of Rights, Warrants or Options for Common Stock.
If the Company shall grant any rights, warrants or options to
subscribe for, purchase or otherwise acquire Common Stock (other than
those excepted by Section 10.b..(12)), there shall be determined the
minimum price per share for which Common Stock is issuable upon the
exercise of such rights, warrant or options, such determination to be
made by dividing the total amount, if any, received or receivable by
the Company as consideration for the granting of such rights, warrants
or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights,
warrants or options, by the maximum number of shares of Common Stock
of the Company issuable upon the exercise of such rights, warrant or
options; and such grant shall be deemed to be an issue or sale for
cash (as of the date of the granting of such rights, warrants or
options) of such maximum number of shares of Common Stock at the price
per share so determined.
If such rights, warrants or options shall by their
terms provide for an increase or increases, with the passage of time,
in the amount of additional consideration payable to the Company upon
the exercise thereof, the Adjusted Exercise Price shall, forthwith
upon any such increase becoming effective, be readjusted (but to no
greater extent than originally adjusted) to reflect the same.
If any such rights, warrants or options shall expire
without having been exercised, the Adjusted Exercise Price shall
forthwith be readjusted to the Adjusted Exercise Price which would
have been in effect had an adjustment been made on the basis that the
only shares of Common Stock so issued or sold were those actually
issued or sold upon the exercise of such rights, warrants or options
and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such
rights, warrants or options.
(7) Grant of Rights, Warrants or Options for Convertible
Securities. If the Company shall grant any rights, warrants or
options to subscribe for, purchase or otherwise acquire Convertible
Securities, such Convertible Securities shall be deemed, for the
purpose of Section 10.b..(5), to have been issued and sold (as of the
actual date of issue or sale of such Convertible Securities) for the
total amount received or receivable by the Company as consideration
for the granting of such rights, warrants or options plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights, warrants or options.
If such rights, warrants or options shall by their
terms provide for an increase or increases, with the passage of time,
in the amount of additional consideration payable to the Company upon
the exercise thereof, the Adjusted Exercise Price shall, forthwith
upon any such increase becoming effective, be readjusted (but to no
greater extent than originally adjusted) to reflect the same.
If any such rights, warrants or options shall expire
without having been exercised, the Adjusted Exercise Price shall
forthwith be readjusted to be the Adjusted Exercise Price which would
have been in effect had an adjustment been made upon the basis that
the only Convertible Securities so issued or sold were those issued or
sold upon the exercise of such rights, warrants or options and that
they were issued or sold for the consideration actually received by
the Company for the granting of such rights, warrants or options
actually exercised.
(8) Determination of Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of
which is other than cash, of any shares of Common Stock or Convertible
Securities or any rights or options to subscribe for, purchase or
otherwise acquire any Common Stock or Convertible Securities, the
amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as deter
mined in good faith by the Board of Directors of the Company. In case
any Common Stock or Convertible Securities or any rights or options to
subscribe for, purchase or otherwise acquire any Common Stock or
Convertible Securities shall be issued or sold together with other
stock or securities or other assets of the Company for a consideration
which covers both, the consideration for the issue or sale of such
Common Stock or Convertible Securities or such rights or options shall
be deemed to be the portion of such consideration allocated thereto in
good faith by the Board of Directors of the Company.
(9) Record Date Deemed Issue Date. In case the Company
shall take a record of the Holders of shares of its stock of any class
for the purpose of entitling them to receive a dividend or a
distribution payable in Common Stock or in Convertible Securities, or
to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the Common Stock issued or sold or
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution, or the date of the
granting of such rights or subscription, purchase of other
acquisition, as the case may be.
(10) Shares Considered Outstanding. The number of shares of
Common Stock outstanding at any given time shall include shares
issuable in respect to scrip certificates issued in lieu of fractions
of shares of Common Stock, but shall exclude shares held in the
treasury of the Company or by subsidiaries of the Company.
(11) Duration of Adjustment Exercise Price. Following each
computation or readjustment of an Adjusted Exercise Price as provided
in this Section 10.a, the new Adjusted Exercise Price shall remain in
effect until a further computation or readjustment thereof is required
by this Section 10.a.
(12) Excepted Issues and Sales. No adjustments pursuant to
this Section 10.a shall be made in respect of (i) the issuance of
shares of Common Stock upon exercise of Warrants issued pursuant to
the Agreement; (ii) the issuance of shares of Common Stock upon the
exercise of options and warrants to purchase Common Stock issued
pursuant to any stock option plan for officers and employees of the
Company up to 100,000 shares and exercisable at prices not less than
the fair market values at the time of grant; and (iii) the exercise of
warrants or the conversion of Convertible Securities to the extent
that such warrants or Convertible Securities were outstanding on
January 21, 1998. The number of shares of Common Stock referred to in
this subparagraph shall be proportionately adjusted to reflect any
reclassification, subdivision or combination of Common Stock or any
distribution or dividends on the Common Stock, payable in Common
Stock.
c. Reorganization, Consolidation, Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this
Warrant) after the Original Issue Date, or in case, after such date, the
Company (or any such other corporation) shall consolidate with or merge
into another corporation or convey all or substantially all of its assets
to another corporation, then and in each such case the Holder of this
Warrant, upon the exercise hereof as provided in Section 2, at any time
after the consummation of such reorganization, consolidation, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior
to such consummation, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided in Section 5. In each such case the terms
of this Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after
such consummation; provided, however, that if such reorganization,
consolidation or merger is with any entity affiliated with the Company or
any of its officers or directors, and would result in the elimination of
all or substantially all of the rights to voting interests of the Holder in
the surviving corporation, such Holder upon exercise hereof after such
reorganization, consolidation, or merger shall be entitled to receive, at
the Holder's option, in lieu of the stock or other securities or property
to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Warrant immediately prior thereto, cash or
voting securities in the proportions that the Holder may elect in the
surviving corporation in an amount equivalent to the fair market value of
the voting interest in the Company that such Holder would have received had
the Warrant been exercised prior to such consummations.
d. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of
assets or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Warrants, but will at all times
in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Holders of the Warrants against dilution or other
impairment. Without limiting the generality of the foregoing, the Company
will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable
shares upon the exercise of all Warrants at the time outstanding, and will
take no action to amend its certificate of incorporation or by-laws which
would change to the detriment of the Holders of Common Stock (whether or
not any Common Stock be at the time outstanding) the dividend or voting
rights of the Company's Common Stock; provided that nothing herein
contained shall prohibit the issuance and sale of Preferred Stock of the
Company at fair market value. In this regard, the Company shall be deemed
to have undertaken a fiduciary duty with respect to the Holders of the
Warrants.
e. Accountants' Certificate as to Adjustments. Upon the
request of Holder in each case of an adjustment in the shares of Common
Stock or other stock, securities or property receivable on the exercise of
the Warrants, the Company at its expense shall cause a firm of independent
certified public accountants of recognized standing selected by the Company
(who may be the accountants then auditing the books of the Company) to
compute such adjustment in accordance with the terms of the Warrants and
prepare a certificate setting forth such adjustment and showing in detail
the facts upon which such adjustment is based, including a statement of:
the consideration received or to be received by the Company for any
additional shares of Common Stock issued or sold or deemed to have been
sold; the number of shares of Common Stock outstanding or deemed to be
outstanding; and the Adjusted Exercise Price. The Company will forthwith
mail a copy of each certificate to each Holder of a Warrant at the time
outstanding.
f. Notices of Record Date. In case:
i. the Company shall take a record of the Holders of its
Common Stock (or other stock or securities at the time receivable upon
the exercise of the Warrants) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any securities, or
to receive any other right, or
ii. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, except for mergers into the Company of subsidiaries whose
assets are less than 10% of the total assets of the Company and its
consolidated subsidiaries, or any conveyance of all or substantially
all of the assets of the Company to another corporation, or
iii. of any voluntary dissolution, liquidation or winding-up
of the Company;
then, and in each such case, the Company will mail or cause to be mailed,
to each Holder of a Warrant at the time outstanding a notice specifying, as
the case may be, the date on which a record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if
any, to be fixed as of which the Holders of record of Common Stock (or such
stock or securities at the time receivable upon the exercise of the
Warrants) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice
shall be mailed at least 30 days prior to the date therein specified. The
rights to notice provided in this Section are in addition to the rights
provided elsewhere herein.
7. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it in the exercise of reasonable discretion, of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
and, in the case of loss, theft or destruction, of indemnity satisfactory
to it in the exercise of reasonable discretion, and, in the case of
mutilation, upon surrender and cancellation thereof, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor.
8. Reservation of Common Stock. The Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants and
the issuance of all shares of Warrant Stock.
9. Transfers. This Warrant and all rights hereunder are
transferable on the books of the Company by any Holder hereof in person or
by duly authorized attorney upon surrender of this Warrant at the principal
office of the Company, together with the form of transfer authorization
attached hereto as Exhibit B duly executed, provided that all conditions
set forth below have been met. Absent any such transfer, the Company may
deem and treat the Holder of this Warrant at any time as the absolute owner
hereof for all purposes and shall not be affected by any notice to the
contrary.
a. Notice of Proposed Transfers. The Holder of this Warrant,
by acceptance hereof, agrees prior to any transfer of Warrants or Warrant
Stock issued or issuable upon exercise hereof to give written notice to the
Company expressing such Holder's intention to effect such transfer and
describing briefly the manner of the proposed transfer of such Warrants or
Warrant Stock and designating the counsel for the Holder giving such
notice.
b. Opinion of Counsel. Upon request of Holder, if in the
opinion of counsel to the Company, the proposed transfer of the Warrants or
Warrant Stock issued or issuable upon the exercise hereof may be effected
without registration under the Securities Act of 1933, as amended, as then
in force (or any similar Federal statute then in force) or applicable state
securities laws, the Company, as promptly as practicable, shall notify the
Holder of such Warrants or Warrant Stock of such opinion, whereupon such
Holder shall be entitled, but only in accordance with the terms of the
notice delivered by such Holder to the Company, to transfer such Warrants
or Warrant Stock.
10. Definitions. For purposes of this Warrant the terms capitalized
herein have the meanings set forth below.
"Generally Accepted Accounting Principles" shall mean
accounting principles which are (i) consistent with the principles
promulgated or adopted for the United States by the Financial
Accounting Standards Board and its predecessors in effect from time to
time, (ii) applied on a basis consistent with prior periods, and
(c) such that a certified public account would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an
unqualified opinion as to financial statements in which such
principles have been properly applied.
"Outstanding Common Stock" shall be deemed to be that number
of shares of Common Stock then outstanding on a fully diluted basis
taking into account all shares convertible into common shares and the
common share equivalent of all other securities, plus all shares of
Common Stock that the Company is obligated to issue at the time or in
the future by any outstanding warrant, option, convertible security or
other agreement of any nature on a fully diluted basis taking into
account all shares convertible into common shares and the common share
equivalent of all other securities.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Warrant Stock" shall mean Common Stock issuable upon
exercise of this Warrant in accordance with its terms and any capital
stock or other securities into which or for which such Common Stock
shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company.
11. Warrant Agreement. The terms of the Warrant Agreement are
incorporated by reference in this Warrant as fully as if the same were set
forth herein, shall be considered an integral part of this Warrant and
shall entitle the parties hereto to all rights and benefits accruing
thereunder.
12. Information. The Company shall furnish each Holder of Warrants
with copies of all reports, proxy statements, and similar materials that it
furnishes to Holders of its Stock. In addition, it shall furnish to each
such Holder of Warrants copies of all reports filed by it with the
Securities and Exchange Commission.
13. Notices. All notices and other communications under this Warrant
shall be in writing and shall be mailed by first-class registered or
certified mail, postage prepaid, addressed (a) if to the Holder, at the
registered address furnished to the Company in writing by the Holder of
this Warrant, or (b) if to the Company, to the attention of its Chief
Executive Officer at its principal office located at 801 94th Avenue North,
St. Petersburg, Florida 33702, or such other location of its principal
office as shall be furnished to the Holder in writing by the Company.
14. Change, Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument
in writing signed by the party against which enforcement by the change,
waiver, discharge or termination is sought.
15. Headings. The headings in this Warrant are for purposes of
convenience of reference only and shall not be deemed to constitute a part
hereof.
16. Law Governing. This Warrant is delivered in the State of Ohio
and shall be construed and enforced in accordance with and governed by the
internal substantive laws of such State.
Remainder of page intentionally left blank. Signature page follows.
January 21, 1998 PAGES, INC., a
Delaware corporation
BY:_________________________________
Randall J. Asmo, Vice President
[Subscription Form to Be Executed Upon Exercise of Warrant]
The undersigned registered Holder or assignee of such registered
Holder of the within Warrant, hereby (1) subscribes for _______________
shares which the undersigned is entitled to purchase under the terms of the
within Warrant, (2) makes payment of the Exercise Price called for by the
within Warrant, and (3) directs that the shares issuable upon exercise of
said Warrant be issued as follows:
__________________________________________
(Name)
__________________________________________
(Address)
Signature:
Dated:
EXHIBIT B
[Assignment]
(To be executed by the registered Holder
to enact a transfer of the within Warrant)
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns, and transfers unto ______________________________ of
______________________________, the right to purchase shares evidenced by
the within Warrant, and does hereby irrevocably constitute and appoint
______________________________ to transfer such right on the books of
Company, with full power of substitution.
Dated:
__________________________________________
Signature
WITNESS:
<PAGE>
EXHIBIT I
FORM OF WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of
January 21, 1998, by and between PAGES, INC., a Delaware corporation (the
"Company"), and THE PROVIDENT BANK, an Ohio banking corporation ("Holder"
and sometimes referred to as the "Initial Holder").
WHEREAS, the Initial Holder and Company are parties to a certain
Credit Agreement dated as of even date herewith, as the same may be amended
or supplemented from time to time (the "Credit Agreement"); and
WHEREAS, as a condition to the obligations of the Initial Holder under
the Credit Agreement, the Company is required to (a) enter into this
Agreement, and (b) issue to the Initial Holder Warrants (as defined below
and in the form of Exhibit A) to purchase certain shares of Common Stock
(as defined below) upon an exercise of said warrants at the price and upon
the terms and conditions specified herein and therein (said warrants and
all warrants subsequently issued by the Company to the Initial Holder, its
successors and assigns including any Holder (as defined below), pursuant
hereto or to any of said warrants, whether upon transfer, exchange or
replacement thereof or otherwise, being hereinafter referred to
collectively as the "Warrants", and each individually as a "Warrant");
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, the
following terms shall have the following respective meanings:
"Applicable Holders" shall mean (i) in the case of a registration
pursuant to Section 5 hereof, those Holders signing a Request who desire to
register and sell some or all of their Warrant Stock pursuant to such
Request, together with any additional Holders who, not later than fifteen
(15) days after receipt of notice of a Request, elect in writing to Company
to join in such Request, or (ii) in the case of a registration pursuant to
Section 6 hereof, those Holders requesting inclusion of Warrant Stock in
such registration and whose Warrant Stock will be included in such
registration.
"Certificate of Applicable Holders" shall mean (i) in the case of
a registration pursuant to Section 5 hereof, a resolution signed by the
Holders of a majority of the Warrant Stock designated in a particular
Request and certified by an officer of the Holder, or (ii) in the case of a
registration pursuant to Section 6 hereof, a resolution signed by the
Holders of a majority of the Warrant Stock that will be or were included in
such registration.
"Commission" shall mean the United States Securities and Exchange
Commission and any successor federal agency having similar powers.
"Common Stock" shall mean the common stock of the Company, par
value $0.01 per share.
"Company Documents" shall mean this Agreement and the Warrants,
as any of the same may be amended, modified, supplemented or restated from
time to time.
"Convertible Securities" shall mean evidence of indebtedness,
shares of stock or other securities which are directly or indirectly
convertible into or exchangeable for, with or without payment of additional
consideration, shares of Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event.
"Exercise Price" of a share of Stock issuable upon the exercise
of a Warrant shall mean Two and 25/100 Dollars ($2.25).
"GAAP" shall mean generally accepted accounting principles in the
United States at the time in effect.
"Holder" and "Holders" shall mean the Initial Holder and its
registered successors and assigns of the Warrants and of the Stock
exchanged for the Warrants pursuant to this Agreement.
"Law" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ,
decree or award of any Official Body.
"Lien" means any lien, mortgage, pledge, security interest,
charge or other encumbrance of any kind including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest.
"Official Body" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury
or arbitrator, in each case whether foreign or domestic.
"Outstanding Common Stock" shall mean the total number of
outstanding shares of Common Stock of the Company on a fully diluted basis,
including, without limitation, all shares which may be issued pursuant to
all outstanding Convertible Securities, the Warrants, warrants, options or
agreements of any nature.
"Person" shall include an individual, a company, a corporation,
an association, a partnership, a joint venture, an unincorporated trade or
business enterprise, a trust, an estate, or other legal entity or a
government (national, regional or local), court, arbitrator or any agency,
instrumentality or official of the foregoing.
"Public Offering" shall mean any underwritten public offering of
the Common Stock.
"Purchase Price" means an amount equal to Two and 25/100 Dollars
($2.25) per share of Warrant Stock for each share issuable pursuant to the
Warrant.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Securities
Act"), and the declaration or ordering of the effectiveness of such
registration statement.
"Request" shall mean a request to register at least fifty-one
percent (51%) of the shares of Warrant Stock then held collectively by the
Holders pursuant to Section 5 hereof and signed by the Holders of such
Warrant Stock and containing any and all information required by Sections 5
and 8 hereof; provided, however, that in no case may more than one Request
be made under this Agreement.
"Stock" shall mean (i) all classes and categories of the capital
stock of the Company whether then issued or issuable, including without
limitation, any shares of Common Stock, and (ii) any shares of Common Stock
issued or issuable with respect to the Common Stock by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Warrant Stock" shall mean Common Stock issuable upon exercise of
the Warrant in accordance with its terms and any capital stock or other
securities into which or for which such Common Stock shall have been
converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company.
2. WARRANT PURCHASE; ANTIDILUTION.
a. Warrant Purchase.
i. Contemporaneously with the execution of this Agreement,
the Company shall issue to the Initial Holder Warrants, in the form
attached hereto as Exhibit A (the "Warrant"), evidencing the Initial
Holder's right to purchase at the Exercise Price an aggregate number
of shares of Common Stock equal to three hundred ninety-one thousand
five hundred fourteen (391,514) shares, which represents five percent
(5%) of the Outstanding Common Stock of the Company on a fully diluted
basis less twenty-five thousand (25,000) shares of said Common Stock
(416,514 minus 25,000 = 391,514).
ii. On a fully diluted basis, the number of shares issuable
pursuant to (i) above shall be calculated as of the date of this
Agreement taking into account all outstanding shares of Common Stock
(6,564,009); plus all shares of Common Stock which the Company is
obligated to issue as of the date hereof or in the future by any
outstanding warrant, option, convertible security or other agreement
of any nature (1,349,758); less twenty-five thousand (25,000) shares
of said Common Stock.
b. No Voting Rights. Except as set forth herein, this
Agreement shall not entitle any Holder to any voting rights or other rights
as a shareholder of the Company, and no dividend or interest shall be
payable or accrued in respect of the Warrant or this Agreement or the
interest represented hereby or the shares of Warrant Stock which may be
purchased hereunder until and unless, and except to the extent that, a
Holder has duly exercised its rights under any Warrant issued to such
Holder or its predecessor in interest and such Holder has been issued
shares of Warrant Stock. The Company shall thereupon treat such Holder (or
its designee) as the record owner of the shares of Warrant Stock obtained
by such exercise for voting and all other purposes.
c. Good Faith by Company. The Company will not, by amendment
to its Certificate of Incorporation or through any reorganization,
reclassification, consolidation, merger, sale of assets, dissolution, issue
or sale of securities or other action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, but will
at all times in good faith carry out all such terms and take all such
action as may be necessary or appropriate to protect the rights of the
Holders hereunder. In this respect, the Company shall be deemed to have
assumed a fiduciary obligation to protect the rights of the Holders.
3. REPRESENTATIONS AND WARRANTIES OF HOLDERS; RESTRICTIONS ON
TRANSFERABILITY.
a. The Initial Holder hereby represents and warrants to the
Company as set forth in this Section 3.a and each Holder other than the
Initial Holder shall, upon its acquisition of a Warrant, be deemed to
represent and warrant to the Company (severally and not jointly) as set
forth in this Section 3.a. In addition, the representations and warranties
set forth in this Section 3.a shall be deemed to be remade by a Holder from
time to time to the Company as of the date a Warrant is exercised by such
Holder.
i. Authorization.
(1) Authorization and Compliance With Law. The
execution and delivery of this Agreement by the Holder, and any
exercise or exchange of such Holder's Warrant pursuant to the
terms hereof or thereof, have been duly authorized by all
necessary action, corporate and otherwise, on the part of the
Holder. The entry into this Agreement by the Holder, the
acquisition and ownership of the Warrant issued to such Holder
and the exercise or exchange of such Warrant pursuant to the
terms hereof and thereof do not and will not violate any Law
applicable to such Holder.
(2) Approvals. No authorization, consent, approval,
license or filing with any third party or any Official Body is or
will be necessary for the valid execution, delivery or
performance of this Agreement by the Holder, the acquisition and
ownership of the Warrant issued to the Holder or the exercise or
exchange of such Warrant pursuant to the terms hereof or thereof.
ii. Investment Representations.
(1) No Distributive Intent; Restricted Securities.
The Holder is acquiring the Warrant issued to it and, if
applicable, the Warrant Stock (all of which shall be collectively
referred to in this Section 3 as the "Securities" and singly, by
type, as a "Security") for its own account with no present
intention of reselling or otherwise distributing any such
Security or participating in a distribution of such Securities in
violation of the Securities Act, or any applicable state
securities laws. The Holder acknowledges that it has been
advised and is aware that (A) the Company is relying upon an
exemption from registration under the Securities Act and
applicable state securities laws predicated upon such Holder's
representations and warranties contained in this Section 3.a in
connection with the issuance of such Securities pursuant to this
Agreement, and (B) such Securities in the hands of the Holder
will be "restricted securities" within the meaning of Rule 144
promulgated by the Commission pursuant to the Securities Act and,
unless and until registered under the Securities Act, will be
subject to limitations on resale (including, among others,
limitations on the amount of securities that can be resold and
the timing and manner of resale) set forth in Rule 144 or in
administrative interpretations of the Securities Act by the
Commission or in other rules and regulations promulgated
thereunder by the Commission, in effect at the time of the
proposed sale or other disposition of the Securities.
(2) Compliance with Law Upon Transfer. To the extent
that the Holder is entitled to transfer or pledge any of the
Securities, the Holder will not transfer or pledge any of such
Securities in violation of the Securities Act or any other
applicable Laws, and in the event the Holder pledges or transfers
any of such Securities it will advise the pledgee or transferee
of the transfer restrictions imposed on such Securities.
(3) No Commission. No outside parties have
participated with respect to the negotiation of this transaction
on behalf of the Holder, and the Holder shall indemnify and hold
the Company harmless with respect to any claim for any broker's
or finder's fees or commissions with respect to the transactions
contemplated hereby by anyone found to have been acting on behalf
of the Holder with the Holder's consent.
(4) Legends. The Holder consents to the endorsement
on each certificate representing the Securities of the legends
described in Section 3.b.ii indicating that the Securities are
not registered, except as and when such Securities may be
registered pursuant to the terms hereof.
iii. Execution and Binding Effect. This Agreement has been
duly and validly executed and delivered by such Holder and constitutes
legal, valid and binding obligations of such Holder, enforceable
against such Holder in accordance with its terms.
b. Restrictions on Transferability.
i. Restricted Securities. The Warrants and the Warrant
Stock that are subject to the restrictions set forth in this
Section 3.b (collectively, the "Restricted Securities"), shall not be
transferable to anyone other than the Company before satisfaction of
the conditions specified in this Section 3.b, which conditions are
intended to insure compliance with the provisions of applicable
securities laws in respect of the transfer of the Restricted
Securities and applicable banking laws in respect of control
transactions by subsidiaries of bank holding companies pursuant to the
Bank Holding Company Act of 1956, as amended. The Warrants and the
Warrant Stock shall cease to be "Restricted Securities" when and only
when either they are distributed pursuant to an effective registration
statement with respect thereto or, in the opinion of counsel to the
Holder, which opinion is satisfactory in form and substance to the
Company, which securities may be distributed freely by the Holders
thereof (including all subsequent Holders) without registration under
the Securities Act and applicable state securities laws.
ii. Restrictive Legends. Unless and until otherwise
permitted by this Section 3.b or unless distributed pursuant to an
effective registration statement,
(1) each certificate evidencing the Warrants, and each
certificate evidencing a Warrant upon the transfer thereof, shall
be stamped or otherwise imprinted with a legend in substantially
the following form:
"Neither this Warrant, nor the shares of capital stock
for which it is exercisable, have been registered under
the Securities Act of 1933 or any applicable state
securities laws, and no transfer or assignment of this
Warrant or the shares issuable upon its exercise may be
made in the absence of an effective registration
statement under such laws or the availability of
exemptions from the registration provisions thereof in
respect of such transfer or assignment in the opinion
of counsel satisfactory to the Company. Moreover, this
Warrant and the shares of capital stock for which it is
exercisable are subject to restrictions on
transferability and similar restrictions as set forth
in a Warrant Agreement dated as of January 21, 1998,
relating to the issuance of this Warrant (a copy of
which Agreement is on file with the Company's Secretary
and will be made available upon request of a Warrant
Holder or proposed transferee)."
(2) each certificate for Warrant Stock initially
issued upon the exercise of a Warrant, and each certificate for
Stock issued to any subsequent transferee of any such
certificate, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 or the
securities laws of any state and are subject to the
conditions specified in a certain Warrant Agreement
dated as of January 21, 1998, between the Company and
The Provident Bank. A transfer of the shares
represented by this certificate shall not be valid or
effective until such conditions have been fulfilled,
including receipt by the Company of an opinion of
counsel in form and substance satisfactory to it that
any such transfer will not violate federal or state
securities laws. A copy of the Warrant Agreement is on
file with the Secretary of the Company and will be made
available upon request. The Holder of this
certificate, by acceptance of this certificate, agrees
to be bound by the provisions of said Warrant Agreement
and to indemnify and hold the Company harmless against
loss or liability arising from the disposition of the
shares represented by this certificate in violation of
such provisions."
c. Removal of Legends. Upon the request of Holder, when the
restrictions on transferability contained in Section 3.b shall terminate or
otherwise be satisfied, the Company shall, or shall instruct its transfer
agent or warrant agent, as appropriate, to issue new certificates
evidencing such securities in the name of such Holder not bearing the
legends required by Section 3.b.ii.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
a. Representations and Warranties. The Company hereby
acknowledges and affirms each of the representations and warranties made by
it in the Credit Agreement as set forth in Article 5 thereof, which
representations and warranties are specifically incorporated herein by
reference.
b. Covenants.
i. Credit Agreement. The Company shall comply with the
affirmative, financial and negative covenants set forth in the Credit
Agreement in Articles 6, 7, and 8 thereof, which covenants are
specifically incorporated herein by reference.
ii. Registration Rights. The Company shall not grant any
demand rights to any third person with respect to the registration of
securities held by any such person unless such demand rights are
expressly subordinate to and may not be exercised prior to the
exercise of the demand registration rights of the Holders hereunder.
iii. Registration Procedures. If and when the Company is
required to effect the registration of any Warrant Stock under the
Securities Act as provided in Section 5 or 6, the Company shall:
(1) prepare and file with the Commission a Registration Statement and
such amendments and supplements thereto and any prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for such period as shall be necessary to complete
the marketing of the Warrant Stock included therein, but in no event
longer than one hundred twenty (120) days after the effective date of
such Registration Statement; (2) furnish to the Applicable Holders
such number of copies of a prospectus, including, without limitation,
a preliminary prospectus, conforming with the requirements of the
Securities Act, and such other documents as the Applicable Holders may
reasonably request in order to facilitate the public sale or other
disposition of such Warrant Stock; (3) use its best efforts to
register or qualify, not later than the effective date of any
Registration Statement filed pursuant to this Agreement, the Warrant
Stock covered by such Registration Statement under the securities or
Blue Sky laws of such jurisdictions within the United States as any
Applicable Holder may reasonably request and do any and all other acts
or things which may be necessary or advisable to enable such
Applicable Holder to consummate the public sale or other disposition
in such jurisdiction of such Warrant Stock provided, however, that the
Company shall not be obligated to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified; (4) promptly notify
the Applicable Holders, at any time when a prospectus relating to the
Warrant Stock being distributed is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing and, at the request of the Applicable Holder, evidenced
by a Certificate of Applicable Holders, promptly prepare, file with
the Commission and furnish to the Applicable Holders a reasonable
number of copies of a supplement to, or an amendment of, such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Warrant Stock, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(5) use its best efforts to furnish, at the request of any Applicable
Holder or any underwriter of any distribution of the Warrant Stock, an
opinion of legal counsel to the Company, covering such matters as are
typically covered by opinions of issuer's counsel in underwritten
offerings under the Securities Act and are similar in form and
substance to that furnished in connection with the Company's most
recent underwritten public offering of Common Stock, as any Applicable
Holders or the underwriter of any distribution of the Warrant Stock
request; (6) use its best efforts to cause all of the shares of
Warrant Stock in the Request to be listed on any recognized securities
exchange, including, without limitation, the Nasdaq Stock Market, on
which the Common Stock is then listed and to maintain the currency and
effectiveness of any such listings; and (7) enter into an agreement
with the underwriters for such offering in which the Company shall
provide indemnities similar to those described in Section 9.a hereof
to the underwriters and in which the Company shall make
representations and warranties customarily made by issuers of equity
securities to underwriters, similar in form and substance to those
made to the underwriters of the most recent underwritten public
offering of Company Stock (if there shall have been one).
5. SINGLE DEMAND REGISTRATION RIGHT.
a. Subject to subsection (e) below, upon receiving a Request,
the Company will prepare and file, promptly after such Request and in no
case more than sixty (60) days after receipt of such Request, and
thereafter will use its best efforts to cause to become effective a
registration statement ("Registration Statement") on such form selected by
the Company and complying with the Act. If, for any reason other than the
Applicable Holders' failure to perform their obligations under Section 5
hereof, the Registration Statement does not become effective, the Request
shall be withdrawn and shall not count as a "Request" made pursuant to this
Section.
b. If the Request so states, the offering or distribution of
Warrant Stock under this Section shall be pursuant to a firm commitment
underwriting. The managing underwriter shall be a nationally recognized
investment banking firm selected by the Company but the selection shall be
subject to the Applicable Holders' approval, which approval shall not be
unreasonably withheld. The Company will use its best efforts to enter into
an underwriting agreement containing representations, warranties and
agreements not substantially different from those customarily included by
an issuer in underwriting agreements with respect to secondary
distributions; provided, however, that the Applicable Holders shall be
entitled to negotiate the underwriting discounts and commission and other
fees of such underwriter.
c. Any Request shall specify the number of shares of Warrant
Stock as to which such Request relates, express the Applicable Holders'
present intention to offer such Warrant Stock for distribution and contain
an undertaking to provide all such information and materials and take all
such actions and execute all such documents as may be required in order to
permit the Company to comply with all applicable requirements of the
Commission, to obtain acceleration of the effective date of the
Registration Statement and to enter into satisfactory underwriting
arrangements, if the distribution of Warrant Stock is to be underwritten.
Any Request shall designate an Authorized Holder and such Authorized
Holder's address for the purpose of delivering notices under the Agreement
to the Applicable Holders. The Request shall also contain any other
information required to be set forth under Section 5.
d. No securities to be sold by the Company or any
securityholder of the Company shall be included in any Registration
Statement filed pursuant to this Section, unless (i) the Company shall have
received a Certificate of Applicable Holders consenting to the inclusion of
such other securities; (ii) in the case of a firm underwriting, the
managing or principal underwriter shall have consented to the inclusion of
such other securities, and (iii) all the Warrant Stock requested to be
included in the Request shall be so included.
e. The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by it
pursuant to this Section if, at the time it receives a Request, counsel for
the Company is reasonably of the opinion (which opinion shall be expressed
in writing) that (i) such registration will require preparation of audited
financial information for the Company as of a date or for a period which
preparation will not otherwise be required or (ii) any material pending
transaction of the Company or any of its subsidiaries renders the effecting
of such registration inappropriate at the time; provided, that in the case
of an event referred to in clause (i) above, the duration of such delay
shall not exceed ninety (90) days from the date the Company became aware of
such material business information; provided, further, that the Company
shall promptly make such filing as soon as the conditions which permit it
to delay such filing no longer exist; and provided, further, that in the
event of any such deferral, the Applicable Holders shall have the right to
withdraw the Request by way of a Certificate of Applicable Holders and such
withdrawn Request shall not be considered as a Request.
6. PIGGYBACK REGISTRATIONS.
a. If at any time prior to the Expiration Date, the Company
shall propose to file a Registration Statement for the purpose of a primary
or secondary offering for itself or any securityholder of the Company (the
"Initiating Securityholder") under the Act, on Form S-1, S-2 or S-3 or any
equivalent general form or any other Company offering for registration of
Common Stock under the Act with respect to a public offering of Common
Stock, the Company shall as promptly as practicable, but in no event later
than thirty (30) days prior to the proposed filing date, give notice of
such intention to each Holder and upon the written Request of any such
Holder within fifteen (15) days after receipt of any such notice (which
Request shall specify the Warrants or Warrant Stock intended to be sold or
disposed of by such Holder), the Company will include in such Registration
Statement all such Warrants or Warrant Stock specified in such Request to
be so registered. If the underwriters retained by Company in connection
with a public sale of Common Stock in which any of the warrant shares are
to be sold should determine that market conditions require a reduction in
the number of shares being offered for sale, then all participants who have
shares being sold in such sale shall reduce the number of shares which they
are providing to the on a pro rata basis, based on the number of shares
owned by such selling participants.
7. OTHER REGISTRATIONS.
If the Warrants or any Warrant Stock issued or issuable pursuant
hereto require registration or qualification with or approval of any United
States or governmental official or authority in addition to registration
under the Securities Act before the Warrants or such Warrant Stock may be
sold, the Company will take all reasonable action in connection with such
registration and will use its best efforts to cause any such shares and/or
such Warrants to be duly registered or approved as may be required;
provided, however, that it shall not be required to give a general consent
to service of process or to qualify as a foreign corporation or subject
itself to taxation as doing business in any such state.
8. COSTS AND EXPENSES OF REGISTRATION.
The Company shall bear the entire cost and expense of any
registration (exclusive of underwriting discounts and brokerage commissions
directly attributable to the warrant stock being sold by the Holder) made
pursuant to Section 5 or 6 of this Agreement, including, without
limitation, all registration and filing fees, printing expenses, the fees
and expenses of the Company's counsel and its independent accountants and
all other out-of-pocket expenses of the Company incident to the
preparation, printing and filing under the Act of the Registration
Statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and
each amendment or supplement thereto to underwriters, brokers and dealers
and other purchasers of the securities so registered, and the costs and
expenses incurred in connection with the qualification of the securities so
registered under "blue sky" or other state securities laws (all such
expenses are herein called "Registration Expenses").
9. INDEMNIFICATION.
a. Indemnity to the Holders. The Company will indemnify the
Applicable Holders and each underwriter of the Common Stock against all
claims, losses, damages, liabilities and expenses resulting from any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or in any related Registration Statement, notification or
similar filing under securities laws of any jurisdiction or from any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as the same may have been based upon information
furnished in writing to the Company by any Holder or any underwriter
expressly for use therein and used in accordance with such writing.
b. Indemnity to the Company. The Applicable Holders, severally
and not jointly (i) by requesting any such registration pursuant to
Section 5, or (ii) having their Warrant Stock included in a registration
pursuant to Section 6 hereof, agree to furnish to the Company such
information concerning them as may be requested by the Company and which is
necessary in connection with any registration or qualification of the
Warrant Stock and to indemnify the Company against all claims, losses,
damages, liabilities and expenses resulting from the utilization of any
such information furnished in writing to the Company expressly for use
therein and used in accordance with such writing.
c. Indemnification Procedures. If any action is brought or any
claim is made against any party indemnified pursuant to this Section 9 in
respect of which indemnity may be sought against the indemnitor pursuant to
this Section 9, such party shall promptly notify the indemnitor in writing
of the institution of such action or the making of such claim and the
indemnitor shall assume the defense of such action or claim, including the
employment of counsel and payment of expenses. Such party shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such party unless the
employment of such counsel shall have been authorized in writing by the
indemnitor by a resolution of the Board of Directors of the Company or by a
Certificate of Applicable Holders, whichever the case may be, in connection
with the defense of such action or claim or such indemnified party or the
parties shall have reasonably concluded that there are defenses available
to it or them which are in conflict with those available to the indemnitor
(in which case the indemnitor shall not have the right to interpose such
conflicting defense but otherwise shall retain control of such action or
claim on behalf of the indemnified party or parties), in any of which
events such fees and expenses of not more than one additional counsel for
the indemnified parties shall be borne by the indemnitor. Except as
expressly provided above, in the event that the indemnitor shall not
previously have assumed the defense of any such action or claim, at such
time as the indemnitor does not assume the defense of such action or claim,
the indemnitor shall thereafter be liable to any person indemnified
pursuant to this Agreement for any reasonable legal or other expenses
subsequently incurred by such person in investigating, preparing or
defending against such action or claim. Anything in this paragraph to the
contrary notwithstanding, the indemnitor shall not be liable for any
settlement of any such claim or action effected without its written
consent.
10. RULE 144.
The Company shall take such action as any Holder of Warrant Stock
may reasonably request, all to the extent required from time to time to
enable such Holder to sell shares of its Warrant Stock without registration
under the Act pursuant to and in accordance with (x) Rule 144 under the
Act, as such Rule may be amended from time to time, or (y) any similar rule
or regulation hereafter adopted by the Commission. Upon the request of any
Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
11. AMENDMENTS AND WAIVERS.
This Agreement may be amended, and the Company may take any
action herein prohibited or omit to perform any act herein required to be
performed by it, only if Company shall have obtained the advance written
consent of the Holders holding Warrants exercisable for fifty-one percent
(51%) or more of the Warrant Stock issuable upon exercise of outstanding
Warrants at such time.
12. NOTICES.
Notices and other communications under this Agreement shall be in
writing and shall be sent by registered mail, postage prepaid, addressed:
a. to any Holder of Warrant Stock or Warrants at the address
shown on the Stock or Warrant transfer books of the Company unless such
Holder has advised the Company in writing of a different address as to
which notices shall be sent under this Agreement; and
b. if to Company at St. Petersburg, Florida or to such other
address as Company shall have furnished to the Holder at the time
outstanding.
13. MISCELLANEOUS.
This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not, and, in particular, shall inure to the
benefit of and be enforceable by any Holder or Holders. This Agreement and
the Company Documents embody the entire agreement and understanding between
the Company and the other parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to
the subject matter hereof. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OHIO. The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof. 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.
[Remainder of page intentionally left blank. Signature page follows.]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
ATTEST: PAGES, INC.
By:
Randall J. Asmo, Vice President
ATTEST: THE PROVIDENT BANK
By:
Alan R. Henning, Vice President
EXHIBIT A
TO UCC FINANCING STATEMENT
Debtor: Pages, Inc.
Secured Party: The Provident Bank
Description of Collateral
All items of Collateral, as that term is defined in the Credit
Agreement by and between the Secured Party, as Lender, and Debtor, as
Borrower, dated as of January __, 1998 (the "Credit Agreement"), including,
without limitation, all of the following: all of Debtor's Goods,
Documents, Equipment, Instruments, General Intangibles, Inventory, Chattel
Paper, Accounts and Fixtures (as such capitalized terms are defined in the
Uniform Commercial Code ("UCC"), including, without limitation, the
following property:
(1) Equipment which means all equipment (as that term is defined in
the UCC) of the Debtor including, without limitation, all furniture,
fixtures, machinery and other equipment of any kind and all substitutions
and replacements thereof and accessories and parts therefor, all whether
now owned or hereafter acquired; and
(2) General Intangibles which means all general intangibles (as that
term is defined in the UCC) of the Debtor including, without limitation,
all goodwill, patents, patent applications, formulae, blueprints,
proprietary manufacturing processes, trademarks, trademark applications,
licenses, franchises, beneficial interests in trusts, joint venture
interests, partnership interests, rights to tax refunds, pension plan
overfundings, literary rights and other contractual rights of the Debtor,
all whether now owned or hereafter acquired; and
(3) Inventory which means all inventory (as that term is defined in
the UCC) of the Debtor, including, without limitation, all goods, books,
merchandise and other personal property, wheresoever located and whether or
not in transit, now owned or hereafter acquired by Debtor, which are held
for sale or lease, or are furnished or to be furnished under any contract
or service by Debtor, or are raw materials, work-in-progress, finished
goods, supplies or materials used or consumed in the business of Debtor,
and all products thereof, all whether now owned or hereafter acquired by
the Debtor; and all right, title and interest of the Debtor in and to any
leases or rental agreements for such inventory; and
(4) Accounts which means all accounts (as that term is defined in the
UCC) of the Debtor, including, without limitation, all of Debtor's present
and future rights to payment for goods, merchandise, services or Inventory
sold, rented or leased or for services rendered, including, without
limitation, those which are not evidenced by instruments or chattel paper,
and whether or not they have been earned by performance; all accounts
receivable, chattel paper, contract rights, documents and instruments of
Debtor; all royalty fees, license charges, rental fees, renewal charges,
use charges, maintenance fees and other receivables and rights to the
payment of money arising under or in connection with the licenses,
servicing or maintenance of any materials under software license
agreements, proprietary system software usage and service agreements and
other contracts together with all contract rights under such agreements;
all other obligations or indebtedness owed to the Debtor from whatever
source arising; all guarantees of any of the foregoing and all security
therefor; all of the right, title and interest of the Debtor in and with
respect to the goods, services or other property which gave rise to or
which secure any of the foregoing and all insurance policies and proceeds
relating thereto; and all of the foregoing whether now owned by the Debtor
or hereafter acquired or in existence; and
(5) All other items of personal and real property now owned or
hereafter acquired by Debtor or in which Debtor has granted or may in the
future grant a security interest to the Secured Party; and
(6) All right, title and interest of Debtor in and to all goods or
other property represented by or securing any of the Accounts, including
all goods that may be reclaimed or repossessed from or returned by Debtor;
and
(7) All rights of Debtor as an unpaid seller, including stoppage in
transit, detinue and reclamation; and
(8) Additional amounts due to Debtor from any entity, irrespective of
whether such additional amounts have been specifically assigned to the
Secured Party; and
(9) Guaranties, or other agreements or property securing or relating
to any of the items referred to in paragraphs 1 through 5 above, or
acquired for the purpose of securing and enforcing any of such items; and
(10) Instruments, documents, securities, cash, property, deposit
accounts, and the proceeds of any of the foregoing, owned by Debtor or in
which Debtor has an interest, which are now or may hereafter be in the
possession or control of the Secured Party or in transit by mail or carrier
to or from the Secured Party, or in the possession of any third party
acting on behalf of the Secured Party, without regard to whether the
Secured Party received same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether the Secured Party had
conditionally released the same; and
(11) Ledger sheets, files, records, documents, blueprints, drawings
and instruments, including, without limitation, computer programs, tapes,
related electronic data processing software, databases, back-up databases
and records, computer records and customer lists evidencing an interest in
or relating to the foregoing; and
(12) Other rights, properties or interests granted by Debtor to the
Secured Party to secure the Loan; and
(13) Trade names, business names and any and all intellectual
properties of Debtor, including, but not limited to,
___________________________________________________________________________
; and
(14) Proceeds (whether cash proceeds or non-cash proceeds) and
products of the Collateral described above, including without limitation,
all cash, negotiable instruments and other evidences of indebtedness, all
claims against third parties for damage to or loss or destruction of any of
the foregoing, including proceeds, accounts, contract rights, chattel paper
and general intangibles arising out of any sale, license, lease or other
disposition of any of the foregoing.
All capitalized terms not defined herein shall have the meaning
assigned to them in the Credit Agreement.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
PAGES, INC.
State of Percent of Stock
Name of Subsidiary Incorporation Owned by Registrant
- ------------------------- --------- -----------------
PAGES BOOK FAIRS, INC. Florida 100%
GREAT BRITISH BOOK FAIRS, INC. Florida 100%
PAGES LIBRARY SERVICES, INC. Florida 100%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 412,060
<SECURITIES> 0
<RECEIVABLES> 3,018,140
<ALLOWANCES> 356,000
<INVENTORY> 12,991,795
<CURRENT-ASSETS> 20,995,721
<PP&E> 3,479,064
<DEPRECIATION> 1,100,657
<TOTAL-ASSETS> 28,083,266
<CURRENT-LIABILITIES> 20,836,630
<BONDS> 2,044,452
0
0
<COMMON> 68,627
<OTHER-SE> 5,133,557
<TOTAL-LIABILITY-AND-EQUITY> 28,083,266
<SALES> 27,787,371
<TOTAL-REVENUES> 27,787,371
<CGS> 17,543,190
<TOTAL-COSTS> 17,543,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 920,947
<INCOME-PRETAX> (5,381,302)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,381,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,381,302)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
