SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth Floor, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 705-4700
----------------
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
-------- -------
Number of Shares of Common Stock, par value $.10 per share,
outstanding at December 13, 1995 - 7,365,650.
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I PAGE NO.
------ --------
Consolidated Financial Statements:
Balance Sheets
October 31, 1995 (Unaudited) and
April 30, 1995 (Audited) 1
Statements of Operations and Retained Earnings (Unaudited)
Six Months Ended October 31, 1995 and 1994 2
Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended October 31, 1995 and 1994 3
Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 1995 and 1994 4-5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 7-8
PART II
-------
Other Information 9
Signatures 10
Exhibit Index 11
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1995 and April 30, 1995
(Thousands, except par value and number of shares)
October 31, April 30,
1995 1995
----------- ---------
(Unaudited) (Audited)
ASSETS
------
Cash and cash equivalents $ 8,349 $ 9,266
Receivables, net:
Real estate operations 9,804 10,644
Magazine circulation operations 42,906 39,391
Real estate inventory 72,021 72,464
Rental and other real estate projects 9,808 11,622
Investment property 8,389 8,751
Property, plant and equipment-at cost-
net of accumulated depreciation and
amortization of $11,404 at October 31, 1995
and $10,706 at April 30, 1995 16,521 14,128
Other assets 15,919 14,671
Excess of cost of subsidiary over net
assets acquired 5,205 5,205
-------- --------
$188,922 $186,142
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable, deposits and
accrued expenses $ 30,771 $ 32,048
Notes payable:
Amounts due within one year 13,822 9,105
Amounts subsequently due 46,049 50,015
Collateralized mortgage obligations 2,430 2,533
Deferred income taxes 27,857 26,520
-------- --------
120,929 120,221
-------- --------
Shareholders' equity:
Common stock, $.10 par value;
shares authorized--20,000,000;
shares issued and outstanding--
7,395,650 at October 31, 1995 and
7,393,650 at April 30, 1995 740 739
Capital contributed in excess of par value 44,914 44,903
Retained earnings 22,339 20,279
-------- --------
67,993 65,921
-------- --------
$188,922 $186,142
======== ========
See notes to consolidated financial statements.
-1-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Six Months Ended October 31, 1995 and 1994
(Thousands, except shares and per share amounts)
1995 1994
------------ ------------
REVENUES
- --------
Real estate operations:
Home and condominium sales $ 47,551 $ 42,811
Land sales 3,456 4,965
------------ ------------
51,007 47,776
Magazine circulation operations 29,065 20,268
Interest and other operations 3,260 3,622
------------ ------------
83,332 71,666
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COSTS AND EXPENSES
- ------------------
Real estate cost of sales 40,714 39,512
Operating expenses:
Magazine circulation operations 23,066 15,251
Rental projects - 340
Real estate commissions and selling 3,236 2,964
Other 3,180 3,173
General and administrative:
Real estate operations and corporate 4,299 3,678
Magazine circulation operations 3,352 2,332
Interest, net 2,053 1,551
------------ ------------
79,900 68,801
------------ ------------
Income before provision
for income taxes 3,432 2,865
PROVISION FOR INCOME TAXES 1,372 1,140
------------ ------------
Net income 2,060 1,725
RETAINED EARNINGS, beginning of period 20,279 16,264
------------ ------------
RETAINED EARNINGS, end of period $ 22,339 $ 17,989
============ ============
NET INCOME PER SHARE $ 0.28 $ 0.24
============ ============
Weighted average number of common
shares outstanding 7,395,020 7,310,326
============ ============
See notes to consolidated financial statements.
-2-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended October 31, 1995 and 1994
(Thousands, except shares and per share amounts)
1995 1994
------------ ------------
REVENUES
- --------
Real estate operations:
Home and condominium sales $ 24,046 $ 21,313
Land sales 1,469 2,180
------------ ------------
25,515 23,493
Magazine circulation operations 15,148 10,664
Interest and other operations 1,747 1,754
------------ ------------
42,410 35,911
------------ ------------
COSTS AND EXPENSES
- ------------------
Real estate cost of sales 20,337 19,587
Operating expenses:
Magazine circulation operations 11,815 8,128
Rental projects - 307
Real estate commissions and selling 1,654 1,629
Other 1,525 1,508
General and administrative:
Real estate operations and corporate 2,245 1,776
Magazine circulation operations 1,660 1,046
Interest, net 1,043 742
------------ ------------
40,279 34,723
------------ ------------
Income before provision
for income taxes 2,131 1,188
PROVISION FOR INCOME TAXES 852 473
------------ ------------
Net income 1,279 715
RETAINED EARNINGS, beginning of period 21,060 17,274
------------ ------------
RETAINED EARNINGS, end of period $ 22,339 $ 17,989
============ ============
NET INCOME PER SHARE $ 0.17 $ 0.10
============ ============
Weighted average number of common
shares outstanding 7,395,650 7,316,831
============ ============
See notes to consolidated financial statements.
-3-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Statements of Cash Flows (Unaudited) (Page 1 of 2)
Six Months Ended October 31, 1995 and 1994
(Thousands)
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,060 $ 1,725
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Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 3,945 3,008
Changes in assets and liabilities -
Receivables (2,675) 4,961
Real estate inventory 443 2,361
Rental and other real estate projects 1,814 1,652
Investment property 362 (166)
Other assets (4,636) (2,557)
Accounts payable, deposits and
accrued expenses (1,223) (4,667)
Deferred income taxes 1,337 1,093
---------- ----------
Total adjustments (633) 5,685
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Net cash provided by
operating activities 1,427 7,410
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,004) (1,120)
Other, net - 600
---------- ----------
Net cash used by investing activities (3,004) (520)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 15,452 10,451
Principal debt payments (14,804) (17,026)
Proceeds from exercise of stock options 12 254
---------- ----------
Net cash provided (used) by financing
activities 660 (6,321)
---------- ----------
See notes to consolidated financial statements.
-4-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Statements of Cash Flows (Unaudited) (Page 2 of 2)
Six Months Ended October 31, 1995 and 1994
(Thousands)
1995 1994
---------- ----------
Increase (decrease) in cash and cash
equivalents (917) 569
CASH AND CASH EQUIVALENTS, beginning
of period 9,266 6,623
---------- ----------
CASH AND CASH EQUIVALENTS, end
of period $ 8,349 $ 7,192
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 2,256 $ 2,222
========== ==========
Income taxes paid $ 35 $ 58
========== ==========
See notes to consolidated financial statements.
-5-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended October 31, 1995 and 1994
Note 1:
------- The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange
Commission. The consolidated financial statements reflect
all adjustments which are, in the opinion of management,
necessary to reflect a fair presentation of the results for
the interim periods presented. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information
presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
Note 2:
------- Certain amounts in the October 31, 1994 Statement of
Operations have been reclassified to conform to the
presentation used at October 31, 1995.
-6-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
October 31, 1995
FINANCIAL CONDITION
-------------------
During the quarter ended October 31, 1995, the Company
finalized an agreement to increase its line-of-credit which
is generally available for its magazine circulation
operations from $27.5 million to $32.5 million. This
agreement has extended the arrangement to August 31, 1998.
RESULTS OF OPERATIONS
---------------------
Total revenues for the six months and second quarter ended
October 31, 1995 increased approximately 16% and 18%,
respectively, over the similar periods last year, reflecting
higher revenues from both home and condominium sales and
magazine circulation operations. Revenues from home and
condominium sales increased approximately 11% and 13%,
respectively, resulting from an increase in the average
revenues per housing unit closed. 426 housing units were
delivered in the first six months periods of both years and
211 housing units were delivered in the second quarter of
both years. The average revenue per unit closed increased to
$111,600 and $114,000 in the six months and second quarter
this year, respectively, from $100,500 and $101,000 in the
similar periods last year, resulting primarily from price
increases and a shift to the building of larger, more
expensive houses in Rio Rancho. The gross margin on housing
sales increased by approximately $3.0 million and $1.8
million in the six months and second quarter, respectively,
this year as compared to the similar periods last year,
resulting from price increases as well as the favorable
effect of production strategies and efficiencies introduced
last fiscal year. Revenues and gross profit from land sales
decreased primarily due to a decrease in the level of
commercial and industrial lot sales. Land sale revenues and
related gross profits can vary from period to period as a
result of the nature and timing of specific transactions, and
is not an indication of amounts that may be expected to
occur in future periods. As a result of these factors, gross
profit from housing and land sales increased by
approximately $2.0 million and $1.3 million in the six months
and second quarter, respectively, this year as compared to
the similar periods last year.
-7-
<PAGE>
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
October 31, 1995
The increase in real estate commissions and selling expenses
in the six months and second quarter this year was primarily
the result of increased revenues from home and condominium
sales partially offset by a decrease in land sales. Real
estate and corporate general and administrative expenses
increased from $3.7 million in the six months last year to
$4.3 million in the similar period this year and increased
from $1.8 million in the second quarter last year to $2.2
million in the similar period this year due primarily to
increases in payroll and various other general expenses.
Revenues from magazine circulation operations increased
approximately 43% and 42% in the six months and second
quarter, respectively, this year as compared to the similar
periods last year. The increase is due primarily to the
acquisition in January 1995 of the business of Fulfillment
Corporation of America (FCA) and growth in fulfillment
subscription services. At the same time operating expenses
increased approximately the same amount as revenues in the
six months and increased a lesser amount than revenues in the
second quarter. One of the reasons for the increase in
operating expenses is problems related to the integration of
FCA's activities with Kable's. It is expected that the
profit margin of the Fulfillment Division will improve upon
completion of the transition period. Operating income from
the magazine circulation operations increased by
approximately $200,000 in the second quarter this year from
the similar period last year and remained approximately the
same in the six months.
Interest expense increased in the six months and second
quarter this year due primarily to higher average borrowings
for the magazine circulation operations and higher interest
rates, since a large portion of the Company's borrowings are
related to the prime rate. Interest and other operations'
revenues decreased in the six months this year because the
prior year included various nonrecurring matters.
-8-
<PAGE>
PART II
Other Information
-----------------
Item 4. Submission of Matters to Vote of Security Holders
------- -------------------------------------------------
(a) The Annual Meeting of Shareholders was held on November 1,
1995.
(b) At the meeting, Daniel Friedman, Samuel N. Seidman and
Mohan Vachani were elected as directors. The terms
of office as directors of Jerome Belson, Edward B.
Cloues, II, David N. Dinkins, Harvey I. Freeman,
Anthony B. Gliedman, Nick G. Karabots, and James Wall
continued after the meeting.
(c) Shareholders cast votes for the election of directors
as follows:
Nominee "For" "Withheld"
----------- --------------- ------------
Daniel Friedman 6,845,874 58,749
Samuel N. Seidman 6,845,944 58,679
Mohan Vachani 6,845,944 58,679
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits:
4. Amended and Restated Loan Agreement between
American National Bank and Trust Company of
Chicago and Kable News Company, Inc. dated
October 6, 1995.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter ended October 31, 1995, Registrant
filed a Current Report dated September 29, 1995,
reporting under Item 5. Other Events related to a
------- ----- ------
dispute with the Internal Revenue Service.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AMREP CORPORATION
(Registrant)
Dated: December 13, 1995 By: /s/ Mohan Vachani
-----------------------
Senior Vice President,
Chief Financial Officer
Dated: December 13, 1995 By: /s/ Peter M. Pizza
-----------------------
Controller
-10-
<PAGE>
EXHIBIT INDEX
-------------
4 Amended and Restated Loan Agreement between American
National Bank and Trust Company of Chicago and Kable
News Company, Inc. dated October 6, 1995.
27 Financial Data Schedule
-11-
EXHIBIT 4
AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
A NATIONAL BANKING ASSOCIATION
(THE "BANK")
AND
KABLE NEWS COMPANY, INC.
AN ILLINOIS CORPORATION
(THE "COMPANY")
<PAGE>
TABLE OF CONTENTS
Section 1. General Terms 1
1.1 Amount 1
1.2 Notes 2
1.3 Interest on the Credit Loan 2
1.4 Interest on Installment Loan 4
1.5 Interest on Term Loan 4
1.6 Computation of Interest and Related Fees 4
1.7 Default Rate of Interest 4
1.8 Excess Interest 5
1.9 Commitment Fee 5
Section 2. Warranties 5
2.1 Authorization 5
2.2 Financial Condition 5
2.3 Investments, Advances and Guaranties 6
2.4 Liabilities 6
2.5 Title to Properties 6
2.6 Renegotiations 6
2.7 Taxes 6
2.8 Litigation 6
2.9 Qualifications as a Foreign Corporation 6
2.10 Trademarks, etc. 7
2.11 Permits, etc. 7
2.12 No Burdensome Contracts 7
2.13 Validity of This Agreement 7
2.14 Protection Under Security Agreement 7
2.15 Absence of Security Instruments in Favor of Others 7
2.16 No Existing Violation of Applicable Laws 7
2.17 No Governmental Approval Necessary 7
2.18 No Present Default 8
2.19 Effect on Other Agreements 8
2.20 Condition of Physical Assets 8
2.21 No Event of Default 8
2.22 Accuracy of Information 8
2.23 Environmental Matters 8
Section 3. Affirmative Covenants 9
3.1 Financial Position 9
3.2 Financial Statements 9
3.3 Insurance 10
3.4 Tax and Other Liens 11
3.5 Corporate Existence 11
3.6 Books of Record and Account 11
3.7 Maintenance 11
3.8 Inspection 11
3.9 Notice of Default or Litigation 11
3.10 Performance of Obligations 12
3.11 Pension Programs 12
3.12 Protection of Company's Interests 12
3.13 Further Security Instruments, etc. 12
3.14 Collection of Account Receivables 13
3.15 Monthly Compliance Certificate 13
3.16 Monthly Collateral Reports 13
3.17 Collateral Reconciliation Report 13
3.18 Use of Proceeds 13
3.19 Average Excess Availability--Intentionally Deleted 13
Section 4. Negative Covenants 13
4.1 Fixed Assets 13
4.2 Encumbrances 13
4.3 Indebtedness 14
4.4 Indebtedness of Subsidiaries 14
4.5 Dividends 14
4.6 Purchase of Shares 15
4.7 Loans and Advances 15
4.8 Investments 15
4.9 Mergers 15
4.10 Senior Debt 15
4.11 Other Agreements 15
4.12 Disposition of Indebtedness of Subsidiary or Parent 16
4.13 Business Activities 16
4.14 Issuance of Stock 16
Section 5. Subsidiaries and Parent 16
5.1 Financial Statements 16
5.2 Covenants 16
5.3 Loans or Advances to Parent and Subsidiary 16
Section 6. Defaults 16
6.1 Events of Default 16
6.2 Suspension of Additional Loans 18
6.3 Acceleration 19
6.4 Remedies 19
Section 7. Conditions of Loans 19
7.1 Initial Credit Loan 19
7.2 All Loans 21
Section 8. Miscellaneous 22
8.1 Definition of Terms Used in this Agreement 22
8.2 Waivers 24
8.3 Stamp Tax 24
8.4 Assignment; Bank Participations 24
8.5 Survival of Covenants 24
8.6 No Oral Change 25
8.7 Governing Law 25
8.8 Descriptive Headings 25
8.9 Notices 25
8.10 Payment by the Company of Expenses of Bank 25
8.11 Offset 25
8.12 Counterparts 25
8.13 Severability 26
8.14 Entire Agreement 26
Section 9. Collateral and Guaranty 26
9.1 Collateral 26
9.2 Cancellation 29
<PAGE>
SCHEDULE OF EXHIBITS
Document Exhibit
------------------- -------
Revolving Note I
Financial Statements II
Monthly Compliance III
Certificate
Collateral Report IV
Collateral Reconciliation V
Report
Certificate of Company VI
(re: Annual Financial Statements)
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, dated as of October 6, 1995,
between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national
banking association with its principal place of business located at 33 North
LaSalle Street, Chicago, Illinois 60690 (herein called the "Bank") and KABLE
NEWS COMPANY, INC., an Illinois corporation with its principal place of
business located at 16 South Wesley Avenue, Mt. Morris, Illinois 61054
(herein called the "Company").
WHEREAS, the Company and the Bank entered into a certain Revolving
Credit and Term Loan Agreement which was amended numerous times (herein
called the "Original Agreement"); and
WHEREAS, thereafter, the Company and the Bank modified and amended
certain of the terms and provisions of the Original Agreement as set forth in
a certain Loan Agreement dated as of September 30, 1992 (as amended from time
to time, herein called the "Existing Agreement");
WHEREAS, the Company and the Bank have agreed to modify, amend and
restate the terms and provisions of the Existing Agreement as set forth in
this Amended and Restated Loan Agreement (as amended from time to time,
herein called the "Agreement") as set forth herein.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as
follows:
Section 1. General Terms
1.1 Amount.
-------
(a) Credit Loan. Subject to the terms of this Agreement, the
Company may borrow from the Bank and the Bank will thereupon lend to the
Company, and the Company shall repay in accordance with the terms of this
Agreement and may reborrow at any time prior to the Maturity Date any amount
which is a multiple of $100,000 up to a maximum amount at any one time
outstanding of $32,500,000 (herein called the "Credit" or the "Credit Loan"),
provided that the Bank receives prior to the initial borrowing the
certificates required by Sections 7.1 and 7.2 and, prior to all subsequent
borrowings, the representations and certificates required by Section 7.2.
(b) Term Loan. Pursuant to the Existing Agreement, the Company
has borrowed from the Bank a term loan in the original principal amount of
$2,000,000 (herein called the "Term Loan").
(c) Installment Loan. Pursuant to the Existing Agreement, the
Company has borrowed from the Bank an installment loan in the original
principal amount of $43,275.10 (herein called the "Installment Loan").
1.2 Notes.
------
(a) Revolving Note. Except as provided in Section 1.2(b) hereof,
the borrowing under the revolving Credit described in Section 1.1(a) will be
evidenced by a note (herein called the "Revolving Note"), in the form of
Exhibit I hereto, dated October 6, 1995 which is payable to the order of the
Bank on August 31, 1998, in the principal amount of $32,500,000. The
principal amount of the Credit Loan outstanding as of the date hereof shall
be recorded by the Bank on the grid appearing on the reverse side of the
Revolving Note or on separate computer or other records of the Bank, and the
principal amount of each additional Credit Loan and of any payment of
principal of the Revolving Note may be evidenced by notations made by the
Bank on such grid or such other records, showing the date and amount of each
additional Credit Loan or payment of principal. The aggregate unpaid amount
of Credit Loans set forth on the grid appearing on the reverse side of the
Revolving Note or such other records shall be rebuttable presumptive evidence
of the principal amount thereof owing and unpaid if the Bank records all of
the Credit Loans and makes notations of all of the payments of principal on
such grid, but the Bank shall not be under any obligation to do so.
(b) Term Note. The Company's borrowing of Two Million Dollars
($2,000,000) under the Term Loan is evidenced by a Term Note (herein called
the "Term Note") dated as of January 3, 1995 in the principal amount of two
million dollars ($2,000,000) made by the Company payable to the order of the
Bank and previously delivered to the Bank.
(c) Installment Note. The Company's borrowing of Forty-Three
Thousand Two Hundred Seventy-Five Dollars and Ten Cents ($43,275.10) under
the Installment Loan is evidenced by an Installment Note (Secured) (herein
called the "Installment Note") dated as of January 3, 1995 in the original
principal amount of Forty-Three Thousand Two Hundred Seventy- Five Dollars
and Ten Cents ($43,275.10) made by the Company payable to the order of the
Bank and previously delivered to the Bank.
1.3 Interest on the Credit Loan.
----------------------------
(a) Provided that there does not exist an Event of Default or a
Default under this Agreement, the Credit Loan shall bear interest, prior to
the Maturity Date, at interest rates based upon either the Prime Rate (as
hereinafter defined) or interest rates based upon the LIBOR Rate (as
hereinafter defined), as from time to time selected by the Company. The
principal amount of the Credit Loan outstanding as of the date hereof shall
bear interest based upon the Prime Rate for a period of two (2) Business Days
after the date hereof. Thereafter, the Company may request that new Credit
Loans made under the Revolving Note bear interest at the LIBOR Rate and that
portions of outstanding Credit Loans be converted to bear interest at the
LIBOR Rate. Any such request shall be made by the Company by giving
irrevocable notice to the Bank (whether verbally or in writing, each such
request shall be referred to herein as a "LIBOR Rate Loan Request"), at least
two (2) Business Days prior to the commencement of the requested Interest
Period (as defined in Section 1.3(c)) and shall pertain to Credit Loans in an
aggregate minimum amount of $1,000,000 in integral multiples of $100,000 in
excess thereof. Each LIBOR Rate Loan Request shall be irrevocable and the
Company shall be bound thereby. Upon the expiration of an Interest Period,
in the absence of a new LIBOR Rate Loan Request submitted to the Bank not
less than two (2) Business Days prior to the end of such Interest Period, the
LIBOR Rate Loan then maturing shall be automatically converted to a Prime
Rate Loan (as defined Section 1.3(e)). There may be no more than three (3)
LIBOR Rate Loans outstanding at any one time. The Company shall not have the
option to select an interest rate based upon the LIBOR Rate at any time that
a Default or an Event of Default exists. In the event that a Default or an
Event of Default exists at the time of the expiration of an Interest Period,
all LIBOR Rate Loans then outstanding shall bear interest based upon the
Prime Rate commencing on the expiration of the Interest Period applicable
thereto and continuing thereafter until such time as no Default or Event of
Default exists and the Company shall have timely provided the Bank with a
LIBOR Rate Request selecting an interest rate based on the LIBOR Rate and
specifying the amount of the LIBOR Rate Loans and Interest Period applicable
thereto.
(b) Credit Loans for which the Company has selected the LIBOR
Rate option by delivery to the Bank of a proper LIBOR Rate Loan Request in
accordance with Section 1.3(a) (collectively, "LIBOR Rate Loans") shall bear
interest at the sum of the LIBOR Rate plus two and three quarters percent
(2.75%) per annum.
(c) LIBOR Rate Loans may be obtained for a one, two,
three, or six (6) month period (each being an "Interest Period") provided
that: (i) the interest is calculated from the date the Credit Loan is made,
(ii) if the Interest Period expires on a day that is not a Business Day, then
it will expire on the next Business Day, (iii) no Interest Period shall
extend beyond the date set forth in clause (b) of the definition of the term
"Maturity Date" set forth in Section 8.1.
(d) "LIBOR Rate" means, for each Interest Period, a rate equal
to: (x) the rate of interest determined by the Bank at which deposits in U.S.
Dollars for the relevant Interest Period are offered based on the information
provided on Telerate Page 3750 of the Telerate Service (or such other page as
may replace Page 3750 on that service or such other service as may be
nominated by the British Bankers' Association as the information vendor for
the purpose of displaying British Bankers' Association Interest Settlement
Rates for Deutsche Mark, U.S. Dollar, European Currency Unit, Sterling, Swiss
Franc or Yen deposits) as of 11:00 a.m. (London time) on the day which is two
(2) Business Days prior to the first day of such Interest Period; divided by
(y) a number equal to 1.0 minus the aggregate (but without duplication) of
the rates (expressed as a decimal fraction) of reserve requirements in effect
on the day which is two (2) Business Days prior to the beginning of such
Interest Period (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect) on non-personal
time deposits of $100,000 or more with a maturity equal to that of the
Interest Period, for Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) which are required
to be maintained by a member bank of the Federal Reserve System; such rate to
be rounded upward to the next whole multiple of one-sixteenth of one percent
(.0625%). If the introduction of or the interpretation of any law, rule, or
regulation would increase the reserve requirement and as a result there would
be an increase in the cost of making or maintaining a LIBOR Rate Loan, then
the Bank shall submit a certificate demonstrating the impact of the increased
cost and require payment thereof within ten (10) days from the Company.
There are no limitations on the number of times such certificate may be
submitted.
(e) All Credit Loans which are not LIBOR Rate Loans under the
Revolving Note (collectively, "Prime Rate Loans") will bear interest at the
rate of one-half of one percent (0.5%) per annum in excess of the rate
described by the Bank as its "prime rate" of interest per annum (whether or
not such rate is actually charged by the Bank) in effect from time to time
(herein called the "Prime Rate") prior to the Maturity Date, provided no
Event of Default exists or is continuing. The interest rate for Prime Rate
Loans will change if and when the Prime Rate changes and such change shall be
effective as of and on the date following the relevant change in the Prime
Rate. All Credit Loans will bear interest after the Maturity Date at the
rate of three percent (3%) per annum in excess of the Prime Rate.
(f) Interest on the Credit Loan will be payable, except as
otherwise provided in Section 1.6, on the fifteenth (15th) day of each month
on the average daily amount of the Credit Loan outstanding during the
preceding month, and on the Maturity Date.
1.4 Interest on Installment Loan.
-----------------------------
The Installment Loan will bear interest at the rate of one and
one-half percent (1 1/2%) over the Prime Rate. The interest rate will change
if and when the Prime Rate changes and such change shall be effective as of
and on the date following the relevant change in the Prime Rate. The
Installment Loan will bear interest after the Maturity Date at the rate of
three percent (3%) per annum in excess of the Prime Rate. Interest on the
Installment Loan will be payable on the first (lst) day of each month during
the term of such Installment Loan.
1.5 Interest on Term Loan.
----------------------
The Term Loan will bear interest at the Prime Rate. The interest rate
will change if and when the Prime Rate changes and such change shall be
effective as of and on the date following the relevant change in the Prime
Rate. The Term Loan will bear interest after the Maturity Date at the rate of
three percent (3%) per annum in excess of the Prime Rate. Interest on the
Term Loan will be payable on the last Business Day of each month during the
term of such Term Loan.
1.6 Computation of Interest and Related Fees.
-----------------------------------------
Interest on all Loans and any other Obligations and the related fees
under this Agreement shall be calculated daily on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed in the
period during which it accrues. The date of funding a Prime Rate Loan, the
first day of an Interest Period with respect to a LIBOR Rate Loan and the
date of conversion of a LIBOR Rate Loan to a Prime Rate Loan shall be
included in the calculation. The date of payment of a Prime Rate Loan, the
last day of an Interest Period with respect to a LIBOR Rate Loan and the date
of conversion of a Prime Rate Loan to a LIBOR Rate Loan shall be excluded in
the calculation. If a Loan is repaid on the same day that it is made, one
(1) day interest shall be charged. Interest on LIBOR Rate Loans shall be
payable on the last day of the applicable Interest Period, unless the period
is greater than ninety (90) days, in which case interest will be payable on
the last day of every ninety (90) day interval. In addition, interest on any
outstanding LIBOR Rate Loans shall be due on the Maturity Date.
1.7 Default Rate of Interest.
-------------------------
After the occurrence of an Event of Default and for so long as it
continues, the Loans and other Obligations shall bear interest at a rate that
is three percent (3%) in excess of the rates otherwise payable under this
Agreement. During any period in which any Event of Default exists and is
continuing, as the then current Interest Periods for LIBOR Rate Loans expire
such LIBOR Rate Loans shall be converted into Prime Rate Loans and the LIBOR
Rate option will not be available to the Company until all Events of Default
are cured or waived.
1.8 Excess Interest.
----------------
Under no circumstances will the rate of interest chargeable be in
excess of the maximum amount permitted by law. If excess interest is charged
and paid in error, then the excess amount will be promptly credited or
refunded.
1.9 Commitment Fee.
---------------
The Company shall pay to the Bank, quarterly in arrears, a commitment
fee equal to one quarter of one percent (1/4%) of the difference between (a)
$32,500,000; and (b) the average daily amount of the $32,500,000 Credit Loan
that is outstanding during the preceding quarter, with such commitment fee
payable on the fifteenth (15th) day of the first month following the end of
each quarter during the term of this Agreement.
Section 2. Warranties
Upon each borrowing under any Loan, the Company represents and
warrants to the Bank that:
2.1 Authorization.
--------------
The Company and each subsidiary of the Company is a Corporation duly
organized, validly existing and in good standing under the laws of the State
of it's incorporation; the Company is authorized and empowered to execute,
deliver and perform this Agreement, the Revolving Note and the other
documents, instruments and certificates required by this Agreement; and in so
doing it will not violate any law, the provisions of its charter or by-laws
or both, or any other agreement or instrument binding upon it.
2.2 Financial Condition.
--------------------
The audited financial statements of the Company's sole stockholder,
AMREP Corporation, an Oklahoma corporation (herein called the "Parent") and
its subsidiaries for the fiscal year ended April 30, 1995 and for each fiscal
year thereafter, are and will be: (a) correct and complete and fairly reflect
the financial condition of the Parent and its subsidiaries as of the dates of
such financial statements and the results of operations for the respective
periods covered thereby; (b) prepared in accordance with sound accounting
practices consistently maintained throughout the periods involved and no
material adverse change has since occurred; and (c) accompanied by an audit
opinion from Arthur Andersen & Co. or some other nationally recognized
certified public accounting firm that is reasonably acceptable to the Bank
(herein called the "Accountants"). The unaudited financial statements of the
Company and its subsidiaries for the fiscal year ended April 30, 1995 and
thereafter are and will be: (i) correct and complete and fairly reflect the
financial condition of the Company and its subsidiaries as of the dates of
such financial statements and the results of operations for the respective
periods covered thereby; (ii) prepared in accordance with sound accounting
practices consistently maintained throughout the periods involved and no
material adverse change has since occurred; (iii) accompanied by an audit
opinion from the Accountants on the accounts receivable of the Company and
its subsidiaries; and (iv) accompanied by a consolidating report that shows
the financial statements of the Company and its subsidiaries and the
financial statements of the Parent and its subsidiaries (other than the
Company and its subsidiaries) in a manner that is reasonably acceptable to
the Bank.
2.3 Investments, Advances and Guaranties.
-------------------------------------
Neither the Company nor any of its subsidiaries, the financial
conditions of which are disclosed or reflected in Exhibit II hereto, has made
any investment in, advances to, or guaranties of the obligations of any
person except those disclosed in Exhibit II hereto or in such later financial
statements as are required and/or permitted by this Agreement.
2.4 Liabilities.
------------
Neither the Company nor any of its subsidiaries, the financial
conditions of which are disclosed or reflected in Exhibit II hereto, has any
material liabilities, direct or contingent, except those disclosed in said
Exhibit II or in such later financial statements as are required and/or
permitted by this Agreement.
2.5 Title to Properties.
--------------------
Each of the Company and its subsidiaries and the Parent has good and
marketable title to its respective properties and assets, including
properties and assets reflected in Exhibit II (other than properties and
assets disposed of in the ordinary course of business, the disposition of
which is not prohibited by this Agreement), and the properties and assets of
the Company and its subsidiaries are subject to no lien of any kind except
liens permitted by this Agreement.
2.6 Renegotiations.
---------------
Neither the Company nor any of its subsidiaries is subject to the
renegotiation of any government contracts involving in the aggregate a
material amount.
2.7 Taxes.
------
The Company and each of its subsidiaries and the Parent have filed
all required foreign, federal, state and local tax returns and have paid all
taxes as shown on such returns as they have become due, and to the knowledge
of the Company, such returns are complete and accurate in all material
respects. The federal income tax returns for the Company and its
subsidiaries and the Parent have been audited through April 30, 1989 and no
claims have been asserted and are unpaid with respect to such taxes or with
respect to subsequent years' taxes, except as shown in Exhibit II hereto or
in such later financial statements as are required and/or permitted by this
Agreement.
2.8 Litigation.
-----------
There are no material actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries before or by any federal, state, municipal or other
governmental court, department, commission, board, bureau, agency or
instrumentality, domestic or foreign, except as disclosed in Exhibit II
hereto or in such later financial statements as are required and/or
permitted by this Agreement.
2.9 Qualifications as a Foreign Corporation.
-----------------------------------------
The Company is qualified as a foreign corporation to do business
in and is in good standing in the states of California, New York and Ohio,
and the nature of its business or assets does not require qualification in
any other jurisdiction, except where the failure to qualify would not have
a material adverse effect on the business or financial condition of the
Company. Each subsidiary of the Company is qualified to do business and
is in good standing in each jurisdiction wherein the nature of its
business or the properties held or leased by it requires such
qualification, except where the failure to qualify would not have a
material adverse effect on the business or financial condition of the
subsidiary.
2.10 Trademarks, etc.
-----------------
Each of the Company and its subsidiaries and the Parent possesses
adequate licenses, patents, copyrights, trademarks and trade names to
conduct its business substantially as now conducted.
2.11 Permits, etc.
--------------
Each of the Company and its subsidiaries has all governmental
permits, certificates, consents and franchises to carry on its business
as now being conducted and to own or lease and operate its properties as
now owned or leased. All such governmental permits, certificates,
consents and franchises are valid and subsistent, and the Company and its
subsidiaries are not in violation thereof; and none of the same, in the
opinion of the officers of the Company, contains any term, provision,
condition or limitation more burdensome than such as are generally applicable
to persons engaged in the same or similar business as the Company or said
subsidiaries.
2.12 No Burdensome Contracts.
--------------------------
Neither the Company nor any subsidiary of the Company is a party
to any contract or agreement or subject to any charter or other corporate
restriction or any judgment or decree or order materially and adversely
affecting the business, property, assets, operations or conditions, financial
or otherwise, of the Company or its subsidiaries.
2.13 Validity of This Agreement.
----------------------------
This Agreement is, and each other instrument executed pursuant
hereto upon the due execution and delivery thereof will be, the legal,
valid and binding obligation of the Company enforceable in accordance with
its terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect which effect the
enforceability of rights of creditors generally.
2.14 Protection Under Security Agreement.
------------------------------------
The Security Agreement contains such provisions that, subject to any
required filing or recording thereof or of appropriate financing or similar
statements or notices, the security interest thereunder on the property
covered thereby and the sums assigned thereunder are and will continue
to be first priority liens protected against all persons whomsoever to the
maximum extent permitted by law.
2.15 Absence of Security Instruments in Favor of Others.
----------------------------------------------------
On the effective date of this Agreement there will be no
security instrument filed or recorded in any jurisdiction which
purports to cover or give notice of any security interest in any
property, agreement or receivable of the Company or any subsidiary in
favor of any person other than the Bank.
2.16 No Existing Violation of Applicable Laws.
----------------------------------------------
To the knowledge of the officers and directors of the
Company, neither the Company nor any subsidiary of the Company
has violated any applicable law, statute, ordinance or regulation
of the United States of America, of any foreign country, of any
state or municipality or of any other jurisdiction or any agency
thereof, in any respect materially and adversely affecting the
business, property assets, operations or condition, financial or
otherwise, of the Company or any subsidiary as the case may be.
2.17 No Governmental Approval Necessary.
------------------------------------
No approval by any governmental authority is required for
the authorization of or in connection with the execution, delivery
and performance of this Agreement and any Note or other instrument,
contemplated by this Agreement by the Company, any subsidiary or Parent.
2.18 No Present Default.
---------------------
Neither the Company nor any subsidiary of the Company is
now in default (in any respect materially and adversely affecting the
business, property, assets, operations or conditions, financial or otherwise,
of the Company or of said subsidiary), with respect to any indenture,
mortgage, deed of trust, or other agreement or instrument to which it is a
party or by which it is bound.
2.19 Effect on Other Agreements.
----------------------------
The execution, delivery and performance of this Agreement and the
Notes or other instruments executed hereunder will neither result in any
breach nor constitute any default nor result in a creation of any lien,
charge or encumbrance upon any property of the Company or of any of its
subsidiaries or of the Parent, under any indenture, mortgage, deed of trust,
or other agreement or instrument to which the Company or said subsidiary or
the Parent is a party or by which any of them is bound.
2.20 Condition of Physical Assets.
-------------------------------
Since April 30, 1995, neither the business nor the property of the
Company or any of its subsidiaries or the Parent or any of its subsidiaries
has been materially and adversely affected in any way as a result of any
fire, explosion, accident, strike, lock out, flood, drought, storm,
earthquake, embargo or act of God or of the public enemy, or any other
casualty.
2.21 No Event of Default.
----------------------
No Event of Default specified in Section 6.1 hereof and no Default
has occurred and is continuing.
2.22 Accuracy of Information.
--------------------------
All factual information heretofore or contemporaneously furnished by
or on behalf of the Company or any subsidiary or Parent to the Bank for
purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other such factual information thereafter
furnished by or on behalf of the Company or any subsidiary or Parent to the
Bank will be, true and accurate in every material respect on the date as of
which such information is dated or certified and will not be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
2.23 Environmental Matters.
----------------------
(a) To the best of their knowledge, neither the Company, the
Parent nor any of their respective subsidiaries is in violation of or is
alleged to be in violation of any federal, state, or local law, statute,
ordinance or regulation relating to environmental protection, pollution
control, health or safety, including, without limitation, any laws, statutes,
ordinances and regulations relating to hazardous or toxic waste treatment,
storage, disposal, generation and transportation; air, water and noise
pollution; groundwater contamination; the handling, storage or release into
the environment of toxic or "Hazardous Substances" (as hereinafter defined);
and the transportation of Hazardous Substances (herein collectively called
the "Environmental Laws").
(b) To the best of their knowledge, neither the Company, the
Parent nor any of their respective subsidiaries has handled, stored,
retained, refined, transported, processed, manufactured, generated, spilled,
allowed to seep, leak, escape or leach, or pumped, poured, emitted, emptied,
discharged, injected, dumped, transferred or otherwise disposed of or dealt
with Hazardous Substances in violation of any Environmental Laws. Neither
the Company, the Parent or any of their respective subsidiaries has received
any notice from any governmental authority of any violation or alleged
violation of any Environmental Laws.
(c) For purposes of this Agreement, the term "Hazardous
Substances" means any toxic or hazardous waste, pollutants, or substances,
including, without limitation, asbestos, PCBs, petroleum products and
by-products, substances defined or listed as: "hazardous substances" or
"toxic substances" in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. 9601 et seq.,
"hazardous materials in the Hazardous Materials Transportation Act, 49 U.S.C.
1802, et seq., "hazardous waste" in The Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., any chemical substance or mixture
regulated under the Toxic Substances Control Act of 1976, as amended 15
U.S.C. 2601 et seq., any "toxic pollutant" under the Clean Water Act, 33
U.S.C. 1251 et seq., as amended, any "hazardous air pollutant" under the
Clear Air Act, 42 U.S.C. 7401 et seq., and any hazardous or toxic
substance or pollutant regulated under any other applicable federal, state or
local Environmental Laws.
Section 3. Affirmative Covenants
Until the Credit has expired and all Notes given by the Company to
the Bank pursuant hereto and all interest thereon have been paid in full, the
Company promises as follows:
3.1 Financial Position.
-------------------
The Company and it's subsidiaries, on a consolidated basis, will
maintain the following financial positions:
(a) Working Capital. At all times maintain a ratio of "Current
Assets" (as defined in Section 8.1(a) hereof) to "Current Liabilities" (as
defined in Section 8.1 (b) hereof) of at least 1 to 1. For purposes of this
paragraph, the notes receivable from the Parent, which notes are described in
Section 4.7(e) of this Agreement, shall not be considered Current Assets and
the Bank's Credit Loan under this Agreement shall be considered a Current
Liability.
(b) Tangible Net Worth. At all times during the term of this
Agreement maintain a "Tangible Net Worth" (the tax paid equity of the
Company represented by the amount by which total tangible assets of the
Company exceeds total liabilities) of at least (i) $1,500,000 for the period
from September 1, 1995 -- August 31, 1996, and (ii) $2,000,000 for the period
from September 1, 1996 -- thereafter. For purposes of this paragraph, the
term "tangible assets" shall mean and include prepaid income taxes, notes
receivable from publishers and any other "tangible assets" as defined by
generally accepted accounting principles, consistently applied. For purposes
of this paragraph, the term "intangible assets" shall mean and include all
prepaid expenses (other than income taxes), deferred assets, amounts due
from officers, directors or employees, amounts due from affiliated companies,
goodwill, investments in affiliated companies, the notes receivable from
the Parent, intercompany assets, distribution contracts and any other
"intangible assets" as defined by generally accepted accounting principles,
consistently applied.
3.2 Financial Statements.
----------------------
Within ten (10) days after the Parent files its Form 10-K with the
Securities and Exchange Commission but in no event later than one hundred
fifteen (115) days after the end of each fiscal year, the Company will supply
the Bank with unaudited financial statements of the Company and its
subsidiaries, accompanied by: (a) an audit opinion from the Accountants on
the accounts receivable of the Company and its subsidiaries; (b) a
consolidating report that shows the financial statements of the Company and
its subsidiaries and the financial statements of the Parent and its
subsidiaries (other than the Company and its subsidiaries); and (c) a letter
addressed to the Bank from the Accountants stating that they have no
knowledge that anything has occurred which constitutes, or which with the
passage of time or service of notice or both would constitute, an Event of
Default under this Agreement or any other agreement between the Company and
the Bank or stating that such an event has occurred and specifying each such
event, all as of the close of the fiscal year with respect to which the
financial statement has been prepared.
Within twenty (25) days after the end of each month of each fiscal
year, the Company will supply the Bank with interim financial statements
signed by a financial officer of the Company reflecting the
financial condition of the Company and its subsidiaries as of the end of
such month and the results of the operations of the Company and its
subsidiaries since the beginning of the fiscal year.
The annual financial statements provided for in this Section
3.2 shall be accompanied by a certificate signed by the Chairman
of the Board, the President or an Executive Vice President of the
Company stating that a review of the activities of the Company and its
subsidiaries and the Parent during such period has been made under
the supervision of such individual with a view to determining that
the Company has observed, performed and fulfilled all of its
obligations under this Agreement and the Notes or other agreements or
instruments hereunder, and that to the best of such individual's
knowledge, no event has occurred which constitutes, or which with the
passage of time or service of notice or both would constitute, an
Event of Default, or stating that such an event has occurred and
specifying each such event. The annual financial statements of
the Company shall also be accompanied by a certificate in the
form attached hereto as Exhibit VI signed by the Chairman of the
Board, the President, an Executive Vice President or the Treasurer of
the Company.
Within three (3) Business Days after the Parent files its Form
10-K with the Securities and Exchange Commission but in no event
later than one hundred five (105) days after the close of each fiscal
year, the Company will supply the Bank with a copy of such Form 10-K.
In addition, upon their becoming available, the Company will supply
the Bank with copies of all regular and periodic reports, if any,
which the Company or any of its subsidiaries or the Parent files with
the Securities and Exchange Commission or any governmental agency or
agencies substituted therefor, or any similar or corresponding
governmental department, commission, board, bureau or agency,
domestic or foreign, or with any securities exchange; and with
copies of all reports, proxy statements and financial statements
delivered or sent by the Company or any of its subsidiaries or the
Parent to its stockholders.
3.3 Insurance.
----------
The Company and its subsidiaries will maintain insurance
in such amounts and against such hazards and liabilities as
customarily is maintained by other companies similarly
situated and operating like properties; and against such public
liability, employer's liability and other risks as is usually
maintained by companies similarly situated and engaged in like
operations. Such insurance shall be maintained with good and
responsible insurance companies acceptable to the Bank, and upon the
request of the Bank, a certificate summarizing the nature and extent of
the insurance maintained in accordance with this Section 3.3
will be furnished to the Bank.
3.4 Tax and Other Liens.
---------------------
The Company and its subsidiaries will comply with all
statutes and government regulations and will pay all taxes,
assessments, governmental charges, claims for labor, supplies,
rent and other obligations which, if unpaid, might become a lien
against the Company's property, except for such alleged
liabilities as are contested in good faith and against which the Company
has set up adequate reserves.
3.5 Corporate Existence.
--------------------
The Company and its subsidiaries will take all necessary
steps to preserve its corporate existence and its right to conduct
business in those states for which the nature of its properties or
business requires qualification to do business therein; will
comply with all valid and applicable statutes, rules and
regulations; and will continue to conduct its business in
substantially the same manner and the same fields as such business
is now conducted.
3.6 Books of Record and Account.
--------------------------------
The Company and its subsidiaries and the Parent will at
all times keep true and complete books of records and accounts in
accordance with generally accepted principles of accounting.
3.7 Maintenance.
------------
The Company and its subsidiaries will maintain its
properties in good operating condition, making all needed and proper
renewals, replacements and improvements thereon.
3.8 Inspection.
-----------
The Bank, or such persons as the Bank may designated,
may visit and inspect any of the properties of the Company or its
subsidiaries, examine its books of accounts and discuss the
affairs, finances and accounts of the Company with its officers, all
at the expense of the Bank, at such reasonable times as it may desire.
3.9 Notice of Default or Litigation.
--------------------------------
The Company will immediately give written notice to the Bank of:
(a) the occurrence of any Event of Default (as defined in
Section 6.1) or any Default (as defined in Section 8.1);
(b) any litigation, arbitration or governmental
investigation or proceeding previously not disclosed by the Company to
the Bank which, to the knowledge of the Company, has been
instituted or threatened against the Company, any of its subsidiaries
or the Parent affecting the business or operations of any of the
entities thereof, any of which, if adversely determined, might
materially affect the consolidated financial condition or operations
of the Company or its subsidiaries or the Parent or might impair the
ability of the Company to perform its obligations under this
Agreement or under any Note or other instrument executed pursuant
hereto; and
(c) any material subsequent development which shall
occur in any litigation, arbitration or governmental investigation
or proceeding previously or hereafter disclosed by the Company
to the Bank.
3.10 Performance of Obligations.
-------------------------------
The Company will perform promptly and faithfully all of
its Obligations under any Loan or Note and each other instrument
executed pursuant hereto or pursuant to any other written agreement
with the Bank entered into previously or hereafter.
3.11 Pension Programs.
-----------------
The Company will, and will cause each of its subsidiaries to:
(a) continue in effect and continue to participate in
each guaranteed pension plan maintained, or to which contributions are
made, now or hereafter by the Company or any Subsidiary
except for any termination of or withdrawal from any guaranteed pension
plan at a time when the asset value of the plan guaranteed by
the Pension Benefit Guaranty Corporation exceeds the benefits to be paid
to participants;
(b) fund any guaranteed pension plan as required by the
provisions of Section 412 of the Internal Revenue Code of 1986, as
amended;
(c) furnish the Bank forthwith a copy of any notice of a
guaranteed pension plan termination sent to the Pension Benefit Guaranty
Corporation;
(d) cause each guaranteed pension plan to pay all
benefits when due; and
(e) furnish the Bank with copies of any request for
waivers from the funding standards or extension of the amortization
periods required by Section 412 of the Internal Revenue Code of 1986,
as amended, no later than the date on which the request is submitted
to the Department of Labor or the Internal Revenue Service, as
the case may be.
3.12 Protection of Company's Interests.
-----------------------------------
The Company and its subsidiaries will, from time to time,
execute, file and record such documents and take such actions as may
be required, or as the Bank may reasonably request, in order to
protect the ownership interest of the Company, or if applicable, its
subsidiaries, in any items of "Collateral" (as defined in Section 9.1
hereof) against all persons whomsoever except for:
(a) security interests contemplated by or granted
under this Agreement and the Security Agreement; and
(b) interests arising due to any failure to
accomplish any required filing or recording or any other action, but
only if the Bank has consented in writing to such failure and such
failure complies with all limitations and conditions, if any,
expressed in such consent.
3.13 Further Security Instruments, etc.
------------------------------------
The Company and its subsidiaries shall execute and deliver
to the Bank from time to time such security instruments, give
such notices, make such notations on its records, affix or cause
to be affixed such instruments, and take such other action, in each
case as may be required or as the Bank may reasonably request, in order
that a valid security interest in favor of the Bank on all account
receivables and all other Collateral owned by the Company and each
subsidiary is established, perfected and continued in effect as a
first priority security interest protected against all persons
whomsoever.
3.14 Collection of Account Receivables.
----------------------------------
Until such time as the Bank shall notify the Company of the
revocation of such power and authority, the Company and each
subsidiary will endeavor to obtain at its own expense payment of all
account receivables owing to the Company and its subsidiaries,
including the taking of such action with respect thereto as the
Bank may reasonably request, or, in the absence of such request, as
may be consistent with the terms hereof and which the Company and its
subsidiaries may deem advisable.
3.15 Monthly Compliance Certificate.
-------------------------------
Within twenty-five (25) days after the end of each month during
the term of this Agreement, the Company shall complete and deliver
to the Bank a Monthly Compliance Certificate in the form attached
hereto as Exhibit III.
3.16 Monthly Collateral Reports.
----------------------------
Within twenty-five (25) days after the end of each month
during the term of this Agreement, the Company shall complete and
deliver to the Bank a Monthly Collateral Report in the form
attached hereto as Exhibit IV.
3.17 Collateral Reconciliation Report.
----------------------------------
On or before the third (3rd) Business Day of each month
during the term of this Agreement, the Company shall complete and
deliver to the Bank a Collateral Reconciliation Report in the
form attached hereto as Exhibit V. Among other things, the
Collateral Reconciliation Report will indicate the estimated net
billings of the Company for the current month on the basis of the
"on sale date" of each publication and such net billings will then be
added to "Net Account Receivables" (as defined in Section
9.1(a) hereof) for the immediately preceding month.
3.18 Use of Proceeds.
----------------
The proceeds of any Revolving Note will be used by the Company
only for working capital purposes consistent with the terms and
conditions contained herein.
3.19 Average Excess Availability
-------------------------------
-- Intentionally Deleted (pursuant to the Second Amendment to
the Existing Agreement dated November 15, 1993).
Section 4. Negative Covenants
Except with the prior written consent of the Bank:
4.1 Fixed Assets.
--------------
The Company will not spend an amount in excess of $1,500,000
for fixed assets during any fiscal year of the Company during the term
of this Agreement.
4.2 Encumbrances.
-------------
The Company will not, and will not permit its subsidiaries to,
create or suffer to exist any security interest, security
agreement, mortgage, pledge, lien, charge, encumbrance,
assignment or transfer upon or of any of its property now owned or
hereafter acquired to secure any indebtedness or enter into any
arrangement for the acquisition of any properties subject to
conditional sale agreement or other title retention agreement,
other than:
(a) liens, if any, required by this Agreement or any
other agreements between the Bank and the Company;
(b) mortgages or security interests incurred or
assumed in the purchase of additional property which creates liens
only against the property purchased and will not exceed 80% of the
purchase price;
(c) any liens for taxes not delinquent and liens for
taxes which are in good faith being contested and which are adequately
reserved against;
(d) pledges or deposits in connection with or to secure
workmen's compensation, unemployment insurance, pensions or other
employee benefits;
(e) landlords' attorneys and warehousemen's liens, zoning
restrictions, easements or other restrictions or any liens or
encumbrances similar to those described in this section, the
existence of which does not, in the opinion of the Bank, materially
impair the Company's use of its property or its value for the
purpose of the Company's business.
4.3 Indebtedness.
-------------
The Company will not issue, incur, assume nor have
outstanding any indebtedness for borrowed money, any indebtedness
representing the deferred purchase price of property, any remaining
balance of indebtedness secured by liens on property existing at the
time of acquisition or any other indebtedness of the character
referred to herein, or any extension, renewal or refunding of such
indebtedness, nor become or remain liable as an endorser, guarantor,
or surety for any debt or obligation of any person except:
(a) Loans or guarantees contemplated by this or other
agreements with the Bank or loans, guarantees, indebtedness,
liabilities or obligations contemplated by the Asset Purchase
and Sale Agreement dated as of December 22, 1994 by and among KFSO and
Fulfillment Corporation of America;
(b) Indebtedness subordinated to such loan or any such
guaranty in a manner acceptable to the Bank;
(c) Any indebtedness permitted under Section 4.2(b); and
(d) Endorsements for the deposit of checks acquired in
the ordinary course of business.
4.4 Indebtedness of Subsidiaries.
-------------------------------
The Company shall not permit any subsidiary to incur or
permit to exist indebtedness (excluding indebtedness to the Company)
exceeding in the aggregate the aggregate the book value of the
assets of such subsidiary.
4.5 Dividends.
----------
The Company will not declare or pay dividends in any fiscal
year, except stock dividends which are pledged to the Bank pursuant to
Section 7.1(g); provided, however, that the Company may pay to the
Parent on a quarterly basis an amount not to exceed fifty percent
(50%) of the Company's net income after provision for income taxes
for the preceding fiscal quarter, as shown on the Company's
financial statements, provided, however, that at the end of any
fiscal year the aggregate of such quarterly payments shall not
exceed fifty percent (50%) of the Company's net income after
provision for income taxes for such fiscal year. Irrespective
of the foregoing, no dividends shall be paid to the Parent under
this Section 4.5 unless the Company is in compliance with all of the
covenants contained in this Agreement, nor may any dividends be paid
if there is existing an Event of Default as defined in Section 6.1 or a
Default (as defined in Section 8.1).
4.6 Purchase of Shares.
--------------------
The Company will not purchase or acquire any shares of its
stock or of the stock of any of its subsidiaries not held, directly or
indirectly, by the Company.
4.7 Loans and Advances.
--------------------
The Company will not make loans or advances to any person
except:
(a) Loans or advances to employees not exceeding
$100,000 in the aggregate outstanding;
(b) Deposits required by government agencies or
public utilities;
(c) Advances to publishers in the ordinary course of
the Company's business.
(d) Loans to publishers evidenced by promissory
notes which shall bear interest on the unpaid principal balance but
which shall not exceed five hundred thousand dollars ($500,000.00) in the
aggregate; and
(e) Loans or advances to the Parent not
exceeding $6,000,000 in the aggregate at any time, and loans or
advances to or investments in KFSO not exceeding $4,500,000 in the
aggregate at any time.
4.8 Investments.
------------
The Company will not make investments in any other person
except in the publishing business area as described in Section 4.13,
and except investments in direct obligations of the U.S. Government
or prime commercial paper or certificates of deposit, all maturing
within one year.
4.9 Mergers.
--------
Neither the Company nor any of its subsidiaries nor the Parent
will liquidate, or discontinue its normal operation with an
intention to liquidate nor will any of them merge or consolidate
with any corporation, firm or partnership, or sell, lease, transfer or
otherwise dispose of all or any substantial part of their assets
(except inventory in the ordinary course of the Company's business),
or any of their account receivables except that the Company may
merge with one of its subsidiaries if the Company is the surviving
company.
4.10 Senior Debt.
-------------
The Company will not take or permit any action which would or
might impair the senior position of the Bank under any Loan or Note.
4.11 Other Agreements.
-----------------
The Company will not, and will not permit its subsidiaries
to, enter into or acquiesce in any agreement which limits or
restricts the right of the Company or any subsidiary to comply
with the provisions of this Agreement or which limits or restricts
the rights of the Company or any subsidiary and/or the Bank, as
assignee, under any promissory note from the Parent under Section
4.7(e) or which limits or restricts the rights of the Parent to
comply with any guarantee delivered or given pursuant hereto.
4.12 Disposition of Indebtedness of Subsidiary or Parent.
---------------------------------------------------------
The Company will not sell, assign, pledge, transfer or
otherwise dispose of or encumber, except as permitted by this Agreement,
any indebtedness owing to it from any of its subsidiaries or from
the Parent.
4.13 Business Activities.
--------------------
The Company will not engage in any type of business except the
businesses in which it was engaged on April 30, 1995, including, without
limitation, the distribution of paperbacks and magazines and
subscription fulfillment and related services, provided, however,
that the Company may become engaged in the publishing business if
such business does not at any time account for greater than ten
percent (10%) of the Company's gross cash collections on an annual
basis.
4.14 Issuance of Stock.
--------------------
The Company will not issue or authorize the issuance of
additional shares of its stock unless the holder of such stock
agrees to pledge such stock to the Bank as security under such
terms and conditions that the Bank deems necessary or desirable.
Section 5. Subsidiaries and Parent
5.1 Financial Statements.
-----------------------
If not objected to by the Bank, financial statements of
domestic subsidiaries may be consolidated with those of the Company
in determining compliance with Section 3.1. If requested by the
Bank, financial statements under Section 3.2 will be consolidating and
consolidated statements.
5.2 Covenants.
----------
The Company will require that each subsidiary comply
with the following Sections: 3.3 Insurance, 3.4 Tax and Other Liens,
3.5 Corporate Existence, 3.6 Books of Record and Account, 3.7
Maintenance, 3.8 Inspection, 3.11 Pension Programs, 3.13 Further
Security Agreements, 3.14 Collection of Accounts Receivable,
4.1 Fixed Assets, 4.2 Encumbrances, 4.3 Indebtedness, 4.5 Dividends,
except that a subsidiary may pay dividends to the Company, 4.6
Purchase of Shares, 4.8 Investments, 4.9 Mergers, except that a
subsidiary may merge with another subsidiary, 4.10 Senior Debt, and
4.12 Disposition of Indebtedness of subsidiary or Parent. The dollar
limitations in 4.1 Fixed Assets, 4.7 Loans and Advances and 4.13
Leases, will apply to the total expenditures, loans, advances and
commitments made by the Company and its subsidiaries, on a
consolidated basis.
5.3 Loans or Advances to Parent and Subsidiary.
-------------------------------------------
The Company will cooperate with the Bank in enforcing any and
all obligations of the Parent and any subsidiary to the Company
pursuant to loans or advances made to the Parent or any subsidiary in
accordance with Section 4.7 (e) and in ensuring that the Parent and
each subsidiary comply with any and all covenants and warranties
entered into in connection with such loans or advances.
Section 6. Defaults
6.1 Events of Default.
------------------
The occurrence or existence of any one or more of the following
events will constitute an "Event of Default":
(a) Principal. Non-payment when due, whether
by acceleration or otherwise, of any principal payment on any Note;
(b) Interest and Fees. Non-payment within ten (10)
days after due date of accrued interest, or of any premium, fee or
other charge under this Agreement or on any Note;
(c) Breach of Collateral Covenants. A breach by
the Company of any of the covenants contained in Section 9.1(b) of
this Agreement which is not remedied within three (3) Business Days
after written notice from the Bank;
(d) Other Breach. A breach by the Company or
the subsidiaries or the Parent of any other provisions of this
Agreement which is not remedied within thirty (30) days after written
notice from the Bank;
(e) Misrepresentations. The making of a materially
false representation or warranty by the Company contained in this
Agreement or in any certificate, financial statement, or any report
furnished by the Company or its Parent pursuant to this Agreement or in
any reports, evidence, or additional information furnished in
connection with this Agreement;
(f) Default Under Any Indebtedness to Other Persons.
The occurrence of a default or an event of default under the terms
of any material indebtedness of the Company or of any of its
subsidiaries or of the Parent or any of the its subsidiaries (including
without limitation any indebtedness of the Parent to the Company
pursuant to Section 4.7(e) hereunder) now or hereafter existing which
is not curable or which has not been cured prior to the arising
of a right of acceleration in respect thereof;
(g) Default Under Any Other Indebtedness or
Agreement with the Bank. The occurrence of any default under the
terms of any other written agreement between the Company and the Bank
which now or hereafter exists, and any subsequent extensions or
amendments thereof;
(h) Split-Up of Company. Notice in writing by the
Bank following any order, judgment or decree entered in any
proceedings against the Company decreeing a split-up of the Company or of
any subsidiary which requires the divestiture of a substantial
part of the consolidated assets of the Company and its
subsidiaries, if such order, judgment or decree remains unstayed and in
effect for more than sixty (60) days, or if any steps are taken to
carry out the terms of such order, judgment or decree prior to the
expiration of sixty (60) days following its entry;
(i) Insolvency. The Company or a subsidiary or
the Parent:
(i) Files a petition in bankruptcy or for
the approval of a plan of reorganization or arrangement of similar
relief under the Bankruptcy Act (as it now exists or may hereafter be
amended), or an admission seeking the relief therein provided;
(ii) Is unable, or admits in writing
its inability, to pay its debts as they become due;
(iii) Makes an assignment for the benefit
of creditors;
(iv) Consents to the appointment of a receiver
for all or a substantial part of its property;
(v) Fails to have vacated or set aside
within thirty (30) days of its entry any order of a court appointing
without its consent a receiver or trustee for all or a substantial
part of its property;
(vi) A case or proceeding shall have
been commenced against the Company under any federal, state or
foreign bankruptcy or other similar law which has not been dismissed
or stayed for thirty (30) days thereafter, or the Company is
otherwise adjudicated a bankrupt; or
(vii) Becomes insolvent, however
otherwise evidenced;
(j) Change in Control. Parent ceases to beneficially
own and control, directly or indirectly, at least one hundred
percent (100%) of the issued and outstanding shares of each class of
capital stock of the Company entitled (without regard to the
occurrence of any contingency) to vote for the election of a
majority of the members of the board of directors of the Company;
(k) If a contribution failure occurs with respect to
any pension plan maintained by the Company, any subsidiary or any
corporation, trade or business that is, along with the Company, a
member of a controlled group of corporations or a controlled group of
trades or businesses (as described in Section 414(b) and (c) of the
Internal Revenue Code of 1986 or Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
sufficient to give rise to a lien under Section 302(f) of ERISA; ; and
(l) If the Bank is reasonably insecure.
6.2 Suspension of Additional Loans.
-------------------------------
Upon the occurrence of any Event of Default or Default, the
Bank, without notice or demand, may immediately cease making
additional Loans and the commitment of the Bank to make Credit
Loans shall be immediately suspended; provided that, in the case of
a Default, if the subject condition or event is waived, cured or
removed by the Bank in writing, the commitment of the Bank to make
Credit Loans shall be reinstated.
6.3 Acceleration.
-------------
(a) Upon the occurrence and during the continuance of any
Event of Default described in Section 6.1(i), the unpaid principal
amount of and accrued interest and fees on all of the Loans and all
other Obligations of the Company to the Bank, howsoever evidenced,
shall automatically become immediately due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice
of acceleration or other requirements of any kind, all of which are
hereby expressly waived by the Company, and any commitment to make any
Loans shall thereupon terminate.
(b) Upon the occurrence and during the continuance of any
other Event of Default, the Bank may at its option by written notice
to the Company, (i) declare all Loans or any portion thereof and all
other Obligations of the Company to the Bank, howsoever evidenced, to
be, and the same shall forthwith become, immediately due and payable
together with accrued interest thereon, and the commitment of the
Bank to make additional Credit Loans shall thereupon
terminate, and (ii) demand that the Company immediately deposit with
the Bank an amount equal to any Letters of Credit then
outstanding for which the Bank has any guaranty or payment obligations.
6.4 Remedies.
---------
In case any one or more of the Events of Default
specified in Section 6.1 shall have occurred and be continuing, the
Bank, in addition to any other remedy permitted by law, may proceed
to protect and enforce its rights either by suit in equity, or
by action at law, or by other appropriate proceedings whether for
the specific performance (to the extent permitted by law) of any
covenant or agreement contained in this Agreement, or proceed to
enforce the payment of the Loans, Notes or other Obligations or to
enforce any other legal or equitable rights of the Bank.
Section 7. Conditions of Loans
7.1 Initial Credit Loan.
--------------------
The obligation of the Bank to make the initial Credit Loan
under this Agreement or to extend the term of the Existing Agreement
pursuant to the terms and provisions of this Agreement shall be
subject to the terms and provisions satisfaction of each of the
following conditions precedent:
(a) Resolutions, etc. The Bank shall have received
such certificates as to resolutions of the Company's Board of
Directors, as to incumbency and signatures of Company's officers and as to
any other matters (and copies of such other documents relevant to this
Agreement, certified if requested), as the Bank may reasonably
request with respect to any matter relevant to this Agreement;
(b) Security Agreement. Company shall have executed
and delivered to the Bank a Reaffirmation of Security Agreement in
respect of that certain Security Agreement of the Company in favor
of the Bank, dated as of September 30, 1992 (herein together with all
amendments, if any, thereafter made from time to time thereto,
called the "Security Agreement");
(c) Financing Statements. Company shall have
delivered to the Bank any required UCC-1 financing statements or
continuation statements, suitable for filing in the States of Illinois,
New York, and California, covering the collateral subject to
the Security Agreement duly executed by Company and showing the Bank as
the secured party;
(d) Corporate Documents. The Company shall
have delivered to the Bank (i) Good Standing Certificates for the
Company issued by the Secretary of State of Illinois, New York
and California, (ii) Good Standing Certificates for KFSO issued by
the Secretary of State of Delaware and Ohio, (iii) Good Standing
Certificates for Parent issued by the Secretary of State of Oklahoma
and New York, and (iv) a copy of the Articles of Incorporation of
the Company, as certified by the Secretary of State of Illinois;
(e) Expenses. Reimbursement by the Company to the
Bank for legal fees and other out-of-pocket expenses incurred in the
preparation of this Agreement and all related documents;
(f) Reaffirmation of Guaranty and Stock Pledge.
The Parent has pledged to the Bank all of the issued and outstanding
shares of the stock of the Company as security for the Parent
Guaranty (as defined in Section 7.2(h)) and agrees to pledge any
additional shares which it receives by way of stock dividends.
The Parent shall upon the execution and delivery of this Agreement
execute and deliver a Reaffirmation Agreement with respect to the
Parent Guaranty and that certain Pledge Agreement of the Company
in favor of the Bank, dated as of September 30, 1992. Said shares
have been endorsed in blank or accompanied by a duly executed stock
power or powers which issuance and delivery shall be deemed to be a
pledge of investment securities under and pursuant to the applicable
provisions of the Uniform Commercial Code and shall be held by the
Bank only as security for the Parent's guaranty of payment of
the Company's Obligations under this Agreement and other agreements
between the Company and the Bank; and
(g) Reaffirmation of Subsidiary Stock Pledge.
The Company has pledged to the Bank all of the issued and
outstanding shares of the stock of KFSO as security for the payment of
all Loans and the performance of all Obligations and agrees to
pledge any additional shares that it receives by way of stock
dividends. The Company shall upon the execution and delivery of
this Agreement execute and deliver to the Bank a Reaffirmation of
Subsidiary Stock Pledge Agreement. Such shares have been endorsed
in blank or accompanied by duly executed stock powers which shall be
deemed to be pledges of investment securities under and pursuant
to the applicable provisions of the Uniform Commercial Code and
shall be held by the Bank only as security for the payment and
performance of the Loans and other Obligations.
7.2 All Loans.
-----------
The obligation of the Bank to make any Loan (including
without limitation, the initial Credit Loan) is subject to the
satisfaction of each of the following conditions:
(a) Maximum Loan Amount. After giving effect to
such loan, the aggregate outstanding principal amount of all Credit
Loans under the Revolving Note shall not exceed the then "Maximum Loan
Amount" (as defined in Section 9.1(a) hereof);
(b) Compliance with Warranties and Agreements, etc.
The warranties set forth herein shall have been true and correct
as of the date as of which made, and on the date of such Loan such
warranties shall be true and correct with the same effect as if
then made, and no Event of Default or Default shall then have
occurred and be continuing;
(c) Absence of Litigation, etc. No
litigation, arbitration or governmental investigation or proceeding is
pending, or to the knowledge of the Company, threatened, against the
Company or its subsidiaries or Parent to the extent that such
litigation involves the Company or its subsidiaries or affecting the
business or operations of the Company or its subsidiaries which
was not disclosed by the Company to the Bank prior to the last
previous borrowing or Loan, and no development not so disclosed has
occurred in any litigation, arbitration or governmental investigation
or proceeding so disclosed, which, in either event, may, in the
opinion of the Bank, materially adversely affect the financial
condition or operation of the Company or impair its ability to
perform its obligations under this Agreement, or under any Note or any
other instrument executed pursuant hereto;
(d) Request. The Company shall have furnished to
the Bank a request for such loan and each request must be based
upon a then current Monthly Compliance Certificate, Monthly
Collateral Report and Collateral Reconciliation Report;
(e) Monthly Compliance Certificate, Monthly
Collateral Report and Collateral Reconciliation Report. The Company
shall complete and deliver to the Bank a current Monthly
Compliance Certificate, a current Monthly Collateral Report and a
current Collateral Reconciliation Report in the forms attached hereto
as Exhibits III, IV and V, respectively;
(f) Certificate. The Company shall deliver to the Bank
a certificate, signed by the Chairman of the Board, President or
any Vice President of the Company and dated the date of any loan,
that to such person's knowledge no Event of Default as defined in
Section 6.1 exists or is imminent, and that the representations
and warranties of the Company contained in this Agreement are true on
and as of the date of the Loan;
(g) Satisfactory Legal Form. All documents executed
or submitted pursuant hereto by the Company shall be satisfactory in
form and substance to the Bank and its counsel; the Bank and its
counsel shall have received all information and such counterpart
originals or such certified or other copies of such materials
as the Bank or its counsel may reasonably request; and all legal
matters incident to the transactions contemplated by this
Agreement shall be satisfactory to the Bank and its counsel; and
(h) Guaranty by Parent. The Parent shall have
executed and continued in effect that certain Guaranty in favor of
the Bank, dated as of September 30, 1992, guaranteeing payment of
all Obligations of the Company ("Parent Guaranty"). The Parent
Guaranty shall be continually secured by the pledge of Company
stock described in Section 7.1(g) hereof.
Section 8. Miscellaneous
8.1 Definition of Terms Used in this Agreement.
-------------------------------------------
As used in this Agreement:
(a) Business Day. The term "Business Day" means (a)
any day excluding Saturday, Sunday and any day which is a legal
holiday under the laws of the State of Illinois, or is a day on which
banking institutions located in Illinois are closed, and (b) with
respect to all notices, determinations, fundings and payments in
connection with Credit Loans bearing interest at the LIBOR Rate,
any day that is a Business Day described in clause (a) above and that
is also a day for trading by and between banks in Dollar deposits
in the applicable interbank LIBOR market.
(b) Current Assets. The term "Current Assets," to
the extent permitted by, and as determined in accordance with,
generally accepted principles of accounting, shall exclude
intangible assets (including, but not limited to, goodwill and
intellectual property rights such as copyright) and shall include cash
items in any bank or trust company (on hand and in transit);
customers' accounts, bills and notes receivable (less such reserves as may
be required by generally accepted principles of accounting);
merchandise inventories and inventories of raw materials and
supplies, of working materials in process and of finished products
(valued at not in excess of the cost or current market value
thereof, whichever is less); readily marketable securities issued by
the United States of America and commercial paper rated prime by the
National Credit Office (each maturing within one year from the
date of determination and taken at not more than cost or current
market value, whichever is lower); and such other tangible assets
as, in accordance with generally accepted principles of
accounting, would be included in current assets, all after deduction
of appropriate reserves; provided, however, that in computing Current
Assets there shall be excluded:
(i) any notes receivable from the Parent; and
(ii) any assets which are assigned, pledged or
deposited as security for or for the purpose of paying any
obligation which is not included in current liabilities except assets
so assigned, pledged or deposited pursuant to Section 9 hereof.
(c) Current Liabilities. The term "Current
Liabilities" shall mean all indebtedness payable on demand or
maturing not more than one year from the date as of which current
liabilities are to be determined, final maturities and prepayments
of indebtedness and sinking fund payments required to be made in respect
of any indebtedness within one (1) year after said date, and all
other items (including taxes accrued as estimated) which in
accordance with generally acceptable principles of accounting would be
included as current liabilities. The indebtedness evidenced by the
Note or Notes given to the Bank pursuant to this Agreement shall be
deemed a "Current Liability".
(d) Default. The term "Default" means a condition
or event that, after notice or lapse of time or both, would
constitute an Event of Default if that condition or event were not cured
or removed within any applicable grace or cure period.
(e) Indebtedness. The term "indebtedness" shall mean
and include all items, other than capital stock surplus and
deferred income, which in accordance with generally accepted
principles of accounting would be included in determining total
liabilities as shown on the liability side of a balance sheet as of the
date of determination, but in any event shall include indebtedness,
obligations and liabilities secured by any mortgage, deed of trust,
pledge or lien, whether or not the indebtedness secured thereby shall
have been assumed, and all indebtedness created or secured under
any purchase money security agreement or other similar agreement
with respect to any property acquired, even though the rights and
remedies of the seller and lender under such agreement in the Event
of Default are limited to repossession of such property.
(f) KFSO. Kable Fulfillment Services of Ohio, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company.
(g) Loans. The term "Loan" or "Loans"
means, individually and collectively, each loan, advance or
indebtedness under the Revolving Note, the Installment Note, the Term
Note and any and all other indebtedness, howsoever evidenced, of the
Company or any subsidiary to the Bank.
(h) Maturity Date. The term "Maturity Date"
means the earlier of (a) the acceleration of the Obligations pursuant to
Section 6.3 or (b) August 31, 1998.
(i) Notes. The term "Note" or "Notes"
means, individually and collectively, the Revolving Note, the Term Note,
and Installment Note and all other promissory notes or instruments
evidencing indebtedness of the Company or any subsidiary to the
Bank.
(j) Obligations. The term "obligations" means
all obligations, liabilities and indebtedness of every nature of the
Company, its subsidiaries or Parent from time to time owed to the
Bank, whether under this Agreement, the Notes or otherwise,
including the principal amount of all Loans, debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and
expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing,
due or payable whether before or after the filing of a
proceeding under the Bankruptcy Code by or against the Company, any
of its subsidiaries or Parent.
(k) Person. The term "person" shall mean and include
any individual, partnership, joint venture, corporation, trust,
unincorporated organization or government, or any department or agency
thereof.
(l) Subsidiary. The term "subsidiary" shall mean (i)
any corporation which, in accordance with generally accepted
principles of accounting, could be consolidated with the accounts of
the Company for purposes of reporting to the stockholders and (ii) any
Person, Corporation, Partnership, Association or other business
entity of which more than fifty percent (50%) of the total voting
power of shares of stock (or equivalent ownership or controlling
interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person while one or more of the other
Subsidiaries of that Person or combination thereof, including, without
limitation, KFSO.
8.2 Waivers.
--------
No omission or delay by the Bank in exercising any right or
power under this Agreement or any Loan or Note will impair such right
or power or be construed to be a waiver of any default or an
acquiescence therein, and any single or partial exercise of any such
right or power will not preclude other or further exercise thereof
or the exercise of any other right, and no waiver will be valid unless
in writing and signed by the Bank and the only to the extent
specified. All remedies herein and by law afforded will be
cumulative and will be available to the Bank until the
indebtedness of the Company to the Bank is paid in full.
8.3 Stamp Tax.
----------
If any stamp tax or other tax becomes payable in respect of any
Note or Agreement or their execution or delivery, the Company will pay
it.
8.4 Assignment; Bank Participations.
----------------------------------
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective permitted
successors and assigns.
(b) The Company may not assign or transfer its rights
hereunder without the prior written consent of the Bank.
(c) The Company hereby consents to the Bank's
participation, sale, assignment, transfer or other disposition, at any
time or times hereafter, of any of the Loans and Notes and of this
Agreement, the instruments and agreements contemplated hereby, or
of any portion thereof or hereof, including, without limitation, the
Bank's rights, title, interests, remedies, powers, and/or duties
thereunder or hereunder.
8.5 Survival of Covenants.
-----------------------------
All covenants, agreements, representations and
warranties made herein and in certificates delivered pursuant hereto
shall survive the execution and delivery of this Agreement and the
making of loans hereunder and shall continue in full force and effect
until the termination of this Agreement and all of the Obligations
have been paid in full. All covenants, agreements, representations and
warranties in this Agreement by or on behalf of the Company or its
subsidiaries or the Parent or by or on behalf of the Bank shall bind
and inure to the benefit of the respective successors and assigns of
such party hereto, except where the context otherwise requires.
8.6 No Oral Change.
-----------------
This Agreement may not be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
8.7 Governing Law.
---------------
This Agreement and any Note issued pursuant to this
Agreement will be governed by and construed in accordance with the
internal laws of the State of Illinois.
8.8 Descriptive Headings.
----------------------
The descriptive headings of the several sections and
subsections hereof are for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
8.9 Notices.
--------
Any written notice required or permitted by this Agreement
may be given by depositing it in the U.S. mail, postage prepaid, or
by faxing it with a copy of the fax transmission deposited in
the U.S. mail on the date of the fax transmission, addressed to the
Company at 641 Lexington Avenue, Sixth Floor, New York, New York
10022, Attention: Daniel Friedman, Chairman and Chief Executive
Officer, and to 16 South Wesley Avenue, Mt. Morris, Illinois
61054, Attention: David Bakener, Controller; addressed to the Parent at
641 Lexington Avenue, Sixth Floor, New York, New York 10022,
Attention: Mohan Vachani, Senior Vice President; and
addressed to the Bank at 33 North LaSalle Street, Chicago,
Illinois 60690, Attention: James R. Popp, Vice President.
8.10 Payment by the Company of Expenses of Bank.
-----------------------------------------------
Company agrees to pay, upon Bank's demand therefor, any and
all costs, fees and expenses (including reasonable attorneys'
fees, costs and expenses) incurred by Bank (i) in enforcing any of
Bank's rights hereunder, and (ii) in representing Bank in any
litigation, contest, suit or dispute, or to commence, defend or
intervene or to take any action with respect to any litigation,
contest, suit or dispute (whether instituted by Bank, Company or
any other Person) in any way relating to this Agreement or the
Obligations and to the extent not paid the same shall become part
of Borrower's Obligations hereunder. Upon an Event of Default
the Company will promptly upon receipt of invoice therefor reimburse
the Bank for all expenses (including reasonable attorneys'
fees) incurred in collecting the amounts due on any Obligation
whether such expenses are incurred in realizing on the Collateral
described in Section 9.1 or otherwise in the enforcement of this
Agreement.
8.11 Offset.
-------
All monies, credits or other properties belonging to the
Company or to any subsidiary or to the Parent, which are in the
possession or under the control of the Bank may be appropriated
and applied against the liability of the Company under this Agreement
at any time upon the maturity or acceleration of any of the
Obligations of the Company under this Agreement.
8.12 Counterparts.
-------------
This Agreement may be executed in any number of
counterparts, and by the different parties on different counterparts,
all of which taken together shall constitute one and the same
agreement. Any of the parties hereto may execute this Agreement by
signing any such counterpart and each of such counterparts shall
for all purposes be deemed to be an original, and it shall not be
necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
8.13 Severability.
-------------
Any provision of this Agreement or any instrument
executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or such
instrument and without affecting the validity or enforceability of such
provision in any other jurisdiction.
8.14 Entire Agreement.
------------------
This Agreement and the Exhibits attached hereto represent
the entire agreement between the parties with respect to this loan
transaction and there are no other arrangements or agreements
between the parties with respect to such transaction which are not
embodied herein.
Section 9. Collateral and Guaranty
9.1 Collateral.
-----------
In order to collateralize and secure the payment of the
Obligations, the Company hereby grants to the Bank, pursuant to
the Security Agreement, a continuing first priority security
interest in the collateral described immediately below (which,
together with any collateral assigned to the Bank in order to
maintain the loan value of the collateral, is hereinafter called the
"Collateral") and in the proceeds from any disposition of new
Collateral:
All Account Receivables (whether or not Eligible
Account Receivables) and Contract Rights of the
Company, whether now or hereafter existing or
acquired; all chattel paper and instruments, whether
now or hereafter existing or acquired, evidencing any
obligation to the Company for payment for goods sold
or leased or services leased or services rendered
or Loan Receivables, including all loans or
advances made (including loans made to AMREP
Corporation); all interest of the Company in any goods, the
sale or lease of which shall have given or shall
give rise to any Account Receivables, Contract
Rights, chattel paper or instruments; and all
proceeds of any of the foregoing.
As collateral for the Parent Guaranty, the Parent grants a
continuing first priority security interest in and has pledged all
of the stock of the Company as described in Section 7.1(g) hereof.
(a) Maximum Loan Amount. On any given day
during the term of this Agreement, the "Maximum Loan
Amount" for purposes of the Revolving Note (and the
maximum amount that the Company may borrow under the
Credit Loan) is hereby defined as the lesser of (a)
80% of the Company's "Net Account Receivables" (as
hereinafter defined); and (b) $32,500,000 less the unpaid
principal balance of the Installment Note on such
date. For purposes of this Agreement, the term
"Net Account Receivables" means the amount shown on
line 10 of the most recent Monthly Collateral Report
delivered to the Bank, plus all estimated net billings
shown on the then current Collateral Reconciliation
Report and minus all collections that are deposited
in the "Cash Collateral Account" (as defined in
Section 9.1(b)(ix) hereof). The estimated net billings
of the Company will then be adjusted to the extent
necessary on the next Monthly Collateral Report
submitted to the Bank to reflect the actual net
billings of the Company.
To the extent that there is any discrepancy between the net
billings as shown on the Collateral Reconciliation Report and
those shown on the Monthly Collateral Report, the net billings on
the Monthly Collateral Report shall control in all respects.
(b) Collateral Covenants. The Company hereby covenants
as follows:
(i) The Company will prepay any of its
Obligations to the Bank to the extent that the Maximum Loan Amount at
any time as shown in a Monthly Collateral Report or Collateral
Reconciliation Report is less than the aggregate unpaid principal of
the Company's outstanding Obligations to the Bank pursuant to this
Agreement.
(ii) The Company is the sole owner of the
Collateral;
(iii) There are no outstanding security
interests in, or liens or encumbrances on the Collateral;
(iv) The Company will not sell or
otherwise dispose of, encumber, or permit any other security interest
to be attached to the Collateral, except that the Company may sell
inventory in the ordinary course of its business;
(v) The Company will keep those items of
Collateral not in the possession of the Bank at its place of business
at 16 South Wesley Avenue, Mount Morris, Illinois, except that
inventories may be kept at its other identified places of business to
the extent required for efficient operation of its business;
(vi) The Company will at all times during the term
of this Agreement maintain a ratio of actual returns, allowances and
discounts to reserves for returns of less than sixty-five
percent (65%) on average for any and every three (3) month period during
the term of this Agreement. In addition, the Company shall at no
time during the term of this Agreement permit its ratio of
collections to gross receivables to be less than thirteen percent
(13%).
(vii) The Bank may from time to time, at its
option, perform any act required to be taken by the Company under any
security instrument executed pursuant hereto which shall not have
been taken in accordance with the terms thereof and take any
other action which the Bank deems necessary for the
maintenance, preservation or protection of any of the Collateral pursuant
hereto or under the Security Agreement. The Company hereby releases
Bank from any and all causes of action or claims which the Company
may now or hereafter have for any asserted loss or damage to the
Company claimed to be caused by or arising from: (a) Bank's taking
any action permitted by this Agreement or the Security Agreement; (b)
any failure of Bank to protect, enforce or collect in whole or in
part any of the Collateral; and/or (c) any other act or omission
to act on the part of the Bank, its officers, agents or employees,
except for willful misconduct. The Company will, upon demand,
repay to the Bank all monies advanced by the Bank in connection with the
foregoing, together with interest at the rate of one and one half
percent (1-1/2%) per month (or any maximum lesser rate permitted by
applicable law).
(viii) The Bank shall be deemed to have
exercised reasonable care in the custody and preservation of any of
the Collateral under any security instrument executed pursuant hereto in
its possession if it takes such action for that purpose as Company
requests in writing, but failure of the Bank to comply with any
such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure of the Bank to preserve or protect
any rights with respect to any such Collateral against prior parties
or to do any act with respect to the preservation of any such
Collateral not so requested by the Company shall be deemed a failure
to exercise reasonable care in the custody and preservation of
such Collateral;
(ix) The Company shall establish a lock box
account with the Bank (herein called the "Cash Collateral Account") in
the Company's name to which all account debtors shall directly
remit all payments on accounts and in which the Company will
immediately deposit all payments constituting proceeds of the
Collateral, whether in the form of cash or check or some other form of
payment. All payments made to the Cash Collateral Account shall be
the exclusive property of the Bank and no person other than the Bank
shall have a right of setoff against such account. All such
payments received on the Cash Collateral Account shall be applied
against the principal balance of the Revolving Note on the third
(3rd) calendar day following delivery or deposit thereof provided that
any check, draft or similar item of payment has been honored and
final settlement thereof has been reflected as available to the Bank.
The Company and any of its affiliates,
employees, agents or other persons acting for on in concert with the
Company shall (acting as trustee for the Bank) receive as the sole
and exclusive property of the Bank any monies, checks, notes, drafts
or any other payments relating to and/or proceeds of accounts or
other Collateral which come into the possession or under the control
of the Company or such persons. Immediately upon receipt of such
funds, the Company or such persons shall cause the same to be deposited
in the Cash Collateral Account or shall deliver the same to the Bank
in the identical form in which such item of payment was received,
provided, however, that the Company may deposit proceeds in The
Bank of Montreal in Toronto, Canada, The Bank Worms in London,
England, Chemical Bank in New York, New York and Amcore Bank of Ogle
County in Mt. Morris, Illinois for clearance purposes only, provided
that such proceeds are transmitted to the Company's Cash Collateral
Account from time to time.
The Company will indemnify and save harmless
the Bank from and against all liabilities and expenses, including
reasonable attorneys' fees on account of any adverse claim
asserted against the Bank to any Collateral proceeds received by the
Bank from any obligor or any receivable owing to the Company, and
such obligation of the Company shall continue in effect after and
notwithstanding the termination of this Agreement, the discharge
of the liabilities and the release hereof; and
(x) All Collateral proceeds received by the Bank
shall be deposited in the Cash Collateral Account maintained by the
Bank, titled in such manner as to identify appropriately the
nature of such accounts. Nothing contained herein shall preclude the
deposit of any other amounts in the Cash Collateral Account.
Monies in the Cash Collateral Account shall be applied as provided in
Section 9.1(b)(ix), and the Bank shall render to the Company
monthly advices of debits and credits to the Cash Collateral Account.
The breach of any one of the above covenants which is not
cured within three (3) Business Days after notice thereof is given by
the Bank shall constitute an Event of Default for the purposes of
Section 6.1.
(c) The Company will execute such documents
(including appropriate financing statements and continuation
statements) as may be required by law or as the Bank may reasonably
request in order to maintain and perfect the Bank's security
interest in the Collateral. The Company also irrevocably authorizes the
Bank to execute any such documents on behalf of the Company.
9.2 Cancellation.
-------------
Upon payment in full of the Company's indebtedness
hereunder, any Note, mortgage, assignment, guaranty or other
agreement executed pursuant to this Agreement will be canceled by
the Bank and returned to the Company, together with any securities
or other collateral, except where such agreements,
instruments or collateral are also required to secure other obligations
of the Company to the Bank which continue to be outstanding
pursuant to other loans and agreements.
COMPANY:
ATTEST: KABLE NEWS COMPANY, INC.,
an Illinois corporation
By: _________________________________ By: _______________________________
Its _______________________________ Its ______________________________
BANK:
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, a
national banking association
By: _______________________________
James R. Popp, Vice President
<PAGE>
SCHEDULE OF EXHIBITS
Document Exhibit
------------------- -------
Revolving Note I
Financial Statements II
Monthly Compliance III
Certificate
Collateral Report IV
Collateral Reconciliation V
Report
Certificate of Company VI
(re: Annual Financial Statements)
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<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-31-1995
<CASH> 8,349
<SECURITIES> 0
<RECEIVABLES> 52,710
<ALLOWANCES> 0
<INVENTORY> 90,218
<CURRENT-ASSETS> 0
<PP&E> 27,925
<DEPRECIATION> 11,404
<TOTAL-ASSETS> 188,922
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<BONDS> 62,301
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0
0
<OTHER-SE> 67,253
<TOTAL-LIABILITY-AND-EQUITY> 188,922
<SALES> 51,007
<TOTAL-REVENUES> 83,332
<CGS> 40,714
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