SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 0-16355
PRINCETON MEDIA GROUP, INC.
(Exact name of small business as specified in its charter)
Ontario, Canada 98-0082860
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue #300, Palm Beach, Florida 33480
(Address of principal executive offices)
(561) 659-0121
(Registrant's telephone number including area code)
DeNovo Corporation
(Former name, former address and former fiscal year, if changed since last
report)
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______
At November 14, 1996, 843,469 common shares were outstanding.
Transitional Small Business Disclosure Format: Yes ____ No X
PRINCETON MEDIA GROUP, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3-7
All Financial information, unless specifically stated otherwise,
is expressed in United States dollars.
The following statements have been attached to this form:
Unaudited Consolidated Balance Sheet as of September 30, 1996
Unaudited Statements of Operations For the Nine Months and
Three Months Ended September 30, 1996 and 1995
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
Unaudited Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1996
Notes to Unaudited Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis
or Plan of Operation 13-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheets
September 30,1996 December 31, 1995
Unaudited Audited
<S> <C> <C>
Assets
Current assets
Cash $ 575,157 $ 15,498
Accounts receivable, net 2,391,337 22,178
Inventories 257,062 -
Total current assets 3,223,556 37,676
Property, plant and equipment, net 1,802,725 34,234
Other assets
Debt issue costs 119,980 -
Deposits 39,755 -
Trademarks, copyrights and other intangibles, net 11,874,061 -
Total assets $ 17,060,077 $ 71,910
Liabilities
Current liabilities
Accounts payable $ 426,320 $ 933,475
Accrued expenses 649,611 33,081
Due to related party 547,999 37,497
Deferred revenue 223,163 -
Income taxes payable 133,929 -
Convertible debentures payable, net of unamortized
debt discount 287,344 -
Accrued interest 65,812 -<PAGE>
Total current liabilities 2,334,178 1,004,053
Notes payable 9,000,000 -
SHAREHOLDERS' EQUITY:
Series A Preference Shares 28,923 28,923
Series C Preference Shares 739,696 739,696
Series D Preference Shares 1,005,000 -
Series E Preference Shares 1,735,000 -
Common Stock 7,597,850 4,258,755
Accumulated deficit (5,380,570) (5,959,517)
Total Stockholders' equity 5,725,899 (932,143)
Total liabilities and stockholders' equity $ 17,060,077 $ 71,910
See accompanying notes to financial statements.
</TABLE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Operations
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 3,067,347 $ (8,954) $ 5,094,672 $ 827,757
Cost of sales 1,422,523 107,850 2,461,592 604,517
Gross profit (loss) 1,644,824 (116,804) 2,633,080 223,240
Operating expenses 812,229 433,863 1,463,542 1,234,877
Non-recurring operating expenses 9,311 43,431 617,565 43,431
Income (loss) from operations 823,284 (594,098) 811,793 (1,055,068)
Interest and other income 209 7,341 5,159 29,265
Gain on disposition of subsidiary 415,257 - 415,257 -
Interest and other expense (361,691) (8,316) (519,513) (31,061)
Income (loss) before income taxes 877,059 (595,073) 712,876 (1,056,864)
Provision for income taxes 133,929 - 133,929 -
Net income $ 743,130 $ (595,073) $ 578,947 $ (1,056,864)
Net income (loss) per share
Primary $ .97 $ (3.75) $ 1.21 $ (5.59)
Fully diluted .79 - $ 1.16 -
Weighted average number of
shares outstanding (1) 731,766 158,701 435,976 189,225
See accompanying notes to financial statements.
</TABLE>
(1) Gives effect for all periods to a one for twenty reverse stock split
effective October 29, 1996. See Note 3 (B).
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statement of Cash Flows
Unaudited
Nine months ended September 30, 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 578,947 $(1,056,864)<PAGE>
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities
Depreciation and amortization 397,231 30,756
Loss on sale of assets - 43,431
Forgiveness of debt (5,159) -
Gain on disposition of subsidiary (415,257) -
Writedown of inventory - (25,983)
Stock issued as payment of commissions - 41,496
Stock issued as payment for public
relations services 67,734 275,000
Changes in assets and liabilities:
Decrease (increase)in accounts receivable (1,666,111) 653,920
Decrease (increase)in inventories (257,062) 375,319
Increase in other receivables - (642,409)
Decrease (increase) in prepaid expenses
and deposits ( 39,755) 70,573
Increase in other assets (665,458) (19,726)
Increase (decrease) in accounts payable 195,986 (811,441)
Increase (decrease)in accrued expenses 258,911 (14,711)
Increase in income taxes payable 133,929 -
Decrease in due to related party 547,999 -
Increase in deferred revenue 223,163 -
Increase in accrued interest payable 65,812 -
Net cash (used in) operating
activities ( 579,090) (1,080,639)
Cash flows from investing activities
Sale of capital equipment - 42,588
Capital expenditures - (9,540)
Cash paid for acquisition of trademarks,
copyrights, equipment, and related
receivables and payables (5,088,264) -
Net cash (used in) provided by
investing activities (5,088,264) 33,048
Cash flows from financing activities
Loans from stockholders - 377,500
Repayment of loan to stockholder - (341,284)
Proceeds from investment in the Company - 243,165
Advance from related party - 44,846
Repayment of advance from related party - ( 14,639)
Proceeds from issuance of common stock 3,157,113 -
Stock issued on exercise of options - 420,000
Issuance of Preference D Shares - 650,000
Proceeds from issuance of preferred stock 2,740,000 -
Proceeds from issuance of
convertible debentures 329,900 -
Net cash provided by
financing activities 6,227,013 1,379,588
Net increase in cash 559,659 331,997
Cash, beginning of period 15,498 127,889
Cash, end of period $ 575,157 $ 459,886<PAGE>
Supplemental disclosures of cash flow information:
1996 1995
Interest paid $ 281,973 $ 25,912
</TABLE>
The Company purchased equipment appraised at $1,814,000 and trademarks and
copyrights valued at $5,186,000 for $1,000,000 in cash, a 90-day note of
$1,000,000 and a long-term note of $5,000,000. The Company also purchased
trademarks and copyrights valued at $107,390 for $32,390 in cash and an
installment loan payable of $75,000 of which $25,000 was paid in September,
1996, with installments of $25,000 due in December, 1996, and March, 1997. The
Company purchased equipment valued at $75,000, accounts receivable of $725,227,
accounts payable and accrued expenses of $439,676 and trademarks and copyrights
of $6,639,449 for $3,000,000 in cash and a long-term note of $4,000,000. The
Company entered into capital leases for equipment capitalized at $28,014; unpaid
balances on leases were $25,714 as of September 30, 1996.
See accompanying notes to financial statements.
<TABLE>
Princeton Media Group, Inc.
Statement of Shareholders' Equity
Nine Months Ended September 30, 1996
Unaudited
Preferred Stock Preferred Stock Preferred
Series A Series C Series D & E Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 32,500 $28,923 1,100,000 $739,696 - - 222,471 $4,258,755 ($5,959,517)
Issuance of Stock - - - - - - 26,250 2,156,227
Issuance of Series D, net - - - - 1,200 1,005,000 - -
Issuance of Series E, net - - - - 1,800 1,735,000 - -
Conversion of Debentures - - - - - - 518,897 1,182,868
Net income - - - - - - - - 578,947
Balance at
September 30, 1996 32,500 $28,923 1,100,000 $739,696 3,000 2,740,000 767,618 $7,597,850 ($5,380,570)
See accompanying notes to financial statements.
</TABLE>
PRINCETON MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
Princeton Media Group, Inc. (which on October 29, 1996, changed its name
from DeNovo Corporation and herein is referred to as "PMG" or the "Company") was
incorporated under the laws of the Province of Ontario, Canada in September
1986. Through 1994, the principal focus of the Company's activities was the
development of industrial waste heat recovery systems and wastepaper recycling
projects. In July, 1994, a subsidiary of DeNovo merged with Ampac International
Inc. ("Ampac"), the parent company of TeleConcepts International Inc.
("TeleConcepts"). During 1994, the Company divested itself of all industrial
waste heat recovery and wastepaper recycling projects to focus on the
development of TeleConcepts.
TeleConcepts International, Inc.
Through October, 1995, TeleConcepts was engaged in the design,
manufacture, marketing and distribution of telephones and telecommunications
equipment. These products were designed primarily for residential and small
office use and sold typically through mass merchandisers, catalog showrooms,
department stores and telephone operating companies. As a result of the
downturn in the consumer electronics industry during 1995, as well as
TeleConcepts' inability to secure adequate financing, management discontinued
TeleConcepts' operations as of December 31, 1995. All of the stock of
Teleconcepts, Inc. was transferred to an investor involved in management of a
party related by common directorship on August 5, 1996. The investor received
32,500 shares of PMG stock with a fair market value of $318,500 at the time of
the transfer in conjunction with assumption of ownership of the former
subsidiary which had liabilities in excess of assets. PMG realized a gain of
$415,257 on the disposition of the subsidiary.
Princeton Publishing, Inc.
On March 29, 1996, the Company purchased from Princeton Publishing, Inc.,
a newly formed Delaware corporation ("Princeton"), 100 shares of common stock,
constituting all of Princeton's issued and outstanding stock, for $1,000,000
cash obtained through the issuance of debt securities of PMG. Accordingly,
Princeton became a wholly-owned subsidiary of PMG. On the same date, Princeton
purchased from a group of corporations (collectively, the "First Seller")
substantially all of its assets and assumed major contracts.
The acquired assets consist of intellectual property, fixed assets, and
contract rights. Trademarks acquired are the titles of periodical magazines,
primarily targeted to the adult sports, entertainment, and lifestyle
marketplace. The fixed assets include furniture, fixtures and equipment,
chiefly, printing equipment. The contracts assumed are magazine distribution
contracts and leases to real property in New York City and Sussex, Wisconsin.
The First Seller was in the business of publishing, printing and selling
periodical magazines. The Company, through its subsidiary, Princeton, is
continuing such use of the acquired assets.
Princeton paid $1,000,000 in cash at the closing and signed two promissory
notes for the remainder of the purchase price. The first note was in the
principal amount of $1,000,000, and was paid off on June 28, 1996 with interest
at the rate of 10.25% per annum. The second note is in the principal amount of
$5,000,000, payable over 10 years, with interest payments only for the first
three years, 30-year amortized payments for the next seven years, with a balloon
payment on the 10th anniversary. The interest rate on the second note is prime
plus 2%, maximum 12%, adjustable two times per year. The second note is
collateralized by a security interest in all the purchased assets.
On the date of closing, Princeton transferred all purchased intellectual
property including trademarks to Princeton Trademarks, Inc., a newly-formed
Delaware corporation, in exchange for 100 shares in Princeton Trademarks, Inc.,
resulting in Princeton Trademarks becoming a wholly-owned subsidiary of
Princeton. Also on the same date, Princeton transferred all equipment and
other fixed assets located in Sussex, Wisconsin, to Kingston Press, Inc., a
newly-formed Delaware corporation, in exchange for 100 shares in Kingston Press,
Inc. resulting in that company also becoming a wholly-owned subsidiary of
Princeton.
Firestone Publishing, Inc.
On July 18, 1996, the Company purchased from Firestone Publishing, Inc., a
newly formed Delaware corporation ("Firestone"), 100 shares of common stock,
constituting all of Firestone's issued and outstanding stock, for $1,000,000
cash obtained through the issuance of debt securities. Accordingly, Firestone
became a wholly-owned subsidiary of PMG. On the same date Firestone paid
$1,000,000 for an option to purchase substantially all of the assets and
operations of a publishing company (the "Second Seller.") The agreement
provided for a consulting fee due to Firestone in the amount of the net cash
resulting from operations (which resulted in a fee of $38,820) from July 18
until the closing to occur upon payment of an additional $2 million and interest
at prime plus 2%. On September 6, 1996, Firestone purchased from the Second
Seller substantially all of its assets and assumed major contracts through
payment of the $2 million and accrued interest of $23,054 and execution of a
promissory note in the amount of $4 million. The note is in the principal
amount of $4,000,000, with interest at the rate of prime plus 2% per annum.
Interest will accrue with no payments due for one year at which time interest
will be added to principal and fixed payments of principal and interest will
become due on a straight-line basis over forty-eight months. The note is
secured by the assets acquired.
The acquired assets consist of intellectual property, fixed assets,
contract rights, receivables and payables generated from operations between July
18th and September 6th. Trademarks acquired are the titles of periodical
magazines, primarily targeted to the lifestyle marketplace. The fixed assets
include furniture, fixtures and equipment, chiefly, publishing computer
equipment. The contracts assumed are magazine distribution contracts and a
lease to real property in Miami Lakes, Florida.
The Second Seller was in the business of publishing and selling periodical
magazines. The Company, through its subsidiary, Firestone, is continuing such
use of the acquired assets.
2. Summary of Significant Accounting Policies
(A) Basis of Presentation
The interim consolidated financial statements have not been audited by
independent public accountants. In the opinion of the Company, the unaudited
consolidated financial statements incorporate all transactions and adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the financial position of the Company as of September 30, 1996, and the results
of operations for the three and nine months ended September 30, 1996 and 1995
and cash flows for the nine months ended September 30, 1996 and 1995.
The consolidated financial statements should be read in conjunction with
the summary of significant accounting policies and notes to consolidated
financial statements included in the Company's Form 10-KSB for the year ended
December 31, 1995. The report of independent accountants dated March 29, 1996,
on the financial statements for the year ended December 31, 1995, stated that
those financial statements had been prepared assuming the Company would continue
as a going concern and noted that during 1995, as result of continuing losses
and the inability of the Company to obtain additional financing to support
operations, the Company ceased operations of its only operating subsidiary,
Teleconcepts. As of December 31, 1995, all assets and liabilities were written
down and presented at their net realizable value. Management believes that the
ability of the company to continue as a going concern has been established
during the nine months ended September 30, 1996, as a result of the following
transactions.
As detailed in Note 1, on March 29,1996, the Company acquired a publishing
company through its new operating subsidiary, Princeton Publishing, Inc.; on
August 5, 1996, the Company sold Teleconcepts; and on September 6, 1996, the
Company acquired a another publishing company through its operating subsidiary,
Firestone Publishing. These three transactions positioned the Company entirely
in the publishing, printing, and media industries with operations in New York
City, Miami, and Milwaukee. As of September 30, 1996 the Company had a positive
current ratio, assets in excess of $17 million, and shareholders' equity in
excess of $5.7 million. Accordingly, management concludes the ability of the
Company to operate as a going concern has been established during the nine
months ended September 30, 1996.
The results of operations for the interim period are not necessarily
indicative of the results to be expected for the full year.
(B) Basis of Consolidation
The consolidated financial statements include the accounts of PMG and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
(C) Cash and Cash Equivalents
The Company considers cash equivalents to include short-term, highly
liquid investments with original maturities of three months or less. These
financial statements do not include cash equivalents.
(D) Accounts Receivable
Accounts receivable are recorded net of estimated returns of periodicals,
credits and allowances. Total receivables are $8,712,384 and allowance for
returns and miscellaneous distribution expenses are $6,321,047 resulting in net
receivables of $2,391,336 at September 30, 1996. Because retail sellers of
magazines retain the right to return magazines for a number of months after the
date the periodical is "off-sale," the allowance for returns is normally a high
percentage of gross receivables in the magazine publishing industry. Management
believes it has a sufficient history of operations (including data on the two
acquired publishing operations prior to purchase by PMG) to establish reasonable
estimates of returns.
(E) Inventories
Inventories, including paper and other materials used in the production of
the Company's publications, are valued at the lower of cost (on a FIFO basis) or
market.
(F) Property, Plant and Equipment
Machinery, furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is provided at rates based on the estimated useful
lives using the straight-line method. Expenditures for maintenance and repairs
are charged to expense as incurred; replacements and major improvements are
capitalized. Machinery and equipment were purchased for $1,814,000 by Princeton
Publishing on March 29, 1996, and for $75,000 on September 6, 1996 by Firestone
Publishing, Inc. Property, plant and equipment is shown net of accumulated
depreciation of $132,867 as of September 30, 1996.
(G) Trademarks and Copyrights
On March 29, 1996 the Company purchased the trademarks and copyrights of
sixteen magazines for $5,186,000 and in June, 1996, purchased the trademark and
copyright of another publication for $107,387. On September 6, 1996, the
Company purchased the trademarks and copyrights of an additional five magazines
for $6,639,449. Trademarks and copyrights are carried at cost and are being
amortized on a straight-line basis over 35 years. Intangible assets are shown
net of accumulated amortization of $92,636 as of September 30, 1996.
(H) Revenue Recognition
Revenues from commercial printing are recognized at the time the printing
of a customer order is completed. Any billings in advance of that time are
recorded as deferred revenue. The sale of magazine subscriptions are recorded
as unearned revenue at the gross subscription price at the time the order and
payment are received. Subscription revenue is then recognized over the term of
the subscription. Sales of magazines (net of estimated returns) are recorded
when each issue is placed on sale.
(I) Income Taxes
The Company uses the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using tax rates in effect for the year in which the differences
are expected to reverse.
(J) Use of Estimates
Management of the Company has made estimates and assumptions in the
preparation of the accompanying consolidated financial statements in conformity
with generally accepted accounting principles that affect the reported amounts
of assets and liabilities and disclosures at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(K) Advertising Costs
The costs of advertising are expenses as incurred.
(L) Earnings Per Share
Primary earnings (loss) per share is based on the weighted average number
of common shares outstanding during the periods and net income is reduced for
cumulative preferred dividends. Fully diluted earnings per share assumes the
conversion of debentures and preferred shares and further adjusts net income
for interest expense, net of tax benefits, and cumulative preferred dividends.
Stock options, warrants and convertible securities that are antidilutive
are excluded from the computations.
3. Capital Stock
(A) Preferred Stock:
Unlimited number of preference shares, issuable in series, without par
value. The rights, privileges, restrictions and conditions of each series to be
issued are fixed from time to time by the directors.
Series A:
32,500 shares issued and outstanding at September 30, 1996, redeemable at
the option of the Company at any time at a price of $1.24 per share, convertible
at the option of the holder at any time into common shares of the Company at a
price equivalent to $1.24 per 1/200th of a common share. Upon liquidation
Series A preference shares are entitled to receive from the assets of the
Company an amount equal to $1.24 for each preference share held before any of
the assets of the Company are distributed to holders of Common shares or any
other class of the Company ranking junior to the Series A preference shares.
Series C:
1,100,000 $8.00 Series C voting preference shares issued and outstanding
at September 30, 1996, redeemable at the option of the Company until January 31,
1998 under certain conditions pertaining to the trading prices of the Company's
common shares, and convertible at the option of the holder at any time into
common shares of the Company on the basis of 200 Series C shares for one common
share. The conversion ratio is subject to adjustment under certain conditions,
including conditions relating to trading prices and subsequent share issues.
Holders of Series C preference shares are entitled to receive a cumulative
dividend of $.04 per share annually, payable in cash or common shares of the
Company. Dividends in arrears totaled $173,000 at September 30, 1996. Upon
liquidation Series C preference shares are entitled to receive from the assets
of the Company an amount equal to $.80 for each preference share held plus all
accrued and unpaid dividends before any of the assets of the Company are
distributed to holders of Common shares or any other class of the Company
ranking junior to the Series C preference shares.
Series D:
1,500 shares authorized, 1,200 shares outstanding with 4,000 votes per
share at all shareholder meetings. Liquidation preference is $1,350 per share
plus unpaid and accrued dividends after payment on Series A and Series C
preferred. Cumulative dividends at 8% per annum based on consideration paid per
share (amounting to $80 per share per full year) are payable at the Company's
option in cash or common shares, payable quarterly. There is optional redemption
by the Company after 145 days from issuance at $1,350 per share. Conversion is
available at the holder's option any time 45 days after issuance into common
stock at a value of $1,000 per Series D share, based on a formula utilizing
market price of the common shares.
Series E:
1,800 shares are authorized, issued, and outstanding. Remaining terms are
identical to Series D except preferences are subordinate to Series A, C, and D.
(B) Common Stock:
Unlimited number of common shares without par value. On October 24, 1996,
at the annual meeting of the Company, shareholders approved a one-for-twenty
reverse split. On the same date shareholders approved a name change from DeNovo
Corporation to Princeton Media Group, Inc. to reflect the Company's new 100%
focus in the publishing, printing, and media industry. On October 29, 1996, the
reverse split took effect and common stock commenced trading on the Nasdaq stock
exchange under the symbol "PMGIF." All numbers of common shares and related per
share amounts outstanding reflected in this report are shown in "post-split"
terms.
From October 1, 1996 to November 14, 1996 an additional 75,851 shares of
common stock were issued by the Company, primarily resulting from the conversion
of convertible debentures previously issued and sold pursuant to Regulation S.
4. Income Taxes
The Company's tax advisors have indicated the gain on sale of subsidiary
was not a taxable event. The Company's tax advisors have determined that net
operating losses of the Company of prior years may not be utilized to offset
income in the publishing industry activities of 1996. Provision for income taxes
has been estimated for the nine months ended September 30, 1996, using a rate of
45% as an estimate of federal and state income taxes net of benefit of state tax
deduction for federal liability. <PAGE>
5. Related Party Loan and Investment
The Company had a short-term note due upon demand to a company related by
common directorship of $547,999 with interest accruing at prime (8.25% as of
September 30, 1996). Related accrued interest was $4,452 as of September 30,
1996. The related company also purchased $1.4 million in Preferred Series E
shares.
6. Line of Credit
The Company has a line of credit with a distributor for working capital of
up to $500,000 which may be drawn down in multiples of $10,000. Any draw will
bear interest at prime plus 2% and will be payable with equal monthly payments
of principal and interest over a one year period. As of September 30, 1996, the
Company had not drawn funds on the line of credit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR PLAN OF OPERATION
General
The Company, through its wholly-owned subsidiaries, Princeton and
Firestone, is engaged in the publishing and distribution of 21 periodical
consumer lifestyle magazines. The Princeton and Firestone editorial staffs and
offices are located in New York City and Miami, respectively. A wholly-owned
subsidiary of Princeton, Kingston Press, Inc., owns and maintains a printing
plant in Sussex, Wisconsin. The plant is used for the printing of the Company's
magazines and to perform printing work for third parties on a contract basis.
The Company's executive offices are located in Palm Beach, Florida.
The Company has discontinued the operations of its subsidiary,
TeleConcepts, Inc., as of December 31, 1995. TeleConcepts was engaged in the
design, manufacture, marketing and distribution of telephones and
telecommunications equipment. All of the stock of TeleConcepts was sold to an
investor (see Note 1).
Results of Operations
Nine month period ended September 30, 1996 compared to nine month period ended
September 30, 1995
Revenues for the nine-month period ended September 30, 1996 amounted to
$5,094,672 compared to $827,757 for the nine-month period ended September 30,
1995, reflecting an increase of $4,266,915. Revenues are almost wholly derived
from magazine sales, outside printing, subscriptions, and advertising. The
increase in revenues reflected for the nine-month period ended September 30,
1996 is a result of the Company's acquisition of magazine publishing assets in
March through September of 1996 and the Company's continuing use of those assets
in the same business. Costs and expenses of revenues for the nine-month period
ended June 30, 1996 were $2,081,107 compared to $1,278,308 for the nine-month
period ended September 30, 1995, resulting in an increase of $802,799. Included
in the costs for 1996 were $891,982 in non-recurring operating expenses
primarily related to the acquisition of the assets in the two major purchases
detailed in Note 1. These costs include legal fees, consulting fees,
acquisition fees on obtaining financing, amortization of debt issue costs, and
other professional fees relating to the acquisitions. The increase in costs is
attributable to the increased income of the continuing operations and the gain
on disposition of the subsidiary with discontinued operations offset by the
non-recurring acquisition costs. The first group of assets and operations
purchased had an operating history of twenty-five years and the second group of
assets and operations purchased had an operating history of forty years. As of
September 30, 1996, the Company completed its change in business activity from
telecommunications equipment sales to a 100% focus on publishing, printing and
related media.
Liquidity and Capital Resources
During the nine-month period ended September 30, 1996, $519,513 in
interest expense was charged to operations compared to $31,061 for the
nine-month period ended September 30, 1995, reflecting an increase of $488,452.
The increase was due to interest accrued pursuant to two promissory notes
delivered by Princeton and Firestone in connection with the purchases of the
magazine publishing assets in March and September of 1996.
Net income for the nine-month period ended September 30, 1996 was $578,947
which represents an increase of $1,635,811 from the net loss of $1,056,864 for
the nine-month period ended September 30, 1995. This increase in income is
attributable to the operations and revenue of the Company's subsidiaries,
Princeton and Firestone as well as the discontinuation of the operations of
TeleConcepts.
The Company intends to continue the operations of its wholly-owned
subsidiary, Princeton and that company's wholly-owned subsidiaries, Princeton
Trademarks, Inc. and Kingston Press, Inc. and the operations of its wholly-owned
subsidiary, Firestone. The consolidated income of $743,130 for the quarter
ended September 30, 1996, and $578,947 for the nine months ended September 30,
1996, consist of the following:
Quarter Nine Months
Ended Ended
September 30, 1996
PMG (parent as holding company) net income (loss) primarily
from non-recurring acquisition fees, professional fees,
and financing acquisition fees, net of gain on
disposition of subsidiary $ 90,847 $ (252,457)
Princeton Publishing, Inc. net income from operations
from March 29 (inception) through September 30th 396,304 575,425
Firestone Publishing, Inc.net income from operations
from September 5 (inception) through September 30th 255,979 255,979
Total consolidated net income $ 743,130 $578,947
While there can be no assurance, the Company is confident that revenues
from these operations will be substantially greater than revenues from the
Company's previous business. Although the parent company will continue to incur
annual administrative expenses related to its publicly-traded status, management
anticipates that continued profitability from operations of the subsidiaries
combined with decreases in non-recurring costs at the parent level will result
in an increase in overall consolidated income for the twelve months ended
December 31, 1996.
Monthly interest payments of approximately $43,000 are due pursuant to a
$5 million promissory note executed upon acquisition of the publishing assets
acquired March 29, 1996. Interest on the $4 million promissory note executed
upon acquisition of the publishing assets acquired on September 6, 1996 will be
accrued for one year, at which time accrued interest will be added to
principal and payments of principal and interest will be due on a straight-line
amortization schedule over forty-eight months. Accordingly, the Company will not
incur any debt service obligations on the $4 million note prior to October,
1997. Management is currently involved in negotiation with several conventional
lending institutions to refinance the two notes before October, 1997. The
Company anticipates that cash flows from operations will be sufficient to carry
all debt service of the two subsidiaries.
On August 5, 1996, management executed the sale of all of the stock of
TeleConcepts, Inc., a wholly-owned subsidiary with substantial accumulated
deficit. The transaction increased shareholders' equity in the Company by
$733,715 of which $318,500 was an addition to common stock and $415,215 was gain
on disposition of subsidiary.
On September 6, 1996, the Company completed the purchase of the assets and
operations of a publishing company with publications having a forty year
history. As was the case in the March 29, 1996 acquisition, all of the staff
of the prior operations were employed by the new subsidiary and production was
uninterrupted. A Form 8-K was filed on September 9, 1996 announcing the
acquisition. Audited financial statements of the acquired businesses for the
years 1994 and 1995 have been completed and will be included in Form 8-K/A1
which the Company anticipates filing on or before November 20, 1996.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash increased $115,271 to $575,157 at September 30, 1996 from $459,886 at
September 30, 1995. Net cash used for operating activities was $579,090 during
the nine-month period ended September 30, 1996 compared to cash used by
operating activities of $1,080,639 during the nine-month period ended September
30, 1995. The decrease is attributable to the combination of non-recurring
acquisition costs and continuing operations in connection with the change in
business of the Company from telecommunications equipment sales to magazine
publishing, printing and distribution.
During the nine-month period ended September 30, 1996, net cash used for
investing activities was $5,088,264 compared with $33,048 used for investing
activities during the nine-month period ended September 30, 1995. The increase
of $5,055,216 is due to purchase of trademarks, copyrights and equipment for the
Company's publishing operations.
During the nine-month period ended September 30, 1996, net cash provided
by financing activities was $6,227,013, representing an increase of $4,847,425
from net cash provided by financing activities of $1,379,588 during the
nine-month period ended September 30, 1995. The increase is a result primarily
of the net proceeds from the sales of the Company's securities which were made
in order to capitalize Princeton and Firestone and consummate the purchases of
the publishing, printing, and media assets.
CAUTION: Statements contained in this Form 10-QSB regarding the Company's
future prospects or profitability constitute forward-looking statements and as
such, must be considered with caution and with the understanding that various
factors could cause actual results to differ materially from those in such
forward-looking statements. Such factors include but are not limited to changes
in revenues from distribution, advertising and subscriptions and changes in
costs of materials and operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Exhibit
2.1 Asset Purchase Agreement with Dugent Publishing Corp. dated Sept. 6, 1996
4.1 Designation of Series D and Series E Preferred Stock
10.1 Promissory Note payable to Dugent Publishing Corp. dated Sept. 6, 1996
10.2 Security Agreement in favor of Dugent Publishing Corp. dated Sept. 6, 1996
(b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1996 by the Company:
<TABLE>
<S> <C> <C> <C>
Date of Report Date Filed Items Reported Financial Statements Filed
July 18, 1996 August 1, 1996 Dugent Publishing None
Acquisition Agreement
August 5, 1996 August 6, 1996 Current Balance Sheets Unaudited Pro Forma
(for Nasdaq purposes) Consolidated Balance Sheets
Sept.6, 1996 September 9, 1996 Closing on Acquisition None; amendment with audited
of Assets and Operations financial statements to be
of Dugent Publishing Corp filed by November 20, 1996
</TABLE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 15, 1996
PRINCETON MEDIA GROUP, INC.
/s/ James J. McNamara
By: James J. McNamara,
Chairman of the Board
EXHIBIT INDEX
2.1 Asset Purchase and Sale Agreement Page
4.1 Designation of Series D and Serie E Preferred Stock Page
10.1 Promissory Note Page
10.2 Security Agreement Page
The following attachments to Exhibit 2.1 are not filed herewith but will be
provided upon request of the Commission:
Exhibit A-1 Assets Acquired
Exhibit A-2 Contracts Assumed
Exhibit B-1 Bill of Sale
Exhibit B-2 Trademark Assignment Agreement
Exhibit C Assignment and Assumption Agreement
Exhibit F Allocation of Purchase Price
Exhibit G Seller's Federal Income Tax Returns
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of this 6th day of
September, 1996, by and between Firestone Publishing, Inc., a Delaware
corporation (the "Buyer") and Dugent Publishing Corporation (the "Seller").
The Buyer and the Seller are referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which the Buyer will
purchase substantially all of the assets (but assume no liabilities other than
as specifically provided herein) of the Seller in return for cash and the Buyer
Note.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of the
assets of the Seller, including all (if any) of its (a) leaseholds and
subleaseholds in real property; (b) tangible personal property listed on Exhibit
A-1 hereto; (c) Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions; (d) those certain leases,
subleases, agreements, contracts, indentures, mortgages, instruments, Security
Interests, guarantees, other similar arrangements, and rights thereunder,
specifically identified or generally described on Exhibit A-2 hereto;
(e) transferable franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies; (f) books, records, ledgers, files,
documents, correspondence, lists, drawings, and specifications, creative
materials, advertising and promotional materials, studies, reports, and other
printed or written materials; (g) rights in and with respect to the assets
associated with its Employee Benefit Plans; (h) all right, title and interest in
and to materials previously published in writing, on film or otherwise by the
Seller, including Intellectual Property rights and layout rights; and (j) all
right, title and interest in and to electronically transmitted materials of,
developments by and publications of the Seller; (k) accounts receivable
attributable to the Buyer-Generated Issues (as hereinafter defined); (l) all UPC
codes previously used by Seller on any materials sold or published by Seller;
provided, however, that the Acquired Assets shall not include (i) the corporate
charter, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of the Seller as a corporation and/or necessary for
preparation of any tax return which is or may be due, including audits;
(ii) cash on hand and cash equivalents; (iii) rights, obligations, or interest
in any lease, sublease, agreement, contract, indenture, mortgage, instrument,
Security Interest, guarantee, or other similar arrangement, not specifically
identified or generally described on Exhibit A-2 hereto; (iv) accounts, notes,
and other receivables (other than as set forth above), specifically including,
without limitation, accounts receivable attributable to the Seller-Generated
Issues (as hereinafter defined); (v) claims, deposits, prepayments, refunds,
causes of action, choses in action, rights of recovery, rights of set off, and
rights of recoupment (including any such item relating to the payment of taxes);
(vi) any of the rights of the Seller under this Agreement (or under any side
agreement between the Seller on the one hand and the Buyer on the other hand
entered into on or after the date of this Agreement); or (vii) inventory
consisting of paper (but see Section 2(i) with respect to purchase of paper
inventory as used).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Buyer Note" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(l).
"Environmental, Health, and Safety Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each
as amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Escrow Agreement" has the meaning set forth in Section 10 hereof.
"Financial Statement" has the meaning set forth in Section 3(g) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith and all applications, registrations, and renewals in connection
therewith; (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (d) all mask works and all
applications, registrations, and renewals in connection therewith; (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals); (f) all computer software (including data and
related documentation); (g) all other proprietary rights; and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof) or other legal entity.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and Code
Sec. 4975.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) mechanic's, materialmen's, and similar
liens; (b) liens for taxes not yet due and payable; (c) purchase money liens and
liens securing rental payments under capital lease arrangements; and (d) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Share" means any share of the Common Stock of the Seller.
"Seller Stockholder" means any Person who or which holds any shares of capital
stock in any Seller.
"Subsidiary" means any corporation with respect to which a specified Person (or
a Subsidiary thereof) owns a majority of the common stock or has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section 2 by way of Bill of Sale and Trademark Assignment Agreement in the forms
attached hereto as Exhibits B-1 and B-2. This transaction is being consummated
pursuant to Buyer's exercise of its "Rights" as defined in an Asset Purchase and
Sale Agreement dated November 15, 1996 between the parties hereto.
(b) Assumption of Specified Contracts. As part of the purchase
and sale of the Acquired Assets, Buyer shall assume, and Seller shall assign to
Buyer, all of Seller's right, title and interest in and to those contracts and
agreements enumerated on Exhibit A-2 hereto by way of Assignment and Assumption
Agreements in the form attached hereto as Exhibit C. None of the Assignment and
Assumption Agreements executed pursuant to this paragraph shall be deemed to
create any third-party beneficiary rights.
(c) No Assumption of Liabilities. Other than as set forth in
subsections (b), (h) and (j) of this Section 2, the Buyer does not hereby assume
or have any responsibility with respect to any obligation or liability of the
Seller.
(d) Purchase Price. The Buyer agrees to pay to the Seller at the
Closing $6,000,000 (the "Purchase Price") by delivery of (i) its promissory
note in the form of Exhibit D attached hereto in the principal amount of
$4,000,000 (the "Buyer Note"); and (ii) cash in the amount of $2,000,000,
representing the balance of the Purchase Price, payable by wire transfer or
delivery of other immediately available funds. Payment pursuant to the Buyer
Note is secured as set forth in a Security Agreement in the form of Exhibit E
attached hereto.
(e) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") is deemed to have taken place simultaneously with
the exercise by Buyer of its Rights described in Section 2(a) above (the
"Closing Date").
(f) Deliveries at the Closing. At the Closing, (i) the Seller has
executed, acknowledged (if appropriate), and delivered to the Buyer the various
certificates, instruments, and documents referred to in this Section 2 and in
Section 6(a) below; (ii) the Buyer has executed, acknowledged (if appropriate),
and delivered to the Seller the various certificates, instruments, and documents
referred to in this Section 2 and in Section 6(b) below; (iii) the Seller has
executed, acknowledged (if appropriate), and delivered to the Buyer
(A) assignments, (including Intellectual Property transfer documents) in forms
reasonably satisfactory to Buyer and (B) such other instruments of sale,
transfer, conveyance, and assignment as the Buyer and its counsel reasonably
have requested; (iv) the Buyer has executed, acknowledged (if appropriate), and
delivered to the Seller such instruments of assumption as the Seller and its
counsel reasonably have requested; and (v) the Buyer has delivered to the Seller
the consideration specified in Section 2(d) above in form reasonably
satisfactory to Seller and its counsel.
(g) Allocation. The Parties agree to allocate the Purchase Price
(and all other capitalizable costs) among the Acquired Assets for all purposes
(including financial accounting and tax purposes) in accordance with the
allocation schedule attached hereto as Exhibit F.
(h) Subscription Fulfillment. The parties understand that Seller
has previously sold consumer subscriptions for magazines bearing either a
trademark or tradename which is included in the Acquired Assets conveyed
pursuant to this Agreement. Such subscriptions are described in detail in
Section 2(h) of the Disclosure Schedule. The parties agree that Buyer shall
assume all liability for fulfillment of those subscription orders and shall, at
Buyers's sole cost and expense, fulfill those subscription orders through their
present expiration date.
(i) Paper Inventory. Seller's paper inventory is not included in
the Acquired Assets; however, such paper inventory shall remain at the premises
of Seller's printer, Wisconsin Color Press, Inc., located at 5400 West Good Hope
Road, Milwaukee, Wisconsin, and Buyer shall purchase such paper inventory as
needed, with prompt payment to Seller within 10 days at Seller's original cost.
Buyer must use Seller's paper inventory before using or purchasing any other
paper stock and must pay therefor within 10 days of usage. Seller has provided
Buyer with a detailed schedule of inventory prior to the date hereof and Buyer
has had the opportunity to inspect such inventory to determine correctness of
said schedule.
(j) Revenues, Payables. The parties understand that certain
accounts receivable of the Seller are attributable to advertising, distribution
and the like with respect to publications shipped prior to July 22, 1996
("Seller-Generated Issues") bearing a trademark or tradename which is included
in the Acquired Assets conveyed pursuant to this Agreement. Section 2(j) of the
Disclosure Schedule sets forth a production schedule which shows Gent October as
the last Seller-Generated Issue and Nugget October as the first Buyer-Generated
Issue. All receivables attributable to Seller-Generated Issues shall remain the
property of Seller, and all accounts payable attributable to Seller-Generated
Issues shall remain the obligations of Seller. Buyer shall be responsible for
all costs incurred to third parties by Seller with respect to publications
shipped on or after July 22, 1996 ("Buyer-Generated Issues"). Buyer and Seller
shall each assist the other in collecting, endorsing (where applicable) and
applying payments on account of accounts receivable consistent with this
paragraph. Buyer shall assume at Closing all retail display allowances
attributable to Buyer-Generated Issues. Seller shall be responsible for all
retail display allowances attributable to Seller-Generated Issues.
(k) Joint Venture. Seller shall be entitled to one-half the
revenues accruing to Buyer on account of a joint venture with Creations (Nelson
Weisberg and Monty Palma) (the interest of Seller in which is being transferred
to Buyer as part of the Acquired Assets) for a period of one year after Closing.
Buyer shall remit said amounts to Seller not less than once monthly within
twenty (20) days of receipt by Buyer.
3. Representations and Warranties of the Seller and Seller
Stockholders. The Seller and Seller Stockholders jointly and severally
represent and warrant to the Buyer that the statements contained in this Section
3 are correct and complete as of the date of this Agreement except as set forth
in the disclosure schedule accompanying this Agreement and initialed by the
Parties (the "Disclosure Schedule"). The Disclosure Schedule is arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 3.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Section 3(a) of the Disclosure Schedule sets
forth with respect to the Seller (i) the number of shares of authorized capital
stock of each class of its capital stock; (ii) the number of issued and
outstanding shares of each class of its capital Stock, the names of the holders
thereof, and the number of shares held by each such holder; (iii) the number of
shares of its capital stock held in treasury; and (iv) its directors and
officers. The Seller is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required. The Seller has full corporate power and authority and, to the best of
its actual knowledge, all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned and used by it. The
Seller has delivered to the Buyer correct and complete copies of its Articles of
Incorporation and bylaws (as amended to date). All of the issued and
outstanding shares of capital stock of the Seller have been duly authorized and
are validly issued, fully paid, and nonassessable. The Seller Stockholders hold
of record and own beneficially all of the outstanding shares of the Seller, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Seller are correct and complete. The Seller is not in default under or in
violation of any provision of its charter or bylaws. The Seller does not
control directly or indirectly or have any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association.
(b) Authorization of Transaction. The Seller has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of the Seller and the Seller
Stockholders have duly authorized the execution, delivery, and performance of
this Agreement by the Seller. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. To the best of Seller's actual knowledge,
neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby (including the assignments and
assumptions referred to in Section 2 above), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Seller is subject or any provision of the Articles of Incorporation or
bylaws of the Seller in such a manner that it would have a materially adverse
effect on Seller's business, operations, or condition, or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which the Seller is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets) in such a manner that it would have a
materially adverse effect on Seller's business, operations, or condition, except
as otherwise set forth in Section 3(c) of the Disclosure Schedule . The Seller
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above), except for such approvals or consents which have been obtained by or
will be obtained prior to Closing.
(d) Brokers' Fees. The Seller has not entered into any agreement
which would create any liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
(e) Title to Assets. The Seller has good and marketable title to
the tangible personal property described on Exhibit A-1, and all of the Acquired
Assets, free and clear of all Security Interests or restriction on transfer,
except as otherwise disclosed to Buyer herein, on the Disclosure Schedule, or on
an Exhibit hereto.
(f) Subsidiaries. The Seller has no Subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit G are copies
of the Seller's Federal corporate income tax returns (Form 1120S) as filed with
the Federal government for the years ended December 31, 1993, December 31, 1994,
and December 31, 1995 (the "Most Recent Fiscal Year End"); and a year-to-date
trial balance (the "Financial Statements"). The Financial Statements (including
the Federal tax returns) have been prepared in accordance with the "Federal
income tax method of accounting - cash basis" applied on a consistent basis
throughout the periods covered thereby, present fairly the taxable income and
other information of the Seller shown thereon as of such dates and for such
periods, are correct and complete, and are consistent with the books and records
of the Seller (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Except as
disclosed in Section 3(h) of the Disclosure Schedule, since the Most Recent
Fiscal Year End, there has not been any material adverse change in the financial
condition, operations, or results of operations of the Seller. No change in the
publishing industry in general shall be deemed to affect this representation.
Without limiting the generality of the foregoing, since that date:
(i) the Seller has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Seller has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) outside the Ordinary Course of Business;
(iii) no party (including the Seller) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $2,000 to which the Seller is a party
or by which it is bound;
(iv) the Seller has not imposed any Security Interest upon
any of its assets, tangible or intangible, which will not be
satisfied from proceeds of closing;
(v) the Seller has not made any capital expenditure (or
series of related capital expenditures) involving more than $2,000
and outside the Ordinary Course of Business, exclusive of paper, and
except as otherwise disclosed;
(vi) the Seller has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments, loans, and
acquisitions) outside the Ordinary Course of Business for more than
$2,000;
(vii) the Seller has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business for more than $2,000 singly
or $5,000 in the aggregate;
(viii) the Seller has not delayed or postponed the
payment of accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) the Seller has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
outside the Ordinary Course of Business involving more than $2,000;
(x) the Seller has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property
outside the Ordinary Course of Business, or without receiving fair
consideration therefor;
(xi) there has been no change made or authorized in the
charter or bylaws of the Seller, except as disclosed to Buyer;
(xii) the Seller has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock, except as disclosed
to Buyer;
(xiii) the Seller has not taken any action which would
give rise to a claim or lien on any of its capital stock;
(xiv) the Seller has not experienced any materially
adverse damage, destruction, or loss (whether or not covered by
insurance) to its property;
(xv) the Seller has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business which would have a
material adverse effect on its business or property;
(xvi) the Seller has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement outside the
Ordinary Course of Business, except as otherwise disclosed to Buyer;
(xvii) the Seller has not granted any increase in the
amounts of compensation of any of its directors, officers, and
employees shown in Section 9(h)(xvii) of the Disclosure Schedule;
(xviii) the Seller has not adopted, amended, modified or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan) outside the Ordinary
Course of Business except as otherwise disclosed to Buyer;
(xix) the Seller has not made any other change in employment
terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) the Seller has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Seller; and
(xxii) the Seller has not committed to any of the
foregoing.
(i) Undisclosed Liabilities. Except as otherwise disclosed,
neither Seller nor any of Seller Stockholders has actual knowledge of any
liability of Seller or any presently existing or overtly threatened claim,
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against it giving rise to any liability.
(j) Legal Compliance. Neither Seller nor any of Seller
Stockholders has any actual knowledge of any failure of Seller to comply with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) affecting Seller's
business, the failure of which would have a material adverse effect on the
business, operations or condition of Seller; and neither Seller nor any of
Seller Stockholders has any actual knowledge of any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice having been
filed or commenced against Seller alleging any failure so to comply.
(k) Tax Matters.
(i) To the best of Seller's and Seller Stockholders'
knowledge (A) the Seller has filed all tax returns that it was
required to file and (B) all such tax returns were correct and
complete in all respects. All taxes indicated on such returns as
being owed by the Seller have been paid. The Seller is not
currently the beneficiary of any extension of time within which to
file any tax return. Neither Seller nor any of Seller Stockholders
has actual knowledge of any claim having been made by an authority
in a jurisdiction where the Seller does not file tax returns that it
is or may be subject to taxation by that jurisdiction, except as
otherwise disclosed. There are no Security Interests on any of the
assets of the Seller which have been filed in connection with any
failure (or alleged failure) to pay any tax.
(ii) To the best of Seller's and Seller Stockholders' actual
knowledge, the Seller has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, Stockholder, or
other third party.
(iii) Neither Seller nor any of Seller Stockholders has actual
knowledge of any dispute or claim concerning any tax liability of
the Seller either (A) claimed or raised by any authority in writing
or (B) as to which any of the Seller Stockholders and the directors
and officers (and employees responsible for tax matters) of the
Seller has knowledge based upon personal contact with any agent of
such authority. Section 3(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income tax returns filed with
respect to the Seller for taxable periods ended on or after December
31, 1993, indicates those tax returns that have been audited, and
indicates those tax returns that currently are the subject of audit.
The Seller has delivered to the Buyer correct and complete copies of
all federal income tax returns, examination reports, and statements
of deficiencies assessed against or agreed to by the Seller since
1993.
(iv) The Seller has not waived any statute of limitations in
respect of taxes or agreed to any extension of time with respect to
a tax assessment or deficiency which would have a material adverse
effect on its business.
(v) To the best of its actual knowledge, the Seller has not
filed a consent under Code Sec. 341(f) concerning collapsible
corporations. The Seller has not made any payments, is not
obligated to make any payments, nor is a party to any agreement that
under certain circumstances could obligate it to make any payments
that will not be deductible under Code Sec. 280G. The Seller has
not been a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable period
specified in Code Sec. 897(c)(1)(A)(ii). The Seller is not a party
to any tax allocation or sharing agreement. The Seller (A) has not
been a member of an Affiliated Group filing a consolidated federal
income tax return and (B) has no liability for the taxes of any
Person other than the Seller under Treas. Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor.
(l) Intellectual Property.
(i) The Seller has filed an application for trademark
registration and has attached relevant information in connection
therewith in Section 3(l) of the Disclosure Schedule. Seller has
placed a copyright notice on all or substantially all of its issues
published. To the best of Seller's and Seller Stockholders'
knowledge, Seller owns, unencumbered, all Intellectual Property
necessary or desirable for the operation of the business of the
Seller as presently conducted. Each item of Intellectual Property
owned or used by the Seller immediately prior to the Closing
hereunder will be owned or available for use by the Buyer on
identical terms and conditions immediately subsequent to the Closing
hereunder.
(ii) Neither Seller nor any of Seller Stockholders have any
actual knowledge of the Seller's having interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the
Seller or Seller Stockholders has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim
that the Seller must license or refrain from using any Intellectual
Property rights of any third party). To the best of the knowledge
of Seller and Seller Stockholders, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Seller.
(iii) Section 3(l)(iii) of the Disclosure Schedule
identifies each trade name or unregistered trademark ever used by
the Seller in connection with any of its businesses and not
previously sold or otherwise disposed of by Seller, to the best of
Seller's actual knowledge (subject to reasonable recollection),
including trademarks used with respect to all forms of publications,
including but not limited to magazines, film, and electronic media.
With respect to each item of Intellectual Property required to be
identified in Section 3(l)(iii) of the Disclosure Schedule, to the
best of the knowledge of Seller and Seller Stockholders:
(A) the Seller possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is overtly threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(D) the Seller has not ever agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item,
except as otherwise disclosed.
(iv) The Seller does not use any item of Intellectual
Property pursuant to license, sublicense, agreement, or permission.
(v) Seller makes no other representations or warranties
regarding its Intellectual Property rights, if any.
(m) Tangible Assets. The Seller owns all tangible assets listed
on Exhibit A-1 hereto. Seller and Seller Stockholders are unaware of any other
tangible assets necessary for the conduct of its business as presently
conducted. The tangible assets have been maintained in accordance with normal
industry practice and are in good operating condition and repair (subject to
normal wear and tear). Seller and Seller Stockholders have no knowledge of any
latent defects therein.
(n) Inventory. No inventory of the Seller is being purchased at
Closing; however, paper inventory of Seller shall be purchased by Buyer pursuant
to Section 2(i) hereof. Such paper inventory was purchased in the Ordinary
Course of Business.
(o) Contracts. The Seller has delivered to the Buyer a correct
and complete copy of each written agreement listed on Exhibit A-2 hereto. With
respect to each such agreement, to the best of the actual knowledge of Seller
and Seller Stockholders: (i) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (ii) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following and subject to the consummation of the transactions contemplated
hereby (including the assignments and assumptions referred to in Section 2
above); (iii) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (iv) no
party has repudiated any provision of the agreement.
(p) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Seller.
(q) This section intentionally omitted.
(r) Litigation. There do not exist any instances in which the
Seller (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or, to the actual knowledge of Seller or
any of the Seller Stockholders, has been overtly threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator which would have a material
adverse effect on Seller's business.
(s) Employees. To the actual knowledge of Seller and Seller
Stockholders, no executive, key employee, or group of employees has any plans to
terminate employment with the Seller. The Seller is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes, except as otherwise disclosed. The Seller has not committed any
unfair labor practice. Neither Seller nor Seller Stockholders has any actual
knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Seller nor of any
claim of unfair labor practices.
(t) Employee Benefits.
(i) Seller provides the following benefits for its
employees:
(A) Medical insurance plan; a copy of the policy terms
and conditions is attached in Section 3(t) of the Disclosure
Schedule;
(B) 401(k) Plan;
(C) Customary and required workers compensation
coverage;
(D) Traditional custom of Christmas bonuses equal to
1/2 to 3/4 of a month's compensation and annual cost of living
increases.
The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such
Employee Benefit Plan.
(ii) Although neither Seller nor Seller Stockholders make any
warranty or representation with respect to the following
matters contained in this subsection (t), Seller (but not
Seller Stockholders) agrees that it shall indemnify and hold
harmless Buyer from, against and in respect of any and all
out-of-pocket damages, loss, deficiency, costs or expenses
directly resulting from any of the following provided, that in
any such event, Seller shall be given notice and a reasonable
opportunity to cure:
(A) Any of such Employee Benefit Plans (and each
related trust, insurance contract, or fund) having failed to
comply in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other
applicable laws;
(B) Any required reports or descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's,
and Summary Plan Descriptions) failing to have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan;
(C) Any contributions (including all employer
contributions and employee salary reduction contributions)
which are due having failed to be paid to each such Employee
Benefit Plan which is an Employee Pension Benefit Plan; any
contributions for any period ending on or before the Closing
Date which are not yet due having failed to be paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of the Seller.
(D) Any failure of any such Employee Benefit Plan
which is an Employee Pension Benefit Plan to meet the
requirements of a "qualified plan" under Code Sec. 401(a) or
to have received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(E) The failure of the market value of assets under
each such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) to equal or
exceed the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for
determination.
(F) Any such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) having been completely or partially terminated or been
the subject of a Reportable Event as to which notices would be
required to be filed with the PBGC; any proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) having been instituted;
(G) The occurrence of any Prohibited Transaction with
respect to any such Employee Benefit Plan; the liability of
any Fidicuary for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan;
any action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) being pending;
(H) The Seller's incurring any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV
of ERISA (including any withdrawal liability) or under the
Code with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan;
(I) The Seller's having ever contributed to, and ever
having been required to contribute to any Multiemployer Plan
or having any liability (including withdrawal liability) under
any Multiemployer Plan; and
(J) The Seller's having ever maintained or
contributed, or ever having been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code Sec.
4980B).
(u) Guaranties. The Seller is not a guarantor nor is it otherwise
liable for any liability or obligation (including indebtedness) of any other
Person which would affect the Seller's obligations hereunder.
(v) Environment, Health, and Safety.
(i) To the best of the actual knowledge of Seller and Seller
Stockholders, Seller has complied with all Environmental, Health,
and Safety Laws. No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to
comply. Seller has received no notice claiming that it has violated
any limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, or otherwise not been in compliance with, all
Environmental, Health, and Safety Laws or that it has failed to
obtain or be in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are required
under the same, any of which would have a material adverse effect on
Seller's business, operations or condition.
(ii) To the best of Seller's and Seller Stockholders' actual
knowledge, all properties and equipment used in the business of the
Seller have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2-transdichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(w) Certain Business Relationships With the Seller. None of the
Seller Stockholders and their Affiliates has been involved in any business
arrangement or relationship with the Seller within the past 12 months, and none
of the Seller Stockholders and their Affiliates owns any asset, tangible or
intangible, which is used in the business of the Seller, except as otherwise
disclosed to Buyer.
(x) Disclosure. The representations and warranties contained in
this Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
(y) Investment. The Seller (i) understands that the Buyer Note
has not been, and will not be, registered under the Securities Act, or under any
state securities laws, and is being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering; (ii) is
acquiring the Buyer Note solely for its own account for investment purposes, and
not with a view to the distribution thereof (except to the Seller Stockholders);
(iii) is a sophisticated investor with knowledge and experience in business and
financial matters; (iv) has received certain information concerning the Buyer
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in holding the Buyer Note; and (v)
is able to bear the economic risk and lack of liquidity inherent in holding the
Buyer Note. Nothing herein shall in any way limit Seller's right to sell,
assign, encumber, give away or transfer the Note or any interest therein to any
party.
4. Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement, except as set forth in
the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer's authorized capital stock
consists of 1500 shares of no par common stock, 100 shares of which are issued
and outstanding and owned by DeNovo Corporation ("DeNovo"). James J. McNamara
is the sole officer and director of Buyer. The Buyer is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Buyer has full corporate power and
authority and, to the best of its actual knowledge, all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
in which it presently proposes to engage and to own and use the properties owned
and used by it. All of the issued and outstanding shares of capital stock of
the Buyer have been duly authorized and are validly issued, fully paid, and
nonassessable. DeNovo holds of record and owns beneficially all of the
outstanding shares of the Buyer, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Buyer are correct and complete. The Buyer is not in
default under or in violation of any provision of its charter or bylaws. The
Buyer does not control directly or indirectly or have any direct or indirect
equity participation in any corporation, partnership, trust, or other business
association.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of the Buyer has duly
authorized the execution, delivery, and performance of this Agreement by the
Buyer. This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject. The Buyer does not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Section 2 above).
(d) Brokers' Fees. The Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder, agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
(e) No Impediment. Buyer is a start-up corporation which was
formed within the past 100 days for the purpose of consummating the transaction
contemplated hereby. Buyer has no operating history, is not involved in any
litigation, has not been threatened with any litigation, has no encumbered
assets, and is not a party to any contract, arrangement or transaction other
than in connection with Buyer's corporate formation and the transaction
contemplated hereby.
(f) Benefit Programs. Buyer shall assume at Closing all employee
benefit programs described in Section 3(t) hereof; provided, however, that with
respect to Section 3(t)(iv), Buyer's obligations shall be subject to the
reasonable discretion of Buyer's Board of Directors. Buyer agrees to provide
cost of living adjustments to employee salaries commensurate with previous
practices of Seller, which are disclosed on Section 4(f) of the Disclosure
Schedule.
5. Indemnification.
(a) By Seller and Seller Stockholders. Seller and Seller
Stockholders, jointly and severally, agree to defend, indemnify and hold
harmless Buyer from, against and in respect of any and all damages, loss,
deficiency, costs or expenses (i) resulting from any material misrepresentation,
breach of warranty, or nonfulfillment of any agreement or covenant on the part
of Seller or Seller Stockholders under this Agreement or any material
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to Buyer pursuant to the terms of this
Agreement or (ii) arising from, in connection with or with respect to Seller-
Generated Issues. Seller and Seller Stockholders shall only be liable for
claims made within one (1) year of the Closing Date. The maximum liability
hereunder shall be $1.5 million, except in the case of liability in connection
with fraudulent acts or omissions on the part of Seller or any of Seller
Stockholders, in which case no maximum shall apply.
(b) By Buyer. Buyer agrees to defend, indemnify and hold harmless
Seller from, against and in respect of any and all damages, loss, deficiency,
costs or expenses (i) resulting from any material misrepresentation, breach of
warranty, or nonfulfillment of any agreement or covenant on the part of Buyer
under this Agreement or any material misrepresentation in or omission from any
list, schedule, certificate, or other instrument furnished or to be furnished to
Seller pursuant to the terms of this Agreement or (ii) arising from, in
connection with or with respect to Buyer-Generated Issues. Buyer shall only be
liable for claims made within one (1) year of the Closing Date. The maximum
liability hereunder shall be $1.5 million, except in the case of liability in
connection with fraudulent acts or omissions on the part of Buyer, in which case
no maximum shall apply.
6. Miscellaneous.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder.
(b) This section intentionally omitted.
(c) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. Seller may not assign this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of Buyer.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given when sent by
facsimile (with confirmation of transmittal) and simultaneously by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to the Seller: Copy to:
Dugent Publishing Corp. William S. Kramer, Esq.
14411 Commerce Way Abrams Anton
Suite 420 One Boca Place, Suite 411-E
Miami Lakes, FL 33016 2255 Glades Road
Fax: (305) 557-6005 Boca Raton, FL 33431
Fax: (407) 994-8494
If to the Buyer: Copy to:
Firestone Publishing, Inc. Julia K. O'Neill
c/o Robert Kendall Fleming & O'Neill
214 Brazilian Ave. Two Newton Place
Suite 400 Suite 200
Palm Beach, FL 33480 Newton, MA 02158
Fax: (407) 659-0214 Fax: (617) 964-1694
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. The Buyer will bear its own costs and expenses and
the Seller and Seller Stockholders will each bear their own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller also agrees that it has
not paid any amount to any third party, and will not pay any amount to any third
party until after the Closing, with respect to any of the costs and expenses of
the Seller and the Seller Stockholders (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 6(p)
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to
the jurisdiction of any state court sitting in Dade County, Florida and any
federal court for the Southern District of Florida, Dade County Division, in any
action or proceeding arising out of or relating to this Agreement and agrees
that proper venue for all claims in respect of the action or proceeding shall be
in any such court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other Court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Each Party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or in equity.
(q) Seller and Seller Stockholders shall reasonably cooperate with
Buyer in providing Buyer with access to Seller's records and the like which
Buyer may reasonably require in connection with DeNovo's obligations pursuant to
Securities and Exchange Commission or Nasdaq requirements and related
obligations.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
on the date first above written.
BUYER:
Firestone Publishing, Inc.
By: /s/ Robert F. Kendall
Title: Chief Financial Officer
SELLER:
Dugent Publishing Corporation
By: Walter Weidenbaum
Title: President
SELLER STOCKHOLDERS:
/s/ Walter Weidenbaum
/s/ Olive Ainger
/s/ Milton Fialkow
/s/ Stanley Place
EXHIBIT 4.1
PRINCETON MEDIA GROUP, INC.
DESIGNATION OF SERIES D AND SERIES E PREFERRED SHARES
SERIES D PREFERRED SHARES
The fourth series of Preferred Shares of the Corporation shall consist of
1,500 shares and no more and shall be designated as the Series D Preferred
Shares (the "Series D Preferred Shares" or the "Series D Shares") and in
addition to the preferences, rights, privileges, restrictions and conditions
attaching to all the Preferred Shares as a class, the rights, privileges,
restrictions and conditions attaching to the Series D Shares shall be as
follows:
Part 1 - Voting and Pre-emptive Rights.
1.1 The holders of the Series D Preferred Shares shall be entitled as such to
receive notice of and attend all meetings of shareholders of the Corporation and
shall have four thousand (4,000) votes per share of Series D Preferred stock at
all such meetings.
1.2 The Series D Shares shall not give their holders any pre-emptive rights to
acquire any other securities issued by the Corporation at any time in the
future.
Part 2 - Liquidation Rights.
2.1. If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series D Shares shall be
outstanding, then after provision for the outstanding Series A and C Preferred
Shares, if any, the holders of the then outstanding Series D Shares shall have a
preference in distribution of the Corporation's remaining property available for
distribution equal to $1,350 consideration per Series D Share, together with an
amount equal to all unpaid dividends accrued thereon, if any, to the date of
payment of such distribution, whether or not declared by the Board: provided,
however, that the amalgamation of the Corporation with any Corporation or
corporations, the sale or transfer by the Corporation of all or subsequently all
of its property, or any reduction of the authorized or issued capital of the
Corporation of any class, whether now or hereafter authorized, shall be deemed
to be a liquidation of the Corporation within the meaning of any of the
provisions of this Part 2.
2.2. Subject to the provisions of Part 6 hereof, all amounts to be paid as
preferential distributions to the holders of Series D Shares as provided in this
Part 2 shall be paid or set apart for payment after the payment or setting apart
for payment of any amount for, or the distribution of any of the Corporation's
property to the holders of Series A and C Preferred Shares, and before the
payment or the setting apart for payment of any amount for, or the distribution
of any of the Corporation's property to the holders of Common Shares, whether
now or hereafter authorized, in connection with such liquidation, dissolution or
winding up.
Part 3 - Dividends.
3.1. Holders of record of Series D Shares, out of funds legally available
therefor and to the extent permitted by law, shall be entitled to receive
dividends on their Series D Shares, which dividends shall accrue at the rate per
share of 8% per annum of consideration paid for each Series D Shares ($80.00 per
share per year for each full year) commencing on the date of the issuance
thereof, payable, at the option of the Corporation, (i) in cash or (ii) by the
issuance of that number of whole Common Shares computed by dividing the amount
of the dividend by the market price applicable to such dividend.
3.2. For the purposes of this Part 3 and Part 4 hereof, "market price" means
the average of the daily closing prices of Common Shares for a period of 5
consecutive trading days ending on the date on which any dividend becomes
payable or of any notice of redemption, as the case may be. The closing price
for each trading day shall be (i) for any period during which the Common Shares
shall be listed for trading on a national securities exchange, the last reported
bid price per share of Common Shares as reported by the primary stock exchange,
or the Nasdaq Stock Market, if the Common Shares are quoted on the Nasdaq Stock
Market or (ii) if last sales price information is not available, the average
closing bid-price of Common Shares as reported by the Nasdaq Stock Market, or if
not so listed or reported, then as reported by National Quotation Bureau,
Incorporated, or (iii) in the event neither clause (i) nor (ii) is applicable,
the average of the closing bid and asked prices as furnished by any member of
the National Association of Securities Dealers, Inc., selected from time to time
by the Corporation for that purpose.
3.3. Dividends on Series D Shares shall be cumulative, and no dividends or
other distributions shall be paid or declared and set aside for payment on the
Common Shares until full cumulative dividends on all outstanding Series D Shares
shall have been paid or declared and set aside for payment.
3.4. Dividends shall be payable in arrears, at the rate of $20.00 per share for
each full calendar quarter on each February 28, May 31, August 31 and November
30 of each calendar year, to the holders of record of the Series D Shares as
they appear in the securities register of the Corporation on such record dates
not more than 60 nor less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board.
3.5. If, in any quarter, insufficient funds are available to pay such dividends
as are then due and payable with respect to the Series D Shares and all other
classes and series in the capital of the Corporation ranking superior to or in
parity therewith (or such payment is otherwise prohibited by provisions of the
BCA), such funds as are legally available to pay such dividends shall be paid or
Common Shares will be issued as stock dividends to the holders of Series D
Shares and to the holders of any other series of Preferred Share then
outstanding as provided in Part 6 hereof, in accordance with the rights of each
such holder, and the balance of accrued but undeclared and/or unpaid dividends,
if any, shall be declared and paid on the next succeeding dividend date to the
extent that funds are then legally available for such purpose.
Part 4 - Redemption.
4.1. At any time, and from time to time, on and after 145 days from the date of
the issuance of any Series D Shares, the Corporation may, at its sole option,
but shall not be obligated to, redeem, in whole or in part, the then outstanding
Series D Shares at a price per share of U.S. $1,350 each (the "Redemption
Price") (such price to be adjusted proportionately in the event of any change of
the Series D Shares into a different number of Shares).
4.2. Five (5) days prior to any date stipulated by the Corporation for
the redemption of Series D Shares (the "Redemption Date"), written notice (the
"Redemption Notice") shall be mailed to each holder of record on such notice
date of the Series D Shares. The Redemption Notice shall state (i) the
Redemption Date of such Shares (ii) the number of Series D Shares to be redeemed
from the holder to whom the Redemption Notice is addressed (iii) instructions
for surrender to the Corporation, in the manner and at the place designated of a
share certificate or share certificates representing the number of Series D
Shares to be redeemed from such holder and (iv) instructions as to how to
specify to the Corporation the number of Series D Shares to be redeemed as
provided in this Part 4 and the number of shares to be converted into Common
Shares as provided in Part 5 hereof.
4.3. Upon receipt of the Redemption Notice, any Eligible Holder (as defined in
Section 5.2 hereof) shall have the option, at its sole election, to specify what
portion of its Series D Shares called for redemption in the Redemption Notice
shall be redeemed as provided in this Part 4 or converted into Common Shares in
the manner provided in Part 5 hereof.
4.4. On or before the Redemption Date in respect of any Series D Shares, each
holder of such shares shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon the Redemption Date, the
Redemption Price for such shares shall be made payable, in the manner provided
in Section 5.5 hereof, to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered share
certificate shall be canceled and retired. If a share certificate is
surrendered and all the shares evidenced thereby are not being redeemed (as
described below), the Corporation shall cause the Series D Shares which are not
being redeemed to be registered in the names of the persons whose names appear
as the owners on the respective surrendered share certificates and deliver such
certificate to such person.
4.5. On the Redemption Date in respect of any Series D Shares or prior thereto,
the Corporation shall deposit with any bank or trust company having a capital
and surplus of at least U.S. $50,000,000, as a trust fund, a sum equal to the
aggregate Redemption Price of all such shares called for redemption (less the
aggregate Redemption Price for those Series D Shares in respect of which the
Corporation has received notice from the Eligible Holder thereof of its election
to convert Series D Shares into Common Shares), with irrevocable instructions
and authority to the bank or trust company to pay, on or after the Redemption
Date, the Redemption Price to the respective holders upon the surrender of their
share certificates. The deposit shall constitute full payment for the shares to
their holders, and from and after the date of the deposit the redeemed shares
shall be deemed to be no longer outstanding, and holders thereof shall cease to
be shareholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payments of the Redemption Price of the shares, without interest, upon surrender
of their certificates thereof. Any funds so deposited and unclaimed at the end
of one year following the Redemption Date shall be released or repaid to the
Corporation, after which the former holders of shares called for redemption
shall be entitled to receive payment of the Redemption Price in respect of their
shares only from the Corporation.
Part 5 - Conversion.
5.1. For the purposes of conversion, the Series D Shares shall be valued at
$1000 per share ("Value"), and, if converted, the Series D Shares shall be
converted into such number of Common Shares (the "Conversion Shares") as is
obtained by dividing the aggregate Value of the shares of Series D Shares being
so converted, together with all accrued but unpaid dividends thereon, by the
"Average Stock Price" per share of the Conversion Shares (the "Conversion
Price"), subject to adjustment pursuant to the provisions of this Part 5. For
purposes of this Part 5, the "Average Stock Price" means the lesser of (x) .80
of the daily closing bid prices of Common Shares for the 5 consecutive trading
days immediately preceding the date of subscription by the Purchaser or (y) .65
of the average daily closing bid prices of Common Shares for the period of 5
consecutive trading days immediately preceding the date of the conversion of the
Series D Shares in respect of which such Average Stock Price is determined,
provided, however, that if any combination or split of the Common Shares occurs
during the 5 days being used for the foregoing calculation, then the prices
prior to such event shall be adjusted accordingly. The closing price for each
trading day shall be determined as provided in the last sentence of Section 3.2.
5.2. Any holder of Series D Shares (an "Eligible Holder") may at any time
commencing 45 days after the issuance of any Series D Shares convert up to 100%
of his holdings of Series D Shares in accordance with this part 5.
5.3. The conversion right granted by Section 5.2 hereof may be exercised only
by an Eligible Holder of Series D Shares, in whole or in part, by the surrender
of the share certificate or share certificates representing the Series D Shares
to be converted at the principal office of the Corporation (or at such other
place as the Corporation may designate in a written notice sent to the holder by
first-class mail, postage prepaid, at its address shown on the books of the
Corporation) against delivery of that number of whole Common Shares as shall be
computed by dividing (1) the aggregate Value of the Series D Shares so
surrendered plus any accrued but unpaid dividends thereon, if any, by (2) the
Conversion Price in effect at the date of the conversion. At the time of
conversion of a Series D Shares, the Corporation shall pay in cash to the holder
thereof an amount equal to all unpaid dividends, if any, accrued thereon to the
date of conversion, or, at the Corporation's option, issue that number of whole
Common Shares which is equal to the product of dividing the amount of such
unpaid dividends by the Average Stock Price whether or not declared by the
Board. Each Series D Share certificate surrendered for conversion shall be
endorsed by its holder. In the event of any exercise of the conversion right of
the Series D Shares granted herein (i) share certificates representing the
Common Shares purchased by virtue of such exercise shall be delivered to such
holder within 3 days of notice of conversion, and (ii) unless the Series D
Shares has been fully converted, a new share certificate representing the Series
D Shares not so converted, if any, shall also be delivered to such holder within
3 days of notice of conversion. Any Eligible Holder may exercise its right to
convert the Series D Shares by telecopying an executed and completed Notice of
Conversion to the Corporation, and within 72 hours thereafter, delivering the
original Notice of Conversion and the certificate representing the Series D
Shares to the Corporation by express courier. Each date on which a Notice of
Conversion is telecopied to and received by the Corporation in accordance with
the provisions hereof shall be deemed a conversion date. The Corporation will
transmit the Common Shares certificates issuable upon conversion of any Series D
Shares (together with the certificates representing the Series D Shares not so
converted) to the Eligible Holder via express courier within three business days
after the conversion date if the Corporation has received the original Notice of
Conversion and Series D Shares certificate being so converted by such date.
5.4. All Common Shares which may be issued upon conversion of Series D Shares
will, upon issuance, be duly issued, fully paid and nonaccessible and free from
all taxes, liens, and charges with respect to the issue thereof. At all times
that any Series D Shares are outstanding, the Corporation shall have authorized,
and shall have reserved for the purpose of issuance upon such conversion, a
sufficient number of Common Shares to provide for the conversion into Common
Shares of all Series D Shares then outstanding at the then effective Conversion
Price. Without limiting the generality of the foregoing, if, at any time, the
Conversion Price is decreased, the number of Common Shares authorized and
reserved for issuance upon the conversion of the Series D Shares shall be
proportionately increased.
5.5. The number of Common Shares issued upon conversion of Series D Shares and
the Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
5.5.1. Change of Designation of the Common Shares or the rights,
privileges, restrictions and conditions in respect of the Common Shares or
division of the Common Shares into Series. In the case of any amendment
to the Articles to change the designation of the Common Shares or the
rights, privileges, restrictions or conditions in respect of the Common
Shares or division of the Common Shares into series the rights of the
holders of the Series D Shares shall be adjusted so as to provide that
upon conversion thereof the holder of the Series D Shares being converted
shall procure, in lieu of each Common Share theretofore issuable upon such
conversion, the kind and amount of shares, other securities, money and
property receivable upon such designation, change or division by the
holder of one Common Share issuable upon such conversion had conversion
occurred immediately prior to such designation, change or division. The
Series D Shares shall be deemed thereafter to provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Part 5. The provisions of this
subsection 5.5.1. shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
5.5.2. If the Corporation, at any time while any of the Series D
Shares are outstanding, shall pay a dividend on its Common Shares payable
in Common Shares, the Conversion Price shall be adjusted, as of the date
the Corporation shall take a record of the holders of its Common Shares
for the purpose of receiving such dividend, (or if no such record is
taken, as of the date of payment of such dividend), to that price
determined by multiplying the Conversion Price therefor in effect by a
fraction (1) the numerator of which shall be the total number of Common
Shares outstanding immediately prior to such dividend, and (2) the
denominator of which shall be the total number of Common Shares
outstanding immediately after such dividend, (plus in the event that the
Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend).
5.6. Whenever the Conversion Price shall be adjusted pursuant to Section 5.5
hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors made any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of such certificates to
be mailed (by first-class mail, postage prepaid) to each holder of Series D
Shares at its address shown on the books of the Corporation. The Corporation
shall make such certificate and mail it to each such holder promptly after each
adjustment.
5.7. No fractional Common Shares shall be issued in connection with any
conversion of Series D Shares, but in lieu of such fractional shares, the
Corporation shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Conversion Price then in effect.
5.8. No Series D Shares which have been converted into Common Shares shall be
reissued by the Corporation; provided, however, that each such share, after
being retired and canceled, shall be restored to the status of an authorized but
unissued Preferred Share without designation as to series and may thereafter be
issued as a Preferred Share not designated a Series D Share.
Part 6 - Parity with Other Shares of Series D Preferred Shares.
6.1. If any cumulative dividends or accounts payable or return of capital in
respect of Series D Shares are not paid in full, the owners of all series of
Series D Preferred Shares shall participate rateably in respect of accumulated
dividends and return of capital.
Part 7 - Amendment.
7.1 In addition to any requirement for a series vote pursuant to the BCA in
respect of any amendment to the rights, privileges, restrictions and conditions
attaching to the Series D Shares, the rights, privileges, restrictions and
conditions attaching to the Series D Shares may be amended only if the
Corporation has obtained the affirmative vote of a majority at a duly called and
held meeting of the holders of the Series D Shares or written consent by the
holders of a majority of the Series D Shares then outstanding.
SERIES E PREFERRED SHARES
The fifth series of Preferred Shares of the Corporation shall consist of
1,800 shares and no more and shall be designated as the Series E Preferred
Shares (the "Series E Preferred Shares" or the "Series E Shares") and in
addition to the preferences, rights, privileges, restrictions and conditions
attaching to all the Preferred Shares as a class, the rights, privileges,
restrictions and conditions attaching to the Series E Shares shall be as
follows:
Part 1 - Voting and Pre-emptive Rights.
1.1 The holders of the Series E Preferred Shares shall be entitled as such to
receive notice of and attend all meetings of shareholders of the Corporation and
shall have four thousand (4,000) votes per share of Series E Preferred stock at
all such meetings.
1.2 The Series E Shares shall not give their holders any pre-emptive rights to
acquire any other securities issued by the Corporation at any time in the
future.
Part 2 - Liquidation Rights.
2.1. If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series E Shares shall be
outstanding, then after provision for the outstanding Series A, C and D
Preferred Shares, if any, the holders of the then outstanding Series E Shares
shall have a preference in distribution of the Corporation's remaining property
available for distribution equal to $1,350 consideration per Series E Share,
together with an amount equal to all unpaid dividends accrued thereon, if any,
to the date of payment of such distribution, whether or not declared by the
Board: provided, however, that the amalgamation of the Corporation with any
Corporation or corporations, the sale or transfer by the Corporation of all or
subsequently all of its property, or any reduction of the authorized or issued
capital of the Corporation of any class, whether now or hereafter authorized,
shall be deemed to be a liquidation of the Corporation within the meaning of any
of the provisions of this Part 2.
2.2. Subject to the provisions of Part 6 hereof, all amounts to be paid as
preferential distributions to the holders of Series E Shares as provided in this
Part 2 shall be paid or set apart for payment after the payment or setting apart
for payment of any amount for, or the distribution of any of the Corporation's
property to the holders of Series A, C and D Preferred Shares, and before the
payment or the setting apart for payment of any amount for, or the distribution
of any of the Corporation's property to the holders of Common Shares, whether
now or hereafter authorized, in connection with such liquidation, dissolution or
winding up.
Part 3 - Dividends.
3.1. Holders of record of Series E Shares, out of funds legally available
therefor and to the extent permitted by law, shall be entitled to receive
dividends on their Series E Shares, which dividends shall accrue at the rate per
share of 8% per annum of consideration paid for each Series E Shares ($80.00 per
share per year for each full year) commencing on the date of the issuance
thereof, payable, at the option of the Corporation, (i) in cash or (ii) by the
issuance of that number of whole Common Shares computed by dividing the amount
of the dividend by the market price applicable to such dividend.
3.2. For the purposes of this Part 3 and Part 4 hereof, "market price" means
the average of the daily closing prices of Common Shares for a period of 5
consecutive trading days ending on the date on which any dividend becomes
payable or of any notice of redemption, as the case may be. The closing price
for each trading day shall be (i) for any period during which the Common Shares
shall be listed for trading on a national securities exchange, the last reported
bid price per share of Common Shares as reported by the primary stock exchange,
or the Nasdaq Stock Market, if the Common Shares are quoted on the Nasdaq Stock
Market or (ii) if last sales price information is not available, the average
closing bid-price of Common Shares as reported by the Nasdaq Stock Market, or if
not so listed or reported, then as reported by National Quotation Bureau,
Incorporated, or (iii) in the event neither clause (i) nor (ii) is applicable,
the average of the closing bid and asked prices as furnished by any member of
the National Association of Securities Dealers, Inc., selected from time to time
by the Corporation for that purpose.
3.3. Dividends on Series E Shares shall be cumulative, and no dividends or
other distributions shall be paid or declared and set aside for payment on the
Common Shares until full cumulative dividends on all outstanding Series E Shares
shall have been paid or declared and set aside for payment.
3.4. Dividends shall be payable in arrears, at the rate of $20.00 per share for
each full calendar quarter on each February 28, May 31, August 31 and November
30 of each calendar year, to the holders of record of the Series E Shares as
they appear in the securities register of the Corporation on such record dates
not more than 60 nor less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board.
3.5. If, in any quarter, insufficient funds are available to pay such dividends
as are then due and payable with respect to the Series E Shares and all other
classes and series in the capital of the Corporation ranking superior to or in
parity therewith (or such payment is otherwise prohibited by provisions of the
BCA), such funds as are legally available to pay such dividends shall be paid or
Common Shares will be issued as stock dividends to the holders of Series E
Shares and to the holders of any other series of Preferred Share then
outstanding as provided in Part 6 hereof, in accordance with the rights of each
such holder, and the balance of accrued but undeclared and/or unpaid dividends,
if any, shall be declared and paid on the next succeeding dividend date to the
extent that funds are then legally available for such purpose.
Part 4 - Redemption.
4.1. At any time, and from time to time, on and after 145 days from the date of
the issuance of any Series E Shares, the Corporation may, at its sole option,
but shall not be obligated to, redeem, in whole or in part, the then outstanding
Series E Shares at a price per share of U.S. $1,350 each (the "Redemption
Price") (such price to be adjusted proportionately in the event of any change of
the Series E Shares into a different number of Shares).
4.2. Five (5) days prior to any date stipulated by the Corporation for
the redemption of Series E Shares (the "Redemption Date"), written notice (the
"Redemption Notice") shall be mailed to each holder of record on such notice
date of the Series E Shares. The Redemption Notice shall state (i) the
Redemption Date of such Shares (ii) the number of Series E Shares to be redeemed
from the holder to whom the Redemption Notice is addressed (iii) instructions
for surrender to the Corporation, in the manner and at the place designated of a
share certificate or share certificates representing the number of Series E
Shares to be redeemed from such holder and (iv) instructions as to how to
specify to the Corporation the number of Series E Shares to be redeemed as
provided in this Part 4 and the number of shares to be converted into Common
Shares as provided in Part 5 hereof.
4.3. Upon receipt of the Redemption Notice, any Eligible Holder (as defined in
Section 5.2 hereof) shall have the option, at its sole election, to specify what
portion of its Series E Shares called for redemption in the Redemption Notice
shall be redeemed as provided in this Part 4 or converted into Common Shares in
the manner provided in Part 5 hereof.
4.4. On or before the Redemption Date in respect of any Series E Shares, each
holder of such shares shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon the Redemption Date, the
Redemption Price for such shares shall be made payable, in the manner provided
in Section 5.5 hereof, to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered share
certificate shall be canceled and retired. If a share certificate is
surrendered and all the shares evidenced thereby are not being redeemed (as
described below), the Corporation shall cause the Series E Shares which are not
being redeemed to be registered in the names of the persons whose names appear
as the owners on the respective surrendered share certificates and deliver such
certificate to such person.
4.5. On the Redemption Date in respect of any Series E Shares or prior thereto,
the Corporation shall deposit with any bank or trust company having a capital
and surplus of at least U.S. $50,000,000, as a trust fund, a sum equal to the
aggregate Redemption Price of all such shares called for redemption (less the
aggregate Redemption Price for those Series E Shares in respect of which the
Corporation has received notice from the Eligible Holder thereof of its election
to convert Series E Shares into Common Shares), with irrevocable instructions
and authority to the bank or trust company to pay, on or after the Redemption
Date, the Redemption Price to the respective holders upon the surrender of their
share certificates. The deposit shall constitute full payment for the shares to
their holders, and from and after the date of the deposit the redeemed shares
shall be deemed to be no longer outstanding, and holders thereof shall cease to
be shareholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payments of the Redemption Price of the shares, without interest, upon surrender
of their certificates thereof. Any funds so deposited and unclaimed at the end
of one year following the Redemption Date shall be released or repaid to the
Corporation, after which the former holders of shares called for redemption
shall be entitled to receive payment of the Redemption Price in respect of their
shares only from the Corporation.
Part 5 - Conversion.
5.1. For the purposes of conversion, the Series E Shares shall be valued at
$1000 per share ("Value"), and, if converted, the Series E Shares shall be
converted into such number of Common Shares (the "Conversion Shares") as is
obtained by dividing the aggregate Value of the shares of Series E Shares being
so converted, together with all accrued but unpaid dividends thereon, by the
"Average Stock Price" per share of the Conversion Shares (the "Conversion
Price"), subject to adjustment pursuant to the provisions of this Part 5. For
purposes of this Part 5, the "Average Stock Price" means the lesser of (x) .80
of the daily closing bid prices of Common Shares for the 5 consecutive trading
days immediately preceding the date of subscription by the Purchaser or (y) .65
of the average daily closing bid prices of Common Shares for the period of 5
consecutive trading days immediately preceding the date of the conversion of the
Series E Shares in respect of which such Average Stock Price is determined,
provided, however, that if any combination or split of the Common Shares occurs
during the 5 days being used for the foregoing calculation, then the prices
prior to such event shall be adjusted accordingly. The closing price for each
trading day shall be determined as provided in the last sentence of Section 3.2.
5.2. Any holder of Series E Shares (an "Eligible Holder") may at any time
commencing 45 days after the issuance of any Series E Shares convert up to 100%
of his holdings of Series E Shares in accordance with this part 5.
5.3. The conversion right granted by Section 5.2 hereof may be exercised only
by an Eligible Holder of Series E Shares, in whole or in part, by the surrender
of the share certificate or share certificates representing the Series E Shares
to be converted at the principal office of the Corporation (or at such other
place as the Corporation may designate in a written notice sent to the holder by
first-class mail, postage prepaid, at its address shown on the books of the
Corporation) against delivery of that number of whole Common Shares as shall be
computed by dividing (1) the aggregate Value of the Series E Shares so
surrendered plus any accrued but unpaid dividends thereon, if any, by (2) the
Conversion Price in effect at the date of the conversion. At the time of
conversion of a Series E Shares, the Corporation shall pay in cash to the holder
thereof an amount equal to all unpaid dividends, if any, accrued thereon to the
date of conversion, or, at the Corporation's option, issue that number of whole
Common Shares which is equal to the product of dividing the amount of such
unpaid dividends by the Average Stock Price whether or not declared by the
Board. Each Series E Share certificate surrendered for conversion shall be
endorsed by its holder. In the event of any exercise of the conversion right of
the Series E Shares granted herein (i) share certificates representing the
Common Shares purchased by virtue of such exercise shall be delivered to such
holder within 3 days of notice of conversion, and (ii) unless the Series E
Shares has been fully converted, a new share certificate representing the Series
E Shares not so converted, if any, shall also be delivered to such holder within
3 days of notice of conversion. Any Eligible Holder may exercise its right to
convert the Series E Shares by telecopying an executed and completed Notice of
Conversion to the Corporation, and within 72 hours thereafter, delivering the
original Notice of Conversion and the certificate representing the Series E
Shares to the Corporation by express courier. Each date on which a Notice of
Conversion is telecopied to and received by the Corporation in accordance with
the provisions hereof shall be deemed a conversion date. The Corporation will
transmit the Common Shares certificates issuable upon conversion of any Series E
Shares (together with the certificates representing the Series E Shares not so
converted) to the Eligible Holder via express courier within three business days
after the conversion date if the Corporation has received the original Notice of
Conversion and Series E Shares certificate being so converted by such date.
5.4. All Common Shares which may be issued upon conversion of Series E Shares
will, upon issuance, be duly issued, fully paid and nonaccessible and free from
all taxes, liens, and charges with respect to the issue thereof. At all times
that any Series E Shares are outstanding, the Corporation shall have authorized,
and shall have reserved for the purpose of issuance upon such conversion, a
sufficient number of Common Shares to provide for the conversion into Common
Shares of all Series E Shares then outstanding at the then effective Conversion
Price. Without limiting the generality of the foregoing, if, at any time, the
Conversion Price is decreased, the number of Common Shares authorized and
reserved for issuance upon the conversion of the Series E Shares shall be
proportionately increased.
5.5. The number of Common Shares issued upon conversion of Series E Shares and
the Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
5.5.1. Change of Designation of the Common Shares or the rights,
privileges, restrictions and conditions in respect of the Common Shares or
division of the Common Shares into Series. In the case of any amendment
to the Articles to change the designation of the Common Shares or the
rights, privileges, restrictions or conditions in respect of the Common
Shares or division of the Common Shares into series the rights of the
holders of the Series E Shares shall be adjusted so as to provide that
upon conversion thereof the holder of the Series E Shares being converted
shall procure, in lieu of each Common Share theretofore issuable upon such
conversion, the kind and amount of shares, other securities, money and
property receivable upon such designation, change or division by the
holder of one Common Share issuable upon such conversion had conversion
occurred immediately prior to such designation, change or division. The
Series E Shares shall be deemed thereafter to provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Part 5. The provisions of this
subsection 5.5.1. shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
5.5.2. If the Corporation, at any time while any of the Series E
Shares are outstanding, shall pay a dividend on its Common Shares payable
in Common Shares, the Conversion Price shall be adjusted, as of the date
the Corporation shall take a record of the holders of its Common Shares
for the purpose of receiving such dividend, (or if no such record is
taken, as of the date of payment of such dividend), to that price
determined by multiplying the Conversion Price therefor in effect by a
fraction (1) the numerator of which shall be the total number of Common
Shares outstanding immediately prior to such dividend, and (2) the
denominator of which shall be the total number of Common Shares
outstanding immediately after such dividend, (plus in the event that the
Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend).
5.6. Whenever the Conversion Price shall be adjusted pursuant to Section 5.5
hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors made any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of such certificates to
be mailed (by first-class mail, postage prepaid) to each holder of Series E
Shares at its address shown on the books of the Corporation. The Corporation
shall make such certificate and mail it to each such holder promptly after each
adjustment.
5.7. No fractional Common Shares shall be issued in connection with any
conversion of Series E Shares, but in lieu of such fractional shares, the
Corporation shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Conversion Price then in effect.
5.8. No Series E Shares which have been converted into Common Shares shall be
reissued by the Corporation; provided, however, that each such share, after
being retired and canceled, shall be restored to the status of an authorized but
unissued Preferred Share without designation as to series and may thereafter be
issued as a Preferred Share not designated a Series E Share.
Part 6 - Parity with Other Shares of Series E Preferred Shares.
6.1. If any cumulative dividends or accounts payable or return of capital in
respect of Series E Shares are not paid in full, the owners of all series of
Series E Preferred Shares shall participate rateably in respect of accumulated
dividends and return of capital.
Part 7 - Amendment.
7.1 In addition to any requirement for a series vote pursuant to the BCA in
respect of any amendment to the rights, privileges, restrictions and conditions
attaching to the Series E Shares, the rights, privileges, restrictions and
conditions attaching to the Series E Shares may be amended only if the
Corporation has obtained the affirmative vote of a majority at a duly called and
held meeting of the holders of the Series E Shares or written consent by the
holders of a majority of the Series E Shares then outstanding.
EXHIBIT 10.1
PROMISSORY NOTE
$4,000,000 September 6, 1996
For value received, Firestone Publishing, Inc., a Delaware corporation
("Payor") promises to pay to Dugent Publishing, Inc. (the "Holder") the
principal sum of Four Million Dollars ($4,000,000) with interest as set forth
below. All principal and interest shall, if not sooner paid, be due and payable
on the date five (5) years after the date hereof.
The principal amount due hereunder, with simple interest at prime rate +
2% on the date hereof accruing from the date of this Note, shall be due and
payable according to a 48-month amortization schedule. Interest accrued shall
be calculated as of the date one (1) year after the date hereof and added to
unpaid principal in order to determine the total amount to be amortized. The
first payment shall due and payable on the date one (1) year plus one (1) month
after the date hereof and equal payments shall be due and payable on the same
day of each month thereafter for a total of 48 payments.
Interest hereunder shall be computed based on the actual number of days
elapsed in a particular month over a 365-day year. This Note may be prepaid in
whole or in part at any time prior to the due date at the option of Payor
without premium, penalty or other fees. All payments made pursuant to this Note
shall be applied first to interest due and then to principal.
An Event of Default shall be deemed to have occurred hereunder upon a
failure by Payor to cause or make any payment when due which continues
unremedied for ten (10) days after written notice from the Holder given in the
manner specified for notice in an Asset Purchase Agreement between Holder and
Payor of even date herewith.
Payments due pursuant to this Note are secured as set forth in a Security
Agreement between the parties of even date herewith.
No delay or omission by the Holder in exercising or enforcing any of the
Holder's powers, rights, privileges, remedies or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. Payor agrees to pay on demand all costs
of collection, including reasonable attorneys' fees, incurred by the Holder in
enforcing the obligations created by this Note.
This is the Buyer Note referred to in that certain Asset Purchase
Agreement between Payor and Holder of even date herewith (the "Purchase
Agreement") and is subject to the terms thereof. Payor agrees and acknowledges
that notwithstanding any breach, default, misrepresentation, fraudulent act or
other event committed by any party under the Purchase Agreement or any of the
other documents executed and delivered in connection therewith, there shall be
no right of set-off in the payment due hereunder.
As an inducement to Holder to make the loan evidenced hereby, Payor waives
all defenses and the benefit of any laws that would otherwise allow Payor the
right to withhold payment. Payor waives all notice (except as specifically
required hereunder), demand, presentment, notice of dishonor, and all other
notices and demands.
This Note and all interest accrued hereunder shall be immediately due and
payable upon the sale by Payor of any of its assets outside of the ordinary
course of business or of a controlling interest in its stock, or the filing by
or against Payor of any claim or petition pursuant to applicable bankruptcy laws
or in the event of the reorganization or liquidation of Payor.
The Holder of this Note may, from time to time, assign or transfer this
Note, provided written notice of said assignment or transfer is given to Payor.
To induce the Holder to make the loan evidenced by this Note, Payor
irrevocably agrees that, subject to Holder's sole and absolute election, all
actions arising directly or indirectly as a result or in consequence of this
Note or any other agreement with the Holder, shall be instituted and litigated
only in courts having situs in Dade County, Florida. Payor further consents to
the exclusive jurisdiction and venue of any state or federal court located and
having its situs therein and waives any objection based on forum non-conveniens.
In addition, Payor hereby waives trial by jury and any action or proceeding
which pertains directly or indirectly to this Note or any alleged tortious
conduct by Payor or Holder or which in any way, directly or indirectly, arises
out of or relates to the relationship between Payor and Holder.
This Note may not be amended or modified, nor shall any waiver or
provision hereof be effective, except by an instrument in writing executed by
the Holder of this Note.
Payor:
Firestone Publishing, Inc.
By: /s/ Robert F. Kendall
Print Name and Title:
Robert F. Kendall, Chief Financial
Officer
Attest:
/s/ William Kramer
Address of Payor:
214 Brazilian Ave., Suite 300
Palm Beach, FL 33480
EXHIBIT 10.2
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement"), dated as of Sept. 6, 1996, is
made by Firestone Publishing, Inc., a Delaware corporation having an office at
214 Brazilian Ave., Suite 300, Palm Beach, FL 33480 (the "Debtor"), in favor of
Dugent Publishing Corp., a Florida corporation having an office at 14411
Commerce Way, Suite 420, Miami Lakes, FL 33016 ("Secured Party").
R E C I T A L S :
A. Pursuant to a certain Asset Purchase Agreement of even date
herewith, by and between Debtor and Secured Party (the "Asset Purchase
Agreement"), Debtor has executed a promissory note in the principal amount of
U.S. $4,000,000.00, payable to Secured Party, a copy of which is attached hereto
(the "Note"), and has agreed to secure repayment under the Note as set forth
herein.
B. Debtor is the owner of the Pledged Collateral (as hereinafter
defined).
C. This Agreement is given by Debtor in favor of the Secured Party for
its benefit to secure the payment and performance of Debtor's obligations
pursuant to the Note (the "Secured Obligations").
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
Section 1. Grant of Security Interests. As collateral security for the
prompt and complete payment and performance when due of Debtor's obligations
pursuant to the Note, Debtor hereby pledges, assigns, transfers and grants to
Secured Party a continuing first priority security interest in and to all those
assets purchased by Debtor from Secured Party this date pursuant to the Asset
Purchase Agreement and the proceeds thereof and all other assets now owned or
hereafter acquired by Debtor (real, personal, tangible and intangible, cash, and
accounts receivable) and all profits therefrom and proceeds thereof, wherever
located, including all beneficial interests (the "Pledged Collateral"); provided
that, notwithstanding anything set forth herein to the contrary, the foregoing
grant of a security interest shall not include a security interest in, and the
Pledged Collateral shall not include, any contract or intangible if the granting
of a security interest therein is prohibited by law or by the terms and
provisions of the written agreement, document or instrument creating or
evidencing such contract or intangible or rights related thereto. Debtor
represents and warrants that it has no knowledge of any prohibition by law, or
by the terms and provisions of any written agreement, to the granting of this
security interest in any of the Pledged Collateral.
Section 2. Representations, Warranties and Covenants. Debtor represents,
warrants and covenants as follows:
(a) No liens. Debtor is as of the date hereof, and, as to Pledged
Collateral acquired by it from time to time after the date hereof, Debtor will
be the owner of all Pledged Collateral free from any lien or other right, title
or interest of any person or entity, and Debtor shall defend the Pledged
Collateral against all claims and demands of all persons and entities at any
time claiming any interest therein adverse to Secured Party.
(b) Other Financing Statements. So long as any of the Secured
Obligations remains unpaid and this Agreement remains in effect, Debtor shall
not execute or authorize to be filed in any public office any financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Pledged Collateral, except
financing statements filed or to be filed in respect of and covering the
security interests granted hereby by Debtor.
(c) Chief Executive Office; Records. The chief executive office of
Debtor is located at 214 Brazilian Ave., Suite 400, Palm Beach, FL 33480.
Debtor shall not move its chief executive office, except to such new location as
Debtor may establish in accordance with the last sentence of this Section 2(c).
Other than with respect to transactions occurring in the ordinary course of
Debtor's business (to which Secured Party consents notwithstanding contrary
provisions of this Agreement), all Pledged Collateral and all books of account
and records of Debtor relating to the Pledged Collateral are, and will continue
to be, kept at such chief executive office, or at such new location for such
chief executive office as Debtor may establish in accordance with the last
sentence of this Section 2(c). Debtor shall not establish a new location for
its chief executive office nor shall it change its name until (i) it shall have
given to Secured Party not less than 45 days' prior written notice of its
intention so to do, clearly describing such new location or name (which shall be
in the continental United States of America) and providing such other
information in connection therewith as Secured Party may request, and (ii) with
respect to such new location or name, Debtor shall have taken all action
satisfactory to Secured Party to maintain the perfection and proof of the
security interest of Secured Party in the Pledged Collateral intended to be
granted hereby, including, without limitation, obtaining waivers of landlord's
or warehouseman's liens with respect to such new location.
(d) Authorization, Enforceability. Debtor has full corporate power,
authority and legal right to pledge and grant a security interest in all the
Pledged Collateral pursuant to this Agreement, and this Agreement constitutes
the legal, valid and binding obligation of Debtor, enforceable against Debtor in
accordance with its terms.
(e) No Consents, etc. No consent of any other party and no consent,
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority (other than a court in connection with the exercise
of judicial remedies by Secured Party) or regulatory body is required either (x)
for the pledge by Debtor of the Pledged Collateral pursuant to this Agreement,
or for the execution, delivery or performance of this Agreement by Debtor or
(y) for the exercise by Secured Party of the rights provided for in this
Agreement or the remedies in respect of the Pledged Collateral pursuant to this
Agreement.
Section 3. Provisions Concerning Pledged Collateral.
(a) Protection of Secured Party's Security. Debtor shall not take any
action that impairs the rights of Secured Party in the Pledged Collateral.
Debtor shall at all times keep the tangible Pledged Collateral insured in favor
of Secured Party, at the Debtor's own expense, to Secured Party's reasonable
satisfaction against fire, theft and all other risks to which the Pledged
Collateral may be subject, in such amounts (but in no event greater than the
replacement cost thereof) and with such deductibles as would be maintained by
operators of businesses similar to the business of Debtor or as Secured Party
may otherwise require. Each policy or certificate with respect to such
insurance shall be endorsed to Secured Party's satisfaction for the benefit of
Secured Party (including, without limitation, by naming Secured Party as an
additional named insured or an additional loss payee as Secured Party may
request) and such policy or certificate shall be delivered to Secured Party.
Each such policy shall state that it cannot be canceled without 30 days' prior
written notice to Secured Party. At least 30 days prior to the expiration of
any such policy of insurance, Debtor shall deliver to Secured Party an extension
or renewal policy or an insurance certificate evidencing renewal or extension of
such policy. If Debtor shall fail to insure such Pledged Collateral to Secured
Party's reasonable satisfaction or if Debtor shall fail to so endorse and
deposit, or to extend or renew, all such insurance policies or certificates with
respect thereto, Secured Party shall have the right (but shall be under no
obligation) to advance funds to procure or renew or extend such insurance and
Debtor agrees to reimburse Secured Party for all costs and expenses thereof,
with interest on all such funds from the date advanced at the highest rate then
payable under the Note. In the event of insurable loss or damage to any Pledged
Collateral, then Secured Party must use such proceeds to repair, replace or
improve damaged Pledged Collateral unless Secured Party within thirty (30) days
after the receipt of such proceeds commences the repossession of the Pledged
Collateral upon an Event of Default in accordance with the provisions of Section
5 hereof.
(b) Maintenance of Pledged Collateral. Subject to transactions in the
ordinary course of Debtor's business, Debtor shall cause the Pledged Collateral
to be maintained and preserved in the same condition, repair and working order
as when purchased by Debtor, ordinary wear and tear excepted, and to the extent
consistent with past business practice.
(c) Payment of Taxes; Claims. Debtor shall pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Pledged Collateral.
(d) Financing Statements. Debtor, at its sole cost and expense, shall
sign and deliver to Secured Party such financing and continuation statements, in
form acceptable to Secured Party, as may from time to time be reasonably
requested by Secured Party in order to continue and maintain a valid,
enforceable, first priority security interest in, the Pledged Collateral as
provided herein and the other rights, as against third parties, provided hereby.
Debtor authorizes Secured Party to file any such financing or continuation
statements without the signature of Debtor.
(e) Nothing in this Section 3 shall be deemed to prohibit (i) the sale
of inventory and the collection of receivables by Debtor in the ordinary course
of business, or (ii) the disposition and replacement of obsolete assets.
Section 4. Transfers and Other Liens. Debtor agrees that it will not,
except as otherwise expressly permitted by Secured Party (i) sell, convey,
assign or otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral or (ii) create or permit to exist any lien upon or with
respect to any of the Pledged Collateral other than the lien and security
interest granted to Secured Party under this Agreement. While this Security
Agreement is in effect, Debtor shall not declare or pay any dividend on any of
its capital stock, nor increase any compensation of employees, officers or
directors in a manner inconsistent with prior practices of Secured Party.
Section 5. Remedies.
(a) Remedies; Obtaining the Pledged Collateral Upon Event of Default.
If any Event of Default as defined in the Note shall have occurred and be
continuing, then and in every such case, Secured Party may, at any time or from
time to time during the continuance of such Event of Default:
(i) Personally, or by agents or attorneys, immediately take
possession of the Pledged Collateral or any part thereof, from Debtor or
any other person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
Debtor's premises where any of the Pledged Collateral is located and
remove such Pledged Collateral and use in connection with such removal any
and all services, supplies, aids and other facilities of Debtor; Debtor
hereby covenants and agrees that it shall allow such actions by Secured
Party without causing a breach of the peace;
(ii) Instruct the obligor or obligors on any agreement, instrument
or other obligation constituting the Pledged Collateral to make any
payment required by the terms of such instrument or agreement directly to
Secured Party; provided, however, that in the event that any such payments
are made directly to Debtor, Debtor shall segregate all amounts received
pursuant thereto in a separate account and pay the same promptly to
Secured Party;
(iii) Sell, assign or otherwise liquidate, or direct Debtor to sell,
assign or otherwise liquidate, any or all investments made in whole or in
part with the Pledged Collateral or any part thereof, and take possession
of the proceeds of any such sale, assignment or liquidation;
(iv) Take possession of the Pledged Collateral or any part thereof,
by directing Debtor in writing to deliver the same to Secured Party at any
place or places designated by Secured Party, in which event Debtor shall
at its own expense: (a) forthwith cause the same to be moved to the place
or place so designated by Secured Party and there delivered to Secured
Party; (b) store and keep any Pledged Collateral so delivered to Secured
Party at such place or places pending further action by Secured Party as
provided in Section 5(b); and (c) while the Pledged Collateral shall be so
stored and kept, provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain them in good
condition.
(b) Remedies: Disposition of the Pledged Collateral.
(i) Upon the occurrence and during the continuation of an Event of
Default, the Secured Party may from time to time exercise in respect of
the Pledged Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party under the Uniform Commercial Code at the time of an event of
default, and the Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of the Secured Party's offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and
upon such other terms as the Secured Party may deem commercially
reasonable. The Secured Party may be the purchaser of any or all of the
Pledged Collateral at any such sale and shall be entitled, for the purpose
of bidding and making settlement or payment of the purchase price for all
or any portion of the Pledged Collateral sold at such sale, to use and
apply any of the Secured Obligations owed to such person as a credit on
account the purchase price of any Pledged Collateral payable by such
person at such sale. Each purchaser at any such sale shall acquire the
property sold absolutely free from any claim or right on the part of
Debtor, and Debtor hereby waives, to the full extent permitted by law, all
rights of redemption, stay or appraisal hereafter enacted. The Secured
Party shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. The Secured Party may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
Debtor hereby waives, to the fullest extent permitted by law, any claims
against the Secured Party arising by reason of the fact that the price at
which any Pledged Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale, even
if the Secured Party accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree.
(ii) Debtor agrees that, to the extent notice of sale shall be
required by law, 10 days' notice from Secured Party of the time and place
of any public sale or of the time after which a private sale or other
intended disposition is to take place shall be commercially reasonable
notification of such matters. No notification need be given to Debtor if
it has signed, after the occurrence of an Event of Default, a statement
renouncing or modifying any right to notification of sale or other
intended disposition. In addition to the rights and remedies provided in
this Agreement, Secured Party shall have all the rights and remedies of a
secured party under the Uniform Commercial Code.
Section 6. Application of Proceeds. The proceeds of any Pledged
Collateral obtained pursuant to the exercise of any remedy set forth in Section
5 shall be applied, together with any other sums then held by Secured Party
pursuant to this Agreement, promptly by Secured Party:
First, to the payment of all costs and expenses, fees, commissions and
taxes of such sale, collection or other realization, including, without
limitation, reasonable compensation to the Secured Party and its agents and
counsel, and all expenses, liabilities and advances made or incurred by the
Secured Party in connection therewith;
Second, to the indefeasible payment in full in cash of the Secured
Obligations, ratably according to the unpaid amounts thereof, without preference
or priority of any kind among amounts so due and payable; and
Third, to Debtor, or its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, of any surplus remaining from such proceeds.
Section 7. Modifications in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Debtor therefrom, shall be effective unless the same
shall be writing and signed by the Secured Party. Any amendment, modification
or supplement of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by Debtor from the
terms of any provision of this Agreement, shall be effective only in the
specific instance and for the specific purpose for which made given. Except
where notice is specifically required by this Agreement or the Note, no notice
to or demand on Debtor in any case shall entitle Debtor to any other or further
notice or demand in similar or other circumstances.
Section 8. Termination; Release. When all the Secured Obligations have
been indefeasibly paid in full and have been terminated, this Agreement shall
terminate. Upon termination of this Agreement in the event of payment in full
of the Secured Obligations, Secured Party shall, upon the request and at the
expense of Debtor, forthwith assign, transfer and deliver to Debtor, proper
instruments (including Uniform Commercial Code termination statements on Form
UCC-3) acknowledging the termination of this Agreement.
Section 9. Notices. Unless otherwise provided herein or in the Note, any
notice or other communication herein required or permitted to be given shall be
in writing and may be personally served, telecopied, telexed or sent by United
States mail, to Debtor or Secured Party, as the case may be, addressed to it at
the respective address set forth in the Note, or at such other address as shall
be designated by Debtor or Secured Party, as the case may be, in a written
notice to the other party complying as to delivery with the terms of this
Section 9. All such notices and other communications shall be deemed to have
been given when delivered in person, or received by telecopy or telex; or four
business days after deposit in the United States mail, registered or certified,
with postage prepaid and properly addressed.
Section 10. Governing Law; Terms. This Agreement shall be governed by,
and shall be construed and enforced in accordance with, the laws of the State of
Florida, without regard to principles of conflicts of laws, except to the extent
that the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular property are governed by the laws of a
jurisdiction other than the State of Florida. Each of the parties submits to
the jurisdiction of any state court sitting in Dade County, Florida and any
federal court for the Southern District of Florida, Dade County Division, in any
action or proceeding arising out of or relating to this Agreement and agrees
that proper venue for all claims in respect of the action or proceeding shall be
in any such court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other Court. Each party
waives the right to a jury trial in any action or proceeding arising out of or
relating to this Agreement. Each of the parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Each party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or in equity.
Section 11. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 12. Execution in Counterparts. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
Section 13. Headings. The Section headings used in this Agreement are
for convenience of reference only and shall not affect the construction of this
Agreement.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and
delivered under seal by its duly authorized officer as of the date first above
written.
Firestone Publishing, Inc.
as Debtor
By:/s/ Robert F. Kendall
Name: Robert F. Kendall
Title: Chief Financial Officer
Dugent Publishing Corp.
as Secured Party
By: /s/ Walter Weidenbaum
Name: Walter Weidenbaum
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 575,157
<SECURITIES> 0
<RECEIVABLES> 2,391,337
<ALLOWANCES> 0
<INVENTORY> 257,062
<CURRENT-ASSETS> 3,223,556
<PP&E> 1,935,592
<DEPRECIATION> 132,867
<TOTAL-ASSETS> 17,060,077
<CURRENT-LIABILITIES> 2,334,178
<BONDS> 9,000,000
739,696
28,923
<COMMON> 7,597,850
<OTHER-SE> (5,380,570)
<TOTAL-LIABILITY-AND-EQUITY> 17,060,077
<SALES> 5,094,672
<TOTAL-REVENUES> 5,094,672
<CGS> 2,461,592
<TOTAL-COSTS> 2,461,592
<OTHER-EXPENSES> 1,821,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 519,513
<INCOME-PRETAX> 712,876
<INCOME-TAX> 133,929
<INCOME-CONTINUING> 578,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578,947
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.16
</TABLE>
